Information Technology Consultancy Firms: Economies of Agglomeration from a Wide-area Perspective

Abstract

'Agglomeration economies' remains a powerful concept in spatial analysis. However, in order to keep its full relevance for contemporary urban and regional systems, it must be completed in two ways. First of all, its qualitative nature, consisting of specific and general assets offered by the urban agglomeration, should be used to enrich the notion of economic externalities. Secondly, agglomeration economies must be considered as the external economies generated by urban agglomerations belonging to different wide-area networks linking high-level urban centres with each other. From this point of view, economies of scale and scope are achieved by multi-locational, knowledge-intensive firms whose functional and spatial organisation is based on the application of principles as: professional collaboration in loosely coupled networks, horizontal communication, optimisation of 'economies of overview', global marketing for locally managed niche markets. This functional and spatial organisation is illustrated for global information technology consultancy (ITC) firms. The spatial logic in the functional division of labour of such firms is strongly influenced by market forces at the level of large agglomerations, which are locations of headquarters of large client firms. But at the same time, this logic also follows the specific structuring principles of internal or support functions of the firms, i.e. R&D, technology and methodology, marketing and internal training. Different types of ITC firm show a variety of forms in their spatial organisation. This is due to the place of ITC in their overall activities, their professional origin (accountancy, organisation and management consulting, systems development, computer and communication hardware production) and the spatial reach of their markets. Still, the spatial organisation of these firms follows the logic of economic externalities offered by top-tier urban agglomerations integrated in wide-area networks. Market expansion happens via globalisation and the creation of new niche markets by existing consulting offices, rather than by the establishment of new offices in lower-tier urban centres.