GaWC Research Bulletin 325

This Research Bulletin has been published in Global Networks, 10 (1), (2010), 35-53.

doi:10.1111/j.1471-0374.2010.00273.x

Please refer to the published version when quoting the paper.

(Z)

Global Cities in Global Commodity Chains: Exploring the Role of Mexico City in the Geography of Global Economic Governance

C. Parnreiter^*

Abstract

The article asserts that global cities are critical nodes in global commodity chains, because it is from them that producer services are provided. It explores forward linkages of producer service firms in Mexico City, showing that there are important service flows to companies being responsible for the globalization of the ‘Mexican' economy. Based on this finding the article also indicates reasons why Mexico City is ‘on the map' of global cities and of global commodity chains. It is argued that both access to local knowledge and close contact to clients are key factors. A third issue dealt with is the position of Mexico City in the geography of governance of commodity chains. The analysis suggests that it is useful to break up global city functions into the management of the world economy and into its command and control, because Mexico City is certainly a place for the former, while the scope of influence exercised from the city is rather limited.

Keywords: Global cities, Global Commodity Chains, producer services, governance, globalization, Mexico City

Introduction

Global city research is guided by two basic arguments. The first is that global cities articulate local, regional and national economies into the world economy by providing producer services (such as finance, accountancy, consultancy, legal or real estate services) to companies that operate on different geographical scales. Secondly, it is maintained that global cities have emerged ‘as highly concentrated command points in the organization of the world economy' (Sassen 1991: 3), because producer services are seen not only as techniques necessary for the smooth function of production networks, but also as means that constitute the capability for global control.

Though both claims are widely accepted, empirical evidence that documents the management and the command functions of global cities is rare. Now, complaints on the lack of adequate data for global city research are common, and much has been achieved since Short et al.'s (1996) critical account. Most progress was made in the empirical analyses of linkages between major cities hosting the most important (producer service) firms (see, for example, Derudder 2006; Taylor 2004; Taylor et al. 2009). Little research, however, has been devoted to showing how producer service firms in global cities help to link economies on different geographical scales. Even less effort was made to explore to what extent the presence of sizable clusters of globalized producer service firms may lead to the qualification of a city as a command-and-control centre in the global economy. Hence, little is known about the actual practice of exercising management and command functions, which, needless to say, undermines the strength of the global city argument.

Despite this lack of evidence, the central argument of this article is that global cities are – and have to be understood as – critical nodes in global commodity chains.¹ Because they are the places where producer services, i.e., the means to deal with and to control complex cross-border networks of production and distribution, are provided, each global city constitutes a significant juncture in numberless production networks, while each commodity chain contains several world cities (Parnreiter 2003). This claim is derived from Hopkins and Wallerstein's (1977: 114) spatial conceptualization of core areas, which are defined as areas with ‘many relational sequences leading from or to them'. Though Hopkins and Wallerstein developed their concept of commodity chains only in the 1980s, and though Wallerstein never thought of cities as the cores of the world economy, the usefulness of this line of reasoning for the purpose of integrating the research literatures on world cities and on global commodity chains is obvious (see also Brown et al. in this issue). My assertion that global cities are key nodes in cross-border production networks has further roots in Sassen's account that producer services, which are highly concentrated in global cities, constitute the instruments for the management and the control of the dispersed world economy. Finally, my contention also emanates from Rabach and Kim's (1994: 123) notion that ‘without the integrating and coordinating function fulfilled by services, GCC would not be viable'. These arguments clearly suggest that producer services constitute core activities in commodity chains, and that global cities are critical links in commodity chains.

The purpose of this article is to sustain this claim by providing qualified evidence for both assumed functions of global cities, namely the management and the command of global production networks. This will be done through the analysis of forward linkages of producer service firms in Mexico City. My empirical analysis focuses, firstly, on service flows from firms in Mexico City to major companies engaged in global production in Mexico. I will argue that Mexico City is necessarily a place to insert producer services into commodity chains originating in or running through Mexico.

Secondly, the empirical analysis seeks to highlight whether and to which extent producer service firms in Mexico City also exercise some control over the production chains for which they supply services. Based on Sassen's (1991) conception of global cities as points of command and on Gereffi's (1994: 97) notion that governance of commodity chains means the authority to influence the creation and allocation of value within a chain, the objective is to explore whether the producer service sector in Mexico City plays a role in the shaping of value creation and distribution within the segments of global production networks in Mexico, or whether global city formation in Mexico City is confined to contributions that merely enable the running of global commodity chains. Thus, the question posed is: what is the position of Mexico City in the geography of governance in the world economy? My conclusion will be nuanced – the city's role varies by sector and firm-specific factors, and it also depends on the kind of producer services being analyzed.

By exploring whether governance functions are exercised in Mexico City, the article also contributes to a more comprehensive grasp the role of major cities in low- and middle-income countries in processes of uneven globalization. My contention is that such an understanding is necessary for a conception of the (changing) geography of governance, because both apocalyptic accounts (Davis 2006) and complaints that global city research is inadequate for understanding cities in poorer countries (e.g. Robinson 2006) obscure the role of cities like Mexico City in the world economy.

The remainder of this article is organized as follows. After a brief discussion on the deeper integration of economic activities in Mexico into global commodity chains and of global city formation in the country's capital, in the following three sections I will examine the management and the control assumption of global city research, and discuss the specific place of Mexico City in the geography of governance. To document and analyze connections between Mexico City's producer service sector and companies in commodity chains running through Mexico I use different data sources. I draw on national accounts data, which are broken down by different types of producer services and analyzed for different geographical scales, as well as on written information provided by global producer service firms in Mexico City, which offers detailed insights into the structures of clients of the respective firms. This information is supplemented by insights gained from 13 semi-structured expert interviews with professionals in accountancy, finance, law and real estate firms, and with Alejandro Tagle Robles, deputy director of the National Register of Foreign Investment at the Ministry of Economics. Interviews lasted between 30 and 70 minutes and were conducted in Mexico City, mainly in October 2008 (two in October 2007). Most interviews were held in Spanish (two in German), and were recorded, transcribed and translated by the author. Interviews focused on the structure of clients, on different features of the services provided, on the position of the Mexican office vis-à-vis other offices of the respective service firm, and on the potential influence the service firm has on corporate decision-making. In the final section the results of the study are summarized.

Deeper integration into Global Commodity Chains and Global City formation

Mexico City is a proper case because the country's economy has gone through a rapid course of globalization, and because there is sound evidence for ongoing global city formation. In the following section, I briefly discuss both aspects to provide the basis for the following examination of Mexico City's role in commodity chains.

Following the end of import substituting industrialization (ISI) in the early 1980s, Mexico became the third largest recipient of FDI among developing economies. Annual inflows grew by 1,300 per cent (1980/85–2001/06), amounting to US$19 billion in 2006. As a result, the share of Mexico's FDI stock in its GDP rose to 27 per cent (UNCTAD 2007). Manufacturing is the most important destination for FDI (46 per cent [1999–2008]), followed by financial and real estate services (together 26 per cent) (Secretaría de Economía 2008). Cross-border trade has also grown significantly. Exports have grown nine fold (up to $US272 billion in 2007), and imports have increased 12 fold (1980/85-2002/07). As a result, the trade ratio rose to 65 percent in 2006, up from 24 per cent in the early 1980s (UNCTAD 2008; World Bank 2008).

An even more significant feature of the globalization of the Mexican economy is that the composition of exports was altered fundamentally, with manufacturing amounting to 80 per cent of exports (2006–08), while the share of oil has decreased to 17 per cent. This indicates a changing integration of firms and cities in Mexico into global commodity chains, transforming them into production platforms designed chiefly to serve the US market. Another salient feature is that the trade balance has been negative in almost every year since Mexico joined the GATT/WTO in 1986. Even in manufacturing the trade balance is strongly negative, with the electronic and the automotive industries as the strongest importers (INEGI 2008a; UNCTAD 2008).

While Mexico's economy was being reoriented towards the world market, Mexico City – in the era of ISI the economic epicentre of the domestic market – underwent a deep transformation. The share of manufacturing in the city's gross regional product dropped from 24 to 19 per cent (1980–2003), while the participation of Mexico City in national industrial production was falling from 47 to 17 per cent.² This decline led to an overall reduction of Mexico City's participation in the national GDP, which in 2003 amounted to 31 per cent. Another major trend is the strong growth of producer services. Financial services increased their share in the city's GRP from 9 to 25 per cent (1980–2003), while real estate, legal and headquarter services also grew above average.³ In 2003 Mexico City's producer services accounted for more than a third of urban production, while the city's share in the national production of these services had risen to 76 per cent. As comparison: Monterrey accounted, despite its economic upsurge in recent years, for only 6 per cent. With 88 per cent of Mexico's added value stemming from Mexico City, financial services are the most concentrated services, followed by headquarter services (81 per cent) (Sobrino 2000; INEGI 2004). This rise of producer services indicates that Mexico City is changing from a predominantly national production centre, catering to and integrating the domestic market, to a hinge between economic activities carried out in Mexico and the world market (Parnreiter 2002, 2007). Support for this argument comes from studies that show that Mexico City's producer service sector is firmly inserted into the world city network (Taylor 2004). Classified as an ‘ Alpha- World City' in 2008, Mexico City had network connectivity comparable to Amsterdam or Frankfurt (Taylor et al. 2009).

Concomitant with the concentration of producer services, the headquarters of the main companies operating in Mexico have become more centralized. In 1993, the year before NAFTA was enacted, 255 of the Top 500 companies in Mexico were headquartered in Mexico City. Thirteen years later, the number had risen to 352. It is remarkable that today the centralization of head offices is even higher than in the times of ISI. It is also striking that the bigger a corporation is and the more global links it has (in terms of foreign ownership and exports), the stronger the concentration of headquarters in Mexico City. While 63 per cent of the Mexican owned Top 500 corporations are headquartered in Mexico City (2006), among foreign owned firms the share is 79 percent (Expansión various years).

Thickening empirical evidence

After having shown that decision-making and high-level management became more concentrated in Mexico City since the end of ISI, the objective of this section is to scrutinize the notion that global cities articulate local, regional and national economies into global commodity chains through the insertion of producer services. If this assertion is true, then neither the concentration of headquarters nor the growth of the producer service sector per se makes a global city. Rather, the key point for an empirical analysis of global city formation is that the demand for these services by companies within global commodity chains must be confirmed. My contention is, therefore, that the world city network has to have extensions at various geographical scales, including the national, and that is why the world city network is built upon ramifications that link global cities to the countless non-global, but yet globalized cities, where production for global markets is carried out (Parnreiter 2003).

Sassen (2007: 201) suggests that the capacity of a city to export producer services points towards capabilities for servicing and controlling global operations of firms. Though she apparently alludes to cross-border exports, for the purpose of this article it is proper to apply a more generalized notion of exports. Do firms in Mexico City supply producer services that are used by firms throughout Mexico to enabling the running of global production? In discussing this question, I seek to transform attribute data presented in the previous section (e.g. number of headquarters or value added in producer services) into relational data that indicate flows between cities. Therefore, in the following I will provide quantitative and qualitative information on forward linkages of the producer service sector, that is, on interregional flows of services, with the aim of strengthening evidence for the argument that world cities are critical nodes within commodity chains, precisely for their insertion of producer services into the production process.

According to an input-output analysis of the Mexican economy (2003), 60 per cent of the producer services went to three economic sectors: 23 per cent were utilized by the wholesale and retail trade, 19 per cent by manufacturing and 18 per cent by the producer service sector itself (INEGI 2008b). Data on FDI inflows reveal that these sectors are firmly integrated into global production networks: manufacturing attracts 49 per cent of all FDI (1994–2007), financial services 23 per cent, and wholesaling and retailing 9 per cent (INEGI 2008a). As a consequence, ownership in these sectors is strongly internationalized.

Because the input-output analysis cannot be broken down on a regional level, we do not know how much of the producer services used by the three sectors actually come from Mexico City. Nevertheless the strong geographical concentration of value adding activities in producer services shows, along with information provided in Table 1, that there are substantial flows of producer services from Mexico City to other parts of the country. Taking the two major export industries as examples, Table 1 shows that cities where much of export manufacturing is carried out are not at all equipped to manage this production within global networks. The 11 municipios (districts), where half of the added value in the automotive industry and two thirds of the added value in the computer and electronic industries come from, have together only 2 per cent of all added value in producer services, and they house hardly any headquarter services. This suggests that the need to service export production is, at least partly, satisfied by producer services coming from Mexico City.

Table 1: Share in value adding activities in automotive industries, computer and electronic industries, and in producer services, selected municipios, 2003, %. Source: Own calculations, based on INEGI 2004.

That said it is also necessary to point out that the importance of producer services as inputs varies considerably across economic sectors. In wholesale and retail trade they make up 45 per cent of all inputs, while in manufacturing the relatively small contribution that producer services make to the added value is striking. Whereas in several OECD countries producer services account for 15 – 20 per cent of all inputs to manufacturing (Daniels 2007: 112), in Mexico they comprise only 5 per cent. The fact that the demand for producer services provided (mainly) by Mexico City based service firms varies significantly among economic sectors and sub-sectors, suggests that Mexico City's role as a global city is very different in, for example, the automotive chain and the many chains that end in the 1,104 supermarkets owned by Wal-Mart Mexico.

As regards manufacturing, the minor importance of producer services provided in Mexico City can be attributed to the poor embeddedness of export manufacturing in the economy. Export industries are characterized by a ‘specialization in segments of commodity chains reliant on cheap labor power and imported inputs' (Dussel Peters 2008: 24), which also explains the negative trade balance and the importance of the automotive and the electronic industries as importers of semi-finished products. Value adding activities in Mexico's industries remain minor, and they have even decreased over time. This maquiladorization of manufacturing results in poor linkages to other economic sectors, including producer services.⁴

However, it does not render them unnecessary, as we can conclude from the insights gained from written information provided by global service firms in Mexico City and from expert interviews with professionals of these firms. An analysis of the client structure of producer service firms in Mexico City reveals that in the case of publicly traded companies (220 of the 300 biggest firms in Mexico), 91 per cent of the firms (accounting for 95 per cent of the sales) get their auditing services from the Mexico City office of one of the ‘Big Four' global accountancy firms (Deloitte, Ernst & Young, KPMG, PricewaterhouseCoopers). Among the Top 100 firms in Mexico, which are listed at the stock exchange, only three have an auditor other than one of the ‘Big Four'. Thus, a considerable number of commodity chains obtain at least one producer service from Mexico City. The state-owned oil producer PEMEX, ranked 42^nd in the Fortune 500 list, is audited by KPMG, as is the privately-owned cement company CEMEX (3^rd in Mexico and 389^th worldwide), while the mining company Industrias Peñoles, one of Mexico's major exporters, gets its audit services from Ernst & Young, a firm which also services Teléfonos de México, to which América Móvil (Latin America's biggest mobile phone network provider) belongs. In the automotive industries, Deloitte works for GM, Ernst & Young for Nissan, KPMG for Chrysler, Pri cewaterhouseCoopers for Volkswagen and Ford, while in financial and insurance services, Deloitte (working for Grupo Financiero BBVA-Bancomer, Grupo Financiero Santander, Grupo Financiero Banorte) and KPMG (Grupo Financiero Banamex, Grupo Financiero HSBC México) have the largest banks as clients. Finally, Wal-Mart, which is responsible for the rapid globalization of Mexico's retail sector, is audited by Ernst & Young. Thus, the question as to whether Mexico City is a node, from where producer services are fed into production networks can be answered: for auditing this is clearly the case.

In the case of legal services, available information also suggests that Mexico City is a place wherefrom inputs are supplied to different commodity chains. Firstly, the ‘Big Four' accountancy firms also offer legal services. Deloitte, for example, sells legal and tax services to 66 of the 100 biggest firms in Mexico. Secondly, some of the world's biggest law firms have offices in Mexico City, from where they service mainly foreign companies and Mexican firms with global operations. Raymundo Enríquez, managing partner of the Mexico City office of Baker & McKenzie, in 2006 the world's 6^th biggest law firm (The Lawyer.com), estimates that about 95 per cent of the firm's clients have global reach. Correspondingly, LatinLawyer (2007: 91) states that the ‘client list (is) dominated by US and European corporate names'. According to Enríquez, global companies competing for the Mexican market are by far the most important sub-group, while national firms catering to the world market and TNCs carrying out export production in Mexico make up about 20 to 25 per cent of the clients. The Mexican office of Holland & Knight, worldwide the 36^th biggest law firm (The Lawyer.com), that operates in Mexico jointly with a long established Mexican law firm (Gallastegui y Lozano), has worked, among others, for PEMEX, Grupo Financiero BBVA-Bancomer, and the conglomerate Grupo Carso, which produces a range of commodities from cigars to autoparts.

One important aspect of servicing global operations of firms is, as all interviewed lawyers confirmed, the legal management of FDI. This includes decisions on the form of business organization of the investing company in Mexico and its internal rules; adapting to the regulatory frameworks that vary across economic sectors and across the twelve free trade agreements Mexico has signed; making decisions on the labor union, with which the company is going to sign the collective bargaining agreement; buying or leasing a plant or a piece of property; dealing with tax issues, royalties and property rights; and attending to migration issues for professionals from the parent company. The importance of the place where FDI is managed is revealed by the discrepancy in Mexico City's share in the ingoing FDI, which is nearly three times larger than the city's contribution to the GNP (INEGI 2008a).⁵

In the fast growing and rapidly globalizing office market of Mexico City, much of the dynamism stems from global firms, be they investors or buyers / tenants of the offices (Parnreiter 2009). The Mexico City offices of global real estate firms supply a number of companies in Mexico which operate at a global level. Among the clients of CBRE are 25 of the Top 50 companies in Mexico (including América Móvil, Wal-Mart, General Motors and Grupo Financiero BBVA-Bancomer), JLL worked with fourteen of the Top 50 (e.g. General Motors, Grupo Financiero BBVA-Bancomer or Ford), and Colliers International has, amongst others, Grupo Modelo as client, a brewery that in recent years successfully went global.

To summarize: there is reliable evidence on forward linkages of global producer service firms in Mexico City to economic sectors, which are strongly linked to the world market via FDI and/or exports. Thus, producer service firms connect to companies within various global commodity chains, that either emanate in Mexico (as, for example, in the case of petroleum), run through the country (e.g. automotive industry), or end there (e.g. for the products sold in Wal-Mart). Though the information presented is far from being all-embracing, there is sound enough evidence to assert that Mexico City is one of those nodes where ‘specialized services needed by complex organizations for running a spatially dispersed network of factories, offices, and service outlets' (Sassen 1991: 5) are supplied. Mexico City is therefore on the map of both world cities and global commodity chains, precisely because it is a place from where global production is made possible through service inputs. The implications of this finding for the second key notion of global city research, namely the command of the world economy, will be discussed in the next sections.

Producer services and the governance of commodity chains

Among the conceptual points that the literature on global cities and on global commodity chains share, the concern for the governance of uneven globalization processes is one of the most important. Sassen's main interest lies in the practices that make globalization feasible, and she identifies producer services as key activities for both ‘the production of management and control operations' (Sassen 1991: 14; emphasis added). As a consequence of this double perspective, she depicts global cities both as places for the management and the command of the world economy.

Likewise, in global commodity chains research, governance – defined by Gereffi (1994: 97) as the ‘authority and power relationships that determine how financial, material and human resources are allocated and flow within a chain' – has been explicitly related to the coordination of transnational production processes and to the ability of lead firms to control them. Research deals with power asymmetries between rule-makers and rule-keepers, the origins of different forms of governance and their impacts on the opportunities for upgrading of suppliers (thought of mostly as firms in low and middle income countries) (for a review of the literature see Gibbon et al. 2008). In the global production networks literature, Dicken et al. (2001) and Henderson et al. (2002) advocate a more networked perspective on power, which implies less focus on the lead firm and its corporate power, to the benefit of a closer consideration of power, both institutional (wielded, e.g., by the state, international institutions or private credit rating agencies) and collective (exercised, for example, by trade unions or small business organizations).

Despite the seemingly mutual interest in the governance and control of globalization processes, the literatures on global cities and on global commodity chains differ in important aspects. Firstly, while the former draws attention to the producer service firms and their inputs into production processes, the latter concentrates on lead firms and their relations to suppliers. In this context it is worthwhile to note that recent studies on the organizational structures of TNCs suggest a shift from vertical control relationships to forms of governance based on internal and external networks of cooperative and lateral relationships (Dicken 2007: 122; Dunning and Lundan 2008: 245). It is, however, barely discussed what role producer service firms play in this shift away from the lead firm. A second difference is that while Sassen stresses the making of global control capabilities instead of corporate power, global commodity chain researchers are more interested in different types of corporate power and their impact on upgrading. Yet, they usually disregard the modus operandi of rule-making and rule-keeping in commodity chains. Thirdly, global commodity chain literature is less concerned with the geographies of governance, while for Sassen and Taylor the new places of control constitute the core of their reasoning.

Yet there is a problem in too straightforwardly equating the management of the world economy with its control. Though Sassen frequently puts the capacity to manage global production on a level with the authority to control it, she does not explicitly describe how the provision of services for the running of global production networks actually translates into the capacity to govern them.⁶ As a consequence, both mechanisms are frequently conflated. However, though there is no doubt that core processes are involved in the management as well as in the command of commodity chains, it is questionable whether all high-wage, high-tech and high-profit services necessary for running global production processes are actually related to decision-making. This question is particularly relevant as regards global cities in non-core countries, which have a sizeable producer service sector, but which are normally not considered to host decision-making capacities. Thus, reasoning about the geography of governance in production networks has to consider whether producer service firms actually exercise functions of command and control.

In this context, it is important to distinguish between different services. For example, auditors interviewed in Mexico City agreed that producer service firms in general are increasingly influencing corporate decision-making, though they rejected this notion for the specific service they supply. In the case of law firms, though not all respondents agreed that they themselves influence their clients' decision-making processes, they acknowledged that in general law firms are progressively more involved in this. Luis Cortés, a lawyer at Holland & Knight in Mexico City affirms that:

Well, not at my level, but the partners of the firm, they have conferences with the clients to plan a deal, to structure a deal. … (Clients come and say), look, we want to put a plant in this place, how is it convenient for us to structure the business? Thus, the one who takes the decision how things should be done, rather would be here, from the (law) firm. … That is, the way to do make a deal, to take decisions, if it is not coming from the lawyer's office, I do believe that the one who makes the strategy, it's the partners of the law firm.

Frequently mentioned examples of this pre-structuring of decisions refer to real estate, tax and labour law issues. Bearing in mind Gereffi's definition of governance, it is arguable that some of these fields are less important (e.g. the decision whether to buy or to lease a plant), whilst the choice of the labour union with which an investing foreign company signs the collective bargaining agreement, or decisions on the benefits workers are granted, have an impact on how resources are allocated (or withdrawn) from the ‘Mexican segment' of a global commodity chain. Another example of how lawyers might influence decision-making is given by Fernando del Castillo, partner at Santamarina y Steta, a Mexican law firm specialized in corporate practice: ‘It is also very usual that lawyers participate in the Board of Directors of big firms. As such, they influence the decisions of the society because they are part of its administration. And this is very usual.'

Though these quotations suggest that producer service firms have bearing on corporate decision-making, the issue deserves closer investigation. In this regard, the emerging literature on transnational private governance is useful (Djelic and Sahlin-Anderson 2006; Graz and Nölke 2008; Sassen 2006). The argument goes that private actors such as rating agencies, institutional investors and global producer service firms are, supported by national governments, increasingly setting and enforcing standards, which commit other firms to specific ways of doing business. As to accountancy, for example, the big firms are advancing a global harmonization of standards, which means more than a mere technical adjustment of different practices. Rather, it is argued that by advancing a worldwide synchronization of norms, the global auditing firms promote a shift towards a stronger capital market orientation of companies, thus favouring the shareholder at the cost of the stakeholder model (Botzem et al. 2007). This ultimately has an impact on the ways in which surplus is created and distributed. Though it is being discussed that the increasing financialization of non-finance firms has some bearing on the governance of production networks (Milberg 2008; Palpacuer 2008), this insight is not reflected systematically against the backdrop of the rising influence of producer service firms.

Yet, since efforts to create and to implement global standards are undertaken in many areas (e.g. legal practices, financial markets, real estate markets), is it reasonable to assume that producer service firms have in fact become important influencers in corporate decision-making. A producer service firm's capacity to influence the governance of commodity chains depends, however, on a) which tasks are decentralized within corporate networks, and b) which tasks are outsourced, either at the global or at the local level. Because of the newness of the ‘decentralization turn', we still lack comprehensive information of which tasks are being accomplished on which level and by which type of firm (‘lead' or ‘outsourcing' firm). Some authors suggest that both decisions (centralize/decentralize, in-house/outsource) depend on the characteristics of a company, on the nature of the production, and of the specific function of a task for the company (Dicken 2007; Dunning and Lundan 2008; Merino and Rodríguez Rodríguez 2007). Accounting or finance are more likely to be centrally coordinated, among other things because they represent more sensitive services to a company, while negotiations with organized labor or discussions involving host governments may be delegated to the management of local affiliates.

Mexico City in the geography of governance

So far we know that Mexico City is a place where important services are inserted into global commodity chains. Moreover, the previous section offered a general account on the notion that producer service firms influence the creation and distribution of value in production networks. In addition, it provided some admittedly tentative evidence for the assumption that Mexico City's global producer service firms also influence their clients' decision-making processes. Can we conclude, then, that Mexico City has assumed global city functions not only as regards the management of global production processes, but also as to their governance? Or is Mexico City just a subordinate node, where service professionals execute instructions coming from their respective firm's headquarters? Interviews conducted in Mexico City suggest that the latter is not the case.

Asked about the position of the Mexico City office in their respective firm's global network, all respondents stated that they perceive neither a clear-cut hierarchy between offices nor an only one-way (headquarter–affiliate) communication. This is related, firstly, to the very structure of the firms. Rather than being just one firm, a global service firm in most cases operates through a network of formally independent firms. Thus, the Mexican ‘affiliate' could end the cooperation with the ‘global firm' or join another global partner, or the global headquarters could choose another local partner.

A second frequently mentioned reason for rather flat firm structures is the importance of the local offices in the companies' global strategies. Interviews support what is becoming consensus in the literature: For global producer service firms, maintaining a wide net of local affiliates is crucial in accessing foreign markets (Daniels 2007: 116). This is also mirrored in the profiling on the firms' webpages, where they emphasize, as KPMG puts it, to have ‘a global network built on profound local roots'. One often stated aspect is the importance of personal relationships with clients. Asked whether business could also be done from Miami, Gerardo Oliver, Chief Knowledge Officer of Ernst & Young replied:

No. In fact, it is funny, many companies … have their Latin American headquarters in Miami. But, at the end of the day, they have to create an office in Mexico City because it is not that easy. You have to be here, you have to have the relations with the entrepreneurs, you have to be in the chambers, you have to be at the breakfasts, you have to be at the cocktails. Finally, you have to be here. … Often clients who know that you are not here they feel that you don't attend them. … Even if the service is the same, even if people would come from the U.S. every single day, they would feel unattended because they don't have someone who is living the same conditions in which they live in this city.

The importance of having local offices is also derived from the prevalence of intangible knowledge in many business areas. As Herfried Wöss, partner at Wöss & Partners, a Mexican legal firm specialising in corporate law, puts it for the case of the Mexican legal system:

In Mexico … there is a philosophical principle that you have to know: the system of islands. You have islands surrounded by water. Now, the law codes look like in France. … The truth is that some institutions like the summary mercantile procedure work well – but in between them there is water. Thus, if you are going to structure an infrastructure project, you have to know where are the islands and where is water. … And this you learn empirically … There are many de-facto mechanisms, you have to know how the system works.

In such a context, the ways in which firm intern knowledge is created and diffused are described as horizontal (see also Beaverstock 2004; Faulconbridge and Muzio 2007). Mexico was, for example, the first Latin American country that opened the market for private mobile phone network providers, and the experiences of the Mexican office of Baker & McKenzie acquired in this field was, according to Raymundo Enríquez, a blueprint for Baker & McKenzie worldwide:

In privatizations, for example in Eastern Europe, the same model was followed, to privatize airports, energy, etc. Thus, in having it made in one country allows us to impart this experience to other local offices. And, attention, it is not that a lawyer from London would go to Poland or Hungary; no, the knowledge is communicated to local people.

Arguments that indicate a rather flat organization of global producer service firms are, however, thwarted by the also frequent remark that there is a specific hierarchy in doing businesses, which stems from the client's geography. What in legal, accountancy and real estate services defines the position of the Mexican office vis-à-vis other offices is, according to interviewees, the place where a client firm has its headquarters, because it is always the partner with direct contact to the client who is in command. According to Albrecht zu Ysenburg, partner at KPMG in Mexico City, in KPMG ‘we don't have global headquarters. … My global head is always the one from the country from where my client comes. … There is a lead partner who sends his instructions to all over the world.' Javier Romero Río, partner of Deloitte in Mexico City, similarly states that

We have a list that we call D-1,000, like the 1,000 companies worldwide which have priority for us. And for this 1,000, we have agreed that there is a responsible partner, who is the head of this account, and who has the authority and the responsibility to attend the client and to negotiate whatever project in the name of the 140 firms of Deloitte. … That is, the hierarchy is not through countries but through the partner who is the head of an account.

Thus, for companies investing in Mexico, the responsible partner (of accountancy, legal or real estate firms) might be in New York, London or Hong Kong, while the Mexican partner cooperates. If a Mexican company goes global, then the Mexican partner is in command, with support from partners in other cities.

It is exactly this structure of the service firms' global networks that helps to understand the role and reach of Mexico City as a global city. Though at a first glance it seems that the networks of producer service firms are rather flat, their very organizational model implies that there is the chain of command. Despite the fact that the local cooperation is, as outlined above, seen as being essential to do business, the ‘big' strategies are made by the lead partners. Furthermore, it is reasonable to assume that this division of labor also shapes the distribution of value along the chain of producer services – the more lead partners an office has, the more deals it will command, and the more revenues it will capture. Now, the number of lead partners an office of a global service provider can have depends, according to the interviews, by and large on the geography of headquarters of TNCs. Since there are much fewer companies with origins in Mexico that compete successfully at the world market than foreign firms in Mexico, the Mexico City offices of accountancy, legal or real estate firms will not often be in command. Put simply, despite the high grade of autonomy of the Mexico City offices reported in interviews, the economic world order poses serious limitations to the development of governance functions in Mexico City. A geographical analysis of the places, where the clients of the Mexican office of Holland & Knight were recruited, reveals the economic subordination of Mexico to the United States. Only 36.2 per cent of the law firm's deals (in total 3,531 between 1998 and 2008) originated in Mexico through recruitment by Gallastegui y Lozano, Holland & Knight's partner in Mexico City. The rest was brought through Holland & Knight's offices in Washington (26.5 per cent), Miami (13.3), San Francisco (6.8) and other US cities.

An analysis of the management of FDI supports this nuanced account of the role of producer service firms in Mexico City. Though locally supplied legal services are, according to the respondents, decisive in ‘making FDI work', interviewees also indicate limits to the role of local law firms: their involvement diminishes with the experiences an investing company has in Mexico, and with its size, while it increases with the complexity of the transaction. Thus, for a lead firm in the automotive chain with a long record of FDI in Mexico, the management of FDI will comprise mainly routinized tasks that will usually be done in-house by the legal department of the Mexico City office of the lead firm. Only in very specific cases this firm will turn to an external law firm. A German supplier, on the other hand, which is conducting FDI in Mexico for the first time, or a small supplier with no in-house lawyers, will have to rely strongly on Mexico City's legal firms.

In answering the question guiding this section – the position of Mexico City in the geography of governance – I reach the conclusion that the commonsensical assumption that global cities are centres for both the management of the world economy and its command need not to be rejected. There is, however, need to qualify this notion with regard to non-core cities. Firstly, the influence of producer service firms in Mexico City on the governance of production networks depends both on sector- and on firm-specific factors (namely the geographical origin of the firm), and, secondly, those influences are in general supposed to be weak.

Conclusions

The analysis presented here shows, firstly, that there are connections between the world city network and global commodity chains, connections that are created by the flows of auditing, legal and real estate services from firms in Mexico City to companies operating in Mexico. Though these findings are confined to Mexico (City), it is more than likely that similar studies conducted in other cities, where global city formation is under way, would yield similar results. This supports the notion that global cities obtain their centrality because they are service nodes in and for a myriad of commodity chains. Second, the research presented here also indicates reasons why Mexico City is ‘on the map' of global cities and global production networks. Access to local knowledge is one frequently mentioned aspect, while another is the felt need to socialize with clients, and to share the same urban experiences with one another. Thus, Mexico City is not only a node in various commodity chains, it is necessarily one.

Third, and as regards the geography of governance, the analysis presented suggests that is useful to break up global city functions into the management of the world economy, on the one hand, and into its command and control, on the other. As regards the former, there is much evidence that supports the notion of global city formation in Mexico City, while as to command functions results achieved so far point to a need to qualify the argument. Mexico City is by and large the centre of governance for production networks within Mexico and for the few global commodity chains emanating from Mexico. However, as regards influences on value creation and distribution within the ‘Mexican segments' of global commodity chains, the – still tentative – results indicate that the scope of influence of both local affiliates of TNCs and of local offices of global producer service firms is rather limited, namely to issues such as taxes or labor laws and unions, where the need for in-depth knowledge of local conditions is required.

In addition to providing qualified evidence for both the management and the command functions of global cities, it has been a purpose of this article to address the critique that global city research is, mainly because of its focus on producer services, inadequate for grasping the complexities of urban development in poorer countries. Massey (2007: 35), for example, challenges what she calls the ‘Euro-American bias (…), which sets up certain Western cities (…) as norms against which others then come to be judged', while Robinson (2006: 93) argues that the attention paid to producer services tends to ‘privilege the experience of some cities over those of others' (Robinson 2006: 93). Because global city research is, according to Robinson, indifferent to the various ways, in which cities in poorer countries can be connected to the world economy, ‘ millions of people and hundreds of cities are dropped off the map of much research in urban studies' (Robinson 2002: 535).

I agree with Massey and Robinson that the diversity of cities is not assessed by the global city literature (though much of what is occurring in many cities in poorer countries cannot be understood without assessing global city formation). Nevertheless, it is important here to be accurate about the argument. Global city research does not deal with the complexities of urban economies or city life, nor is it about the general connectedness of cities to the world economy. Rather, global city research is concerned with the geography of a very specific input into global production networks, namely the means by which their organization and control is made effective. Thus, the ‘privileging' of producer services stems from an economic geography perspective rather than from urban studies.

From this follows, firstly, that most cities around the world are indeed no direct subject for global city studies, because no core activities necessary for running and controlling global commodity chains are located there. This ‘dropping-off' results from uneven development itself, which produces cores and peripheries, and that is why the suggested shift to ‘how ‘global' economic processes affect all cities' (Robinson 2006: 102) would obscure the fact that there are places, wherefrom rule-makers operate, and places, where most, if not all people are confined to be rule-keepers. There is, thus, a fundamental difference between the role of cities in engendering globalization and the impacts of globalization on cities. Ciudad Juárez in Northern Mexico, for example, has been thoroughly shaped by its function as a production site in the chains of the automotive, computer and electronic industries, though the ‘city' had (and has) virtually no hand in the governance of these chains.

This case also allows to confront Robinson's notion (2006: 102) that the focus on a limited number of cities implies ‘defining some cities out of the game, as ‘excluded from global capitalism''. Though being ‘out of the game' of governing commodity chains, Ciudad Juárez is of course connected and relevant to the global economy. Low paid work supplied in Ciudad Juárez' manufacturing plants is as vital to the reproduction of global capitalism as is the provision of high paid producer services, what is explicitly recognized by my contention that the world city network is built upon ramifications that link global cities to the countless non-global, but yet globalized cities, where production for global markets is carried out. Put differently: Global cities are not only mutually constituted, as stressed by Taylor (2004), but also by their connections to Robinson's ‘ordinary cities'. Mexico City assumes global city functions, because it helps to articulate low paid production in Mexican cities with the world market.

From this follows my third point. Against the above mentioned critique I maintain that the shift of attention to producer services allows for a more inclusive comprehension of the role of cities in the global South in the world economy, because it helps to grasp the multiple hinges or intermediaries between the few global headquarter cities (often seen as the global command centres) and the countless cities where production for the world market is carried out. Globalization is neither like an oilslick that indifferently covers the whole world, nor is it exclusively organized from a handful ‘supercities'. Mexico City is, as has been shown here, a critical node for the functioning of the world economy, because it is a place from where the articulation of peripheral labor processes in Ciudad Juárez and other Mexican cities that serve as export platforms is made possible through service inputs.

This finding is important because it helps to deepen our understanding of the role of cities in poorer countries in processes of uneven development (or in upgrading), which has not much advanced since Frank's (1966) conceptualization of the Latin American city as a ‘bridgehead' for the interests of the dominant centres of the world economy. While in the case of London it might be evident that ‘(t)he ‘global' forces that have their effects in London by no means always have their origins elsewhere' (Massey 2007: 167), it is less clear that cities in poorer countries are also not only affected by globalization. Rather, Mexico City is, just as London is, ‘hemmed in, in a kind of spatial trap, as both generator and beneficiary of, and suffering from' (ibid., 92) globalization processes.

ACKNOWLEDGEMENTS

I thank four anonymous referees for their useful comments. The author is responsible for all views expressed.

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NOTES

^* Christof Parnreiter, Department of Geography, University of Hamburg, Germany, email: christof.parnreiter@uni-hamburg.de

1. I am aware of the conceptual differences between the literatures on global commodity chains, global production networks and global value chains. For the purpose of this paper, however, these differences are of less importance. The terms ‘global commodity chains' and ‘global production networks' are used to refer to the cross-border organization of production and consumption. Also, I use the terms ‘global city' and ‘world city' as synonyms.

2. If not indicated otherwise, data refer to the whole Metropolitan area.

3. Headquarter services (Dirección de Corporativos y Empresas) are defined in the economic census as services directly related to the corporate management.

4. Maquiladoras are in-bond industries, located mainly in the Northern border region.

5. In addition, the divergence is partly attributed to a statistical distortion, because companies tend to report FDI where they are headquartered and not where investment is actually realized.

6. Likewise, in the analysis of TNCs (Dicken 2007; Dunning and Lundan 2008), the modalities of decision-making and the role of producer services in it, have also received little attention.