 Location, location, location
Location,
Location,
Location
W
hen an organisation makes a
decision about its location,
it is often influenced by cost.
Take for example, the recent relocation
of around 1,500 BBC staff from London
to Salford as part of a programme to
reduce the company’s operating budget
by around 20%. There is however
another perspective when location
is considered as a driver for global
competitive advantage, faster growth and
increased innovation.
Let’s take two examples. In 1999 the
Toyota motor company committed an
estimated two billion dollars to set up
a dedicated Formula 1 (F1) racing team
next to their manufacturing facilities
in Toyota Allee in Cologne, entered
10
Management Focus | Autumn 2012
their first F1 race in 2002. In addition
to racing, F1 teams design and, with the
help of local suppliers, manufacture their
own bespoke cars, so Toyota invested
heavily in people and equipment, and
recruited leading engineers from other
teams across Europe.
In 2004 Red Bull drinks entrepreneur,
Dietrich Mateschitz, acquired the
struggling Jaguar Racing, based in Milton
Keynes, from the Ford Motor Company
for $1. He committed to spend around
$400 million over the following three
years to build up the Red Bull Racing
F1 (RBR) team. Over their ten-year F1
campaign Toyota failed to win a single
Grand Prix, and withdrew from F1 at the
end of 2009.
Mark Jenkins
Professor of Business Strategy
and
Chris Aylett
Chief Executive, Motorsport
Industry Association (MIA)
In contrast, RBR went on to win the
world drivers and constructors F1
championships in 2010 and 2011.
There are many variables that
could explain the differences in the
performances of these teams, but for
those in the motorsport business, the
reason was clear, Toyota had made a
strategic error by locating outside of
Britain’s Motorsport Valley.
Motorsport Valley (MSV) in the UK is
a perfect example of a world-leading
cluster of interconnected organisations,
that are geographically concentrated and,
because of their shared capability, able to
outperform other regions anywhere in the
world.
Management Focus | Autumn 2012
11
 Location, location, location
“GSK could have chosen any location in
the world to develop this capability yet
it chose to connect with the exceptional
and relevant expertise available in
Motorsport Valley UK.”
In a national survey by the Motorsport
Industry Association, the UK motorsport
industry was estimated to have annual
sales exceeding £4.6 billion, of which
over 66% was exported. The survey
also revealed that more than 30% of
firms spent over 15% of turnover on
research and development. In addition to
dominance in supplying F1 (67% of the 12
teams in 2012 are located in MSV), the
industry is a major contributor to other
global series, such as World Rallying, and
NASCAR and IndyCar in the USA.
Since the 1960s MSV has steadily
evolved into a world-leading cluster,
not simply through its dominance of this
specialised marketplace, but through the
interconnectedness and embeddedness of
the firms, and institutions, that make up
Motorsport Valley UK. Globally it makes
the highest contribution to national GDP
of any motorsport industry. This is why
internationally-renowned automotive
firms, such as Ferrari, Renault, Honda,
Ford and Mercedes Benz, have established
their own organisations or made equity
investments and acquisitions, into this
specialist, innovative, high performance
engineering based cluster.
The capability of the MSV cluster is not
just limited to motorsport but acts as a
technology and business catalyst in a wide
variety of sectors including aerospace,
12
Management Focus | Autumn 2012
defence, education and electronics. For
example, in the defence sector both
F1 and World Rally Championship
motorsport expertise has fed into the
development of the Ocelot armoured
vehicle, designed to replace the Snatch
Land Rover, and in automotive WilliamsF1
are currently working in partnership with
Jaguar on a hybrid supercar, the C-X75.
One important aspect about a cluster
that often makes it invisible, is that it is
a mixture of regions, sectors and firms
that build a unique knowledge base from
the talented individuals that work within
the cluster. Motorsport Valley is not just
British people working in British firms.
The best global talent from around the
world are drawn to MSV because of the
facilities and opportunities it offers them.
As a consequence, it attracts significant
inward investment. Currently none of the
F1 teams in Motorsport Valley are wholly
owned by British investors. Globallyowned organisations, utilising world-class
international talent, have chosen to locate
in this very specific region of the UK. Such
knowledge and capability is not just of
value to the motorsport sector. In 2011,
pharmaceutical giant GlaxoSmithKline
(GSK) announced a strategic partnership
with the F1 team McLaren Racing focused
on developing innovative business
operations and high-tech research.
A new state of the art learning facility,
the ‘McLaren GSK Centre for Applied
Performance’, will open in 2013. The aim
is to build capabilities in business analytics,
innovation and strategy modelling, to help
drive improvements in clinical research
processes by speeding up trial design and
allowing real-time patient monitoring.
GSK could have chosen any location in
the world to develop this capability yet it
chose to connect with the exceptional and
relevant expertise available in Motorsport
Valley UK.
So what are the implications for firms
and those making strategic decisions
about location? The first is to place
location in the context of a wider
long-term strategy. In the mid-eighties
and early nineties Ferrari located their
research and development operation
not in Italy but close to Guildford in
Surrey, inside Motorsport Valley. This
was regarded as essential to develop
new technological capabilities. However
Ferrari also recognised that ultimately
their competitive success required one
combined location for the organisation.
So once they had built up these worldclass capabilities, they relocated back to
Italy, where they remain today.
The second point is that it is important
not only to focus on the cost advantages,
but also to identify those regions which
can help build capabilities - to allow an
organisation to harness a wider potential
than its own resource base and build
on the potential of globally superior
clusters. Thirdly, it is important to
weigh up the arguments for and against
being in a cluster. One of the negative
aspects can be staff being poached by
competitors which is definitely a problem
encountered by the motorsport teams.
However, the positive side to this is that
the local availability of high quality talent
within a cluster is at a level that would
be impossible to achieve anywhere else,
so as companies grow they have the
resources around them to support this
growth and successfully exploit developing
opportunities.
Location remains a key decision for any
organisation, but all too often such a
decision is made purely on financial and
opportunistic grounds. Rather than just
focusing on cost reduction, it is important
to also consider the knowledge and
capabilities needed to deliver long-term
competitive advantage. Motorsport Valley
in the UK is a great story of global success
and a perfect example of the enormous
business value and potential of thinking
strategically about business location. MF
For further information please contact the
co-author at mark.jenkins@cranfield.ac.uk
or visit the Motorsport Industry Association
website www.the-mia.com
Management Focus | Autumn 2012
13