Research calls for localised infrastructure planning
Infrastructure investments need to be more flexible for large firms to be attracted to economically deprived areas of the UK, according to new research out of the University of Oxford.
Dr Atif Ansar of the BT Centre of Major Programme Management at Sa?d Business School, has published a new paper which calls for more dynamic plans around infrastructure provision, to allow the Government to reach its development goals for economically weak areas.
The study, “Location decisions of large firms”, urges the Government to remove wasteful and unnecessary systems to make way for tailored infrastructure plans.
Dr Ansar criticised a “build it and they will come” attitude, and said economists, politicians and business heads have traditionally called for better transport links as an solution to economic weaknesses in certain regions.
Large companies, he argues, instead want infrastructure decisions to be based on local knowledge and an understanding of what each region needs to improve.
Dr Ansar said: “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 given to existing infrastructure by firms like TK indicates the risk taken by regions who invest heavily before companies actually move to the area.
Dr Ansar continued: “Blanketing a country with “one size fits all” infrastructure is likely to lead to misallocation of investment,
“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.”
“Location decisions of large firms: analyzing the procurement of infrastructure services” is available to read in the Journal of Economic Geography.