Information Technology and the Location of Corporate Headquarters

Mark Thoma writes:

Economist's View: Information Technology and the Location of Corporate Headquarters: This is an example of what Paul Krugman discussed in his column "The New York Paradox" where agglomeration economies, the benefits from the clustering of related firms, create an incentive for firms to locate in New York's financial center. However, up until recently, the high cost of locating an entire headquarters operation in New York... innovations in information technology... allowing many of the support personnel to work in lower cost areas in other parts of the world and communicate electronically with upper management.

This article on the movement of biotech headquarters to the U.S. to be located near sources of financing... shows that the phenomena is general - New York is not the only destination - there are agglomerations of biotech firms in places like Cambridge, Massachusetts and Carlsbad, California....

Europe's biotech 'immigrants' to America, by Andrew Pollack, Commentary The New York Times/IHT: When the Scottish government injected $9 million into the biotechnology company Cyclacel last October, the country's enterprise minister explained that "there could not be a more important company for Scotland's future." So how did Cyclacel show its gratitude just two months later? By moving its headquarters to Short Hills, New Jersey, and merging with a publicly traded American company.

Cyclacel executives say there was no slight intended to the government and the company's 65 research scientists, who continue to work in Dundee, Scotland, and Cambridge, England. "The issue was one of access to the capital markets of the United States," said Spiro Rombotis, Cyclacel's chief executive. Only American investors, he said, could provide the tens of millions of dollars needed to carry the company's cancer drugs through clinical trials.

Cyclacel is not alone among European biotechnology companies that consider their science second to none, while conceding the superiority of U.S. financial markets. A number of European players from countries including Denmark, France and Germany have come to the United States for greater access to the world's largest investment pool for life sciences....

The German company Micromet now has a Nasdaq listing and a U.S. headquarters, after reverse-merging with Cancervax, of Carlsbad, California. Most of its operations are still back in the home country....

Oxxon Therapeutics, a British company, moved its headquarters to Boston but then moved back to England. "It's extremely difficult to manage small operations on both sides of the Atlantic," said Craig Smith, Oxxon's chairman....

There has long been a school of thought that argued that manufacturing moved to resource and transport hubs, and then that design and engineering moved to manufacturing, and then finance and management moved to design and engineering--and thus that this century's finance and management hubs are the resource and transport hubs of two centuries ago.

It seems that now we are seeing a different process: design, engineering, and management moving to be within hand-holding distance of midtown Manhattan or of Sandhill Road.