Master Thesis: Port-city networks

Master Thesis: Port-city networks. The case of London-Piraeus maritime network of APS producers.

Author: Anangnostopoulos Georgios Supervisor: Dr Jacobs WouterDepartment of Applied EconomicsFaculty of Entrepreneurship, Strategy and Organisation EconomicsErasmus University Rotterdam

Abstract

This Master Thesis has been written as a partial fulfillment of the requirements of the MSc Entrepreneurship, Strategy and Organization Economics at the Department of Applied Economics - Erasmus University Rotterdam. The work has been carried out in the cities of Rotterdam, Piraeus and at London by phone.First of all, I would like to thank my supervisor in Rotterdam, Dr. W. Jacobs for his valuable guidance and advice. I am also especially grateful to the Managing Director of Post &Co P&I Club Mr. D. Post and Mr. van der Valk of AKD Prinsen Van Wijmen, for giving me the opportunity to gain insights on the core of the subject that proved valuable on following interviews.Finally, I would like to acknowledge the precious help of Mr. A. Karampelas, former Managing director of the Justice Department of the National Bank of Greece for recommending me to other maritime experts. Moreover, I would like to thank Mr. Fasolis, maritime lawyer, for the time dedicated and great interest he showed during the interview. Finally, I would like to help all the participants in this research, Mr. I. Psychoyios of Eletson Corporation, Mr. I. Trantalidis maritime lawyer, Mr. D. Vasilakos Managing Director of Maritime Affairs of the National Bank of Greece and Mr. D. Vergottis of Valliant Shipping. Without their useful insights this work would not have been the same.

Table of ContentAbstract 2Chapter I: Introduction: Research aim and questions 51.1 Background Research 5 1.2 Research Aim 81.3 Research Questions 91.4 Research Methodology 101.5 Structure of the Report 11Chapter II: Agglomeration economies, clusters and networks2.1.1 Introduction 122.1.2 Agglomeration economies 122.1.3 The concept of clusters 132.1.4 The creation of networks 162.2.1 Types and role of proximity in clusters and networks 192.2.2 Cognitive proximity 202.2.3 Organizational proximity 222.2.4 Social proximity 242.2.5 Institutional proximity 252.2.6 Geographical proximity 282.3 World Cities 302.4 Global production networks 322. 5 World port cities 35Chapter lll: Empirical Analysis 403.1 Introduction: Characteristics of Greek maritime industry 403.2 Measuring the connectivity of APS providers 42 3.3 Findings from World Shipping Register Database 44Chapter IV: The London-Piraeus network 484.1.1 The maritime network of Piraeus: History and evolution of Piraeus cluster 484.1.2 Importance of commodity Chains at Piraeus port 524.1.3 Legislation and regulation at Piraeus cluster 554.1.4 Role of proximity at Piraeus cluster 584.1.5 Strengths and weaknesses of Piraeus APS cluster 594.1.6 The relation of Piraeus maritime network with the urban web 61 4.2.1 The importance of London at the maritime world and for the Greek maritime network 624.2.2 British Legislation and its importance for London maritime cluster 644.2.3 Weaknesses of the London cluster 664.3 The relation between the London- Piraeus network 67Chapter V: Conclusions &Recommendations 715.1 Conclusions 715.2 Policy recommendations 73 5.3 Research limitations 75 Literature References 76Interviews 83

Chapter I Introduction: Research aim and questions1.1 Background ResearchAround the globe the disconnection of ports from the host cities can be observed, both spatially but also economically. Reasons that may explain the spatial disconnection of ports away from the cities can be the increased port activities with all the negative consequential impacts like pollution, congestion in combination with the rapid urban growth, lack of space for further expansion of the urban web as well as environmental concerns. Economically, ports are less dependent from the city centers for labor force due to the automatization and rationalization of their activities but also due to disconnection of other industrial activities from the cities that where a prime cliental base for port activities. Cities on the other hand try to reduce their dependency for their local economic growth from port activities by diversifying and upgrading other sectors of their economy that do not have the negative externalities of port activities we have mentioned before(Hoyle 1989, Jacobs et al 2007). However there is a school of thought that port-city relations still exist through more sophisticated and less obvious links between the port clusters and the APS providers. Ports in order to survive the fierce competition with other locations, they developed into a geographical concentration of highly specialized, added-value activities, with demand for specialized labor (Fujita&Mori (1995), De Langen (2003)). Using a phrase of Humphrey& Schmitz 2002, ports can be considered as export-oriented clusters that are inserted into global value chains. For Ducruet&Lee (2006) port function is more or less important for local economies and they suggest that port city Is destined to become a general city through successful stages of economic diversification (Murphey 1989). As a first stage the local economy is dependent on port and maritime activities. At a second phase the local economy attracts additional activities (industrial, shipbuilding) and finally the transformation of the local economy to a service economy occurs by attracting APS providers, allowing the separation between the city and the port(Charlie 1988). Another stage of evolution was added by Pesquera&Ruiz (1996) where at a post-industrial stage the interdependency between urban and port logistics activities takes place. Some cities with advanced economies managed to enhance and redefine their port activities by including and attracting broader, added-value services like financial services, maritime insurance, law services etc at their territory and not restrict their activities only to cargo or port related like cargo handling, storage and bunkering . By doing so, they managed to keep their port functions stable or increased even when the port traffic and commodities transferred decreased (Fujita&Mori 1995). Scientifically, the purpose of this research is to investigate the level of independency between the port cluster and the APS providers and whether the port users prefer the local APS providers or they whether they prefer to purchase these services from another distant location. Moreover, it is not well studied the importance of co-location of APS providers with their competitors and other providers from different fields. Except that, the vertical relations between APS providers and maritime companies will be examined, as well as the importance of maritime players to be located at close geographical proximity. We should take into account the rapid evolution of communication technology that minimizes the communication cost and facilitates the contact of port users with distant APS producers as well as the extent use from maritime companies of an extent network around the globe of agents and representatives. Thus, a central question of our research will be whether spatial proximity is important for the commercial interactions of maritime clusters and maritime-specialized APS providers.In order to investigate the above issues the maritime network of London-Piraeus will be examined and more specifically the general characteristics of the location of each node and the connectedness of maritime APS providers between the two locations as well as the vertical connections with maritime companies. The reasons for the choice of these specific locations are the following: At London, there is a large concentration of offices of Greek maritime companies that take advantage of low taxation, flexible regulations, the high concentration of Advanced Producer Services (APS) like law firms, P&I clubs, tacit knowledge that is provided by institutions stationed there like Lloyds of London, classification societies, Baltic Exchange, the International Maritime Industries Forum(IMIF) and many others, as well for all other benefits that stream from the location near the worlds shipping and financial center. Moreover, London is considered the maritime center of the world, for historical reasons but also due to its large concentration of maritime expertise and knowledge that cannot be found anywhere else. Piraeus port is the biggest port in Eastern Mediterranean with a crucial role in transshipment activities. Its growth started at the late 1960s with the application of a flexible legislation and taxation framework for shipping companies which allowed foreign (non-Greek) shipping and shipping related service companies, to establish branch offices in Greece and benefit from certain tax benefits. Moreover a large number of local APS providers are located there but also there are a large and increased number of branches from large, multinational APS producers and a significant number of branches of large British APS producers.Greek-owned maritime industry is leading in terms of numbers of ships and tonnage worldwide. A critical characteristic of Greek shipping industry is that it consists to a large percent (80%) of small companies that own 1-9 vessels, usually aged ships(Goulielmos 1996). The merchant fleet owned by Greeks nowadays was based on commercial and maritime networks and mainly at London and New York (Harlaftis 1996). The vulnerability of small shipping companies to changes of the structure of shipping market, for example the increased demand for transportation at the globalized environment, the decrease in transportation costs, the existence of large dominant private or government firms, makes information crucial and that is the reason why many firms have representatives or offices at world city centers like New York and London that are the maritime capital for historical but also for expertise reasons. A strong Greek maritime community exists at London from the 19th century to take advantage of the expertise and knowledge that is rooted at London and since then it is among the main links, with significant importance for the Greek maritime network. The fact that at both ends of the network we find Greek maritime firms gives additional interest to the study since we examine a partly homogenous network. The link between the two locations is the Greekness' of a part of the network, which is extremely important for the economic survival of Greek maritime companies at both ends of the London-Piraeus network. It provided access to all the expertise of shipping: market information, chartering, financing, and insurance and P & I clubs (Harlaftis 1996). Except for the existence of cognitive proximity (family bonds, cultural or kinship) the effectiveness of the transmission of such tacit knowledge is facilitated with the existence of close geographical proximity since maritime and APS firms are co-located to facilitate the frequent face-to-face contact. Moreover, maritime companies at both nodes share the same organizational practices since members of the family raised abroad returned to Piraeus port to start their own firm or to open a branch of the family business. These special characteristics and the importance of both geographical but also cognitive (and organizational) proximity for the growth and survival of the Greek maritime network as well as the strong and established connections between the two nodes of the network gives additional interest for the investigation of the location and connectedness of the two locations. To sum up, the study of the connectedness between London, the main maritime and financial center of the world and Piraeus a service center with the largest concentration of Greek-owners that own the larger share of the worlds tonnage gives additional interest to the investigation of the relations between the two locations regarding the importance of APS providers as well as the special characteristics of each location and that will be the aim of this research paper. The practical relevance of this study stands to the understanding of the special characteristics of each location regarding the APS providers that will assist the policy makers to improve their position by removing the obstacles they face to their growth and by enhancing further their competitive advantages within the maritime market. Finally, it may provide better insights to the governments and the principals of the maritime network of London- Piraeus to undertake strategic policies and actions that will lead to the further development of the interactions between the two clusters by realizing the added value of APS activities to the local economies.

1.2 Research Aim The goal of this research is to increase our understanding about the geography and economics of maritime-specialized Advanced Producer Services within the shipping industry by examining the connections between the maritime network of London- Piraeus that will enable us to understand the type of their relation and the strengths and weaknesses of each location. I shall try to assess the general character of the maritime network but also understand the cluster, economic- geographical relationships between the two locations and the factors that influence the type of their interactions. Both the horizontal connections between APS providers will be examined but also the vertical connections between APS producers and their cliental base, the maritime companies. From the economic-geographical theory, the following three related factors are of importance:1) Location patterns of maritime specialized APS and the role of geographical proximity to clients within seaport clusters.2) The local embeddedness of specialized APS within a specific region and whether these services are strongly connected to a geographic region and a structure of economic, social and institutional relationships or these relationships do not play any role to their potential location.3) Strategic coupling between local players and global networks, which is the capacity of local actors to interact and insert themselves with corporate networks of APS (W. Jacobs 2009).

1.3 Research Questions

The main issue of this research is whether Greek ship owners will use the local APS or they will purchase such services from firms based at London. Taking into account that the big percentage of Greek owned maritime companies are of small size and that large APS firms like P&I clubs based in London have high fees (entry and calls) and choose to represent only high quality and small age vessels that usually large companies and multinational corporations own, lead the smaller shipping companies to choose local, smaller APS firms. This research will try to investigate the importance of geographical proximity of APS to small maritime companies. Taking all these into account the following questions will be answered: What is the relation of London-Piraeus network? Is it competitive or complementary? What are the criteria of choosing APS? Economic based or cognitive? What is the importance of firm size at choosing APS? What is the relation of geographical and cognitive proximity for the Greek maritime network? How it affects the choice of APS services and what is the role of common practice for Greek maritime companies.Hypothesis 1: Maritime companies base their choice of APS providers on qualitative- cognitive criteria and spatial proximity with them does not play significant role in their decision.At this case study the relation between APS providers at two different locations will be examined using the framework of port cities as created by Jacobs et al 2007. We can expect that within port-city location the creation of non-linear relations between agents will occur at greater frequency both between APS producers but also the vertical connections between APS producers and their cliental base, the maritime companies. Another advantage of the port-city location is that it enable us to examine whether the existence of APS producers at close proximity to a port can lead to an increase on the commodities transferred or vice versa. Other issues that this research will deal with are: Where maritime-specialized APS providers are located and what markets (local, international) do they serve? What is the importance of the proximity to seaports for APS providers? What is the importance of the proximity to maritime companies for APS providers? What is the importance of the proximity to other APS providers? What other factors explain the location pattern of APS providers? What strategic policies can cities or politics undertake in order to strengthen their position with-in the global maritime networks?

Hypothesis 2: Maritime-specialized APS producers are expected to be located at close geographical proximity to a port where maritime companies are concentrated.The total traffic of Piraeus port is not significant at a global level, but it is an important gateway to a regional level and especially the car and container terminals have significant position at the Mediterranean market. Most ports target is to increase their traffic and consequently their profits but also to attract more maritime companies and APS providers. Based on the case of the network London-Piraeus, the most suitable strategy in order to increase port traffic and added value of port facilities will be examined. Is it the concentration of shipping companies that subsequently attracts APS producers or vice versa? Moreover this case study will try to investigate the importance of an increase in port traffic to the attraction of APS and whether it is a prior or a facilitative factor and whether this is the case of Piraeus cluster.1.4 Research Methodology The research is explorative in nature and it mainly uses qualitative methods but also to a smaller extent quantitative research. My methodology will be based in the concept of integrating the theories of World City Networks and Global Production Networks by focusing on the territorial and functional-economic relations of a world city and a service center as first described by Jacobs et al 2007. I will focus in the concept of a leading city at local level-in terms of commodity chains- as well as a service center and its links with another stronger cluster located elsewhere. Since the introductory and theoretical part of the thesis is based on research done on existing literature, the method applied will concentrate on criticizing and analyzing the main points and try to arrive to certain conclusions and more specifically to understand the clustering and network formation of firms.I will base my quantitative research mainly on data from the World Shipping Register and EUROSTAT.I shall identify APS producers based at Piraeus and investigate to what extent APS producers that have offices at Piraeus port have also offices in London and whether they are representatives of larger foreign firms or local players.The quantitative research is combined with a series of in-depth exploratory interviews with representatives of maritime-specialized APS providers and representatives of maritime companies from London, Piraeus and Rotterdam that will provide us with valuable regional specific information. The role of Rotterdam will be that of an independent variable that will help us realize the importance of London, Piraeus and their connections. The choice of Rotterdam is not random but i chose it due to its great significance as a maritime center and port but also due to its strong relations and close geographical proximity with London. I will try to identify the vertical relations between APS producers and maritime companies as well as between APS producers and what affects the choice of APS providers from maritime companies. By combining the different results of both qualitative and quantitative research my final conclusions will be drawn.

1.4 Structure of the ReportThe structure of the report is as follows. The second part will present the literature review based on theories economic geography and agglomeration economics. The third part will present the findings from the database analysis and the forth part will present the results from the conducted interviews with firms representatives. Finally at the last chapter I will present the final conclusions and recommendations for strategic actions for the policy makers and maritime network principals. Chapter IIAgglomeration economies, clusters and networks2.1.1 IntroductionThe framework of this research will be based on locational economies that include those economies that arise from the geographical agglomeration of related activities, in our case specialized maritime services. Briefly the reasons why these firms co-locate and create clusters, networks will be mentioned and what are the types and role of proximity. When firms are located at close spatial proximity, the information sharing and knowledge exchange is facilitated and so does the ease to do business with other local firms. Using the frameworks of World cities and Global production Networks that are integrated at the concept of World Port Cities, this research will examine the relations of the London Piraeus maritime network.2.1.2 Agglomeration economiesThe forces that lead industries to concentrate and cities to aggregate activities are referred as agglomeration economies. Firms can benefit from economies generated when they are co-located next to other firms and that prospect of benefits generates the clustering of economic activities. Marshall (1925), suggests three factors as the source of agglomeration economies, the first is the sharing of inputs for which the production involves increasing returns to scale. The second is labor marketing pooling, where agglomeration allows a better fitting of the needs of the employers with the skills of employees which results to the reduction of risk for both players. Finally, knowledge spillovers that take place when an industry is localized which results to the exchange of knowledge between agents, which at the end benefits all parts involved at the industry. Recently, more sources where suggested and we shall include the home market effects, where agglomeration economies is encouraged by the concentration of demand (Duranton &Puga 2004).Agglomeration economies can be examined using three different perspectives, the industrial, the geographic and the temporal. Industrial scope can be explained as the degree to which agglomeration economies extend across industries (or sectors) instead of being confined within the limits of an industry. As agents come closer to organizational space, the possibility of interaction increases or as we will refer later on with closer organizational proximity. One way to specify industrial scope is the degree to which a citys employment is specialized, Henderson et al (1995) which is relevant to the essence of our research about APS producers. The opposite side of specialization is diversity and how according to Jacobs (1969) a citys diversification of activities can lead to the exchange and cross-fertilization of knowledge and technology and finally to growth. The perspective of this research paper however is about the impact of the diversity or not of sectors in the maritime industry and less on the employment issue. Geographic scope highlights the advantage for agents when they are not been located far away from each other due to the increased possibility of interaction between agents when they are physically closer. Finally temporal scope examines the way an agent continues to affect another agent and its productivity even after they are separated temporally. The degree to which these time-separated interactions between agents continue to be potent define the temporal scope of agglomeration economics Duranton& Puga (2004). Examples of the temporal scope can be the transfer of knowledge and learning that do not occur simultaneously but rather take time and develop gradually and can also decay over time. This concept introduces the dynamic nature of agglomeration economies. The most common direct dynamic effect is considered the knowledge spillovers. Since knowledge takes time to accumulate the time of starting of the activities and more specifically the older a firm and the time spent at a specific environment the more knowledge could she accumulate. In that sense two identical firms but with different starting point of activities will be influenced and benefit differently from agglomeration economies depending on how long they are present in the market.2.1.3 The concept of clusters The geographic concentrations of linked industries or industrial sectors are referred as clusters. Porter (2003) used a more analytical definition and defined as a cluster a geographically proximate group of companies, suppliers, service providers and associated institutions in a particular field, linked by externalities of various types. Such externalities that link the members of a cluster can be knowledge, skills, various purchased inputs and technologies. A cluster is constituted by firms with different objective goal and field of practice and that enable us to subdivide its cluster into different sub-clusters which are subgroups of industries or sectors whose locational correlations with each other are higher than with other sectors of an industry Porter (2003). Sub-clusters are useful as a concept because they enable us to examine separately sectors with same organizational practices, needs and sophistication. A maritime cluster is constituted by maritime companies, institutions, APS providers, port-related firms and many others. A further distinction that it is made in this research is among maritime law firms, brokers, P&I Clubs where each sector has specific characteristics the diversity f which will have great significance in this research. An important issue rising from the concept of clusters is that some industries or sectors can be considered as parts of more than one cluster. Porter (2003) deals with this issue by using two definitions, a broad and narrow one. A broad cluster definition includes all industries and sectors at a cluster where a narrow definition assigns each sector to the cluster to which it has the strongest locational connection. Taking into account the specialized character of APS producers and our inability to separate geographically the firms at the two clusters that are examined due to their density a broad cluster definition will be used for our research. At existing literature for clusters a debate has rose about the relative importance of regional specialization and diversity. Glaeser et al (1992), state that the performance of a region is driven by the specialization of some industries because specialized regions advance faster. Jacobs (1969) on the other side considers that creativity and growth in a region is fostered by the diversification of industries. A third approach by Ketelhohn (2002) changes the unit of analysis from industries to the clusters. He states that knowledge spillovers that affect performance and growth should be stronger within the cluster among related industries. At the same logic, diversity of clusters rather than diversity of industries should lead to greater performance.Firms benefit from clustering by taking advantage of the knowledge externalities because spatial proximity facilitates the transfer of tacit knowledge, by participating in complicate local networks and by belonging to the same institutional environment. More analytically, knowledge externalities can be also characterized as processes of collective learning are based on the high level embeddeness in clusters. Except that, the importance of spatial clustering can be explained by taking into account the role of the tacit nature of knowledge (Asheim 1996, Cooke 2001). The mechanisms of inter-firm knowledge flows that explain the spatial clustering are the following:1) The informal interactions within the cluster communities. Clusters are considered embedded to a specific location since players exchange knowledge and ideas through informal social networks that usually appear at close social environments. Moreover, the specialized nature of clusters, explains why the knowledge transferred is highly tacit and therefore difficult to transfer over large distances. Consequently, firms inside the cluster share the same knowledge and the way they will profit from it is largely dependent from their specific characteristics. Firms outside the cluster cannot benefit from that knowledge due to their small social and cognitive proximity (highly dependent in case of clusters with geographical proximity) that makes the understanding and benefit from that knowledge very difficult. Boshma & Lambooy (2002). 2) The direct inter-firm links in cooperation networks. As mentioned due to the high level of embeddeness, cooperation links is most likely to occur inside the limits of the cluster. Social networks inside the cluster do not only lead to the exchange of knowledge on individual bases but also lead to acts of collective networks in local cooperative networks. Crevoisier (2004).3) Labor mobility. New employees are an additional way for firms to access external knowledge. taking into account the preference of employees not to move away from their home region it is expected that this type of knowledge to be localized Malberg&Power (2005)4) The creation of spin-offs. Spin-off firms are considered as strongly localized due to fact that they inherit knowledge from the parent company and that is why they are inclined to be at close spatial proximity to the parent firm. Sorensen (2003).There are however additional reasons, equally important to those previously mentioned, that may explain why do firms cluster. One of them may be sharing of information or more specifically the fear of not receiving crucial information. If a firm located inside the geographical boundaries of a cluster is not considered a member, then the danger of being at a worst position by not enjoying the benefits that all the firms that participate to it have or being excluded by common actions of the cluster (for example the opening to a new market) makes the fear of isolation a crucial reason for clustering. Except that, the differentiated characteristics and abilities of firms in a cluster increase the total processing ability of new information of the cluster and minimizes the possibilities of a new opportunity or threat to be ignored. In other words, it reduces the level of uncertainty that every individual firm faces by creating mechanisms of risk-sharing. However, since firms inside the cluster are subject to the same information there is a danger of lock-in which can be dealt with the formation of external connections with other clusters, an issue that will be analyzed at a following section of paper. Another reason explaining the clustering of firms can be the built of trust among its members that facilitates and speeds up the information exchange as well as it reduces transaction costs and bargaining costs among its members. A web of formal and informal rules, norms and social dictations are the main mechanism of resolving differences and not legal mechanisms that ensure contractual enforcement that is costly and time consuming. In case a member of the cluster disobeys these rules she will face the collective punishment from all the other members (retaliation, exclusion from future transactions), making this system of doing business self-enforcing. The advantage of reduced transaction costs can be another reason for firms to cluster, but in order to be successful, spatial proximity is still essential in order for all the actions to be observable by everybody so it can sustain its self-enforcing character. (Portes A& Senssenbrener J. (1993), Grammenos&Choi 1999).To conclude, Boshma& ter Wal (2007) at their study they make an overall criticism on existing literature on clusters. First they state that the heterogeneity of firms that constitute a cluster is not taken into account, secondly that the importance of spatial proximity is over-emphasized and at the same time is decreases or ignores the importance of network formation and finally they critically judge the static nature of existing literature that does not take into account the origins and evolutionary paths of clusters. More analytically, so far the performance of a firm was attributed to their location in the cluster and their heterogeneity in terms of capabilities, strategies and routines was ignored. Except that, by overemphasizing to geographical proximity, existing literature ignored the importance of extra-cluster network links to the evasion of lock-in effects. This research will deal these issues by using the concept of sub-clusters in order to take into account the special features of each sector of the maritime cluster and will also present the history of the maritime network and present how and why it emerged.For a further analysis a distinction between the horizontal and the vertical dimensions of a cluster is required. View Appendix .1

2.1.4 The creation of networksSpatial clusters are considered successful not only for the unique way they have organized their internal functions but also due to the effective way they govern their external relations. Some relations relevant to innovation and learning have been de-territorialized (Boshma 2005, W. Jacobs 2009). When a cluster forms external relations with other agglomerations or clusters we then talk for a network formation. A broad definition of economic networks can be: the formation and organization of links and relations between players from different, possibly distant agglomerations that provide ,for the parts involved, advantages from the combination of skills and features of: reduced transaction costs, exchange of knowledge and information and opportunities for complementary actions. These non-local relations act as pipelines (Bathelt et al 2004) that pump knowledge, technology and business practices in such a way that it generates the diffusion of knowledge or what is referred as buzz. (Storper& Venables 2004). Through these pipelines of knowledge clusters receive crucial information and knowledge and avoid in that way a possible isolation and catastrophic lock-ins. The ways that agglomerations benefit the economic actors when they are co-located have been referred. However, there are many reasons either, economic, political or technical where the spatial clustering is not feasible (W. Jacobs 2009). In cases like that, the formation of a network can reduce the effective distance between nodes and the transaction costs evolved that would be in other cases prohibitive. In general, when co-location is not feasible, the networks may substitute for agglomeration (Johannson&Quigley 2004). This substitution function is based on technology that permits the standardization of products and services and makes possible to rely upon network solutions. Technology facilitates communication among distant players and diminishes in that way a drawback of geographical distance. Information and knowledge can diffuse easier inside the same transaction network while additionally networks can be designed in that way as to include also knowledge spillover mechanisms (Johannson&Quigley 2004). A successful regional economic development depends on the strategic coupling which refers to the capacity of local actors to match critical assets with extra-local actors operating in global networks (Coe et al 2004). These assets may be infra-structure, labor market organization, regulatory regimes etc. however a co-ordination problem rise when these assets have to be provided in the right time, place, form, funded and priced appropriately and in relation with external resources. The ability to overcome this co-ordination problem is up to the internal dynamics of the region (Markussen 1996, W.Jacobs 2009, W.Jacobs & Hall 2007). While existing literature on how networks emerge is restricted, there have been some insights on how strategic coupling or matching between two players takes place. Ahuja (2000), states that the formation of strategic alliances depends on the interplay between inducements and opportunities of the firms evolved. Gulatti (1998) defines strategic alliances as voluntary arrangements between firms involving exchange, sharing, or co-development of products, technologies, or services. They can occur as a result of a wide range of motives and goals, take a variety of forms, and occur across vertical and horizontal boundaries.While firms with superior capabilities make attractive partners, less developed players provide fewer incentives to form relations with since they have less to offer to the collaboration. According to Stuart (1998), the more developed players are expected to have a central position in networks, provided that they are willing to collaborate with less prestigious agents. A pre-condition for communication and knowledge exchange between players is that the cognitive or technological proximity should not be too great (Noteboom 2000). The absorptive capacity (Lane & Lubatkin 1998) between related firms that determines the extent to which firms can benefit and learn from each other and the probability of formatting a link and connection. A firms capabilities are crucial for the formation of networks. An issue with great importance for our research is the existence and importance of social networks. Social connections tend to cluster at close spatial and cognitive proximity since people do not interact at random but rather with others living in close geographical proximity and share the same interests and backgrounds and based on empirical studies the likelihood of building a tie is decreased with distance (Sorenson (2003), Boshma& ter Wal (2007). However, the disclosure of social networks in the boundaries of a cluster should not be absolute, taking into account the a-spatial nature of networks. In our research it is examined the Greek maritime network that with its unique features expands the benefits and features of a social network across the boundaries of a cluster and a state. Part of the maritime network of Piraeus-London can be characterized as ethnically homogenous network since at both ends we can find Greeks with strong connections with the other node. Ethnic identity can serve as a basis upon which members built trustful relations (Landa 1981). The competitive advantage that can be derived from an ethnically homogenous business network, where the organization solution to business problems is important in creating and sustaining positive externalities (for example internal non-contracted solution of disputes) form the bases of the networks competitive advantage. Such networks are in most occasions governed by informal institutions (North 1991, Grammenos & Choi 1999) and are usually found at trade and shipping industries. This approach is more aligned with this study since the interests of ethnically homogenous networks spread over national boundaries and can sometimes collide with the interests of nation-states so we move away from the concept of national competitiveness that characterizes the Porters Diamond (view Appendix 2) and the disclosure of social networks to the boundaries of a cluster. Moreover, while competition within the network can be intense-as we have seen internal rivalry is an important element of the Porters Diamond-the network as a whole can enjoy various positive externalities like reputation, lower transaction costs and relational marketing based on trust. This kind of networks are often self-organized, its own set of rules that dictate the behavior and interaction among its members (Grammenos & Choi 1999).To conclude, the competitiveness of clusters and cities is determined by agglomeration of expertise and business and by the ability to insert into global flows of people, inputs, capital and knowledge (W.Jacobs 2009). Competitiveness should be considered a networked phenomenon according to Beaverstock et al 2002, who also highlights the importance of connectivity with other agglomerations. The more connections with other centers of expertise and capital the more competitive the cluster or city is. The prime vehicles through which these connections are built are firms through their office locations, investment decisions and supply chains. In existing literature, there are two schools that analyze these insights using two different but complementary perspectives, the World Cities and the Global Production Networks (W.Jacobs 2009), which will be analyzed separately at a different section of the research paper.

2.2.1 Types and role of proximity in clusters and networksExisting literature of economic geography emphasized at the advantages firms obtain by been co-located. Moreover, it is also pointed out that other types of proximities, except spatial proximity, have a key role to the understanding of the mechanisms of how interactive learning and innovation takes place (Bunnel&Coe 2001, Boshma 2005). Proximity has both geographic and non-geographic dimensions and the multiple dimensions of the concept indicate that there is not an optimal level of proximity for the promotion of interactive learning and competitiveness (W. Jacobs 2008). The other types of proximity, namely the cognitive, organizational, social and institutional are sustained and enhanced by geographical proximity. What unifies these different dimensions of proximity is that they reduce uncertainty, resolve issues of co-ordination and facilitate interactive learning and innovation that enables firms to acquire new competencies (Boshma 2005). In this research paper the effects of each dimension will be analyzed and will assess their features separately, the relation of each dimension with the others and what is the importance and impact of each dimension to clusters and networks. Maritime industry with its unique features, like its international character, the capital intensity, the vast number of players with different background and characteristics involved, different regulations involved and the complicate networks that it includes provides us with an appropriate field to study the role and importance of all the dimensions of proximity.2.2.2 Cognitive proximityIn order of knowledge transfer and interactive learning to take place there must be a combination of diverse, complementary capabilities of heterogeneous actors both at inter but also at intra firm level (Nootebbom 2000). In order to bring them together it is crucial players to have a sufficient level of absorptive capacity that enables the effective transfer, identification, interpretation and exploitation of new knowledge (Cohen&Levinthal 2000). When agents are present to a market and deal with certain issues and technologies for a period of time they acquire certain competencies. The research of Perez&Soete 1988 points a negative relation between the current knowledge level of a firm and the cost and effort firms should assert in order to obtain the required knowledge for a new technology. They claim the existence of a minimum level of knowledge that firms must have in order to bridge the knowledge gap or in other words the cognitive distance should not be that large. The requirement of cognitive proximity is due to the (in) capacity to absorb new knowledge and skills. When firms share the same knowledge base the interactive learning is feasible and a sufficient level of cognitive proximity is a facilitating factor of effective communication between players. Cognitive proximity refers to a shared knowledge base among actors and the capacity of these actors to absorb new knowledge by learning from each other (Boshma 2005). However, too much cognitive proximity can create problems to the process of interactive learning. Diversified but complementary bodies of knowledge are required to the creation of new knowledge because too much cognitive proximity leads to lack of creativity and novel perspectives. Moreover, too much proximity can also lead to cognitive lock-in by creating intra-firm routines that restrict the absorbent of new knowledge and diminishes the potential for growth. Finally, cognitive proximity increases the possibility of involuntary spillovers to competitors without receiving royalty fees or compensation. On the other hand, too little cognitive proximity creates problems of communication between players since new knowledge and technologies cannot be understood and absorbed (Boshma 2005). As mentioned, cognitive proximity is a prerequisite for the creation of relations of mutually beneficial knowledge exchange that is facilitated by the existence of spatial proximity which supports the interactions required for interactional learning to take place. Geographic proximity strengthens the effects of cognitive proximity and that is as far as its effects go. Organizational proximity has stronger connections with cognitive proximity. The separation of these forms occurred for analytical reasons. Organizational arrangements like clusters, networks are vehicles that facilitate the transfer of knowledge and information and organizational proximity is defined as the extent to which relations are shared in these arrangements . Organizational proximity involves the rate of autonomy and the degree of control in these arrangements, (Boshma 2005) issues that in order to be resolved a sufficient level of cognitive proximity needs to be established in order to facilitate the communication of players involved. Social and institutional proximity are facilitative factors for cognitive proximity since they make the communication between the parts involved easier using informal canals of communication, facilitate the built of bonds of trust by forcing them to discipline at commonly accepted norms and rules (non-contractual mechanisms that reduce opportunistic acts) that in turn reduce transaction costs. However, the effects of social and institutional proximity are reduced or even cannot hold without a sufficient level of cognitive proximity which will create the base of communication on which the exchange of information and knowledge will take place. It becomes clear, that in order effective learning to take place we must maintain a certain level of cognitive distance while securing cognitive proximity, an optimum that we can encounter at the boundaries of a geographical cluster. Regarding the horizontal relations inside a cluster we a combination between the variation (cognitive distance) of activities and agents with similar activities and capabilities (close proximity). Vertical relations can be promoted by increased specialization of activities that diverges the knowledge bases of firms promoting interactive learning even though there is a threshold after which cognitive distance is too large for knowledge exchange to take place (Boshma 2005). For clusters, at least a certain level of cognitive proximity is required for communication and learning to take place. For networks however, the importance of cognitive proximity is far greater due to the a-spatial nature of networks. Distant players in order to contact and be able to communicate sufficiently they must share a certain level of competencies, skills and knowledge that will guarantee that the formation of a relation will be beneficial for both parts as well it will ensure the sustainability of the bond. Of course, there is a possibility of a formation of a network bond just for the two parts to take advantage of the local knowledge and expertise of the other one, without sharing a certain level of competencies. At this case however, which familiarize more to a strategic alliance rather than a network formation, we expect to encounter serious communication and co-ordination problems that will put the success of the network to a test. At maritime networks like those that are examined in our research paper, it can be said that the cognitive proximity between players does not vary significantly even when located at different spatial agglomerations since at maritime industry most agents discipline at the same rules, use more or less commonly accepted laws and contracts so there is a certain level of cognitive proximity that facilitates the interaction between various players. 2.2.3 Organizational proximityFor knowledge creation and interactive learning to take place there is a need for a capacity that will co-ordinate the exchange of complementary pieces of knowledge steaming from various players. The various forms of governance (market, network) differ, among other things, to the degree of autonomy between exchange partners and the extent to which control over knowledge flows is exerted (Boshma 2005). Organizational proximity refers to the way in which control is exercised between actors through command or contractual means (W.Jacobs & Hall forthcoming). The two extremes of organizational proximity are spot-market transactions which entail no organizational ties (too little organizational proximity) and rigid organizational hierarchy (too much) on the other (Boshma 2005). Between the extremes there is a variety of network-type relations that entail different levels of organizational proximity.The creation of new knowledge goes hand in hand with uncertainty and opportunism as to who will appropriate the full benefits that streams from it. Strong mechanisms of control and monitoring are required in order to ensure sufficient and right ownership rewards as well as to reduce the phenomena of opportunism and free-riding. Markets are not the best organizational form because they involve high transaction costs. Hierarchy would be more appropriate form due to the tight relationships that forms between organizational units and the solution it offers to the transfer of tacit knowledge by offering the potential for productive feedback (Boshma 2005). However, too much organizational proximity can be an obstacle to the processes of interactive learning and knowledge exchange. When agents with different competencies and firm characteristics form a very close organizational structure, the high dependency on relation-specific investments on communication and understanding, the risk of hold-up and locked-in in specific exchange relations and finally the limitation of receiving new information and knowledge from external channels due to the strong ties inside the organizational structure can create unfavorable situations. Moreover, inside an organizational structure, innovative actions and ideas are not rewarded and agents do not have a motivation to undertake such actions due to the lack of feedback (mechanism that is more common to symmetrical relations) and inflexible decision making structures (Boshma 2005). On the other hand, too little organizational proximity can lead to lack of control and consequently to opportunistic behaviors from the parts involved, hold-ups in the diffusion of new information, unclear responsibilities and finally to hold-up problems (Nooteboom 2004, Boshma 2005). A sufficient level of organizational proximity can result to the achievement of a sufficient level of cognitive proximity, either through organizational arrangements or through the construction of trust-based inter-firm networks. As mentioned before, the cognitive and organizational dimensions of proximity can be treated as complements. The relation between organizational proximity and social / institutional dimensions is not that strong. It can be said that the set of informal rules and norms that dictate the behavior of the parts involved and can be found in cases of close social/ institutional proximity are more like informal mechanisms of the market while close organizational proximity provides stronger, formal control and monitoring mechanisms through hierarchically structured forms of organization that are considered a more effective solution to complex issues like the transfer of tacit knowledge and knowledge creation. Finally, the spatial dimension of proximity when combined with close organizational proximity can create problems of monopolization, lock-in effects and inability to obtain new knowledge from external sources since the prime channel information and knowledge creation will be centrally coordinated by the mother-company that will deteriorate firms to seek for new knowledge and other local interactions from their surroundings but rather from their main headquarters (Boshma 2005, De Langen&Pallis 2006, W.Jacobs & Hall forthcoming ).The relation between organizational dimension of proximity and clusters was partly analyzed previously when explaining the relation with spatial proximity. In general, a sufficient level of organizational proximity is required that will provide strong mechanisms of control that will ensure that players will not be involved in opportunistic actions but also organizational proximity should not reach the level where players will be locked-in and do not seek for information or undertake actions that promote local interactions within the boundaries of the cluster. For networks, the level of organizational proximity that ensures the flexibility of agents that constitute it, is the optimum solution. Loose coupling networks within organizations can allow flexibility but also provide coordination and control to the extent that the capacity to access and exchange knowledge is not undermined. New knowledge can be then integrated to the network and routinized which is the final step to the exploitation of new bodies of knowledge (Lawson&Lorenz 1999). The loose character of networks allows a certain degree of organizational distance that provides them with the ability to retain a great number of mutations and novel solutions to uprising problems (Grabher&Stark 1997). 2.2.4 Social proximityEconomic relations are to some extent embedded in a social content and in turn social ties affect economic outcomes. Moreover, the more social embedded are the relations of a firm, the more easily the interactive learning takes place (Granovetter 1985). Social proximity refers to the extent of trust in the relationship between actors (Boshma 2005). The built of trust is based on friendship, kinship and experience. The capacity of players to learn requires a level of social proximity since the relationships based on trust facilitate the exchange of tacit knowledge (Maskell& Malberg 1999). These social relations make players to act and think not only based on the strict rules of the market but based on the bonds of trust kinship. However, too much social proximity can be harmful when relationships are based on emotional bonds of friendship. At todays world where opportunism prevails and most players behave according well calculated acts, actions that do not take into account personal benefit and good, an overload of trust according to Boshma 2005, but they are rather based on principles can be considered a retrogression. Except that, long-term relationships may lock members to obsolete ways of learning or doing business. Social networks have very effective mechanisms of excluding outsiders which while effective at some initial stage they can later lead to lock-in effects by not allowing new ideas and knowledge to enter. Moreover, according to W.Jacobs & Hall (forthcoming) too much social proximity can lead to protectionism, political favourism, rent-seeking and even to corruption. However, too little cognitive proximity can be also harmful because it reduces interactive learning due to the lack of trust and commitment among the collaborative members. When trust in transactions is absent, contractual enforcement mechanisms are essential to protect from opportunistic acts which increases transaction costs. The level of uncertainty rises substantially the possibility of conflicts and does not allow collaboration to advance to high levels.Social proximity can be a facilitating factor that decreases the cognitive distance among collaborative parts by providing an initial base of communication on which agents will build on their (business) relationship. Relations of friendship and kinship are based on a common background that requires the existence of a common ground for communication and understanding between players. Organizational proximity however can go along with an absence of social proximity since we consider these two dimensions of proximity are contradicting and substitutes. More analytically, hierarchical structures found when parts are in close organizational proximity are not based on trust (as in the case of social proximity) but on objective and economic criteria. While, using different mechanisms of establishing relationships they are both characterized by strong ties between collaborating parts (Boshma 2005). Finally, as it has been mentioned before in this research paper, the role of geographical proximity in stimulating social proximity is crucial since social ties require spatial proximity to be formed. For the interaction and the built of relations of trust constant and frequent contact is required which in turn is facilitated by the location of players at close geographical proximity.The importance of social proximity for clusters has been mentioned already and in briefly are the importance of the formation of strong ties of trust among the members that provide non-contractual mechanisms of enforcement, less need for monitoring the activities of others, diminishing of transaction costs that can give a competitive advantage to the cluster that has strong internal social networks. Regarding now the importance of social proximity to networks our study embraces the view of Uzzi (1997) that suggests that the optimum for the development of a network is a mixture of market or arms length ties and embedded relations. For the adaptive capacity of networks to increase, a combination of close social ties that will provide lower transaction costs and facilitation of interactive learning and interaction in general with other local players and more impersonal market relations, based on official contacts, that will help firms to avoid lock-in, keep them alert and flexible. To conclude, social proximity in a cluster or a network can provide a competitive advantage steaming from reduced transaction costs that is very crucial for their survival and growth.

2.2.5 Institutional proximityInstitutions can be defined as sets of common rules, habits, routines and laws that regulate the relations and interactions between individuals and groups (Edquist&Johnson 1997). Institutions act connective glue for collective action because it reduces uncertainty and transaction costs. Both formal (rules and laws) and informal (norms) institutions influence the extent players coordinate their actions. By nature, they have strong excludable mechanisms that affect the way and level of interactive level and exchange of knowledge. The concept of institutional proximity includes both the idea of agents sharing the same institutional rules as well as a set of cultural habits and values (Zukin&Dimaggio 1990). Cultural proximity is considered a part of organizational proximity and more precisely as part of the informal institutions due to its macro-level origins. A common language, ethnicity, religion affect the behavior and acts of agents and provide a basis for collective actions that share these values and consequently affect and support interactive learning and coordination (Maskell& Malberg 1999, Boshma 2005). These advantages can be enjoyed by players that are embedded at a common history of interaction and understanding of the same rules of the game. Institutional proximity can be defined as the rules, norms, conventions and regulations that govern relationships between agents (Boshma 2005, W.Jacobs & Hall-forthcoming). The mutual interdependence of the various parts of an institutional system may cause local inertia, since every element inside the institutional system has a specific role in the structure and a possible change can lead to instability of structure. So either no change takes place or only localized changes that do not disturb the order of the structure occur.An instructional system with its excludable mechanisms may lead to situations of lock-in by not allowing new players with new ideas to enter. Moreover, there is also the possibility of institutional inertia, by preventing the development of new innovations that require the reconstructing of old institutional structures or even to the adaption of new ones(Freeman&Perez 1988, Boshma 2005). Too much institutional proximity may lead to lock-in effects where players lose their capacity to receive new ideas and knowledge due to lock-in effects and inertia of the institutional system. On the other hand, too little institutional proximity can be an obstacle for interactive learning and collective actions due to a lack of social cohesion and share of common values and principles. A lack of understanding of the institutional rules by external or distant players can make forbidding the access of trans-national firms to enter and interact with local agents that in turn will prevent the diffusion of universal operational standards and best practices (Gertler 2001). In general the complexity of an institutional structure can be treated as a barrier for external interactions but can also be used by principals to their benefit by interpreting it according to their purposes. In general, there must be a balance between close institutional proximity that increases the institutional stability and reduces opportunistic actions and uncertainty and institutional distance that increases the openness to external sources of knowledge and flexibility of the institutional structure.Before analyzing the relation between institutional proximity with the other dimensions of proximity the distinction between informal and formal institutions should be made. Institutional structures provide a basis on which some forms of organizational arrangements function and develop better than other forms. When strong and formal institutions are absent or not well developed and cannot deal with issues of enforcement (contractual) and uncertainty and opportunism prevails then players tend to rely more on informal or trust-based relationships (Knack& Keefer 1997). So social proximity can act at a complementary basis where institutional environment is missing or it is under-developed. It should be mentioned however, that players may also prefer to act based on informal rules (social ties etc) to reduce transaction costs (by reducing the use of contractual enforcement) that can give them a competitive advantage. Institutional proximity can be considered as a facilitating factor of organizational arrangements by providing a basis on which these arrangements can develop. In order to find the relations of institutional and spatial proximity the distinction between formal and informal institution forms will be used. Shared informal institutions are often more geographically localized while the effect and impact of shared formal institutions is more likely to operate beyond the restricted limits of an agglomeration or state. For informal institutions (more associated with cultural proximity) spatial proximity is essential because as we have mentioned before the importance of frequent constant interaction for the development and close monitoring of informal rules and norms is required. This research however, will refer to the special features of Greek maritime network that is governed to a large extent by strong informal institutional structures that go beyond the borders of the state. The relation of institutional proximity and clusters can be examined from the same perspective of formal and informal institutions. For networks however the case is different. The institutional status and proximity can define the openness of agents to external sources of knowledge and information. Too much institutional proximity reduces the flexibility of networks by restricting the access to new members inside the network and the new solutions and perspectives they have to offer. That is the case of inward looking networks that react to change and threats at a very conservative and routinized way by searching for solutions internally and are not attuned to the external environment or other players for answers or solutions (Herrigel 1993). At cases like that, institutional proximity acts like a barrier to the formation of network relations. Institutional regulations must be simple and understandable in order to attract foreign or distant agents. Regulations can be complex for reasons of protectionism and favoritism of local firms, which while they can be beneficial to some initial stage, they can lead to lock-in effects at later phases with serious consequences for their evolution. 2.2.6 Geographical proximityWith the term geographical proximity we refer to the spatial distance between economic agents in both an absolute but also a relative meaning. Close spatial proximity facilitates the exchange of tacit knowledge, brings people together by facilitating face-face contact and promotes information sharing and interactive learning. When the distance between players rise the intensity and frequency of the previous positive externalities is reduced. The question is whether the geographic dimension of proximity can be examined separately from the influence of the other dimensions. When agents are co-located they can indeed learn from each other and interact only if the mechanisms of isolation and exclusion of agglomerations are not active or else if a status of open membership is provided. Agents can learn from each other by just observing and imitating the successful actions of others. However, even at this case a minimum level of cognitive proximity is required in order for the knowledge created to be absorbed. It becomes clear that the examination of spatial proximity should be done in relation with the other dimensions. Spatial proximity as mentioned is not a prerequisite for interactive learning but rather a facilitating factor. The advance of communication technology and the extensive use of network relations limit the importance of spatial proximity. Even when the benefits of face-face interaction are emphasized, which is essential for the transfer of tacit bodies of knowledge, we can still state that co-location is not the only way to enjoy its benefits. Frequent contacts through meetings, journeys and conferences fulfill the need for physical co-presence by bringing people together to exchange opinions and learn from each other without the need to be co-located (Boshma 2005).The relation of spatial proximity with the other dimensions of proximity will be discussed briefly. Strong organizational proximity can act as substitute for spatial proximity. When the process of learning or the transfer or knowledge is undertaken by a strong central organizational authority (for example the headquarters of a multi-national organization) and the other parts share the same knowledge background (the local branches) then the need for spatial proximity is reduced. Social proximity can also substitute spatial proximity. Breshi&Lissoni 2001, state that it is the social connectedness between inventors and not spatial proximity that play important role in knowledge spillovers. The creation of social networks that are based on common background, ethnicity and scientific field provide the main channels of knowledge exchange and produce most knowledge. These bodies of knowledge are protected by the exclusion mechanisms of the epistemic communities that share their knowledge regardless of the location or distance between them. The creation of restricted clubs of scientific communities allow the transfer of tacit knowledge at distant locations is reducing but not minimizing the importance of geographical proximity. An example with great relevance with our research is presented by Breshi&Lissoni 2002, where they illustrate the difficulty that foreign multinational organizations face when they try to access the knowledge base of a region by setting up a new local establishment. The tight networks of personal relations that local players have built to exchange knowledge explain why multinational organizations usually fail. One way to overcome this problem is by hiring local experts with strong connections with the network. Spatial proximity can also act complementary to other dimensions by strengthening their effects. Spatial proximity can facilitate the informal relations, by providing more opportunities for face-face interactions that assist to the built of trust and personal relations between players (Harrison 1992, Boshma 2005). Additionally, it can stimulate the formation and evolution of informal institutions like norms that play significant role to the processes of interactive learning and knowledge exchange (Boshma 2005).However it must be mentioned that too much geographical proximity can create problems to the learning processes by reducing the level of openness of agents to external sources of knowledge that can create lock-in effects. A solution to that problem can be the formation of external relations with other agents by investing in network relations and at geographical openness. Networks are a-spatial by nature and prime vehicles of knowledge spillovers but should not be treated as panacea for the problem of lock-in since tacit knowledge, in order to be transferred, it requires also other forms of proximity (cognitive, institutional) (Boshma 2005).

At the Table 1 below the five dimensions of proximity are provided in conclusive with some features.

Key dimensionToo little proximityToo much proximityPossible solutions

a) Cognitiveknowledge gapMisunderstanding Lack of external sources of infoCommon knowledge base with diverse

but complementary activities

b)OrganizationalControlOpportunismBureaucracyLoosely coupled system

c) SocialTrust and loyaltyOpportunismNo economic rationaleUse of both embedded and market

relations

d)InstitutionalTrust and loyaltyOpportunismLock-in effectsInstitutional balances and safeties

e) GeographicalDistanceNo spatial externalitiesLack of geographical opennessuse of local 'buzz' and external linkages

Source: Boshma R. (2005)Having analyzed the concept of clusters and networks, investigated the dimensions of proximity and by taking into account the special characteristics of Greek maritime network, we state that:Hypothesis 1: Maritime companies base their choice of APS providers on qualitative- cognitive criteria and spatial proximity with them does not play significant role in their decision.

2.3 World CitiesDuring the 1990s, economic geography researchers focused their efforts on the nature and processes evolved on the economic-geographical globalization and how global production networks formulate and function. Most of their attention was on the understanding and investigation of the processes of the wave of deregulation of national markets and industrial restructuring that led at the late 1970s to a new spatial division of labor and capital. (Gerrefi et.al. 2005, Henderson et al 2002, Coe et al 2004). At the same time, other researchers dealt with the formation and emerge of world cities and investigated how urban systems are linked worldwide through corporate networks of advanced producer services that control flows of capital and information. (Jacobs et.al. 2009)Both groups of researchers provide a different but complementary way of analysis of the globalization of the economy and the redistribution of capital, labor and information. Inter-city connections can be studied along different flows, human, commodity/capital and information according to Timberlake&Smith 1995, Derruder&Taylor 2005. A problem rising is that while we have information about the nodes we do not have information about the links between the nodes. (Beaverstock, Smith, Taylor) By emphasizing the focus on network aspects and not just the nodes, the importance of node attributes as explanations of trade patterns, service networks and spatially distributed production networks is highlighted. According to the work of Karlsson et al 2007, links that connect nodes are the conduits for flows in networks and that the direction of a flow is always from a source to sink, depending on the perspective we examine the relation of the network. Moreover, it is mentioned that the concepts of source-sink should be treated as a starting point for examining the transmission of knowledge and information among firms, individuals and over space (Karlsson et al 2007). Another important aspect of the links in an economic network is that they should be treated as immobile capital goods where sizeable sunk costs are involved. Such connections between cities or agents impose inertia and rigidity on their interaction patterns that will not change unless the new link is superior and offers cost advantages (Karlsson et al 2007). Another issue at the network theory is the location advantage of a region, which is only possible to be evaluated by comparing different characteristics of regions. In order for a location advantage to last it must be immobile and change slowly. At established networks where interaction is frequent the mobility of production factors and information is greater compared to interactions with players outside the network.The globalization of economy had as distinctive characteristic the rise of global financial markets and the articulation and integration of these financial markets attracted the attention of researchers that evolved the concept of World City even further. However the first research attempts to that direction like Friedmanns 1986, neglected the relation between financial centers but focused only on the value of financial services to the importance of a World City hierarchically.Further research treated financial services as an unfolding of the world city concept (Karlsson et al 2007). Sassen 1991, Knox&Taylor 1995, Beaverstock et al 2000, identified that the production of other advanced producer services like Law, Insurance, accountancy creates complexes of knowledge and these localized complexes that serve the world capital lead to the concentration of functions that we refer as World Cities. World city concept uses the network theory as the key idea to examine the intra-firm links between advanced producer services between different locations but does not take into account the possible relations between APS firms and other players and it also ignores the institutional and historical factors that affect the interactions among agents and the formation of the network (Jacobs et al 2009). The GPN approach, another concept that it will be referred later on, emphasizes more to the relational character of the networks (Dicken et al 2001) and identifies the different players in networks, the social relations and power configurations as well as the structural outcomes of these interactions (Jacobs et al 2007).However, the recent approach of Beaverstock et al 2002 that understands the formation of a world city as the outcome of the interaction between two communities, that is territorial and functional-economic is a step towards the alignment of the concepts of WCN and WPN. This approach recognizes the role and influence of sector-specific institutions, complex government arrangements and state-enforced rules (taxation, legislation) to the creation of connections between cities and locations. This approach aligns the two approaches by including more actors and institutional and sector specific features. This research identified that cities are both embedded within networks (international APS) and within territorial governance arrangements. (Jacobs et al 2009)2.4 Global production networksThe concept of Global production networks focuses on how power and value are created, captured and distributed between producers and suppliers that link distant local clusters of production with each other (Jacobs et al 2009). From the above description of the concept of GPN it is clear that the network concept is crucial for the understanding of the geographical complexity of the global economy. The network theory explains the fundamental structural and relational nature of how production and consumption of goods and services was always organized, a generic form of economic organization even today where transactions became more complex. Another characteristic of networks is that they are dynamic; both organizationally, geographically are variable and evolved. (Coe et al 2008). Hardly any network remains unchanged for long and the reasons for their transformation can be either internal or external but under no circumstances these changes are linear flows but rather complex alternations ( Hudson 2004).The Global production network theory provides a heuristic framework that is time and space sensitive and that enables us to integrate to the concept the complex actions and interactions of various agents and institutions and to take into account the social, cultural and organizational phenomena (Coe et al 2008), that affect greatly the behavior of the agents and consequently the character of the network. An important statement of GPN theory is that it considers every element inside the network as grounded to a specific location. These elements can be both tangible (assets) but also less tangible like the organizational practices, culture, social relationships. The form and nature of GPN in that sense is influenced by these socio-political, cultural issues of the location they are produced (Coe et al 2008). The relations between firms and locations are complex (Dicken&Malmberg 2001), which align to the statement of Coe et al 2008 that as the geographical and extensiveness and complexity of GPN increases, the nature of embeddedness becomes more complex. The interest of the GPN concept is on the territorial embeddedness of the social networks involved in global commodities. GPN emphasizes more on the relational character of networks (Jacobs et al 2009). To summarize the concepts of GCC and GPN the differences between the two theories will be identified. The GPN tries to take into consideration all relevant sets of agents and the possible relations between them, both inter and intra-firm relations, opposite to GCC that only examines the inter-firm relations between two or more different locations. Except that GPN examines various types of relations and social network formations, issues that are not referred to the GCC approach (Jacobs et al 2009). Moreover, as mentioned before GPN examines more complex issues than the restricted linear structures of GCC. Focusing only on linear dimension is a problem (Henderson et al 2002) because we ignore non-linear, horizontal relations. The element of verticality in the structure of nodes and links at a production network should not be ignored as these ties are embedded in the production chain. The concept of net-chain analysis which is a set of networks comprised of horizontal ties between firms within a particular industry which are sequentially arranged by vertical ties between firms in different layers (Lazzarini et al 2000), gives a picture of the multidimensional character of networks. Another difference between the two theories is their methodological approach. While GCC draws on the locational patterns of worlds APS producers, the GPN suffers from an undeveloped methodological approach and is a heuristic approach (Dicken 2004). That is why GPN is considered a qualitative approach that uses interviews as a way to gather information. This characteristic however, enables GPN approach to provide us with deeper understanding of the underlying historical, social and institutional conditions that influence the formation and evolution of networks. On the other hand, GCC since in it based on databases it can provide us with the big picture with the drawback however of the lack of depth in its analysis (Jacobs et al 2009).Another argument of the GPN approach is that the successful regional economic development is largely dependent on strategic coupling (Coe et al 2004) which refers to the capacity of local actors to match critical regional assets with extra-local actors involved in global flows(Coe et al 2008). By providing specialized APS locally the alignment of regional economies with global commodity flows and players is facilitated. To elaborate this argument more, it is the variety of agents, the variety of sectors and clusters within a certain space that lead to positive externalities (exchange of knowledge and information, reduced transaction costs) (Jacobs et al 2009).After the analysis of the theories of GPN and GCC it is likely that someone will perceive these theories as competitive. However, these two different schools should be treated as complements and should be examined together and even try to integrate them. Only few research has been done to the direction of investigating to what extent APS interact with other activities and firms in GCC and GPN. APS is important to every production network and a vital element for its prosperity and growth. The integration of the two theories could increase the accuracy of the examination of the interconnected functions, operations and transactions through which a specific product or service is produced, distributed and consumed. In order to integrate the two theories it is essential to accept the horizontal non-linear relations that exist at certain place and stage with the production chain (Coe et al 2008). GPN can include both linkages between suppliers-producers and APS-APS providers. However, this approach demands that we include both material flows and a sector-specific focus to the analysis of APS (Jacobs et al 2009). Jacobs et al 2009 provide a framework to integrate the approaches of WCN and GPN using the concept of port-cities as a mean and link through which the two concepts align. At their work they consider ports as a location where APS services and GCC come together. Ports are important transport nodes in global value chains and many Global Commodity Chains move through seaports. Ports in order to survive the fierce competition with other locations have developed into a geographical concentration of highly specialized, added-value activities, with demand for specialized labor (Fujita&Mori 1995, De Langen 2003). Using a phrase of Humphrey& Schmitz 2002, ports can be considered as export-oriented clusters that are inserted into global value chains. Finally among the weaknesses of the WCN concept is that it does not take into account the sector specificity of APS providers. By restricting the scope of our research to port-cities this problem can be by-passed since now only the maritime-related APS providers are investigated. The APS producers specialized to maritime activities was introduced by Jacobs et al 2009 and we are going to base our research to that approach. Using the framework of World port city introduced by Jacobs et al 2007 and a sector-specific analysis for maritime-specialized APS (law firms, brokers, P&I Clubs) this research will try to examine the relation and connections at the maritime network of APS providers of London- Piraeus, as well as the vertical connections at these locations between APS providers and maritime companies.

2. 5 World port citiesAt this case study the relation between APS providers at two different locations using the framework of port cities as first described by Jacobs et al 2009 is examined. It can be expected that within port-city location the creation of non-linear relations between agents will occur at greater frequency both between APS producers but also the vertical connections between APS producers and their cliental base, the maritime companies. Another advantage of the port-city location is that it enable us to examine whether the existence of APS producers at close proximity to a port can lead to an increase on the commodities transferred or vice versa. Moreover, this research will try to investigate the relation between port-based APS providers and the urban web.The role of ports at the creation and evolution of cities was studied by Fujita&Mori 1995. At their model they explain how port cities continued to prosper even after the port related activities ceased to be important. More specifically they examine cities that while their growth was initiated by advantages related to good water access they continue to prosper even after these activities became insignificant. Their work was based on the neoclassical trade theory of Mills 1972 and Schweizer&Varaiya 1976, 1977 that used the concept of competitive advantage as an explanation for the rise and initial growth of port cities and the lock-in effect of some self-reinforcing agglomeration forces for their continued prosperity (Fujita&Mori 1995). At their work they also highlight the advantage of transport access of port-cities compared to non-port cities but also the important role of historical accidents that may explain why some non-port cities still dominate the economy (London). The later is explained by the self-reinforcing agglomeration economies that their presence generates lock-in effects to a specific location for existing agents and a pole of attraction for new players. Moreover this pole of attraction explains the continued prosperity of port-cities that lost the initial advantage of water access by other locations (London). For Ducruet&Lee 2006 the evolution of port-city seems to be gradual rather that linear or chaotic and in some cases it is influenced by regional factors and local strategies. At their research they examine how port function is more or less important for local economies and they attempt to measure the degree to which port cit