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Saturday, November 24, 2007

The Importance of Business Location

Are Los Angeles, San Diego and other cities starting to steal Silicon Valley's thunder in the tech world? And does your choice of location - whether it's San Francisco or London - really matter?

Is Silicon Valley in danger of losing its position as California's technology centre? Sacrilegious as the thought may be, it could just happen. Southern California - better known for Hollywood glamour, the naval centre of San Diego, the fruit fields of the Central Valley and an unhealthy obsession with surfing - now employs almost as many techies as its Northern counterpart.

That's the conclusion of a report* last month from AeA, the national trade association formerly known as the American Electronics Association. Studying official data from 2004, it concluded that there were 214,900 high-tech jobs in San Jose and the rest of Silicon Valley in 2004, with the San Francisco-Oakland axis a few miles further north adding another 156,700. Once you take into account less fashionable cities like Sacramento, the state capital and official residence of Arnold Schwarzenegger, northern California is home to a grand total of 439,000 technology workers.

Surprisingly, the southern half of the state is just 21,000 jobs short of that figure. Hidden in the smog of the great parking lot we know as Los Angeles, some 165,700 tech workers flood the freeways each morning. Further south near the Mexico border, San Diego ranks as the fourth largest tech hub with almost 100,000 jobs, while Orange County follows closely behind.

Why does this matter? Because location, whether it's downtown San Francisco or the London suburbs, will always be a big influence on corporate success. Michael Porter, professor at Harvard Business School, has famously argued that clusters of industries and supporting institutions help improve the productivity of the companies within them and provide significant competitive advantages, from closer relationships to better information. And John Preston, associate director of the Entrepreneurship Center at Massachusetts Institute of Technology, points out that if you want to build a semiconductor business, you're better off doing it in Silicon Valley than Cleveland, for the simple reason that it'll be easier to find the employees and supporting infrastructure that you need. There are also soft benefits that rub off, as anyone from a British university town will testify. Just because your biotech office is a ten minute walk from a top-tier college doesn't automatically endow you a PhD, but mentioning Oxford or Cambridge University on the international circuit will immediately earn you kudos.

To an extent, this is a counter-intuitive concept for an industry that has made the real-time global economy possible through its own information management and communications technologies. If aircraft manufacturers can design planes using virtual teams located around the world, you'd think that US and UK tech developers would be able to telework from around the country. Yes, many start-ups require access to labs, high-performance systems and other research facilities - but you can do a lot of software programming on your laptop on a beach in Bournemouth with a simple remote connection to your central servers.

San Francisco, however, is a great example of why location really matters. If you set up a business here, you have an extraordinary choice of support partners on your doorstep, from high-tech public relations specialists to experts in patent law. If you're looking for funding, there are numerous angel networks to call on, and the home of the technology venture capital community is just forty-five minutes down the road. Similar arguments apply to London, of course. There are enormous benefits to operating in a financial capital because of the quality of companies it attracts, the physical infrastructure that grows up around it, and the support network that has evolved to help take London start-ups forward.

So what can London learn from California's experiences? Sadly, the challenges facing its different tech centres will be wearily familiar. Transport is still a problem in many parts of the state, from the clogged freeways of LA to the rush-hour congestion that blights the Bay Area's bridges and highways. The cost of housing in many cities is prohibitively expensive. And as Julie Biagini, chair of AeA's Bay Area Council, points out, there are further social challenges ranging from schooling to US immigration policy. 'San Francisco, Silicon Valley, and California have to be seen as friendly places to do business and to live. To this end, our schools need to be institutions of excellence, where all kids learn the necessary skills to compete in the 21st century, particularly in math and science. And to remain competitive, we must press our national leaders to allow the best and brightest from around the world to work for our companies, study in our world-class universities, and start new companies here.'

*California Cybercities 2006, published by the AeA. Visit

By Keith Rodgers, Webster Buchanan Research