A Comparison of London and New York's Responses
to the Asian Financial Crisis
Funded by ESRC (1998-1999)
Grant Holders: M.A. Doel, J.V. Beaverstock and P.J. Taylor
Research Associate: R.A.M. Bostock
The major financial crisis of 1997-98 in the 'tiger economies' of east and south-east Asia, triggered by the devaluation in Thailand of the baht which forced Indonesia, the Philippines, Malaysia and South Korea to follow suit, will have a considerable impact on the market for London's and New York's producer services in the Asian rim of the Pacific. We intend to use this major contemporary event to reveal processes underlying world city development under circumstances of rapid, and sometimes hasty, change. In particular we take advantage of this opportunity to investigate the similarities and differences between London and New York producer service firms in their practical and strategic reactions to the crisis. In this way we will inform the question of London's competitiveness in relation to its main world city rival.
This project builds directly upon the current ESRC funded research "The Geographical Scope of London: A Relational Study" (R000222050).
Theoretical Background: Globalization, World Cities and Relational Studies
Globalization and World Cities
In the last decade, the emergence of the world city has become one of the most visible manifestations of globalization processes within the space economy (Friedmann and Wolff 1982; Friedmann 1986, 1995; Knox and Taylor 1995; Llewelyn Davies 1997; Sassen 1991, 1994). As capital has been cut loose from nation-state regulatory frameworks, aided and abetted by rapid improvements in information technology, our fundamental image of the organization of global space has changed from boundaries defining a mosaic (states) to nodes (world cities) defining a network. This new way of thinking about the world is consistent with the trans-state basis of globalization theories which goes a long way to account for its current popularity.
The internationalization of advanced producer services, financial deregulation and the emergence of the 24-hour-financial markets have been very important determinants of world city formation (Beaverstock 1996; Daniels 1991; Drennan 1996; Sassen 1995). Moreover, the concentration and intensity of advanced producer services within world cities are prime agents in determining their status as international financial centres (Budd 1995; Pryke and Lee 1995; Leyshon and Thrift 1997; Thrift 1987). Thus, those world cities which figure in Reed's (1983) worldwide network of international financial centres (IFCs), because they have disproportionate concentrations of producer service transnational corporations' headquarters, office networks, foreign banks and trade in financial markets for example, are also consistently finding themselves positioned at the same rung of ladder in more general urban hierarchical structures. For example, a comparison of Friedmann's (1986) world city hierarchy and Reed's (1983) hierarchy of IFCs (as cited in Thrift 1987) reveals that London, New York, Amsterdam, Frankfurt, Paris, Tokyo and Zurich are not only positioned as `Core Country Primary World Cites' (Friedmann 1986) but are also ranked as `First and Second Order Supranational IFCs' (Reed 1983). Accordingly then, the activities of a world city's producer service complex and level of engagement with the international financial system are pre-eminent factors which account for their command and control functions, or global reach, within the space economy (Daniels 1993; Sassen 1995). In this study we focus on the global reach of the two leading world cities, London and New York.
East Asian World Cities
In the last two decades, the rise of east and south east Asia within the world economy has been marked by the development of new world cities in the region. Joining the more established case of Tokyo in the world city 'hierarchy', Hong Kong and Singapore have become particularly important and behind them Taipei, Seoul and numerous other cities striving for world city status e.g. Jakarta, Manila, Kuala Lumpur, Bangkok, Ho Ching Ming City. And with economic liberalization in China, Beijing and Shanghai are emerging as new world cities. The world city literature has been slow to catch up with these changes. Four major observations can be made regarding their positioning within the hierarchy of world cities. First, according to Friedmann (1986), all east and south east Asian world cities fall within his semi-peripheral countries classification, and with the exception of Singapore, are all categorised as secondary cities. Second, only Singapore ranks as a First Order IFC in the region, with only Seoul and Taipei ranked in the Second Order (Reed 1983; Thrift 1987), and accordingly rests at the top of this regional articulation of world cities (Friedmann 1995; Ho 1997; Yueng 1997). Fourth, with the exception of Hong Kong, no Chinese world cities are included in any hierarchical study.
This treatment of east and south east Asian world cities is based upon measuring their attributes in various ways in order to compare them with other world cities. From such data rankings can be produced but this does not tell us about these cities' relations amongst themselves and with other world cities. For instance although east and south east Asian cities have been major growth areas for London and New York producer services, the study of such linkages have been conspicuous by their absence. In this study we focus entirely on inter-city relations.
Relational Studies: Transaction Flows and Organizational Connectivity
The neglect of world city linkages is not limited to the study of Asian cities. Taylor (1997) has identified a general paradox in the literature on world cities: whereas the essence of world cities is their relations one to another, researchers have generally not focused on this aspect of their being, but have instead, measured the attributes of world cities and then ranked them in numerous tables (see Short et al 1996). This can be illustrated by the two seminal works in this literature, that of Friedmann (1986), creator of the 'world city hypothesis', and Sassen (1991) who identifies London, New York and Tokyo as the famous triad of 'global cities' (but, also see Cohen 1981; Brotchie et al 1995; Daniels 1993; Llewelyn Davies 1997; London Planning Advisory Committee 1991; Sassen 1994). There is a simple explanation for the predominance of attribute over relational data in world city studies: the difficulty in obtaining the latter. Most data collection agencies focus upon attribute data, both because of its general ease of collection and because most demands seem to favour this form of information. This is the reason why there is so little research on world city relations (for a rare example, see O'Connor 1995).
Geographical organization analysis is one fruitful approach to overcoming this data problem Different firms and sectors of advanced producer services have different organizational approaches to inter-city linkages. Branch offices are the most common but other approaches are found such as alliances with local firms. Although this does not provide data on the actual transactions of companies, it does reveal their geographical strategies as prime agents in the making of contemporary world cities, or international financial centres. Typical uses of such data are the pioneering works Daniels (1986) comparative analysis of foreign banks in New York and London, and Thrift's (1987) work on IFCs, using foreign banks in London and selected London companies' international networks (also see Lynch and Meyer 1992; ó hUallacháin 1994). In this study we focus on the global organization structures of producer services.
New Context: Financial Crisis in East Asia and Economic Restructuring in World Cities' Producer Service Complexes
In the wake of the financial crisis in East Asia, alarm bells have been ringing in London and New York City. Standard and Poor, the credit rating agency, has estimated that European banks could face losses of up to $20bn ([sterling]12bn) on their lending to Asia, and experience dramatic losses in revenue from investment banking activities, such as equity derivatives and securities trading (Financial Times 1998a). We have chosen two producer services in which to measure responses to the crisis: investment banking and law. The former represents a producer service directly affected by the crisis, the latter an emerging producer service indirectly affected.
In response to projected losses and the slowdown in the volume of banking activities, many British and foreign investment banks have begun to prune their staffing levels and close, or restructure, existing offices in the region. Examples of such restructuring include: Schroders cutting 200 jobs in its Asian securities operation; the National Westminster Bank closing offices in Bangkok, Kuala Lumpur, Manila and Singapore, with the loss of 40 jobs; and undisclosed job losses at ING Barings, Jardine Fleming, BZW (pre-acquisition), Credit Suisse First Boston and Credit Lyonnais Securities Asia (Financial Times 1998b). The dramatic speed at which jobs have been lost was recently illustrated by the collapse of Perigrine Investments, Hong Kong's largest investment bank, which not only closed its Hong Kong office, but also ceased trading in London and other financial centres as it slipped into liquidation on 12 January 1998 (Economist 1998). In contrast, however, the devaluation of Asian currencies and the rationalisation of both domestic and foreign business activities in the region has fuelled conditions for merger and acquisitions (M&A). International companies are seeking to capitalise on the downturn by purchasing parts of, or whole businesses, at low prices, in order to expand their operations in the region (Financial Times 1998c). Moreover, new investment opportunities are being created in Chinese cities, like Hong Kong, Beijing and Shanghai, as British and foreign producer service organizations compete for financial markets, project finance and M&A activity in this emerging market (Economist 1998; Financial Times 1998c).
Within law, the fallout of the crisis has been somewhat different from that of the banking experience. The economic turmoil and financial uncertainty, the freezing of regional infrastructure projects in Indonesia (12 big infrastructure projects have been cancelled under an IMF agreement), Malaysia (several mega infrastructure projects including the Bakun M$13.6bn hydro-electric dam have been put on hold), Thailand and the Philippines, the chronic debt inflation, and the fall-off in regional and local capital markets work combined with the waning of the Hong Kong handover honeymoon has resulted in the market for legal work to shrink (Warner 1998). As Hong Kong (followed by Tokyo and Singapore) is the dominant location for both London and New York law firms branching into Asia, they are facing an uncertain future (Beaverstock et al 1998).
Combining the theoretical background with this new East and South East Asian context provides a means of elucidating world city processes in London and New York in a 'speeded up' situation of change.
The project has one major aim with three sets of other aims as corollaries.
(i) To compare London and New York in terms of how they operate as world cities in reaction to the Asian crisis.
(ii) The first corollary aim is to separate differences and similarities between the two cities by
(a) comparing investment banking and law as international producer services in their reaction to the Asian crisis; and
(b) assessing the corporate cultures in London and New York as conduits for dealing with the crisis.
(iii) The second corollary aim is to help overcome the data deficiency in this field of research by
(a) collecting new relational data sets on producer service TNC activities between London and New York, and East Asian and Chinese world cities; and
(b) contributing to the development of methodology in the arena of world city studies by adopting an organizational approach to the collection of relational data from individual TNCs through the use of textual analysis and semi-structured interviewing;
(iii) The third corollary aim is to foster external contacts within and beyond academia by
(a) informing public and private sectors in London about the short- and medium-term effects of the Asian financial crises on investment, and turnover of international office networks and employment, especially in relation to New York; and
(v) developing stronger collaboration links with academic, notably the. Department of Geography, National University of Singapore and Nanjing Institute of Geography and Limnology, China (see Note I on the latter), and non-academic users, notably financial TNCs, professional organizations (e.g. Chartered Institute of Bankers) and the state (e.g. Government Office for London).
The project has nine major practical research objectives:
(i) to identify all the organizational changes of London and New York merchant banking firms in east and south east Asia in 1997 and 1998;
(ii) to identify all the organizational changes of London and New York law firms in east and south east Asia in 1997 and 1998;
(iii) to compare the results from (i) and (ii) in order to specify differences in sectors and cities;
(iv) to identify all the organizational changes of Singapore (and Hong Kong, Beijing and Shanghai, see Note I) merchant banking firms in London and New York in 1997 and 1998;
(v) to identify all the organizational changes of Singapore (and Hong Kong, Beijing and Shanghai, see Note I) law firms in London and New York in 1997 and 1998;
(vi) to compare the results from (iii) and (iv) in order to specify differences in the two sectors and the two cities;
(vii) to explore the corporate cultures of London and New York merchant banking firms both within their 'home' bases and in overseas operations;
(viii) to explore the corporate cultures of London and New York law firms both within their 'home' bases and in overseas operations;
(ix) to relate the qualitative results from (vii) and (viii) to the quantitative results from earlier objectives.
The methodology builds upon a combination of quantitative and qualitative techniques, which are organised in two major, but overlapping, frameworks:
Framework 1: Quantifying Trends
The methodologies adopted in Framework 1 aims to collect unique data sets which will provide an overview of the major trends in producer service activities between London and New York, and east and south east Asian world cities, in the context of the Asian financial crisis , via:
(i) Literature Review - Published sources drawn from the globalization literatures which intersect world cities, producer services, and the rise and demise of east and south east Asia's financial crisis will be critically reviewed to provide the benchmark of what is known of the operation of TNCs in London, New York and east and south east Asian world cities in the context of the financial crisis. In addition, documentation produced by TNCs (e.g. Annual Reports, Employment Data etc.) and associated World Wide Web sites, and specialised financial periodicals (e.g. The Banker) and newspapers (e.g. The Financial Times), will be reviewed to sopplement the above.
(ii) Secondary Data Analysis - An analysis of published (and unpublished) producer service world city employment and office network data (derived from TNCs and financial periodicals), particularly focused on (a) London, New York and east and south east Asian world cities, and (b) producer service activity in the Asian Pacific Economic Cooperation forum (APEC).
The combined methodologies of (i) and (ii) will enable us to begin to quantify inter-relations between London and New York, and east and south east Asian world cities by:
(a) quantifying the activities and turnover of British (London) and United States (New York) producer services in east and south east Asian world cities; and
(b) quantifying the activities and turnover of east and south east Asian producer service TNCs in London and New York City.
Moreover, the adoption of framework 1 will allow us to begin to compare the competitiveness of London with New York City with respect to both (a) and (b).
Framework 2: Case Study Interview Surveys
In the wake of the east and south east Asian financial crisis, in order to begin to investigate in much more detail the changing strategies, operations and turnover of British, United States and east and south east Asia producer service firms in London, New York City, and east and south east Asian world cities, the applicants and research associate plan to undertake an extensive interview survey of law and banking TNCs. The interview surveys of law and banking TNCs will be undertaken in London, New York and Singapore (with the possible addition of Hong Kong, Shanghai and Beijing, see Note I). Details include:
(i) Interview surveys in London - drawing upon the applicants' contacts in London-based law and banking TNCs, and named contacts derived from research undertaken in Framework 1, 40 semi-structured interviews will be undertaken in order to develop a detailed understanding of (a) the changing operational capacity of London based law and banking TNCs in east and south east Asian world cities, and (b) the changing operational capacity of east and south east Asian law and banking TNCs in London. Important issues to be addressed in both (a) and (b) include: turnover in employment, office networks, clients and business activity; changing organizational cultures; merger and acquisition activity; diversification into other sectors; and, relationships with regulatory frameworks.
(ii) Interview surveys in New York City - drawing upon the applicants' successful experiences of interviewing in London and named contacts derived from research undertaken in Framework 1, 25 semi-structured interviews will be undertaken in order to develop a detailed understanding of the changing operational capacity's of British, American and East Asian law and banking TNCs in New York City. Important issues to be addressed include: turnover in employment, office networks, clients and business activity; changing organizational cultures; merger and acquisition activity; diversification into other sectors; and, relationships with regulatory frameworks. All interviews will be arranged before departure from the UK (via research undertaken in Framework 1 and the interview surveys in London).
(iii) Interview surveys in Singapore - drawing upon the applicants' successful experiences of interviewing London and New York based law and banking TNCs (i) and named contacts derived from research undertaken in Framework 1, 25 semi-structured interviews will be undertaken in order to develop a detailed understanding of the changing operational capacity of British, American and east and south east Asian law and banking TNCs in Singapore. Important issues to be addressed include: turnover in employment, office networks, clients and business activity; changing organizational cultures; merger and acquisition activity; diversification into other sectors; and, relationships with regulatory frameworks. All interviews will be arranged before departure from the UK (via research undertaken in Framework 1 and the interview surveys in London).
The project will be organised into seven main stages, which are not necessarily consecutive:
(i) Literature Review, Preparation and Design - the first month (October) will be devoted to these tasks which will then be ongoing throughout the remainder of the project;
(ii) Fieldwork in London - the preparation, design, execution, transcription, analysis, data archiving and writing up of semi-structured interviews with law and banking TNCs' senior executives will be undertaken between November and January 1999;
(iii) Fieldwork in New York City - the preparation, design, execution, transcription, analysis, data archiving and writing up of semi-structured interviews with law and banking TNCs' senior executives in New York City, will be undertaken in January and March 1999. The field visit to New York City will take place in February 1999, and it is expected that most transcription and a preliminary analysis of qualitative material collected will be achieved on site;
(iv) Fieldwork in Singapore - the preparation, design, execution, transcription, analysis, data archiving and writing up of semi-structured interviews with law and banking TNCs' senior executives in Singapore, will be undertaken in April and June 1999. The field visit to Singapore will take place in May 1999, and it is expected that most transcription and a preliminary analysis of qualitative material collected will be achieved on site;
(v) Writing Up - specifically, the last three months of the project will be devoted to writing-up, however, writing up will commence from January 1999 with the London fieldwork and then will be ongoing throughout the other research stages.
Four very important ethical issues will be considered throughout the project:
(i) confidentiality of all material supplied by the firms, especially taking care that critical data obtained from TNCs in London, Singapore and New York cannot be traced to individuals; and linked to (i),
(ii) not publishing material if requested by TNCs;
(iii) taking care over copyright of interview material, especially when deposited at the ESRC archives;
(iv) with respect to the employment of the Research Associate, the applicants' will at all times adhered to Loughborough University's and the AUT's Code of Practice for contract staff.
The research has five major dissemination outputs:
(i) Articles in refereed international journals (e.g. International Journal of Urban and Regional Research; Environment and Planning A) and with pre-publication versions made available as GaWC Research Bulletins (see Note II) to facilitate early availability;
(ii) The deposition of qualitative data with the ESRC Qualidata Resource Centre, and on the WWW accessible to all relevant users via the Loughborough University Global Observatory (http://www.stile.lut.ac.uk/global.html) and GaWC Network (see Note II);
(iii) Press releases of summary of findings to targeted media (Economist, and the Recruitment sections of national newspapers, especially the Financial Times);
(iv) Targeted working papers/seminar presentations to potential user groups in the private and public sectors (e.g. financial TNCs; professional organizations; the state);
(v) A book length manuscript will be produced from the papers and publication negotiated with a leading publisher.
The Applicants' and Research Associate's Research Experience
The following relevant skills are being brought to the project (see also CVs).
(i) The applicants have experience of successfully managing a wide range of ESRC and other funded projects, each involving the day to day supervision of Research Associates, of which three directly relevant projects include: 'The Geography of British Business Elites in the World Economy' funded by Loughborough University (Dr J V Beaverstock); 'The Geographical Scope of London as a World City: A Relational Study' (R000222050) funded by the Economic and Social Research Council (Professor P J Taylor and Dr J V Beaverstock); and ESRC Pacific Rim Seminar Series (Dr M Doel)
(ii) All concerned with this project have researched and published papers on globalization and world cities, and/or the Pacific Rim;
(iii) One applicant (Dr J V Beaverstock) has extensive experience of a range of suitable qualitative research methods directed at obtaining data from TNCs;
(iv) Contact networks are in place: from the ongoing ESRC London project (R000222050) we have (a) a significant number of contacts in London based TNCs (who will be able to provide contacts in Singapore and New York), and, (b) an extensive library of financial TNC Annual Reports, International Office Directories, Internet sites etc. to be used to assist in the fieldwork stages of the project; and from the ESRC Seminar Series we have (c) an extensive network of academic contacts in the Asian Pacific Rim in addition to (d) logistical support from contacts in the National University of Singapore (and Nanjing Institute of Geography and Limnology, China, see Note I). All of these are being formally brought together under the GaWC Research Group and Network framework (see Note II)
Note I: Collaboration with Nanjing Institute of Geography and Limnology, Academia Sinica, Nanjing, P.R.C.
Professor Shuai Jiangping of the above institution visited Loughborough in November 1998 and a programme of collaborative research was agreed as part of the GaWC network. He has agreed to apply for research funding from the National Natural Science Foundation of China under their "International co-operation and exchange programme" which requires 'matching funding' from the foreign collaborators. If successful this application will be used as the matching funding. It must be emphasized that the project we have outlined above is free-standing and in no way is dependent upon Professor Shuai being successful in his application. If the latter happens as we expect, it would be a major bonus for us in providing access to data on emerging Chinese world cities which, apart from Hong Kong, hardly feature at all in the world city literature.
Professor Shuai's research project will consist of replicating the methodology above with reference to TNCs in Hong Kong, Beijing and Shanghai.
Note II: Globalization and World Cities Research Group and Network (GaWC)
Centred in the Geography Department at Loughborough University, this research group and network focuses upon the external relations of world cities. It addresses the data deficiency problem in inter-city relations by promoting relational studies of world cities and making the subsequent data easily accessible to the social science community on the world wide web. The ultimate goal is to produce a large data bank on relations between world cities to enable empirically-grounded development of theory on globalization and world cities. If successful this project will contribute directly to this end.
GaWC has an important role in this project in terms of developing contact networks and in disseminating results. As part of the web site there are GaWC Research Bulletins which report research papers immediately they are written and deemed ready for public airing by members of the group. These electronic publications will normally be pre-publications of journal articles for which the standard lag-time to publication is typically over one year.
ANNEX 1: References
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Beaverstock J V et al (1998)
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For results of this project, see GaWC Research Bulletins 18, 20, 21, 64 and 81, and GaWC Practitioner Brief 1.