1. Analyzing the Business Decision or Problem:
Cluster has been known to offer many benefits to its incumbents such as improving their reputation as well as being able to utilize the large and highly skilled pool of labor and customers. Geographical clustering especially is a major characteristic of industrial development and innovation (Krugman, 1991).
Analyze the decision that Dr Kuah, CEO of Royal Bank of Scotland need to consider on relocating the headquarters from Glasgow to Leeds, Yorkshire. For example, what are the causes, costs and benefits of clustering in Leeds.
To be able to make decision on financial service clustering in Leeds, Dr Kuah should consider: + What are the causes, costs and benefits of clustering?
+ How does the benefits and costs of clustering affect the bank performance? + Why should the Royal Bank be relocated in Leeds but not Glasgow?
_ Hypotheses to support the questions:
+ Clustering in Leeds would Royal Bank of Scotland brighten the business prospect. + Geographical clustering in the same sector would prove to be beneficial to Royal Bank of Scotland. + Clustering Royal Bank of Scotland to Leeds is better in various aspects compared to that in Glasgow.
One of the main causes for this relocation is that Glagow appears to suffer from what Bathelt (2005) calls the “distant neighbor” syndrome, lacking both close internal and external connectivity. While Leeds, being the UK’s second financial hub with central location that has fast access to London, would be ideal for the Royal Bank to develop and expand its service to more customers than ever. This could be achieved also through Leeds’ efficient transport and communication net works. Other causes would be that Leeds would be able to offer the bank with lower cost, availability of skilled staff, premier business accommodation and excellent social support. Krugman (1991) highlights 3 factors that attract firms to a location specialized labour, specialized immediate inputs and spillovers of knowledge. Since the source of spillovers are quite immobile (Tassey,1991), a good location choice would lead to clusters going through a self-reinforcing process and improve their performance. There are also some costs involved. On the supply side, the bank might face congestion cost and competition in the input markets, while on the demand side they might incur the cost of relocating to a more competitive output market.
2. What is Already Known about the Decision or Problem:
There are two sources of information that were looked at, namely Google Scholar and JCU Library. They are chosen due to their relevance and reliability. Ten articles introduced below are taken from JCU Library.
In the literature on clustering, the use of the term ``cluster'' is not completely standardized. Some focus on collections of industries, with no particular geographical emphasis. Others focus on the quality and quantity of economic and social activity in a particular region, without (necessarily) a particular sectorial or technological emphasis. In this paper, we use the term cluster to imply a technological and geographical focus. A cluster refers to a strong collection of firms within one industry or sector, all concentrated in the same geographical area (Baptista and Swann,1998). Clusters are generated and reinforced by a positive feedback process based on a set of advantages that arise from the geographical agglomeration of industrial activities. If benefits from locating in an industrial centre increase as more new firms locate there, then a process of positive feedback and lock-in (Arthur, 1990) will result. Regions do not, however, enjoy this kind of increasing returns indefinitely. If the attractiveness exerted by the presence of others was permanent, some region should always dominate and shut out the others. In fact, what is usually observed is...
References: 2. Baptista, R., and Swann, G.M.P. 1998. Do firms in clusters innovate more?. Research Policy 27 (5): 525-540.
3. Swann, G.M.P, and Baptista, R. 1999. A comparison of clustering dynamics in the US and UK computer industries. Journal of Evolutionary Economics 9(3): 373-399.
4. Prevezer, M., and Swann, G.M.P. 1996. A comparison of the dynamics of industrial clustering in computing and biotechnology. Research Policy 25(7): 1139-1157.
5. Swann, G. M.P, and Beaudry, C. 2009. Firm growth in industrial clusters of the United Kingdom. Small Business Economics 32(4): 409-424.
6. Baik, Y., Folta, T. B., and Cooper, A. C. 2006. Geographic cluster size and firm performance. Journal of Business Venturing 21(2): 217-242.
7. Swann, G. M.,P. Cook, G. A., and Pandit, N. R. 2002. A Comparison of clustering dynamics in the British broadcasting and financial services industries. International Journal of the Economics of Business 9(2): 195-224.
9. Pandit, N.R., Cook, G.A, and Swann, G. M. P. 2001. The dynamics of industrial clustering in British financial services. The Service Industries Journal 21(4): 33-61.
10. Kuah, A.T.H. 2008. Is there a diamond in the city? Leveraging the competitive advantage of the London Financial Centre. Singapore Management Review 30(2): 1-17.
11. Kuah, A.T.H, Tse, T., and Esposito, M. 2013. Financial agglomerations in the UK: Geographical cluster size and firm performance. Journal of Competitiveness and Strategy 3: 16-35.
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