Towards an Explanation of MNE FDI in the City of London Financial Services Cluster

Abstract

Research on the foreign direct investment (FDI) activities of multinational enterprises (MNEs) has a long and rich tradition (Dunning, 2003). Research on the advantages, disadvantages and processes that arise in business clusters has a similar tradition (Marshall, 1890; Porter, 1998). While it is clear that there is a considerable amount of MNE FDI in clusters (Kozul-Wright and Rowthorn, 1998), and that this activity is increasing (Nachum, 2003), the body of research on this interface is small (Birkinshaw and Solvell, 2000). However, it is growing fast in the face of increased globalization, deregulation and advances in information and communication technology all of which have begun to prompt a re-evaluation of the spatial organization of MNE activity both by academic scholars and strategic managers. This chapter asks two related questions to contribute to this small but growing area: 1. Drawing from the extant literature on the MNE FDI/clusters interface, what theoretical reasons might explain the high level of MNE FDI in the ‘City of London’ (a generic term used to include its extension into north and west of London and Canary Wharf to the east) financial services cluster? 2. What are the general attractions of the City that managers in this cluster perceive and how do these relate to the theories identified earlier?