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loCatIon oF CapaCIty 145

example spotify leave stockholm? – Well maybe 7

Stockholm has done a lot to encourage and develop its hi-tech industries. According to Mikael
Damberg, Sweden’s minister of enterprise, ‘Programming is the single most common occupa-
tion in Stockholm today.’ One estimate puts the percentage of workers employed in the tech
sector at an impressive 18 per cent (the average for most European capitals is probably closer to
10 per cent). Firms have been given 3G licences free, as long as they promised to get as many
people as they could online and mobile. The city’s metro is Wi-Fi enabled, and 98 per cent of
its homes, and all commercial property, is connected with fibre-optic cables. Also, personal
computers and the internet are subsidised, meaning that even poor households are connected.
The city’s friendly attitude to skilled immigrants also helps. Up to one-third of its start-ups are
launched by first- or second-generation migrants.
All of which adds up to the Stockholm area growing fast and hosting a string of large and small
tech firms. And one of the best known of them is the music-streaming business, Spotify. So why
did Spotify’s founders, Daniel Ek and Martin Lorentzon, write an open letter criticising Sweden’s
business climate and hinting that they might choose to relocate elsewhere in the future? The
points that they make (which are disputed) give an illustration of what drives location of high-
tech industries, particularly those digital firms that trade in non-tangible services. In their letter
they highlighted three anxieties. First, employees who are rewarded with stock options (and so
have a share in the value of the business) are highly taxed under the Swedish regime. Second,
Stockholm is getting expensive to live in. The cost of buying or renting a home in central Stock-
holm is off-putting for potential recruits. Third, although indigenous Swedes seem to take to
technical work such as programming, too few Swedish school kids are learning to code as part
of their education (oddly, needlework and carpentry are compulsory, but not programming).

The suitability of the site itself
The intrinsic characteristic of a location may affect an operation’s ability to serve its
customers and generate revenue. For example, locating a luxury business hotel in a
high-prestige site close to the business district may be appropriate for the hotel’s cus-
tomers. Move it one or two kilometres away where warehouses surround it and it rapidly
loses its attraction.

The image of the location
Some locations are firmly associated in customers’ minds with a particular image. Suits
made and sold in Savile Row, which is the centre of the up-market bespoke tailoring dis-
trict in London, may be little better than high-quality suits made elsewhere. However, a
location there will establish a tailor’s reputation and possibly its revenue. The availabil-
ity of appropriate local skills can also have an impact on how customers see the nature
of an operation’s products or services. For example, science parks are located close to
universities because they hope to attract companies interested in using the skills avail-
able there. An entertainment production company may locate in Hollywood, partly,
at least, because of the pool of talent on which it can draw to produce high-quality (or
at least high-revenue-earning) projects.

Service level
For many operations this is by far the most important demand-side factor. Locat-
ing a general hospital, for example, in the middle of the countryside may have
many advantages for its staff and even maybe for its costs, but clearly would be very

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