# Cottage Industry: Definition, Impact on Developing Economies, and Examples

![Cottage Industry](https://www.investopedia.com/thmb/zQhUa8t0UzU-r7WCIVeXzu7SacU=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/cottage-industry.asp-final-e0489290eab24c01aec9c08c38debbb3.png)

*— Investopedia / Mira Norian*

> **Definition**
>
> A cottage industry is a small manufacturing operation, often run out of a home by a single individual or a family.

## What Is a Cottage Industry?

A cottage industry is a small manufacturing business typically operated from a home, requiring minimal investment and producing labor-intensive goods. These industries serve as significant income sources in rural areas worldwide, helping lift communities out of poverty in developing nations.

Cottage industries need a small investment to start and often make labor-intensive goods. They can be at a significant disadvantage when competing with manufacturers of [mass-produced](https://www.investopedia.com/terms/m/mass-production.asp) goods.

### Key Takeaways

*   Cottage industries are small-scale, home-based businesses that produce labor-intensive goods with minimal startup costs.
*   In developing countries, cottage industries provide a crucial economic role by offering opportunities for income in rural areas.
*   These industries often focus on high-quality handcrafted products and serve niche markets, even in advanced economies.
*   Growth in cottage industries can boost community employment, but they face challenges such as competition from larger manufacturers.
*   While cottage industries offer low overhead and entry barriers, scaling up is typically limited, as larger operations classify as traditional businesses.

## Understanding the Operations of Cottage Industries

The first cottage industries in the U.S. and Europe were light manufacturing operations that engaged in [subcontracted](https://www.investopedia.com/terms/s/subcontracting.asp) work including garment-making, textiles, sewing, shoemaking, and small machine parts.

These cottage industries produced finished goods, often using raw materials supplied by the contract provider. Many contemporary industries that operate in factories in the developed world replaced cottage industries that thrived before the [Industrial Revolution](https://www.investopedia.com/terms/i/industrial-revolution.asp).

Modern cottage industries serve a consumer market that seeks original, handcrafted products as an alternative to mass-produced, name-brand products. These include anything from clothing and rugs to honey and spices.

> **Important**
>
> Products created by cottage industries in the U.S. and Europe can often be found at flea markets and farmers' markets.

## The Impact of Cottage Industries in Developing Nations

Cottage industries have a major impact on developing economies, needing only small investments to start.

Developing nations have [comparative advantages](https://www.investopedia.com/terms/c/comparativeadvantage.asp) in creating successful cottage industries. Their lower cost of living makes it feasible to produce labor-intensive goods at competitive prices, allowing a small business to make a reasonable profit.

Some cottage industries grow over time and employ others in the community. Their products are usually handcrafted with traditional tools, so they can't match the volume of mass-produced items.

Cottage industries are also an important source of supplemental income in rural areas. Farmers often rely on cottage industries for income during the off-season. A village cottage industry can expand as residents collaborate to make crafts for local and export markets.

## Weighing the Benefits and Drawbacks of Cottage Industries

Cottage industries can thrive if operators choose to stay small in niche markets, benefiting one family. Business growth is possible but there are significant barriers.

### Advantages

A cottage industry can be created with minimal startup costs by a single individual with a skill that's valued.

Only the most basic infrastructure is necessary. The business operator needs a way to receive orders, get supplies delivered, and get the end products to buyers. Mobile technology has greatly improved the ability of cottage industries to operate.

Cottage industries are creating opportunities for people in remote rural areas to improve their living standards even in modern times.

### Disadvantages

Cottage industries must compete with larger producers with deeper pockets. This may require them to adopt new technologies that improve productivity.

They must also compete for labor if they grow. This can be increasingly difficult as a country becomes more developed and wages increase.

Pros

*   Minimal startup costs
    
*   Low overhead
    
*   Opportunity for rural dwellers
    

Cons

*   Reliant on basic infrastructure to get products to market
    
*   Difficulty in ramping up production to meet demand
    
*   Competition from larger producers
    

## Notable Examples of Successful Cottage Industries

Successful cottage industries often cater to groups of consumers who prefer hand craftsmanship to mass-produced goods. Others seek unique artisan goods. Some cottage industries focus on niche products that can't be manufactured economically, such as fine musical instruments, theatrical costumes, and metalwork.

Cottage industries are a huge contributor to India's economy, providing the skilled labor that goes into leather goods, cotton weaving, carpet making, metalwork, and silk weaving. The quality of their output is high, as are their prices.

Demand for unique products drives much of the market for cottage industry goods in affluent economies. In the U.S., cottage industry workers are often artisans, using sites like Etsy and Amazon Handmade as well as local street fairs and flea markets to sell hand-crafted pottery, furniture, jewelry, decorative crafts, and more.

[Niche markets](https://www.investopedia.com/terms/t/target-market.asp) that don't attract big producers can be an ideal fit for cottage industries. Competitive dancers, figure skaters, and other performers at the higher levels of competition often wear original, handmade costumes. This creates a demand for highly skilled costume designers.

## Why Are They Called 'Cottage Industries?'

Cottage industries may be the original remote work system. They opened a way for people living in rural areas before the Industrial Revolution to make a living doing labor-intensive jobs such as spinning wool, tanning leather, and sewing clothing.

They were often subcontractors in modern terminology, finishing goods and sending them on to businesses that packaged them for shipment to suppliers and retailers.

This work was predominantly done in cottages in Europe and America, primarily by women who didn't have access to other trades or professions.

## What Are Some Modern Cottage Industries?

Take a look at Etsy or Amazon Handmade for a comprehensive overview of the thousands of handmade products that are being created by skilled artisans working independently. Most are modern cottage industries.

This is going on all over the world, with many artisans focusing on traditional local skills. The top cottage industries in India are silk weaving, carpet making, leatherworking, metalworking, and specialty food processing.

## Are Cottage Industries Scalable?

Cottage industries aren't usually scalable by definition. They're no longer cottage industries once they [scale up](https://www.investopedia.com/terms/e/externaleconomiesofscale.asp).

The definition of success is different. Most cottage industries are intended to provide a decent income for a single individual or family.

There are the occasional breakout stars like Burt's Bees, which got its start when a fed-up photojournalist moved to rural Maine and became a beekeeper. But even Burt needed a partner with bigger ambitions.  

## Key Insights on the Future of Cottage Industries

Cottage industries continue to play a significant role in both developing and advanced economies. These small-scale businesses provide essential income opportunities, particularly in rural areas where jobs are limited. Despite modern technological advancements, cottage industries deliver high-quality handcrafted products that satisfy niche market demands, and their flexibility and low startup costs make them accessible for individuals and families.

Competing with mass-produced goods poses challenges, but the unique craftsmanship from cottage industries remains attractive to many consumers.  

> **Article Sources**
>
> 1.  Legal Raasta. "[Cottage Industries in India](https://www.legalraasta.com/blog/cottage-industries-in-india/#:~:text=Cotton%20weaving%2C%20silk%20weaving%2C%20carpet,is%20a%20significant%20cottage%20industry.)."
>     
> 2.  Burt's Bees. "[Our Story](https://www.burtsbees.com/our-story/)."