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Global cities and multinational enterprise location strategy

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Abstract

We combine the concept of location derived by economic geographers with theories of the multinational enterprise (MNE) and the liability of foreignness developed by international business scholars, to examine the factors that propel MNEs toward, or away from, “global cities”. We argue that three distinctive characteristics of global cities – global interconnectedness, cosmopolitanism, and abundance of advanced producer services – help MNEs overcome the costs of doing business abroad, and we identify the contingencies under which these characteristics combine with firm attributes to exert their strongest influence. Consistent with these arguments, our analysis of a large sample of MNE location decisions using a multilevel multinomial model suggests not only that MNEs have a strong propensity to locate within global cities, but also that these choices are associated with a nuanced interplay of firm- and subsidiary-level factors, including investment motives, proprietary capabilities, and business strategy. Our study provides important insights for international business scholars by shedding new light on MNE location choices and also contributes to our understanding of economic geography by examining the heterogeneous strategies and capabilities of MNEs – the primary agents of economic globalization – that shape the nature of global cities.

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Notes

  1. We found that most studies in this literature stream cite Marshall (1920), who centers on specialized producer communities that diffuse the “secrets” of industry, but do not mention Jacobs (1969, 1984, 2000), who describes a cosmopolitan and haphazard city life.

  2. While we do not apply the demographic tradition in this paper, we distinguish between megacities and global cities in the empirical section.

  3. This can be considered a special case of the more general notion of co-evolution between MNEs and their environments (e.g., Cantwell, Dunning, & Lundan, 2009).

  4. For example, Boeh and Beamish (2012) demonstrate that travel time between headquarters and subsidiary is a more powerful predictor of firm governance and location choices than is geographic distance.

  5. For more information, visit http://www.aeanet.org/Publications/IDMK_definition.asp

  6. Note that the investment motives are not mutually exclusive; this enables us to include all dummies without falling into the “dummy variable trap”.

  7. These cities, which are included for comparison purposes, are Guangzhou, Lagos, Calcutta, Dhaka, Karachi, Delhi, Mumbai, Cairo, Tehran, and Rio de Janeiro. All of these have more than 10 million inhabitants, yet they are not classified as global cities in the Beaverstock et al. (1999) list.

  8. Specifically, we compared the Beaverstock et al. (1999) list with a 2010 version of the same list, a 2008 list from MasterCard, a 2011 list from the Mori foundation, and a 2012 list from AT Kearney. Out of the top 30 cities in the 1999 list, five did not show up in the top 30 of any of the more recent lists (i.e., Caracas, Dusseldorf, Johannesburg, Prague, and Santiago). However, all of these five cities did appear below the top 30 in more recent lists, suggesting that they did not cease to be global cities, but perhaps merely have been relegated by other emerging cities to a lower position in the hierarchy. Similarly, relative to the 1999 top 30, there was only one new “new” city that appeared consistently in the more recent lists – that is, Shanghai – which advanced from the 42nd place to the 7th place in the GaWC hierarchy, following the development of the Chinese economy (Guthrie, 2009). Although not yet in the top tier, change of a similar magnitude could be observed for Vienna, which did not appear at all on the 1999 list but was at 38th place in the 2010 GaWC list, most likely reflecting the Austrian capital's development over the previous decade to become a regional hub by virtue of a de facto position as bridgehead between eastern and western Europe (Musil, 2009).

  9. The term “Matthew effect” was coined by Merton (1968), based on the biblical Gospel of Matthew: “For whoever has will be given more, and they will have an abundance. Whoever does not have, even what they have will be taken from them” (Matthew 25:29, New International Version).

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Acknowledgements

Our thanks go to the seminar participants at Queen's University, the University of Leeds, Tilburg University, and the University of Leuven for guidance and support on earlier drafts of this paper, and to Claus Vistesen and Zijun Zhang for excellent research assistance. We also acknowledge Mark Lorenzen, Steve Tallman, and the participants at the JIBS Special Issue Conference at Temple University, who provided valuable input, as well as the three anonymous JIBS reviewers. Finally, we are grateful to Guest Editors Ram Mudambi and Sjoerd Beugelsdijk for their guidance during the review process, and for organizing this Special Issue. All remaining errors and omissions are our own.

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Authors and Affiliations

  1. Queen's School of Business, Queen's University, Kingston, ON, Canada

    Anthony Goerzen

  2. Department of Strategic Management and Globalization, Copenhagen Business School, Copenhagen, Denmark

    Christian Geisler Asmussen & Bo Bernhard Nielsen

  3. University of Technology, Sydney, Australia

    Bo Bernhard Nielsen

Authors
  1. Anthony Goerzen
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  2. Christian Geisler Asmussen
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  3. Bo Bernhard Nielsen
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Corresponding author

Correspondence to Anthony Goerzen.

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Accepted by Ram Mudambi and Sjoerd Beugelsdijk, Guest Editors, February 2013. This paper has been with the authors for three revisions.

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Goerzen, A., Asmussen, C. & Nielsen, B. Global cities and multinational enterprise location strategy. J Int Bus Stud 44, 427–450 (2013). https://doi.org/10.1057/jibs.2013.11

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