Global Cities, Connectivity, and the Location Choice of MNC Regional Headquarters

Abstract

One of the manifestations of the increasing diversity in multinational corporation (MNC) operations is the growing importance of regional headquarters (RHQs). RHQs assume an intermediary, bridging role between the corporate headquarters and local affiliates and other actors in their respective regions. They can have a coordination and control (i.e., administrative) mandate as well as an opportunity seeking (i.e., entrepreneurial) mandate. Since these mandates require RHQs to interact with various internal and external entities and exchange knowledge across distant locations, MNCs tend to locate their RHQs in highly connected “global cities” because these places allow the firm to economize on spatial transaction costs. In this paper, we explore the interplay between geographic distance, RHQ roles, and connectivity by analyzing which global city is selected by an MNC when establishing an RHQ. We argue that there is substantial heterogeneity among MNCs in the importance they attach to city connectivity—which we conceptualize as encompassing the effects of the international flows of people, knowledge, and services—because the connectivity needs of an RHQ varies in relation to its corporate mandate as well as to the geographic configuration of the MNC’s activities. Our mixed logit analysis of the location choices for 1,031 newly established RHQs in 48 global cities between 2003 and 2012 provides qualified support for the notion that the relationship between city connectivity and location choice is more pronounced for RHQs with an entrepreneurial role. Although the geographic distance of a city to the MNC’s regional affiliates discourages the establishment of RHQs with administrative roles, distance effects disappear when the city is highly connected. Moreover, well connected cities are able to attract MNCs’ RHQs from distant countries-of-origin.