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There was a time when moving from point A to point B was incredibly expensive and time consuming, forcing individuals, communities, and industrial activities to cluster together

Manufacturing, for example, had to be close to raw material sources and to other suppliers, if manufacturers wanted to benefit from low transport costs, industrial specialisation and knowledge exchange. This is the well-known story of many industrial districts, à la Marshall or Becattini, where reciprocal proximity was one of the key sources of firms’ success.


In recent years, however, scholars and policymakers have started to question the importance of spatial proximity for businesses operating in similar sectors or belonging to the same supply chain. First of all, as opposed to cumbersome manufactured goods, the progressive shift towards a post-industrial economy, based more on services, decreases the need for physical nearness. Second, and closely related, the ever-increasing importance of ICTs and the extraordinary speed at which the whole sector is growing has had obvious implications on transport costs. So if spatial proximity has lost its original relevance, why are we still obsessed with the idea of sector-specific clusters of firms?


In 2014, we conducted some analysis for CBRE on London’s recent tech- and media-fuelled growth, identifying key locational trends across the capital and providing economic projections of the same for the next five years. Some of the key outputs fed into CBRE’s Creative London: Pushing Boundaries report. The report looks at the geography of these firms in London, their tendency to cluster, and how they are re-shaping the office market through pioneering new ways of working.


Several findings clearly bear out some older industrial theories: for example, one of the most important variables that seems to affect the decision of firms to settle in a specific area is connectivity, which can be interpreted in different ways. It might mean the ability to easily reach clients, both local and non-local (regional, national and international). For instance, being settled in areas such as King’s Cross and Shoreditch means being spatially close to the market. But it also provides connectivity in terms of proximity to international transportation hubs (St Pancras) and links to the main airports.


However, the advantages are not just about transport costs. The report discusses the importance of the location choice of a leading firm and how this might influence other firms’ decisions to settle in a specific area: witness the “Google effect” in King’s Cross. Although the proximity to such a significant competitor seems counter-intuitive, the benefits outweigh the drawbacks as the level of innovation in the area is increased through knowledge spillover and information exchange.


The report suggests therefore that proximity matters even for the so-called weightless economy. The relevance of urban clusters for creative firms is not just about reducing transport costs; proximity is a facilitator of knowledge exchange and it enables the creation of communities of like-minded entrepreneurs and business activities, to the benefit of all involved.

In the weightless economy, why do firms still cluster?

BOP's Dr Caterina Branzanti on the ongoing relevance of spatial proximity for tech and creative firms

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By BOP Consulting

Richard Naylor

Director, Research

Richard is a world leading expert in research methodologies for the culture and the creative industries, having been an early innovator in the development of frameworks for measuring the economic and social impacts of cultural activities.

Richard Naylor - Director, Research | BOP Consulting

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Richard Naylor

Richard Naylor

Director, Research