This refers to the three reasons why firms belonging to the same industry tend to locate themselves close to each other. One is that they try to operate in a region where they can have sufficient access to a rich pool of labour. The second is that a cluster of companies in a particular location offers suppliers the chance to specialise and achieve economies of scale. The third reason is that new ideas or knowledge spread across firms that are located in the same region. All three factors together help these firms improve their productivity. The concept is named after British economist Alfred Marshall who elaborated it in his book Principles of Economics.