GaWC Research Bulletin 345

This Research Bulletin has been published in Cities, 26 (5), (2009), 255-265.

doi:10.1016/j.cities.2009.07.002

Please refer to the published version when quoting the paper.

(Z)

Global Capital Control and City Hierarchies: An Attempt to Reposition Vienna in a World City Network

R. Musil ^*

Abstract

This paper is devoted to foreign direct investments (FDIs), which have been allocated on a very low regional level. This makes it possible to first position Vienna within a global city system according to international capital flows and to analyze changes in this position. In addition to being a case study, this paper shall attempt to make a contribution to the conceptualisation of global cities as focal points of FDI-capital flows and the formation of a global city network by firm hierarchies. The dataset is used to analyze Vienna´s FDI-relations to other cities and makes it possible to examine spatial hierarchies based on uneven capital flows. As the data extend over a period of 17 years (from 1989 to 2005), the question can be posed whether geostrategic changes like the fall of the Iron Curtain and Austria becoming a member of the EU have led to new patterns of capital flows. It could be established that there is an ongoing degree of hierarchization within Vienna's global city network and that the above mentioned changes in the “long decade of the 1990s” established Vienna as a gateway-bridge between the East and the West. On a global scale, however, Vienna's city status was not raised in the process.

Introduction

In recent years, many case studies have dealt with the questions of “global city” status of individual cities or city systems and have helped to bring light to the debate of global city research. In particular, studies concerning the role of service sectors (Bourdeau-Lepage 2007), local firm networks (Faulconbridge 2006, Rossi et al. 2007) or the role of cities as gateways (Grosfoguel 1995, Parnreiter 2002) have led to a deeper understanding of the global city network and its global-local tensions. The expansion of a world city database and a great number of case studies based on alternative data sources helped to bridge the gap between the global city theory and empirical research – the so-called “dirty little secret of global city research” (Short et al. 1996, p. 698). Against this background, this paper intends to make a contribution in two ways: firstly, FDIs allocated on a regional level will be applied as an alternative indicator for the global status of the city. For this it would be necessary to refocus on Friedmann's world city hypothesis (Friedmann 1986) instead of Sassen's concept of global centrality (Sassen 2000). Hence, regional FDIs will be understood as a missing empirical link between world city research and world system-theory (Derudder 2003). Secondly, Vienna's position in the global city network, which has hardly been discussed by any empirical study, will be analyzed on the basis of this new data (Parnreiter 1999, Novy 2002). This is astonishing in view of the fact that the past decade brought about crucial changes for this city (Austria's EU integration and transformation within the CEEC), which have not only deeply affected its urban economy (Mayerhofer 2006, Karreman 2008), but also its integration into global markets.

These geo-strategic changes have established new prerequisites affecting Vienna's economic situation. The “internationalisation” of urban economies has exposed a number of severe restraints on its development; the economy of Austria's capital city has shown in comparison to other western countries a weak orientation towards foreign and international markets. This strong concentration on the fordistic domestic market had resulted in a poor level of competitiveness in the industrial sector and a negative balance of trade (Mayerhofer and Fritz, 2002, p. 26). Under the changing geostrategic situation, Vienna's comfortable position as a capital city, where the public sector lost its former role as a “job machine”, has turned into a disadvantage in terms of economic development (Schmee and Weigl, 1999, p. 73; Mayerhofer, 2000, p. 12).

Regardless of its structural economic weakness and poor international competitiveness, these geostrategic changes mentioned above have been perceived as a singular historic opportunity to reposition Vienna in a central position within the European city system, as a gateway between Eastern and Western Europe (Kunzmann 1992, Lichtenberger 1993, Gorzelak 1996). It is the intention of this paper to demonstrate that Vienna's recent and future position between centre and periphery – in terms of Wallerstein's world system theory – must be seen under the aspect of historic continuity. In contrast to policy, companies responded very quickly to the new geostrategic situation: several studies show that international as well as local firms expanded from Vienna into the new emerging markets (Mayerhofer and Wolfmayr-Schnitzer 1996, BCG 2003 and Knoll 2004). The spatial pattern of Viennese FDIs will reveal that the process of re-territorialisation – the reconfiguration and rescaling of cities and states – does not just take place on a global but also on a regional scale (Brenner 1999).

Two questions arise here: first, how have these developments affected Vienna's position in the global city network? Second, has Vienna been able to establish itself as a significant semi-peripheral gateway towards Eastern Europe?

FROM CENTRALITY TO HIERARCHY: A CONTEMPLEMENTARY FORM OF POSITIONING GLOBAL CITIES ACCORDING TO CAPITAL CONTROL

Vienna's Centrality in Global Service Firm Networks

What role does Vienna play in a global city network? Analyses of relational data of service firm networks display different findings concerning Vienna: Beaverstock et al. certified just “relatively strong evidence of world city formation” (Beaverstock et al., 1999), while the data presented in “Globalization and World City-research network” (further: GaWC) showed a connectivity which positioned Vienna on an average level (Taylor 2004, p. 40). Furthermore, a detailed analysis of European cities showed a peripheral position (“outer triangle city”) for Vienna and a function as a gateway bridge, in combination with London and Berlin (Taylor and Hoyler 2000).

These relational data are based on firm networks of 100 global producer service firms, wherein every firm in every city has been classified by a six-point scale, depending on its size and global function¹. What service value do firms in Vienna hold? A survey shows that the list of GaWC-firms that are located in Vienna has changed since 2000, when the worldwide firm networks for GaWC were acquired: based on GaWC data, 66 firms showed a mean service value (value 2 or 3), while the other 34 firms had no service factor (value 0) (Taylor et al. 2003). Our survey (June 2007, see tab. 1) found just 55 of these GaWC-firms to be located in Vienna, but just 43 entries in these two lists conformed with one another. Without going into detail concerning the individual fates of firms throughout this period, it helps to illustrate a fact that has already been pointed out for other global cities: this firm network is not stable over time, so that the global city network must be seen more as a process than a static system (Parnreiter et al. 2005, p. 57). The process that is mentioned here can be explained by the individual firm's fate but primarily by mergers and acquisitions, which lead to a permanent reconfiguration of global firm networks where some firms “vanish” while others expand. The point of criticism which can be stressed here is not the fact that GaWC firms hold just an irreducible share of a city's economy (Krätke 2001, p. 17). Rather, it has to be stressed that the focus must be laid on those tendencies that determine this dynamic process of firm expansion: the boom of M&A-activities and – as a consequence – the consolidation tendencies within the global economy.

Table 1: GaWC firms in Vienna. Source: Musil, GaWC.

Centrality or Hierarchy? The Conceptualisation of the Global City in a Network

According to Sassen's global city theory, the importance of global cities is based on their ability to provide the specific knowledge for the management of globalisation, whereby high value service firms play a crucial role: the global city can be conceptualised as a marketplace, where those highly specialized firms of specific branches (accountancy, finance and banking, advertisement or management consultancy) create the knowledge that multinational enterprises need to cope with the increasing requirements of a worldwide location strategy and commodity chains (Sassen 2000, p. 200). The advantages of face-to-face contact and local knowledge in these cities make it essential for multinational enterprises to be located in those places that allow them to access global markets (Sassen 2000, p. 201). This theoretical approach leads to two important focal points that affected global city research in a crucial way: first, the position, the “centrality” of a city in a global urban network, is determined by the number of service firms and their range in the global city network (Sassen 2005, p.205-207). Second, the focus of this perspective is not on power itself, but on the production of those knowledge-inputs that allow multinational enterprises the capability to control global commodity chains (Sassen 1991, p.6). In short, Sassen's idea of global city formation is based on the centrality of global service firms and the knowledge of the accessibility to global markets which can be subsumed under the term “power to” (Taylor et al. 2002, p. 232). In this context it is no surprise that Hall interprets the global city concept as a global enhancement of Walter Christaller's “Zentrale Orte – theory” whereby endowment and range of services determine the urban system (Hall 2002, p. 120).

The concept of centrality within the global city network focuses not on the primary actors of globalisation – e.g. multinational enterprises – but on those service firms that allow the production and the management of globalisation. In this context Sassen confirms: “My focus is not on power, but on production: the production of those inputs that constitute the capability for global control and the infrastructure of jobs involved in this production” (Sassen 1991, p. 6). Thus, service firms constitute the infrastructure of a global city network, the “formal structures” (Rebitzer 1995, p. 60) of globalisation, but do they express the central-peripheral structure of global markets, the dynamic of a capitalistic world system in an appropriate way?

In contrast to Sassen, Friedmann's world city-hypothesis is based on the assumption of a hierarchical global economy which is characterized by a central-peripheral structure (Friedmann and Wolff 1982, Friedmann 1986). Cities have been conceptualized as “passing points of global capital”, whose importance is an outcome of their ability to exert global control functions (Friedmann 1986, p. 69). Therefore, economic relations between global cities must be understood as an expression of a hierarchical world economy: “It is our view that the nature of these interrelations (e.g. frequency, strength, importance, dominance/sub-dominance) undergrids the structure of the world-system, reproducing its hierarchy, and powerfully shaping social life in particular regions” (Smith and Timberlake 1995, p. 81). Thus, the focus here will be set on the hierarchy of global capital control, which follows the conception of a hierarchical network, which is based more on a “power over” than on a “power to” and is conceptually more related to Friedmann's world city network (Friedmann 1986). The combination of GaWC-network data and regional Viennese investment flows will bring more light to the question of the formation of a global city network for the case study of Vienna.

Mergers, Firm Hierarchies and Global Cities

Although foreign direct investments (FDIs) show a small, even decreasing share of total global capital flows, their strategic impact on the restructuring of global economy is significant (Dunning 1993, UNCTAD 2001, 2006). This appraisal results from the fact that FDIs are driven by a strategic and long-term intention, a fact that clearly sets them apart from portfolio investments, which show a high volatility and are primarily intended for short-term investment: “Foreign direct investment (FDI) is defined as an investment involving a long-term relationship and reflecting a lasting interest and control…” (UNCTAD 2001, p. 275). This point of view is strengthened by the Austrian Federal Bank (OeNB) which define this type of investment in the following way using the term „strategic control“: “In this sense foreign direct investment capital is understood to mean cases in which investors intend, with an enterprise, to establish and maintain a long-term economic relationship in a country, whereby they have, at the same time, an intention of influencing management.“ (OeNB 2004, 6). This definition clearly shows why FDIs have been conceptualised as, on the one hand, a “vehicle of economic globalisation” (Wu and Radbone 2005, p. 26) and, on the other, as “the manifestation of the behaviour of multinational enterprises in space” (Heiduk and Kerlen-Prinz 1999, p. 54). Alongside greenfield investments, mergers & acquisitions (M&A) have become the dominant form of FDIs since the early 1990s; the number, but also the value of these M&As expanded rapidly: in 1990, 33 “mega”-deals with a value of above US$ 1 billion took place, while in 2000 (the preliminary last peak) 175 “mega”-deals made a value of up to US$ 866.2 billion USD (OECD 2006, p. 13-14). In recent years, M&As have become a dominating strategy to globalize a firm, which leads to an ongoing concentration of economic power; about 80 percent of all FDI flows are devoted to M&As (Kübelböck 1999, 262). It has to be noted at this point that these tendencies towards the concentration of capital control seem to strengthen Friedman's conception of a world city network, which is based on hierarchical capital control.

At any rate, the use of FDIs as an indicator of global capital control is subject to restrictions. In recent years a third type, namely foreign equity investments undertaken by private equity funds, showed a massive increase: in 2005 about 19 % of all M&A were made by these collective investment funds (UNCTAD 2006, p. 18). Even if the argument of “lasting interest of control” is still constitutive for FDIs, their differentiation from portfolio investments becomes less clear (Bellak 1999, UNCTAD 2006). Beside this, the origin of FDIs does not necessarily coincide with the location of their headquarters; first, because of the existence of intermediaries or holding companies in offshore locations. Second, HQs might not be precisely located in space, because their components are dispersed. Hence, the three components of a HQ (i.e. the CEO and top management team [about 10-20 persons]; the HQ staff function and group responsibilities [about 50-500 persons]; and finally the domicile registered for tax purposes) might all be located at different places (Braunerhjelm, 2004, p. 129). Although the last aspect does not affect this empirical study (Austrian Federal Bank accounts just the operational HQ, not the legal tax domicile), these restrictions on FDI-indicators must be regarded.

Conceptualization of Capital Control

Of course, the ongoing concentration of economic decision and control functions is not a new phenomenon. In our context the fact that historic as well as recent studies stress the spatial impact of these tendencies is relevant (Pred 1977, Borchert 1978, Gräber et al. 1986, Krätke and Borst 2000, Knoll 2004); the theoretical basis of these empirical studies is the assumption of a hierarchical relationship between a firm's headquarter and its subsidiaries. Hierarchies established at several locations, triggered by capital-based relations of strategic control within a company's firm-network, can lead to important effects on the economic development of a region. Besides the classic spill-over effects that come from the location of a headquarter (Braunerhjelm 2001, p. 131), a region is able to realise further direct and indirect advantages which arise from hierarchical firm-relations:

• Direct advantages include making profits that are made through the intra-firm-competition between different locations (see the empirical findings from Phelps and Waley, 2004, p. 193), or the repatriation of profits, management- or license bills, transferred from a subsidiary company towards its headquarters.

• Indirect advantages of a hierarchy bring higher stability to a firm in the form of higher security from job-losses (Knoll 2004, p. 16). In addition, company surveys highlight the fact that subsidiary companies are confronted with a higher likelihood to face budget- or job-cutbacks than those that own the subsidiary itself (OeNB, 1994, p. 26; Knoll, 2004). Furthermore, headquarters tend to benefit from the growth of a subsidiary company (Pred 1977, p. 104-105); in contrast, subsidiaries show a higher likelihood to be confronted with job reductions or the closing of a branch (Krätke 2004, p. 21).

The degree of effective dominance between headquarters and subsidiary is determined by various factors, like firm-culture (Steiger 1998, p. 178). When analysing the total interregional relations of capital based control between firms, however, it is almost impossible to consider these firm specific cultures: “If and to what extent possible power is realised and if a control is really in existence can only be established through complicated operation analyses within the firms.” (Gräber et al. 1987, p. 76). To obviate this empirical challenge in their concept of “regional control potential”, Gräber et al. conceptualised not the factual, but the potential control that could be realised inside a firm network (Gräber et al. 1987, p. 76, Krätke 2000).

This balance of potential interregional control, which can be indicated by the balance of active and passive FDIs, determines the economic structure of a region: dependent regions with more capital inflows are characterised by a low level of highly qualified workers, low productivity and mono-functional firm structure; external shocks like economic down cycles show strong negative effects (Gräber et al. 1986, p. 690). Empirical studies show that dominating firms are concentrated in a country´s urban agglomeration, while dominated firms are equally distributed in space (Gräber et al. 1986, p. 686, Pred 1977, p. 140). Referring to control balance, agglomerations are characterized by a high degree of persistence (Borchert 1978, p. 227) and strong control relations between each other (Krätke and Borst 2000, p. 95).

Nevertheless, this concept does not support the assertion that incoming FDIs are in general an indication of low productivity or disadvantageous employment structure. Authoritative sources stress the asset-seeking motive of FDIs, which can also be interpreted as an indicator of the competitiveness and favourable structure of the target region (Dicken 2003). But, on a regional level, the balance of active and passive FDIs can be a useful indicator: Rugman's definition of competitiveness hints as much. For him, urban competitiveness consists of two dimensions: first, the capability to attract global capital (FDI); and second an urban/regional framework that allows “local champions” among domestic companies to invest in foreign regions (Rugman et al. 1991). This means that a city which attracts FDI but has no competitive “local champions” cannot be termed as competitive in a comprehensive way.

Following the concept of relational economic geography, this paper implies that the hierarchy of firm networks determines the global hierarchy of cities, which is indicated by the balance of intercity control relations (Glückler and Bathelt 2003, Dicken and Malmberg 2001). This approach is based on Friedmann's world city hypothesis and recent trends of global FDI activities; the data might be a useful indicator to analyze Vienna's position between centre and periphery.

VIENNA'S CHANGING POSITION IN THE WORLD CITY NETWORK

Database: Regional Foreign Direct Investment Flows

The empirical data for this analysis of the city region of Vienna² is based on regionalized FDIs, that comprise the period between 1989 and 2005, a time that brought fundamental geo-strategic changes to Vienna. The regional FDI database contains investment flows between Vienna and 148 foreign locations³. In terms of network theory (Jansen 2003), this database describes an egocentric network, which contains merely investment relations between Vienna and other cities. Relations between other cities, e.g. between Munich and Bratislava, are unknown. This has serious implications: over the period of time, the question of Vienna's repositioning cannot be answered in absolute, but only in relative terms. To benchmark the findings of this analysis, national and international level data will also be considered. This database is aggregated on a regional level, which does not allow any conclusions pertaining to individual firms, for reason of data protection stipulated by Austria's Federal Bank.

The following analysis will be conducted on two different spatial levels: first, a complete benchmark of the whole agglomeration with only little spatial differentiation being made; this allows very detailed insights into the structure of Vienna's investment flows. In connection to this, a regionalized analysis of the FDI database will follow, whereby the regionalized information is reduced to very few variables. Finally – without regionalized data – indirect FDIs will give insights to the question of Vienna's role as a gateway between the East and the West.

Estimation of Vienna's Total Investment Flows

From 1989⁴ the number of Viennese firms that hold foreign subsidiary companies had risen sharply from 385 to 1,569 by 2005. Meanwhile, the total amount of invested capital⁵ had grown even faster in value from 1.3 to 33.2 Billion Euro (figure 1). Therefore, the traditional “gap of investment” between passive inflows and active outflows of capital gradually declined: in 1991, foreign inflow investments were twice the level of active outflow investments for Viennese companies (the latter which just reached 40.4 percent of the passive capital stock in Vienna). During the following years, this gap declined continuously; in 2005, the amount of active investments nearly equalled the value for passive investments (91.7 percent). This tendency is an reflection of the general internationalisation of the Austrian economy, which approximated in this decade to the level of FDIs in OECD-countries (Pfaffermayer and Stankovsky 1999, Altzinger 2000, OeNB 2004, p. 12-13): While Austria's active FDI stock as a percentage of GDP made up just 2.9 percent in 1990 (EU 11.5 percent), it rose to 21.9 percent by 2005 (EU 40.7 percent) (UNCTAD 2006, p. 307).

The expansion of active investments and the number of employees show a parallel growth in Vienna (about 219,900 new jobs at foreign subsidiaries), while passive investments are characterised by a decoupling between capital and employment: the enormous expansion of investment contrasts with a decrease in the number of employees (13,900 jobs losses at foreign-owned subsidiaries in Vienna). The diverse development of active and passive capital intensity (invested capital per employee) might be a consequence of Vienna's specific FDI-structure, which is related its spatial patterns: firstly, passive capital intensity could be explained by the maturity stage of passive investments in Europe (OeNB 2004, p. 76); second, the decade under consideration brought an increasing number of mergers of firms in capital-intensive branches (e.g. banking, finance), with about the half of all foreign FDIs located in Vienna (finance and producer related services make together about 48.6 percent of the total; see table 2). For active FDIs emanating from Vienna, these investments in high value services play a minor role. Especially FDIs to Eastern Europe show a strong orientation on industry and the low value service sector. Finally, Austria's high wage levels are a strong incentive for foreign investors to reduce the number of employees. The job losses at Austria's largest Bank, “Bank Austria Creditanstalt” (BACA), are a striking example of this and symptomatic of the wave of mergers in Austria. Between 1991 and 2000 the merger of three Austrian banks led to an economic expansion of the “Bank Austria Creditanstalt”; in 2000 the bank itself became a subsidiary of Bavarian HVB. In this time period total assets and gains expanded, while the number of employees actually decreased (OEGPG 2005). Meanwhile, in 2005 Bavarian HVB became a subsidiary of Italian UniCredit, which merged in July 2007 with Capitalia, another Italian Bank.

Figure 1: Development of Active and Passive Investments in Vienna. Source: Musil, OeNB.

Table 2: Sector structure of Viennas FDIs (total value of FDIs, mio. Euro). Source: Musil, OeNB.

Vienna, a City of Global Capital Accumulation?

Similar to capital intensity and sector structure, active and passive investments show significant differences in the profit rate (defined as share of profits on equity capital); while passive investments show a share of 9.3 percent, the value for active investments is just about 7.5 percent, although this figure has revealed a tendency to grow since 2000 (average between 1991 and 2005). In absolute terms, Viennese firms made a profit of about 3.399 Mio Euro from their foreign subsidiaries in 2005, while foreign firms made profits of 4.121 Mio Euro from their Viennese subsidiaries. As one might surmise, the lower profitability of active investments does not result from uncertainness in the new Eastern markets: surprisingly, active investments of Viennese firms in CEEC countries realised a higher profitability (10.9 percent) than investments in Western Europe (4.4 percent) or in Germany (2.0 percent).

Following Friedman's world city hypothesis, world cities are characterised by the ability to accumulate global capital (Friedmann 1986, p. 73). In the case of Vienna, however, this seems to be the case only to a limited extent: the profit-backflow of passive investments makes 88.5 percent of total profits – this means that the backflow of capital almost contains all the profits and in some years in the past these backflows even exceed the profits (1996, 1998, 2001, 2002). On the other hand, just 55.2 percent of active profits go back to the Viennese headquarters of companies. This fact is insofar remarkable as it contrasts with the general trend within the Austrian economy. In 2005, on the other hand, just 34.2 percent of active profits and 45.1 percent of passive profits flowed back to the headquarters (OeNB 2007, p. 38-39). In this context, Vienna seems to hold a specific role in the Austrian economy. Naturally, this interpretation of profits must be carried out with caution: transfer pricing of MNEs and, of course, the level of taxation are important factors for the distribution of company profits (Dicken 2003). But studies demonstrated that the degree of transfer pricing manipulation depends on the efficiency of tax administration; in recent years most developed countries' administrations undertook steps against this type of tax evasion (Woodward 2001). Be that as it may, in the case of Vienna the differences in profit rate are insofar remarkable as other studies expected a low profit rate for new investments, especially from Eastern Europe (Altzinger et al. 2000). These facts strengthen the assumption that the performance of Vienna's internationalisation has been equivocal: on the one hand, the expansion of foreign investment activities is impressive, but follows an international trend; on the other hand, the variables that have been discussed here show a heterogeneous structure of active FDIs, compared to passive FDIs. In spite of this background, the question concerning Vienna's position in the global city network shall now be discussed.

Vienna's Changing Position in the World City Network

Vienna's integration in the GaWC-Global City network will be analysed by FDI-based indicators: i.e. the amount, concentration and balance of investments and their changes over time. Since regional FDI data for other countries do not exist, these data just show the relative integration of Vienna and its change over time. But comparable national data help to benchmark these findings.

Vienna's FDI Relation in the GaWC Network

The regional FDI database contains 148 foreign locations that hold investment relations with Vienna. In the following analysis just those locations that are identified in the “GaWC-123”-database as significant global cities (Taylor 2004, p. 34-39) are considered. The merging of these two databases produced a corresponding list of 53 global cities. The distribution of significant global cities is illustrated in figure 2, where those cities maintaining investment relations with Vienna represented a different signature.

Having added the minor global cities (with a status below a connectivity value of 0.2), the corresponding list now comprises 66 global cities (Derudder et al. 2003) displaying investment relations with Vienna; in figure 3, all global cities without FDI relations to Vienna have been removed. These 66 locations – representing about 45 percent of the total regional FDI database – are the focus of further analysis; the remaining 82 locations (“no GaWC-status”) will be considered merely as a comparison group. The outcome in figure 3 shows interesting findings: first, the spatial distribution of FDI-locations reveal a strong centricity on a global scale – just 16 FDI-locations are situated outside Europe. Furthermore, within Europe FDI relations show an even stronger concentration on Austria's direct neighbours – we find eleven global cities with FDI-relations in Germany, five in Switzerland, three in Italy and one each in the Czech Republic, Slovakia, Hungary and Slovenia (see the distribution of all European FDI-locations in fig. 7). With respect to the amounts of capital invested, this concentration is even more pronounced. Finally, almost all FDI-locations outside Europe hold a high GaWC-status. Eight of these display a service value of above 0.5, six between 0.4 and 0.49 and two cities hold a value between 0.3 and 0.39. So, if Viennese firms operate on a global scale, they are focused on cities that hold a high global city status.

Figure 2: FDI Relations of Vienna in the GaWC-123 Global City network. Source: Musil, OeNB.

Figure 3: FDI Relations of Vienna in the Total GaWC Global City Network. Source: Musil, OeNB.

Integration and Concentration in the GaWC Network

The sum of active and passive investments between Vienna and 66 global cities forms an indicator for the strength on Vienna's integration in the GaWC network. Although international statistics offer no comparable regionalized data, case studies stress the concentration of active and passive FDIs (UNCTAD 2001, p. 59). In the case of Vienna, this is also very much the case. In Europe, nearly one fifth of the total FDIs are concentrated in Munich (17.7 percent); together with six other cities (London, Prague, Bucharest, Rotterdam, Budapest, and Copenhagen); this group holds half of the total FDIs (53.2 percent). Outside Europe, the most important location is Dubai, which holds just 2.0 percent of Vienna's total FDI.

During the period under consideration the enormous increase of active and passive FDIs between Vienna and this group of global cities was about 38,3 billion Euros and led to growing concentration. This can be illustrated by a comparison of cities' share in absolute FDI growth: between 1991 and 2005, for instance, Munich's contribution to the total growth of FDI was about 18.8 percent. Other cities with relevant contributions were London (9.2 percent), Prague (8.8 percent) and Bucharest (6.1 percent); additional cities with an average contribution were Paris, Rotterdam, Sofia, Budapest, Bratislava and Rotterdam (see figure 4). The majority of cities (41) revealed a minor contribution (below 1.0 percent), and a few cities held negative values: e.g. Basel and Tokyo. Regardless of general growth of FDIs, the most important FDI locations were uncoupled from the majority of cities, even on the level of global cities. These tendencies clearly indicate that Vienna's brand of “internationalisation” has primarily been one an “Europeanization”. A comparison of spatial patterns is possible on a national level: the Euro-centrism of Austrian and the Viennese total (active and passive) FDIs (AT: 84.1; VI: 84.9 percent) are more distinctive than those of EU-15 countries (71.2 percent) (source: EUROSTAT-Database 2005).

In order to assess Vienna's hierarchical position within the global city network, it is necessary to study not just the strength of its relations, but also their asymmetry. Basically, most relations are bonded-tied, just 12 from 66 are one-sided; but it must also be kept in mind, that mutual relations might display an uneven balance. In the following, the balance of active and passive FDIs as an indicator of hierarchical tendencies in Vienna's GaWC network will be analyzed.

Figure 4: Contribution of Global Cities to Vienna's Network Intensity. Source: Musil, OeNB.

Vienna's FDI Balance in the GaWC Network

The basic theoretical assumption of this paper stresses that not centrality based on the configuration of global service firms, but the capital-based control of multinational enterprises determines the hierarchy of the global city network. An indicator for the control relations between two locations is the balance of active and passive FDI; seen from Vienna's perspective, a positive balance indicates a dominance of active FDIs, a negative balance indicates a dominance of passive FDIs.

The balance of active and passive equity capital reveals some remarkable findings (figure 5 and 6): up until 2005, asymmetrical relations between Vienna and other global cities became a prevailing phenomenon, compared to 1991, when FDIs showed a lower degree of asymmetry. Amongst just 20 – geographically dispersed – locations, Vienna's FDIs show a more or less even balance, most others show an asymmetry quite clear marked by spatial patterns. In 2005 Vienna held positive balances towards Eastern Europe, particularly towards Prague (+3.4 billion Euros), Budapest (+1.1 billion Euros) or Bratislava (+1.5 billion Euros). Vienna's economic dominance in this region is quite clear. In contrast, considering the relations towards Western Europe, the picture clearly changes: with regard to locations in Germany, Vienna holds solely negative balances, whereby Munich stands out as the location that holds the most negative balance (-5.5 billion Euro); besides German locations, London (-2.3 billion Euros), Rotterdam (-2.1 billion Euros), Copenhagen (-0.7 billion Euros), Luzern (-0,7 billion Euros) and Brussels (-0.4 billion Euros) show a clear dominance towards Vienna. Outside Europe, the North American locations also reveal a clearly negative balance – here the dominance of north-western Europe finds its transatlantic continuation.

Figure 5: Balance of FDI Investments, 1991. Source: Musil, OeNB.

Figure 6: Balance of FDI Investments, 2005. Source: Musil, OeNB.

National data might help to benchmark these findings; on a national level Austria shows a similar East-West-divide to Vienna, while countries like Germany and Switzerland show a clear positive balance towards Eastern as well as towards Western Europe. Further, national data do not reflect a comparable expansion of FDI balance during the 1990s; e.g. the figures for Germany or Switzerland between 1996 and 2005 as compared to Austria or Vienna (EUSTAT-Database 2005).

To sum it up, the spatial patterns of Vienna's FDI show pronouncedly asymmetric FDI balances; thus, the structural differences of active and passive investments seems to be determined by their different spatial orientation. Does this fact allow one to see Vienna as a global city that holds a “bridge” or “hinge” function between the north-western European/North American economic core and the Eastern European (semi-)periphery?

How did Vienna's internationalisation, the massive extension of FDI activities, affect its global city status? To evaluate the changes in the global city hierarchy between 1991 and 2005, the relevant 66 locations were merged according to the centrality or network intensity attributed to them in the GaWC-database. Furthermore, the six levels of global city status have been merged into three groups: a high level of global city status (GaWC 1 and 2: “GaWC high”), middle status (GaWC 3 and 4: “GaWC middle”) and low status (GaWC 5 and 6: “GaWC low”); a forth group comprises those cities that do not have any global city status (“no GaWC”). FDI balance for several indicators show a clear sub-dominance for Vienna in the two upper GaWC levels and a positive balance at the lower GaWC level (tab. 3). Negative balance towards locations with no GaWC status can be explained by the offshore positions (Caribbean, Channel Islands) located in this group. However, changes over time reinforce this picture: the groups “GaWC high” and “mean” show a pronounced increase of negative balance for Vienna (-2.6 and -1.6 billion Euro); the two other groups also show an positive increase, especially locations with low GaWC status. It is interesting to note, that locations without GaWC status show the best balance of profits, although their average of duration is the shortest.

Table 3: Balance, Changing Balance and Profit between 1991 and 2005 for Vienna, Classified by GaWC Status. Source: Musil, OeNB.

Thus, Vienna's intensive integration in the global city network led to a dominating position towards Eastern European locations and towards locations with a low global city status; this dynamic development did not lead to an upgrading of Vienna – with regard to important global cities, Vienna's passive role merely deepened. But regardless of this fact, the question of its function as a gateway bridge in the global city network should be posed.

Does Vienna Act as a Gateway Between Eastern and Western Europe?

Indirect FDIs are investments carried out by a company, which is itself subsidiary of a foreign company; hence, a large number of such firms are a useful indicator of a city's “bridgehead” function. In the case of Vienna in particular the question arises if FDI data show a significant level of indirect investments that allow for postulating Vienna as a bridgehead between Eastern and Western Europe. In other words: to what extent did foreign enterprises use their Viennese subsidiaries to expand in other regions? The importance of having such regional headquarters based in Vienna, in close proximity to Eastern Europe with its increasing market potential and economic transformation, is well known: if a company has its regional headquarters based in Vienna, then they are likely to function as offices that serve Eastern Europe (Mayerhofer and Wolfmayr-Schnitzer, 1999; BCG 2003; Knoll, 2004, Karreman, 2008).

FDI data show a notable contribution of foreign subsidiaries in Vienna towards total active FDIs from Vienna. In 2006, just 67.0 percent of all 1,687 investments were realised by firms with headquarters located in Vienna. The rest, 556 indirect investments, were made by companies that were themselves subsidiaries of foreign companies; their headquarters were predominantly located in Western Europe (77.7 percent). Just a small number of indirect investments revealed a provenance from outside Europe (15.5 percent) or Eastern Europe (6.8 percent). With regard to the size of investments (capital by investment) and capital intensity (capital per employee), direct investments were smaller (28,2 to 30.1 Mio. Euro per investment) but showed a higher capital intensity (5.9 to 5.2). In general, differences between direct and indirect investments were marginal. What spatial pattern does the provenance-destination-matrix of indirect FDIs made by subsidiaries located in Vienna show? Table 4 shows a clear dominance for Eastern Europe as a provenance of indirect FDIs: about 82.6 percent of employment and 55.1 percent of total invested capital is related to locations in Eastern Europe. Western Europe as an aim of indirect FDIs held 12.6 percent of employees but 37.7 percent of total invested capital. Similar to FDIs in general, investments to Eastern Europe reveal a lower capital intensity than to Western Europe (see table 4 for employment).

Even if values are low, the fact that companies from Eastern Europe hold indirect FDIs in Vienna is remarkable. This trend shows that indirect FDIs from Vienna are not exclusively made by one side, meaning that West European or non-European firms hold investments in Eastern Europe through their Viennese subsidiaries. It is interesting to note, that most indirect FDIs from Eastern Europe were intended for other regions in Eastern Europe, in numbers of investments (76.3 percent) or employees (92.1 percent). The share of total invested capital makes just 52.9 percent – which underlines once again the low capital intensity of FDIs in Eastern Europe.

Table 4: Indirect FDIs in Vienna (Number of Employees 2006). Source: Musil, OeNB.

Re-Territorialization Along Historic Pathways?

In 2003, fourteen years after the onset of economic and political transformation, regional politicians established a planning region for trans-border cooperation in traffic planning, culture, education, infrastructure and economics (Centrope 2006). In this CENTROPE region, which is characterized by serious economic disparities and cut through by state borders, Vienna with its 1.6 Mio inhabitants and a regional gross product of 63 billion Euros is the clearly dominating centre (second largest city Bratislava: 0.45 Mio, 7 billion Euro RGP). In spite of political ambitions that were thwarted for one and a half decades, firm activities were the driving force of this new spatial configuration, which will be deepened by the European integration process.

The pattern of these company activities can be seen in figure 7 and permit several conclusions: first, these company activities took place over a very limited distance – we can find 26 FDI locations within 100 kilometres air distance of Austria's border (of these three hold GaWC status). 59 FDI locations (12 hold GaWC status) are located within 250 kilometres, a fact that might strengthen the thesis of re-territorialization of global processes instead of border- and distanceless relations (Keil and Brenner 2003, Sassen 2006).

Second, the rescaling of territoriality, which might lead to the construction of a new cross border “state space” (Brenner 1999, p. 442), displays a remarkable historic path dependency, which can be shown in figure 7 to follow the border of Austria-Hungarian monarchy as it was in 1914. It is remarkable that this new formation of a central European “in-between” region is not driven (but, of course, supported) by policy, but by economic activities of MNEs. The regional control balance (see the interpolation of equity capital-balance) and the structure of Viennese FDIs reflects a semi-peripheral division of labour between its Eastern and Western part, which historians have identified as characteristic for the Habsburg Empire – a “smaller Eastern Central European version of that division of labour” which generated a (semiperipheral) world system on a larger scale (Szücs 1990, p. 80).

Figure 7: Spatial pattern of FDI locations in Europe. Source: Musil, OeNB.

Conclusion

This paper uses regionalized FDIs as an indicator for firm hierarchies, which in turn determine spatial hierarchies between global cities; this concept follows Friedmann's world city hypothesis and conceptualizes FDIs as the missing empirical link between the concept of a capitalist world system and world city research.

Empirical analysis has made clear that Vienna has profited significantly from recent geostrategic changes in Europe. The transformation of CEEC-Countries and Austria's own accession to the EC (EU?) led to an increase of FDI activities and a re-orientation towards locations in Central Eastern Europe. This internationalization during the "long decade" of the 1990s - which must also be seen as a process of "Europeanization" - was characterized by an ongoing spatial concentration and an increase of asymmetric control relations. Structural differences between active and passive FDIs and their spatial pattern demonstrate Vienna's role as a semi-peripheral gateway-bridge between Eastern and Western Europe. Indirect investments underline the city's functional role in the world city system: foreign firms use Vienna to expand in Eastern Europe, but this gateway role also seems to work in the opposite direction.

With regard to the global city network, Vienna reveals a high degree of concentration on European global cities and, indeed, on a relatively small number of individual cities. Vienna's status as a global city stated in terms of the balance of capital control did not increase significantly over time; a negative balance increased towards high value global cities. The city's dominance grew merely in relation to those locations that had no status as a global city.

Finally, the "long decade" of the 1990s led to a functional transformation of Vienna and to its dominance over other investment locations along historic pathways, but not to an upgrading of its position in the global city network. In future Vienna's ability to absorb the shocks of present financial and economic crisis - especially those facing Eastern Europe - will reveal whether or not the city's dominating position in Central Eastern Europe and its functional role as a gateway in the global city-network have been built on solid foundations.

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NOTES

^* Robert Musil, Austrian Academy of Sciences, Institute for Urban and Regional Research, Vienna. E-mail: robert.musil@oeaw.ac.at

1. Service value “5” is a headquarter, service value “0” means no presence of a firm.

2. In spite of suburban processes and inhomogeneous administrative boundaries in Europe, the population intensity of Nuts-3-Units has been used as an indicator to define cities (critical value: density of population above 1.000 inhabitants per km²). Those cities were merged together with those nuts-3-units in direct vicinity and defined as city regions. As a consequence, Vienna as also been merged with two units in its direct surrounding.

3. In Europe (EU-25) FDIs have been located on nuts-3-units, in USA on the level of counties. Investments in other regions concentrated on a few locations, primary the capital cities of countries. Locations with a poor frequency could not be considered.

4. Active FDI data range from 1989 to 2005, passive just from 1991 to 2005.

5. FDI capital is measured by the equity capital (sum of nominal capital, savings and balance of profit and losses) (OeNB 2004, p. 9)