GaWC Project 21

The City of London and Research into Business Clusters

Funded by ESRC and Corporation of London (2001-2002)

Grant holders: Jon Beaverstock, Gary Cook (Loughborough University Business School), Naresh Pandit (Manchester Business School), Peter Taylor

Research Associates: Kathryn Pain and Helen Greenwood

Specialist consultants: Sir Peter Hall (The Bartlett, UCL); Michael Hoyler (University of Heidelberg); Robert Kloosterman (University of Amsterdam); Nick Owen (Senior Economist, DTI); David Walker

[Results and Media Coverage]

THE RESEARCH TEAM

We have put together a team with complementary skills to carry out this research. The team consists of two groups. From the Globalization and World Cities (GaWC) Study Group, Peter Taylor and Jon Beaverstock bring their expertise on world city formation based upon five recent ESRC-funded projects. Their research focuses upon relations between financial and business service firms and has involved intensive comparisons of London with New York, Singapore and Frankfurt. From the latter comparative study (funded by the Anglo-German Foundation), we bring Kathy Pain into the team as Senior Research Associate with current experience of interviewing high level executives in the City. For further details see the GaWC website: http://www.lboro.ac.uk/gawc/. From Loughborough and Manchester Business Schools, Gary Cook and Naresh Pandit bring their expertise on business clusters currently represented by an ESRC-funded project on London, Edinburgh and Bristol. They have jointly published many papers on business clusters, see http://www.innovativeeconomics.org/ for further information on their clusters research.

The strength of the research team comes from combining individual and group expertise with collaboration from different disciplinary backgrounds. The GaWC group draws upon geography/planning disciplines and the Business Schools group draws upon economics/business disciplines to create a genuinely interdisciplinary team. The research will be divided 50:50. All research will be closely integrated but with the two groups taking different lead roles relating to their respective expertise.

THE RESEARCH SCHEDULE

We have used the list of seven requirements in the Research Brief to plan a schedule of work. The first six requirements are organised to define the three main phases of research. In Table 1 they are shown as two columns, one largely theoretical or conceptual, the other more empirical in orientation. Research in these columns will be carried out in parallel with the Business Schools group taking the lead role for requirements 1, 3 and 5 and the GaWC group leading for 2, 4 and 6. Each column’s work will be specifically brought together in two focus group meetings designed to launch the next phase of the research. Phase IV on policy will be the final integration where we will draw on Kathy Pain’s professional knowledge as a city planner.

RESEARCH DESIGN

Phase I: Foundation (15/9/01-15/12/01)

1. Literature Review

The literature on industrial clustering emanates from a number of perspectives. These include economics, geography and sociology. Each approach emphasises different aspects of the phenomenon. What is needed, and what we will produce, is a review that synthesises the concepts and empirical findings from each major perspective. The volume of literature on industrial clustering is vast. Given the resources available, assessing every contribution is not feasible. We will therefore conduct a selective review of seminal works from each perspective. We anticipate that the review will cover approximately 50 works in total. Given the team’s composition and long association with the topic, we are well placed to achieve this type of multidisciplinary synthesis of seminal works.

The literature review will embrace two further considerations. Firstly, the review is in the context of a study of industrial clustering in the City and its fringe. Accordingly, and again in the interest of efficiency, we will emphasise work that relates best to the industries and concerns of the City and its fringe. Secondly, the literature on industrial clustering is closely related to the literatures on innovation and competition. Accordingly, relevant seminal works on these topics will be incorporated in the review in order to develop an understanding of clustering that could not be gained from a review of the clustering literature alone.

We will employ a systematic literature review methodology. First, the seminal works from each perspective will be identified. Second, each work will be précised (each of these préces will be of value in their own right). Third, the préces will be inputted as data into the qualitative data analysis software package Atlas for Windows. Within the package, it will be possible to deconstruct each précis into various categories and then synthesise these categories to produce a logical and coherent reconstruction of the literature. This methodology has already been successfully piloted by a member of the research team (see Pandit, 2002).

2. Cluster Mapping

The mapping exercise will run in parallel with the literature review. We will develop a GIS database of City firms, converting addresses to spatial locations using the Ordnance Survey Grid. From this we will be able to identify and map clusters both within and between sectors. We will bring in David Walker, a GIS/mapping expert (of the Department of Geography, Loughborough University), as a consultant for this step of the research. He will advise Kathy Pain under the direction of Professor Taylor. David Walker is a member of the GaWC research group at Loughborough.

The emphasis of this phase will be spatial analyses to identify both intra-sectoral and inter-sectoral clusters. These will be used to compare proximal clusters to integral clusters based upon functional linkages. The question of critical mass and factors relating to its importance will be covered in phase II of the research.

Focus Group A (Experts) - Late December 2001

The literature review and mapping exercise will feed into the first Focus Group session in late December 2001. Further input will come via another related ESRC project being carried out in parallel by Pandit and Cook. During Phase I, they will be conducting interviews in the City of London for their project. These will be used to pilot ideas and generate some initial data that will be of use for the Focus Group meeting. The Group will be composed of the research team and members of the EDU as well as invited experts. The size of the group, including an external moderator, should not exceed 10 members. The goals of the meeting will be as follows.

• To disseminate the findings from Phase I.
• To disseminate relevant findings from Pandit and Cook’s concurrent ESRC project.
• To outline the design of the rest of the study.
• To invite discussion and comment on how the study design might be improved.

Phase II: Questionnaire Survey and In-Depth Interviews (16/12/01-15/5/02)

It is not by coincidence that firms in similar sectors of the economy are highly concentrated in very localised clusters. Examples of economic specialisation and clustering are abundant throughout the world. Such as the high-technology industry in Orange County, California, footware and clothing in the so-called 'Third Italy' of Northern Italy and the agglomeration of banking and financial services in international financial centres (like down-town Manhattan, New York City or in the City of London, London). Preliminary research findings from Beaverstock, Pain and Taylor's comparative study of banking and finance in London and Frankfurt have noted that firms cluster together in tightly defined spaces because they benefit from their agglomeration economies in a number of ways. Clustering clearly reduces transaction costs as buyers and sellers locate within very close proximity. Equally, clustering assists firms in the vital activities of sharing knowledge and information, especially in the same economic sector. Finally, firms benefit from the 'institutional thickness' of clusters and the need for relationships to be 'embedded' within localised social networks of communication and knowledge transfer. In London, and the City in particular, clustering has benefited firms in the establishment of 'global' social networking relationships, which are underpinned by trust, co-operation and similar cultural working practices.

In addition, the clustering of city based business activities is argued to have benefits for the wider social, economic and environmental sustainability of cities including London. An evaluation of the benefits for sustainability associated with business concentration and clustering in central London and the City of London will underpin Phase II of the research proposal addressing requirement 3 of the Research Brief. Theoretical and practical comparisons with alternative forms of spatial development identified in other city studies will provide important contextual evidence. In accordance with the City’s wide-ranging local and global relations as a ‘World’ business and financial centre, benefits will be assessed with respect to:

• Issues of sustainability within London and specifically within the City of London; and
• Issues of sustainability relating to the City’s wider regional, national and international connections including inter-city relations associated with the process of globalization.

In order to investigate the sustainability benefits which accrue to central London and City of London firms and activities in more detail, we propose a two staged approach: a postal questionnaire survey of firms; and in-depth interview surveys of firms.

The two-stage approach will be used to address requirement 4 of the Research Brief. Firstly, a large sample postal questionnaire will be administered. This will be followed by a round of in-depth interviews. The postal questionnaire will contain between 20-30 items. Where the data are not continuous, a Lickert scale will be used thereby allowing non-parametric statistical analyses of the findings. Questions will be finalised at the Focus Group A stage although Table 2 lists potential issues. The questionnaire will be sent to roughly 1,000 firms and institutions within the following sub-sectors of the financial services cluster within the City: Banking; Insurance; Securities dealing; Fund management; Derivatives; Maritime services; Foreign exchange; Bullion markets; Legal services; Accounting and related services; Management consultancy; Other professional and support services (advertising and market research, recruitment, education, financial publishing, software development).

Semi-structured in-depth interviews will be informed by the emerging findings of the questionnaire survey and will focus on issues relating to the connectivity of incumbent firms and institutions. Clustering is concerned with complex processes which affect the ability of firms to survive and grow. Semi-structured interviews provide an appropriate means for exploring these processes, combining focus with the ability to gain detailed explanations and build shared understandings. Structured questions can elicit "hard" evidence on performance whilst "softer" unstructured questions can elicit subjective views on firm location and strategy. There are two criteria for interviewee selection. First, we will focus upon 3 or 4 sub-sectors that are especially important to the economy of the City. Second, within the chosen sub-sectors, three types of firm will be selected in terms of level of cluster connectivity: for instance we would plan to sample two firms judged to be weak in cluster connectivity, two average, and two strongly connected. (Two firms are chosen in each case to cover the possibility of one idiosyncratic firm behaviour colouring our findings.) This will provide a variety of cluster experiences to be explored across key sub-sectors. Exact choice of firms will be made only after preliminary analysis of the questionnaire results; approximately 20 interviews will be conducted.

The potential problem of access is addressed in four ways. Firstly, through our prior and concurrent ESRC and Anglo-German Foundation funded research on clustering we have established a network of connections in the City. Secondly, we are able to tap into the Manchester Business School Alumni network. The annual Alumni Contact Directory provides information (including e-mail addresses) on over 5,000 MBS alumni who have attended courses since 1964. This information is classified according to geography (with Great Britain disaggregated into 8 regions) and according to industry membership (at the 2 digit SIC level). The financial services industry in the City is well represented and we are confident that the proposed number and types of interviews will be secured. Thirdly, one of the research team is a member of faculty at the Business School at Loughborough University. Its renowned Banking Centre employs many industry experts and has excellent links with the British financial services industry and so should yield a number of interviewees. Finally Kathy Pain has an excellent record of soliciting City interviews involving a total of 53 for the Anglo-German project.

Phase III: De-clustering/Fringe Study and International Comparisons (16/5/02-15/8/02)

Phase III will involve two parallel activities. The first will be an in-depth interview survey of the relationships between fringe and core incumbents. Data from Phase II will identify the most de-clustered sub-sectors. 3 or 4 of these will be targeted and 2 interviews per sub-sector will be conducted, making a total of approximately 10 interviews. Table 3 lists potential issues.

The second activity relates to requirement 6 of the Research Brief. For this we will commission two short research reports summarising findings on business clusters in other world cities. We will draw on work in two contrasting urban spatial arrangements: Randstad, Holland as polycentric urban region and Frankfurt as a monocentric urban region. For both urban regions we will draw on GaWC associates to provide the reports. Professor Robert Kloosterman of the Amsterdam Study Centre for the Metropolitan Environment (University of Amsterdam) is the leading authority on business clustering in Randstad Holland (see http://www.lboro.ac.uk/gawc/rb/rb36.html). Dr Michael Hoyler, a GaWC research fellow from the Department of Geography, Heidelberg University, is an expert on European world cities (see http://www.lboro.ac.uk/gawc/rb/rb16.html) and was the research associate responsible for the Frankfurt interviews in the Anglo-German project.

Focus Group B (Policy) – August 2002

Early version of results will be made available. We will invite a group of leading policy makers, practitioners and planners to review our findings and consider their policy implications. There will be a mixture of influential academics (Sir Peter Hall) and invitations will be sent to public institutions to send representatives including the Government Office for London, the Greater London Authority, the London Development Agency , the City of London’s Unitary Development Plan, and the London Mayor’s Office.

Phase IV: Policy Implications (16/8/02-15/10/02)

The final stage of the research will draw together the results of Phases I-III to focus on the key issues for public policy. To meet requirement 7 of the Research Brief, the primary objectives of Phase IV will be: First, to identify the policy implications of the research findings for local, regional, national and international, including European policy levels. Second, to pinpoint specific policy changes that need to be introduced to foster the development of dynamic, innovative business clusters in central London and the City of London and, third, to identify areas where policies may be in danger of having damaging effects in relation to clustering activity.

The City of London has a unique role as a business and financial centre within the central zone of the EU North West Europe Metropolitan area as well as in the UK and the South-East. Particular consideration will be given to the cohesiveness of policy objectives and directives that impact on city business concentration and clusters at range of scales looking across geographic and institutional boundaries and public-private partnerships. This will include consideration of policies and guidance contained in the EC European Spatial Development Perspective (ESDP) 1999, the Report of the Urban Task Force 1999, the UK Government Urban White Paper 2000 and the regional and local plans of London agencies including the Government Office for London, the proposed GLA Spatial Development Strategy for London, the LDA Economic Development Strategy and the City of London Unitary Development Plan.

Finally the empirical, theoretical and policy research findings will be brought together to provide a specification of key requirements for an integrated policy approach to economic and spatial development that promotes the value of clustering in sustainable growth and facilitates focused public and private business-related activities in the City of London.

RESEARCH OUTPUTS AND DISSEMINATION

Interim reports will be delivered prior to each of the two Focus Group sessions. Regular updates will also be provided for the EDU. The final report will be available in October 2002 and will be followed by a presentation of the findings at a seminar on the subject.

Industrial clustering is topical, academically important, and policy relevant and as such, interest is strong. The research team will make use of this strong interest to promote outputs to various parties. Research outputs will lead to papers in refereed journals and industry-specific practitioner-oriented publications. In addition, the work has synergies with another ESRC funded project (Pandit and Cook) and other research going on within the Federal School of Business and Management at Manchester University - for example in the ESRC Centre for Research into Innovation and Competition (Howells and Tether). All papers from this research will be posted in pre-publication form as GaWC Research Bulletins which ensures world-wide dissemination.