Q&A - Explain what is meant by industrial inertia

A business, once established, will often decide to stay in its original location even if other factors suggest a new location would be beneficial. The term for this is “industrial inertia”. Why does this happen?

A positive reason is that the existing location provides advantages from external economies of scale. Over a long period of time, a location or region that has become associated with a particular industry develops specialist skills and experience. The pool of potential recruits is like to contain many people with relevant training and experience. Specialist suppliers are likely to be nearby.

Another reason is the cost and disruption that can arise from relocation. A decision to relocate involves potentially significant costs including:

- Recruiting and training staff in the new location

- Duplicated property costs – e.g. remaining periods on the original lease + upfront payments on a new lease

- Costs of physical transfer – moving production equipment, transferring stocks

A third reason is a more intangible and qualitative reason – simply the desire to “stay put where the business has established its roots”. Ask an entrepreneur why she started the business on the outskirts of York and she might simply say “because it was near to home”. Ask her 15 years later why the business is still there, the answer could easily be “because we’ve always been here”!