Multinational firms in (Global) Cities: Mimicry, Knowledge Networks, and Economic Growth

Early theorists predicted that cities would become the dominant players in the world economy (e.g. Castells, 1996) characterized by an agglomeration of global command functions of firms and international organizations (Sassen, 1991; Scott, 2001). Almost 25 years later, cities are found to be the driving force of economic and social development (Henderson, 2007; McKinsey & Company, 2013) characterized by high levels of Gross Domestic Product (GDP) per capita, high rates of productivity growth (OECD, 2020) and a disproportionate presence of multinational enterprises (MNEs), leading universities and inventors (Beaverstock & Smith, 1996; Sassen, 2001; Klier & Testa, 2002). Prior research has referred to cities by many definitions such as ‘global cities’, ‘world cities’, ‘supervilles’, ‘imperial cities’, ‘great industrial cities’, ‘metropolitan cities’, ‘primate cities’ to name a few. Generally, they have been defined as the global centers of power and dominance (Alderson et al., 2010) and, more recently, as the critical enablers of the flow of various types of resources such as information, wealth and human capital (Castells, 2000). Indeed, cities are considered key nodes in the global economy as they are increasingly defined by their inter-city connections rather than by their intra-city characteristics (Derudder et al., 2003). Cities have been the focus in substantial body of research in international business (IB) literature and economic geography literature. Within these literature streams, two key areas of interest can be identified (Chakravarty et al., 2021). In the IB literature, prior research has focused on the strategic motivations of MNE to invest in cities (e.g. Makino et al., 2007; Belderbos et al., 2020) by analyzing foreign direct investment (FDI) location choices. Within the economic geography literature, prior research has focused on the theoretical perspectives and empirical approaches towards defining a ‘global’ or ‘world’ city (e.g. Sassen, 2001; Alderson & Beckfield, 2004; Rozenblat & Pumain, 2007; Derudder et al., 2010; Jacobs, 2016) and its characteristics (e.g. Castells, 2000; Bel & Fageda, 2008; Brown et al., 2010). Cities have been defined as strategic hubs for FDI leading to a disproportionate concentration of MNE headquarters and subsidiaries (Wall & Knapp, 2011). The attractiveness of cities has been ascribed to economic factors that allow for access to important markets, resources and operating efficiencies. Cities are characterized by a high concentration of specialized services, high levels of venture capital, a large skilled labor pool, state-of-the-art communication and transportation infrastructure and a cosmopolitan environment (Castells, 2000; Duranton & Puga, 2004; Goerzen et al., 2013; Adler et al., 2019). The attraction of MNEs to cities leads to 2 a dynamic evolution (Jacobs et al., 2010) as cities become more attractive by attracting FDI as the latter may attract subsequent investments through imitation of location choices and through the generation of agglomeration and increased interconnectedness. The high degree of interconnectedness to local and global markets provides cities with global reach (Goerzen et al., 2013; Adler et al., 2019) and is perhaps the most important characteristic of global cities. The connectivity of cities to the world economy has also been of significant interest to scholars in the economic geography literature (e.g., Beaverstock et al., 2002; Alderson & Beckfield, 2004). Global connectivity enables the flow of people, goods, capital and knowledge across space thereby providing considerable resource and information advantages that are not available to less connected locations (Bell & Zaheer, 2007). Moreover, connectivity is found to be crucial in dynamic competitive environments (Cooke et al., 1997), for regional resilience (Boschma et al., 2015) and for rapid adaptation to changing market conditions (Hussler, 2005). Extant literature has put forward two main approaches to understand and measure the connectivity of cities: the infrastructure approach (e.g. Smith & Timberlake, 2001; Derudder & Witlox, 2008; Otiso et al., 2011) and the corporate organization approach (Beaverstock et al., 2002; Derudder et al., 2003; Alderson & Beckfield, 2004). The infrastructure approach focuses on the role of infrastructure (e.g., transportation infrastructure, telecommunications and broadband internet) in enabling the flow of capital, people and information (Knox & Taylor, 1995). The corporate organization approach focuses on connectivity created through the day- to-day activities of corporate organizations which pursue a transnational location strategy. Hence, this approach argues that the relationships and connections between cities are primarily created through the operations of multinational firms which rely on their geographically dispersed network of affiliates and partners to generate and facilitate the flow of knowledge, resources, personnel and capital (Cano-Kollmann et al., 2016). In this way, multinational firms generate multi-level networks in which firms are the prime agents of production and reproduction (Taylor, 2004) of connectivity that weave cities together in a global network. Within the corporate organization approach, the World City Network put forward by the Globalization and World cities (GaWC) research network has become a key approach to measure city connectivity. This approach relies on the analysis of the worldwide office networks of advanced producer services firms, i.e. accounting, advertising, finance, insurance and law firms, to calculate cities’ interconnectedness to other cities. However, over the years, this dominant approach has not been unchallenged (e.g. Bassens et al., 2009; Neal, 2010; Hansen et al., 2013) as researchers started to question whether the measurement of connectivity 3 based on advanced producer services firms was too restrictive. Hence, it is deemed important to develop a more inclusive understanding of city connectivity, by including additional dimensions of globalization (Boschken, 2008). This dissertation addresses two sides of the dynamic interrelationship between MNEs and cities. First, it addresses the literature on cities as MNEs’ foreign direct investment location choice and imitation processes within these FDI location choices. This imitation not only enhances the attractiveness of the city by contributing to the generation of agglomeration and encouraging additional imitation, but also contributes to the further development of the international connectivity of the city and the creation of global knowledge networks. Second, the literature on cities and their international (knowledge) connectivity is addressed. Within this literature stream, we elaborate on the interrelated and simultaneous role of different types of international connectivity on city economic growth and the influence of this (FDI induced) connectivity on the surrounding areas of the city. In sections 1.1. and 1.2 the state of the art in the literature on cities as MNEs’ foreign direct investment location choice and the literature on cities and their connectivity is summarized and the voids in these literature streams, which the dissertation aims to address, are identified. In section 1.3 the contents of the individual research chapters are introduced, while in section 1.4 the two main source of data used in this dissertation (FDI data and georeferenced patent data) are discussed.