GaWC Research Bulletin 114

This Research Bulletin has been published in Urban Studies, 41 (10), (2004), 2001-2024.

doi:10.1080/0042098042000256350

Please refer to the published version when quoting the paper.

(Z)

Global Business Services in Moscow: Patterns of Involvement

O. Gritsai^*

The academic debate on globalization and world cities is based mostly on the processes, taking place in the core of the world economy. In the last years more and more studies demonstrate the rising interest in the impact of globalization upon the less-developed countries (Amstrong and McGee, 1985; Smith, 1996; Dutt, 1996, Grant and Nijman, 2002). As compared to them, the post-socialist countries are still in the shadow of this debate, although their integration (or re-integration) into the world economy gives rise to new trends in economic and urban restructuring. The corporate service complexes, shaping up in large post-socialist cities, not only reconfigure the local urban economies but become the major link, connecting them to the global market. One of the most important aspects of this change is the building up of a certain economic potential, providing the possibility to arrange a position for the post-socialist cities in the global urban hierarchy.

For several decades Moscow has been the main political center of the socialist block and the most important decision-making center for the Soviet economy. In the 1990s the growing presence of foreign capital in Russia brought a new quality for the central function of Moscow and made it this time an undisputable leader of globalization in Russia.

This article is focused on the activity of the global business services companies in Moscow and patterns of their embeddedness into the local and national economy. The aim of research is to explore the changing role of Moscow in the world corporate geography and its transformation into a global city. In Russia the idea of Moscow being a global city is widely used by the city authorities and mass media, although in a rather speculative way, mostly wrapped in some geopolitical flavor. This study brings some empirical evidence to the story of the globalization of Moscow economy, based on its involvement in the international corporate networks.

THEORETICAL FRAMEWORK

The global cities literature of the last 30 years is focused mainly on criteria concerning the amount and types of economic activities, which qualify cities for world or international status. The focus over a long period has been on ranking cities, according to their geoeconomic potential in the global urban system. Beaverstock, Smith and Taylor (1999, p.446) identify four major approaches to ranking, which have dominated the literature: 1) analyzing and ranking the locational preferences and roles of multinational corporation (MNC) headquarters in the 'developed' world (Hall, 1966; Hymer, 1972; Heenan, 1977), 2) research on the world cities in the context of the new spatial division of labour (Fröbel et al, 1980; Cohen, 1981, Friedmann, 1986 etc), 3) cities under the impact of internationalization, concentration and intensity of producer services (Sassen, 1991; 1994) and 4)identifying the global cities' position through rankings of international financial centers (Reed, 1981; Sassen, 1999).

The authors of this literature review, representing the Loughborough group (Globalization and World Cities Study Group, GaWC), argue that exploring global city attributes becomes an efficient instrument for understanding the new urban order only in combination with studying links and relationships between the members of a system of cities. The importance of connectivity is emphasized in many of the recent GaWC Study Group's publications (Taylor, 1999, 2001; Taylor, Hoyler, 2000; Taylor, Walker, 2001; Taylor, Walker and Beaverstock, 2002). Global urban networks and links between the cities have turned in the last years into one of the key issues in global cities studies (Sassen, 2002; Short, 2002).

The globalization of services and the growth of foreign direct investment (FDI) in services by multinational firms became a crucial process, affecting the new urban networks. Most of the earlier works on global cities were focused mainly on the classical examples like New York, London and Tokyo as the world largest concentrations of business services (subsequently called BS)(Fainstein et al, 1992; King, 1990; Sassen, 1990, 1991; Thrift, 1994, Moss, 1991). It was only in the late 1990s that the cohort of global cities, covered by studies, has considerably expanded. This reflected the expanding global reach of multinational firms, operating in the service sector, which has caused the globalization of new urban cores, both in the developed and developing countries. The literature on Western cities contains both theoretical and empirical studies. The literature on the "Third World cities" for a long time had, according to Grant and Nijman (2002), a strong empirical orientation and carried the imprints of the development/underdevelopment debate, predating the theoretical framework linking urban change to economic globalization.

A few attempts have also been made to trace the process of globalization in the largest cities of the post-socialist world (Gritsai, 1996a,b,c,d; Brade and Rudolph, 20012003; Kolossov et al, 2002; O'Loughlin and Kolossov, 2002; ; Argenbright, 2003). The way the urban arena in transitional economies is exposed to global economic forces reflects the interaction of market developments, local and national governments policies, inertia of the post- socialist urban environment and geopolitical factors. The question is, to what extent Western theories of globalization and urban change can be applied to the non-Western economies with a different historical and social background. The development of capitalism in most of the former socialist countries has been interrupted for 40 years, and in Russia for 70 years. Weak links to the global markets and strong state control have impeded the modernization and economic restructuring, but in the last decade many changes took place. BS, which practically did not exist before 1990s, became one of the booming sectors. They played a major role in shaping the new middle classes and promoting social mobility in its different forms. The growth of FDI and the development of large national corporations resulted, among other things, in the emergence of corporate geographies closely linked to the global corporate networks.

Both developing and transitional economies had a later start with post-industrial transformation than the advanced Western economies. In both types of economies governments make attempts to accelerate transformations by means of innovation policy. In both cases BS are characterized by a strong spatial concentration in the main economic regions and largest cities, and a slow diffusion in the province.

Differences in the way post-industrial developments unfold in the "Third World countries" and in Eastern Europe are explained mainly by their specific political and socio-economic background. Many of the developing countries, especially in Asia, are passing through accelerated processes of industrialization and "de-industrialization" which followed the colonial period. Eastern Europe, on the contrary, is experiencing the second coming of capitalism after an extended period of industrial development. Many of the developing economies have been open to the global economy since their independence, while the East European countries were hidden behind the iron curtain for several decades. Cultural differences also have a big impact on economic performance and social patterns. Therefore, studying the development of BS in Russia opens one of the ways to understand how and to what extent the existing Western theories should be reconsidered before being applied to the non-Western societies.

Several of the key criteria of the world city status, introduced by Friedmann (1986) and developed in numerous publications all over the world, were later criticized for casual empiricism (e.g.Taylor, 1997). Peter Taylor and his colleagues from the Loughborough group were the first to rank the world cities according to criteria of international corporate service provision (Beaverstock, Smith and Taylor, 1999; Taylor and Hoyler, 2000; Taylor, 2000; Taylor, Walker, 2001; Taylor, Walker and Beaverstock, 2002). The GaWC inventory of world cities identifies three basic categories of world cities (alpha, beta and gamma) plus a group of cities with show some evidence of world city formation (Beaverstock, Smith and Taylor, 1999). Besides, it identifies groups of centres, leading in certain business service sectors, like global financial, advertising, accountancy or legal service centres with their subdivision into prime, major and minor (ibid.). In these classifications Moscow is the only post-socialist city characterized as a beta world city. The other largest cities of Eastern Europe and China, that are making their way from a position within a centrally planned economy to the acquisition of global city capabilities, (Prague, Beijing, Warsaw, Budapest, Shanghai) are ranked not higher than gamma world cities.

Taylor and Hoyler (2000) made an attempt to reveal the spatial order of European cities according to the mix and type of service firms. In this classification the European major spine cities (mostly alpha world cities like London, Paris, Frankfurt, Milan plus three of the beta world cities, like Madrid, Zurich, Brussels) are highlighted by a pronounced presence of banking/finance firms in the corporate mix. The world cities of the minor spine (German, Dutch, Scandinavian, North Italian) have another profile with a relative importance of accountancy as the most globalized of all service sectors, and a relative lack of banking. The outer regions are subdivided into several clusters. Moscow is included into the Eastern European cluster, which shows a pretty varied corporate mix with relatively high levels of location for banking, accountancy and generally "all sectors taking advantage of the new market opportunities consequent from the collapse of the Soviet block". In fact Moscow, having a corporate mix, similar to the major spine cities, is the only beta world city, lying outside the spine. Generally, according to this typology, the East European cities are different from the other European outer clusters (northern, south-western and south-eastern), which rather tend to have a relative surfeit of advertising, complemented with a relative dearth of banking.

Until now publications on Moscow as a world city were also mostly based on the traditional approach: studies on attributes strongly dominate over studies concerning connectivity, reiterating the earlier emphasis in work on Western city transformation. Most of them concentrate on certain specific processes like changes in the international links, reflected in the air traffic, social transformation and the emergence of the new middle class, business developments and office markets, or emerging CBD areas and their role in the intra-urban geography. BS as one of the most dynamic sectors of the Russian capital city also attract much attention. These studies provide a clear impression on the quickly changing socio-economic profile of Moscow, but leave somewhat in the shadow its changing role within the global and European urban networks, as well as its new function within the post-Soviet space or Eastern Europe in general.

The corporate presence and the activity of global corporations can serve as one of the best indicators of the city's growing links within the international economy. It also helps to distinguish real globalization from what is called "marketing the city", or "re-imaging the city" as a result of the Moscow government's efforts to raise the prestige and attractivity of Moscow for foreign investors. Therefore, the way the leading global companies in the business service sector set up shop in Moscow is one of the main foci of this study.

The second indicator of real globalization is the embeddedness of foreign capital within the national economy and its interaction with the local business. At the earlier stages of transition global capital, even if setting up offices in Moscow, was very little connected to the Russian economy. Foreign BS companies were mainly providing services to other foreign businesses. This situation started changing by the mid-1990s, and now there is evidence of a more close integration between foreign and domestic businesses, with new legal forms of co-existence found and new forms of embeddedness developing.

In this context the empirical analysis of the corporate service complex in Moscow is driven by three questions:

1. What is the role of BS in the economic structure of Moscow and to what extent has the presence of foreign companies in this sector increased in the last decade?
2. What mechanisms do these companies use to get embedded into the Russian economy (organizational forms, personnel recruitment, selection of clients) and what are the patterns of involvement?
3. How central is the role of Moscow in the BS corporate networks and how important is its gateway function for the national economy and the whole post-Soviet space?

DATA COLLECTION AND SURVEY METHODS

Data on economic activity in Russian cities and regions remain relatively poor and unreliable. Russian official statistics are changing very slowly and are to a large extent still based on old classifications. In publications and on the official websites of the National Committee of Statistics (Goskomstat) and the Moscow Statistical Bureau (Mosstat) industrial output remains the basic indicator of economic performance. BS are not present in the sectoral structure given by the official statistics and are dispersed among various sectors. It is relatively easier to find information on employment in the financial sector and in insurance (FIRE according to the Western classifications) and practically impossible on the advanced BS (consultants, accountants, legal services and advertising). Most of them seem to be hidden behind a mysterious group of "commercial activities, promoting the market", which together with FIRE and "information and computer services" may very approximately give the picture how large is the BS sector. But on the whole, due to the obsolete statistical structure, one of the most advanced and quickly developing sectors practically remains behind the screen.

The Russian statistical offices also generate commercial electronic datasets, including those on Moscow enterprises, differentiated by sectors. But these datasets seem to be incomplete as regards foreign enterprises, which have registration rules, different from the national companies. Until recently they were not obliged (only recommended) to register in the State Statistical Office when setting up a company, but at the same time they had to register in the Trade and Industry Chamber, which was not necessary for the national companies. Given the fact that many of the Western companies have enterprises with a mixed capital and an ambiguous legal status (being a Russian legal actor or just a Russian partners of an international chain), it is clear that all the datasets, compiled by state institutions don't match.

To collect reliable primary data on the international companies providing BS in Moscow, I analyzed the websites of the world top-100 companies in this field. The list of these companies was developed by the Loughborough group (http://www.lboro.ac.uk/gawc) and used for similar studies on other cities. The list includes 6 sectors: banking, insurance, accountancy, advertising, legal and management consultancies. Information about offices, subsidiaries and partners of these top-100 international corporations in Moscow and other post-Soviet cities, collected from the websites of the mother-companies, was arranged in a special dataset. Many of their Russian branches and partners have got their own websites, which became an important additional source of information.

The analysis of the websites was followed by telephone and e-mail interviews with officials in the Moscow offices, in order to obtain information, missing on the websites, and to check the data. The resulting dataset contained information on 66 companies, including their names, recent and current addresses, number of branches, their organizational and legal forms, year of foundation, list of clients and links with other offices of the company inside and outside Russia.

The general parameters of the dataset (subdivided by sectors) are: 1) presence in Moscow, 2) chronology of involvement, 3) patterns of involvement (changes in the organizational forms), 4) clients and services, 5) personnel recruitment, 6) offices elsewhere in Russia and in the other post-Soviet republics, 7) locations of offices in Moscow, and 9) type of office building (Table 1). The most important indicators were put together in a formalized table, which became the basis for computer mapping.

The dataset shows that although none of the top-100 international companies in BS has headquarters in Moscow, some of them have located here their basic regional offices which coordinate the company's activity not only in Russia but within the whole post-Soviet space. The corporate websites also made it possible to trace if the Moscow located groups of experts work on their projects in collaboration with other expert groups elsewhere in the West or in Eastern Europe.

The empirical analysis below is the presentation and interpretation of these data.

HISTORICAL BACKGROUND: THE CHANGING IMAGE OF MOSCOW IN THE 20TH CENTURY

When St.Petersburg became the new Russian capital city, Moscow for two centuries practically lost its political (especially international) functions but always remained the largest national economic center. Being centrally located in the European part of Russia, Moscow was the main crossroad of economic flows. This position was strengthened by the development of capitalism, stimulated by the reforms of 1861 and following years. The development of railroads and industry caused a rapid growth of the city (from 400 000 inhabitants in the beginning of the 1860s to 1,5 million in 1910). Apart from that, Moscow during the second half of the 19^th century had got the largest national concentration of banks, trade companies, stock exchanges and developed therefore functions, crucial for the largest economic centers. Those foreign companies, which had their main offices in St.Petersburg, used to have a second office in Moscow but many foreign companies deliberately settled down in Moscow only. Pre-Soviet Moscow functioned as an alternative capital with a high cultural and economic profile,but political leadership was left to St.Petersburg.

After 1917-1918 Moscow regained its capital city status and concentrated both economic and political power, the city started growing much faster than other Russian cities. Moscow became the strongly dominating decision-making center and the focus of international links. The new regime was experimenting with the new form of society, having practically isolated Russia from the outside world. Moscow was meant to be a propagandistic shopwindow for the whole country and experienced more change than any other big Russian city. The contrast between the capital city and the rest of Russia, both structural and social, became enormously big, with Moscow concentrating the major part of the Soviet elite and high-ranked bureaucracy and having a lot of state privileges. This did not exclude high intra-urban contrasts, which were in Moscow not less than in any other large city of the world. At the same time Moscow as a socialist city was developing without market mechanisms and by the early 1990s the trajectory of its economic restructuring and settlement structure were quite different from that of Western cities. As a result, the economic potential of Moscow as a world city was not built up gradually through the decades as it happened in the West and even in many developing countries, but had to be initiated practically from zero.

It is difficult to evaluate the real share of BS in Moscow, using the Russian statistics. Calculated either as a sum of three sectors ((a) commercial activities, promoting the market, (b) finance and insurance and (c) information and computer services), or adding the real estate sector as the fourth activity, BS in Moscow seem to have had their highest share before the economic crisis of 1998. In 1997 they made up about 9,2 to 9,7% of total employment (against less than 1% in 1990). In 1999 their share was down to 8,4 - 8,9% and then started to grow again (Table 2). Overall, this is an impressive growth for such a short time but it still cannot be compared with the world's largest post-industrial cities like London and New York, where this share already in the 1980s reached 33 - 38% (Sassen, 1991).

It is not surprising that the new activities, from the very start have been strongly concentrated in Moscow: BS very quickly became one of the most dynamic sectors of the Russian capital city. By the mid-1990s Moscow absorbed about 45% of the total national employment in this sphere, which is almost six times higher than its total share in national employment (Gritsai, 1997). Later growth of employment in BS was detected in more of the large Russian cities and some de-concentration trends were detected. Nevertheless, Moscow still remains the predominant national focus of decision-making and business services, leaving St.Petersburg, the second-large city, far behind.

Moscow's domination in BS is especially pronounced as regards the companies controlled by foreign capital. According to Moscow mayor Luzhkov, about 50% of the foreign investments in Russia in the 1990s landed in the capital city. In the BS sector this percentage is probably even higher. A location close to political power, headquarters of the largest Russian corporations and within the reach of the country's largest international airport puts it practically beyond any competition. Almost all the foreign BS companies located their main regional offices or subsidiaries in Moscow and only some of them later established extra branches and subdivisions in other big Russian cities. One of the very few exceptions is the Dresdner Bank, which from the very start has chosen St.Petersburg as the place for its representative office.

THE TOP-100 BUSINESS SERVICES COMPANIES IN MOSCOW: PATTERNS OF INVOLVEMENT

In the Soviet Moscow the presence of the foreign capital had a formal character and Western companies had, as a rule, purely representative offices. Given this pre-history and a very short history of market restructuring, it was hard to expect this city to be well represented in the corporate geography of global BS companies. Nevertheless by the end of 2002, two thirds of the world largest companies in this sector had their offices, subsidiaries or partner companies in Moscow.

There are big differences between the BS sectors in the way they are represented in Moscow (Table 3). The large international law companies are most frequently present, with 12 out of 16 (or 75%) of them having offices here. The lawyers are followed by the banks, with 15 out of the 21 world largest banks (71%) being present in Moscow, most of them running full-scale banking operations. Less active are advertising companies (9 out of 15, or 60%), accountants (10 out of 18, or 56%) and management consultancies (9 out of 17, or 53%). The only BS sector with very little activity in Moscow is the insurance business. Only one out of the 11 largest global insurance firms, the Allianz, was until recently present in Moscow (as a branch of the Ost-West Allianz, in the present one of the most dynamic companies of the Allianz Group) but their office will soon be closed. Another global insurance company, Lloyd's, has a very indirect presence in Russia: it practices only reinsurance via their Russian agents with no office of its own and no license. Prudential used to have an office in Moscow in the 1990s but after the insurance part of the company was partly taken over by Everest, this office was closed.

Taylor and Walker (2001), emphasizing the different nature of Moscow's attraction to BS firms as compared with other East European cities, also argue that the role of Moscow in Eastern Europe is similar to that of Tokyo in East Asia. Being the leading cities of the region according to the variety and the scale of global BS firms' activity, they both fail to become regional leaders. This conclusion is made on the basis of the number of regional offices established in these cities to coordinate the global company's networks in certain regions. Tokyo is a center only for Japan, while Hong Kong and Singapore share Pacific Asia office headquarters (Taylor, 2000b). In a similar way Moscow can't pretend any more to be the major center for the whole of Eastern Europe, although it remains the most important economic hub of the vast national territory and to some extent of the whole post-Soviet space.

The presence of international BS companies in the Russian capital city has radically changed during the 1990s, although partly this is the result of a generally increasing globalization. In 1990 it was only a quarter of the number in 2002 (only 16 companies, mostly banks) and two thirds in 1995 (44 companies). Table 4 shows that the foreign corporate activity in the BS sector started purely with banks, some of them had established liaison offices in Moscow long before 1988. Dresdner Bank, Deutsche Bank, BNP Paribas, Chase Manhattan and ABN-AMRO had representative offices already in the 1970s, a few more banks joined them in the 1980s. After 1988, when market reforms and liberalization were launched in Russia, the corporate profile became much more diversified, although in the first three years (1988-1990) the number of companies, setting up offices in Moscow, was still small (one or two in each sector, apart from banking, for the whole period). Baker and McKenzie¹ and Coudert Brothers were the first among the global law companies, Young and Rubicam among the advertising firms, Ernst and Young and KPMG among the international accountants, IBM and Bain & Company were the first large international management consultancies.

A real breakthrough happened in 1990-1995, when the number of global BS firms, having offices or other subdivisions in Moscow, was growing fast and more than tripled in five years. In the late 1990s-early 2000s this process has slowed down (partly because of the financial crisis in 1998). The purely quantitative change was replaced by the qualitative change. Attention now moved to the strategy of shareholding, the internal structure of the Moscow-based companies, their partners or subsidiaries and other aspects of their embeddedness in the Russian economy.

The major changes happened in the banking sector. Due to the liberalization of foreign investments in the early 1990s, Western banks were allowed to carry out commercial activities in Russia. As a result, many of them, apart from maintaining representative offices, founded commercial banks, performing all sorts of financial operations. While having Western founders and (predominantly) foreign capital, such banking enterprises, most of them registered as joint stock companies, are institutionally Russian legal actors. This combination of characteristics provides foreign banks with more flexibility, which is especially important as they operate in the unstable legal environment of Russia. The first banks to acquire licenses for commercial activity were Dresdner Bank, ABN-AMRO, Citybank and Credit Suisse First Boston (all in 1993), followed by ING Bank (with two sub-companies - ING Bank Eurasia and ING-Baring Vostok Capital Partners) in 1994 and the Westdeutsche Landesbank Girocentrale (WestLB) in 1995. Six more global banks got licences in 1996-2000, mostly before summer 1998 (6 banks), with no new licenses in 1999 and only one in 2000 (J.P.Morgan, which was one of the last global banks to set an office in Moscow and the last to get a license, just before its merger with Chase Manhattan).

Now only two banks of the top-100 list have representative offices only, with no commercial activity: BNP Paribas and Bank of Tokyo - Mitsubishi. It is remarkable that the large Japanese banks are practically absent on the Russian market. The Bank of Tokyo - Mitsubishi is the only one out of the six largest Japanese banks from the GaWC list, which has a liaison office in Moscow. As for the rest - Russia (at least its European) still seems to remain beyond their interests.

The global insurance companies also adapt their strategies to the Russian market, operating mostly through the largest national companies with an established reputation. The Ost-West Allianz has recently transferred most of its activity to the Russian insurance company ROSNO, where Allianz is one of the two largest shareholders. ROSNO is also collaborating with Lloyd's. Established in 1992 as a purely national company, today ROSNO is controlled by the multi-profile Russian financial corporation "Systema" and the German "Allianz". As one of the largest insurance companies of the country, it has a developed network of regional branches and agencies in Russia and other post-Soviet republics, opening extra market space for its largest shareholder. On the other hand, the presence of an internationally established company among the shareholders of ROSNO serves as a guarantee of reliability for potential clients. As a result, ROSNO operates in a way similar to the large international companies, having an impressive list of international clients (such as Ruhrgas, British Airlines, Texaco Petroleum etc.), collaborating with the world largest re-insurance companies (Lloyd's, Munich Re, Cologne Re) and using services of one of the global accountants - Pricewaterhouse Coopers. In a similar way other global insurance companies prefer to deal with the Russian economy via the largest Russian companies (like Ingosstrakh, for example, the successful successor of the former Soviet organization, privatized and developed into a transnational company) without establishing their own offices or branches in Moscow or other cities. It looks like especially in this sector the global BS recognized the high risks of the unstable Russian economy. This drove them to look for more safe ways of doing business in this country.

The international law companies and management consultancies are, on the contrary, relatively stable in their organizational and legal form. All the 11 law companies and 7 out of the 10 largest management consultancies, represented in Moscow, have their regional offices in the city, registered as foreign legal actors under the name of their mother companies (Table 5). One of the management consultancies (Booze, Allen & Hamilton) has a purely liaison office with support function and no commercial activity, two firms (Bain&Company and Shlumberger Sema) do have commercial activity but no office and operate from London. Bain&Company was one of the first management consultancies to establish an office in Moscow (1989) but also the first (and the only) to close it after the crisis of 1998 and to transfer the supervision of the projects in Russia to the London office.

The largest globally operating accountant and advertising firms have chosen for more diverse and flexible forms of integration into the Russian economy. If half of the global accountants have regular regional offices in Moscow, the other half is operating on the Russian market through Russian partner companies, which officially became members or correspondents of certain international associations. These are mostly companies, which have already gained a strong position in the national accountancy sector and developed their own regional networks with sub-agents in other Russian cities. In this way the global firms get direct access to the Russian market as a whole. Through the mergers of these partner companies with other national companies, the international accountants expand not only regionally but also in the range of provided services. This process can be illustrated by the organizational changes within the Russian agent (or partner) of BDO. Since 1996 the interests of BDO in Russia were represented by the Russian company Rufaudit (named this way after the name of its founder and general director Alexei Ruf). This company was established in 1991 and soon became the initiator and Head Company of Audit-Consulting Group BDO Rufaudit Aliance, which includes along with subsidiaries of BDO Rufaudit a number of regional audit and consulting companies in the Russian Federation and in other CIS countries (altogether in 18 cities). In December 2002 BDO Rufaudit has merged with another large Russian company Unicon/MC Consulting Group and the national BDO partner company in Russia, renamed into BDO UniconRuf, became more powerful.

Among the global advertising companies almost half (4 out of 9) have chosen for having subsidiaries (some of them legally foreign companies as D'Arcy or Young and Rubicam, some Russian legal actors as BBDO or J Walter Thompson). Two global firms have Russian partner companies, representing their interests, and three are joint ventures with a Russian holding Video International, which controls about 80% of sales on TV time for advertising purposes.

Generally the global BS companies in Moscow look for different forms to realize an optimal embeddedness into the Russian economy, mostly by means of incorporating Russian partners, getting shares in Russian companies or establishing subsidiaries with a status as Russian legal actors.

But it is important to mention that some of the Western companies have in earlier years passed through a completely different stage: splitting up an earlier established joint venture with a Russian partner. In the late 1980s - early 1990s, when the constraints on the commercial activity of foreign companies in Russia were still strong, joint ventures were the most common form of penetration into the Russian market. Very often the role of the Russian partner in such alliances was played by the agencies of the former Soviet Foreign Trade Ministry. To that time these became formally privatized national companies. For instance, Young and Rubicam, one of the first international advertising agencies in Russia, started its activity as a joint venture with Sovera, the former Vneshtorgreklama (the advertising department within the Foreign Trade Ministry), quickly renamed for its unpronounceability. This joint venture existed from 1989 to 1994, and since then after splitting up Young and Rubicam Advertizing operates as a purely foreign company.

A similar story happened with Cooper, one of the first global accountants in Russia, which first established an office in Russia in 1913 (to that time in St.Petersburg) and in 1990 made a new attempt, now in Moscow. This new attempt was in the form of a joint venture, again with one of the numerous post-Soviet offsprings of the Foreign Trade Ministry. In 1998, already after splitting up with its Russian partner, Cooper merged with another global accountant, Pricewaterhouse, which to that moment was operating in Moscow for almost 10 years and had established in 1992 a large subsidiary with the status of a Russian legal actor. After the merger the joint enterprise of Pricewaterhouse Cooper became one of the largest accountant companies in Moscow, completely owned by foreign capital, with about 1000 personnel.

All this activity can be summarized as three basic strategies of involvement into the Russian economy chosen by the global BS companies, each of them specific for certain sectors:

1. The law companies and management consultancies with a few exeptions operate mostly through their regional offices in Moscow directly under the name of the mother company

2. Two thirds of the global banks have a representative office and a subsidiary - a commercial company with the foreign bank itself being a founder, having most of the shares (often 100%), operating under the name of the main bank but registered as a Russian legal actor

3. Accountants and advertising companies don't have a dominant organizational structure, but choose for diverse forms of integration with Russian capital: the trend is to use the established networks of the largest national companies and to create all sorts of mixed enterprises.

There are many examples of Russian companies, which in a short time have passed a long way from a small studio or a working group to a large agency, developed regional networks and soon became partners of global consortiums and international groups. A spectacular case is the advertising agency Media Arts, which is now operating as a representative of the FCB group in Russia (Table 6).

The agency was established in 1989 by three young enthusiasts with a very diverse educational background. Its future general director was still a student of the Moscow Technological University at the time. Another initiator was a student of computer sciences in a military institute. Later they were joined 1)by a TV journalist from Almaty, to that time capital of Kazakhstan, 2)a graduate from the geography faculty, Moscow State University, and 3)the current creative director of the company, who graduated from two highschools in Russia (as a linquist and a publisher), from one in Germany (marketing and management), and who had attended a post-graduate course in England and had worked for some of the most reputed brands in the advertising business (TBWA Dusseldorf, Ogilvy & Mather, Bates VIAG Saatchi & Saatchi) during the 1990s.

The agency, established by students, was one of the first Russian computer graphics studios to emerge and was working primarily for the television, producing medium-sized commercials. After its transformation into Media Arts Advertising Agency in 1994 the company expanded its brief to include a full range of advertising and marketing services. In 1995 Media Arts already had a big enough portfolio to form a Regional Clients Department, and in 1996 a Research Department. As the company was growing, it started a process of internal restructuring to comply with international standards. By 1998 it already worked with top companies, both Russian and international, such as Citroen, Verofarm and Mead Johnston. The economic crisis of August 1998 stimulated many companies, especially the Russian ones, to invest more in advertising to recover after the shock, which brought Media Arts to further expansion. In 1999 the company received an offer from the well-known international agency Foote, Cone & Belding (FCB) to work together on the Russian market. In the middle of 1999 it became the sole representative of FCB in Russia under the name of Media Arts FCB.

CLIENTS AND PERSONNEL

The variety of legal forms, chosen by the global BS companies and the growing integration of Western and Russian capital was accompanied by a mixed distribution of clients. Presumably Western business would rather choose Western service companies. This is partly true because the Moscow-based global BS firms often bring clients of the mother companies. In addition, only the largest of the Russian companies can probably afford the more expensive services of the global BS firms. However, it should also be stressed that there is a clear difference between the BS sectors in the kinds of clients they capture.

Lawyers and management consultancies have a higher share of foreign clients, as compared to the other sectors: they consult mostly Western companies, doing business in Russia. At the same time some of the law firms also provide legal advices to Russian companies, operating in the West. As a matter of fact all of them are accustomed to practice different national laws (British, French, German etc).

At the other extreme are advertising agencies with diverse organizational structures and a mixed structure of clients. In the last years Russian advertising companies (some of them independent, some part of holdings with foreign shares) have captured many of the large Western clients. It is the personal factor that often turns out to be decisive for a company choosing the agency.

A good illustration is a recent transformation of the Moscow subdivision of D'Arcy, a well-known advertising agency. Its general director, Sergei Koptev, one of the most successful managers in the Russian advertising business, is creating his own new agency, taking away from the current D'Arcy not only a big part of its top personnel but also at least two of its big clients - Mars and Efes. If it really happens, the new agency will already in the first year of its existence be among the ten largest advertising companies in Russia. Partly this decision is connected with the ownership changes within the mother company: the French group D'Arcy is recently acquired by the concern Publicis Groupe, which is going to stop business under the label of D'Arcy in many countries. In this situation creating a new agency can be considered to be a preventive measure (becoming one of the co-owners of the new company, Koptev himself is not yet leaving the Moscow D'Arcy). At the same time officially this situation is explained by the attempt to keep the two important clients, one of which (the mother company of Mars) already a year ago made public the intention to choose another advertising network to work with worldwide. The other major client (Efes) could not work with the Moscow office of D'Arcy anymore because the mother company D'Arcy International had signed a contract with Efes's direct competitor Heineken. Nevertheless, the real motives of this action seem to be rather personal and the whole story looks like a perfect example how big clients choosing not so much the name of the agency but the person to work with and being willing to go after the person when the previous contract is over.

The patterns of personnel recruitment even more clearly demonstrate intersectoral differences. They reflect the size of offices, qualification requirements, educational background and records of the previous career.

Professional services (in this study - law firms and management consultancies) are closely associated with "symbolic analytical" activities (Coffey, 1996) and generate recommendations, advice and evaluation, which need good education, diplomas and formal training. They are relatively small-scale, both in terms of employees and office space, and have more professionals employed than support personnel. Offices of global lawyers and management consultancies in Moscow usually have about 20-50 employees with a high share of Western personnel (up to 50%). Many of the Russians working in these companies (those in leading positions as well as ordinary members of the staff) have a very high quality education, with master and PhD diplomas, obtained in the best Western Universities, and a record of working for international companies and organizations. Most of them are young people in the age of 28-35 with a clearly pronounced "accumulative" career curve (professional education, followed by getting practical experience in the same field and steady career growth).

International banks and accountants, on the contrary, have bigger offices: banks about 100-200, accountants up to 1000 employees (the largest, more than 1000 employees is Ernst & Young together with recently acquired Arthur Andersen) and therefore need more office space. Financial institutions, as compared to consultanies, have a high share of standardized operations and routine jobs, offering numerous packaged products or sets of services. For this reason a big part of their personnel is trained only to perform repetitive tasks, where high skills are not needed. These are mostly females, many of them with high educational qualifications in other (often technical) fields, where after the beginning of reforms they could not find a properly paid job. The top level personnel of the foreign banks in Moscow (subsidiaries, not representative offices) is to a large extent Russian, on average older than in the professional services and rather has a large experience of managerial work in big companies than Western diplomas.

A special case is the advertising business, with a spectacularly young age of their Russian employees holding a variety of diplomas. Russian Universities and highschools still produce very little specialists in communication sciences, although demand for them is growing. Most of the employees come to the advertising companies fresh from the university and learn the necessary skills in place. As a result, the average age of the staff is 25-30 years old, many of them are still in their early 20s, with the top personnel (also mostly Russian) in the age of about 35. Having foreign employees is not common for the subsidiaries of the global advertising firms in Russia. Most of them are run by Russians only, with a remarkably high share of female employees, especially among the leading staff.

MOSCOW IN THE CORPORATE GLOBAL AND REGIONAL NETWORKS

In most of the literature the discussion about the new role of Moscow in urban and regional networks is based on one of two hypotheses. The first one suggests that as a result of the fragmentation of space Moscow is losing its central position to the new national capitals of the former republics. The second one suggests, that Moscow still remains a strongly dominating "managerial" center, not only for the Russian Federation but for the "near abroad" as well. The case of the global BS companies provides some additional answers on this issue.

To evaluate the gateway role of Moscow for the provision of BS by globally operating companies I analyzed the full lists of offices, which global BS companies and their local partners have set up in Russian cities and in former Soviet republics. When it was possible, I also tried to assess their corporate links with branches elsewhere abroad. The analysis showed that spatial networks of the global BS firms strongly depend upon the forms of activity, based from the very start on a certain type of territoriality. In summary three types of spatial strategies are revealed and projected into three different types of urban network (Table 7).

1) Internationally based activities (advisory and project-based), which are practically not dependent upon the proximity to the client, are strongly concentrated in Moscow. In this case Moscow acts as the main centre for the whole post-Soviet space and is more integrated into the international global cities' network.

The global lawyers and management consultancies, which have business in Russia, all operate mainly from Moscow and have very few other offices elsewhere outside the capital city. Two law companies (Baker and Mackenzie and Coudert Brothers) and two management consultancies (Deloitte Touche and former Arthur Andersen, now part of Ernst and Young) have alternative offices in St.Petersburg, the latter (Arthur Andersen/Ernst and Young) also in Novosibirsk. Most of the activity in the other post-Soviet states is also coordinated from Moscow. The website of the law firm Latham&Watkins even indicates that the new Baltic countries are included into the Moscow-centered zone. Deloitte Touche is the only one to have three other offices outside Russia (Almaty, Kiev and Tbilisi) and Coudert Brothers has one (Almaty).

At the same time global lawyers and consultancies in Moscow have strong links with expert groups outside Russia and CIS. Among the external locations London, New York, Washington, Paris and Frankfurt are mentioned most of all. Lovells' Moscow office is connected to the expert groups in Tokyo, Brussels, Stockholm, Berlin, Munich; McKeansley's consultancy practice - to the East-European groups in Warsaw, Prague and Budapest.

2) Banks and advertising companies are activities, operating on a national basis, like banks dependent on the national banking systems, and advertising relying on the national mass media, especially television. They tend to have multi-polar networks with offices in several capital cities of the post-Soviet states. The hierarchy is here not much pronounced and Moscow has more or less equal position with some other national capitals. Kiev is undoubtedly the main challenge to Moscow: 6 out of 15 banks and 5 out of 9 advertising companies have also offices there, some of them more than one. Almaty has 6 bank offices and 2 offices of advertising firms with Tashkent next in rank. Among other locations (mentioned only once) are Minsk, Tbilisi, Yerevan and Baku. The Almaty-based office of Commerzbank also serves as a regional office for operations in Kirgizia and Mongolia.

At the same time such companies don't have many offices in Russia, apart from those in Moscow, although banks have generally more of them than advertising companies. Five out of fifteen banks have second offices in St.Petersburg. Other locations in Russia (Vladivostok, Novosibirsk, Ekaterinburg, Perm, Nizhni Novgorod) serve mostly as a sort of regional centers for coordinating activity in the Far East, Siberia and the Urals. The Russian partner companies of the international networks are more likely to have wider national networks of offices than subsidiaries of Western companies.

3) Locally and regionally biased companies (accountants and probably insurance companies) have hierarchically organized national systems of offices and branches subordinated to Moscow. The geography of these networks is very rich, covering practically the whole country from Kaliningrad to the island of Sakhalin.

The number of their branches in the other post-Soviet states is much smaller. Outside Russia centers to be mentioned are Kiev (offices of 4 companies), Tashkent (3 offices) and Yerevan (2 offices). The two largest accountant companies, KPMG and Ernst&Young (the latter including Arthur Andersen) have the most extended coverage of the post-Soviet space with long lists of offices elsewhere. It is interesting that activities in unstable economies are sometimes also operated from Moscow: for example, KPMG among others has offices in Tbilisi and Baku, which are run from Moscow by Western personnel.

These conclusions provide an answer to the last question I put in the beginning of the article: how central is the role of Moscow in the BS corporate networks? In spite of the fragmentation of the post-Soviet space, concentration of the global BS activity in Moscow is generally quite high, both for the sectors (or companies) with developed regional networks of offices in Russia and without them. At the same time the new political order gave more chances for some of the national capitals (in the former Soviet republics), which in earlier times have been completely subordinated to Moscow.

CONCLUSIONS

My research on the role of Moscow in the global BS companies' activity has demonstrated that along with the deep socio-economic transformation, the Russian capital city indeed became in the last few years an important focus of global corporate networks. Moscow linked some of these activities to a large macro-region, that until recently was practically closed for foreign business. Moscow today concentrates not only the representative offices of global BS companies but also more and more of their operating units. This finding undermines widely spread skepticism about the nature of globalization in Moscow. It provides the common ground for interpreting developments in Moscow in a wide-ranging comparison with the other world cities.

The second important conclusion concerns the growing and diversified embeddedness of the international service companies in the national economy. The variety of legal forms, which foreign corporations have chosen for their branches in Moscow, and the rising number of Russian companies, that have become members (or partners) of international networks, illustrate the flexibility of global corporations in setting up business on the Russian market and in manipulating with different patterns of involvement. It also proves that under the relative stabilization of the Russian economy links between the foreign and national capital become stronger, bringing together clients and service providers from both sides and resulting in a wider recruitment of Russian personnel not only for executing low-skill functions but also for the high-level jobs, which require many professional skills and a good education.

The research findings indicate differences between the BS sectors in their organizational forms and ways of integration into the Russian economy.

Professional services of analytical and advisory character are more likely to remain purely Western companies, to have one regional office in Moscow, supervising activity in the whole post-Soviet space and working in collaboration with expert groups abroad. These offices have a mixed personnel structure with a relatively equal share of Western and Russian highly educated professionals in the leading positions.

BS of applied character (advertising and accountancy companies) hardly have a pronounced pattern of organizational structure, but most of them choose for diverse forms of integration with Russian capital. "Applied" business services, with very few exceptions, recruit mostly Russian personnel, including the top management. Their spatial pattern is more diffused, with Moscow remaining the strongly dominating decision-making centre for the accountants and less pronounced centre for the advertising, where it partly shares the top functions with the strongest of the post-Soviet capital cities - Kiev and Almaty.

International banks tend to separate representative offices (Western legal actor), with mostly foreign personnel, from commercial subsidiaries (Russian legal actor), with purely Russian personnel. All the "applied" business services, including the financial ones, have much more developed national or supra-national (including other post-Soviet republics) networks of offices. The position of Moscow on the top of hierarchy is strongly pronounced on the national scale and much less pronounced on the "post-Soviet" scale.

At the national scale Moscow remains by far the most attractive location for global service corporations. At the supra-national scale it generally remains central but is challenged by some national capitals (Kiev and Almaty). Moscow has completely lost its central role within Eastern Europe. The gateway function of Moscow is much stronger for professional services than for the financial sector, which since the mid-1990s has an increasing number of branches all across the former Soviet Union, not necessarily operating under the central guidance of a Moscow headquarter.

This study reveals an aspect of globalization, which has not been yet sufficiently reflected in the existing literature. It makes a bridge between qualifying place and qualifying networks, with a special emphasis on global-local linkages. Analyzing the activity of foreign corporations is an efficient instrument for understanding the function of Moscow in the new urban order and its links with the other cities within the global urban networks. Such a functional approach in combination with the traditional "attributive" approach provides fresh insights on the changes taking place in the Russian capital city, including the debate on the role of foreign capital in the Russian economy.

The experience of Moscow, building up practically from scratch its position in the corporate geography of international business services, is shared by other cities in the countries with transitional economies. They have a common past of centrally planned economies, although a different political and cultural background may modify many of these processes that are similar at first glance. It is hoped that this study stimulates further comparative research on globalization in the cities of the countries with transitional economies, which are now still at a very preliminary stage. It also opens more questions on different aspects of the global companies' presence in Moscow, including their locational behavior and social impacts. These will be the topics of my following papers.

NOTES

* University of Amsterdam and Institute of Geography, Russian Academy of Sciences

1. Baker and McKenzie is considered to be the most global of law firms, to be the first or one of the first in the newly globalizing cities and to be permanently featured not only in the corporate mix, dominated by banking, but in other corporate profiles, as well. This proves the firm's pioneer role in globalising the least globalised service, law (Beaverstock et al., 2000).

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Table 1: General parameters of the data set

1. Presence in Moscow (by sectors)
2. Chronology of involvement
3. Patterns of involvement (changing organizational forms)
4. Services and clients
5. Personnel recruitment
6. Offices elsewhere in Russia
7. Offices in the other post-Soviet republics
8. Locations (in dynamics)
9. Type of office building

Table 2: Business services in the economic structure of Moscow (% of total employment)

*Variant 1 is calculated as a sum of three sectors: 1)commercial activities, promoting the market, 2)finance and insurance, 3)informational and computer services

**Variant 2 is calculated as a sum of four sectors and includes also the real estate sector.

Source: Administrative districts of Moscow in 2000. Moscow, Mosgorcomstat, 2001 (in Russian)

Table 3: Global business services companies: presence in Moscow (2002)

Table 4: The number of BS top-100 offices, opened in Moscow

Table 5: Organizational forms, common for the BS top-100 in Russia (by sectors)

Table 6: Media Arts FCB in Russia

• 1989 - Alexey Krasnov, Ilya Slutsky and Dmitry Chernyshenko open the computer graphics agency IMS Studio
• 1991 - IMS Studio is transformed into SFT Advertising Agency
• 1994 - SFT Advertising Agency is re-badged as Media Arts Advertising Agency
• 1994 - Media Arts signs contract with UPSA Pharmaceuticals to shoot a series of five video commercials
• 1994 - Media Arts billings reach $2 million (this figure doubles every year until 1998)
• 1995 - Media Arts forms its Regional Clients Department
• 1996 - Media Arts forms its Research Department
• 1996 - as the company grows, Media Arts begins a process of internal restructuring and by 1997 has evolved into a well-tuned business entity complying with all international standards.
• In the first half of 1998 the Agency works with top companies, including: Mead Johnson, Citroen, Austria Tobacco, Vena, Verofarm, Uralskie Samotsvety, Best Bottling and Novie Okna
• The wake of the general economic crisis of August 1998 proves to be a prime time for Russian companies interested in the creation and promotion of new brands
• Media Arts re-orients itself to work with Russian clients
• Media Arts receives an offer from the well-known international advertising agency Foote, Cone & Belding (FCB) to work together in the Russian market
• From the middle of 1999 onwards Media Arts is the sole representative of FCB in Russia
• The name of the Agency changes to Media Arts FCB
• Media Arts FCB increases its staff to 70
• The list of clients of Media Arts FCB now includes such companies as Bristol-Myers Squibb, Beiersdorf, Daimler-Chrysler, SC Johnson, Compaq, and Kalina concern

Table 7: The top-100's networks within the post-Soviet space (patterns by sectors)

Table 7: The top-100's networks within the post-Soviet space (patterns by sectors)

Note: This Research Bulletin has been published in Urban Studies, 41 (10), (2004), 2001-2024