Prestigious award for CBS researchers: How cities attract foreign investment

Copenhagen is a great example that you do not have to be big to be good. The capital of Denmark ranks fairly high among the cities from which it is attractive to run an international business. Copenhagen is a so-called 'global city', i.e., a city that offers what it takes for international companies to invest and build subsidiaries. 

"Three key characteristics characterize global cities where companies find it attractive to invest. They are highly connected to local as well as global markets. They have a cosmopolitan environment with cultural diversity, i.e., an international environment which is not subject to national constraints or prejudice. And they have a wide range of advanced services such as lawyers, financial companies, and other advisors," says Christian Geisler Asmussen, Professor at CBS.

He discovered these characteristics ten years ago together with Bo Bernhard Nielsen, Professor at Sydney University, Australia, and Associate Professor at CBS, and Anthony Goerzen, Professor at the Smith School of Business, Queens University in Kingston, Canada. 

The researchers wrote a scientific article "Global cities and multinational enterprise location strategy" in 2013, for which they will receive a distinguished award, the  JIBS Decade Award from the Academy of International Business, at the Academy of International Business (AIB) Annual Conference in Warsaw in July. A panel of peers has rated their article to be the most influential article published in the top ranked international peer-reviewed Journal of International Business Studies ten years ago.

Cities compete against cities

Since 2013, the world has undergone a multitude of changes. We have seen more digitalization, new political power balances, a pandemic, and changed global supply chains. However, the conclusions from 2013 still hold water, say Christian Geisler Asmussen and Bo Bernhard Nielsen, who both have continued to study the interactions between cities and international business. 

Scientifically, the groundbreaking aspect of the award-winning article was that the three authors defined and conducted a new interdisciplinary field of research. They combined knowledge and methods from international business economics, urban development, and economic geography.

The aim was to clarify which conditions lead management in multinationals to place subsidiaries in specific cities or areas. Their study was based on data on 318 Japanese companies' actual foreign investments in 7,000 subsidiaries worldwide.

The researchers established that the competition for investment takes place between cities – and to a lesser extent between countries. For the company it is about finding a city and a location in the city where the cost of being a foreign company  - the liability of foreignness - is as low as possible.  

"Back then, there was a lot of focus on countries competing against countries and companies choosing where to place their investments on a country-by-country basis. However, according to our research, it is about considering a more detailed perspective. These are cities competing against cities across borders. Companies in fact choose where to place their investments at micro level based on idiosyncrasies amongst cities and even neighborhoods. It was a whole new perspective," says Bo Bernhard Nielsen.

Companies can benefit from the research

But reality is that not all companies choose their location based on meticulous financial analyses. Over the years, the two researchers have interviewed many business leaders and deduced that companies' choices are often also coincidental. A city can be chosen because of the personal network, experience, and preferences of the business leader, even if the decision is not financially rational in itself. 

One of the benefits of the research is consequently that business leaders can be inspired to make the right analyses before deciding to invest in one city over another.

For example, a rapidly expanding company such as the IT company Netcompany can use the research to achieve the best position in the global competition by establishing subsidiaries in the cities that offer the best conditions in terms of access to the market, living conditions for employees, and opportunities to deploy employees across international subsidiaries.

Inspiring small and large cities

According to Bo Bernhard Nielsen and Christian Geisler Asmussen, small and large cities can also benefit from the research which was established with the article in 2013 and expanded subsequently (see fact box and links), because politicians and planners can make their decisions based on knowledge of what makes cities attractive. It can lead to investments, jobs, tax money and growth. 

For example, Copenhagen can enhance its position as a global city by becoming even more green and sustainable, developing attractive residential areas, well-functioning commuting opportunities, and international schools. Copenhagen can also provide optimal conditions for educational institutions such as CBS which provides the labour that international companies need. In addition, the research shows that other Danish municipalities, cities, and industrial clusters can benefit from developing similar conditions. 

"I think that in one respect, corporate decision-making processes have changed since we published the article in 2013. Back then, the companies' focus was on the best business case and how to make the most profit. This focus still exists, but soft values such as employee well-being have become more important. Moreover, you must make sure to be in a place with a high quality of life and sustainable solutions," says Bo Bernhard Nielsen.

By journalist Marianne Bom

Other articles from Cristian G. Asmussen and Bo B. Nielsen on the same topic:

• 'Foreign ownership and global city characteristics: unpacking the connectivity of micro-locations'
• 'The location choice of foreign direct investments: Empirical evidence and methodological challenges'

Contact:
CBS press: press@cbs.dk, tel. +45 41852616
Christian Geisler Asmussen, Professor, Department of Strategy, and Innovation, cga.si@cbs.dk, tel. +45 38153034
Bo Bernhard Nielsen, Professor at Sydney University, Australia, and Associate Professor at CBS, bn.si@cbs.dk or bo.nielsen@sydney.edu.au