TVA Rural Studies

Telecommunications Technology and American Rural Development in the 21st Century

Edward J. Malecki
Department of Geography
University of Florida
Gainesville, FL 32611-7315
July 1996

6. The Location of Knowledge-Based Economic Activities

Are cities necessarily the best or only locations for business in a world of telematics? The almost universal availability of telecommunications capability is "creating a footloose economy that permits firms to locate where they want to be, not where the traditional centers of finance and commerce dictate they have to be" (Heenan 1991: 9; Hack 1993). Saunders, Warford, and Wellenius (1994: 121-134) similarly conclude that investment to provide telecommunications connectivity reduces the relative concentration of economic activity in large cities. The situation two decades ago was "unclear," with some information activities potentially quite footloose and others firmly rooted in central metropolitan locations (Abler 1974: 334). Britton and Gertler (1986), a decade later, were more certain of the situation. They conclude that

the best location continues to be large urban centers. . . Regardless of their size, technology-intensive firms are dependent on both private- and public-sector contacts, and there is, therefore, an imperative for such producers to cluster in locations that afford them the best opportunities for face-to-face contact with actual and potential customers (Britton and Gertler 1986: 162-163).

In short, "cities are primarily focal points of power based on communication; their power reflects their accessibility the range and quality of contacts and relationship that the city has with the rest of the world. Their communication channels, skills, and knowledge resources develop as locally based organizations extend their operations worldwide" (Knight 1989: 40).

The importance of knowledge-intensive activities is critical to understanding the potential role of telecommunications as a factor of production. The advanced services sector, including many government and non-profit organizations, is especially dependent on communication links (Table 1). However, the number of cities whose economies are based on knowledge-intensive activities, such as headquarters, advertising and accounting firms, and foreign banks, is quite small (Daniels 1993; Moss 1987).

The geography of corporate networks shows a persistent concentration of headquarters in large urban areas. It is not merely a coincidence that new technologies are put in place earliest in the largest cities, where demand by large business and government customers justifies the investment (Castells, 1989: 142-151; Moss 1987). The spread of a series of improvements in the USA by both AT&T and its competitors shows convincingly that the large-city business routes, connecting markets in New York, the Boston-Washington corridor, and then Chicago and Los Angeles, are the priority of telecommunications providers (Langdale 1983). The fiber-optic network has been evolving in the same pattern (Warf 1995). Salomon (1988: 324-325) provides an explanation:

A key economic factor in the development of telecommunications systems is the spatial density of demand. The returns on investments are dependent on usage level more than on access rates. Therefore, suppliers prefer investments in areas where the market is big enough to generate high returns per line. This is not likely to occur in sparsely populated areas, and investments there will take place, either under regulators' requirements or under a belief by suppliers that a particular area will in the future develop to a point where demand per line will be substantial.

Corporate telecommunications and computer networks, despite a growing locational flexibility in production and labor processes, remain coordinated by a centralized headquarters (Hepworth 1990). "Network firms" are able to take advantage of telecommunications technology for purchasing, manufacturing, and marketing functions, in addition to conventional control activities, such as accounting, forecasting, and planning. Despite the development of a standardized global network, which allows firms to reduce coordination costs, both internally and with other firms, footloose firms remain geographically concentrated in large cities.

But will cities and urban concentration diminish as telematics continue to develop and find new uses in business? Most observers foresee little decline in urban concentration (J. Parker 1995). Cities that are centers for face-to-face communication also will benefit most from the spread of advanced telecommunications systems. The absence of a sophisticated telecommunications infrastructure may act as a deterrent in attracting information-based service firms. The infrastructure may be built to serve existing firms, but access to sophisticated telecommunications service can stimulate new uses and users, generating even further expansion of the telecommunications infrastructure (Moss 1987: 539).

More research on the locational factors in office location has taken place in Europe than in the USA. Ease and quality of air connections took only slight precedence over ease and quality of telecommunications in the choice of location for European regional offices; these were the two most important location factors for the firms surveyed (Dunning and Norman 1983). A later study (Dunning and Norman 1987) included both "telephone and telex quality" and "telecommunication costs" among 40 factors influencing location of an overseas office of multinational companies in six sectors. Communication quality was the most important location factor for branch offices of trade and finance firms, followed closely by proximity to clients. A recent survey by Plant Location International found that availability and quality of telephone, fax and data lines ranked highest when it came to choosing locations for various operational functions (Schaefer 1994).

The continuing centralization of office-based activities is accounted for by the argument that "the greater the extent of the geographic decentralization of production activities . . . the greater the need for the centralization of key control activities" (Coffey and PolŠse 1989: 19). Coffey and PolŠse (1989) see producer service location as a result of three factors: a pool of highly skilled labor, complementary economic activities, and the costs involved in "delivering" the "product" to the market. All of these are most available in large urban centers. It is clear that new technologies are put in place earliest in large markets, meaning large urban areas with a high density of business users. Moss (1987: 544) summarizes: "telecommunications is creating a new urban hierarchy, in which those cities that are already information-intensive are becoming even stronger as telecommunications hubs."

Jump to Section:
Contents, 1, 2, 3, 4, 5, (6), 7, 8, 9, 10, Table 1, References

Back to the 1996 Rural Telecommunications Workshop Homepage