Businesses and the Internet: Implications for Firm Location and Clustering

Abstract

This article discusses the economic and geographical implications of the growing use of information and communications technologies (ICTs) in the production process. In short, ICTs make internal and external communications more efficient and allow faster and more flexible interaction among different agents. These improvements correlate with changes in the internal organization of the business and in its strategic behavior. Those changes have implications for regional economic development.The four sections of the article include a typology of information and communications technologies and a discussion of how they diffuse; an elaboration of the concept of economic clusters and economic space in the context of ICTs; and a review of the methodological issues surrounding the development of virtual (rather than physical) clusters of economic activity.The article's, major insights include the following. Information-based, younger, and smaller businesses, and the service sector, benefit most from the Internet. Many of those businesses are integrated in networks and economic clusters; historically, they are often located in close spatial proximity to each other and/or to their customers. At the same time, a new type of “virtual agglomeration” is created for some type of activities through Internet interaction, which does not require physical proximity. The article stresses the need for a new paradigm to think about the relationship of business and space.