Part2

Read the text and answer the questions below.

The clustering of IT companies

A

Alfred Marshall, one of the fathers of modern economics, was asked why firms in the same industry were often geographically located near each other. Presumably, he replied, created something ‘in the air’. He went on to explain, ‘If one man starts a new idea, it is taken up by others and combined with suggestions of their own, and then it becomes a source of further new ideas.’ Marshall was thinking about traditional 19th-century manufacturing companies, but the case is true of IT companies of the 21st century. Silicon Valley, an area near San Francisco in the USA, is home to many of the industry’s giants, and hopeful founders of young start-up companies still head there.

B

Economic theory suggests several main reasons why historically firms from the same industry—for example, steel makers or clothing manufacturers — have ended up in the same place. Some may depend on the availability of natural resources such as coal or being close to a harbour or river for shipping goods. A concentration of firms also creates a pool of specialised workers, and that benefits both employers and employees: the former are likely to find jobs and the latter are likely to find staff. Yet another reason is that subsidiary trades springing up to supply specialised inputs required by the primary industry. And inevitably, industries cluster together because ideas spill over from one firm to the next.

C

But there are also forces that encourage companies to spread out. One is the cost of transporting products to widely dispersed customers. Another is that rents tend to rise when firms cluster together. You might imagine that the dramatic fall in the cost of computing would have pushed firms in the IT industry further apart. Natural resources do not matter to them as they do to many traditional manufacturing industries, and the rise of online communication should reduce the need for staff to be close together to deal with customers and suppliers or to co-op ideas. But none of this seems to come against Silicon Valley, where commercial property prices are high, and against other IT centres like London and New York, which are not only expensive, but also lack California’s high-tech history. There are plenty of other places in Europe where costs are lower, but they currently lack sufficient appeal.

D

Although you can find high-tech companies of all shapes and sizes in these IT centres, the smaller ones especially have a fondness for clustering together. As Jed Kolko, an economist for an international property company, explains, the less an industry needs to be near its suppliers or its customers, the more likely it is to locate where the jobs are already, such as Silicon Valley, or in major cities like London or New York. In Russia, says one knowledgeable observer of the IT scene, for a university kid studying in the regions, moving to Moscow makes sense.

E

The area around Silicon Valley now has cluster inside clusters — that is, specific smaller geographic areas where similar IT companies are located. Within the borders of the Valley; makers of semiconductors and network equipment are found mostly around the city of San Jose, while web search engines and social network companies are located further to the north. Even in San Francisco there are divisions with similar companies located in specific city districts.

F

Young IT companies need more than a workforce, they also need access to money and expert advice. If a company is located in a cluster with other IT companies, staff can have more face-to-face communication with like-minded people from other companies, which is often more productive than phone calls or emails. Also, there is a better chance of making contact with someone with money and an interest in potentially profitable ideas. Even in industries which are built around virtual relationships, physical contact can be invaluable. The recycling of people is important, too. As people move from company to company in Silicon Valley, and as one company buys or merges with another, a whole network of people who know each other develop, and these people are able to communicate easily with each other, and hire each other.

G

In places like Silicon Valley, people are also close to the latest ideas. ‘New ideas become known in that tiny region perhaps years ahead of the rest of the world,’ argues one Valley entrepreneur. ‘You are always building on the idea that came immediately before. If you are trying to build the thing that comes next, being aware of information about innovations that are already out there helps you.’ This sounds very much like the point Marshall was trying to make.

H

Will other IT hubs ever catch up with Silicon Valley? Berlin and perhaps some other international cities like Beijing have several things going for them. One is that they are big and lively and act as magnets for young, creative people in search of opportunities. The other advantage of these cities is that many other types of industries are located there, and hence they offer various skills on which IT companies can draw. To many, this variety may prove invaluable.

Questions 14-18

Reading Passage 2 has eight paragraphs, A-H. Which paragraph contains the following information? Write the correct letter, A-H, in boxes 14-18 on your answer sheet. You may use any letter more than once.

		A	B	C	D	E	F	G	H
14	an example of geographic clustering of IT companies within a city	○	○	○	○	○	○	○	○
15	an argument that access to the latest thinking allows clustered IT companies to make further progress	○	○	○	○	○	○	○	○
16	a reference to how employees’ preferences are considered by companies	○	○	○	○	○	○	○	○
17	a reference to the views of an early economist	○	○	○	○	○	○	○	○
18	a description of the appeal certain large cities may have for IT companies	○	○	○	○	○	○	○	○
19	universal examples of why meeting people in person is important	○	○	○	○	○	○	○	○

Questions 20-21

Choose TWO letters, A-E. Write the correct letters in boxes 20 and 21 on your answer sheet.

The list below gives some possible reasons why traditional companies have clustered together. Which TWO of these reasons are mentioned by the writer of the text?

□ to take advantage of a skilled labour market

□ to be near centres of academic excellence

□ to benefit from a favourable climate

□ to take advantage of low property prices

□ to have easy access to water transport

Which TWO of the following cities does the writer say are attractive to IT workers despite cost there being high?

□ London

□ New York

□ Moscow

□ Berlin

□ Beijing