The location dynamics of knowledge-based service establishments : a Stellenbosch case study

Issues relating to globalization and the rise of the New Economy have received much attention from academics. Renewed emphasis has been placed on the importance of locality and cities are seen as gateways to ensuring a competitive role in the global economy. In South Africa, local economic development (LED) approaches are increasingly reflecting market-driven entrepreneurialism as cities compete to attract investment. This has, however, caused the decline of economies of already lagging regions, widening regional disparities. Statistical evidence confirms the opinion that the service sector has become a leading contributor to national and regional economic growth, both internationally and in South Africa. Synonymous with the knowledge-based economy is the dependence of this sector on innovation and highly skilled human capital as drivers of competitiveness and development. As a result, the role of universities as producers of knowledge and educated labour has received much attention. The perceived geographic “footloose” nature of knowledge-based industries has also led some to believe in their potential to reduce the disparities between cities and small towns or peripheral locations. Evidence show, however, that knowledge-based service industries still tend to cluster in major metropolitan areas. Though the importance of the knowledge-based service sector has been acknowledged by academics and government, a lack of empirical research still exist on the decision-making processes determining the choice of location of South African companies. Research has indicated the medium-sized town of Stellenbosch in South Africa to have a high level of growth potential. The town is also the location of a well-established IT and knowledge-based service sector. For the purpose of this study, a database was compiled of a research population of 329 knowledge-based service industries operational in Stellenbosch, after which surveys were distributed amongst the entire population. Data generated from 104 completed questionnaires provided a deepened understanding of the nature of these industries of which the majority is single-branch businesses situated in Stellenbosch due to the fact that it was the owners or key role players’ home town during the time of establishment. Other notable trends such as the growth in the number of international head offices in the knowledge-based service sector, the availability of highly skilled labour, and proximity to important clients, further highlights the reasoning behind the decision of knowledge-based companies to locate in Stellenbosch specifically. Finally, the existing linkages between Stellenbosch University and these industries - specifically the IT and engineering sector - receives attention.