Abstract
This paper reports a one-year study which investigated the clustering of financial services
activity in London. A questionnaire asking about the advantages and disadvantages of a
London location was sent to a stratified sample of 1,500 firms and institutions. In addition,
thirty-nine on-site interviews with firms, professional institutions, government bodies and
other related agencies were conducted. The study finds that banking, including investment
banking, forms the cluster’s hub with most other companies depending on relationships
with this sub-sector. Generally, the cluster confers many advantages to its incumbents
including enhanced reputation, the ability to tap into large, specialized labor pool and
customer proximity. The localized nature of relationships between skilled labor, customers
and suppliers is a critical factor which helps firms achieve innovative solutions, develop
new markets and attain more efficient ways to deliver services and products. Particularly
important are the personal relationships which are enhanced by the on-going face-to-face
contact that is possible in a compact geographical space. Many of the cluster’s advantages
are dynamic in that they become stronger as agglomeration increases. The study also finds
important disadvantages in the cluster which threaten its future growth and prosperity.
These include the poor quality and reliability of transport, particularly the state of the
London Underground and links to airports, increasing levels of regulation and government
policy that is not co-ordinated with the whole of the cluster in mind.
Key words: Industrial clustering, agglomeration, financial services.