Knowledge intensive business services in non-core areas : Preconditions and strategies for value creation and competitiveness

Abstract: Knowledge intensive business services (KIBS) play a key role in economic development. Due to the complex and collaborative nature of their value creation processes, it is conventionally argued that they depend strongly on physical proximity to large client-, and labour-markets, as well as on closeness to advanced knowledge infrastructures. This thesis partially questions such conventional assumptions and investigates how KIBS manage to stay competitive in relatively peripheral locations, aided my modern communication technologies. The thesis accounts for the results from in-depth qualitative case studies of KIBS in two Swedish non-core areas. How they compensate for local disadvantages, such as the absence of local agglomeration advantages (including a dedicated labour market) and long distances to collaboration partners, is the main focus of the cases studies. In conceptual terms, the thesis finds that a fruitful mechanism for disentangling the need for physical proximity, is the distinction of KIBS’ activities into project stages, that are different in character, also when it comes to their requirements on interaction and proximity. Understanding their activities in terms of project stages, becomes the key to understanding when and how firm need to draw from traditional agglomeration advantages, or at least physical interaction, and not. The thesis finds that local disadvantages and long distances are, in practice and in our type of economy, less limiting for the competitiveness of non-core KIBS than indicated by previous work. There is a strong timeline in this – “borrowed” agglomeration advantages are more accessible to non-core KIBS than ever before, due to very recent ICT developments and increased usage of the Internet. Relational factors, such as reputation and relationships on client markets, are important to the ways in which KIBS do business. However, the thesis clearly shows how technological change has allowed firm to establish those through temporary proximity and maintenance of links across distance. Also, low local labour turnover and dedicated employees in the non-core areas not only enhances KIBS organizational competences under the conditions of continuous learning by employees. It also strengthens long-term relationships on client markets, including extra regional ones. The combination of these advantages to a great extent counterweighs, or compensates for, the absence of traditional location advantages for KIBS in non-core areas. In sum, for the case firm, the thesis reveals the mechanisms according to which non-core KIBS compensate for absence of local agglomeration advantages and are ultimately able to compete with similar KIBS in large urban areas, on the same markets. This, while the thesis observes firm that do survive competition and not just any firm, provides updated perspectives on firm growth in advanced sectors and in non-core regions, for a post-covid economy.