Based in Britain: Harnessing Competitive Advantage in - and outside - Motorsport Valley

In our global economy, manufacturing companies outsource production to multiple suppliers half a world away and spread engineering and design out among far-flung company outposts. Yet, at the same time, geographic clusters of firms in particular industries can still hold competitive advantage by virtue of co-location. This paper examines the evolution and characteristics of one such geographic cluster, Motorsport Valley, particularly in the business of Formula One racing. This cluster of over 4000 businesses is located within distinct regions of the United Kingdom and eight out of eleven of the F1 teams are based there. One of three notable outliers, Ferrari dominated Grand Prix Championship for ten years as a lone company operating out of Maranello, Italy. However, while doing so it used former employees from Motorsport Valley to help construct its cars. How does knowledge flow both within a geographic cluster and to firms, like Ferrari, which are outside the cluster? What are the possible benefits—and downsides—to operating from within a cluster and from outside?

Teaching on clusters, innovation clusters, industrial policy, firm location choices in the presence of network externalities.