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The announcement of SoftBank’s purchase of ARM has been met with the usual laments about the loss of another British business to foreign ownership and fears that the company’s assets and intellectual property will be moved to Japan. And while the kind of assurances given by Softbank of their intentions to keep the business in Cambridge have often been worth very little in other instances (such as the Kraft takeover of Cadbury), there are good reasons to be confident that ARM will continue to be based in Cambridge for the foreseeable future.
This is because many of the factors affecting ARM’s current and future success are related to Cambridge itself. The firm sits within a complex innovation ecosystem, the like of which exist in only a few places in the world – for example, San Francisco, Boston, Tel Aviv and London. This ecosystem (described in the excellent book The Cambridge Phenomenon) gives the firm access to world class talent, specialist investment and expertise, superb universities, and great quality of life. These factors are not readily available nor easily created elsewhere. Moving ARM out of Cambridge would essentially disconnect the firm from this supportive and highly productive ecosystem.
As Masayoshi Son, chairman and CEO of SoftBank, said when announcing the deal:
“This investment marks our strong commitment to the UK and the competitive advantage provided by the deep pool of science and technology talent in Cambridge.”
The increasing interrelationship between firms like ARM and cities like Cambridge highlights an apparent paradox within the modern economy. Why are more and more firms and people – particularly those operating in the knowledge economy – cramming into fewer and fewer cities across the globe, even though globalisation and technological development have in theory made location less important?
The answer lies in the benefits firms and people gain from being close to each other. Proximity and density make firms and people more productive than they would be otherwise. It’s why other technology companies like Autonomy that have been bought by foreign firms stay in Cambridge, why other firms like Pfizer have moved to Cambridge, and why the city centres of Manchester, London, Birmingham and Leeds are increasingly attractive to knowledge based firms. As Richard Florida says: the global innovation economy is becoming increasingly spiky.
Ironically, whether ARM stays in Cambridge will probably be more affected by the decisions of national and local politicians than by those of SoftBank officials. At the national level, the post-Brexit deal the government is able to strike regarding access to the European Single Market and to international talent will be of critical importance for firms like ARM. And at the local level policy needs to address the rapid increase in the demand for space in and around Cambridge – as our recent report on Cambridge and the other ‘fast growth’ cities highlighted.
That increasing demand is due to more and more people and firms wanting to be in the city to take advantage of the opportunities that are being created. But this can create issues as well, which if not addressed will ultimately undermine the very reasons why companies like ARM choose to be in cities like Cambridge. Local politicians must therefore continue to address the increasing traffic congestion and the unaffordability of housing in the city, as well as improving the skills levels of its residents so they can take advantage of the job opportunities that firms like ARM are creating.
Concerns about British firms being taken over by foreigners are long standing, but are more often than not misplaced. Foreign companies play a pivotal role in the UK economy and their investment in the UK should be welcomed. The more significant issue for government and for cities is ensuring that they are creating the environment that supports firms like ARM to start and grow. Cities like Cambridge, Reading and London, and increasingly Manchester and Leeds, do provide this innovation-rich ecosystem that knowledge firms are looking for, but many do not. Both national and local politicians are better off focusing on making more of our cities attractive to knowledge firms rather than worrying unnecessarily about who owns them.
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