The rationale for location preferences of technology-based small firms in the UK

J. Global Business Advancement, Vol. 3, No. 1, 2010 79

Copyright © 2010 Inderscience Enterprises Ltd.

The rationale for location preferences of technology-based small firms in the UK

Farid Ullah Aberdeen Business School, The Robert Gordon University, Garthdee Road, Aberdeen AB10 7QE, UK E-mail: [email protected]

Qaisar Abbas COMSATS Institute of Information Technology, Plot # 30, Sector H-8/1, Islamabad, Pakistan E-mail: [email protected]

Saeed Akbar* University of Liverpool Management School, Chatham Street, Liverpool L69 7ZH, UK E-mail: [email protected] *Corresponding author

Abstract: This study examines the funding issues of technology-based small firms and the role of locations where identical firms tend to cluster around a centre of knowledge creation or other research base. In the UK, it is commonly known as science parks or business incubators whilst elsewhere it may be known as technopoles, growth poles and/or science cities. Firms choose such clusters due to the perception of a supportive environment that adds value to these firms. The results suggest that at the early stages of development, technology-based small firms seek better locations for recognition, showcasing and accessing other necessary facilities. Science parks are the locations which may best fulfil all these needs of the technology-based small firms. It can be, therefore, argued that owners choose science parks because such privileges may be hard to get in other locations such as the founders’ home or other similar locations.

Keywords: technology-based small firms; location; science parks; business incubators.

Reference to this paper should be made as follows: Ullah, F., Abbas, Q. and Akbar, S. (2010) ‘The rationale for location preferences of technology-based small firms in the UK’, J. Global Business Advancement, Vol. 3, No. 1, pp.79–83.

80 F. Ullah, Q. Abbas and S. Akbar

Biographical notes: Farid Ullah holds a PhD from the University of Liverpool Management School and currently, he is working at Aberdeen Business School. His research interests include the funding issues of small firms (particularly, technology-based small firms), regional economic development (science parks/incubators), entrepreneurship in developing countries, social entrepreneurship and entrepreneurship and Islamic economic system. He has worked for the Global Entrepreneurship Monitor (GEM) and he has been a Visiting Scholar at the COMSATS Institute of Information Technology, Islamabad, Pakistan.

Qaisar Abbas holds a PhD in Human Resource Development. He completed his Post-Doctoral Research in the same area at Cardiff Business School, Cardiff University, UK. He has published papers in several journals, including Pakistan Development Review, South Asia Economic Journal, Lahore Journal of Economics, International Entrepreneur and Management Journal, Int. J. Business and Management and International Research Journal of Finance and Economics. Currently, he is working as an Associate Professor/Chairman, Department of Management Sciences, CIIT Islamabad, Pakistan.

Saeed Akbar holds a PhD from Manchester Business School, and is presently working at the University of Liverpool Management School. His main research interests include market-based accounting research, financial accounting and reporting, management accounting, auditing, intangibles and the financing and accounting regulation of SMEs in the UK. He has supervised a number of PhD students and is currently involved in six other research projects with PhD students. He has published a number of research papers in international journals such as Journal of Business Finance and Accounting, Int. J. Management Reviews, The International Journal of Accounting, Applied Financial Economics, International Entrepreneurship and Management Journal and Int. J. Entrepreneurship and Innovation Management.

1 Introduction

This paper examines the rationale behind the location preferences of new technology-based small firms on the science park cluster. Science park clusters are best positioned for the utilisation of externalities and knowledge spillovers generated by firms located in the cluster. The science park firms benefit from the close links with academia and use expert advice and support. It can be, therefore, argued that science park firms can learn and absorb knowledge spillovers from day-to-day activities, networking and interaction with other similar firms in the cluster. However, despite the importance of the science parks little evidence is available on the location preferences of firms who chose science parks as their start up location. In this regard, Gilbert et al. (2008) argue that firms founded in locations with high concentrations of industry clustering have higher product innovation and sales growth activity as compared to those firms founded in locations with limited industry clustering. This study also highlights a significant relationship between technology and product innovations.

The rationale for location preferences 81

According to the theories of economic geography, identical firms may tend to polarise at a pole due to the fact that close proximity spawns agglomeration effects or externalities. In this context, public authorities can play a facilitative role by fostering initiatives such as the establishment of science parks and incubation facilities. In any government’s large-scale expenditure in infrastructure such as roads, highways, schools, hospitals, universities, transport links and other social facilities in an area may have exponential impacts not only on attracting nationwide investment but also on foreign investment. A well developed infrastructure not only reduces transportation time but also costs and accelerates the diffusion of economic growth and prosperity across regions and beyond. In light of this, it can be argued that the infrastructure in science parks attracts technology-based small firms as the base for initial start up.

In support of the above arguments, Guimaraes et al. (2000) and Head et al. (1994) suggest that industry-level agglomeration benefits play an important role in location decisions. They highlight three compelling reasons for spatially concentrated industries: localisation provides a pooled market for workers with specialised skills, facilitates the development of specialised inputs and services, and enable firms to benefit from technological spillovers. In this context, it can be argued that despite the electronic age, all businesses need physical locations whether it is the founders’ home, laboratory, incubators, science parks, business parks, etc. Without physical location, one cannot imagine a business because businesses are not metaphysical or supernatural (Allen, 1992).

Woodward et al. (2006) suggest that research and development (R&D) expenditures at universities exert a positive and statistically significant influence on the decision to locate plants in a county. In other words, centres of knowledge creation have a magnetic property that attracts young technology-based small businesses or individual/group of individuals to sow the seeds of their novel ideas in a fertile environment. In case of technology-based small firms, incubators and science parks which are usually in close proximity to universities are the common places where they can locate at the early stages of firms’ development. At the initial stages of business development, technology-based small firms need special environment where they get all the necessary support for a successful start.

Technology parks are promoted with the aim to accelerate technology transfer from academic and other research organisations and to facilitate regional economic development. The concept of science park which started in the USA in the post World War II era and has been remarkably successful there. This was not planned rather it occurred naturally or by chance. This idea soon spread to other continents but in spite of the diffusion of science parks in Europe and broadly all over the world, it is still not clear whether they are successful in fostering the establishment and growth of innovative technology-based small firms (Colombo and Delmastro, 2002).

In the UK the science park concept is well understood. Such clusters were established for the first time in 1960s. We also have a Science Park Association established in 1985. It is also evident that the number of science parks, its tenant firms, employees and customers has grown with the establishment of the UK Science Park Association.


According to the UK Science Park Association Annual Report (2006), there are now 66 full members and 11 associate members of the UK Science Park Association. In 1985, there were 18 full members and 3 associate members. The number of jobs in tenant companies has grown from 3,317 in 1985 to 67,878 in 2005. The number of tenant companies has also grown from 607 in 1987 to 3,006 in 2005. These figures suggest that the science park concept has been well established in the UK and the technology-based small firms seeking location on such premises are benefiting from such facilities.

However, studies investigating the agglomeration effects mostly focus on the large manufacturing firms (Head et al., 1994; Tan, 2006; among others). Whilst Gilbert et al. (2008) investigates whether spillovers influence a firm’s ability to introduce more products to market or to realise higher levels of growth, this study asks the owners/managers or founders/co-founders of small firms in the high-technology sectors to report the underlying motives of their location decision. This study will add to the existing literature focusing on the business agglomeration and other location theories. This paper attempts to seek answers to questions such as:

What drives UK technology-based small firms to locate on UK science parks and incubators or other better locations than its birthplace?

What do these firms expect from such locations and what are the perceptions and realities behind the location preferences of UK technology-based small firms whilst seeking location at the start-up stage?

The findings may provide further insights and guidance to many concerned with the successful development of technology-based small firms. The remainder of this paper is organised as follows. Section 2 reviews the relevant literature, Section 3 discusses the data and methodology, Section 4 presents the results and finally, Section 5 concludes this paper.

2 Previous literature

Externalities or the so-called agglomeration economies have been recognised as the driving forces behind industry clustering in different areas of a country. There is also a growing interest in understanding the precursor conditions and academics are researching the location factors that facilitate the formation of industrial clustering. Knowledge centres, science parks, transport hubs, the presence of investors and other social facilities are some of the precursor factors being extensively researched in order to understand the forces behind location preferences and economic growth and development. Clusters of firms sometimes originate from a single fast growing and successful new start-up firm. Once an initial site of a cluster is established through spontaneous spin-off or location factors, there are compelling economic and institutional reasons for new start ups to continue to locate near competitors. Agglomeration economies encourage growth in numbers of new firms, which are either attracted by the technical and resource base or created from spin-offs in the region (Rauch, 1993; Scott, 1992).


Pouder and St. John (1996) argue that the levels of innovation are at the highest at the early stages of cluster formation where perfect conditions exist. They suggest that in a cluster, three factors are at the centre of industry innovation activities:

1 a growing frequency of competitors in the cluster who are predominantly spin-offs

2 a pool of communal resources and proximity of businesses to one another

3 competitors’ mental models that emphasise the resources and their capabilities.

Within the clusters of high-technology businesses, competitors create complex networks of interdependencies and are no longer independent of one another. Pouder and St. John (1996) further suggest that the inhabitants of a cluster become anchored to a research base, that is, academia, a pool of skilled labour, professional suppliers and financiers such as venture capitalists. These relationships help to develop the cluster in the making and businesses remain cemented to the cluster up to a certain period of time until it starts to crumble.

With regards to the interplay between academia and high-technology businesses in or around clusters, Woodward et al. (2006) observe that advanced university R&D may spur economic growth by fostering invention and spreading innovation across space. In fact, it would appear that high-technology (R&D-intensive) industry clusters gather around leading universities which acts as important nuclei. US university-based urban growth centres are well-known: the Silicon Valley in California, the Route 128 corridor aroundBoston, Massachusetts, the Austin, Texas metropolitan area and the Raleigh-Durham-Chapel Hill (Research Triangle) region of North Carolina. Nowadays, university-centred technopoles can be found in many developed countries (such as Cambridge in the UK) and increasingly in developing countries like China (Beijing Zhongguancun Science Park) and India (Bangalore, in the south of the country).

In this context, it is reasonable to argue that the most likely places for the location of technology-based small firms are science parks and incubators. These places are predominantly in close proximity to academic institutions and many cases are established by universities. Coming to the crux of this paper, the question arises that why would technology-based small businesses prefer to locate around centres of knowledge creation? What do technology-based small firms expect and get if they locate in close proximity to academia or research poles? There is a growing literature in this area of research in the developed world and this paper attempts to mention some of those studies here. A common theme in this strand of literature is to catch the added value of science parks and similar locations.

Westhead and Batstone (1998) explore the perceived benefits of a science park location in the UK for independent technology-based firms. They suggest that on-park tenants value the contributions of location for new firm formation and urban regeneration. The provision of small units on flexible terms has resolved constraints to business start up and growth. Many technology-based small firms in their sample were either born on science parks or relocated soon after its establishment because of the perceived image and the prestige of being linked to a higher education institution or other research centres. They further argue that many small firms on science parks were prepared to pay a rental premium to enhance their technological and commercial reputation. Many science park tenants in their sample indicated that they have chosen to locate on science parks in order to get access to research facilities provided at the higher educational institutions or research centres. This has helped to reduce costs and overcome


associated risks. Therefore, the property-based R&D facilities encourage the agglomeration of technology-based small firms. Their finding also suggest that the owners/managers of the sample firms believe that they value their science park location and that it has boosted their value and reputation.

Conversely, Siegel et al. (2003) argue that science parks were established with the aim of facilitating the creation and development of new technology-based firms. Although, these institutions are important in generating technological spillovers and creating employment, the returns to the science park location are negligible. They conclude that there are no statistically significant differences in various dimensions of performance between on- and off-park firms. We can interpret from this that science parks may be playing the role of a stage or platform where actors and spectators get together for the only purpose of performance rather than creation. The act of creating new ventures and discoveries may be taking place somewhere else such as knowledge centres or in the minds of inventors.

Ferguson and Olofsson (1998) investigate the role of science parks and how they support technology-based small firms. The study highlight that firms located on science parks are more focused on the local markets than off-park firms located elsewhere. This difference diminishes as the on-park firms develop. The above argument reflects the image effect that on-park firms associate with the science park location. A young firm gives image high weight in order to create credibility in the eyes of customers and other players. Three quarters (75%) of on-park firms in the this study describe that their location provided strong positive image benefits compared to less than half of off-park firms. The overall conclusions of this study suggest that on-park firms tend to be more insecure at the early stages. They seem to be looking for an identity at the outset and science park locations might be fulfilling this need for their tenant firms. Both on- and off-park firms become more similar after early developmental stages.

Whilst Westhead and Storey (1994) do not find any evidence that clearly demonstrates that location of technology-based small firms on a science park provides comparative advantages over other locations, Colombo and Delmastro (2002) find that on-park firms have higher growth rates than off-park firms. Firms located on incubators embody advanced technologies comparatively better, they actively participate in international R&D programmes and have established links with universities and other organisations. Firms located on incubators have better access to public subsidies.

Lindelof and Lofsten (2002a) examine whether science parks create any value for technology-based small firms. Their findings highlight some differences between on- and off-park firms in management and financial issues. On-park firms show higher R&D importance at the early stages of development as compared to off-park firms. Their results also suggest that self-financing is the main source of funding for both on- and off-park firms. Similarly, Lindelof and Lofsten (2002b) examines the performance and strategy dimensions of on- and off-park firms. They find significant differences in the strategy dimensions of on- and off-park firms. When they examined the performance of on- and off-park firms with respect to employment growth, sales growth and profitability, they find that on-park firms had a higher rate of job creation than off-park firms. However, no direct relationship was found between science park location and sales growth and profitability. Similarily, Lofsten and Lindelof (2002c) find some differences between on- and off-park firms with respect to innovation and market issues. They also find that on-park firms location enhance the firm’s links with universities and such that firms appeared to attract a more motivated group of entrepreneurs than off-park locations.


Gilbert et al. (2008) also find that ventures founded in locations with high concentrations of industry clustering have higher product innovation and sales growth activity than ventures founded in locations with limited industry clustering. Their results also confirm that technological spillovers are positively and significantly related to product innovation.

In light of the above discussions, it can be argued that the existing literature on science park highlight the added value of such locations. It is also evident that literature on economic geography and agglomeration deals with the benefits or otherwise of industrial clustering. However, agglomeration studies are mostly based on large manufacturing firms (Gilbert et al., 2008). The science park studies are predominantly based on small high-technology firms. This paper, therefore, encompasses both strands of literature and attempts to investigate the rationale for location decisions. We examine the issue of firms leaving an earlier location which in most cases is the business birth place and choosing a better location where young businesses in the high-technology sector believe will become more visible, recognised as serious businesses and are in a position to benefit from certain facilities and advantages deemed essential for moving forward. Due to this inclusivity foundation, we argue that the findings of this paper will provide further insights to the successful development of technology-based small firms located on science parks.

3 Research methodology and data

This paper highlights the rationale behind the location preferences of technology-based small firms in the UK. Since all firms in the sample are high-technology businesses, predominantly in the computer software and hardware, biotechnology and pharmaceutical sectors, we opted for an online questionnaire because most of these firms have access to the internet. In line with this, it can be argued that data collected through an online questionnaire survey is best suited to this research.

We conducted a pilot study on the initial version of the questionnaire so that the limitations of the questionnaire could be known in advance. In this way, an effort was made to make the questionnaire more understandable and to check the quality of the questions asked. This process was made on the understanding whether the questionnaire accurately addresses the research issues or not. All usable returned questionnaires from the pilot study were inputted into SPSS and analysed. This was just to make sure that the questionnaire is usable in SPSS and other statistical/econometric software before launching it online to the survey participants.

To further refine our survey questionnaire, we conducted interviews with the founders and chief executives/managing directors of technology-based small firms. Initially, we targeted 16 technology-based small firms in the North West of England. Contacts were made with these firms and interview times were requested. However, after enough persuasion and dialogue, we managed to convince only five personnel for interview. All interviews were conducted at the interviewee business premises except one where two interviewees attended the researchers’ base at the university. All interviews lasted between 60 and 90 min. The discussions were tape-recorded for future reference and were later transcribed. This exercise proved very useful and helped to refine our survey questionnaire even further.


After finalising the questionnaire, it was distributed by means of an e-survey. Web link was sent in an introductory letter introducing the researcher and the purpose of the research project to survey participants through e-mails. Clicking on the link by the participants would allow them to fill the questionnaire online. Once completed they would click on the submit button which would save the information and send it back to the researcher of this study through e-mail. Using the online process was not only quick but also the most innovative way to conduct a questionnaire survey. Initially, a total of 593 questionnaire links were sent through e-mails. We received 133 (22.45%) usable responses, which were recorded in SPSS for analyses.1

Though it is not a huge sample, however, the total number of firms who participated in the survey is good enough to provide policy recommendations. All usable responses were inputted into SPSS and analysed. We have mainly relied on descriptive statistics for analysing the questionnaire. Though there are limitations (larger sample may provide more generalisable conclusions), we still believe that this paper provides important insights into understanding the rationale behind the location preferences of UK technology-based small firms entrepreneurs. This claim is based on the argument that there is little research which investigates the rationale behind the location preferences of technology-based small firms in the UK.

4 Results and discussion

Table 1 presents information on the firms current business location. The survey asks the sample firms to report whether their current business location is incubator/science park or other. Approximately, 64% (84) firms responded yes to this question. Another 49 firms (approximately 37% of the sample) reported that none of these was their current business location. This does not mean that the non-respondent firms do not have any business location as the results in Ullah (2005) highlight that only one firm reported that it does not have any physical location and was a dormant business. Almost all sample firms in this research reported to have physical location of some kind.

Table 2 contains responses on whether the current business location was also the firms’ birthplace. Only 37% reported in affirmative. A significant majority (57%) reports the firms’ location as somewhere else. This also reflects the volatility of technology-based small firms as they have to move faster in order to stay competitive and successful. Technology-based small firms are very transitory in their nature particularly the software firms and if firms are not located in a suitable location, they might not be visible to customers, investors, suppliers and many other interested parties. This may also be impacting any future chances of growth and expansion.

The finding in Table 2 is important in understanding the vulnerability of the new technology-based small firms at the early stage of business development. It is also important in understanding the finance problems of these firms and that lack of finances to locate business in an appropriate environment may be a significant barrier in the growth and development of such businesses. Westhead and Storey (1994) find in their survey that nearly half of the surveyed independent firms indicated that their businesses were financially constrained at some point at their developmental stages. Lindelof and Lofsten (2002b) also suggest that obtaining finance is one of the key problems experienced by all technology-based small firms and that self-financing is the dominant


characteristic of funding in small firms. Nevertheless, in this paper the focus is only on the location dimensions.

We also tried to find out the exact location of the sample firms in order to ascertain the growth barriers and location preferences at the early stages of technology-based small firms. We believe that without an appropriate location at the early stages of business development, a business future growth can be significantly negatively impacted. A business without any significant location may not be able to interact with other similar businesses, customers, financiers, suppliers and may not be able to benefit from other public or private sector support for small businesses. Such businesses may, therefore, be deprived of the agglomeration benefits and tacit knowledge. Spatial existence in a suitable environment (clusters) may thus be a significant element in business growth. The question then arises, where were these businesses located if their current business location was not science parks or incubators. We provided a list of possible locations and asked sample firms to choose the relevant one as their previous location.

Table 3 suggests that there are three important places where the sample firms were previously located. The results show that 38 sample firms were started from a house, 14 from other private sector rented locations and 8 from another incubator or science park. Other firms reported other kind of locations with five firms previously located in a university. This shows that how vulnerable these young technology-based businesses may be at the start-up stage. In spite of the importance attached to the existence and contributions of technology-based small firms to the economy, majority of these firms still find it hard to overcome the barriers that they face at the early stages of development. It may be really difficult for such firms to manage their finances and meet the expenses of renting premises which may be crucial for their existence and successful growth and development. Table 1 Current business location

Frequency Percent

Incubator 30 22 Science park 54 41 Not applicable 49 37 Total 133 100

Table 2 Firm’s birth place

Frequency Percent

Yes 49 37 No 76 57 NA 3 2 No response 5 4 Total 133 100


Table 3 Firm’s previous location

Frequency Percent

My own house 32 24 A relative’s house 2 2 A friend’s house 3 2 The founder’s house 1 1 Business centre 3 2 Private sector rented location 14 11 Public sector rented location 5 4 A commercial location owned by the firm 3 2 Another incubator/science park 8 6 Located in the company we spun out from 1 1 Parent company offices prior to buyout 1 1 University Laboratory 1 1 We operate within the university premises 1 1 University 5 4 NA 53 40 Total 133 100

These findings may have important implications both for entrepreneurs’ businesses and policy makers. For entrepreneurs, it is important because it may significantly retard their firms’ growth if not located in close proximity to other businesses and facilities provided by the industrial clusters, and for policy because the UK economy is largely reliant on the small firm sector. Economic growth is mainly coming from this sector and the evidence suggests that the contribution of small firms to the UK economy is indispensable.2

Now turning to the so-called added value of location we constructed a statement in light of the previous studies as: “It is argued that incubators or science parks create a positive image for firms located on them and that this is valuable both for the firms’ development and in attracting investors or other funding”. We then asked the sample firms’ entrepreneurs to rate their agreement/disagreement on a five point Likert scale where ‘1’ was least and ‘5’ was extreme. Table 4 presents the results of the agreement to our scale in simple ‘yes’ or ‘no’ whilst Table 5 presents the results of the agreement to our statement on Likert scale ‘1–5’.

Table 4 shows that an overwhelming majority (73%) agreed with our statement which indicates that technology-based small firms believe that science parks or other similar locations that has an important role to play at the early stages of business development. As Ferguson and Olofsson (1998) argues that technology-based small firms feel insecure at the early stages and are looking for an identity. Our results, therefore, confirm these findings and suggest that appropriate business location is a prerequisite for future success and business development. However, with regards to the influence on investors, this agreement to our statement does not necessarily mean that when technology-based small firms are located on incubators/science parks, investors flock in and are eager to invest in such businesses. To be very precise, we provided a list of various aspects of business and asked the sample firms to choose those aspects on which location has a positive impact. The results are given in Table 5.


Table 5 shows that if we add together the frequencies in Likert Scale 4 and 5, the intensity of location impact becomes 54% and the frequency of firms become 72 firms which is a significant number of firms believing that location enhances their image and credibility and may be in a position to benefit from the knowledge spillovers and agglomeration economies. In other words, we can say that being located on incubator/science park location may provide increased visibility to investors and other interested parties than being located in the founders’ home. It may be thought of as serious business rather than as a sole proprietorship which usually seems not interested in expansion and growth. However, besides perception and agreement to our statement and Likert scale, Table 6 shows that in reality location has major impact on other aspects of business development of technology-based small firms rather than on attracting investment in the firms. Table 4 Influence of location on business development and potential investors

Frequency Percent

Yes 97 73 No 29 21 Do not know 6 5 No response 1 1 Total 133 100

Table 5 Agreement to the statement on Likert scale 1–5

Frequency Percent

1 3 2.00 2 11 8.00 3 27 20.00 4 45 34.00 5 27 20.00 No response 20 15.00 Total 133 100

Table 6 The impact of location on particular aspects of business

Frequency Percent Finance 27 20 Security 38 29 New information 15 11 Access to necessary facilities 51 38 Interaction with other tenants 36 27 R&D facilities 21 16 Access to academic advice 18 14 Networking 41 31 Research laboratories 17 13


Table 6 is a multiple response table and respondents were allowed to tick as many items as they wished. Therefore, the frequencies and the corresponding percentages may not add up to 133% and 100%. Nevertheless, Table 6 shows that location has a major impact on access to necessary facilities, networking, security, interaction with other tenants and finance. Other aspects such as access to R&D, academic advice, research laboratories and new information trail behind the other in the strength of impact on business development. Hence it is clear why technology-based small firms wish to locate on incubators and science parks? These results suggest that these businesses are looking for a place where they can be easily visible and accessible to investors as well as other interested parties.

Science Parks provide an important resource network for new technology-based firms(Lofsten and Lindelof, 2003). Moreover, technology-based small firms are looking for a place where they can easily access all the necessary facilities and establish links and interact with others. Tacit knowledge is important at the early stages of any business and particularly the technology-based small firms where technological advancement takes place at a rapid pace. Any delay and absence from such a scene may not only be significantly retarding the business growth but also it can make the business obsolete particularly if the business is in the software sector due to its transitory nature. However, Lofsten and Lindelof (2003) suggest that the science parks milieu appear to have a positive impact on their firms’ growth as measured in terms of sales and jobs but did not find any evidence of a direct relationship between science park location and profitability. In summary, we may interpret from the evidence presented in this paper that technology-based small firms are seeking location on science parks or incubators in order to be in a position to benefit from the agglomeration effects of the cluster and it is evident from our results that they are able to get this objectives through their location preferences for science parks.

5 Conclusions

Location decisions are central to a business early stage development. This is more crucial if the new venture is a high technology and high growth business. This research aims to explore the rationale for location preferences of a sample of 133 technology-based small firms in the UK. The evidence presented here attempts to answer the questions of whatand why of location preferences. Technology-based small firms tend to locate more often in clusters such as science parks which are in close proximity to universities or research centres. There are two main types of literature dealing with the location dimensions of new ventures. The agglomeration studies main theme is to study the externalities, knowledge spillovers and benefits of agglomeration to clustered businesses. However, such studies tend to investigate the large manufacturing firms rather than the young technology-based businesses. The science park studies on the other hand are mainly comparative in nature comparing the science park firms to a controlled group of firms located off-park. Here the pivotal point of investigation is to ascertain whether being located on a science park cluster serves as a privilege due to the knowledge spillovers, externalities and economies of scale. Firms located off-park may not be privileged and may hence behave differently compared to on-park firms.


We may conclude from the evidence presented in this paper that location plays a very crucial role in the business development and success of the technology-based small firms in the UK. Small businesses are more likely to start from a very small place such as the founders’ home. Technology-based small firms are no exception to this trend. This paper shows that out of the total 133 firms, 38 (nearly 30%) were started from a house (larger samples may however show higher number of firms starting from a home). Another 14 (11%) were started from private sector rented locations which may not be ideal places for these businesses. This may be a significant barrier in the successful development of new ventures. To grow, succeed, compete and expand, the homebound young businesses may need to expedite from their earlier locations to more appropriate locations where they can pursue their goals successfully and efficiently. Science parks are the most likely places where the UK technology-based small firms may be seeking location at the early stages of their business development. Any delay in finding a place on an appropriate science park location may have serious repercussions for the success of technology-based small firms in the UK.

Moreover, location seems to have major impacts on other aspects at the early development stages of technology-based small firm rather than on attracting investors. In the USA, there is evidence that suggests that businesses which locate on science parks or well-known clusters have a major impact on attracting venture capitalists (Woodward et al., 2006). However, according to the results of our study technology-based small firms entrepreneurs are drawn to locations like science parks mainly due to accessing necessary facilities which may include general office facilities, access to R&D, expert advice from academia or other experts in close proximity, research laboratories, as well as new information. A logical explanation for locating a young or newly born business on a science park location or similar clusters would be that such environment boosts competition that facilitates innovation which leads to the firms’ survival and growth.

Technology-based small firms, therefore, need continued and persistent stimulus which they can only get if they are located in a cluster environment and not in the founders’ home or any other private sector rented locations. In addition to the above, it is also evident from our results that technology-based small firms which are born on science park locations need to be even more volatile and quickly moving. Any delay or failure to move faster may lead these firms to be overtaken by other fast moving competitor siblings. Also, businesses which remain in homes or other locations which do not aid in the early stage development of new ventures may be left behind and possibly may go obsolete. Science park tenant firms may benefit to a greater extent from the institutional environment created by virtue of the science parks in the region which assist in the transfer of knowledge between firms (Tan, 2006) which aids in their long-term success (Phan et al., 2005).

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Notes 1The questionnaire was originally conducted as part of a study on the financing of technology-based small firms and the role of location (see Ullah, 2005, for details). Of the 825 firms, 108 declined to participate in the survey, whereas 124 firms e-mail addresses were wrong and the e-mails, therefore, bounced back. Therefore, the total firms which were expected to respond were 593 of which 133 responded and in this way the response rate is around 22.45%.

2There are approximately 3.7 million businesses in the UK and 99% of these businesses employ less than 50 employees. In other words, less than 1% of all businesses (just over 31,000 firms) in the UK are not small or micro businesses (Curran and Blackburn, 2001). They contribute 46% towards non-government employment and 42% towards turnover. In 1999, over 450,000 people started their own businesses or became self-employed and in the same year over 400,000 businesses ceased trading (OECD, 2000).

The rationale for location preferences of technology-based small firms in the UK

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