The Clustering of Financial Services in London*



more importance on having a credible address. These businesses provide classic “credence
services” where it is not only difficult to evaluate the quality of the service provided in
advance, but also, to some extent even after the service has been provided. For such
services, customers rely heavily on either a long standing relationship or on a projected
image (partly created by the right address). This excerpt from an interview with a law firm
summarizes very clearly the importance of a “City” address and associated branding:

Geographically we’re a bit pompous - most people come to us and I guess the issue
would come if we felt we had to open another office - it would be madness - Things
would have to change dramatically before we would leave the City. There’s a buzz
about the place ... the reason we have an office in the City now is that this is the
biggest legal market in the UK and one of the biggest legal markets in the world. We
want to be part of that.

The second highest rated benefit of a London location is the ability to tap into a strong,
skilled labor supply. Section 3.2 discusses labor market benefits in detail.

Proximity to customers and being easily located by customers figure highly among the
benefits of a London location. Being close to customers and being easily found by external
customers tended to be of greater importance to legal firms, but the difference was not
statistically significant. Insurance companies place significantly greater emphasis on being
near market leading customers and being close to a physical exchange or market place as
did property/real estate firms. These comments are representative of firms in the insurance
and property/real estate sectors:

And in terms of our location - it is very central, it’s in the heart of the City, we’re in
the financial services industry and this affords a very convenient location for what is
the HQ . and it means communications are good. As it’s in financial services we
have a lot to do with financial institutions, with investors, our fund management
business is just down the road, so there is an ease and proximity of communication.

Our premises have to be in the City of London because this is their market focus. So
we wouldn’t be anywhere else because this is what we deal with - the City of London
and its office development.

Banks place significantly higher importance on knowledge transfer and on being near a
strong skilled labor supply. They also rank support from local government more highly
than insurance or legal firms. At interview, such factors were mediated through the
interdependencies of the market/client interface and inter-firm relationship, couched in both

10



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