GaWC Research Bulletin 361

This Research Bulletin has been published in B. Derudder, M. Hoyler, P.J. Taylor and F. Witlox (eds) (2012) International Handbook of Globalization and World Cities Cheltenham, UK, Northampton, MA, USA: Edward Elgar, pp. 437-446.

Introduction

Accounts of big cities in poorer countries are commonly informed by the megacity discourse, whose first leitmotif is that megacities have, due to the size of their population, more problems than other cities. They are, therefore, supposed to be ‘major global risk areas, (…) particularly prone to supply crisis, social disorganization, political conflicts, and natural disasters' (Megacity Task Force, International Geographical Union, 2010). Mike Davis (2006, p. 138) simply contends that the poor megacities are ‘stinking mountains of shit'.

Yet, such assessments are problematic because authors expounding on the problems of megacities provide neither evidence nor compelling theoretical arguments for their claim that bigger cities face more or more serious problems than smaller ones. In fact, this notion is empirically difficult to sustain. Everybody knows, for example, that the megacity Mexico City does in many, if not all aspects better than the non-megacity Ciudad Juárez on the Mexican-U.S. border, while it is equally recognized that the many disparities between the two megacities of Mexico City and New York do not stem from the difference in population size. Regarding the theoretical grounding of the claim that “mass matters” (IGU Megacity Taskforce), it is striking that the mainstream literature on megacities has not seriously engaged neither with Simmel's stimulating thinking that size makes a difference to the mental life of city dwellers (Simmel 2006 [1903]) nor with Jacobs' (1970) contention that cities are economically vibrant because of the necessity to resolve the many problems resulting from size and density. It remains, thus, unassessed whether crossing a certain quantitative threshold makes any qualitative difference in urban development or city life. I will therefore stick to the purely quantitative definition of a megacity given by the United Nations (2008), which establishes that megacities have at least 10 million inhabitants.

The second leitmotif of the megacity discourse is that big cities in poorer countries are of no relevance for the functioning of the world economy. At best, they are conceived as centers of national production (quite often they are, however, also dismissed as being unproductive parasites of national development). This allegation is commonly backed with the notion that megacities in poorer countries have no or only few headquarters of the world's biggest companies, or that they are barely integrated into global financial markets. From this – correct – observation it is deduced that megacities in poorer countries constitute a discrete type of cities, analytically distinct to the category of global cities (Kraas 2007, p. 876f). Yet, a closer empirical analysis refutes this conclusion. According to the studies of the GaWC group, 18 of the world's 20 megacities (according to the UN definition) classify as world cities. The only exceptions are Dhaka and Osaka-Kobe – one poor and one rich megacity (GaWC 2008).

Ironically, the notion of global economic insignificance of cities in poorer countries is (unwittingly) reproduced by postcolonial urban studies. Robinson (2006, p. 98f), for example, argues that ‘(m)illions of people and hundreds of cities are dropped off the map of much research in urban studies', because global city research focuses on producer services while ignoring the various ways in which cities in poorer countries can be connected to the world economy. It is, however, a misinterpretation to suggest that cities, which are out of the game of global city-ness are ‘excluded from global capitalism' (ibid., p. 102). On the contrary, Sassen's conceptualization of global cities as places wherefrom producer services are provided to manage and to control the world economy logically implies that the world city network is built upon ramifications that link global cities to the countless non-global, yet fully globalized cities where production for global markets is carried out. Low paid manufacturing work supplied in Ciudad Juárez is as vital to the reproduction of global capitalism as is the provision of high paid producer services. Global cities are therefore not only mutually constituted, as stressed by Taylor (2004), but also by their connections to Robinson's ‘ordinary cities' (Parnreiter 2003, 2010).

While it is true that most cities around the world are no direct subject for global city studies, this ‘dropping-off' results from uneven development itself. Core activities, which are necessary for running and controlling global commodity chains, are by definition located in the centers of the world economy, not in its peripheries. Thus, the proposed shift of attention away from producer services to ‘how ‘global' economic processes affect all cities' (Robinson 2006, p. 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. Put differently: It is the focus on producer services that allows grasping the fundamental difference between the role of cities in engendering globalization and the impacts of globalization on cities. It is this difference that makes the core of reasoning in global city research.

Despite the fact that most cities are no direct subject for global city studies, this research is much more inclusive as its opponents suggest, because it helps to comprehend the multiple hinges between the relatively few global headquarter cities and the innumerable cities where production for the world market is carried out. Mexico City is an excellent example to counter the outdated notion of the megacity discourse that big cities in poorer countries are insignificant to the functioning of the world economy. Though the city had only three Fortune 500 corporations in 2009, accounting for 0.7 per cent of the revenues of the Global 500, and though its stock exchange comprised just 0.8 per cent of the worldwide market capitalization (Fortune 500 2009, WFE 2010), the city is a key place in the locational strategies of producer service firms. It is characterized as an alpha- world city – ‘very important world cities that link major economic regions and states into the world economy' (GaWC 2008). To back this claim, in what follows I provide both quantitative and qualitative information on global city formation in Mexico City, and I discuss the city's place in the geography of global economic governance. Finally, I sketch out the emergent new corporate geography within Mexico City.

Global city formation in Mexico City

Since the key function of a global city is to articulate economic activities at various geographical scales into the world economy, the examination of global city formation in Mexico has to start with a brief outline of what is being articulated. Commodity chains in Mexico have gone through a rapid course of globalization since the end of import substituting industrialization (ISI) in the early 1980s. While the yearly exports of goods and services have grown nine fold (1980/85–2003/08; measured in current US-D), imports have increased 12 fold (World Bank 2009). An even more significant indicator for the globalization of economic activities is the profound change in the composition of the exports. Manufacturing now amounts to 81 per cent of exports (2007–09, up from 26 per cent [1980–83]), while the share of oil has decreased to 16 per cent (Banco de México 2010). This reveals 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. These export platforms were built up through a massive inflow of foreign direct investment, whose yearly inflows have grown tenfold (1980/85–2003/08) (UNCTAD 2010).

My central claim is that we speak of global city formation in Mexico City, because this growing globalization of economic activities is partly organized from there. Empirical support for this contention comes, firstly, from data on the rise of the producer service sector. After the collapse of ISI, Mexico City's economy underwent a structural transformation, which is characterized a) by a partial deindustrialization (the share of manufacturing in the GRP dropped from 24 to 19 per cent, while the city's participation in national industrial production was falling from 47 to 17 per cent [1980–2003]), and b) by a strong rise of producer services. In 2003, they accounted for more than a third of Mexico City 's GRP, with financial services alone comprising 25 per cent. As a consequence, Mexico City 's share in the national production of producer services had risen to 76 per cent (Sobrino 2000; INEGI 2004). This rise of producer services denotes that Mexico City has changed 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 2010).

My claim that the growing globalization of economic activities in Mexico is partly organized from Mexico City is also supported by data that show an increasing centralization of the headquarters of Mexico 's biggest companies. While in 1993, the year before NAFTA was enacted, 255 of the Top 500 companies in Mexico were headquartered in Mexico City, 13 years later the number had risen to 352. Thus, today the centralization of head offices is higher than in the times of ISI. It is remarkable 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 (Expansión various years).

Yet, it is neither the concentration of headquarters nor the growth of the producer service sector per se that makes a global city. In order to scrutinize the notion that global cities are nodes where commodity chains at the local, regional, national and global scale are articulated through the provision of producer services, the demand for these services must be confirmed. This can be done with an input-output analysis of the Mexican economy, which shows that in 2003 60 per cent of the producer services went to three strongly globalized economic sectors: wholesale and retail trade (23 per cent), manufacturing (19) and the producer service sector itself (18) (INEGI 2003). Though this input-output analysis cannot be broken down on a regional level, information on the strong geographical concentration of value adding activities in producer services suggests, along with information provided in Table 1, that there are substantial flows of producer services from Mexico City to other parts of the country. Table 1 shows that the cities where most of export manufacturing is carried out are not at all equipped to manage this production. 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. This suggests that the need to service export production in these cities 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, %

The demand for producer services by companies with global reach is also confirmed by an analysis of the client structure of producer service firms in Mexico City (Parnreiter 2010). In auditing, for example, 91 per cent of the publicly traded companies (220 of the 300 biggest firms in Mexico) get their 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, 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 question as to whether Mexico City is a node, from where producer services are fed into global production networks can be answered: for auditing this is clearly the case.

The same holds true for legal services. 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. For instance, about 95 per cent of clients of the Mexico City office of Baker & McKenzie, the world's 4 th biggest law firm (2008), have global reach. Foreign companies competing for the Mexican market make the biggest sub-group, followed by national firms catering to the world market and TNCs carrying out export production in Mexico. Comparably, the Mexico City office of Holland & Knight, worldwide the 51 st biggest law firm, has worked for some of the most important firms in the country (e.g. the state-owned oil company PEMEX, the Grupo Financiero BBVA-Bancomer, and the conglomerate Grupo Carso, which produces a range of commodities from cigars to autoparts). For law firms, one important aspect of servicing global operations of firms is the legal management of FDI. This includes decisions on the form of business organization of the investing company 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.

In sum, the input-output analysis and the information on the clients of accountancy and law firms confirm links between Mexico City's producer service sector and companies, that operate within 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 (as for the products sold in Wal-Mart). This information constitutes, in addition to the expansion of the producer service sector and the increasing centralization of headquarters, the third empirical buttress for my claim that the growing globalization of economic activities in Mexico is, at least partly, organized from Mexico City. The city is, thus, on the map of both world cities and global commodity chains, making it to 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, p. 5) are supplied.

Mexico City in the geography of economic governance

Underscoring that producer services are key activities for ‘the production of management and control operations' (Sassen 1991, p. 14), Sassen depicts global cities both as places for the management and the command of the world economy. Yet, it does not become clear how the provision of services for the running of global production networks translates into the capacity to govern them. 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.

Contrary to this notion, my research indicates that the offices of producer service firms in Mexico City are places wherefrom some form of governance is exercised (Parnreiter 2010). Interviewed auditors and lawyers acknowledged, for instance, that producer service firms are progressively more involved in influencing their clients' decision-making processes (though they frequently rejected this notion for the specific service they supply). As one lawyer at a global law firm put it: ‘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 labor law issues. In addition, business lawyers quite often participate in the Board of Directors of big firms, what makes them part of their administration and allows them to influence the decision-making process. Thus, producer service firms in Mexico City do handle issues which have an impact on how resources are allocated (or withdrawn) from the ‘Mexican segment' of a global commodity chain. Supplying ‘activities that need to be done for global firms to execute their operations without losing sight of the corporation's aims' (Sassen 2010, p. 158), professionals in Mexico City exercise governance for commodity chains: ‘It is a kind of embedded governance – embedded in the lawyering, the accounting and the investment choices of the firm' (ibid.).

Regarding the scope of global city functions in Mexico City, evidence suggests, firstly, that their geographical reach is basically confined to Mexico. The main pivot for the rest of Latin America is, according to Taylor (2000), Miami (compare also the GaWC Atlas of Hinterworlds [GaWC 2010]). Secondly, the depth of influence that producer service firms in Mexico City have on the governance of production networks depends both on sector- and on firm-specific factors. Though the global organization of producer service firms tends to be rather flat, interviews in Mexico City also evoke 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 the place where a client firm has its headquarters, because it is always the partner of the service firm with direct contact to the client who is in command. As one professional in a global accountancy firm in Mexico City stated: ‘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' (quoted in Parnreiter 2010, p. 47).

This structure helps to understand the role and reach of Mexico City as a global city. The organizational model of the service firms' global networks implies that there is the chain of command: The ‘big' strategies are made by the lead partners, who usually are located in an office close to the client firms. Because of this analogy between the geographies of lead partners and of headquarters of big companies, and because there are much fewer firms with origins in Mexico that compete successfully at the world market than foreign firms in Mexico, the Mexico City office of producer service firms will not often be in command. Put simply, the economic world order poses serious limitations to the development of far-reaching governance functions in Mexico City.

The spaces of global city formation

The spread of high-rise office complexes are amongst the most visible imprints of globalization on cities. In Mexico City (like in many other cities), this transformation of the urban landscape is closely linked to global city formation (Parnreiter 2009). Due to a construction boom, the supply in office space grew by 65 per cent between 1997 and 2007, totalling to 5.6 million square meters in 2007 (data draw on reports of CB Richard Ellis, Colliers International, Cushman & Wakefield and Jones Lang LaSalle). Both the strong increase in market transactions and a very low vacancy rate (which amounted to 6 per cent in 2008 and which has not risen since then) suggest that this increase of office space is demand driven.

In addition to the expansion, the inventory changed in two important ways. Firstly, there is a marked upgrading of the supply – in the last decade, four-fifths of construction activity contributed to the first-class office market. Class A+ office space doubled its share in the total inventory, making up 30 per cent in 2008. Secondly, the geography of office space also changed considerably. The areas that during ISI constituted the CBD (the historical centre and its extension to the West, Paseo de la Reforma; Polanco; Insurgentes Sur and its neighboring districts) lost importance, while new business areas in the West and South of the city were built (Lomas Palmas, Bosques de las Lomas, Santa Fe, Periférico Sur). These changes in the corporate geography are most visible if the focus is on prime office space, the fastest growing segment of the market. By 2007, the share of the traditional CBD had fallen to a quarter of Class A+ office space, while Santa Fe alone has emerged as the dominant area of prime office space. There, more than 70 per cent of all office space belongs to the Class A+ segment, while 31 per cent of the city's inventory in A+ office space has been built in Santa Fe (see map 1).

The relationships between the production of new urban spaces and the processes of global city formation are striking: It has been the massive influx of foreign firms since the mid 1990s, the globalization of some Mexican companies, and the enormous growth of the advanced producer sector has spurred and changed demand for prime office space. Since the enactment of NAFTA, the areas composing the new CBD increased their share of major offices in Mexico City from 19 to 45 per cent (2007). Behind this increase lies a specific geography of the locations of the headquarters: map 1 reveals that foreign-owned and producer service firms are located mainly in the areas where most of prime office space has been built. While the old CBD has only 30 per cent of the sales of the foreign-owned firms figuring in the list of the Top 500 companies, the new CBD accounts for 47 per cent. In a similar vein, FIRE-sector firms in the new CBD make up 52 per cent of the sales of the producer service firms, while the traditional CBD accounts for only 47 per cent. The outstanding submarket within the new CBD is Santa Fe, where firms are located that account for a third of the sales of foreign owned companies and for 36 per cent of the sales of FIRE-sector firms. There is, thus, a spatially delimitable ‘global city zone', where the cross-border networks of world cities and of commodity chains overlap.

Conclusion

The analysis presented offers comprehensive evidence of global city formation in a big city in a poorer country. The strong expansion and concentration of the producer service sector in Mexico City, the equally increasing centralization of the headquarters of Mexico's biggest companies, and the flows of auditing, legal and other producer services from firms in Mexico City to companies operating in the Mexican segments of global commodity chains confirm that the growing globalization of economic activities in Mexico is, at least partly, organized from Mexico City. Hence, the city is changing from a national production centre, which integrated the domestic market, to a hinge between economic activities carried out in Mexico and the world market.

My research also proves that global city functions of Mexico City are not confined to supply services which are necessary for the smooth functioning of the world economy. Rather, producer service firms in Mexico City influence their clients' decisions in various ways, and that is why Mexico City is a node wherefrom governance for global commodity chains is exercised. Yet, the evidence also suggests that the scope of this these governance is limited to secondary issues and, geographically, to economic activities in Mexico. Finally, global city formation in Mexico City has led to a massive restructuring of the urban landscape. In order to meet the demand of global (producer) firms for prime office space, a new CBD has been built in Western parts of the city. In this delimitable ‘global city zone', the intersections between the world city network and global commodity chains are located.

In sum, the research presented shows that Mexico City is a place wherefrom globalization is produced as well as that ‘the urban' (e.g. the economy, the built environment) is strongly impacted by the processes of global city formation. The global city perspective proves, thus, to be more fertile for the study of big cities in poorer countries than the megacity discourse, because it relates ‘internal' transformations to the ‘external' role in the management and control of global commodity chains. The global city perspective is also better suited than postcolonial urban studies, because in underscoring the global city functions located in Mexico City it breaks with the all too simple divide into ‘Northern' and ‘Southern' cities, with the latter being ‘victims' of uneven globalization.

REFERENCES

Banco de México (2010) ‘Balanza de pagos', www.banxico.org.mx, accessed 28 January 2010

Expansión (Various years), Las 500 empresas más importantes de México, México D.F.: Expansión.

GaWC (Globalization and World Cities Research Network) (2008) ‘The world according to GaWC 2008', www.lboro.ac.uk/gawc/world2008.html, accessed 28 January 2010

GaWC (Globalization and World Cities Research Network) (2010) ‘GaWC Atlas of Hinterworlds', www.lboro.ac.uk/gawc/visual/hwatlas.html, accessed 28 January 2010

INEGI (2003) ‘Matriz de Insumo-Producto de México para el año 2003', www.inegi.org.mx/est/contenidos/espanol/proyectos/scnm/mip03/default.asp?c=14040, accessed 28 January 2010

INEGI (2004) Censos Económicos 2004, Aguascalientes: Instituto Nacional de Estadísticas, Geografía e Informatica.

Kraas, F. (2007),'Megastädte', in H. Gebhardt, R. Glaser, U. Radtke and P. Reuber (eds), Geographie. Physische Geographie und Humangeographie, München: Elsevier, pp. 876–880.

Parnreiter, C. (2003),‘Global City Formation in Latin America: Socioeconomic and Spatial Transformations in Mexico City and Santiago de Chile. Paper presented at the 99th Annual Meeting of the Association of American Geographers, 4-8 March 2003. New Orleans, www.lboro.ac.uk/gawc/rb/rb103.html, accessed 28 January 2010

Parnreiter, C. (2009),‘Global-City-Formation, Immobilienwirtschaft und Transnationalisierung. Das Beispiel Mexico City', Zeitschrift für Wirtschaftsgeographie, 53 (3), 138–155.

Parnreiter, C. (2010),‘Global cities in Global Commodity Chains: exploring the role of Mexico City in the geography of global economic governance', Global Networks, 10 (1), 35–53.

Robinson, J. (2006), Ordinary Cities: Between Modernity and Development, London: Routledge.

Sassen, S. (1991), The global city: New York, London, Tokyo, Princeton: Princeton University Press.

Sassen, S. (2010), ‘Global inter-city networks and commodity chains: any intersections?' Global Networks, 10, (1), 150–163.

Simmel, G. (2006 [1903]), Die Großstädte und das Geistesleben, Frankfurt / Main: Suhrkamp.

Sobrino, J. (2000), ‘Participación económica en el siglo XX.', in G. Garza (ed.), La Ciudad de México en el fin del segundo milenio. México D.F.: El Colegio de México, pp. 162–169.

Taylor, P. (2000), ‘ World Cities and Territorial States under Conditions of Contemporary Globalization', Political Geography, 19 (1), 5–32.

Taylor, P. (2004), World City Network. A global urban analysis, London: Routledge.

United Nations (2008), World Urbanization Prospects. The 2007 Revision. Highlights, New York: United Nations.

UNCTAD (United Nations conference on Trade and Development) (2010) ‘Foreign Direct Investment database', www.unctad.org, accessed 28 January 2010

WFE (World Federation of Exchanges) (2010) ‘Domestic Market Capitalization' www.world-exchanges.org/, accessed 28 January 2010

World Bank (2009) ‘ World Development Indicators Online', www.worldbank.org, accessed 28 January 2010

NOTES

Note: This Research Bulletin has been published in B. Derudder, M. Hoyler, P.J. Taylor and F. Witlox (eds) (2012) International Handbook of Globalization and World Cities Cheltenham, UK, Northampton, MA, USA: Edward Elgar, pp. 437-446.