Global cities and liability of foreignness

Abstract

In recent years, more attention have been given to the sub-national determinants of multinational enterprises' location behaviour. However, the role of 'global cities' has received limited attention despite their central position in the global economy. In this thesis, I analyse and discuss the concepts of location, the liability of foreignness caused by MNEs' spatial separation of foreign operations, and their relation to the factors that drive MNEs toward, or away from, global cities. Rooted in the existing literature on global cities, I follow the arguments that three interrelated distinct characteristics of global cities -cosmopolitanism, interconnectedness, and availability of advanced producer services -help the MNEs overcome the social costs of doing business abroad. In addition, I identify MNEs' operations that benefit or suffer from the locational attributes of global cities, and how they in turn relate to the liability of foreignness associated with the international operations of MNEs. Consistent with these arguments, I operationalise the liability of foreignness as institutional distance and analyse its influence on the location of a large sample of subsidiaries from Nordic and Japanese MNEs. My results indicate that not only do MNEs have a strong propensity to locate in global cities, but also that these choices are affected by institutional distance and industrial characteristics of R&D-and advertising-intensity. Consequently, my results provide empirical support for the arguments of global cities' role in the processes of globalisation, the co-evolution of global cities and MNEs, and the ability of global cities to reduce the liability of foreignness suffered by MNEs. Ultimately, my study contributes to the understanding of the implication of location and distance on MNEs' international strategies, but also points to further investigation on the role of global cities in the nexus of place, space, and organisation to expand our knowledge on the geographic aspect of MNE behaviour.II

An exploration of smart city approaches by international ICT firms

“…Global cities are characterized by three distinctive features, including a high degree of global interconnectedness, the prevalence of a cosmopolitan environment, and the widespread availability of advanced producer services (Sassen, 2000(Sassen, , 2005, making them deeply connected and interlinked with each other despite a lack of geographic proximity (Sassen, 2005). Mehlsen and Wernicke (2016) state that locating activities in global cities rather than in peripheral areas is associated with a lower liability of foreignness, as a result of these distinct characteristics. This offers the potential for substantially lower investment costs and/or greater efficiency in developing and exploiting firm-specific advantages (FSAs) between different locations in the MNE network Verbeke, 2007, 2008).…”

“…Related to the international strategies of firms, the distinct characteristics of global cities have recently gained attention to explain their attractiveness for MNEs in their location strategies (Goerzen et al, 2013;Mehlsen and Wernicke, 2016). Goerzen et al (2013) found that 77% of MNEs locate activities outside their home market in global cities, which the authors attribute to a combination of firm-level and subsidiary-level factors related to corporate strategy, investment motives, and proprietary resources and capabilities.…”

“…When the distance between home and host market in terms of regulatory, institutional, economic, and cultural dimensions increases, it limits the relevance of non-locationbound FSAs Verbeke, 1992, 2007). The preference for global cities in MNE location strategies for locating firm activities in host markets (Goerzen et al, 2013), implies that firms can transfer and deploy non-location-bound FSAs more effectively across national borders, given the reduced amount of liability of foreignness that is associated with locating firm activities in global cities (Mehlsen and Wernicke, 2016). This allows firms to deploy non-location-bound FSAs more efficiently throughout the MNE network, and in multiple cities at the same time.…”

“…To explore the strategic approaches of ICT MNEs to the emergence and spread of smart city technologies, this study focuses on whether and how firms can leverage resources and capabilities which are developed through their smart city engagements in multiple cities. Specifically, it examines how these firms use local contexts to build FSAs related to smart cities, and assesses how locally developed resources and capabilities are transferred throughout the MNE network, facilitated by a lower amount of liability of foreignness experienced from locating firm activities in global cities (Goerzen et al, 2013;Mehlsen and Wernicke, 2016). Section 3 elaborates on the methodology, and introduces the focal firms in the sample.…”

“…However, as will be further explained below, the subnational level has been underexposed, although attention for especially the concept of so-called 'global cities' (cf. Sassen, 2000Sassen, , 2005 has recently emerged for explaining the geographic dispersion of firm activities in host environments (Goerzen et al, 2013;Mehlsen and Wernicke, 2016). Conceptually, this paper thus seeks to bridge the gap between geography/regional studies and international business research, while it empirically contributes a missing sustainability dimension in studies on MNEs and cities, and adds an actor-oriented perspective to the sustainability transitions literature.…”