How infrastructure issues affect the location decisions of large firms

New research by Dr Atif Ansar of the BT Centre, calls for a more flexible approach to the provision of infrastructure which will better cater for the needs of large firms and avoid wasteful and potentially obsolete infrastructure investments.

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Blanketing a country with “one size fits all” infrastructure is likely to lead to misallocation of investment

(PRWEB UK) 25 January 2013

Attracting large businesses to economically deprived regions is a key priority for government. Yet developing the necessary infrastructure to do so, at a time of escalating public sector debt, presents significant challenges. New research by Dr Atif Ansar of the BT Centre of Major Programme Management at Saїd Business School, calls for a more flexible approach to the provision of infrastructure which will better cater for the needs of large firms and avoid wasteful and potentially obsolete infrastructure investments.

Economists, politicians and business leaders routinely call for the building of infrastructure assets – such as roads, railways or ports – to attract firms to the local economy creating jobs and economic growth. The economic reality makes it difficult to find the funds for such investment, and the return is far from guaranteed. In a new paper Dr Ansar argues that the traditional infrastructure view of ‘build it and they will come’ is no longer valid and that increasingly large firms want tailored infrastructure services rather than off-the-shelf standard solutions. The search for such tailored infrastructure services is now a key part of the location decision-making of large companies.

‘Mainstream theory suffers from a poor understanding of the process by which large end-users procure infrastructure. Traditionally, economists have argued that large organisations have little bargaining power over infrastructure services and costs. My work studying the decision-making of some of the largest firms, such as ThyssenKrupp AG (TK), a top 20 global steel giant, presents a very different picture. In choosing a US location for a new plant, TK demonstrated its bargaining might, built upon thorough research of alternative sites and the trade-offs involved with each; utilized a tightly defined business plan which weighted site factors in importance; and deployed a strategy of withholding its commitment to any one site until the last possible moment. A key factor in its final decision was the local authority’s willingness to work collaboratively with the firm to develop customised infrastructure to meet TK’s particular needs. It placed relatively little importance upon the existing infrastructure already in place.’

The low weighting firms like TK give to existing infrastructure highlights the risk of regions investing heavily in infrastructure ahead of potential firms moving to the area. Increasingly firms want to co-develop tailored infrastructure services around their investment. ‘Blanketing a country with “one size fits all” infrastructure is likely to lead to misallocation of investment’ says Dr Ansar. ‘Instead of embarking on infrastructure megaprojects and central plans, governments are better off focusing on co-developing smaller scaled infrastructure with large firms, financed from user-fees rather than from the general tax revenue. This will benefit not only the public purse, but will appeal to large firms which are increasingly recasting megaprojects as smaller scaled increments which can be scaled up flexibly and tailored to their infrastructure requirements.’

‘Planners routinely over-estimate demand for infrastructure projects. However, when infrastructure projects are built in a specialized manner for one or few lead users, the demand forecasts are easier to estimate and resource misallocation reduced. Infrastructure tailored for one anchor tenant such as a large manufacturing firm can support a wider ecosystem of various sized enterprises and is more likely to lead to the economic regeneration sought.’

For further details or to speak to Dr Ansar, please contact the press office:

Clare Fisher, Head of Press Relations,
Mobile: +44 (0) 7912 771090; Tel: 01865 288968
Email: clare.fisher(at)sbs.ox.ac.uk
Josie Powell, Public Relations Coordinator
Tel: +44 (0) 1865 422573, +44 (0) 1865 288403
Email: josie.powell(at)sbs.ox.ac.uk or pressoffice(at)sbs.ox.ac.uk

Notes to Editors
About the paper
For the full paper see: http://joeg.oxfordjournals.org/content/early/2012/11/22/jeg.lbs042.full?keytype=ref&ijkey=9bNYIvZDaR0pTaD

About Dr Atif Ansar
http://www.sbs.ox.ac.uk/research/people/Pages/AtifAnsar.aspx

About the BT Centre for Major Programme Management
The BT Centre for Major Programme Management is the first research and teaching centre in the world dedicated to understanding and dealing with the challenges of major programme management and helping business, government and civil society meet and overcome them. The purpose of the Centre is to develop leaders and scholars who understand the strengths and weaknesses of major programmes and have the knowledge, skills and tools necessary to decide when to, and not to, execute such programmes and to successfully govern, plan, manage and deliver programmes on behalf of business, government and society. See http://www.sbs.ox.ac.uk/centres/bt/Pages/default.aspx

The MSc in Major Programme Management was launched in October 2009. Informed by cutting-edge research, this part-time MSc combines the highest standards of academic rigour with a practical approach to managing large-scale, complex and transformational programmes. http://www.sbs.oxford.edu/mpm

About Saïd Business School
Established in 1996 the Saïd Business School is one of Europe’s youngest and most entrepreneurial business schools with a reputation for innovative business education. An integral part of Oxford University, the School embodies the academic rigour and forward thinking that has made Oxford a world leader in education and research. The School has an established reputation for research in a wide range of areas, including finance and accounting, organisational analysis, international management, strategy and operations management. The School is dedicated to developing a new generation of business leaders and entrepreneurs and conducting research not only into the nature of business, but the connections between business and the wider world. In the Financial Times European Business School ranking (Dec 2012) Saïd is ranked 12th. It is ranked number one in the UK (7th worldwide) in the FT’s combined ranking of Executive Education programmes (May 2012) and 20th in the world in the FT ranking of MBA programmes (Jan 2012). The Oxford MSc in Financial Economics is ranked 4th in the world in the 2011 FT ranking of Masters in Finance programmes (June 2012). In the UK university league tables it is ranked first of all UK universities for undergraduate business and management in The Guardian (May 2012) and has ranked first in eight of the last nine years in The Times. For more information, see http://www.sbs.ox.ac.uk/

ENDS


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