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Hitz et al (1994, 173) and Keeble and Nachum (2001) determine that general assets generating agglomeration in global cities are transport and communication infrastructure, physical

environment, business climate and entrepreneurship resulting in knowledge spillovers, access to labor markets, political and social dynamics, educational system, and cultural and scientific life. The discussion in the previous section has shown us that these are also the important

characteristics that APS firms depend on. Thus, APS firms need to be located in dense concentration in global cities to benefit from economies of agglomeration.

Economies of agglomeration is a concept that indicates the average cost savings as a result of more production occurring in a specified geographical area. It might be defined in the intra- firm (internal scale economies) and inter- firm levels (external scale economies). Advantages brought by inter- firm agglomeration are called economies of localization if the context is locational advantages between firms in the same industry. If the context is all industries located in an urban area, it is called economies of urbanization (Anas, et al. 1998). In agglomeration economies, firms are able to share some of their external expenses with other firms in the same locational cluster (Keeble and Nachum 2001).

Porter (1998, 1; 2000, 15) defines clusters as geographic concentrations of interconnected companies and institutions in a particular field that compete but also corporate. Feser’s (Feser and Luger 2003, 13) cluster definition focuses on inter- firm linkages and various aspects of common behaviour. Clustering enables producer service establishments to realize labor market economies, minimize transaction costs associated with the production and exchange of their services, and facilitate the exchange of knowledge and information (Nelson 2005, 332). Clusters are more than single industries; they might include suppliers of specialized inputs, providers of specialized infrastructure, governmental organizations, or firms (Porter 1998, 2000). Cluster has become an important unit of analysis in urban geography because this unit of analysis is the best fit to the nature of competition and governmental policies. Clusters have a broader definition than traditional industry agglomerations and they capture important relations in terms of skills, information, marketing, and technology (Porter 2000, 18). Proximity is important in clusters because it reduces the formal and informal costs of matching demand and supply of adequate labor and costs of workers moving between firms in the same area; proximity also enhances competition by increasing peer pressure on employees (Kloosterman and Lambregts 2001, 722)

Maoh and Kanaroglu (2006, 29) demonstrate that where firms locate and eventually cluster give rise to the way commercial and industrial land uses are organized over space, which in turn defines the shape of urban form. Keeble and Nachum (2001) demonstrate that clustering pattern is more evident in globally oriented APS firms located in global cities like London, New York, and Tokyo. Beaverstock et al (1999a, 449) argue that high concentration of APS functions in these cities can be explained by the collection of several factors including potential customers,

corporate headquarters of manufacturing and service firms, government departments, non- governmental organizations, and foreign firms.

Porter (1998,4) argues that as global competition decreases traditional comparative advantages and exposes companies to the best rivals from around the world, a growing number of

transnational companies are shifting their home bases to more dynamic clusters. APS firms operating only in national or local levels have a more dispersed pattern. Globalization indicates that increasing number of transnational APS firms (APS TNCs) are serving overseas markets, they are foreign-owned, they developed global and local networks with other APS firms and they recruit their staff internationally. For APS TNCs location in a central area of a global city offers important advantages in terms of international air, rail, and telecommunications networks and gives them access to global knowledge (Keeble and Nachum 2001, 12).

Locational pattern of many service firms are often less spatially concentrated than for APS firms. For APS firms, large concentrations of private and public service clients remain important

locational attractions (Moulaert, et al. 1995, 107). Face to face, tacit knowledge is a key factor in explaining spatial clustering of APS firms. Firms located in the same cluster can observe their competitors and market trends, they can develop more innovative solutions (Moulaert and Djellal 1995, 107), thus they become part of a “collective learning process” (Keeble and Nachum 2001). Ihlanfeldt (1995) argues that face-to face interaction of APS firms creates “communication economies”. Communication economies are related to technological change and they create a unique environment in which “exchange of ideas, augmentation of human capital, and diffusion of technology come from formal and informal face-to-face interactions” (Ihlanfeldt 1995, 129).

Another benefit of clustering is access to skilled labor. When located in clusters, flow of

professionals and embodied expertise through the local labor market becomes easier (Todtling, et al. 2006, 1037). Manhattan is the earliest example of this, even after the World Trade Center attacks it is still “the place” for employees of the transnational service sector. After the attacks, Manhattan offices of the Goldman Sachs Company were destroyed and Goldman Sachs wanted to move their office complex to an already existing tower in New Jersey. However, employees resisted wanting to stay in Manhattan, they did not want to loose their location on the hot-spot of global business. In the end, Goldman Sachs has commissioned a $1.8 billion new headquarters near Ground Zero (Economist 2006; Russell 2004).

There is a growing evidence that the rise of multi- locational APS firms corresponds to a multi- dimensional spatial logic, involving intra-and inter-urban as well as intra-regional considerations (Moulaert and Gallouj 1995, 150). Several factors that affect intra-urban agglomeration of APS firms are the quantity, quality, and price of office space, the communications infrastructure and its accessibility, the socio-cultural environment, the proximity to and the interface with

complimentary services (Moulaert and Gallouj 1995, 151).

APS firms depend on information and knowledge as key ingredients for their production and they benefit from economies of localization by being in places where there is an ample supply of highly trained specialists and moderately skilled workers, suppliers, and customers (Anas, et al. 1998; Nelson 2005, 332). APS firms also benefit from economies of urbanization in global cities

because by being nodes in global economy, these cities provide a fertile environment in terms of cross- industry linkages and flow of information (Anas, et al. 1998; Castells 1996; Sassen 2001b).

Telecommunication requires massive investments and offer significant economies of scale due to high fixed costs and low marginal costs. The main source of demand for telecommunications comes from information-intensive APS industries located in cores of large metropolitan areas. Thus, development of specialized telecommunications networks and firms that benefit from these networks has been concentrated in core areas of large cities, resulting in centralization (Castells 1989; Moulaert and Schachar 1995). Telecommunications development has become an important city marketing strategy (Taylor and Smith 1999, 1861), they provide strong competitive

advantages to cities and regions (Short, et al. 1996, 707). Construction of new “urban quarters” designed to provide knowledge-rich entrepreneurs and APS firms with living, work, and

entertainment space has become crucial strategies for place promotion. London’s Canary Wharf, New York’s Battery Park, Paris’s La Defense, which are all large agglomerations of APS firms, are examples to this strategy (Daniels and Bobe 1995; Moulaert and Shachar 1995).

Metropolitan areas are the nodes on telecommunication highways that are essential to the

operation of the international service economy (Hitz, et al. 1994, 172). Globally connected cities are articulated with innovative architectural and urban design strategies. Fortress like office buildings are one form of these strategies (Daniels and Bobe 1995). Graham (1997a) mentions the myth, which says that as a result of advanced technology, cities will disappear. Urban

functions will decentralize in a world where all information will be available to all places and all people. However, Graham (1997a) argues that telecommunications only help the work patterns

in cities to become more flexible. They bring together the advantages of the large metropolis. Telecommunications help the development of urban regions rather than traditional compact cities; they provide the advantage of remote control. Information running between electronic networks create the need for face to face interaction for interpretation of this information, which is handled in the command centers of APS firms (Graham 1997a).

To summarize, we can say that the need for face to face contact, proximity to skilled labor pool, the dependency on sophisticated infrastructure in their operations resulted in APS firms to be located in clusters. In traditional monocentric cities, this clustering was taking place in core areas of cities, called central business districts (CBDs). However, as suburbanization became an important trend for people and businesses, there is an increased tendency of APS firms to locate their offices in areas outside of CBDs to cut back from land costs, to be closer to their

employees, and to take advantage of the highway transportation (Sasaki 1990). The tendency to be closer to airports and the efficiency brought by advanced telecommunications and transport technologies also supported this decentralization of APS firms (Castells 1989). This new trend is giving way to the development of polycentric metropolitan areas.