Business Service Geographies – Global Cities, Service Offshoring, and the Second Global Shift

Global Cities

Business services have a complex geography that reflects the existence of concentrations of clients in major cities or in the global cities of London and New York. Business services have been growing rapidly not only in the major cities, but also in locations further down the urban hierarchy and even in rural locations. Conventionally, it has been assumed by economic geographers that the major cities are the locations for business service firms that provide the best expertise for client companies while firms located in other locations provide adequate expertise. This is an assumption that has yet to be tested by empirical research. Concentrations of business service firms have been used as one of the most important indicators to identify world or global cities, but this research design has not addressed differences in the quality of available expertise between firms located in major cities and those located elsewhere. The difficulty is that the global cities literature prioritizes cities in the research design while neglecting to explore the ways in which expertise is produced and delivered by business service firms to their clients. The global cities may just be the access node used by clients for expertise that exists elsewhere in the urban hierarchy. It is perhaps worth noting that the global cities literature is rooted within the ‘central place theory’ and especially with a concern with understanding the location of high and low order services.

Rural Areas – Lone Eagles and High Fliers

Research by economic geographers into the activities of business service firms has been dominated by studies of firms located in major cities. This is unfortunate and it means that geographers have comparatively limited understanding of the knowledge economy and the activities of KIBS in smaller cities, market towns, and rural areas. Research into rural based business and professional services (BPS) is dominated by the American studies undertaken by William Beyers. He identified that the American Midwest has experienced significant growth rates in business service firms and importantly some of these companies are engaged in interregional and even international exports. Beyers classified exporter’s rural business service firms as ‘lone eagles’ (one person proprietorships) or ‘high fliers’ (firms with one or more employees). By the very nature of the kinds of services offered by lone eagles and high fliers it is unlikely that they will be producing outputs intended primarily for consumption in local markets. There will, for example, be very limited demand for high level management consultancy or advice on the installation and maintenance of corporate IT systems in the small and dispersed communities typical of rural areas in the US, Canada, Australia, or Europe. Much of the output of these advanced services, and indeed those located in the much larger and longer established urban centers, are of necessity traded between localities and regions.

Service Offshoring and the Second Global Shift

Business services are usually supplied and consumed locally in a process of face to face co production. This relationship is based on embodied expertise centered on the ability of service providers to enter into interactive relationships with clients. Heavily embodied services have conventionally been considered to have low productivity levels as it is difficult to substitute embodied expertise with machines. The relationship between embodied expertise, machines, and proximity between the supplier and consumer of a business service has been challenged with developments in computer programs and information and communication technologies (ICTs).

New technology has the potential to create entirely new services or to challenge the relationship that conventionally exists between the co production of a service in time and space. Initially, replacing some employees with machines increased the efficiency and profitability of service firms, but local expensive labor was still a central component of these production systems. Nevertheless, the development of new technology and associated production systems offered the possibility of relocating some service functions from high to low cost production locations (India, Eastern Europe, and the Caribbean). Some business services are thus following manufacturing in the development of a ‘global shift’. The dynamics and resulting geographies of the ‘services shift’ are so different to that of manufacturing that Bryson has argued that what is occurring is a ‘second global shift’ or the development of a new international division of ‘service’ labor (NIDSL). During the first global shift, branch plants in developing or less developed countries were associated with the assembly of products designed by and for the developed world. During the second global shift, service functions are transferred from developed market economies to other locations. This shift could be designed to reduce costs, to provides services for a foreign market, to develop 24/7 provision, to reduce exposure to country risk, or to access skilled labor. The geography of the second global shift is different to that of the first. It is more constrained by language, as well as cultural nearness, or the ability of foreign producers of services to relate to customers located in other countries. An additional factor influencing the location of offshore service facilities is the requirement to provide a 24 h service to customers or an extended service beyond standard working hours. The ‘second global shift’ is a recent development and academics and policymakers are just beginning to explore this process. This is a complex issue that embraces economic, as well as political geography. Data processing has now become a global industry and governments are increasingly sending sensitive data to be processed abroad. The UK government, for example, in 2007 entered into a data processing contract with the German company Siemens. Siemens is inputting every record of births, deaths, and marriages in the UK dating back to 1837, but this data has been transferred to Chennai, India, for processing. The NIDSL now involves the routine processing of government data in foreign countries that has the potential to expose citizens to identity theft.

A number of factors lie behind the decision to send a particular service activity offshore. First, the service must be capable of some degree of standardization that does not require face to face interaction with clients. Second, the inputs and outputs required to deliver a service must be capable of being traded or transmitted with the assistance of ICT. Third, some service activities are not fixed in space and can be provided either as a form of foreign trade or by the temporary relocation of a service worker to a client’s premises, for example, management consultancy or various forms of auditing.

Conclusion

The growth in employment in business services and in the number of business service firms represents one of the most important structural realignments to be experienced by developed market economies. This growth reflects the shift toward competitiveness based upon expertise and education. Education and the effectiveness of a country’s educational system are essential for the continued development of business services. This interplay between business service firms and the educational system requires further research. Academics must explore the ways in which business service professionals acquire, maintain, and develop their expertise. This requires research into the educational system, and also into the activities of the professional bodies and the role they play in forming ‘educated’ professionals. It also involves research into identifying the ‘soft’ personality related skills that are so important in the client–business service provider relationship.

It is important to remember that business service firms sell expertise, but that this involves an important transformation that requires considerable further research. Business service firms commercialise expertise by transforming it into a product that has value. The existing literature overemphasizes the quality and nature of the expertise provided by many business service firms. Comparatively few academics have explored the types of knowledge/expertise provided by business service firms to their clients. Many business and professional service firms provide forms of recipe or standardized knowledge that is customized to meet client needs and expectations. This is an important point – the expertise is readily available, but the added value is formed during a process of commercialization and customization. While the knowledge or expertise may be standardized and largely generic, the creativity may be found in the process of commercialization rather than in the actual expertise. This raises important questions regarding the nature of the creativity that occurs in the ‘creative’ side of the economy. In many instances, creativity may just be a reflection of a business service professional’s commercial or entrepreneurial skills rather than being an indication of creative expertise.