For years now, Vancouver has seen the number of corporate head offices in the city decline. The business community and some politicians have become pre-occupied with the issue. Many are demanding that something be done to lure new head offices or keep the ones Vancouver has.

Similar questions are no doubt being raised in many medium sized cities around the world.

But, the more I think about it, the more I question whether this the right issue for a city like Vancouver to be worried about in the global economy of the 21st Century?

While I don’t know the answer, I am certain a more global perspective might be helpful here. It may be that there is nothing that can be done about it — it’s part of belonging to the international economy. Therefore Vancouver’s business and political communities should focus on what the city does best, within that economy.

If we look at the causes of head office decline in Vancouver, we see that it comes from a position of corporate success — not failure. Successful companies have been acquired by the global players who want their product or service. The MacMillian Bloedel – Weyerheuser merger is an example from the forestry sector. Flickr’s acquisition by Yahoo! offers a smaller yet equally valid situation. Local entrepreneurs created a successful product and company that a global player wanted badly enough to buy the company at a high price and move the principals and key employees to California.

Another cause of head office decline has been the mergers of BC-based businesses. For example, Canfor (Canadian Forest Products) and Slocan Forest Products merged a few years ago — resulting in only one head office instead of two, but still in the Vancouver area. Mining company mergers have also transpired, resulting in head office consolidation. Driving these mergers has been the need to compete on the global stage — to improve corporate efficiencies and cut costs. No government policy will change this.

In the 21st century world economy, what should cities like Vancouver or city-regions like British Columbia be doing to further the economy? What should be the benchmark of success?

Well, one obvious answer seems to be that the people and businesses in this region should focus on doing what they do best. This might be defined in terms of leading industry clusters and Vancouver’s ability to attract talented people to work in them.

Take biotechnology and life sciences. The Greater Vancouver area’s biotechnology and life science community is the 7th largest in North America, and boasts being home to three of only five profitable biotechnology firms in the country- Angiotech (HQ pictured above), Aspreva and QLT. The sector is also known for its entrepreneurial nature and ability to get new products generating revenue (even if not profits) quickly. Biotech start ups are often quickly bought by global companies who want the product and the people — Vancouver loses a head office, but gains funding to further this company and therefore the biotechnology cluster.

Many entrepreneurial creative or knowledge economy companies also do well in Vancouver and once purchased, receive large boosts of funding from the new parent company, creating more creative jobs. Video game programming, digital animation, business and web based computer software firms all offer dozens of examples from Radical Entertainment (bought by Vivendi and now expanding rapidly) to Crystal Decisions (now Business Objects) to Mainframe Entertainment. And, having these thriving clusters attracts talent and new companies who want to employ that talent — just last year Disney-owned Propaganda Games decided to open a studio from scratch in Vancouver, for example.

My point: Maybe Vancouver gains as much or more from the loss of head offices. While some take overs do result in a shut down of a local office, an interesting study would be to examine the net number of direct jobs lost or gained from the transaction.

Yes, head office jobs are known for spinning off other requirements from lawyers to accounting and financial services positions. But, having more people in a region working will also have spin off employment benefits, even if different ones.

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I’ve been trying to find out if head office losses are issues to other cities. Montreal is an interesting study I’ll blog about soon. I’d love tips from readers on other cities dealing with this question — and I wouldn’t mind hearing what Richard Florida has to say about it either…

Today, instant communications with people around the planet is inexpensive and easy. In theory, this shuld mean that people can work from anywhere, for any company, particularly in the Knowledge Economy.

However this is not proving to be the case. Sure, a North American company can outsource a defined programming project to a team in India or China, and save some money as well as their own human resource time. This is where the internationalized economy works well.

However, when it comes to conceptualizing and problem solving the overall project, companies do not outsource — for several reasons. For one, there’s corporate espionage issues. Success and failure of a product often requires being first to market.

Second, innovation and invention comes from brainstorming and juxtaposing different ideas against each other until something works. In general, the more trained brains collaborating, the better. And collaborating works best in person. Human beings are social creatures. We communicate with each other not just through words, but also jestures, body language, tones of voice, etc. which are typically lost in long distance communications.

Many knowledge-based companies today require people to work together in teams. They need to communicate at multiple levels and long distance will not be as efficient. For example, the team lead on a project might look around the room and notice team members eyes are starting to glaze over; everyone is tired. So she suggests everyone walk down to Starbucks for a latte break. On the way, they chat randomly about their project and the company and what’s happening in the industry — mixing and matching ideas at random. When they return to their desks, everyone has a fresh perspective from which to work.

The value of face-to-face collaboration — both formal and informal — is also why many cities are thriving in the information age. Companies want to have a large talent pool from which to draw — and want people working together. You’ll only get this in cities.

Indeed, companies in the same industry tend to cluster together in particular cities. The more biotechnology workers, or digital animation programmers, in a region, for example — the more attractive that city is to newer companies in the same industry. And this specialization keeps feeding on itself.

For knowledge workers, this city-based specialization has advantages — if you are willing to live in one of the hub cities for a particular industry. If you get tired of one company, or have a falling out with individuals in your current job — or want new challenges — there are many other options.

As reported recently on The Creativity Exchange, increasingly studies are demonstrating why to succeed, individuals may have to move to “the hot spot” of their industry. They can’t simply telecommute from their favourite small town.

In much the same way that individuals with special knowledge and expertise tend to have more career success (definied however the individual wants to do so salary, flexibility, whatever — not the topic here), cities do better with specialties.

A city cannot offer all things to all industries, workers and economic trading partners. Instead, it needs to have special niches and focus on attracting the major companies and talent within those “clusters” (as they are called). In fact, such clusters often develop spontaneously as much as with any government help.

When Microsoft blossomed in the Seattle area, no special incentives were needed to convince other software companies and entrepreneurs with a dream that Seattle is a good place from which to operate. The more companies that located there, the better the software atmosphere. People talk about software — everywhere. Talented workers ready for new challenges are already there. So, more companies come.

In Vancouver Canada, one of the niches has been Video Game Programming. Electronic Arts’ largest production studio in a Vancouver suburb, has been “the Microsoft” of this industry. Many (perhaps most?) of the world’s major video game production empires have a Vancouver operation: Radical Entertainment (part of Vivendi Universal), Disney-owned Buena Vista Games, Relic Entertainment (owned by THQ), and even the cell-phone-video-game-programming arm of Nokia. Everytime locals pick up the business section, it seems another video game company has moved in, or launched in a big way.

In both Seattle and Vancouver, I could not find evidence of substantial ongoing government for these clusters. The absence of government intervention is important to note. Politicians often seek political gain from trying to prop up a failing industry or cluster through subsidies.

But if the market inertia is not there, subsidies may just postpone the inevitable — the death of that cluster in that region — at great taxpayer expense.