If you’re expanding your tech company in a new community, how do you choose which one?
Talent availability and cost are both important factors for most companies. For some, research might be a big deal. One oft-overlooked – but incredibly important – consideration is whether the business ecosystem has formed a legitimate “cluster” in your company’s industry.
While the benefits aren’t as immediately apparent as having access to a top university or inexpensive real estate, locating in a cluster has long-term advantages. For example, the Harvard Business Review has argued that clusters help drive innovation, productivity, new business growth and helps businesses within the cluster scale.
How do you find a strong tech cluster?
In some cases, it’s as easy as looking around – we all know Silicon Valley is a strong tech cluster, for example. For the less obvious options, site selectors use something called location quotient (LQ). In really simple terms, LQ compares an industry’s share of employment in an individual community with the national average. We’ve taken LQ measurements of North America’s top tech communities to figure out a) whether there are any surprises and b) which ecosystems have the strongest clusters.
Here are North America’s top established and emerging tech clusters:
What are you seeing?
If the circle is green, it’s a “true” cluster. If it’s red, then a cluster effect isn’t evident. The circle size is representative of total cluster employment – the bigger the circle, the more employees. As you can see, a community can have high employment in a particular industry but NOT be a cluster.
Who sticks out for tech concentration?
Well, no one is surprised that Silicon Valley is green and big – it’s true for both San Jose and San Francisco. Seattle also probably isn’t a surprise. Same with Boston. Washington in the “true” cluster group might surprise some people and New York City not being a cluster (despite having massive tech employment) is a bit surprising. Another potential surprise: every Canadian community captured on this map is considered a “true” cluster. Last but not least, it’s a bit surprising that none of the smaller communities with strong tech reputations – Austin, Pittsburgh, Detroit or Columbus – are considered “true” tech clusters.
The big green dot in Ontario is the Toronto-Waterloo Corridor, which is North America’s second largest tech cluster. Here’s what we see when we zoom in:
That’s five communities that qualify as legitimate “true” clusters, all within an ~100km/65mi of each other. Waterloo and Toronto are particularly strong with LQs over 1.7. Generally speaking, an LQ score greater than 1 is good and less than 1 is bad.
Here are the top 5 large tech clusters in North America – defined as high LQ communities with total cluster employment over 100,000:
- San Jose – LQ = 2.472 – Total Cluster Employment: 259,558
- Montreal – LQ = 1.871 – Total Cluster Employment: 173,195
- Toronto – LQ = 1.720 – Total Cluster Employment: 233,245
- Seattle – LQ = 1.420 – Total Cluster Employment: 265,807
- San Francisco – LQ = 1.141 – Total Cluster Employment: 261,352
Here are the top 5 emerging tech clusters in North America – defined as high LQ communities with total cluster employment under 100,000:
- Waterloo – LQ = 1.718 – Total Cluster Employment: 21,815
- Ottawa – LQ = 1.643 – Total Cluster Employment: 51,670
- Vancouver – LQ = 1.576 – Total Cluster Employment: 89,515
- Calgary – LQ = 1.541 – Total Cluster Employment: 53,855
- Quebec City – LQ = 1.255 – Total Cluster Employment: 24,145
Why is Canada dominating that second list? It’s an interesting question – we’ve checked and double checked. The answer appears to be that Canada has a limited number of communities that provide the ideal environment for these types of clusters, so those communities end up with a very high concentration of things like tech businesses. In the US, due to its sheer size relative to Canada, there are more communities with the environment necessary to support growth in tech, so tech businesses are spread out among a much higher number of options.
Does that matter to you? Maybe, but probably not. Realistically, you’re tapping into a community because it has a strong business ecosystem, so that’s what should matter. In each of these Canadian communities you’ll find a tech ecosystem that can help your business grow.
Waterloo EDC has comparative LQ data for communities across North America for multiple industries, including technology, advanced manufacturing, life sciences and more.