Why It Matters
Localisation Coefficient of Business/Industry Class Concentration
Summary
We have measured the geographic distribution and relative concentration of industry across London.
Interpretation
| Dataset | Explanation |
|---|---|
| Localisation Coefficient of Agriculture and Primary Resource Extraction Companies | This tells you the percentage over or under representation of Agriculture and Primary Resource extraction, such as Forestry, Fishing, Mining, etc. as compared to the Expected Quantum for the area. A positive value means that this industry is concentrated within this area, whilst a negative number indicates that this industry has eschewed this area. |
| Localisation Coefficient of Manufacturing and Repair Companies | This tells you the percentage over or under representation of commercial enterprises relating to the Manufacturing and Repair of physical equipment, chattels and goods as compared to the Expected Quantum for the area. A positive value means that this industry is concentrated within this area, whilst a negative number indicates that this industry has eschewed this area. |
| Localisation Coefficient of Utility Service Providers | This tells you the percentage over or under representation of Utility Service Providers, such as the providers of Electricity, Gas, Water Supply, Waste etc. as compared to the Expected Quantum for the area. A positive value means that this industry is concentrated within this area, whilst a negative number indicates that this industry has eschewed this area. |
| Localisation Coefficient of Construction Companies | This tells you the percentage over or under representation of Construction related activity as compared to the Expected Quantum for the area. A positive value means that this industry is concentrated within this area, whilst a negative number indicates that this industry has eschewed this area. |
| Localisation Coefficient of Wholesale and General Retail Companies | This tells you the percentage over or under representation of Wholesale and General Retail undertaking as compared to the Expected Quantum for the area. A positive value means that this industry is concentrated within this area, whilst a negative number indicates that this industry has eschewed this area. |
| Localisation Coefficient of Transportation Companies | This tells you the percentage over or under representation of Transportation related commercial activity as compared to the Expected Quantum for the area. A positive value means that this industry is concentrated within this area, whilst a negative number indicates that this industry has eschewed this area. |
| Localisation Coefficient of Leisure Services and Entertainment Provision Companies | This tells you the percentage over or under representation of Leisure Services and Entertainment Provision (i.e. accommodation, food services, arts, recreation) as compared to the Expected Quantum for the area. A positive value means that this industry is concentrated within this area, whilst a negative number indicates that this industry has eschewed this area. |
| Localisation Coefficient of Information & Communication Technology Companies | This tells you the percentage over or under representation of Information & Communication Technology related enterprise as compared to the Expected Quantum for the area. A positive value means that this industry is concentrated within this area, whilst a negative number indicates that this industry has eschewed this area. |
| Localisation Coefficient of Financial, Insurance, Legal, and Real Estate Companies | This tells you the percentage over or under representation of Financial, Insurance, Legal, and Real Estate related commerce as compared to the Expected Quantum for the area. A positive value means that this industry is concentrated within this area, whilst a negative number indicates that this industry has eschewed this area. |
| Localisation Coefficient of Education, Health, and Social Work Organisations | This tells you the percentage over or under representation of Education, Health, and Social Work as compared to the Expected Quantum for the area. A positive value means that this industry is concentrated within this area, whilst a negative number indicates that this industry has eschewed this area. |
| Localisation Coefficient of Scientific, Deep Technology, and Research Companies | This tells you the percentage over or under representation of ventures primarily undertaking Scientific, Deep Technology, and Research activities as compared to the Expected Quantum for the area. A positive value means that this industry is concentrated within this area, whilst a negative number indicates that this industry has eschewed this area. |
| Localisation Coefficient of Administrative, Consulting, and Business Support Services | This tells you the percentage over or under representation of enterprise related to Administrative, Consulting, and Business Support Services as compared to the Expected Quantum for the area. A positive value means that this industry is concentrated within this area, whilst a negative number indicates that this industry has eschewed this area. |
Definition
Based on all companies listed on Companies House or the Land Registry as having a footprint in London, Walulel’s Business Concentration (Coefficient of Localisation) Metric informs you of the extent to which an industry is relatively over or underrepresented in your area.
Why the metric matters from a commercial inhabitant’s perspective
Knowledge of the concentration or clustering of industry classes informs commercial inhabitants of the geographical distribution of industry at three levels. Firstly, at the London-wide level, industry clusters can broadly inform commercial inhabitants of the localisation of industry classes as they link within the overall macro economy, uncovering patterns of industrial specialisation.
Industry cluster information at the industry level allows for secondary analysis of the ‘where for the value chains of given end-market products (as revealed through patterns of inter-and intra-industry linkage).
Finally, at the firm (or micro) level, industry concentrations uncover the existence of a few linked or related enterprises along with their important specialised suppliers, which shines light on how necessary location dependent networking and other types of inter-firm collaboration are within their industry.
Why the metric matters from a residential inhabitant’s perspective
The concentration of businesses in an area should be a consideration for residents. First of all, where lots of businesses cluster, people tend to have plenty of potential employers. Further, residents have to share the infrastructure, from public transport to theatres and restaurants.
Also, workers are likely to learn more from one another and benefit from knowledge spill over. Skilled people who work together also form networks. These networks can be formal or informal, for example research partnerships between firms in a similar industry. Industries like universities usually play key roles in forming and shaping these networks, which generates social capital and knowledge sharing.
Though industrial concentrations have positive benefits, there are also downsides to it. These include high rents resulting in pricing out of existing residents, congestion and increased pressure on public services and public space. Another concern is whether or not residents can get access to the jobs and training opportunities produced by these industries.
General commentary
The benefits of being within an industry cluster are entwined with the benefits of being in an environment where knowledge such as contacts, thoughts, opinions, views and information can be easily shared, dispersed, debated, and collectively assimilated.
The sharing, dispersal, debating and assimilation of knowledge plays a critical role in the success of both high-tech regions and more traditional industrial clusters. The higher innovative performance of Silicon Valley, in California, compared to Massachusetts’ Route 128 in the 1990s, for instance, has been attributed to the presence of a regional culture of collaboration that fosters knowledge circulation. Similarly, the informal contacts established by technicians and entrepreneurs along buyer-supplier networks in the Third Italy (where clusters of small firms developed in the 1970s and 1980s in the central and northeast regions of the country) have been used to explain its superior performance over the Fordist industrial model, which advocated splitting the city into inner highly dense parts and outer-city suburbs with zoned areas of activity.
Informal contacts also rapidly and effectively channel information and knowledge across firms otherwise limited to their internal pool of knowledge or bounded by their formal interorganisational ties. These informal knowledge networks emerge out of direct and indirect relationships that individuals use to access knowledge, and they are particularly important in clusters that are populated by communities of firms and people embedded in dense social relations of overlapping affiliations and obligations.
Additional arguments have been recently advanced to unravel the relation between clustering, knowledge diffusion, and innovation. Common wisdom directs that knowledge is a good, which is shared in cohesive networks of cognitively close professionals, aka “epistemic communities”, or communities of practice.
Alternatively, those that don’t see knowledge as a communal good, posit that knowledge is not in the air, and it does not flow randomly via unplanned spill overs. They suggest rather, it circulates via localised networks among specific actors and communities, benefitting community members to greater or lesser degrees.
Irrespective of which side of the debate one chooses to side with, the fact remains that clusters facilitate knowledge flows and being at the heart of such flows is considered to be beneficial.
Canary Wharf has one of London’s highest concentrations of financial businesses (Photograph: Wikimedia Commons)
Trivia
The economy of London is dominated by service industries, particularly financial services and associated professional services.
History
London became a mostly service-based economy earlier than most European cities and especially after the Second World War, became a business centre and service industry.
Currently, about 85% of the employed population of London works in the service industries. Half a million employees resident in Greater London work in manufacturing and construction, almost equally divided between both.
For a better part of the 19th and 20th centuries, London was a manufacturing centre with over 1.5 million industrial workers. As large-scale manufacturing declined in London, other types of industries took its place. Industries affected include shipbuilding, air manufacturing, consumer electronics, aircraft and most of the vehicle construction industry.
Currently, London’s largest industry remains finance. It is the largest financial exporter in the world, which makes a significant contribution to the UK’s balance of payments. In 2017, Global Financial Centres Index ranked London as having the most competitive financial centre in the world. However, in the 2018 ranking, London lost that title to New York City.
London’s industrial landscape will continue to change as the breadth of the city’s economy means that it is no longer shaped by a single sector’s needs. London is increasingly shaped by new and diverse ways of working together, rather than by products.