GaWC Research Bulletin 286 |
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IntroductionKnowledge is increasingly recognized by researchers and policy-makers as crucial for innovation and the driver of economic growth in contemporary globalization. A large and diverse literature within economic geography and related disciplines has focused on the implications and importance of the knowledge economy in regional development.1 Research into the role of knowledge-based business and industrial ‘clusters’ and creative and innovation ‘milieux’, has suggested the ongoing critical role of location and proximity in the development of a regional knowledge economy.2 But whereas location theory from Walter Christaller’s 1933 ‘Central Place Theory’ on, has focused on relations at the scale of the region and nation state to explain patterns of economic development,3 new theorization is needed to describe the geography and dynamics of regional change in the 21st century global era. The widespread use of information and communication technologies (ICTs) associated with processes of globalization has led to the increasing importance of cross-border knowledge flows across any distance which now structure the global parameters of local development.4 It is necessary to take into account the spatial transformation associated with these extraordinary changes in regional development theorization. With increasing international knowledge flows and economic exchanges at a global scale, regional development in Europe is now crucially linked to wider geo-political and economic shifts.5 The European Union (EU) ‘Lisbon’ process formally recognizes knowledge-based business services as essential for regional competitiveness in a dynamic and changing world economy. The economic growth of oil producing economies in the Middle East and Russia, the emergence of South East Asia as a major service market as well as a locus for production and European demographic change, make engagement with the globalizing knowledge economy a policy imperative of the EU Lisbon Treaty.6 European enlargement and priorities for cohesion constitute an economic challenge and also a powerful talent resource in this context. Whereas tertiary knowledge-intensive financial and professional business services have until recently been seen as a feature of the ‘developed’ economies of North America, Western Europe, North East Asia/Japan and their ‘global’ cities, in an extended world economic system it is now crucially important to re-evaluate the geography of their trans-national and inter-regional spatial relations. Pain (2008b) explores the theoretical and policy challenges posed by the globalization of cross-border advanced business services for understanding spatial change in the South East England region based on the results from a recent major transnational North West European study.7 The research findings show that the conceptualization of London as a monocentric regional ‘core’ in European spatial policy belies the reality of complex intra-regional, functional relations identified across an extensive, highly internationally connected city-region. Importantly, the research reveals that it is the global linkages of business services in the eight North West European regions studied which is crucially important for buoyant regional development in the knowledge-based economy.8 A significant conclusion drawn by Pain (ibid.) is that the dichotomy implied by ‘core–periphery’ theorization and the concept of ‘polycentrism’ embedded in European policy, fails to provide an adequate description of contemporary regional knowledge development in globalization. The present paper explores the relevance of this finding for the cross-border relations of regions which are emerging as a consequence of business service developments occurring at a global scale. The core-periphery metaphor has traditionally underpinned the conceptualization of spatial relations in world development and dependency theories since the nineteen sixties. Dualistic relations between ‘developed’ and ‘underdeveloped’ (‘dependent’) countries and world regions due to economic ‘internationalization’ and the formation of a world division of labour,9 have typically been reflected in ‘negative globalist’ perspectives.10 Similarly, at a European scale, the dominance of economically ‘advanced’ regions of the ‘Pentagon’11 or European Union core over so-called ‘less-developed’ peripheral regions has been emphasized.12 This binary understanding of spatial relations at transnational and inter-regional scales has been reflected in the common interpretation of dispersion in contemporary knowledge-based business services associated with ‘offshoring’ and ‘outsourcing’ as a means by which firms in core world locations reduce cost and inflate profits by exploiting cheaper labour in the ‘developing world’ periphery.13 But knowledge is fluid and skills are mobile within business services, leading to complementarities between distanciated places which are not taken into account in these perspectives based on binary thinking. Knowledge spillovers can cross between organizations and economic sectors, and national and regional borders.14 The purpose of this paper is therefore two-fold. Firstly, to extend reflection on the North West Europe research findings to produce new theoretical insights into the changing scalar geographies of knowledge globalization associated with business services, and secondly, to identify key issues that should inform ongoing research and policy formulation. The paper progresses in four stages. The key subjects for consideration – advanced business or ‘producer’ services, outsourcing and offshoring strategies – are first introduced and their interrelations are discussed in the context of the relevant literatures. Secondly, the theoretical premises and findings from the recent programme of empirical research into business service operations in the North West European ‘economic core’ are explained and their relevance for changing global geographies of knowledge is examined. Thirdly, the policy implications of the operational and locational dynamics identified are discussed and finally the significance of the findings for theorization and empirical research required to inform regional development in contemporary globalization, is considered. BUSINESS SERVICES AND STRATEGIES - FROM VERTICAL INTEGRATION TO NETWORK ORGANIZATIONSince the late 20th century emergence of the ‘information society’, knowledge development has become the product of a multiplication of actor interactions occurring through what Castells (1989) first referred to as a ‘space of flows’ that is transcending the familiar territorial patchwork ‘space of places’. Business actors communicate and exchange information and knowledge virtually whether working in the same building, at a distance or, increasingly, in transit.15 This new spatial paradigm characterized by non-place relations, needs to be studied in order to inform policy at the intersection between economic processes and regional places. With tertiarization of the world economy, knowledge-based business services and their strategies both of which are the subject of extensive discussion in a wide interdisciplinary literature, are central to the paradigm shift.16 Advanced Business ServicesChanges in world production and trade, crucially linked to processes of globalization and development of ICTs, are increasingly associated with flows of high-value, specialized information and knowledge. In business services this is most obvious in sectors such as securities and futures in ‘wholesale’17 financial services where fungible trade is made possible by high-speed digital exchange. Unlike manufacturing production, such interactions in ‘advanced producer services’ (APS), for example finance and banking, law and accountancy, are virtual and create intangible products that cross borders almost invisibly.18 Similarly, they involve the transfer of tacit knowledge which cannot be codified, described by Storper (1995) as ‘untraded’ interdependencies between business actors. As explained by Pain and Hall (2008), such services are distinct from Wood’s (2002) broader categorization of knowledge-intensive services (KIBs)19 which includes contract cleaning companies and ‘bucket shop’ travel agencies as well as the advanced financial and professional services. APS produce and trade high-complexity specialist knowledge, providing services to other businesses and to each other, making them a strong indicator for high-value knowledge flows and transfer between economic agents and between places. They are recognized in the literature for their distinctive interactional role globally and locally in the most knowledge-intensive part of the world service economy (Beaverstock et al. 2001, Taylor et al. 2003, Hall and Pain 2006, Cook et al. 2007). Pain and Hall argue that they
They have a crucial role in regional innovation and economic development, linking multiple actors, firms and economic sectors. APS wholesale functions, have a different locational logic from that of other ‘hi-tech’ and retail business services which have a more dispersed cluster geography (Pain 2007a, b). They have an especially developed global network structure. With the progressive internationalization of trade as globalization has proceeded, firms have developed extensive city-based office networks to service increasingly transnational clients, multinational corporations and government bodies, world-wide. Their operations have dispersed geographically but at the same time integrated globally, leading to the agglomeration and clustering of ‘core functions’ in the key service nodes or ‘global cities’ of advanced economies as identified in Sassen ’s (1991: 3) classic work on London, New York and Tokyo. Castells (1996, pp376–428), identifies such ‘network enterprises’ which are physically co-located but highly networked virtually, as key conduits for spaces of flows in contemporary informational social organization. Because APS products consist of the specialized knowledge that is vested in their skilled workforce, their local labour markets are global in scale but their network structures allow knowledge resources to be made available anywhere in the world through virtual communication, movement of actors and face-to-face contact. Knowledge is transferred between APS agents in diverse ways resulting in multiple knowledge flows between places (Pain 2007a). Competition in markets and mutual servicing relations at different geographical scales, lead to highly complex relationships within and between firms resulting in many forms of formal and informal knowledge transfer which defy accurate quantification (Pain 2007a: 19-38; Pain and Hall 2008). The need for knowledge specialization with breadth to compete in globalizing markets, leads to ongoing processes of industry consolidation and fragmentation through mergers and acquisitions and ‘spin-offs’ (Beaverstock et al. 2001). Integration and dissemination of disciplinary and cross-sector knowledge as specializations are incorporated in multidisciplinary practices and fragmented through service differentiation and diversification, produces knowledge flows that are incapable of scientific measurement. Tacit knowledge transfer between firms is also hidden in project team working, labour ‘churn’ and ‘poaching’, through mutual servicing relationships and in social networks. Formal relationships and supply chain linkages between firms, and the extent to which relations are competitive or complementary, are increasingly difficult to define. Client and service provider roles within any given entity switch and relate to different activities and businesses at different geographical scales, making the concept of ‘the firm’ increasingly irrelevant. It is the dynamic processes of multifurcation and assemblage which underpin modern business relations in advanced services which result in multiple new cross-cutting channels for interorganizational flows and transfer of knowledge which challenge traditional linear and vertical scientific modelling.20 Furthermore, advanced business services are increasingly integrated in secondary manufacturing and primary sectors where adding value to tangible products is now also critically dependent on knowledge (Pain 2008a: 26). Tertiarization associated with APS therefore has profound implications for shifting global geographies of all forms of knowledge-dependent production. While a handful of cities in the world can be earmarked as the ‘global’ cities through which, according Sassen’s (1991) definition, the highest concentration of global services operates, many other cities have been drawn into and ‘interlocked’ in a world-wide web of intersecting APS network relations (Taylor 2001, 2004; Taylor et al. 2002). But according to a core-periphery interpretation of business development, territorial relations are linear and dualistic. The latter perspective reflects established theorization on cities such as Friedmann’s ‘world city hierarchy’ and Sassen’s global city as the organizing power within, and shaped by, their positionality in a “new international division of labor” (Friedmann 1986: 317; Sassen 1991: p.4). Processes underpinning the geographic dispersal of non-customer facing ‘back-office’ APS support functions, such as data processing and human resources, are interpreted as a development of centrifugal forces which led to the global distribution of production in manufacturing to take advantage of lower labour costs in the developing world (Nelson 1988). In this context, business strategies for outsourcing and offshoring can be seen simply as a progression from established neo-liberal practices. Outsourcing and Offshoring StrategiesThe negative and positive outcomes of outsourcing and offshoring strategies and practices have been keenly debated amongst economists and management scientists. Understanding their implications is of key relevance in considering the mobility and sustainability of skills and knowledge across space. A plethora of definitions and sub-distinctions has been suggested. Here, Chakrabarty’s comprehensive (2006) literature review of fifty relevant terminologies in Making Sense of the Sourcing and Shoring Maze, Abramovsky et al. (2006) and Sparrow and Braun’s (2007) subsequent interpretations and definitions, inform a basic relational distinction implicit in the use of these terms:
An essential distinction can therefore be postulated, that outsourcing relates to organizational structures, practices and business relations whereas offshoring relates to geo-political structures, state and continental borders and political-economy relations. Chakrabarty’s (2006) distillation of the literature suggests a notion of ‘sourcing’ which applies to relations that cross business organization boundaries - involving vendors, suppliers and third parties - regardless of geography. ‘Multi-sourcing’ strategies refer to a combination of out-sourcing, ‘in-sourcing’ and ‘co-sourcing’ arrangements where the service supplier is also a client entity or a collaborative supplier (ibid., 2006: 20-22) and ‘multiple-supplier sourcing’ denotes sourcing arrangements with a variety of suppliers (ibid. 2006: 23). In contrast, ‘shoring’ describes the geography of business relations - ‘on-shore’ being within same country, ‘near-shoring’ across shared national, regulatory or cultural borders and ‘offshoring’ across wider geographical and cultural distances (Sparrow and Braun 2007: 3). Thus the pronoun ‘shore’, “ … does not necessarily imply that the respective country has land along the edge of a body of water. It only indicates a different geographical location.” (Chakrabarty 2006: 26). Combinations of sourcing and shoring relations have led to a variety of descriptors for the architecture of potential territorial business linkages, indicating an attempt to define a relational space that bridges the conceptual dichotomy represented by Castells’ spaces of flows and places.21 Chakrabarty (2006: 28) identifies four basic differentiated, combined sourcing-shoring strategies which illustrate this point:
The number and diversity of alternative combined arrangements possible, points to the existence of a highly complex system of local-global (geo-) organizational relations as opposed to a process which can be understood using theoretical models based on binary thinking. Kenney and Florida (2004, p.1, cited in Sparrow and Braun, 2007: 5) endorse the view that common assumptions about globalization may be over-simplistic:
It is clear that certain complex client-facing knowledge production functions remain highly dependent on the interpersonal and cultural relations, access to transnational high-skilled labour, trust, teamwork and tacit knowledge transfer (Taylor et al. 2003; Gertler 2003, Storper and Venables 2004, Cook et al. 2007) that are associated with proximity and dense clustering in Castells’ (1989) highly developed ‘informational’ cities. But the formation of externalized relationships between business organizations superseding vertically integrated structures, begs the question whether knowledge intensification in globalization is also leading to an unfolding logic of functional and spatial disaggregation through which the traditionally conceived core is increasingly geographically dispersed through network structures. Linear economic development models such as production and value chains (Porter 1990, Dicken 1998) would appear inadequate to explain the unfolding relational paradigm associated with new business models. Whereas the movement of secondary sector manufacturing production and low-grade tertiary retail activities such as call centres, from core to periphery, has been seen as reinforcing uneven patterns of world development to take advantage of wage differentials in East Asia and India,22 recent developments associated with multi-directional knowledge flows suggest a different logic. European empirical research reveals the complex space of global business service development that is emerging with increasing competition in globalizing markets and which has important implications for understanding outsourcing and offshoring geographies and their implications for knowledge-based local development. CENTRIFUGAL FORCES - A CHANGING LOGICThe North West European (2003-06) transnational ‘POLYNET’ study into advanced business services has been part of major programme of tailored research conducted by the Loughborough University ‘Globalization and World Cities Study Group’ (GaWC).23 In contrast to conventional urban analyses, the methods used are unique in their emphasis on the collection of tailored empirical data to shed light on the relations between cities and regions conferred by knowledge-intensive APS organizations in financial services, insurance, accountancy, law, advertising, management and IT consulting, advanced logistics and design services. As already discussed, globalizing APS networks are critical conduits of knowledge. The theoretical framework for the research thus draws on Castells’ (1996) conceptualization of inter-city relations as constituted by informational flows in ‘network enterprises’. The findings therefore relate to the practices of the economic agents who are active in linking cities and regions through their business strategies. The study has investigated the ways in which advanced business service firms are doing business in eight regions of the densely urbanized and economically developed EU North West Zone: the Randstad, Netherlands; Rhine-Main and Rhine-Ruhr, Germany; Central Belgium; Northern Switzerland; Greater Dublin, Ireland; the Paris Region; and South East England. These regions represent a variety of urban structures ranging from classic ‘polycentric’ to ‘monocentric’ in terms of their morphology. The central objective was to discover in what ways, if any, these differences influence the development of a sustainable regional knowledge-economy. The variety of quantitative and qualitative data sources and analytical methods employed are discussed in full by Hall and Pain (2006) and the results are explored in depth in a special issue of Built Environment (Halbert et al. 2006) and Regional Studies (Hoyler et al. 2008). As explained by Pain and Hall (2008), it has been the cooperation of very senior decision-makers representing the major global service networks in face-to-face interviews held across North West Europe, which is crucial in revealing the reasoning behind strategic cross-border business developments that are the focus of this paper.24 Europe in Global NetworksA key research finding is that contemporary service economy developments at the scale of the region, nation state and the EU, can only be understood in a global markets context. The study has investigated the strategies of firms operating at four geographical scales: regional, national, European and global. Importantly it is the connectivity of firms located within a given region to trans-national business networks which proves highly significant for the functions and sustainable economic development of geographically proximate towns and cities. Two complementary processes can be distinguished. First, the integration of European firms into larger cross-border networks and second, the expansion of global networks in Europe. A Local-Global Process The introduction of Economic Monetary Union (EMU) and the development of the European ‘Single Market’ together with enlargement, have produced an extensive EU cross-border market with increasing importance of ex-Soviet bloc Eastern Europe. Service markets at the local level are increasingly crowded, intensifying competition for firms operating at the scale of the region and driving even small firms to join wider business networks to achieve wider as well as deeper market reach simply in order to survive. Increased internal European competition means that, without joining globalizing networks, firms cannot compete locally. At the same time, major transnational APS networks with offices in London are extending their reach across Europe to engage with ‘local’ expanding markets. Figure 1 shows the global connectivity that was conferred on European cities by the offices of APS firms for the year 2004. These cities are described by Pain (2005) as ‘global knowledge hubs’ because they are conduits for knowledge transfer and flows in world-wide knowledge production structures. Figure 2 illustrates the linkages between the eight POLYNET regions conferred on them by the cities with the highest global network connectivity in each region. These globalizing tendencies make the geographies of outsourcing and offshoring increasingly complex. Macro-trends Shaping Regions The interview results allow eight key macro-trends underpinning strategic APS operational and locational changes since the year 2000 to be identified - technology, specialization, consolidation, infrastructure, flexibility, complexity, concentration and regulation - these trends are associated with intense market competition in all APS sectors. ‘Technology’ - Whereas in the retail sector of business services, technology allows firms to achieve scale economies and increased market reach, in knowledge-intensive wholesale markets, electronic systems and the internet extend the global reach of digitized and virtualized business processes increasing the potential for multi-locational outsourced and offshored production functions. ‘Specialization’ - Global reach is intensifying world-wide competition leading to the need for specialization. To compete locally and globally, firms must be among the top service providers in all the jurisdictions they operate in. Access to skilled labour and expertise in offshore locations gives firms a wide range of specialisms and a broader and deeper knowledge resource base which can be utilized anywhere. ‘Consolidation’ - Global coverage requires enormous energy, resources and capital driving the consolidation and integration of smaller firms world-wide into larger global network entities. Resultant organizational forms include a range of onshore and cross-border corporate acquisitions, mergers and joint ventures to create new operating companies, strategic alliances and partnerships linked by a series of contracts. ‘Infrastructure’ - Consolidation, restructuring and integration of firms into international networks requires firms to be responsive to changing market conditions, hence the availability and location of required skills at any given time, for any given purpose, is of key importance. Variable operational requirements lead functions and skills to move within project teams and across sourcing and shoring locations. ‘Flexibility’ - ‘Blended’ operational models facilitate flexibility and agility in increasingly complex global entities, allowing skills and specialisms to be drawn in as necessary from a global labour force to meet individual project needs. Specific project criteria lead to a variety of dynamic servicing, sourcing and shoring arrangements, making it difficult to untangle and define changing relationships between entities. ‘Complexity’ - Increasing operational complexity reinforces the need to concentrate high-value ‘core business’ activity in a limited number of world locations. Whereas technology can eradicate geography and the need for human intervention in certain production functions, this is not the case for activities which are dependent on scarce skills, highly specialized labour and tacit knowledge transfer. ‘Concentration’ - In spite of functional dispersal, high-complexity, niche global operations remain concentrated in the dense business districts of ‘global hubs’ where a high concentration of specialist transnational labour can be found and where transfer and diffusion of tacit knowledge occur face-to-face. ‘Back office’ dispersed functions move within complex organizational structures and through global hubs. ‘Regulation’ - Specific national regulatory and political contexts remain of paramount importance in determining territorial connectivity to global knowledge flows in advanced business service networks. Eight regulatory criteria can be identified as significant: labour flexibility, tax regimes, government contracts, migration, education, political stability, culture and spatial planning. Flexible Knowledge Production - Fluid Spatial Relations The research findings emphasize the fluidity of spatial relations associated with knowledge production in network organizations. Operational processes are increasingly individualized to reflect different dimensions that come into play at different production and project stages. They are thus characterized by flexible cross-servicing / cross-border relations which produce knowledge flows at interlocking international and local scales. A multiplicity of inter-firm relations such as ‘second sourcing’ and ‘multi-source’ outsourcing in both on-shore and off-shore locations makes APS functional geographies dynamic knowledge flow spaces. Business outsourcing and offshoring strategies which have traditionally simply leveraged low pay conditions, would seem to be subsumed within a range of collaborative, multi-scalar business models in which core competencies and innovation are mobile. The focus on reducing cost is now one of a variety of factors in the development of functional models. These changing functional-spatial relationships indicate that the geo-political assumptions upon which traditional theorization has been based, need to be reconsidered to reflect new empirical evidence. The logic underpinning changing centrifugal forces in production functions is considerably more complex than is inferred by a core-periphery descriptor for global and sub-global, European spatial relations. With progressive globalization of service production, the distinction between outsourcing and offshoring practises seems increasingly fuzzy. Network structures of distributed resources have replaced the vertical integration of the earlier phase of economic internationalization. Chakrabarty (2006: 19) refers to "offshore-insourcing" and "global-insourcing" as functions which are performed within one firm but not in the same country, hence the movement of management functions simply within one firm with a global network of offices can now be described as both functional offshoring and outsourcing. The dispersal of service functions to many global locations requires collaborative network systems to provide seamless services to clients who are themselves frequently transnational organizations, resulting in diverse offshore-outsourcing and cross-servicing models.25 Global networks can be described variously as ‘multi-supplier‘ offshoring and outsourcing with what Chakrabarty describes as a "global delivery model" (Ibid. 2006: 42-43). “Dyadic” outsourcing - offshoring relationships (Ibid: 39-40) where a client engages multiple independent vendors for various functions and a vendor provides services to multiple independent clients, create highly complex relational–spatial network processes. The Mobile Back Office – Global Movement of Knowledge Back office activity may be located within global hubs, centrally as in the case of a French bank and US bank which using labour in London’s ‘Square Mile’ to process distant global transactions taking advantage of time zone differences, or in the ‘fringe’ as in Amsterdam-Zuidoost in the Randstad region of the Netherlands. In South East England, a financial services firm has moved its foreign exchange operations supporting other European branches and hubs to Chenai and Mumbai in India, “a year ago we’d have been sitting right next to them, now we’re sitting seven or eight thousand miles away but the relationship is still the same” (Pain 2005: 37). In Dublin-based banking and logistics sectors, back office functions have re-located to the suburbs and further afield dependent on skills availability and time-distance as well as cost criteria. A bank headquartered in Frankfurt has its key command and control functions located in London and a Dublin bank, acquired by an overseas group, has become a dispersed global network location within Europe. In Central Belgium subcontracting in the design and accountancy sectors relates to specific tasks - plans are drawn in Poland or South Africa and engineering desks are located in Poland or Romania, elsewhere civil engineering computer-aided design work is undertaken in Dubai. Crucially, back office activities are highly mobile between organizations and on-offshore locations, according to specific changing requirements. The largest firms in the global ‘top ten’ management consultancies use a flexible onshore - offshore product development “blended model,” drawing in specialized skills across local and global locations and continents. Specialization makes cost a secondary consideration. Increasingly parties are co-operating to add-value through strategic alliances and partnerships, referred to in the literature as “value-added” outsourcing (Willcocks and Lacity 1998: 26-27, as cited by Chakrabarty 2006: 50) which are increasingly cross-border. Alongside the increasing mobility of back office functions, the location of network ‘front offices’ seems remarkably enduring once clustered ‘global hub’ agglomeration economies are established. However skills, people and knowledge move dynamically within and between cities and countries, on a daily, weekly and more long-term basis through electronic and face-to-face communications, the physical movement of people - business trips, inter-city commuting, redeployment and labour churn - and, as already described, through the movement of functions which is largely invisible to outsiders. Thus while globally-linked city business clusters may appear relatively locationally fixed, the knowledge in people’s heads is constantly moving through the intra- and inter-organizational structures of global networks. Since specialized knowledge is the tradable product of advanced business services, it can therefore be argued that the once clear-cut distinction between a world core and periphery becomes increasingly obscure in the context of knowledge-based network activity. SPACES OF POLICY – ‘MARKET IMPERFECTIONS’In contradiction to the changes associated with knowledge production – flexible organization and dynamic cross-border flows - government regulation is identified by firms as a structuring factor in network strategy. It is described by a major global management consultancy as creating “market imperfections” which can shape the geography of cross-border relationships and production linkages from project development through to service delivery, implementation and operations support. National and trade bloc differences thus matter. Employment and migration legislation, education and training, taxation and infrastructure, structure skills supply, labour flexibility and operating costs differentially across global locations. Government political stability, sensitivities and culture mould the location of functions, especially when government bodies are APS clients. Network relations are therefore not simply a product of cost and distance. This is exemplified by the recent expansion of tertiary IT and digital production functions with competitive salaries for highly specialized labour in India26 where focused education and skills training schemes, language and established business culture, support high standards of technical capability. The recent transition of China and ex-Soviet Union Eastern European states from what Wallerstein called ‘semi-peripheral’ economies with a historic blend of core industrial and peripheral agricultural activity (Arrighi 1985, Martin 1990, Taylor, 1995), to new destinations for tertiary business services (Aron and Singh 2005), illustrates the structuring effect of political and cultural changes on network dynamics and hence territorial development.27 Importantly for policy, the network organization and collaborative operational relations associated with specialized knowledge production in globalizing business services suggest a notable shift from the one-dimensional / one-directional implication of the core-periphery economic development metaphor. Whereas capitalism was in the past seen as embedded “on the semi-periphery” (Packenham 1992: 86 cited by Peschard 2005: 2) in dependency theory, the new dynamic identified, indicates that economic development and its sustainability are no longer dependent on governments delinking with the world economy, but linking to global knowledge-based networks. Since the introduction of ‘Open Door’ policy, China’s wholesale financial sector has been estimated to be growing at nearly three times the pace of that of the ‘developed world’ EU (Corporation of London 2006) and business services outsourced to China are reported to have moved from a traditional to a collaborative business model. The need for business support (as opposed to cost saving) in South East Asia is cited as the increasing strategic reason for networks to locate in China (A.T. Kearney 2004, PricewaterhouseCoopers 2007). China is seen as becoming a major business process service supplier not only internally, but to Japan, Korea and other Asia Pacific regions. The Indian information technology company ‘Wipro’ has recently been reported as considering establishing back-office function locations in “less developed” American states Idaho and Virginia (Marsh 2007). In 2004, a business survey ranked the European Czech Republic fourth after India, China and Malaysia as an offshore location based on its financial structure, business environment, people skills and availability (Ibid. 2004). These changes suggest a need to recognize the coming strength in the knowledge economy of countries outside the traditional core, especially those undergoing transition associated with recent institutional, political and economic changes such as former ‘semi-peripheral’ countries.28 There is a clear need for economically sustainable regions to be well connected at the critical global scale as recognized by Chinese efforts to upgrade international business connectivity in its three major ‘megacity’ urban regions, Shanghai and the Yangtze River Delta, Beijing, and the Pearl River Delta,29 reversing pre-2000 policy against the expansion of big cities (Dingding 2004). All eight economically dynamic North West European POLYNET regions studied have just one urban agglomeration where specialized international APS operations and labour are present and where transnational interactions and exchanges take place. Global networks display this same spatial functional specialization regardless of differences in regional morphology (Pain 2008b). But importantly, as discussed by Pain (ibid.), since its incorporation in the European Spatial Development Perspective (ESDP: CEC, 1999),30 the application of the concept of spatial polycentricity in EU regional policy has run counter to the need to support the agglomeration of specialized global network functions. Yet paradoxically, the POLYNET research found that while the ‘global hubs’ of all eight North West European regions are strongly functionally interlinked together cross-border (as shown in Figure 2), regions that are morphologically polycentric, in line with ESDP policy, such as the Rhine Ruhr, Germany and the Randstad, Netherlands, are less functionally integrated at an intra-regional scale than is the case for morphologically monocentric South East England (ibid. 2008b). Balanced urban morphology – the size and distribution of urban centres – is not replicated in regional functional structures. The functional specialization31 between regional centres that is required in knowledge-based networks – i.e. the need for agglomeration of global operations requiring very close proximity and depth of infrastructure - is not recognized in present European spatial policy making it out of alignment with Lisbon Agenda priorities to enhance connectivity to the global knowledge economy across the ‘New Europe’. Significantly, there is a specific geographical logic of APS industries “for which dispersal and centralization are ‘two sides of one ball’”. The evidence thus points to the mutual constitution of processes of centrifugal and centripetal network extension and concentration in advanced knowledge-based business network structures. It would seem that specialization is a driver for both functional agglomeration and dispersion. Hence the location of the ‘core’ would appear to be increasingly integrated in, but also motile through, network structures. European policy on regional development in the global knowledge economy therefore requires urgent review based on tailored research into changing cross-border, local-global spatial relations. CONCLUSION - WHAT NEW RESEARCH AGENDA?In conclusion this paper makes two important inputs to the debate on the relationship between outsourcing, offshoring and regional development, pointing to the need for an adaptive, relational theory of the geography of knowledge globalization associated with tertiary business services, to inform ongoing empirical research and policy. First, it questions the veracity of a traditional core-periphery explanatory framework for understanding the spatial dynamics associated with current developments in knowledge globalization. Whereas theoretical discourse on the dispersal of business services through outsourcing and offshoring, has typically focused on dualistic territorial relations and priorities, the paper indicates that extending and deepening organizational network linkages are leading to a new paradigm in which centrifugal and centripetal forces are productive of geo-functional complementarities. This suggests that a new theoretical framework for research and policy formulation is needed. Second, it highlights the need for a cultural shift in European, national and regional policy that is informed by in-depth empirical research into the strategies of network agents and the market imperfections associated with institutional regulatory regimes governing education, skills, economic and spatial planning. A revised analytical framework which focuses on the specific processes, functions and flows critical to globally under-linked European cities and regions is needed to complement more abstract regional economic modelling in this study area. As demonstrated by the programme of research reported on this paper, funding for qualitative, as well as quantitative, research will be essential to ensure that the changing practices of business organizations are recognized in those of policy-making organizations. ACKNOWLEDGEMENTSThe author wishes to thank researchers working at the following organizations for their contributions to the INTERREG IIIB POLYNET research reported on in this paper: The Young Foundation, London (Lead Partner); Department of Geography, Loughborough University (Specialist Research Partner); Department of Geography and Planning, Amsterdam Institute for Metropolitan and International Development Studies, University of Amsterdam; Department of Geography, Institut de Gestion de l’Environnement et d’Aménagement du Territoire, Université Libre, Brussels; Institut für Landes–und Stadtentwicklungsforschung des Landes Nordrhein-Westfalen, Research Institute for Regional and Urban Development, Dortmund; Urban Institute Ireland, University College Dublin; Geographisches Institut, University of Heidelberg; Institut de Géographie, Université Paris 1, Panthéon-Sorbonne University, Paris; Institut für Raum- und Landschaftsentwicklung, Netzwerk Stadt und Landschaft, Swiss Federal Institute of Technology, Zürich. 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WILLCOCKS, L. and LACITY, M., 1998, Strategic Sourcing of Information Systems, Wiley, Chichester, UK. WOOD, P., 2002, Consultancy and Innovation: The Business Service Revolution in Europe, Routledge, London. NOTES* Kathy Pain, Department of Geography, Loughborough University, Email: K.Pain@lboro.ac.uk 1. For example Porter 1990, Florida 1995, Storper 2000, Millard 2002. 2. Castells 1989, Camagni 1991, Amin and Thrift 1992, Markusen1996, Porter 1998, 2000. 3. See Pain 2007b. 4. OECD 1996; Amin and Cohendet 1999, Cochrane and Pain 2000; Oinas and Malecki 2002, Coe and Bunnell 2003. 5. Pain 2007a. 6. http://europa.eu/lisbon_treaty/full_text/index_en.htm 7. Hall and Pain 2006: European Commission INTERREG IIIB North-West Europe: ‘POLYNET: Sustainable Management of European Polycentric Mega-City Regions’, 2003-06. 8. Taylor et al. 2008. 9. Scott 1998. 10. Cochrane and Pain, op.cit. 11. An area of North West Europe defined by the cities of London, Paris, Milan, Munich and Hamburg. 12. CEC 2000: 7, Pain 2008b. 13. See for example, Ohmae 1990, Abramovsky and Griffith 2005. 14. Cooke et al. 2007. 15. Pain and Hall 2006: 104-112. 16. Crevoisier and Jeannerat 2008. 17. Wholesale services refer specifically to services provided between providers as opposed to retail services which refer to services provided to individual customers, for example retail banks, insurance companies, accountancy and legal services, (Pain 2008b: 13). 18. Pain 2008a. 19. For the importance of KIBS in regional knowledge transfer and diffusion see also Strambach 2001, Muller and Zenka 2001,Tödtling et el. 2006. 20. See OECD 1996: 14, Pain and Hall 2008. 21. See also Hoyler and Pain 2002 and Pain 2008c for in-depth discussion of the dichotomous spatial relations implicit in Castells’ (1996) thesis. 22. See Bardhan and Kroll 2003: 2-3. 23. Anglo-German Foundation for the Study of Industrial Society - ‘Comparing London and Frankfurt as World Cities: A Relational Study of Contemporary Urban Change, 2000-01; Economic and Social Research Council/Corporation of London: ‘The City of London and Research into Business Clusters’, 2001-02 http://www.lboro.ac.uk/gawc; European Commission INTERREG IIIB North-West Europe: ‘POLYNET: Sustainable Management of European Polycentric Mega-City Regions’, 2003-06. 24. The results from over 600 face-to-face interviews with major firms, industry and government organizations conducted since the year 2000 informed the study. 25. See also PriceWaterhouseCoopers 2007. 26. McKinsey Global Institute 2003, Marsh 2007. 27. This finding demonstrates the enduring significance of national institutional contexts discussed by Storper et al. (2002) for tertiary activity. 28. See also Lin 2005. 29. Taylor and Pain 2007 for further discussion in the context of US ‘Megaregions’. 30. See for example ESPON 2006, Meijers et al. 2007. 31. ‘Functional specialization’ is distinct from the ‘sectoral specialization’ between centres which is common in morphologically polycentric regions. Figure 1 Cartogram of Connectivity for GaWC 91, 2004
Source: Taylor and Aranya 2008.
Figure 2 European Service Network Linkages
Source: Globalization and World Cities Study Group, 2004.
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