This Research Bulletin has been published in Cities
Please refer to the published version when quoting the paper
Headquarter functions of major corporations have been an important theme in the study of cities as control and command centres in globalization. In the original two classic formulations, they are a prominant feature in John Friedman's (1986) definition of a world city hierarchy, and are integral to Saskia Sassen's (1991) specification of global cities. In subsequent studies of world/global cities the idea of control and command centres remains a key component of understanding the role of cities in globalization (e.g. Ni et al 2011). In this short paper we add to this literature critically in two distinctive ways. In Part One, we present a current and comprehensive analysis of headquarter functions in which the results of 'control and command' are measured directly in terms of the quantity of revenue generated in cities by firms headquartered there. This is a basic measure of the economic success of a city in terms of the earnings of its major firms that are of that city. But as the term command and control implies, it can also be viewed as an indication of the importance of a city as an economic power; the corporate concentration within a city to wield power in a dynamic world economy. The overall implication is that command and control is a good thing for a city and augors well for its prospects, afterall the greater its headquarter functions the more a city's future role in the world economy is in its own hands.
But economic process is not this simple and straightforward. Thus, in Part Two, we interrogate our findings in terms of how economies are built within and through cities. Cities are immensely complex and a simple decisionmaking model focusing on one set of functions is inadequate for defining the economic success of a city. In fact we will go further and argue that headquarter functions of major corporations can provide a misleading picture of success in the world economy. Using the classic work of Jane Jacobs (1969) we note that cutting edge economic change is more likely to be forthcoming from small and medium firms; in her work large corporations represent past successes and are not necessarily where the contemporary action is. Therefore an analysis of current control and command centres is a scripting of recent economic histories, some still relevant, others less so. We will show that just such a radical and critical interpretation is necessary to make initial sense of the results from our corporate revenues analysis of cities in contemporary globalization.
Part One: Analysis
The study uses “The Forbes Global 2000” ranking for 2010 which is the longest worldwide listing of large corporations publicly available.
For each corporation we record the headquarter location. There were 23 corporations with their headquarters ‘registered' in the Cayman Islands, Bermuda and Liechtenstein that are deemed of no interest for this analysis since they are not city-based. Thus our analysis covers 1,977 corporations, which between them have a combined revenue of USD 29,890.17 billion.
The Forbes Global 2000 classifies corporations into 26 industry categories on the basis of their activity profiles. To facilitate interpretation and ease comparison with other studies we have reclassified the companies operating in these various industry categories into the ten basic sectors of the Global Industry Classification Standard (GICS) used by Morgan Stanley Capital International (MSCI) and Standard & Poor's (S&P). The result is shown in Table 1. As expected this distribution of firms is quite uneven: in 2010 just under one half of the corporations (47%) were in the Financials and Industrials sectors.
Some of the 1,977 firms are headquartered in quite small towns. Where these towns are part of metropolitan regions they have been so allocated and are listed under the main city of the urban region. For instance, there are 84 Forbes 2000 corporations with headquarteres in the New York–Northern New Jersey–Long Island Metropolitan Area, 51 of them in New York City, and 33 in 28 other places of the metropolitan area (Purchase, Roseland, Westbury, etc.). In the results below these are all listed under New York. The 1,977 corporate headquarters in this study are found in 651 places that are combined into 450 metropolitan areas.
Table 1. Industry categories belonging to the individual GICS sectors
For each city the revenues of firms headquartered there are combined to produce the research results: total revenues for 450 metropolitan areas from their Forbes2000 corporations is USD 29,890.17 billion.
Table 2 shows the leading city for Forbes2000 corporations' revenues by GICS sectors. Although New York and Paris figure twice in the table, they are no match for Tokyo which has highest revenues for half the sectors. This initial glimpse of the revenues results is surprising in this degree of concentration in this particular city. It is not that Tokyo is not considered important among cities in the world economy, just not quite this important. The appearance of The Hague in Table 2 is a contingent artefact on the city housing the headquarters of the second largest corporation in the Forbes2000 (Royal Dutch-Shell).
Table 2. Headquarter cities with the largest revenues in the individual GICS sectors
A slightly fuller picture is given in Table 3 where the top 20 cities with the highest sector revenues are ranked. Note that now we can see that Dallas, Moscow and Houston from the Energy sector join The Hague with Houston having most firms from this sector headquartered there. But this table still shows a particular large presence of Tokyo with by far the highest sectoral concentration of revenue (in Industrials) but also its other four leading sectoral city positions are ranked in this top 20. By comparison, Paris and New York have three and two mentions in this table.
Table 3. Top 20 headquarter cities by sectors
In Table 4 revenues from all sectors are combined together to provide an overall ranking of cities by revenues. This confirms the leading position of Tokyo in terms of headquarters of leading corporations in the world economy. It is the archetypal command and control centre: far ahead of its nearest rivals Paris, New York, and London in terms number of headquarters; and by revenues, a third ahead of Paris and more than New York and London combined. This is the stand out finding of this analysis and will feature prominently in the interpretation section below. In contrast we can note the other ‘surprise' in Table 4 is the ranking of Fayetteville at 12th , immediately above Munich, Moscow and Houston. The explanation is the same as for The Hague (ranked 17th ) as commented on previously: the housing a high-ranking firm. In this case it is first-ranked Walmart Stores headquartered in Bentonville, which is in the Fayetteville-Springdale-Rogers Metropolitan Area.
Table 4. Top 20 headquarter cities by total revenues
Part Two: Interpretation
In this interpretation we will focus upon the aggregate results in Table 4. We have noted the peculiar occurrence of Fayetteville and The Hague amongst this list of world cities each depending largely on the location of one very large corporation. This phenomenon of large corporate headquarters in relatively small cities has been widely recognised previously (e.g. Lyons and Salmon 1995) and reflects firms' more modest origins compared to their current global prowess. Thus Godfrey and Zhou (1999) have argued that headquarter functions are a poor way of measuring the 'global urban hierarchy' – particularly in under-estimating the importance of 'third world cities' – and they suggest more emphasis be given to regional headquarters that reflect strategic location decisions rather than simply where a company first started. While accepting the relevance of these criticisms, our critique will focus on the instrumentalism implicit in the description 'command and control centres' that has dominated much interpretation of headquarter cities in the world city literature (e.g. Clark 1996, 148-9; Short and Kim 1999, 26: Sassen 2006, 61).
This brings us back to Tokyo and its number one rank in our analysis. This result is in keeping with previous studies that have emphasized headquarter locations notably the network analyses of Alderson and Beckfield (2004). But what is striking in Table 4 is not simply that Tokyo ranks first, it is the extreme level of global primacy that demands attention. An instrumentalist interpretation of this result is that great economic power is weided through corporations in Tokyo. For instance, the aggregate revenue of companies headquartered in Tokyo is greater than the combined revenues of the 270 corporations in our data that are headquartered in the whole of China (including Hong Kong), Singapore, South Korea and Taiwan. Thus this one Japanese city appears to house more economic power than the other key countries in the rise of Pacific Asia combined. Furthermore, there are two other Japanese cities featured in Table 4: Nagoya and Osaka are ranked 10th and 11th respectively. Although Hill and Fujita (1995) have reported that Osaka has a 'Tokyo problem' relating to the latter's primacy within the Japanese economy, this does not seem too severe when compared to leading European countries: the 'Paris problem' and 'London problem' for French and British cities respectively are really extreme country primacies such that no cities from these two countries appear in the top 100 headquarter ranking. Further, the three Japanese cities in Table 4 are ranked higher than Munich, the top German headquarter city, in a much less urban primate country. Thus we could conclude that both Tokyo and the other Japanese cities are quite remarkable for their economic power in the contemporary world economy.
But in broader context this unambiguous result from our analysis is quite odd. Japan was the original Pacific Asian 'economic miracle' but this success came to an abrupt halt in 1991. Since then the country has suffered a 'lost decade' of stagnation and has fared little better in the twenty first century. Certainly the country's economic growth rate bears no comparison to its Pacific Asian peers, especially China. So what is happening here? To answer this we can go back to basics, to Jane Jacobs' (1969) seminal work on cities and economies. By definition, the Forbes2000 are very large corporations; this is what Jacobs has to say about them:
'Large and successful organizations are awesome. It is easy to believe that almost anything is within their power and that they hold the future development of an economy in their hands. Perhaps this is why it is commonly believed, even by many economists, that an economy's expansion depends on expansion of already existing activities and upon further development of work undertaken by already large and successful organizations. But such organizations and their work do not forecast the future. Rather, they themselves are the results of economic creativity of the past. Because of the necessary sterility of most of their divisions of labor, it is not in their power to develop more than a minute fraction of a developing economies future new goods and services.' (Jacobs 1969, 78)
Thus what we are seeing in Table 4 is the continuing effect of Japan's, and Tokyo's in particular, great surge of economic creativity in the quarter century before 1990. It is this historical legacy that dominates the results we have produced; and this might also include much of the US cities representation in Table 4. But not all of it: notice San Jose – 'Silicon Valley' – creeping into our table in 20th position. This example and Shanghai, one position above, may be the two main portends for future locales of economic power in the world economy. In effect a ranking such as in Table 4 will show a historical layering of city successes up to the present. Clearly the inclusion of Beijing and Moscow, capital cities of former state planning countries, shows more recent economic successes reflected in global corporate visibility. Going beyond the data reflected in Table 4, we find China has more headquarter cities than Japan (49 compared to 39) and is second only to the USA. These Chinese cities house 162 firms in the Forbes2000, more than Germany and the UK combined. This suggests more recent economic successes resulting in large corporations in China, which places this country on course for future economic success based upon economic creativity, and consequent corporate headquarter functions.
Finally, we should not leave an impression that large corporations are not important in the world economy. As Jacobs (1969, 78) indicates, they are 'useful for economic life' but in ways other than 'producing new goods and services for the future'. Their relatively stable organization of old divisions of labour – often strategically exported across the world – enables large-scale production of goods routinely and efficiently. This is what Japanese corporations are continuing to do. But in terms of global/world city research, analysis of headquarter cities provides a cumulative measure of successful city economies that leaves uncertainty about when the success was most potent. However, such analysis does inform other important research agendas. In terms of cities, research on headquarter cities expands our knowledge of varieties of economic power, with their specific command power just one of many forms of power (Taylor 2004, 88-93; Ni et al 2001). In terms of states, understanding headquarter cities can inform the agenda set by Robert Reich (1991) relating 'inside' territorial economy (e.g that under US government jurisdiction) to 'outside' territorial economy (e.g. the global networks of production owned by US corporations). In this case such research might be useful in inserting cities back into debates the efficacy of direct foreign investment. But, despite the popularity of ranking cities by corporate headquarter activities, as indicators of contemporary successful cities and future economic change, such focus on 'command and control centres' is of limited utlity.
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