The behavioural approach to decision-making within enterprises on issues relatin

g not
only to location but also to pricing, product development, markets and productio
n
processes developed initially in the United States in the 1960s. There were a nu
mber of
developments which led to the study of entrepreneurial behaviour. First, there w
as
growing dissatisfaction with the rather idealised assumptions which underpinned
much of
the classical approach to locational analysis. Restrictive assumptions about the
entrepreneurial desire to minimise transport cost had, it was argued, produced a
set of
theories which were of little help in confronting real issues facing urban and r
egional
planners (Krumme, 1969; Wood, 1969). At the same time, empirical studies of
entrepreneurial decision-making were stressing how little information formed the
basis of
many locational choices, and how imperfect such information often was, thus
undermining the fundamental assumption of economic rationality as a basis of cla
ssical
location theory. Thirdly, the increasing concentration of manufacturing into lar
ger and
larger concerns meant that large companies were often in a position to control t
he local
price of labour, inputs or land, in a manner which ensured that they did not hav
e to make
locational choices on the basis of selecting a site which minimised such costs:
they were
large enough to select a location on other criteria and distort local cost surfa
ces. Fourthly,
evidence was appearing to show that profit and cost surfaces were so gently slop
ing that
there was ample scope for businesses to choose locations on non-pecuniary criter
ia
including environmental preference, and not be too disadvantaged by the resultan
t
shortfall in profits. Fifthly, in the British context there was increasing conce
rn about the
need to incorporate within locational theory the effects of regional and urban e
conomic
and physical planning policies which were totally excluded by the neoclassical a
pproach.
Lastly, in the United States the growth of management science as an academic dis
cipline
was opening up a new body of literature on the nature of decision-making within
corporate structures, of which locational choice was just one element, and a rat
her minor
one at that.
Behavioural theories of location drew attention to two respects in which underly
ing
assumptions of neoclassical theory were not reflected in reality. Firstly, decis
ion-makers
did not have perfect information upon which to base their locational choice, nor
, even in
the largest enterprises, did they have the perfect ability to use their informat
ion. Pred
(1967) developed the behavioural matrix in a probabilistic sense to show that th
e betterthe information and the greater the ability to use it, the more likely i
t was that the location
chosen would lie at, or close to, the point which maximised profit. With less in
formation
and less ability, there was less probability that the location chosen would be o
ptimal.
Within this probabilistic model, however, there was always a chance that any ent
erprise,
however ill-informed, would make the optimal choice. Preds model, as a methodolog
ical
tool, has only limited utility, as Claus and Claus (1971) pointed out, but it di
d enable
geographers to appreciate the behavioural models of industrial decision-making b
eing
developed by Simon (1959) and others.
The second respect in which behavioural theories went beyond neoclassical
assumptions was to show that it was perfectly possible for entrepreneurs to make
a
conscious choice of location well away from the optimal one, in the full knowled
ge that
profits were not being maximised. There were two types of reason for this sort o
f
locational choice. First, the locational choice might be regarded as a utility-m
aximising
choice in which profit is only one element. The entrepreneur might therefore cho
ose a
location in which social or environmental attributes outweighed, to a certain ex
tent,
profit. Such a set of preferences might weigh heavily with the small firm, singl
e plant,
indigenously owned enterprise, where the entrepreneurs place of birth and knowled
ge of
local educational, residential and leisure facilities would play an important pa
rt in
framing his utility function. However, in the rapid growth of multiplant firms t
here has
also been ample scope for non-profit considerations to shape the locational patt
ern.
Multiplant firms, of course, create their spatial pattern not only by opening ne
w branches
de novo, but by the choice of mergers and take-overs. Recent studies (Pounce, 19
81;
Killick, 1983) have shown that new branch plant openings have occurred at a decl
ining
rate since the early 1970s, whilst the merger and acquisition process has contin
ued,
thereby gaining a greater proportionate importance (Leigh and North, 1978). Seco
ndly, as
Simon (1959) and others pointed out, entrepreneurs may have business objectives
other
than profit maximisation. Cyert and March (1963) drew attention to the possibili
ty of
multiple business goals in organisations with large numbers of individuals. Thes
e
multiple goals might include growth, security, the minimisation of risk, entrepr
eneurial
satisfaction or merely self-preservation (Hamilton, 1974).
Perhaps the most influential study of organisations such as large industrial com
panies,
as decision-makers, is that by Burns and Stalker (1961). They described the need
for
organisations to develop mechanisms for the resolution of conflicts and to co-or
dinate
decision-making. They found that different types of organisational structures ar
e best
adapted for different environments. An organisation with well-defined tasks and
a rigidly
hierarchical system of decision-making and implementation was, they argued, most
suitable for stable environments. In contrast, an organic form of organisation s
tructure is
better suited to a dynamic environment in which tasks are flexibly defined and t
he
various decision-makers co-operate on the basis of their respective skillsnot mer
ely
according to roles defined within a hierarchy (Marshall, 1982).
The work of Burns and Stalker has focused the attention of industrial geographer
s on
the concept of environment. The most commonly cited classification of environmen
ts was
developed by Emery and Trist (1965). They used a wide range of characteristics
including the degree of competition, risk and uncertainty strategy and the stren
gth and
complexity of networks. Four ideal types were defined, although combinations of
these
types in the real world produced a much wider range of settings for industrial d
ecision-making. The simplest category was placid and randomised, where change wa
s slow and
there was very little instability. In this environment, the best decisions appro
ximated to
neoclassical solutions to utility-maximising criteria in a very local context (H
arrison,
1978). More complicated was the second type of environmentthe placid, clustered
environment, in which environmental benefits and disbenefits were not randomly
allocated but clustered, thereby making it more important that decision-makers s
ecured
more data, with strategy replacing tactics. This has been equated with the econo
mists
concept of imperfect competition (McDermott and Taylor, 1982). The third type of
environment, termed disturbed-reactive, comprises a number of similar organisati
ons
linked in an oligopolistic set of relationships. In this system both uncertainty
and
complexity are extremely high, and organisations require to be very flexible to
meet the
inherent competitive challenges in a wide range of strategies including acquisit
ion of
other organisations. The fourth type, which Emery and Trist term turbulent, comp
rises a
situation of such unpredictability and uncertainty that organisations are unable
to respond
with any estimate of the consequences: it therefore remains a concept, required
for
comprehensivity, but one which is difficult to use as an analytic tool.
In the context provided by a typology of environments, geographers have been abl
e to
study the behaviour of organisations such as industrial enterprises. Some of the
decisions,
on pricing, product development, production process and corporate rationalisatio
n, are
totally or largely aspatial, although they may have spatial impacts such as thei
r effect on
local labour markets or the patterns of backward and forward linkages. Some of t
he
decisions, however, do have spatial effects through openings, closures, expansio
ns,
contractions and acquisition behaviour. The typology of Emery and Trist and othe
rs such
as Duncan (1972) have as their basis a scale of increasing uncertainty and risk.
Uncertainty about future outcomes means that the process of entrepreneurial deci
sion-
making needs to weight the relative returns to, on the one hand, seizing commerc
ial
opportunities (with a high risk factor) and on the other, minimising the risk of
failure.
The more that firms can control elements in the external environment, the more t
hey can
reduce the element of risk and make more predictable the outcome of decisions. T
he
external environment in this context includes a wide range of elements including
the
price of inputs, the market price of (and demand for) products in different mark
ets, the
flow and price of capital, labour and land. There are several responses to these
uncertainties: these include enhanced information gathering (hence the increasin
g
emphasis upon research and development), professional business services such as
labour
recruitment and marketing, locational choice and the reduction of competition th
rough
acquisition and merger and by location to capture a monopolistic or quasi-monopoli
stic
position in a local or regional market.
This pattern of adaptive response explains two of the predominant trends of indu
strial
geography in the recent past. In the first of these, the growth of successively
larger and
larger firms represents three aspects of the move to reduce uncertainty: firstly
, the process
of merger and acquisition reduces competition and permits oligopolistic price-fi
xing in,
for example, the chemical and vehicle-manufacturing industry, and also serves to
reduce
the possibility of an unanticipated product-market innovation from outside the o
ligopoly;
secondly, as uncertainty and risk are reduced by enhanced information, the econo
mies of
scale in information acquisition and processing enhance the competitiveness of l
arger
enterprises; thirdly, with increasing government intervention in industry, both
foreconomic and social reasons, the larger the enterprise becomes the more power
it is able
to bring to its negotiations with the public sector. For example, in the United
Kingdom
the largest hundred enterprises in 1948 accounted for about 21 per cent of all o
utput; by
1970 the figure was 45 per cent (Watts, 1980). The second trend is the continued
survival
of the small firm sector. Whilst on the basis of the above argument the small fi
rm sector
would appear to be vulnerable, insufficient in scale to afford to gather informa
tion which
would reduce uncertainty, and insufficiently powerful to exert some control on t
he
external environment, this sector has retained its share of the national industr
ial
workforce at about 22 per cent (Binks and Coyne, 1983). The reason for this surv
ival is
that small firms are able to reduce risk by restricting themselves to known loca
l markets
and a limited product range. They therefore reduce the risks associated with pot
entially
high yield investments directed at new product developments and remote markets.
This is
almost a formula which guarantees a fixed stock of small enterprises, or indeed,
when
recession has a serious impact on the larger firms, a growth in the rate of new
small firm
creations, even if this is paralleled by a corresponding rise in their closure r
ate (Storey,
1982). The closure or contraction of larger enterprises creates market niches in
which
small firms can both satisfy the unmet market demands and utilise the freed reso
urces
(premises, labour and entrepreneurial skill).
In this way, the external environment influences the behaviour and the decision-
making processes of different types of enterprise. Geographers have stressed tha
t large
enterprises in different product markets have more in common with one another th
an they
have with small enterprises in the same product market because their sheer size
offers
them similar amounts of power to influence their external environment and means
that
they are likely to have similar organisation structures. From a methodological p
oint of
view, it has proved easier for geographers to examine decisions on locational pa
tterns
than on any other aspect of corporate management. This is because decisions on o
utput,
pricing, product change or process technology are recorded in data which are les
s easily
available to geographers, whereas data on the location of employment, whilst not
easy to
collect at the enterprise or establishment level, are often readily available at
sector level
at fine levels of spatial disaggregation (Healey, 1983).
Aggregate locational patterns based on employment data since the mid-1960s show
a
number of broad trends from which geographers have inferred behavioural choices
on the
part of industrialists. The most common technique has been to link employment ch
anges
to area characteristics. For example, Keeble (1976) was able to show, with aggre
gate data
for the period 195971, that the division between a prosperous core and a depresse
d
periphery within Britain was substantially narrowed. The emphasis moved away fro
m a
regional perspective in which successful regions such as the South East and the We
st
Midlands could be clearly distinguished from the depressed regions such as the N
orth and
Scotland, to an urban perspective in which the economies of the large conurbatio
ns,
particularly London, performed far worse than did those of smaller urban centres
. In
consequence, regions such as the four named above, with a large proportion of th
eir
workforce located in large cities, performed poorly, whereas regions such as Eas
t Anglia
and the South West, which lacked conurbations, performed well (Keeble 1980). Thi
s
trend, in a behavioural sense, represents a rejection of the hitherto assumed ad
vantages of
location in large urban centres (access to labour, large local markets and the b
enefits of
proximity to information and innovation) and an acceptance of new advantages to
befound in small urban centres. Whilst some geographers (e.g. Fothergill and Gud
gin,
1982) have stressed the important part played by space constraints in the growth
of
manufacturing industries in the largest cities, compared with both the availabil
ity and
lower prices of industrial floorspace in smaller centres, others (e.g. Lever, 19
84) have
stressed that small local labour markets offer many enterprises the opportunity
of greater
control over labour, and even local government, which in turn reduces the elemen
t of risk
and enhances competitiveness for firms in smaller urban centres. (We return to t
his point
later.) Aggregate data, not only on employment, but also on redundancies, have r
ecently
been used to infer behavioural processes in the changing shift from large city t
o small
urban locations (e.g. Townsend, 1981, 1982).
Inferring the organisational behavioural aspects of companies from aggregate dat
a,
usually by using multivariate statistical techniques to relate employment change
to areal
characteristics, presents several conceptual and methodological difficulties. Th
e
enterprise, or the establishment, which is the focus of study, is missing from t
he equation.
In order to rectify this omission geographers have turned to the construction of
establishment-based data banks. At their simplest level these have permitted
components-of-change analyses which resolve aggregate employment change into its
several partsnew establishment creations (either new companies or new branches of
existing companies), establishment closures, in situ growth and decline, and emp
loyment
change due to movement into or out of the area under study. By relating employme
nt
change to type and location of establish-ment, a fuller understanding of the dec
isions
involved is achieved. Many of these studies have focused on the problems of the
economies of the largest cities, referred to above (e.g. Dennis, 1978; Lloyd, 19
79; Lloyd
and Mason, 1978), and especially their inner areas. The most important elements
in the
job loss profile of these areas have been plant closures, both in the large and
small firm
sectors, and the in situ contraction of surviving firms, whilst actual outward m
ovement
from the cities has been a relatively small component. The behavioural implicati
on of this
pattern is that firms have responded to the macro-economic forces of the recessi
on by
cutting back or closing, rather than by evaluating whether survival would be pos
sible in a
different location. At the same time, these studies have shown that, even during
a period
of deepening recession (at least prior to 1981), considerable numbers of new fir
ms were
being founded, thereby provoking further research into the nature of entrepreneu
rship.
The extension of the data set into ownership characteristics has permitted furth
er
analysis. For example, Lloyd and Reeve (1982) were able to identify 54 prime move
rs
in the economy of North West England by ownership type, defined as foreign
multinational owned, UK multiplant company owned and managed from outside the
region, locally controlled, and public sector enterprise. Comparing employment c
hange
by enterprise type showed that locally controlled plants had experienced a much
lower
rate of employment decline (-11.8 per cent) between 1975 and 1981 than had those
which were either foreign owned (-26.1 per cent) or those which were externally
controlled from elsewhere in Britain (-25.4 per cent) (Thompson, 1983). These fi
ndings
compare with those in an earlier study (Lever, McPhail and Norris, 1978) in whic
h not
overall decline but the extent of employment fluctuation in large plants in diff
erent
ownership types was measured. Once again locally owned and controlled plants wer
e
found to have a much more stable employment pattern than foreign multinationals
or
non-locally controlled plants of British multi-plant companies. In both these st
udies thereis evidence that employers, faced with similar external conditions, r
espond in different
ways so that locally owned plants appear more benign, taking actions which attem
pt to
insulate their workforces from some of the adverse conditions which non-locally
controlled plants pass directly on to their employees.
At this point the study of economic change in regions, with the use of establish
ment-
based data banks, passes into the more selective use of individual firm studies
or the use
of cohort studies (see Hayter and Watts, 1983; Keeble, 197779; Wood, 19802). Wood
(1982) has suggested that establishment-based studies of this type address three
major
questions in a behavioural context: first, locational choice; secondly, what is
the
relationship between ownership and economic change; and thirdly, what are the cr
itical
external relationships. Whilst locational choice had always been of interest to
geographers, renewed interest was sparked by the discussions on the existence of
mobile industry which was amenable to relocation when offered government
inducements in the form of regional policy, especially in the 1960s (Sant, 1975)
. Others
(e.g. Hamilton, 1974; North, 1974) stressed, however, that mobility and relocati
on were
only one strategy pursued by companies faced with external pressures (including
those
created by a government which had an explicit spatial policy for the distributio
n of
industry) and that relocation was often regarded as a last resort when other che
aper
alternatives had been rejected. As the recession has deepened, relocational deci
sions have
increasingly been taken in the context of closures and contractions rather than
as a
process of allocating growth. Hamilton (1978) provides a comprehensive survey of
1,500
medium-sized firms who were asked to describe how they had changed their spatial
pattern of production. Almost two-thirds of the firms had opened at least one ne
w plant in
a 12-year period, but over 600 had also closed at least one plant, with a high l
evel of
overlap, so that many firms had both opened and closed plants. Forty-three per c
ent of the
firms had adjusted their spatial patterns by merger and acquisition. Less dramat
ic (and
less costly) adjustments were more common, with over 1,000 of the firms having
expanded floorspace at one or more sites in order to avoid setting up a new bran
ch and a
substantial number had changed production processes within existing sites.
On ownership, it has become increasingly clear that regional or local economies
which
are reliant for a large proportion of their employment upon plants which are ext
ernally
controlled may experience difficulties. Although initially thought to confer ben
efits upon
the recipient regions not only in the form of employment and associated multipli
er effects
due to plant and wage expenditure but also through the transfer of improved tech
nology,
doubts now attach to the wisdom of basing regional economies, typically the regi
ons of
the depressed northern and western periphery of the British economy, on inward
investment. Functional specialisation within multi-plant and multinational compa
nies
appears to ensure that the marginal branch plants are left with routine, low wag
e activities
in the latter stage of the production cycle which leaves the plant vulnerable bo
th to
product market changes and production technology change. Even where local autono
my
is fairly high, this does not guarantee employment stability. Whilst ownership i
s
undoubtedly an important conceptual variable, methodologically it presents probl
ems of
definition. Patterns of investment by share-holders do not accurately define the
locus of
decision-making any more than do the locations of the directors. Detailed analys
es of the
corporate decision-making hierarchy may offer some indication of the extent of ex
ternal
control. Even then, what is being defined is control within the company and it i
s possiblethat external forces imposed by government, major suppliers or major c
ustomers via
monopsony effects, may be so strong as to remove effective control from within t
he
company altogether.
This brings us to the third of Woods questions, namely that of external linkages
and
their relative importance. Studies by Marshall (1979, 1982) have sought to relat
e linkages
to company ownership, and have concluded that, at least for material linkages, v
olume of
output and production technology type were more important explanations. The dema
nd
for services, however, is likely to be dictated by the locus of corporate owners
hip: where
a plant is externally controlled there is a much greater probability that servic
es will be
supplied from outside the region. There has recently been a good deal of interes
t in the
linkages between the small firm sector and large industrial plants, and work by
Storey
(1982, 1983) has indicated that regional employment growth policies which lay gr
eat
stress upon fostering the small firm sector disregard the dependence of this sec
tor for its
continued survival upon its links with the large industrial plants, and with the
public
sector.