Abstract
There has been a transformation of urban structure from mainly sectoral to functional specialization. This transformation is inextricably interrelated with changes in firms’ organization. Some cities host upstream functions of the value chain while others attract production and assembly. This paper investigates the tendency toward functional specialization in Chinese cities by exploring divisions in multinational corporations’ (MNC) business operations in China. Based on data from Fortune Global 500 MNCs during 1979-2008, the study finds that MNCs have gradually expanded in China, both functionally and geographically. In that process, similar functions tend to agglomerate in certain cities while complementary functions co-agglomerate in others. The analysis indicates that Chinese cities may start to move toward functional specialization, with upstream functions clustering in the top tier cities of the political and economic urban hierarchy.
Highlights
There has been a transformation of urban structure from mainly sectoral to functional specialization in developed economies (Duranton and Puga 2005)
Using data on investments from fortune global 500 multinational corporations’ (MNC) in China during 1979-2008, this study will describe the locational patterns of MNC activities and examine the locations of different activities in China and explore the importance of functional externalities in the locational choices of MNCs
China has attracted a large number of MNCs, which disperse their business activities throughout the country
Summary
There has been a transformation of urban structure from mainly sectoral to functional specialization in developed economies (Duranton and Puga 2005). This transformation is inextricably interrelated with changes in corporations’ organization. Multinational corporations (MNCs) have been key players in production fragmentation They separate functions globally and within their home and host countries (Defever 2006; Enright 2009). MNCs would concentrate similar functions in certain cities when advantages exceed costs, resulting in functional specialization. If coordination costs are very high, a MNC may choose to concentrate diverse functions within a city. The empirical results show some evidence of functional specialization at the top of Chinese urban hierarchy
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