GaWC Research Bulletin 66

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Metropolitan Information Producers and Services and their Relevance to Innovation Theory

C. Heinrich*


During the last years the future role of urban regions, especially of metropolises, has been debated about. On the one hand it has been argued information and communication technologies (ICT) would encourage virtualisation and globalisation of economy and society disembedding from localities, regions, and space in general (e.g., Bühl 1997). In contrast, empirical evidence suggested rather the growth and increasing importance of great cities (Sassen 1996). Nevertheless suburbanisation and the emergence of more polycentric structures of urban space are signs of actual changes in spatial structures, and ICT networks seem to contribute to this development (Anas / Arnott / Small 1998, p. 1427, 1438f.). But unless prophecies of a virtual economy proposed electronically based contacts cannot substitute all communication (Glaeser 1998, p. 140-160; Quigley 1998, p. 130ff.), and economies of urbanisation, e.g. chances of unplanned, informal, and sometimes surprising contacts, as well as agglomeration economies, e.g. pooled labour force, thick markets, are still serious frontiers of deterritorialization.

Globalisation, indeed encouraged by ICT (e.g., Baldwin / Martin 1999, p. 4; Hatzichronoglou 1996, p. 7; Krugman 1995, p. 342; Oman 1998, p. 223), and urbanisation seem to be quite interdependent, because the constituting international flows of finances, capital, trade, and intrafirm transactions are organised at concrete urban localities (Douglass 2000, p. 2315). 'Hence, to understand how globalisation takes place requires investigation of real places, in particular large metropolises. These are generally termed 'world cities', so called because they function to provide services of control and organisation through which the contemporary world economy operates.' (Taylor / Walker 2001, p. 23) The difference of metropolises to urban regions of lower rank consists in overcoming functions of mainly regional supply by export orientation and international integration. Highlighted by global-city and informational-city approaches (Shin / Timberlake 2000, 2258ff.), a global division of labour between metropolitan regions emerges constructing city networks in space (Capello 2000, p. 1927; Shin / Timberlake 2000, p. 2280f.).

Traditional Christaller-type city models, but also modern approaches of the background introduced above, manifest service functions as constituting criteria of urban and metropolitan regions. Metropolitan regions are usually characterised as cities of high rank in hierarchy, containing sophisticated producer-oriented information services (Blotevogel 1998; Sassen 1996). Investigation of structural change in metropolises therefore requires consideration of information-intensive service industries, their possible reorganisation in modern economy, and their relation to locality and space. This topic of studies shall be drafted in the next few paragraphs.

In contexts of informational revolution hypotheses an increasing importance of service industries is claimed due to ICT, just like the rise of manufacturing according to steam engines and new transport systems (Barras 1985, p. 15 [83]). ICT create storability and tradability especially of information services, therefore export and globalisation of services get possible (Aharoni 1993, p. 205; Glasmeier / Howland 1994: 198ff. [63ff.]; Hindley / Smith 1984: 386f. [500f.]; Illeris 1989, p. 271 [144]; Reske 1990, p. 37; Rubalcaba-Bermejo 1999, p. 119ff.; Sauvant 1993, p. 300f.) In addition, a certain degree of standardisation allows for economies of scale and growing productivity (Aharoni 1993, p. 213; Dunning 1993, p. 40f.; Peter 1997, p. 221).

Although information services seem to get a technology push by ICT, the comparison with industrial revolution gets questionable in this context. Industrialisation designed or even defined the specific characteristics of the manufacturing sector, concerning final products, factors of production and typical processes of value adding. Conventional definitions of services stress on immateriality, intangibility, non-tradability, non-storability, and non-erodability of service products. In addition, consumption and production have to take place in the same instant (Peter 1997, p. 217-245; Reske 1990, p. 12; Sauvant / Mallampally 1993, p. 2). In contrast, ICT rationalisation potentials seem to negate the basic qualities of services. The blurred frontier between manufacturing and service industries requires a reliable systematic criterion of definition possibly provided by Hirsch (1993, p. 76): Services are constituted by a necessary interaction of producer and services. According to organizational development within the service sector, this interaction element might certainly occur at various points in value adding. Standardisation of service products and routinisation by an internal division of labour are permitted, but the total absence of the supplier-customer interaction changes the service into an immaterial information product. Nevertheless it is to distinguish between information services (characterised by interaction of supplier and customer) and pure information producers.

Why to reflect on information and information services, their influence on the economy, and their spatial contexts? Since the early beginnings of industrialisation a great deal of productivity rises, income growth, and increasing standards of living results of technological progress, i.e. science and knowledge production applied to product and process innovation (Fourastié 1969, p. 66f.). Consequently the industrial society step-by-step tends to evolve a knowledge-based or information economy as we currently discuss the structural changes. The development of ICT has pushed the codification of the societal knowledge base, therefore we experience the rise of an information-intensive economy (Foray / Lundvall 1996, p. 13f., 22; Lundvall 1998, p. 42ff.), although tacit knowledge does not get redundant but necessary to select and appropriately use the information (over-) flows (Lundvall 1998, p. 43).

Certainly, information intensity is not only encouraged by ICT potentials, but is also affected by an increasing demand for information goods and knowledge of other types. The circumstances and strategies of firms are changing: Globalisation provides chances of market exploitation and cost reduction, but also increases the complexity of enterprises' environments. Strategies of standardised mass production are left behind, quality and innovation competition at 'saturated' consumer markets get more intensive (Aharoni 1993, p. 217ff.; Illeris 1989, p. 268f. [141f.]; Reske 1989, p. 40-55). To survive in this competitive environments, firms intend to better exploit knowledge resources, to innovate, and to acquire information on markets, products and technologies. Service industries acquiring, producing, assembling, storing, monitoring, interpreting and analysing information (Dunning 1993, p. 42) support the innovativeness of their customers (Cappellin 1989, p. 643 [267]; Coffey / Polèse 1989, p. 15 [83]) and transfer knowledge on products and technologies across independent firms (Bryson 1997, p. 97 [380]; Cappellin 1989, p. 646 [271]). The latter function acts as an alternative to informal-knowledge spillovers in industrial districts.

Competitiveness increasingly demands for flexible, information-intensive value adding systems integrating manufacturing and service elements (Hansen 1990, p. 467 [218]; Reske 1990, p. 32ff.) towards a 'servindustrial economy' (Rubalcaba-Bermejo 1999, p. 13). Within these complexes information services provide flexibility, reliable information on the economic environment, and reduce risks (Kerst 1996, p. 156ff.). The crucial service character of information services returns this way, and will mainly emerge in contexts of solving complex problems (Dichtl 1992). The service element, i.e. the interaction between service producer and customer, will take place to analyse the customer's problem (Kerst 1996, p. 153)in various communication modes and in the appropriate phases of value adding (Aharoni 1993, p. 214; Brake 1996, p. 112ff.; Kerst 1996, p. 153; O'Farrel / Moffat 1991, p. 206ff. [281ff.]). Since not all interaction can be proceeded on ICT basis, decisions for service locations will therefore be subject to the locality of potential customers (Brake 1996, p. 112; Daniels / Van Dinteren / Monnoyer 1992, p. 1745 [333f.]). Structure of space, in general, seems to strongly depend on production processes and market relations of information producers and information services.

As we have seen, information and knowledge are described as important factors of modern economy. Although these terms seem to be used somewhat interchangeably, we should try to categorize for further discussion especially in spatial contexts. In economics knowledge emerges as a quite diffuse concept. This confusion depends on differences in definitions, but also on the actual poly-dimensionality of knowledge (Arrow 1994; Machlup 1980). Knowledge emerges as an output of investments and as an input into production as well (Arrow 1994, p. 9-12; Edquist / McKelvey 1998, p. 133; Fischer 1995; Hodgson 1998, p. 216; Machlup 1980, p. 159f.). Knowledge is embedded into persons or physical material (Andersson 1995, p. 31), or into organisations and regions (Johnson / Nielsen 1998, p. xvii; Otala 1994, p. 14). Because of non-rivalry in consumption it may be offered as a public good (Arrow 1994, S. 12f.; Andersson 1995, p. 14; Chiaromonte / Dosi / Orsenigo 1993, p. 124; Hodgson 1998, p. 216; Monk 1989, p. 48f.), but in fact it is marked by property rights (Mansfield 1993, p. 108 (282]) and traded at service markets (Andersson 1995, p. 22ff.; Ellger 1988, p. 95; Machlup 1980, p. 156f.). Although existing knowledge diffuses slowly (Karlsson 1995, p. 189; Mansfield 1961, p. 744 [6]) and its sensuous application by the recipient is crucial (Machlup 1980, p. 57), frequently technological knowledge is produced in global cooperations, and nations often use knowledge of foreign origin (Humbert 1998, p. 85ff., 101). The mobility and universal applicability of knowledge depends mainly on the grade of codification. Codified, explicit knowledge is easy to transfer, but implicit, tacit knowledge is somewhere embodied (Lundvall 1998, p. 34).

  • Knowledge will be used as a superordinated term, including education, skills, experience, knowledge stored in media, and all other forms. If bounded on one single person it is called human capital. A part of human capital will always be tacit knowledge, referring to professional experience, ability to solve problems, or ability to communicate (Arrow 1994, p. 16f.; Lundvall 1998, p. 34ff.; 43).
  • (Quasi-) scientific and technological knowledge on facts, processes, causalities can be quite easily codified and mobilised on ICT basis (Lundvall 1998, p. 35f.). Codified scientific and technological knowledge is globally served (Stiglitz 1999). Knowledge of this form can be accumulated by innovation and learning (Chiaromonte / Dosi / Orsenigo 1993; Fischer 1995; Karlsson 1995; Lazonick 1993; Mansfield 1961).
  • Regions and organisations might create synergetic, collective knowledge (Dunning 1993, p. 40ff.; Kieser 1985; Johnson / Nielsen 1998, p. xviii; Otala 1994; Storper 1997a, p. 30). Diffusion out the knowledge-carrying community will be difficult, because the evolution of that type of (typically tacit) knowledge requires socialisation.
  • The term information is used for explicit, codified knowledge easy to transfer. It is suitable to distinguish between data and information, let the first term be codified hypotheses and facts without reference to the recipients needs, and the latter term concerns data actually relevant to the recipient (Stickel / Groffmann / Rau (Eds.) 1997, p. 161, 326, 776).

Although in general knowledge and information are said to be the most important factor of production, and learning emerges as the most important process (Lundvall 1998, p. 33), the creation, diffusion and application of knowledge and information will find varying organisational platforms. Since each industry is characterised by one or at least only a few ways of efficiently organising the production (Dosi / Marsili / Orsenigo / Salvatore 1995, p. 417 [439]), the development of each industry will also evolve along characteristic paths. As it is drafted before, industries can make use of information producers and services in order to achieve access to knowledge and to improve their innovativeness. Another way of knowledge creation and diffusion is constituted by networking of Small and Medium-sized Enterprises (SMEs).

According to this different options the paper is organised as follows: Section 2 for short will introduce Industrial Districts, consisting of SME networks, as a specific organisational type of knowledge creation. Informal communication modes, incremental innovation series, and spillovers of implicit knowledge or regional learning characterise this ideal type of industrial organisation in space. Section 3 will refer to metropolitan information producers as an alternative way of getting access to knowledge. Information producers and services supply explicit knowledge, they mainly substitute tacit knowledge of industrial organisation by science-grounded knowledge, they create knowledge later diffusing into economic applications. Industrial districts rely on experience, and ideally they provide technological progress on their own resources. In contrast, information services and producers try to increase the competitiveness of their customers by introducing objective methods and criteria. The underlying logic is the outsourcing and market-based acquisition of innovation. Both sections will stress on the spatial boundaries characterising these different modes of knowledge creation, in order to highlight the role of metropolitan localities. A 4th section will summarize empirical evidence on metropolitan regions and their role as preferred locations of information producers and services.

INDUSTRIAL DISTRICTS AS INNOVATION SYSTEMS

Since the rise of New Growth Theories (Barro / Sala-i-Martin 1995) a great part of researchers' attention is paid on technology, technological progress, and innovation. This shift of focus has been due to empirical evidence, that ratios of about 50% of economic growth cannot be explained by accumulation of capital and labour in neoclassical growth theory. In Solow type growth models this enormous residual is usually interpreted as the impact of an somewhat exogenous, manna like technological progress. Some scholars emphasizing on sustainability also mention the influence of natural capital on actual growth, stressing that neoclassical theory is generally abstracting from an important factor of production (Daly 1999, p. 90).

Besides that unorthodox interpretation, schools of thought have been constituted, investigating structures of industries, production processes, communication contents and networks, and inter-firm relationships in order to discover the ways innovation is created and diffused during production. Research in this fields often relates to industrial districts described by Marshall (1920, p. 271). In this framework agglomerated industries and regional labour pools provide learning-by-doing opportunities, which result in regional spillovers of knowledge. As Marshall himself forecasted, an increasing labour mobility would enable such spillovers even between regions, and contribute to the erosion of competitive advantage of the described regional clusters.

But experience tells us, that the mobility of labour (or let us better say: people) is limited. Even in our current times of globalised commodity and capital markets it seems to be common sense, that (less qualified) labour is a rather immobile factor of production (Feenstra / Hanson 1996, p. 240; Francois / Nelson 1998, p. 1483ff.; Hatzichronoglou 1996, p. 13; Krugman 1995, p. 332ff.). If labour market effects of globalisation are discussed, it is usually referred to wage differentials or transitional and structural unemployment in high-wage countries due to price competition with low-wage locations. Human migration flows are hardly taken into account as potential results of globalisation, possibly resulting in domestic effects (as an exception: Straubhaar / Wolter 1997, p. 101).

Doubtless, human mobility depends on several factors. Highly qualified and specialized persons are more likely to migrate across regional and national borders (Welzmüller 1997, p. 25ff.), because the probability of suitable job matching within only one regional labour market will decrease with the level of skill specialization. Immigration laws, but also borders of language and culture, or embeddedness of persons into familiar and/or social environments, counteracts mobility. But there may be other factors of immobility, e.g. territorialized assets not easy transferable into financial values. These might be present and future property rights on resources or enterprises, depending on integration into a specific community. Another regionally bounded asset might be knowledge only applicable in specific territorial contexts (e.g., a lawyers knowledge on national laws, skills suitable for regionally clustered industries only, etc.).

Structures encouraging immobility like the described above, and the resulting territorial embeddedness of production, innovation and technological progress, might result in regional SME networks forming industrial districts. Such regional clusters are in focus of attention, because competitive advantage is sometimes achieved in contradiction to Heckscher-Ohlin-models of comparative advantage. Based on neoclassical theory on trade it could be expected, that high-wage countries would increasingly specialize on human-capital and science intensive industries, whereas labour intensive industries should be relocated to low-wage countries. In fact, high-wage countries need not specialize in high-tech production, but even traditional sectors mainly based on craftsmen skills can provide a competitive export basis (Edquist / McKelvey 1998; Foss / Lorenzen 2001).

One factor of competitiveness of these SME networks is based on flexible specialization, combining economies of scale even in small units and flexible reaction on market signals. Another competitive advantage consists of knowledge spillovers and innovation within these regional networks (Berranger / Meldrum 2000, p. 1830; Foss, Lorenzen 2001; Lissoni 2000; Tappi 2001). These mechanisms of knowledge creation and transfer constitute the actual innovation system, and economies of scale at the regional level (Romer 1986). Knowledge creation and innovation within SME networks usually do not take place in formal R&D departments, but through informal and personal contacts between employees of different firms, or in cooperations between supplier and selected customers (Lissoni 2000). Cooperated testing of new equipment or other R&D devices, per example, requires a great portion of trust: The knowledge gap achieved by R&D cooperations has to be kept secret, until it could be exploited as competitive advantage at the markets.

Familiar or quasi-familiar relationships (Porter 1990, p. 153) are the basis of trust-based networking, the informal communication of only partially codified knowledge and the step-wise integration of actors. Shared rules and norms created by socialisation processes form a so-called moral capital (Yaffey 1998, p. 279f.) enabling the construction of self-fulfilling agreements (Telser 1980). This moral capital is worthy, but needs to be protected against free-riding behaviour by control and rule sanctions (Yaffey 1998, p. 279). Regional identities, co-integration of strategies and interest through familiar boundaries, behaviour control through physical proximity encourage cooperation, and regional clusters can achieve synergies providing competitive advantage.

Although industrial districts are popular regional innovation systems, networks are in danger of falling into a lock-in trap. Potential reasons might be resistance on a false paradigm (Swann / Gill 1993, p. 24), or an exaggerated harmonisation of visions and ideas (Swann / Gill 1993, p. 210ff.). New information might be neglected (Malecki / Tödtling 1995, p. 288), or the network tries to verify false information on potential markets (Swann / Gill 1993, p. 20ff.). Innovation might be avoided, because expensive investments into an older technology have taken place (Karlsson 1995, p. 189; Mansfield 1961, p. 754f. [16f.]), or because the necessary investment is expensive in general (Mansfield 1961, p. 762f. [24f]). Innovation might also destroy monopoly rents (Baldwin 1997, p. 15) and will be rejected therefore. Besides that factors knowledge creation might be hindered due to free-riding eroding the trust-based relationships.

As a method to avoid lock-in without giving up the positive potentials of networking, the integration of regional networks into global knowledge flows is discussed (Humbert 1998, p. 104; Malecki / Tödtling 1995, p. 288). This suggestion relies on the presumption, that network actors are in principle eager for innovation, and lock-in is merely a disease. But this need not be the case in general. Cooperations between firms might also aim to decrease the rates of innovation and the intensity of competition, in order to reduce R&D costs and/or to acquire monopoly rents. Such Trusts may be as stable or unstable as innovative networks are. To validate the success of networking, not only rates of innovation should be investigated therefore, but also objectives, strategies, and interdependent actions should be taken into account.

INFORMATION PRODUCERS AND SERVICES AS AN ALTERNATIVE TO INDUSTRIAL DISTRICTS

Industrial districts, although an interesting example of regional innovation systems, are facing various problems. First of all, regionally immobile (but interfirm-transferable) human capital, trust-based familiar relationships, and eagerness to innovate can hardly be produced. Besides that problems, intraregional knowledge spillovers more important than invention itself (Noteboom 2001) are limited due to the overwhelming importance of tacit knowledge. If the desired knowledge is implicit, it can only communicated in long-lasting, personal interactions, including learning by doing and learning by observation. The production of codified, explicit knowledge, even increasing learning capabilities (Noteboom 2001), is therefore more important than the scientific interest in tacit knowledge and industrial districts might suggest. Some researchers exclaim innovative SME networks to be rather an exception of innovation systems than a common form (Malecki / Tödtling 1995, p. 289).

If competitive advantage of innovative networks is rare, other strategies of gaining the needed knowledge, achieving competitiveness and transferring knowledge between firms and regions must exist. Information services located in metropolitan regions mainly transfer knowledge between firms and regions (Bryson 1997, p. 97 [380]; Chiaromonte / Dosi / Orsenigo 1993, p. 124), providing an alternative mode of knowledge diffusion. In addition, the production of explicit knowledge affects on the innovativeness of firms (Mansfield 1991, p. 2f. [164f.]. This objective shall be followed within the next paragraphs, first asking for knowledge production, than paying attention on knowledge diffusion. Due to ICT effects partly reorganising information services into information producers, this sector distinction will be argued in the next sections. It is assumed, that information producers and services fulfil different tasks in innovation processes.

Producers of Explicit Knowledge

Innovative SME networks are a rather scarce case of knowledge production, and relying on implicit, tacit knowledge only diminishes a region's capacity of learning. Success of industrial districts in the long run depends on a fragile balance of competition and cooperation, to achieve the necessary trust-based division of labour on the one hand, but also the competitive climate necessary for innovation pressure (Mansfield 1961, p. 745ff. [7ff.]). Because of this dangers of erosion, of lock-in traps and of restricted learning capabilities there must exist other sources of regional competitiveness. In contradiction to milieu- and district oriented approaches, research on knowledge- or information-based societies often refers to producers of explicit, of scientific knowledge as an important source of growth and welfare (Fourastié 1969; Machlup 1980; Stehr 1994). Empirical investigation within the latter framework suggests, that academic research provides a public good of knowledge diffusing through the surrounded economy and increasing innovativeness, productivity and growth (Mansfield 1991). In any rate, attention on producers of scientific or at least explicit knowledge, organised academically or privately, seems to be justified.

Scientific knowledge is often served or subsidised as a public good (Arrow 1994; Ellger 1988, p. 14; Monk 1989, p. 50; Pompili 1990, p. 120f.), because very basic knowledge progress cannot immediately transferred into new products or processes of production. A market price is available in case of privately financed R&D, if the new knowledge can be easily exploited leading to competitive advantages of the financing actors (Machlup 1980, p. 156f.). Nevertheless, the absorption of publicly offered new knowledge is not free of charge. Adaptation and exploitation of knowledge requires learning, communication, and a certain level of previously acquired skills (Blessin 1997; Bryson 1997, p. 99 [382]; Chiaromonte / Dosi / Orsenigo 1993; Karlsson 1995, p. 189; Kieser 1985; Lundvall 1998, p. 37ff.; Noteboom 2001; Otala 1994). Therefore the so-called diffusion of knowledge into the economy is a rather slow and demanding process (Mansfield 1961, p. 744 [6]).

Producers of explicit knowledge are often concentrated in space, especially in metropolitan areas (Caniëls 2000, p. 127ff.). These agglomerations provide a large pool of specialised and highly qualified potential employees obviously required for R&D and similar information production. Metropolises are characterised by a great diversity and chaotic self-organisation (Andersson 1995, p. 13), providing and organising a large amount of information (Bryson 1997, p. 99 [382]). A wide range of formal and informal, planned and accidental contacts within diversified agglomerations (Ellger 1988, p. 95; Glaeser 1998, p. 149) creates a productive and stimulating atmosphere. The great variety of potential contacts delivers surprising links between complementary, but previously divorced fields of knowledge encouraging innovation in effect (Andersson 1995, p. 17f.; Bryson 1997, p. 98ff. [381ff.]; Coffey / Polèse 1989, p. 16f.; Nooteboom 2001; Mela 1995, p. 87). A greater variety of actors increases the probability of matching between congruent interests and strategies (Malézieux 1996, p. 106). Density of economic activities informs enterprises on profitability of innovation (Karlsson 1995, p. 190), encouraging diffusion of knowledge, but also filtering different innovations due to economic relevance. In metropolises a 'social overhead capital' emerges (Pompili 1990, p. 124), securing the superproportional innovation and imitation capability of metropolises (Tödtling 1990, p. 270ff.) in self-enforcing processes. So-called 'weak' location factors like a stimulating social, cultural and natural environment (Dézert 1996a, p. 13; Dézert 1996b, 103; Douglass 2000, p. 2324f.; Lever 1996, p. 19) might add to the attractiveness of metropolises.

In addition to these conventional economies of agglomeration and urbanisation, market related information producers might profit of proximity to potential customers in metropolitan regions (Daniels / Van Dinteren / Monnoyer 1992, p. 1745 [333f.]). Since metropolises function as nodes in networks of transport, communication and organisation networks, economic proximity will not only depend ob topographic distance, but on effective accessibility of locations. Metropolitan regions might therefore form a network characterized by division of labour and interdependence (Sassen 1996; Storper 1997b; Taylor / Walker 2001, p. 23), whereas the effective distance between metropolis and periphery is greater than between different metropolises. Knowledge diffusion therefore takes place through a system of cities, mainly (Pompili 1990, p. 123ff.; Pred 1973, p. 27-37). Due to this mechanisms of knowledge transfer peripheral regions have to integrate themselves into the networks of metropolises to get access to innovation, economic growth and development (Glasmeier / Howland 1994, p. 207f. [72f.], 214 [79]; Hansen 1990).

Information production bears the chance of concentration in only a few locations, and empirical studies confirm this theses. The specific characteristics of information products (non-divisibility, non-rivalry in consumption, absence of transport costs between production and consumption place) result in technologies of strong economies of scale and the whole globe as the optimal market area (Aharoni 1993, p. 219f.; Andersson 1995, p. 14; Arrow 1994, p. 10f.; Carveth / Owers / Alexander 19993, p. 334; Dieckmann 1999, p. 132f., 331f.; Ellger 1988, p. 14; Gomery 1993, p. 47-63; Monk 1989, p. 47ff.).

Technologies characterized by economies of scale explain oligopolistic concentration in reference to market structures, spatial concentration requires agglomeration economies, additionally. Obviously, the transactions between information supplier and customer are distance-crossing, but the production of the information good is based on interdependent work processes needing face-to-face-contacts (Glasmeier / Howland 1994, p. 214 [79], 223 [88]), since otherwise information production could go virtual. Using cost reducing effects of standardisation, work routines and learning curves (Dézert 1996a, p. 9; Glaeser 1998, p. 145; Lee 1984; Seufert 2000), spatial concentration may be self-enforcing resulting in entry barriers for other regions (Pompili 1990, p. 129).

Knowledge Transfer by Information Services

Production of explicit knowledge goes beyond the boundaries of (quasi-) academic research and the consumption of information goods. The other side of the information-based economy consists in the increasing integration of manufacturing and service industries, added by a growing need for information, towards a 'servindustrial economy' (Hansen 1990, p. 467 [218]; Rubalcaba-Bermejo 1999, p. 13-19). Flexible, information-intensive systems of value adding neglect mass production and use information service firms to re-engineer their organisation, to increase their product quality, to gain the relevant information on markets, and to adapt their strategies on a changing environment (Bryson 1997, p. 99 [382]; Cappellin 1989, p. 642 [267; Coffey / Polèse 1989, p. 15 [183]; Hansen 1990, p. 471 [222]). Since information services of the described profile intensively interact with their customers (Bryson 1997, p. 105 [388]; Kerst 1996, p. 153ff.; O'Farrel / Moffat 1991, p. 212 [287]), they interactively create product and process innovation. Changing the customers' conditions they help the diffusion of knowledge between firms and regions.

Similarly to information producers, information services profit of agglomeration and urbanisation economies. Besides their own production clusters service firms heavily depend on the access to their customers. Metropolitan regions provide both: a thick potential domestic market, and access of other markets due to the suitable infrastructure. The nodal function of metropolises extends the potential market areas of information service firms along the infrastructure traces (Maier / Tödtling 1992, p. 69). Indeed, as metropolitan areas are characterized as information-rich places (Ellger 1988, p. 74) linked into a network of global information, commodity and transport flows (Shin / Timberlake 2000, p. 2261, 2280f.), some metropolitan information services act as organising and structuring the information networks, and they let innovations diffusing through the city system. Information services function as information transmitters and organisers, and they create the information-rich service space of metropolises (Bryson 1997, p. 99 [382]).

A wide range of service industries mainly assembles, accumulates, manages and observes information on demand (Monk 1989, p. 48f). Markets are observed, resources and intermediate products investigated, changes and risks are valued, customers are informed on products and prices, and processes are controlled. All these activities deal with information (Barras 1985, p. 15 [83]). The intention shared across this class of information services is to prepare, to proceed and to control managerial decisions (Cappellin 1989, p. 642 [267]). This task requires the transformation between different types of knowledge, and the transfer of knowledge between various actors.

One important issue of information services is the transformation of customers' tacit knowledge into explicit information. Imagine a consulting firm picking up customer's unarticulated problems, analysing markets and internal structures, and finally proposing specific activities to solve the currently explicated problems. Explication of knowledge will be advantageous because codification reduces costs of seeking, communicating, storing information (Foray / Lundvall 1996, p. 22). Outsiders introduce an independent, more objective view into the matter (Bryson 1997. p. 103 [386]), giving the chance of rationalising and controlling the customers knowledge, problems and errors. Innovativeness can be grounded by general standards (Lundvall 1998, p. 42f.) making the processes of knowledge production easier to communicate to and to reconstruct by non-included parties. Codification of knowledge therefore encourages diffusion and facilitates learning (Foray / Lundvall 1996, p. 22). This effect will be mainly demanded and paid for by the service firms customers.

Usually the explication process will be enriched by additional expert knowledge supplied by the information service firm. If the service supplier can relate back to already codified knowledge, it will function as a broker in information flows (Bryson 1997, p. 97 [380]). Frequently tacit knowledge of the service firm's property will to be used to proceed the explication and knowledge accumulation process. Since the handling of codified knowledge, the selection and management of increasing information flows requires growing quantities and changing qualities of tacit knowledge (Lundvall 1998, p. 43), information services will usually integrate complementary types of codified and implicit knowledge, embedded into customer and service supplier as well. Usage and communication of implicit knowledge requires personal contacts of communication partners, as it has been discussed in case of industrial districts.

Information services decide for suitable locations in heavy interdependence of their customer forms. Even within this sector a large portion serves the local metropolitan market primarily, only the smaller tier relates to interregional an global markets (Goe 1990, p. 328f [287f.]). This segregation need not be strict, since locally oriented service firms might act as suppliers of export-oriented ones (DIW 1999, p. 95). Since service industries seem to be in want of spatial proximity to other service firms (Glasmeier / Howland 1994, p. 214 {79]), complementarities are the basis for economies of scope within diversified metropolitan regions (Capellin 1989, p. 650f. [275f.]).

Intensive interactions between customer and supplier, provided by face-to-face contacts between the service contract partners often organised as bilateral long-lasting teamwork, are relevant to explore and to analyse the customers' problem (Kerst 1996, p. 144). Geographical proximity of complementary information service types (e.g., consultants, headquarters, financial services, and other decision related firms and departments) organised in agglomerated metropolitan areas (Dézert 1996a, p. 12f.; Dézert 1996b, p. 99f.; Coffey / Polèse 1989, p. 17ff. [185ff.]) is one possibility of encouraging a great variety of intensive and durable face-to-face interactions. In the way information producing, distributing and managing firms and organisations interdependently locate themselves in metropolitan regions, they construct their shared location as a geographical place assembling, organising, creating, distributing, storing and accumulating knowledge. Application of this knowledge pool is the basis for spillovers across boundaries of sectors and regions.

Although within the 'servindustrial economy' geographical proximity between service supplier and customer, between material production and immaterial information service is necessary, and services, manufacturing, agriculture and information producers grow in interrelated trends (Rubalcaba-Bermejo 1999, p. 13, 19), a spatial division of labour in space is possible and evident. If you refer to Alonso-type models of urban space, metropolitan regions appear as huge Central Business Districts (CBD) serving their industrialised surroundings. The growing CBD relocates manufacturing into peripheral regions, but the metropolis itself attracts service firms super-proportionally (Glasmeier / Howland 1994, p. 208f. [73f.]). Cooperation and division of labour between service firms create a complex metropolitan service space. Codification of knowledge and communication between cooperating service firms, but also between service supplier and customer, form the organisational framework of these interactions.

In contradiction to regional embedding processes within industrial districts, synergetic knowledge will rather be stored and accumulated within corporations than within regions. Since metropolises and their service firm actors live on global information flows, professional milieus and organisational backgrounds will be more suitable settings of institutional embeddedness than spatial immobility and regional identity.

CONCLUDING REMARKS ON REGIONAL DEVELOPMENT

The paper presented here introduced two alternative types of innovation systems in space, asking for their advantages and risks. On the one hand the innovative industrial district was discussed, the opposite type is constituted by metropolitan information producers and services. Empirical evidence of various studies suggests information producers and information-intensive services to concentrate at several geographical coordinates thus creating metropolises. Spatial concentration results of a range of reasons. As already mentioned, conventional economies of localisation and urbanisation are of importance. But also access to physical, social and organizational networks, and the ability to contact potential customers are advantages of metropolitan locations. Metropolitan regions provide a functional and geographical proximity within the agglomeration, but additionally the nodal functions of metropolises facilitate the organisation of contacts across regional borders (Brake 1996, p. 112ff.; Capellin 1989, p. 645f. [270f.]; Ellger 1988, p. 73ff.; Illeris 1989, p. 271 [144]; O'Farrel / Moffat 1991, p. 213 [288]).

Pure information products are to be traded globally, but a certain degree of standardisation referring to contents and quality of services enables globalisation of services too (Aharoni 1993, p. 217ff.; Dunning 1993, p. 43; Rubalcaba-Bermejo 1999, p. 432). Export-orientation of services revolutionises conventional Christaller-type models of city hierarchy and appears as the basis of the international flows between metropolitan nodes of city networks (Hansen 1990, p. 469 [220]; Illeris 1989, p. 271ff. [144ff.]). Division of labour between metropolises within the information and service sector (Douglass 2000, p. 2324f.; Malecki / Tödtling 1995, p. 287; Sassen 1996; Shin / Timberlake 2000, p. 2280f.) necessarily requires exports and imports of information products and services.

Another aspect of interregional division of labour consists in an increased concentration of information producers and services within metropolitan regions, whereas on the other hand peripheral regions get industrialised (Coffey / Polèse 1989, p. 14f. [182f.]; Lee 1984, p. 153 [331]; Lever 1996). The paradigm of the 'servindustrial economy' given, the rise of information and service sectors is due to an integration of information-intensive services and manufacturing production (Dunning 1993, p. 35f.; Hansen 1990, p. 467 [218]; Hirsch 1993, p. 76; Reske 1990, p. 40-55; Rubalcaba-Bermejo 1990, p. 13, 133ff.). Living on intensive, durable, and personal interactions between service producer and consumer, flexible cooperation and production systems emerge increasing productivity and competitiveness at both market sides (Glasmeier / Howland 1994, p. 214 [79]; Illeris 1989, p. 268f. [141f.]; Kerst 1996, p. 138). Obviously metropolitan areas enable contacts across sectors without steady physical co-presence. Nevertheless, headquarters competent in decision-making are an important criterion for locating services (Daniels / Van Dinteren / Monnoyer 1992, p. 1745 [333f.]).

The constitution of metropolises and their urban hierarchy seems to be in flux. Since knowledge production and producer-oriented information services more and more get in focus of regional policy as enablers and indicators of positive development perspectives (Glasmeier / Howland 1994, p. 214 [79]; Häußermann / Siebel 1995, p. 94), investigation of production processes, location needs, and side-effects on spatial structures become important issues of economic policy. However, effective governance concerning these items is disturbed by contradictory observations and a lack of knowledge in general. A few arguments will illustrate this dilemma:

Whereas political decisions to centralise or - in opposite - to federalise governmental structures and localisation of competences are said to be important for the geographical spread of metropolitan locations (Dézert 1996a, p. 12; Dézert 1996b, p. 99f), governmentally induced initiatives to create information service clusters have already been crashed (Dieckmann 1999, p. 332). Although for instance the French government encouraged the localisation of information services in peripheral regions, an increasing spatial concentration even within this sector takes place (Malézieux 1996, p. 105, 109). Comparing this arguments and tendencies it seems to be in question, to which degree spatial structure will and can be politically influenced.

Another aspect of metropolitan economy in question refers to urban diversity and urban hierarchies. Interdependent specialisation of medium-sized metropolises within city networks is suggested (Capello 2000, p. 1926). On the other hand, large diversified agglomerations are observed to hold higher ranks in city hierarchies (Duranton / Puga 2000, p. 538). Although diversity (in larger cities) encourages employment growth, larger cities itself are said to grow at slower pace (Duranton / Puga 2000, p. 538). Catching-up-processes are observed, but the pattern of specialization and size distribution of cities is quite stable over time (Duranton / Puga 2000, 537f.). This contradictory argumentation demonstrates our common lack of knowledge on metropolitan regions, their specialization and diversification advantages. Structural change towards an information and service oriented economy takes place at least in urban regions, but explanations in favour of 'servindustrial' paradigms or of delinked pure information production are competitive.

However, although knowledge creation in the district and/or the metropolitan mode are said to be one of the most important factors of competitiveness in future, reliable advice concerning political support and controlling is rare. Although industrial districts might maintain a region's competitiveness due to innovation and a cost-saving division of labour, scepticism is suitable. Functioning and really innovative SME networks cannot be created. SME networking behaviour evolves more or less by chance, and only a few regions are able to successfully use innovative potentials of industrial districts. On the other and, the rise of metropolises is not easier to govern. Strategies to evolve information clusters have already failed due to economies of scale and large optimal market areas. But as a substitute, less centralised urban regions and national economies without world cities have to connect with the central nodes in city networks in order to get access to the world markets (see Brown / Catalano / Taylor 2001).

To understand different types of regions, their competitiveness as metropolitan regions, as industrialised complexes, but perhaps also as peripheral locations demands for a differentiated investigation of value adding, market relations, location needs and comparative advantages. To exploit only domestic resource markets or to act in global sourcing, to serve local or global markets, gives totally different perspectives on information and service industries and competitiveness of their locations. If it is to distinguish between interaction-intensive services and delinked pure information producers, strategies fostering regional competitiveness have to appropriately reflect on potential markets for these goods. Besides that, communication and transport infrastructures become crucial points, if access to networks would be the potential bottleneck. Further investigation on value adding and growth potentials of the industries in question is necessary in order to develop reliable theories on modern development, and to advise politics in reference to regional competitiveness.

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NOTE

* Caroline Heinrich, IRS Institute for Regional Development and Structural Planning, Erkner, Germany. Working Paper prepared for the Conference on 'The Future of Innovation Studies', 20-23 September 2001, Eindhoven (NL), Eindhoven Centre for Innovation Studies (ECIS).

 


Edited and posted on the web on 12th November 2001