Is there a Diamond in the City? Leveraging the competitive advantage of the London financial centre.Abstract
This paper applies the Diamond to a major services cluster and finds that it is an effective framework to tease out tease
v. teased, teas·ing, teas·es
1. To annoy or pester; vex.
2. To make fun of; mock playfully.
3. the characteristics that result in many tangible and intangible benefits of the location. The revelatory case will reveal how financial clustering influences the development of the City of London as a pre-eminent pre·em·i·nent or pre-em·i·nent
Superior to or notable above all others; outstanding. See Synonyms at dominant, noted.
[Middle English, from Latin prae financial centre, how the Diamond conditions are defined in a service cluster, and whether there could be a generalisation Noun 1. generalisation - an idea or conclusion having general application; "he spoke in broad generalities"
idea, thought - the content of cognition; the main thing you are thinking about; "it was not a good idea"; "the thought of the concept. The paper concludes with the strategic and managerial implications to suggest the three golden rules of a location that will help firms optimise on these benefits.
In 1990, Michael Porter This article or section needs sources or references that appear in reliable, third-party publications. Alone, primary sources and sources affiliated with the subject of this article are not sufficient for an accurate encyclopedia article. posed a fundamental and challenging question--why do some nations succeed whilst others fail in international competition? Whilst some (Budd and Hirmis, 2004; Davies and Ellis, 2000) find his arguments contentious, his work remains an important and compelling part of the academic landscape concerned with competitive advantage as it addresses "how the operation of particular clusters promotes growth and competitiveness" (Cumbers and MacKinnon, 2004: 961) of a region or nation.
This revelatory case reveals how clustering influences the development of the City of London as a pre-eminent financial centre through the lens of Porter's (1990) work. It contributes by demonstrating how the Porterian conditions are defined in a service cluster, and whether there could be a theoretical and analytical generalisation of the concept to clusters in the services sector. Finally, the paper concludes with some strategic and managerial implications that will help services firms optimise the benefits from clustering.
Whilst many other studies focused on manufacturing and high-tech clusters (Saxenian, 1994; Porter, 1990; Piore and Sable sable, species of marten, Martes zibellina, found in Siberia, N European Russia, and N Finland. This carnivorous mammal is highly valued for its thick, soft fur, which is dark brown or black, sometimes with white underparts and sometimes flecked with silver. , 1984), the importance of financial clusters is often ignored. This industry is sometimes perceived as a trade-intermediation activity rather than a national industry (1). The literature on major financial centres suggests that there are 10 "alpha" cities with leading financial centres. These include London, New York New York, state, United States
New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of , Tokyo, Hong Kong Hong Kong (hŏng kŏng), Mandarin Xianggang, special administrative region of China, formerly a British crown colony (2005 est. pop. 6,899,000), land area 422 sq mi (1,092 sq km), adjacent to Guangdong prov. , and Singapore. Commentators on world cities (Friedman, 1986; Beaverstock, Smith and Taylor, 1999) typically associate major cities with a significant agglomeration ag·glom·er·a·tion
1. The act or process of gathering into a mass.
2. A confused or jumbled mass: of producer services (such as accountancy, financial or legal services legal services n. the work performed by a lawyer for a client. ), but none of them considers such agglomeration as clusters that could lead to the competitive advantage of nations. A case study of the London Financial Centre (LFC LFC Liverpool Football Club
LFC Lake Forest College (Lake Forest, IL)
LFC Level of Free Convection (meteorology)
LFC Large Format Camera
LFC Load Frequency Control ) would thus provide a role model for competitive advantage for other services clusters.
The LFC forms an "exemplary" case (Yin, 2003: 13; Stake, 2000), as the phenomenon is noticeable by many (Gordon and McCann, 2000; Taylor, Beaverstock, Cook, Pandit pan·dit or pun·dit
1. A Brahman scholar or learned man.
2. Used as a title of respect for a learned man in India.
[Hindi pa , Pain and Greenwood Greenwood.
1 City (1990 pop. 26,265), Johnson co., central Ind.; settled 1822, inc. as a city 1960. A residential suburb of Indianapolis, Greenwood is in a retail shopping area. Manufactures include motor vehicle parts and metal products. , 2003). The case, seen through the lens of the Diamond, is "revelatory" (Yin, 1994; 41), as there seems to be an absence of research using this framework on an important service cluster. Methodologically, Swann (2006: 153) places a case study as an examination of a unit of analysis using multiple sources of data to present a mutually consistent evidence of the unit or to preserve anomalous a·nom·a·lous
1. Deviating from the normal or common order, form, or rule.
2. Equivocal, as in classification or nature. views (2).
Competitive advantage arises from a value creating proposition of a firm or a nation, possibly by managing its strategy for competition (Porter, 1980) or by managing its value creating activities (Porter, 1985). Barney (1991) contends that competitive advantage can be derived from rare, unique, and heterogeneous resources that firms can translate into capabilities that are valued by the firm and customer. Porter (1990), however, reasons that a nation's most globally competitive industries are likely to be geographically clustered within the nation and it is the quality of the environment--its factor conditions, its demand conditions, the presence of related and supporting industries, and the firms' structure and rivalry--that help incumbents achieve a high and rising level of productivity in a particular field. They form the determinants of clustering often referred to as the Diamond. Porter (1998a) introduces two external drivers, the roles of government and chance, which may influence clustering but themselves are not determinants; this paper focuses on the four main determinants (See Figure 1) on the services cluster.
The following sections illustrate how the quality of the environment plays an important role in assisting incumbents in the LFC to attain a superior advantage in terms of resources and value creation.
[FIGURE 1 OMITTED]
Endowment and Creation of Factor Conditions
The strategic location of London some 64 kilometres from the Thames estuary The Thames Estuary is a large estuary where the River Thames flows into the North Sea. The estuary is one of the largest inlets on the coast of Great Britain and parts of it constitute a major shipping route. was an endowed en·dow
tr.v. en·dowed, en·dow·ing, en·dows
1. To provide with property, income, or a source of income.
a. factor condition for trade and financial intermediation during the late 17th century, where the earliest English banks were money scriveners a person who procures the loan of money to others.
See also: Money and goldsmiths who provided monarchs and merchants with funds for their trade ventures. The financial activities are concentrated in 2.6 square kilometres Square kilometre (U.S. spelling: square kilometer), symbol km², is a decimal multiple of the SI unit of surface area, the square metre, one of the SI derived units. 1 km² is equal to:
Other historical events that shaped the LFC were the legislation on monetary control in 1826, the growth of regional banking in the 19th century (Collins, 1988), and the specialisation specialisation - A reduction in generality, usually for the sake of increased efficiency. If a piece of code is specialised for certain values of certain variables (usually function arguments), this is known as "partial evaluation". In a language with overloading (e.g. of industries and the beginning of international banking activities in the early 20th century (Jones, 1982). A recent critical event, the Big Bang big bang
Model of the origin of the universe, which holds that it emerged from a state of extremely high temperature and density in an explosive expansion 10 billion–15 billion years ago. of 1986, removed barriers to competition and helped the City exploit the full potential of its historic specialisation in banking and financial markets.
Today's important factor conditions, however, are created by sophisticated industries in advanced economies (Porter, 1998a). Specialised and advanced factors are needed to compete in a particular industry, and can result in sustainable competitive advantage for the firm if the provision is strong, inimitable in·im·i·ta·ble
Defying imitation; matchless.
[Middle English, from Latin inimit , and not easily replicated at a different location or by a different firm. One unique provision in the LFC is the labour pooling effects. About one in three London' s working population work for financial and business services (ONS ONS Office for National Statistics (UK)
ONS One Night Stand
ONS Onslaught (Unreal Tournament 2004)
ONS Oncology Nursing Society
ONS Object Naming Service
ONS Offshore Northern Seas , 2001), with about 500,000 commuters travelling to work in London on a daily or weekly basis (GLA, 2005).
Figure 2 shows that the LFC employs about 1.12 million workers in 2001, of which about 41.9 per cent work in banks, building societies, and bank representative offices. The large agglomeration of banks and financial industries in London results in the pooling of specialised labour, which is a resource for incumbents. The labour pool which London can draw is of her greatest assets according to according to
1. As stated or indicated by; on the authority of: according to historians.
2. In keeping with: according to instructions.
3. the banks as they reveal that the pulling power Pulling Power is a regional motoring programme shown only in the Central Television region on ITV1 since 1996. However it has been shown on the ITV1 network on a series trial basis and also as a filler programme at times. of London's fluid labour market "is one of the most important engines of cluster dynamism" (Taylor et al, 2004).
London's reputation in financial services The examples and perspective in this article or section may not represent a worldwide view of the subject.
Please [ improve this article] or discuss the issue on the talk page. attracts the most talented and skilled workers (Clark, 2002), creating a path-dependency effect. Higher labour mobility in the LFC results in knowledge diffusion diffusion, in chemistry, the spontaneous migration of substances from regions where their concentration is high to regions where their concentration is low. Diffusion is important in many life processes. in the cluster (Taylor et al, 2003). By relocating to, or having a presence, in the cluster allows incumbents to have access the knowledge accumulated and to benefit from the transmission of architectural and component knowledge in a cluster (Tallman, Jenkins, Henry, and Pinch, 2004)--a condition that may be rarer and non-transferable elsewhere.
The Greater London Authority
The Greater London Authority (GLA) administers the 1579 km² (610 sq. miles) of Greater London, England, covering the 32 London boroughs and the City of London. (the GLA) reports that labour productivity in the banking, insurance, and other financial services is approximately 40 per cent higher than the rest of the UK (GLA, 2005: 9). The UK Government suggests that the higher productivity in London is aided by the 'physical closeness and density of firms' (Strategy Unit, 2003:11). Higher productivity is the competitive advantage that a clustered location offers to incumbents (Porter, 1998c). Increased productivity may be a positive impact of competition that is not transferred to other geographical spaces. Taylor et al (2003: 34) point out that "the advantages of the cluster ... mean that it is unusually productive and so more resources flow into it which further re-enforce its advantages". It is possible to suggest that being part of a large services cluster allows workers to productively access information, technology and institutions, and coordinate with other firms both horizontally and vertically. Gordon and McCann (2000: 523) find that one-eighth of respondents In the context of marketing research, a representative sample drawn from a larger population of people from whom information is collected and used to develop or confirm marketing strategy. in the LFC perceived "increased opportunities for interaction or cooperation", while Taylor et al (2003:38) find the process of face-to-face contact being very important.
One banker in the City stressed, "as a financial centre, London is an open society that is accepting to overseas people and to business" (Taylor et al, 2003: 32). The profile of London's labour force is different from the rest of the UK, there is a higher skill profile (London Development Partnership, 1999: 2); a younger age profile and higher ethnicity ethnicity Vox populi Racial status–ie, African American, Asian, Caucasian, Hispanic mix (Gordon, Travers and Whitehead whitehead /white·head/ (hwit´hed)
2. closed comedo.
1. , 2003: 6); and higher productivity especially in the service sector (GLA, 2005). Another respondent In Equity practice, the party who answers a bill or other proceeding in equity. The party against whom an appeal or motion, an application for a court order, is instituted and who is required to answer in order to protect his or her interests. sums up, "London as having the greatest ethnic diversity of any of the locations in which they operated, at least as far as the relevant labour market is concerned" (Taylor et al, 2003: 34).
The LFC is seen as having one of the best regulatory environments among other financial centres in New York, Paris, and Frankfurt (Lascelles, 2003: 15), with a fairly liberal but fragmented regulatory regime (London Development Partnership, 1999: 28). The regulator regulator,
n the mechanical part of a gas delivery system that controls gas pressure that allows a manageable flow of drug vapor to escape.
see reducing valve. is thought to be 'competent' with a 'lightness of touch' in a survey of 350 institutions (London Development Partnership, 1999). Such conditions may have attracted foreign firms to locate in London. Taylor et al (2003) report that many London banks evaluate proximity to professional institutions and the legal and regulatory institutions (the Bank of England Bank of England, central bank and note-issuing institution of Great Britain. Popularly known as the Old Lady of Threadneedle Street, its main office stands on the street of that name in London. and the Financial Services Authority The Financial Services Authority ("FSA") is an independent non-departmental public body and quasi-judicial body that regulates the financial services industry in the United Kingdom. Its main office is based in Canary Wharf, London, with another office in Edinburgh. ) as important advantages of their location.
A strong and stable exchange rate favours investment and trade in financial products. Signals from the Bank of England are watched by many in the financial sector. Its presence in the cluster allows efficient financial transactions to take place due to Britain's unique monetary system of discount houses working with the central bank. The presence of the Financial Services Authority and other professional bodies, which are funded by membership, is found to enhance the network effect, where financial services workers find it easier to enjoy information externalities externalities
side-effects, either harmful or beneficial, borne by those not directly involved in the production of a commodity. through increased opportunities for interaction and cooperation (Gordon and McCann, 2000). Self-regulation and dialogue take place among incumbents. Thus, it can be suggested that one needs to be in the cluster in order to benefit. It is evident that the social network model is present (Gordon and McCann, 2000) due to the presence of a number of 'institutions for collaboration' (Porter, 1998a). Such institutions promote the formation of networks and create further opportunities for collaboration. The level of embeddedness is intensified in·ten·si·fy
v. in·ten·si·fied, in·ten·si·fy·ing, in·ten·si·fies
1. To make intense or more intense: due to such social relationships. Indeed, such institutions in the cluster may be essential determinants to promote cohesion cohesion: see adhesion and cohesion.
The tendency of atoms or molecules to coalesce into extended condensed states. This tendency is practically universal. resulting in the creation of a cluster 'culture' that is inimitable.
Information and communication infrastructure is recognised as an important advanced factor condition for an international financial centre (Reed, 1981). There is evidence of strong information technology and media clusters nearby, which not only support the financial cluster, but are themselves globally competitive exporters and may in turn promote the financial cluster creating a path dependency effect (3). The quality of the transportation infrastructure is important if London is to rely on commuters to work in the cluster, to manage the residential population density, and to further attract foreign firms to locate in London. However, efficient transport is reported to be London's Achilles heel Achilles heel
a small but fatal weakness [Achilles in Greek mythology was killed by an arrow in his unprotected heel]
Achilles heel n → talón m de Aquiles (Lascelles, 2003).
Need for Related and Supporting Industries
Figure 3 shows that the LFC is chiefly clustered in the City. Canary Wharf
Canary Wharf is a large business development in London, located on the Isle of Dogs in the London Borough of Tower Hamlets, centred on the old West India Docks in is seen as an extension to the City's cluster (Taylor et al, 2003). The expansion of the financial cluster from the City makes less the impact of rental increases and allows for the cluster to expand (Clark, 2002). Other supporting clusters to financial services, such as the legal and accountancy clusters, are also located in the City.
The existence of competitive supporting clusters may have an influence in London's productivity if they are globally competitive, as these can add value to the incumbents' value chain. Higher productivity eventually draws more resources to London, such as capital investments, as firms are more profitable and can afford to invest more. Porter (1990) finds that internationally successful upstream and downstream industries often co-exist at the same location, as the competitive supporting industries create advantages to downstream activities by delivering cost effective inputs and providing innovative and upgraded alternatives. More importantly, Porter (1998a: 176) emphasises: "Suppliers and end-users located near each other can take advantage of short lines of communication "Lines of Communication" is an episode from the fourth season of the science-fiction television series Babylon 5. Synopsis
Franklin and Marcus attempt to persuade the Mars resistance to assist Sheridan in opposing President Clark. , quick and constant flow of information, and an ongoing exchange of ideas and innovation". This advantage in proximity is something distant suppliers cannot match.
[FIGURE 3 OMITTED]
Reed (1980) supports the importance of having competing and complementary institutions in an international financial centre. Many financial institutions place a major emphasis on the importance of proximity because London offers close physical contact with primary financial markets (McKillop and Hutchinson, 1990). World-class related industries can provide sources of technology, ideas, and potential competitors to the location, all of which can be advantageous to international competition (Yetton et al, 1992). The Government contends that similar and related firms in London allow firms to benefit from a larger labour pool, interaction with each other, intelligence sharing and better customer attraction (Strategy Unit, 2003:11). The LFC contains a good mix of related financial services industries with an industry concentration index of 0.308 (Figure 2). Insurance, trust and pension fund firms are reported to form 60 per cent of institutional investors Institutional Investor
A non-bank person or organization that trades securities in large enough share quantities or dollar amounts that they qualify for preferential treatment and lower commissions. in the securities industry (McKenzie and Maslakovic, 2003: 7). Such institutions are important buyers in the LFC and the presence of financial markets enhances the feasibility of locating in London. Commercial banks' clienteles are largely international, although 65 per cent of lending is domestic with a quarter of this to local financial institutions (Maslakovic, 2004: 8). These activities support the need for most related financial industries to cluster together within the City.
Quantum and Sophistication so·phis·ti·cate
v. so·phis·ti·cat·ed, so·phis·ti·cat·ing, so·phis·ti·cates
1. To cause to become less natural, especially to make less naive and more worldly.
2. of Demand
Britain's deficit in the balance of payments from manufacturing has increased from 12 billion [pounds sterling] in 1995 to 47 billion [pounds sterling] in 2003 (1 [pounds sterling] is about S$2.83), while financial and business service industries provided a positive balance of payments of 11.5 billion [pounds sterling] in 1995 and 30.7 billion [pounds sterling] in 2003 (IFSL IFSL International Financial Services, London , 2004:7). The UK financial service generated US$22.8 billion of trade balance in 2002, much higher than Germany, Switzerland, the USA and France. Of the financial services, the largest trade balance comes from banking and other financial services of US$13.4 billion and insurance of US$9.4 billion in 2002 (IFSL, 2004: 7). This suggests a constant demand for, and supply of, the country's currency--a pre-requisite of an international financial centre (Reed, 1981).
With the third largest banking industry deposits in the world (US$3 trillion in 2002), Britain's banking deposits are exceeded by the USA (US$4.5 trillion) and Japan (US$4.4 trillion) both of whom have a larger domestic population (Maslakovic, 2004: 23).
In 2003, the UK banking industry deposits totalled 3,748 billion [pounds sterling], of which 40 per cent came from overseas deposits, suggesting the very international character of British commercial banks. The strong international orientation of the banking industry is also reflected by the fact that over 40 per cent of the total assets of the UK bank industry were held in foreign currencies in 2003 (Maslakovic, 2004).
The LFC may be supported by strong domestic demand initially; Taylor et al (2003: 26) contend that the London location is perceived to be reputable rep·u·ta·ble
Having a good reputation; honorable.
repu·ta·bil as this is a "reliable signal conveying valuable information in the market", especially for external customers and foreign rivals to place their monies in London. The size of home demand, whilst important, proves less significant than the rising demand and the character of demand (Porter; 1998a:174).
The International Financial Service London (IFSL) estimates that nett exports for financial services have increased by 65 per cent from 1998 to 2003, of which insurance experienced the fastest growth rate of 125 per cent, fund managers at 78 per cent, securities dealers at 38 per cent and banks at 17 per cent. The increasing amount exported represents rising demand in these industries.
Porter (1990) argues that global success of an industry is more likely if the home segment is already sophisticated and demanding. The sophistication of demand leads to fierce competition among domestic producers, and the need to produce the best products. Innovation in financial services is one of London's success factors according to Drucker (1999). The invention of the credit card in the 1960s enabled commercial banks to survive despite much of the commercial loans business being siphoned off by newer financial institutions. The City has been innovative in the global derivatives industry over the last thirty years, but Drucker (1999) contends that commercial banks may need to continue innovating in order to succeed.
Strategy, Structure, and Rivalry within
The Department of Trade and Industry The Department of Trade and Industry was a United Kingdom government department which was disbanded with the announcement of the creation of the Department for Business, Enterprise and Regulatory Reform on 28 June 2007. (DTI Diffusion tensor imaging (DTI)
A refinement of magnetic resonance imaging that allows the doctor to measure the flow of water and track the pathways of white matter in the brain. ) reports significant agglomeration of bank holding companies and banks in London that accounts for 66 per cent and 34 per cent of the UK banking industry employment respectively (DTI, 2001). The LFC is home to four of the largest 15 global banks in the world, with HSBC HSBC Hongkong and Shanghai Banking Corporation
HSBC Humane Society of Broward County (Florida)
HSBC Humane Society of Bay County (Bay County, Michigan) Holdings ranked 3rd and Royal Bank of Scotland
The Royal Bank of Scotland Plc (Scottish Gaelic: Banca Rìoghail na h-Alba ranked 7th in terms of tier-one capital (See Figure 4). Nachum (1999) earlier suggests that national firms enjoy favourable access to the assets of their home country and use these to develop competitive advantages that deny their foreign counterparts from investing. The presence of one or a few strong domestic players is certainly important to a cluster as they help to attract and establish the supporting industries, create a form of competitive rivalry, and set the pace of competition for foreign entrants.
Taylor et al (2003) find significant economies of agglomeration The term economies of agglomeration is used in urban economics to describe the benefits that firms obtain when locating near each other. It is related to the idea of economies of scale and network effects, in that the more related firms that are clustered together, the lower the in the LFC and highlight that it resembles a hub-and-spoke type of cluster (Markusen, 1996) with the large clearing banks and investment banks The following is a list of investment banks Financial conglomerates
Large financial-services conglomerates combine commercial banking and investment banking, and sometimes insurance. acting as central hubs. Notwithstanding the larger players, the London cluster also consists of many medium-size "boutique Boutique
A small investment firm specializing in offering specific, but limited services to a select number of individuals.
These investment firms are the alternatives to large financial supermarkets. They provide a highly personalized environment for investing. " banks and financial institutions acting as spokes. Drucker (1999) emphasises the importance of the LFC to medium-size financial institutions as these institutions require the critical mass to supplement or support their competencies in terms of products, technology, marketing and customer services.
Big Bang removed the barriers of foreign ownership in local institutions, resulting in foreign takeover of local banks (for example, Abbey National) and a number of former building societies (such as Halifax Group) becoming commercial banks. The Big Bang is one of four factors that enhances London's international standing and attractiveness to foreign entrants (Nachum, 2003:1189).
Figure 5 shows that the total number of authorised Adj. 1. authorised - endowed with authority
lawful - conformable to or allowed by law; "lawful methods of dissent"
legitimate - of marriages and offspring; recognized as lawful banks continues to increase (Maslakovic, 2004: 3), with London remaining a popular centre for foreign banks. There are 287 foreign banks located there in March 20034, demonstrating London's attractiveness and open policy to foreign participation. Foreign financial institutions locating to the UK will almost entirely prefer to settle in London because of the "mutual benefits arising from the concentration of financial firms in one location" (Molyneux, 1992: 668).
As such, the competitive rivalry continues to increase. Performance and profitability may be stifled sti·fle 1
v. sti·fled, sti·fling, sti·fles
1. To interrupt or cut off (the voice, for example).
2. due to more competitors, some of whom bring with them a wealth of foreign experiences and new modes of competition. On the contrary, Gordon and McCann (2000) report that a strong 37 per cent of financial services respondents in the City and Inner London For more coverage on London, visit the
Inner London is the name for the group of London boroughs which form the interior part of Greater London and are surrounded by Outer London. agree on having the benefit of shared intelligence by being in the cluster. One interesting finding is that financial services firms would be more likely to see the advantage of shared intelligence if their main market was abroad. This is an alternative reason why foreign banks continue to choose to locate in London. Other evidence also suggests that foreign banks are not stifled in the cluster, but enjoy better performance than domestic institutions (Nachum, 2003). Competition may spur firms to innovate in·no·vate
v. in·no·vat·ed, in·no·vat·ing, in·no·vates
To begin or introduce (something new) for or as if for the first time.
To begin or introduce something new. more to meet the demands of competition. Taylor et al (2003: 32) also find that "local rivalry" is viewed as important and beneficial by the London's commercial banks who are more likely to enjoy being near leading competitors.
Although the size of the institution is important in attaining traditional economies (Clark, 2002, Taylor et al, 2003), by locating in London, smaller institutions may still attain certain economies of scale and scope--enhanced through inter-firm collaboration--when mergers are not in question.
In a separate survey, more than 10 per cent of respondents perceive advantages from cooperation, sub-contracting and potential contacts, which indicate a strong level of embeddedness in the financial cluster in spite of intense competition (Gordon and McCann, 2000: 523). By working with competing and related industries in the cluster, new opportunities may surface, resulting in a new demand or provision, as in the case of the financial derivatives industry, or a new strategic direction for the firm. In such cases, talent pool for growth or expansion can be easily obtained in the cluster.
Generalisation of the Porterian Concept
This case study effectively points to important determinants for successful financial clustering that matches with those benefits and needs that global industry players seek, it also suggests that the Diamond can be used to analyse an·a·lyse
v. Chiefly British
Variant of analyze.
analyse or US -lyze
[-lysing, -lysed] or -lyzing, the services sector. The existence of domestic factor conditions, such as a liberal and stable regulatory framework, strong IT and communication infrastructure, or financial stability are essential for firms' pursuit of competitive advantage against international rivals. Some domestic factor conditions--the labour pooling effects and superior reputation--have a path dependency effect in attracting further talent pool and increasing its reputation.
The presence of related industries, such as securities, insurance, and fund management firms, is significant as they can be important buyers and sellers. Related industries that operate domestically, such as money brokers and discount houses, contribute to the effective financial system. The presence of competitive supporting clusters, such as the IT cluster, also draws foreign financial institutions to London. Local suppliers, in this instance, play a crucial role in creating competitive advantage for the financial cluster, where closeness and proximity creates an integrated network A network that supports both data and voice and/or different networking protocols. See converged network and new public network. within the City, and there is less need for firms to vertically integrate to gain competitive advantage.
The deviation from Porter's (1990) original argument is that strong home-based demand conditions seem less important, as the nature of the London cluster suggests an inimitable international orientation. There are many strong British and international banks anchoring the cluster. It is the competition from foreign rivals and the overall critical mass achieved in the banking industry that are determinants to competition and successful financial clustering in London. In line with Porter's suggestion, the interactions between determinants have also been found to result in the further creation of superior conditions, such as the derivative software supporting industry and the heightened productivity of the cluster.
Understanding the Diamond conditions could allow policy makers and regional planners to plan for the necessary conditions needed to gain international competitiveness. It would also remind industry players and managers what they really seek as a business location. Three key characteristics of the City's Diamond stand out:
* The Centre is home to the nation's central bank and financial regulatory body, coupled with a high agglomeration of bank-holding companies and banks. It is also the political seat of the government. These attributes allow players to exert global financial articulation articulation
In phonetics, the shaping of the vocal tract (larynx, pharynx, and oral and nasal cavities) by positioning mobile organs (such as the tongue) relative to other parts that may be rigid (such as the hard palate) and thus modifying the airstream to produce speech . The government's attitude of free-conduct, open-dialogue and self-governance is characteristic of the political climate, resulting in a fairly liberal regulatory regime that does not alienate To voluntarily convey or transfer title to real property by gift, disposition by will or the laws of Descent and Distribution, or by sale.
For example, a seller may alienate property by transferring to a buyer a parcel of the seller's land containing a house, in foreign participation. The Joint-Stock Bank joint-stock bank n → banco por acciones Act of 1886, and latterly the Big Bang of 1986, further supported London's pre-eminence as an international financial centre.
* Locating in the Centre has economic benefits for financial institutions. The nation's strong and stable exchange rate favours investment and trade in financial products. The Centre has an international orientation, with an international demand for, and supply of, its currency. The existence of competitive supporting industries in the City can add value to firms' value chain, while competitive related industries are important buyers and sellers. These institutions, in proximity, generate higher productivities, economies of scale and scope in the cluster.
* The social characteristics are most important in creating sustainable competitive advantage for incumbents as they are inimitable, valuable, and non-transferable. There is an active critical mass of people working in the Centre. Being in a densely populated pop·u·late
tr.v. pop·u·lat·ed, pop·u·lat·ing, pop·u·lates
1. To supply with inhabitants, as by colonization; people.
2. working environment increases the opportunities to interact and coordinate with other workers and institutions, both formally and informally. Face-to-face contact is very important for knowledge spillovers and networks in this sector. The Centre is an open society that is accepting of foreign workers foreign workers
Those who work in a foreign country without initially intending to settle there and without the benefits of citizenship in the host country. Some are recruited to supplement the workforce of a host country for a limited term or to provide skills on a and institutions. The culture is very competitive--to succeed one has to be productive and result-oriented. High labour mobility is acceptable in the Centre and is seen to be an enabler to knowledge spillovers.
London, having developed a financial cluster over the last three centuries, serves as a role model for other financial centres. The key question for government policy makers and managers is whether they could devise suitable plans to promote or tap onto these benefits that global players seek.
Strategically, clustering implies that corporate headquarters located in a cluster with the presence of political power (such as leading national government and the central governing agency) will aid them to attain global articulation. Being in a cluster that is already successful will intensify in·ten·si·fy
v. in·ten·si·fied, in·ten·si·fy·ing, in·ten·si·fies
1. To make intense or more intense: the opportunity for incumbents to influence other key players and governing institutions. The managerial implication is to develop the ability to network with these key institutions.
Secondly, locating in a successful cluster can provide strategic economic benefits such as better access to the international markets. The managerial goal must be to connect into the economic activities of the cluster and to increase firm-to-firm communication in creating greater value for the firm's activities. Inter-firm collaboration can intensify external economies of scale and scope within a cluster. It also creates a stronger level of embeddedness to counteract any external competition.
Thirdly, the strategic social context of clustering means that incumbents can have access to a highly specialised workforce, who may also be more productive. The managerial implication for firms is to further create, or participate in, networking opportunities and to form collaborative institutions to promote the industry's objectives to attain her international competitiveness.
The three golden rules are more generic in helping industries leverage on the competitive advantage through clustering. It may also serve as a guide for policy makers in their regional planning regional planning: see city planning. . This paper has shed some light through the lens of the Diamond on what is needed and the benefits that players seek, capturing ultimately what constitutes successful clustering for national competitive advantage.
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Adrian T.H. Kuah
School of Management
(1) Based on informal discussions with Yorkshire Forward Yorkshire Forward was set up by the UK Government to promote sustainable economic development throughout the Yorkshire and Humber region. One of England's nine RDAs it is a business led organisation that aims to help improve the region’s relative economic performance and and the Singapore Economic Development Board; neither government agency considered financial services in their cluster planning and strategy.
(2) This case study draws on multiple sources of information. Thomas (2004) points out that a case study can achieve particularisation Noun 1. particularisation - an individualized description of a particular instance
description - the act of describing something : to understand the workings of a particular example in depth. Published sources of evidence are used in this case study as they are easily obtainable and reliable. We used Scott's (1990) criteria of authenticity, creditability, representativeness and meaning to assess such documentary evidence A type of written proof that is offered at a trial to establish the existence or nonexistence of a fact that is in dispute.
Letters, contracts, deeds, licenses, certificates, tickets, or other writings are documentary evidence. and archival records. The main findings draw mainly from two surveys conducted by Gordon and McCann (2000) and Beaverstock et al. (2003) that are based on 3400 business respondents in London, and 310 respondents from dominant financial services in London respectively. The Diamond framework is ideal as financial services clusters are open and tradeable like those clusters in Porter's (1990) work. The case achieves particularisation, Swann (2006) contends that a deep understanding of one example in economic studies is still valuable.
(3) London-based firms in the IT cluster develop bespoke software A U.K. term for a custom-made product, including made-to-order software. See custom software. products for big banks. The ability to produce sophisticated software to match innovative financial derivatives promotes an agglomeration of American and European financial derivative firms in London.
(4) This figure is much higher than New York and Paris, with 224 and 179 foreign banks respectively (Maslakovic, 2004: 24)
Figure 2: Breakdown of London's Financial Services Employment in 2001 Specific Industry versus Overall Financial Herfindahl * Industry Index Employment in London (per cent) Bank and Building Society 41.90 Credit Granting and Fin Leasing 1.12 Trust and Pension Funds 33.15 Life Insurance 5.09 Non-Life Insurance 13.89 0.308 Financial Auxilliary 0.64 Insurance Auxilliary 2.41 Securities and Exchange 1.80 Source: Calculated from FAME * The industry concentration measured by Herfindahl index, is computed as H = [SIGMA] [([[SIGMA].sub.K] / [[SIGMA].sub.kc]).sup.2] where c represents the Greater London regional cluster; k represents the employment size of financial services industries in the cluster; and K represents the employment size of specific industry in that cluster. The financial services industries have been divided into eight related groups of industries. A lower index (=0) represents a good mix of industries in the cluster, while a higher index (=1) represents the dominance of some industries. Figure 4: Largest Banking Holding Companies in the World Tier $billion, end-2002 Country One Top 15 banks in the world Origins Capital Citigroup us 59.0 Bank of America Corp us 43.0 HSBC Holdings UK 38.9 JP Morgan Chase & Co us 37.6 Credit Agricole Groupe France 35.7 Mizuho Financial Group Japan 29.1 Royal Bank of Scotland UK 27.7 Sumitomo Mitsui Financial Grp Japan 27.1 Mitsubishi Tokyo Financial Grp Japan 26.0 BNP Paribas France 24.1 Bank One Corp us 23.9 Deutsche Bank Germany 23.8 HBOS UK 23.8 Barclays Bank UK 22.9 Bank of China China 21.9 Other UK banks in the top 100 Lloyd's TSB Group UK 15.3 Abbey National UK 11.7 Standard Chartered UK 10.4 Source: The Banker cited in Maslakovic, 2004: 25 Figure 5: Number of Banks in the UK 1995 1999 2002 2003 Incorporated in the UK 224 200 184 185 --Uk owned 142 121 94 95 --Foreign owned  82 79 90 90 Incorporated outside the UK 301 449 490 501 --EAIs with UK branches  102 109 93 94 --Other EAIs * 44 205 284 304 --Outside the EEA  155 135 113 103 Total authorised banks 525 610 674 686 Foreign banks physically located in the UK ++ 339 323 296 287 * Other European Authorised Institutions (EAIs) are entitled to accept deposits in the UK on a cross border basis Source: BOE, Financial Services Authority: Cited in Maslakovic, 2004: 3