Location analysis of software industries in the Tokyo metropolitan area: A nested logit model

Abstract

In the 1980s, the number of producer service industries increased rapidly in Tokyo, which was once called a "global city". They experienced such rapid growth that agglomeration diseconomy became an issue. To tackle this problem, software industries, which are part of the producer service industry, were either dispersed to Tokyo metropolitan suburban centers or to other metropolitan areas on an intermetropolitan scale. In the 1990s, the information technology impacts on the location pattern of producer service industries led to much debate. Several studies reported not dispersion but a concentration of such businesses on several different scales. There is, however, a lack of location analysis that integrates different scales in their approaches. This paper aims to clarify the forces driving software industries' location choices in intrametropolitan areas by integrating two different scales. The distribution pattern of software industries s hows a concentration of firms in both city centers and suburban centers on a regional scale. However, high concentrations of software firms have also been noted around some train stations on a local scale. A nested logit model was performed to analyze the hierarchical location choices. The results revealed that firms focus on market size and office rental cost on a regional scale, but their choices are based on train station accessibility on a local scale. These results indicated that firms appreciated different factors in different spatial scales. In the 1990 s, due to land price decreases and employment loss in inner Tokyo, the situation changed significantly. Hence, software firms could locate more easily in inner Tokyo than in the 1980s. They frequently make face-to-face contact with their customers in the inner city by taking advantage of efficient public transportation networks. Since the collapse of the bubble economy, Japanese transnational corporations have decreased their foreign direct investment. The demand for global networking information systems, which are provided by software industries, became limited in Tokyo. They now face competition from low-cost software industries in China and India. To survive in the fierce competitive environment, choosing the inner city of Tokyo in terms of office location is one way to revitalize their shrinking market.