AT/HH/AW Second draft 2002-05-02
The Death of Distance
or
The Prospering Life of the Geographical Dimension of Resources?
1. “Place” – a drawback or an advantage?
In his attentive book “The Rise of the Network Society”, Manuel Castells (1996, Vol. 1) argues that the forces of globalisation, the new information technology included, has replaced “space of place” with “space of flows” and made economic activities “deterritorialised”. Castells’ interpretation reflects an underlying assumption that colours approaches ranging from traditional economics to economic geography – place is a draw-back that the individual company has to overcome. An almost opposite view of place is brought forward in another not less attentive book; “The Competive Advantage of Nations”, where Michael Porter (1990, p. 119) argues that “Vigorous local competition not only sharpens advantages at home but pressure domestic firms to sell abroad in order to grow.” With this statement, Porter gives voice to an understanding that not only has influenced business strategists, but many scholars within economic geography – place as a creator of advantages for the individual company.
Whether being engaged in a company or being a research trying to understand how company develops and prosper, it is rather confusing to be left with to such diverging views on the implications of geographical localisation. Before we take a deeper look at the geographical dimension of industrial activities, let’s consider what’s behind the different interpretations of this phenomenon and its effects.
Despite that the issue of place and its role for the prosperity of firms has been dealt with since the days of Ricardo (1817, p. 156), “each country naturally devotes its capital to such employment as are most beneficial to each.”, the issue is still controversial . What modern researchers seems to
agree about, is that companies tend to co-localise within certain geographical areas, and that such agglomerations make sense. Or as underlines Dicken (1988), p.11) “the geographical concentration of economic activities, at a local or sub-national level, is the norm not the exception”. However, the understandings of the mechanism behind such co-localisations, and how these affect industrial activities, are rather often diverging – something that perhaps not is so surprising if we consider from which perspectives, and with which tools, the issue is investigated.
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Behind the research traditions treating place as something that can create advantages is the heritage of Marshall (1890). With Marshall as one of the earliest and most influencal sources of inspirations, scholars in disciplines ranging from economics and economic geography to applied economics have adopted the understanding that spatial agglomeration facilitates the development of localised knowledge, in terms of skills of labours, specialising of companies and learning among companies.
(See e.g. Hoover, 1948, Myrdal, 1958, Arthur, 1986, Krugman, 1991, Enright 1994). With Marshall’s (1890) observations in the setting, the research focus became directed to the issue of how agglomerations within geographical defined areas, such as villages, cities, regions, countries, affect economic activities. There are two main angles from which this issue have been approached; the cost of production and the market area of the firm, approaches that however not have been easy to combine. As Dicken (1998, p. 75) underline, in general these theorists “have been more concerned with incorporating space into economic theory than with attempting to explain the actual location of economic activities”.
The transfer of the issue of place from macro to a meso and business level, and also, to a more preferential issue on the research agenda, has actively been supported by one of the most prominent authors in the field of business strategy, Michael Porter (1990, 1994). Or, to use his own words (Porter 1994, p. 38): “Economic geography must move from the periphery to the mainstream.” The field of business strategy has mainly been concentrated on how the performance of a company is connected to place. In Porters’ perspective, which has influenced many scholars within the field of both business strategy and economic geography, the agglomeration of several similar companies is something that spur each to develop unique competitive advantages: “Competitive advantage is created and sustained through a highly localized process”. (1990, p. 19) The main mechanism behind prospering regions or clusters is according to Porter the intense rivalry created between companies located to such areas. Thus, the issue of place is framed with the underlying assumption that this is an important part of the issue of competition.
If a common dominator of how to approach place among scholars within economy, economic geography and business strategy is its role as a benefactor for economic activities – on a macro, meso or micro level, scholars engaged in internationalisation issues frames this issue differently.
According to Dickens (1998), the role of place in the internationalisation process during the last decade has been overshadowed by the “emblematic” issue or the “mantra of our time”; the phenomenon of globalisation. However, regardless standpoint in this debate: “a scenario of unstoppable global forces leading to an ultimately homogenized world” or “that the globalization story is little more than hype” (Dickens, 1998, p. xiii), in an internationalisation or globalisation perspective place is mainly an issue of how to overcome distance. [1] An attentive research area within this field concerns the development of “space-shrinking technologies”, developed to overcome the “friction of space and time” (Dickens, 1998, p. 151). This focus can be regarded as a heritage from a time when there existed numerous limits in international and other long-distance communication and interconnection among companies – although these problems perhaps are enlarged from the perspective of recent communication technologies. As Lindqvist (1984) shows, at the mid 1700s the news about a new technological break-through could travel from London to Stockholm on less than a week, with the help of a thoroughly development system of horse carried couriers. (This is about the same time it takes to go through the e-mail inbox after being out of the office for some days). However, we will not dwell deeper into the issue of how much modern information technology has contributed to reducing the problems of distance, but just conclude that from an internationalisation perspective, a company’s localisation is a problem to overcome. That companies actually seems to be influenced by features related to the place they are located to is seldom seen as an advantage – rather as something that has to be reduced.
Place as a restriction is also a view that characterises several of studies resting on a network perspective – with Markgren, (2001) and Törnroos (19xx) as two inspiring exceptions. This interpretation can be traced back to earlier IMP studies, where place became equal with distance. (See eg. Håkansson, ed, 1982). The spatial localisation of a company was considered to impact on
exchange episodes, and particular, on the social exchange. Thus, a company’s geographical localisation was investigated in terms of how it affects the social interaction between people engaged in different companies, and it was approached with the concept of physical distance. This while the issue of how place influences the resource that is the object for these interaction processes was neglected. With this categorisation at hand, it is easy to understand why a company’s localisation within the network setting in general has been treated as a problematic element in interaction processes, and not as something that can contribute to the creation of benefits – and thus not of interest as being a specific unit of analysis. As a consequence, more recent studies within the network sphere have given greater attention to issues considered as being important for the prosperity of a company, for example technological and product development, purchasing and marketing, rather than to investigate how space is related to these questions.
However, and this is a more severe objection, regardless framed as a hindrance or an advantage, what all the above mentioned approaches have in common is that place mostly is approached as an independent variable. The underlying assumption is that space is something that is given – an element that can give the individual company certain advantages, or create certain drawbacks. But, it is not considered as an object or a resource in itself – as something the individual company can influence or manage, or combined with its own or its counterparts resource constellations. This assumption have prevailed a structural, physical, static view of geography, rather than handling space as a dynamic, variable object business life.
2. Place as a dependent variable – and as an important aspect of heterogeneous resources
What aspects of place are then outlined if we approach this issue as a source of dynamics, i.e. if place is considered as an aspect of heterogeneous resources – something that can have both negative and positive effects, dependent on how it is combined and utilised. When considering industrial activities from a resource interaction perspective[2], place can be seen as a dependent variable, something a company actively relates to in their business activities. Thus, with this approach in the setting, place appears as an object of analysis in itself, in terms of how it is interrelated to other variables defining business networks’ attributes and dynamics as well as company’s resource constellations. This is also how the issue of place is approached in an international study of the furniture industry (see Baraldi, Bocconcelli and Söderlund, 2001) and of a study of a Swedish high-tech area (see Waluszewski, 2002).
In this paper, we will discuss how the issue of place can be approached with a resource interaction model. We will illustrate this discussion with examples from two empirical investigations of technological development; one in the North east and centre of Italy, one of a “high-tech” area in Sweden. (Tunisini, 2002, Waluszewski, 2002). We will use these studies by focusing upon the interplay between individual companies and their contexts in terms of the industrial districts they are placed within. Certainly there are many different motivations behind this focus, but the most important one is that by using an industrial district as focal point of reference, we can grasp the interplay between companies in a collective constructive context – that is on a genuine “meso” level.
3. An important source of inspiration: the Italian district research
An important source of inspiration to this way of approaching place is the research carried out within the Italian industrial district field, where a tradition of treating the geographical location as a variable that is combined with other strategic variables has developed. A main focus in the Italian district research tradition has been how spatial proximity between companies affects their business behaviour, the issues of how this phenomenon is related to both structure and dynamics included. (See e.g. Piore and Sabel, 1994; Becattini, 1987; Brusco, 1989) However, role and function of industrial districts and local production systems have also been, and still are, the object of great debate among scholars.
At least two main perspectives can be distinguished, (Boari and Lipparini, 1999). One is very much “district-oriented”, i.e. it identifies the district as a spatially concentrated community of small and mid-sized companies and tends to focus on the economical and social variables that explain the functioning of such contexts. These types of studies rests on a macro-perspective, with the underlying assumptions of that the determinants and the advantages of industrial districts is the
division of labour among companies, the role of the social dimension and, in particular, of the “industrial atmosphere”. Co-ordination among companies’ activities is seen as solved by price mechanisms, information circulation and informal co-operation. The origin of this approach is scholars with a background in industrial economics, dissatisfied with the neglect of the role of the individual actors – the single company – and of the impact of its own behaviour in its market context. However, although these scholars have broken with the traditional, structural level of analysis in industrial economics, they are still resting on the same ground in how to approach the companies within an industrial district. The firms of the district are treated as being homogeneous; interacting uniformly with one another in an area where institutions can matter more than the individual firms.
The second way of approaching industrial districts has developed very much as a reaction against the first, and focuses upon a heterogeneous actor dimension in the industrial districts (Varaldo and Ferrucci, 1997). It has grown especially from the analysis of the role played by individual actors – small and mid sized companies that have rapidly grown in the district – to promote the growth of the whole local contexts where they are situated. Some aspects of the investigated heterogeneity among firms in a district are how certain companies are capable of playing a driving role for many companies in the districts and handle a large set of relationships significantly influencing and directing the development of the industrial district.
Attention is created towards the business behaviour of the single actor, on how it can be a leading company in its market context, on how individual business behaviour can impact on the dynamics of the whole context. Some authors have developed an approach that is very useful for our studies of some Italian and Swedish industrial districts, is the combined analysis of the actor level and district level. With Lorenzoni and Baden-Fuller (1995), Lipparini and Lorenzoni (19xx) in the forefront, a network/constellation approach has been developed in order to analyse local production. This in terms of focusing upon some individual leading actors – the strategic centre – and the set of its relationships with other actors, especially local suppliers. In other words, these scholars has taken a “meso-level” perspective and have attempted to investigate how both the individual and the collective dimension of entrepreneurship influence each other and how both promote the development of local contexts. These scholars have particularly stressed the role of local emerging companies with superior co-ordination capabilities and their business relationships to promote the development of a local context, i.e. district development. They have stressed the view of relationships as a mean to develop capabilities, the importance of collective strategies and interactive learning in internationalisation processes (Caroli, Lipparini, 2001). Other scholars with a similar approach have investigated the dynamic aspects of industrial districts in terms of how new, foreign companies are “entering into” these, involving local companies and their partners into the international production and distribution circuits. (See e.g. Pilotti, 1998; Grandinetti and Rullani, 1999; Corò, Micelli, 1999