Business locations in a networked world – No death of distance
- Information and communications technology (ICT) allows to spread the value chain over continents and time zones to exploit regional cost advantages. Some extreme scenarios have been forecast on economic topographies, ranging from the “death of distance” to the displacement of conurbations by cyberspace.
- But a critical assessment of the current situation shows that the looked-for changes are taking place much more slowly and discriminately; traditional locational factors are not becoming redundant.
- The differences between key locational factors on the international level are greater than on a sub-national level. The international division of labour requires that processes be highly standardised, clearly structured, easy to separate in organisational terms and not very complex in their cooperation.
- Established companies focus on other criteria in their choice of location than start-ups. The selection criteria shift in significance during the company’s life cycle. Contrary to the obvious assumption, empirical studies show that at every stage of their life cycle companies cling to their native roots.
- Capital is often a constraining factor for start-ups. In most cases founders are dependent on external funds, particularly VC. The influence of technologies on the development of local VC markets is comparatively slight, because start-ups do not choose their place of business by the number of local venture capitalists. Rather, VC companies tend to move their location to innovative regions featuring high start-up densities.
- Even with modern ICT, traditional locational factors are not insignificant for a company’s choice of site, although a shift is taking place in their relative value. In the near future locations will not be moved on a massive scale to less developed countries with lower wage costs. Quite the contrary, direct contacts and personal consultation will still be vital for complex processes based on the division of labour. This means that in the medium term knowledge-intensive high-tech companies in particular will focus their output in even more concentrated form on business centres in highly advanced regions.
- Yet emerging markets with a reliable institutional framework and good technical infrastructure still stand considerable chances of catching up economically.
For the full analysis, see
Business locations in a networked world – No death of distance. For more analysis see theDeutsche Bank Research website.