This Research Bulletin has been published in Die Erde, 146 (1), (2015), 1-15.
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Please refer to the published version when quoting the paper
Discussing the contributions to a Special Issue of Raumforschung und Raumordnung on ‘German Cities in the World City Network', Beaverstock (2011) criticizes that most of the papers rely too comfortably on the well-tested GaWC-methodology1, what is why they fail to advance the understanding of German world cities beyond the quantitative dimension of inter-city relations. Due to the reluctance to focus on agency in the making of world city networks, ‘(q)uite a frustrating absence from this compilation of papers … is the lack of forthright, process-based findings' (ibd.: 216).
Yet, the plea to focus on agency in global city2 formation is not new. Rather, a key concern of Sassen's The Global City has been to redirect attention from formal power of large corporations to ‘the practice of global control: the work of producing and reproducing the organization and management of a global production system and a global marketplace for finance' (Sassen 2001: 6, original emphasis). Though this notion is frequently quoted, little empirical effort has been dedicated to analyze the work that allow producer service firms (PSFs) becoming key agents in the management and governance of economic globalization. While this lack of evidence is used by radical opponents of the global city concept to reject the whole notion of command and control functions because ‘(o)ne cannot infer interaction, coordination, command, control, domination and subordination from the mere existence of office networks' (Smith and Doel 2011: 27), my contention is that the problem is an empirical rather than a conceptual one: so far, the role of PSFs in global commodity chains (GCCs3) has not been analyzed profoundly (Brown et al. 2010; Parnreiter 2010, 2014).
This paper seeks to contribute to overcoming this weakness by scrutinizing the role of global PSFs in Hamburg in the management and governance of their clients' GCCs, defining governance as ‘authority and power relationships that determine how financial, material and human resources are allocated and flow within a (commodity; C.P.) chain' (Gereffi 1994: 97). After a brief introduction into the literature on global cities in Germany, an equally brief overview of Hamburg's producer service sector and an outline of the research design, I focus on the question whether and how professionals contribute, through the services they provide, to the smooth functioning and the control of their clients' (cross-border) operations. Secondly, I also address the question why clients choose global PSFs' with a local office in Hamburg, a city which is neither Germany's economic or financial centre nor its political capital? Finally, I discuss what place Hamburg occupies in the network of German global cities.
Global Cities in Germany
Studies on global cities in Germany can be, similar to the general literature (Parnreiter 2013), subdivided into three strands. Firstly, within the urban studies approach the main topics are the impact of globalization on economic, labor and real estate market transformations (e.g. Schamp 2001; Oßenbrügge 2011; Schipper 2013), on urban politics (e.g. Keil and Ronneberger 2000) and on the built environment (e.g. Helbrecht and Dirksmeier 2009). Secondly, within the network approach, the GaWC-methodology is applied to explore the integration of German cities into the world city network (e.g. Hoyler 2011) and the network strategies of knowledge-intensive firms (e.g. Lüthi et al. 2010). Thirdly, within the economic geography approach, both Frankfurt/Main (e.g. Hoyler and Pain 2002; Beaverstock et al. 2005) and Berlin (e.g. Krätke 2001) have been subject to case studies. As regards Hamburg, analyses of port related services and their importance for the functioning of GCCs (Hesse 2006; Verhetsel and Sel 2009; Jacobs et al. 2010) have been connected to the global city literature only loosely.
While these studies have enriched our understanding of urban transformations resulting from as well as facilitating economic globalization, and of the cross-border, inter-city connections into which German cities are embedded, they have, with very few exceptions (Krätke 2001; Hoyler and Pain 2002), not focused on management and governance functions of PSFs. Yet, because even in these studies practices of economic control remain underresearched, little has been said on how the professionals in financial, insurance, accountancy, legal, advertising and business consultancy firms in German cities contribute to the management and control of GCCs. Our knowledge of global cities in Germany is, therefore, still limited.
Hamburg's Producer Service Sector
Hamburg has the largest producer service sector in Germany as regards output, and the second largest as regards employment. In 2011, Hamburg's 290,000 employees in financial, insurance, real estate and business services generated an output of nearly 30 bn. € or 35% of the city's total gross value added (GVA). This share corresponds to the sector's relative size in Munich, but is substantially below Frankfurt/Main's value (44%). A quarter of the city's employees work in producer services, what is less than in Munich (29%) and, in particular, in Frankfurt/Main (36%). However, as regards productivity, Hamburg outperforms both Munich and Frankfurt/Main, being second in Germany, behind only Bonn (figures 1, 2, 3)
Figure 1: GVA and employment in financial, insurance, real estate and business services in German cities, 2011 (billion current €, 1,000 persons)
Source: Own illustration, based on Arbeitskreis 2013
Figure 2: Share of GVA and employment in financial, insurance, real estate and business services in total GVA and employment in German cities, 2011 (%)
Source: Own illustration, based on Arbeitskreis 2013
Figure 3: GVA in financial, insurance, real estate and business services per employee in German cities, 2011 (1,000 €)
Source: Own illustration, based on Arbeitskreis 2013
Notwithstanding its size, Hamburg's producer service sector's global integration is comparatively weak. According to GaWC's global network connectivity (GNC)4, Frankfurt/Main is, with a GNC of 56.9, Germany's best connected city (16 th worldwide), followed by Munich (41.5) and Hamburg with a GNC of 38.4 (figure 4). Hamburg is world-widely the 54 th best connected city, comparable to Cairo, Dallas or Düsseldorf. Differentiating between the subsectors of producer services, Hamburg has rather big clusters in legal services, accountancy and management consultancy, while its embeddedness in the networks of financial service firms is somewhat weaker (Hoyler 2011; Taylor et al. 2011).
Figure 4: Global network connectivity of German cities, 2000, 2012
Source: Own illustration, based on GaWC 2014
Yet, instructive as these data might be, they are insufficient to assess global city functions in Hamburg, because the existence of a large and globally embedded producer service sector does not per se tell us whether and how PSFs' professionals are involved in the management and governance of cross-border economic activities. To gather such relational, ‘process-based findings' (Beaverstock 2011: 217) a shift towards qualitative methods and to an inquiry of the practices of PSFs' professionally is required.
Hamburg as case study was chosen, firstly, because its producer service sector is the largest in Germany. The relatively weak integration of Hamburg into the world city network constitutes the second reason for choosing it as a case study, because management and, in particular, governance functions of PSFs are less expectable here than in an Alpha world city such as Frankfurt/Main. Thus, if such functions were to be documented for Hamburg based PSFs, the support for key assumptions of the global city concept were even stronger than in the case of Frankfurt/Main. Thirdly, Hamburg is the 14 th biggest container port in the world and Europe's second biggest (World Shipping Council 2013). It is, thus, a crucial hub in many trade routes and therefore a critical node in numerous GCCs (Hesse 2006). Moreover, Hamburg is one of the world's ‘prime locations' (Jacobs et al. 2010: 101) for maritime related producer services, and the city houses headquarters of large shipping companies (e.g. Hapag-Lloyd, Hamburg Süd). It is, therefore, behind Hong Kong but ahead of New York, the world's second important ‘world maritime city' (Verhetsel and Sel 2009) from where container shipping companies make decisions.
The research is based on interviews with professionals of global PSFs in Hamburg, drawn from the GaWC list and covering all subsectors (accountancy, advertising, finance and insurance, legal services and management consultancy). Of the 54 firms contacted, 19 firms granted an interview (see table 1). As compared to their representation in Hamburg, law firms are somewhat over- and advertising and management consultancy firms are slightly underrepresented in my sample. For most of the firms interviewed, clients with cross-border operations make the lion's share of their business, with many catering to the DAX-30 corporations as well as to other big German and foreign companies. Amongst the clients of the interviewed firms are also many SMEs exporting to or coming from foreign markets. The semi-structured, open-ended interviews were conducted between May and September 2013, mainly in the offices of the respondents (three via phone). Interviews lasted from 30 to 65 minutes (with an average of 43 minutes) and were tape-recorded and fully transcribed. All interviews were conducted in German; quotes here have been translated by the author.
Table 1: Subsector, position and field of work of in terviewee, structure of clients of interviewee's firm
Source: own compilation. Interviews are sorted in chronological order. Structure of clients according to estimations of respondents, in most cases referring to the firm's turn-over.
Hamburg's PSFs and the management of GCCs
As indicated above, the fundamental quality of a global city is not the existence of a (sizeable) cluster of (global) PSFs, but rather if ‘coordination and specialized servicing of global firms and markets is taking place' (Sassen 2001: 361). One of the interviews' central questions was, thus, whether respondents consider the services they provide as necessary for the smooth functioning of their clients' cross-border activities. Not surprisingly, most professionals approve this notion, with a typical answer coming from the managing partner of a law firm: ‘the tendency is clear … (producer services) become more important. … our clients go abroad, our clients come to Germany from abroad, that means there is crossing borders and they (our clients) always want consultancy' (I 17). Two interviewees, however, qualified the ‘yes' regarding the assumption of a constantly increasing demand for externally provided PS. The managing director of an advertising firm indicated, for example, that ‘there are many companies which act very fluctuant … and that certainly depends on who is leading a firm … and also from the actual position of the firm in the market' (I 4).
Yet, examples given for the service input provided refer to all stages of GCCs, beginning with market research carried out by management consultancy, accountancy and advertising firms for clients who seek to expand business abroad. Once a decision whether and whereto expand business is emerging, one of the first problems to be solved is the legal form of the unit in a foreign country. Since this issue is, amongst other things, tax-sensitive, accountancy and law firms usually get involved. At the same time, a number of legal and risk assessments become necessary. Respondents avowed that providing information on corporate law, tax and tariff laws or criminal laws in the target market belongs to their core business, because clients want to know: ‘What is the legal framework? Anything in particular to pay attention to? Any issues related to branding? Any compliance issues?'(I 15). In a similar vein, if foreign firms channel goods through the port of Hamburg, a number of tax regulations are touched which require the involvement of a specialist: ‘Say, Indian foods, a spice trader ... looks for a logistic firm or a port-related service, to store things, and in this moment the legal imperative for paying sales taxes leads to the legal requirement to register here, to get a VAT registration number, to apply a reverse charge mechanism to the fiscal authorities to get the input tax … That does the logistic firm (for the spice trader), and we do that for the logistic firm' (I 3).
Financial institutions ‘grease' GCCs and make goods flow by balancing, for example, a client's liabilities and receivables at a global scale. Shipping products from Asia to Europe might last four to six weeks, and ‘what does a company in the meantime? … We reflect upon how to ensure that the liquidity (of our client) becomes free' (I 14). PSFs also provide risk management along the clients' GCCs, what requires granting a global standard as well as meeting different local requirements. In the automotive industry, for example, a lead firm needs a worldwide goods in transit insurance for each and any of the parts being ex- and imported along the whole GCC, and it needs many local property insurances against fire and other hazards for the places where the parts are being processed or stored. To organize all that for the client requires specialized and worldwide operating professionals – that ‘is our value added, so to speak, I mean, at first such insurances are the very condition for acting globally' (I 16).
Another example of how PSFs contribute to the functioning of GCCs is human resource management, which includes activities from attraction and recruitment of professionals over performance management, engagement programs, mobility management for expatriates and rewarding, to health care and retirement administration of employees. Doing that for a firm with global businesses implies the need to settle the tension between a firm's wish to have standardized procedures and rules, on the one hand, and diversity and complexity resulting from operating in different jurisdiction and working cultures. As human resource management becomes more centralized in the clients' headquarters (in order to homogenize it), the need for specialized support increases. ‘And (the client) then requests ascertained services from us, in fact, the whole spectrum … As a matter of fact, the whole range from recruitment, expatriates, engagement, talent, executives is provided by us and that globally' (I 1).
Advertisers point to the need to create product and corporate design for the new market and to communicate it, and they emphasize the necessity to organize the flow of information to local retailers who face many new challenges with today's well informed consumers. Moreover, better informed and therefore in their purchasing behavior more volatile consumers increase a firm's necessity to invest in their clients' loyalty. The finance director of an advertiser working amongst others for a car company emphasizes the need for steady customer relationship management and stresses in particular the challenge to reach target groups day and night: ‘Here online communication to mobile devices is critical: How do I reach the client at the point of sales with offers tailored to his needs? … We try to define which groups of costumers have which requirements? … Who drives our client's compact car? … Where can I reach them? Online, in the internet, on TV, via email? And this we run through from A to Z for all models, target groups and media' (I 6). The managing director of another advertiser points to the need for after-purchase-communication, which is of particular importance in the growing online-markets. A typical task is, thus, ‘to assure, that you (the consumers) are used as a positive messenger to influence others' purchasing decision because the first thing we all do is to google … Today, it is (important) to try very hard via social media to guarantee that in all these fora from facebook to gutefrage.net or whatever, that people with positive experiences talk about. … So, the first thing we do is to try to make sure that if you google that our client becomes visible' (I 11).
All the organizational tasks mentioned need sophisticated IT-systems. Though usually hidden and probably not considered as being strategic, ‘such (IT related) activities are the basis that our clients can run their value chain anyway' says the branch head for application services of a management consultancy firm (I 2). A case in point is a transport management system to be implemented in 130 countries by one of the major global logistic companies, on whose development 50 employees of the interviewee's firm have been working for years. ‘Everything that is transported on ships or planes … is planned, coordinated and controlled there … a good part of our client's business depends on the (new) system' (I 2). Another example for the need for ‘very very sophisticated technology' (I 14) is, according to the head of business center of a financial firm, managing the cash balance in a company's global network. Yet, despite being a ‘very physical example' (I 14) of a service, cash management is far from being trivial – if it is not achieved properly ‘for a company this can be, say, not a threat to existence, but it can be one of the very fundamental problems' (I 14).
To sum up: From market research to after-purchase-communication, from a legal due diligence to the management of cash flows, from opening up a bank account to retirement administration, PSFs in Hamburg supply many services which are needed by their clients to successfully run their businesses. As the partner of a law firm puts it: ‘I really believe that we create added value for our clients, because otherwise they wouldn't pay us. … They want an answer to a question which is important for operational processes on which basis they can continue to work' (I 13). However, what in particular makes the difference between buying certain services from a global PSF as compared to getting them from a local service provider or even supplying them in-house?
Why global producer service firms?
Sassen (2001) argues that because the rising sophistication of operations in a global market had made economic management and control so complex, companies began to outsource highly specialized services. Respondents concur with this notion to an extent that they sometimes wonder about a question with such a self-evident answer. As the managing partner of a law firm smirks: ‘Why do we need lawyers at all? … Why do we need ophthalmologists? Can we all fix our eyes ourselves?' (I 17). Summarizing the answers, one can conclude that PSFs have become critical because acquiring the very specialized knowledge required by the many non-routine tasks resulting from complicated businesses in inadequately known environments is what ‘the client doesn't want to do, because it is not at all his core business' (I 16).
Two complexity-challenges resulting from doing global businesses are frequently mentioned in the interviews. Firstly, due to their newness, size, technological sophistication, geographical reach and speed, many economic activities demand very specialized know-how. Respondents agree that not even big firms with sizeable in-house legal, insurance, tax or IT departments can provide such non-routinized and thus labor intensive services at reasonable costs. It is, thus, a key advantage of PSFs to develop economies of scale even for rare and multifaceted projects, because they always can rely on previous work with other firms. Moreover, having dealt with other clients gives the PSF-professional a competitive advantage over equally well trained in-house experts: ‘Many clients also want know how from the business environment. ... Our staff switches between clients in the same industry, and thus we often have ... a know how- edge, while our clients' employees can be very rooted in their own processes' (I 2).
The second complexity challenge stems from operating in a foreign market with different, partly or largely unknown languages, business partners, regulatory frameworks, institutions, and working cultures. To begin with, language skills are, prosaic as they seem, critical – ‘as a matter of fact, the most important issue' (I 12), says the group leader of a financial firm. Problems continue with further seemingly simple issues such as hiring people for everyday jobs: ‘As a German, as an external, how will you check whether he (an accountant) has the proper qualification? Do you know the Chinese educational system?' (I 8). The more complex matters become the more necessary it is to rely on specialized professionals. While supplying such expert knowledge is often beyond the scope even of big companies, for SMEs the so-called make-or-buy-decision is, as the partner of an accountancy firm puts the example, only the decision between let ‘the audit it be done (by my accountancy firm) or shall I (do it myself and) close my eyes and hope for the best' (I 5).
Respondents also underscore the need to cope with cultural differences. The business development manager of a law firm asserts that what at his firm's level makes the difference is not professional competence (which is taken for granted), but social skills: ‘In the first place it is about communication, that you master the legal business … is assumed. … The first direct contact, if you take for example a Chinese investor, is a partner of our firm, who converses locally (in China), whereby, I assume, the cultural balance is somewhere just there, it's more likely that he (the client) feels understood. … Because the partner is also Chinese! Because he knows what makes him (the client) tick, well, at all events better than someone trying that from Germany' (I 18).
As this example reveals, operating in a worldwide network is seen as being a strategic advantage of global PSFs vis-à-vis both in-house solutions and local service providers. Respondents forcefully point out that relying on partners in foreign countries allows for dealing with the clients' requirements quicker and in more consistent ways. Servicing the client everywhere with the same quality standards also includes delivery time: ‘Through the network we can govern ... our local partner firms. ... Well, we can say: ... He (the client) needs an answer from you within 48 hours. Sit down and do that!' (I 8). In addition, a client entering a new market can be offered a first, quasi-familiar contact – a partner in the PSF's global network –, what psychologically facilitates entrance. Moreover, the partners in the network allow for accessing resources otherwise not or not easily available. Tacit knowledge in legal affairs, for example, is critical because ‘each legal culture has somehow preferences how a (service) product ... should look like. Of course, to meet these expectations is easier for someone who knows this legal cultural environment better than for someone who knows it less' (I 15). Finally, working in a cross-border network eases cultural translations, which are normally ‘based on a long-running cooperation, that such a thing (cross-border communication) is well attuned and can work efficiently. ... they are a good team ... where you can really say: one firm' (I 18).
Hamburg's PSFs and the Governance of GCCs
Though the idea that global cities are ‘highly concentrated command points in the organization of the world economy' (Sassen 2001: 3) is widely accepted and reproduced in the literature, it is empirically inadequately established and therefore highly contested (Parnreiter 2014). Against this backdrop, it has been one of the goals of this research to provide evidence to buttress the notion that PSFs not only enable their clients to manage their (part of) GCCs, but also have an effect on how clients govern their economic activities. The question is, thus, can firms relying on the support of PSFs improve their position in GCCs vis-à-vis competitors, suppliers and customers, and stakeholders such as governments or unions? Is Hamburg a place from where PSFs impact on the ways in which value in GCCs is created and distributed?
Seeking pointed statements, I asked the respondents whether they agree with a lawyer in Mexico City, who in an interview (quoted in Parnreiter 2010: 44) suggested that despite the undisputable fact that formally it is the clients' CEOs who take the decisions, in reality ‘the one who makes the strategy, it's the partners of the law firm'. Answers to this question differ, and that between respondents as well as depending on the client and / or service an interviewee refers to. The account of the branch head of a management consultancy firm captures the respondents' ambivalence properly: ‘Well, I wouldn't put it that simply, but neither would I say that we don't have any influence. … I'd say we have influence, but in the end it is the clients who assume responsibility and who take the decisions' (I 2).
Several arguments are brought up in the interviews to qualify the contention that PSFs have much bearing on their clients' decision-making processes. Firstly, respondents stress that business cases have too many aspects to allow one specific input (such as a legal or tax advice) making the critical difference in business orientation. Secondly, whether a PSF has an impact and how important this influence is, depends, according to the respondents, on the client's firm size: ‘Bigger companies want to be advised, while smaller ones really use us as decision-makers sometimes' (I 15). Thirdly, firm culture also matters, for example as regards how much know how a company wants to retain in-house. Referring to a big manufacturer from France, the finance director of an advertiser says that in this case he has little influence because ‘well, if we look, the country is very centralized, and so are the corporations, very centralized, in the sense that decisions are taken very centrally' (I 6). Fourthly, how much influence on corporate decision making is allowed or sought for by the clients can also be subject to the market position of the client – the better positioned in an area, the less room to maneuver has the PSF. Last but not least, PSFs' influence on clients' decision-making depends critically on the service provided. Book-keeping, building and maintaining an IT-infrastructure, running an ad campaign or issuing a standard insurance police are considered as purely supportive tasks. Even many tax or legal advices and financial services are, according to the interviewees, just day-to-day business without much bearing on strategic business decisions.
Nevertheless, affirmative answers to the question whether PSFs have bearing on their clients' GCCs governance come from a majority of respondents and from all sectors. As the most obvious case of PSFs' influence, interviewees frequently referred to corporate governance, which in its narrowest sense is about compliance. Professionals, mainly from accountancy and law firms, stress that it belongs to their core business to monitor whether their clients operate according to the law. ‘We are to a certain extent an outsourced branch of the tax authority, we are obliged to do that, and that makes clear that at least in this aspect governance functions are fulfilled', says the partner of an accountancy firm (I 3). Though probably seen as banal, compliance has much to do with governance in Gereffi's (1994) sense, because there is always more than one way of adhering to the law. Hence, compliance is about decisions, each of which must be read against the different and sometimes opposing interests in the complex internal and external networks of a firm. As the partner of an accountancy firm says, ‘well, we try to interpret the law in our client's sense and just highlight rooms to manoeuvre, which present themselves, just because the law is unclear' (I 10).
Moreover, corporate governance goes beyond compliance. It entails all ‘procedures and processes according to which an organisation is directed and controlled. … (It) lays down the rules and procedures for decision-making' (OECD 2005). Specifying the relationships between a company's board, managers, creditors, investors, shareholders and employees, corporate governance is about the distribution of power, accountability and means within a firm or, to quote again Gereffi (1994: 97), about ‘how financial, material and human resources are allocated and flow within a chain'. The principal of an accountancy firm gives an example, referring to a client with three plants with each having its own suppliers: ‘Of course you can say: Wouldn't it be reasonable to pool buying power …? That might have positive effects for the one or another plant, but it might also have negative effects for one of the plants. Now, corporate governance has to intervene and say very clearly: I have to put other objectives (than a local manager might have)' (I 7).
In addition to corporate governance, respondents brought up several issues in which they see PSFs' influence on GCC governance: strategic business orientation and locational choices, tax issues, labor legislation, risk management, and entry barriers. What the areas have in common is that in each field the service provided aims to generate ‘a certain competitive advantage' (I 12) over competitors (that is, other firms seeking access to the same [segment] of a GCC), business partners in backward or forward linkages (suppliers, customers) or other stakeholders such as governments or unions. As a respondent affirms: ‘We say (to our client): if you structure your supply and value chain as follows, you'll have the following advantages' (I 7).
In sum, the interviews support the notion that PSFs' have bearing on their clients' economic decision-making. Hamburg is, thus, a city wherefrom companies' governance processes are supported and thereby also influenced through service provision. Yet, this impact of PSFs seems not to be straightforwardly, for which reason talking about ‘command and control' might be too simplifying (see below).
And Why Hamburg?
If clients draw on the support of global PSFs for the above-mentioned reasons, the question nevertheless emerges why they chose offices in Hamburg? Put the other way round, why do so many global PSFs maintain offices in Hamburg, which is neither economically nor politically Germany's center? The most frequent answers to this question combine to different degrees a historical and a geographical aspect, namely Germany's ‘grown' polycentric urban system and the importance of being close to clients: ‘Well, it is our principle to attend to clients from the nearest local office, if possible. … Normally, these are long-term customer relations which we have established and which we develop further' (I 2).
History matters yet in another, pretty prosaic way. Many of the offices of global PSFs became part of the network through acquisitions or reorganizations of already existing (local) firms. Asked why for his firm being in Hamburg is important, the partner of a law firm says: ‘I have never asked whether it is really important, it resulted historically. … Well, there are some (big law firms) which deliberately came to Hamburg because of the strength and the international orientation of the city's economy … (but other) big offices here already were big offices which then did not belong to a global network, which have grown here in their own right as local firms' (I 13).
Yet, most respondents underscore that being in Hamburg matters because geographical proximity matters to their business. Co-locating counts because it facilitates the acquisition of clients, e.g. through organizing small round-tables on specific issues: ‘And then of course you bring people quickly together, locally. … Well, that (geographical proximity) is in fact, as regards relationship management and what ultimately leads to the acquisition of specific projects, definitively yielding a return' (I 18). Others stress that geographical proximity is critical for keeping customers because in the end it is personal relations which tie clients to a PSF: ‘They probably don't care which name is on it (the PSF), decisive is that they know the consultant and trust him, and insofar that (geographical proximity) is very important' (I 10). Geographical proximity promotes confidence building, a more comprehensive knowledge of the client's business and, in consequence, deeper and more stable customer relations. As the head of business center of a financial and insurance firm suggests: ‘In talking about banking it still makes a difference, it's still a barrier, whether I call from Frankfurt someone in Hamburg or whether I'm able to meet at the face. … It simply plays an important role whether I can call, saying: I'd got something I'd like to talk about with you, would it work today in the afternoon? … Then you walk over. … It is promptness, quality, it is, you have talked about services, yet it is servicing' (I 14).
Yet, some respondents qualify the argument that co-location matters, suggesting that the need for geographical proximity has decreased with today's communication and transport technologies. Others indicate that firm size plays a decisive role, because ‘with smaller mandates that (proximity) is very, very relevant' (I 19). One case in point is the so-called ‘ Sofareeder (sofa-ship-owner) who acts with relatively small fleets from the sofa. … With whom you might sit down actually on a Sunday afternoon and, so to say, from private talks you come to business conversation. That's not the rule with bigger units. There it's a clear, a technical dealing' (I 5).Yet, even respondents who reject the notion that co-location matters remain ambiguous. While the human resources and financial manager of a finance and insurance firm says that ‘personally, I think that (the need for geographical proximity) is nonsense because that (our clients) is big corporations operating internationally, they don't need personal support at every turn', the interviewee also affirms that ‘mental closeness is important, and here it's much about personal networking. And wining and dining is still central' (I 16). In a similar vein, the managing director of an advertiser who suggests that theoretically business could be done from everywhere acknowledges that ‘it is not beneficial to a customer relation because I do think that personal contact is also the key to success in a relation, but theoretically it would work' (I 4).
Moreover, it is striking that even the firms whose representatives suggest that geographical proximity looses importance keep offices in Hamburg's top locations. Why aren't they in Pinneberg5 for example, where rents are substantially lower? The managing partner of a law firm laughs: ‘We have frequently asked that ourselves. … (But) clients do not want this, well, clients want that their lawyers are for free but they should be in representative locations, well, nobody wants to say: Well, my lawyer is in Pinneberg … Let's put it like this: Pinneberg gives rise to doubts on the quality' (I 17). That a good address ‘is definitively not unimportant' (I 19) applies also as regards employee motivation: ‘It makes a difference when a competitor of us sits in, let it put me this way, shabby offices in the City Nord, employees go out for lunch break and stand in front of a concrete jungle and find themselves happy that there is a Bratwurststand on the corner, that makes a difference when you're in the City' (I 19). Location, thus, matters as regards the clients a PSF wins and as regards attracting knowledge workers. The managing director of an advertiser combines both aspects when he says that ‘there are only two creative capitals left, Berlin and Hamburg, and you'll simply find the best advertiser there. And clients who go in for quality want to have an agency from these locations. … You simply don't get creative people, who in our business still count much, you don't get them to Wolfsburg. … Thus, for out-of-town clients Hamburg as location is a signal for strength, size, competence. That means that Hamburg is a good brand? Exactly ' (I 11). The same applies for professionals probably considered as being less sexy than advertisers. Mathematicians for insurance reports, for example, ‘you normally won't get these people into the Ruhrgebiet. … The good people whom we want, they simply come from certain university cities, and they want to stay there … and that is why we said, no matter where they are, the main thing is that we get them' (I 1).
Hamburg's Position in Firm and World City Networks
Since Taylor (2001) introduced the ‘Interlocking Network Model' to measure inter-city connectivity, global city research is characterized by quantitative studies. ‘List-mania' has become common, where all that matters are rankings and where rankings are moreover confused with hierarchies (Derudder and Parnreiter 2014b). Yet, drawing on Jacobs' (1970) idea that cities need the exchange with each other to become economically dynamic, Taylor (2004, emphasis added) rejects the idea of hierarchical city systems and developed therefore the idea of a ‘World City Network '. The interviews clearly support Taylor's notion that higher centrality in the world city network, resulting from more and/or bigger PSF-offices, cannot be translated into a hierarchical relationship in the sense of successive ranks with each level subordinate to the one above.
Asked about the division of labor between their firm's offices in Germany, all respondents concur in two interrelated points. Firstly, respondents agree that the existing differences in the offices' size, which are the base for differences in GaWC's GNC, stem from the size of the market in a given city or country and do not reflect weights and even less hierarchies. Attending a client is usually organized through a head of account, and this head of account usually comes from an office close to the client. If a Chinese investor seeks to do business in or through Hamburg, then ‘we (the Hamburg office of the PSF) would work as subcontractor of the colleagues in Shanghai. They would have the direct mandate from their Chinese client and we would effectively support them' (I 10). Thus, who has the saying in the relationships between PSFs' offices might shift daily, depending on where the client comes from.
Respondents describe, secondly, the relationships between their firm's offices as flat and functional. While all regional offices provide a broad portfolio of more or less standardized services, specialized fields of knowledge are offered through thematical groups which are represented in fewer cities. Such regional specializations have emerged historically, according to Germany's economic geography: The Frankfurt/Main offices are traditionally strong in finance for which reason the head of business center of a financial firm admits that ‘to be fair, it has to be said that the really big (firms), the DAX-30, we don't attend them here, in Hamburg, we attend them in Frankfurt' (I 14). Munich has more high-quality professionals in IT-related issues, Stuttgart is strong in automotive industries and Hamburg in shipping companies. Though the thematical groups have a head at the national, regional and global levels, respondents see neither a hierarchy between the specializations nor a general regional hierarchy in the sense that a professional in Frankfurt/Main could command colleagues in Hamburg. A hierarchical order would be, as the office managing partner of a law firm explains, contradictory, because ‘internationality, globality are important (for us), and networking within the firm, … the transfer of the firm's know how from one country in another, and so forth, we want to facilitate that by not creating internally structures which could give any incentive to obstruct this transfer of knowledge' (I 15).
Conclusions and Further Research
This paper has been motivated by two interrelated observations. Firstly, and on a general level, the fact that practices and processes that underlie global city formation (namely the management and governance of cross-border economic activities) have received much less attention than the measuring of inter-world city relations undermines the strength of the global city argument. The lack of empirical support for the claim that global cities are organizing nodes of a global economic system is, as argued elsewhere (Parnreiter 2014), today's Achilles heel of global city research. Secondly, and more in particular, our knowledge on global cities in Germany is limited by the same shortcoming. While quite a few studies have analyzed the impact of globalization on various aspects of urban development in Germany as well as the role of specific German cities or firms in cross-border networks, only a handful of studies have applied the global city concept in its economic geography spirit. Thus, our understanding of how PSFs in German cities and their professionals contribute to the management and control of their clients' GCCs is still rudimentary.
Against this backdrop, the paper's concern has been to shed some light on the practices that trigger global city formation in Germany. The analyses presented leads to four principal conclusions, and it allows for identifying further lines of inquiry:
Yet, despite the fact that the two decisive criteria for a global city – PSFs fulfill management and governance tasks for their clients' GCCs – are by and large satisfied for the case of Hamburg, the results presented also call for a deepened research. In particular, I emphasize three issues:
The second line for deepening the research on global cities and economic control is to conceptually advance our understanding of governance. While one could well argue that PSFs support their clients in governance processes (because they strengthen their clients' positions in GCCs and influence thereby the ways in which value is created and distributed), it has to be made clearer why and how professionals providing this support are converting themselves into agents of economic governance. One way of proceeding is to connect to the literature on projects (Grabher 2002) and its proposition that firm boundaries become fluid: ‘A project, of course, is a project for a particular client. To an important extent it is also a project with a client' (Girard and Stark 2002: 1939, original emphasis). Yet, if professional and client temporarily form a team, then the professional ceases to be ‘external' for the time and / or the scope of a project: he/she eventually becomes part of a project team designing governance strategies. It is in that context that the reasoning of the interviewees becomes critical that the quality of their work stems from intimate knowledge of the client's business, from great economic empathy. The challenge is, says the business development manager of a law firm, to provide high quality legal advice and to ‘still thinking economically' (I 18) as regards the clients' business strategies. PSFs' professionals have, thus, to acquire a very deep understanding of the client's corporate structures, goals and strategies, and they have to embrace them. In order to grasp this unfolding relationship, it seems to be useful to substantiate what ‘embedded governance' might mean – a term proposed by Sassen (2010: 158) to suggest indirect forms of decision-making in which strategic concerns melt into the concrete servicing such as lawyering or accounting. Services, thus, become impregnated with the interest of the client, and it is in that context that ‘the category governance assumes substantive meaning and operational meaning, and it intersects with major power logics' (ibd.).
The author thanks the anonymous referees for useful comments. Any remaining errors are mine.
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1. ‘The' GaWC-methodology is the Interlocking Network Model (Taylor 2001). For for a discussion of its merits and shortcomings see Derudder and Parnreiter 2014a.
2. For the purpose of this article, the conceptual differences between ‘ world' and ‘global cities' are of less importance. I adopt the terminology of an author I refer to. Where I allude to the general debate, I stick to ‘global cities'.
3. For the purpose of this article, the conceptual differences between ‘Global Commodity Chains', ‘Global Value Chains' and ‘Global Production Networks' are of less importance. The terms are used here synonymously to refer to the cross-border organization of production.
4. GNC is the sum of a city's connections created by PSFs to all other cities in the world city network (Taylor 2004). The fact that German cities have relatively low GNCs results from the polycentric structure of the German urban system.
5. Pinneberg, some 20 kilometers northwest to Hamburg's City, is a 40,000 people town belonging to Hamburg's Metropolitan region.
Note: This Research Bulletin has been published in Die Erde, 146 (1), (2015), 1-15