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    Emerging Clusters

    Government outsourcing cluster develops outside D.C.

    WSJ (March 30, 2007) highlights the growth of a new industry cluster in Northern Virginia. The newspaper notes that federal procurement money for work performed in Fairfax County, Va., has risen from $10 billion to more than $15 billion since 9/11. And Tyson's Corner, previously a small town halfway between Washington, D.C., and Dulles Airport, has benefitted.

    "Once known mostly for its shopping malls, it's now a land of glass towers, manicured office parks and Tiffany boutiques, where private-sectorbudget analysts, project managers and highly paid executives do the work that clock-punching civil servants in downtown D.C., 10 miles to the west, can't do."

    The town has attracted large firms, such as Booz Allen. The $4 billion firm formerly focused on providing management consulting to New York City-based corporation chieftains, but now derives half its revenue from government work. The effect is so pronounced, WSJ calls Tyson's Corner a "Mecca" for government outsourcing.

    It's interesting to note the increasing use in U.S. media of the word "Mecca" to describe what amount to clustering. When large-scale human endeavors become geographically concentrated, from a cultural point of view, the zone where the activity takes place becomes a common point of reference for all parties engaged in the enterprise. From a physical point of view, such concetrations become hubs for related activities.

    Urban economists use the term "agglomeration economies" to describe the efficiencies that follow from locating within the zone. Silicon Valley is the perfect recent example. The region known as Silicon Valley today began as an outpost for computer chip makers in the 1970s.

    Growing from that base of knowledge, additional information technology firms sprouted up, such as computer and networking hardware makers. The wave after that was computer software. And following that, Internet technology. Silicon Valley is the acknowledge world leader in those areas.

    Today, "Silicon Valley" and "Mecca" are becoming almost synonomous. (The connections are more than figurative. Academics have pointed out that for some technology has become a religion.) And "Silicon Valley," like "Mecca," is now shorthand for what amounts to the clustering process. So much so that regions around the U.S. and around the world seeking to emulate the economic development process, began by emulating the name resulting an abudance of imitators. Here's a few taken from the Siliconia, which provides an exhaustive list:

  • Silicon Alley (New York City, new media)
  • Silicon Prairie (Austin, Texas or Chicago)
  • Silicon Forest (Pacific Northwest)
  • Silicon Beach (Santa Barbara or Florida)
  • Silicon Wadi (Israel)
  • Silicon Triangle (Raleigh-Durham-Chapel Hill)
  • Silicon Tundra (Ottawa, Canada)
  • Silicon Alps (Austria)
  • Silicon Bayou (Louisiana)
  • Silicon Desert (Phoenix)
  • Silicon Bog (Ireland)

  • Since the end of the boom, these silicon appellations have become fodder for jokes and derision, but the original Silicon Valley remains.

    The flipside of agglomeration economies are agglomeration dis-economies. Boom towns, since times imemorial, have led to inflationary pricing of local goods and property, increased traffic and congestion, and, often, higher crime.

    The WSJ article on Tyson's Corner highlights this in its concluding paragraph: "The one drawback is the traffic. 'We work 7 a.m. until 4 to avoid the worst of it,' says Judd." GEO


    Profit Takers, Job Makers

    P.E. in full effect

    Private equity firms (both VC and BO) are not, apparently, barbarians at the gate. Management consulting firm A.T. Kearney analyzed performance from its database of more than 30,000 companies to determine whether private equity (including venture capital and buyout firms) results in job loss or job creation.

    The answer, according to A.T. Kearney, is that private equity creates jobs. A good synopsis is available from Dan Primack at PEhub.com. He links to the study, which you can also access directly by clicking here. GEO

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