The Cambridge Cluster: Why are there very few large firms?

Cambridge has been acknowledged as one of the world’s leading high-tech business clusters. It is currently home to over 1,500 high-tech ventures, employing around 45,000 people (Kudina, et al., 2008). The city itself is based around the historic centre surrounding the University, and has become a major centre for the new economy. This includes the presence in and around the area of a relatively large number of SMEs specialising in computing, biotechnology, electronics and scientific instruments (While, et al., 2004). These firms are increasingly engaged in global economic activity, with proximity effects sustaining the cluster. As such, it qualifies as one of the most innovative and entrepreneurial landscapes outside of the US (Koepp, 2004). However, despite this a significant amount of these firms stay small, with very few reaching the scale of those that reside within Silicon Valley.

High tech firms tend to grow up in places that can provide the ‘quality of life’ that can attract highly skilled workers and entrepreneurs, but that are also small enough to facilitate face-to-face interaction and trust. They are also typically located close to academia and areas of significant research (While, et al., 2004). As such, Cambridge is a good a place as any in the UK to start up a high-tech firm. We see this with growth often being attributed to the promotional role of the University, the historic city and surrounding villages, access to networks of information and personnel, proximity to London, along with the absence of the old economy (While, et al., 2004). The diversity of high-tech activity in the region reflects the diversity of the local scientific and technology base, but its growth has been mainly through the entrance of new enterprises not expansion. By 2004, the mean size of high-tech firms was 33 (Garnsey & Heffernan, 2005).

One restriction on the expansion of firms in the area is seen as physical constraints. This affects the level of affordable housing which affects revenue and retention of labour, hence the development of the new economy and its supportive services (While, et al., 2004). The roots of the Cambridge ‘growth containment’ policy in this regard goes back to the 1940s and the fear of industrial development adversely affecting the last true ‘university’ town. Planning restrictions meant that there could be no building expansion and so growth firms had to move out to the fringes, hence limiting the ability of large firms to act as facilitators for smaller ones (Athreye, 2012). This continued until the 80s and 90s when it was realised that such constraints were putting pressure on the surrounding area (While, et al., 2004). By 2000 there was a concerted effort to reorient local strategy away from growth restraint, with a key juncture being the initial rejection of the £100 million, 40,000 m2 expansion of the Wellcome Genome Campus (While, et al., 2004). Therefore, it is only recently that planning policy has become more facilitating for the development of larger institutions, but it is still relatively restrictive.

The second constraint is seen in the business environment. Although there are high levels of human capital in the area, there has been a failure to create a regional environment which facilitates the development of successful technology-based firms, stunting the growth of some enterprises despite the rate of new firm formation (Saxenian, 1989). As part of this, it is argued that Cambridge entrepreneurs are content with building small scale niche enterprises, limiting the ability of mega-corporations to develop (Koepp, 2004). Although this may not be true of all in the area, it has still been argued to be so, especially with the idea of the Cambridge attitude being to ‘get on with things’. Further, the UK environment was not designed for sustained growth of high-tech firms due to the limited size of the domestic market, the lack of seed funding and R&D support and the volatility of economic activity (Garnsey & Heffernan, 2005). Again, this may also be changing, with the increase in business services in the area over the past few decades, such as venture capitalists (Garnsey & Heffernan, 2005). This also includes greater support for new enterprises such as through entrepreneurial schemes, for example Postdocs to Innovators.

It could be argued that the large firms in the area that have developed, have grown despite, not due to, the Cambridge regional environment. The region thrives on small enterprises, with less than 3% of the firms employing 200 or more people (Koepp, 2004). The question is, while the institutional environment may be changing and adapting, will there be the birth of new firms who could eventually reach the size to rival companies such as HP or Facebook in the Cambridgeshire region?

References

Athreye, S., 2012. Agglomeration and Growth: A study of the Cambridge High-Tech Cluster. In: T. Bresnahan & A. Gambardella, eds. Building high-tech clusters. Cambridge: Cambridge University Press, pp. 121-159.

Garnsey, E. & Heffernan, P., 2005. High-technology clustering through spin-out and attraction: The Cambridge Case. Regional Studies, 39(8), pp. 1127-1144.

Koepp, R., 2004. Clusters of Creativity: Enduring lessons on innovation and entrepreneurship from Silicon Valley and Europe's Silicon Fen. 1st ed. Chichester: Wiley.

Kudina, A., Yip, G. & Barkema, H., 2008. Born Global. Business Strategy Review, pp. 38-45.

Saxenian, A., 1989. The Chesire cat's grin: innovation, regional development and the cambridge case. Economy and society, 18(4), pp. 448-477.

While, A., Jonas, A. & Gibbs, D., 2004. Unblocking the city? Growth pressures, collective provision, and the search for new space of governance in Greater Cambridge, England. Envrionment and Planning, Volume 36, pp. 279-304.