Global Cities and the Liability of Foreignness: An analysis of global cities, the liability of foreignness, and multinational enterprises’ location strategy

Kristian Mehlsen

Student thesis: Master thesis

Abstract

Abstract: In recent years, more attention have been given to the sub-national determinants of multinational enterprises’ location behaviour. However, the role of ‘global cities’ has received limited attention despite their central position in the global economy. In this thesis, I analyse and discuss the concepts of location, the liability of foreignness caused by MNEs’ spatial separation of foreign operations, and their relation to the factors that drive MNEs toward, or away from, global cities. Rooted in the existing literature on global cities, I follow the arguments that three interrelated distinct characteristics of global cities – cosmopolitanism, interconnectedness, and availability of advanced producer services – help the MNEs overcome the social costs of doing business abroad. In addition, I identify MNEs’ operations that benefit or suffer from the locational attributes of global cities, and how they in turn relate to the liability of foreignness associated with the international operations of MNEs. Consistent with these arguments, I operationalise the liability of foreignness as institutional distance and analyse its influence on the location of a large sample of subsidiaries from Nordic and Japanese MNEs. My results indicate that not only do MNEs have a strong propensity to locate in global cities, but also that these choices are affected by institutional distance and industrial characteristics of R&D- and advertising-intensity. Consequently, my results provide empirical support for the arguments of global cities’ role in the processes of globalisation, the co-evolution of global cities and MNEs, and the ability of global cities to reduce the liability of foreignness suffered by MNEs. Ultimately, my study contributes to the understanding of the implication of location and distance on MNEs’ international strategies, but also points to further investigation on the role of global cities in the nexus of place, space, and organisation to expand our knowledge on the geographic aspect of MNE behaviour.

EducationsMSc in International Business, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2014
Number of pages106