Search

Wednesday, October 8th, 2008

Chicago: Corporate Headquarters and the Global City

Chicago is the Midwest’s only “global city” (or world city if you prefer). There are many paradigms of the global city, but the most widely cited is Saskia Sassen’s. The Cliff Notes version goes something like this. As businesses became more globalized and more virtualized, this created demand for new types of financial products and producer services – notably in the law, accounting, consultancy, and marketing areas – to help businesses service and control these far flung networks. These financial and producer services are subject to clustering economics, and end up concentrated in a relatively small number of cities around the world. These global cities serve as control nodes for various global networks and key production sites for these services.

Although the typical 1-3 million aspirational metros I often feature in this blog have law firms, accounting firms, marketing agencies, and banks, they mostly do not function as global cities. That is because those services are oriented towards domestic consumption and servicing the local market only. In a global city like Chicago, these services are qualitatively different, in that they are designed to serve the needs of global networks, and they are produced to a great extent for export. Columbus’ law firms serve mostly Columbus and Ohio. Chicago’s law firms serve the world. This also explains why the boom in Chicago’s core includes employment growth, while smaller metros, despite their entertainment and residential improvements, are showing urban core employment declines.

This also explains an interesting conundrum. The number of large company headquarters in places like New York and Chicago have been declining while the urban core has been booming. Sassen’s theory explains this in terms of growth built around financial innovation (currently hitting a rough patch to say the least) and producer services, not corporate headquarters.

But I’m starting to notice something. I don’t have the resources to do an empirical analysis, but I’m seeing anecdotal evidence that the global city may actually be starting to attract company headquarters again, albeit a reconstituted notion of the headquarters. Just as Chicago was not able to reinvigorate itself until it figured out how to reposition its experience as an agro-industrial capital into a global age, similarly, the corporate HQ needed to reinvent itself, and is reinventing itself to take advantage of the new global cities.

I was struck by the recent example of Mead Johnson Nutritionals, a spinoff of Bristol-Myers Squibb. This company is currently headquartered in Evansville, where it has also located its key manufacturing operation. But Mead Johnson is planning to move its headquarters to Chicago. According to the article:

“Mead Johnson Nutritionals is looking at Chicago and other cities as a possible location for its corporate offices. Working in a large city will make it easier to conduct business throughout the world. Mead Johnson makes Enfamil and similar products and about half of its sales come from overseas. Having offices near Chicago, for instance, will place executives in close proximity to global-business consultants, leaders in the field of nutrition and an international airport.

Between 40 and 60 people will work in the corporate offices, most of them in new positions. Evansville will retain the company’s operations in research and development, U.S. sales and marketing and information management, as well as a bulk of the finance and human-resources departments, Paradossi said. Mead Johnson’s liquid products will continue to be made in Evansville, he said.”

This excerpt makes two key points:

  1. In addition to just access to global flights, the company specifically wants executive access to the producer services found in a global city, in this case global-business consultants.
  2. The headquarters being moved is not a traditional headquarters, but rather a thin layer of only 40-60 top level people who require close interaction with providers of producer services. Traditional headquarters functions such as R&D, Sales, and IT will remain in Evansville, as will production.

In short, proximity to producer services (and international flights) is a source of advantage to the company, else it would not be making this move, which will cost money in its own right and create a coordination burden with the bulk of the staff left behind in Evansville. We’re also seeing a new concept of what a headquarters is. The “headquarters” is actually splitting into two: an executive headquarters and an operational headquarters.

Is this an isolated example? No. Two other ones in Chicago come immediately to mind. Boeing relocated a small headquarters from Seattle to Chicago. This company wanted a location independent of its operational businesses. A more recent and probably better example is Miller, which is again moving a small headquarters function from Milwaukee to Chicago, this time explicitly to gain access to the marketing services available in Chicago. Many traditional headquarters functions, as well as a key production facilities, will remain in Milwaukee.

I’m not sure if these are isolated cases or a trend. And it isn’t entirely new. Some companies have maintained these type of executive headquarters for a while, though historically the examples I can cite have been motivated primarily by the residential preferences of the CEO. For example, Men’s Wearhouse has a small HQ in Fremont, California (the Bay Area) where the CEO lives while most of the work gets done in Houston. Lincoln National moved a small headquarters to Philadelphia from Ft. Wayne when it hired a new CEO from the Philly area. But I do find it interesting that companies are now moving to places like Chicago where they don’t have a historical connection, and are explicitly citing access to producers services as a rationale. This will be an interesting trend to watch.

I think it also goes to show the uphill battle smaller Midwestern cities will have to fight. While some of these are doing well on the whole and are home to clusters of new economy businesses, they are not production sites for international producer services. This will mean that until they develop some type of export oriented production of and participation as a node in a global network for some specific service, they won’t probably see the same types of urban core development as the major global cities.

28 Comments
Topics: Economic Development, Globalization
Cities: Chicago

28 Responses to “Chicago: Corporate Headquarters and the Global City”

  1. Jim Russell says:

    The Boeing HQ doesn’t fit with your other examples. Boeing had a short list that had nothing to do with any hinterland geography, as is the case Mead Johnson and Miller.

    Chicago’s position in the hinterworld is well understood and an economic geographer would predict that mega-regional HQs would feel the strong pull to relocate there (e.g. move from Milwaukee or Evansville to Chicago)

    More interesting to me are the companies that buck the world city agglomeration trend. My sense is that companies tend to follow the beaten path. Economic migrants make a similar march. They all go where they know.

  2. thundermutt says:

    Jim, Chicago was on Boeing’s “short list” precisely for the reason Urbanophile cited: it is a “world city”. It is also an important location for Boeing’s customers.

    Every “world city” has both effects going on: hinterland geography advantages AND the mega-urban agglomeration economies cited in the post. International-scale enterprises such as Boeing, Mead-Johnson, and SAB-Miller need to be in a “world city”.

    State capitals such as the ones Urbanophile mentioned typically has only the hinterland-geography advantages: access to state-level government and services, a major (but not truly international) airport, etc. It’s the “big city” for people from small towns.

  3. Jim Russell says:

    thundermutt,

    I agree that the common thread is Chicago as a world city. But moving a headquarters from Seattle to Chicago begs for a different model of migration than moving from Evansville to Chicago.

    Boeing didn’t leave Seattle for Chicago to gain access to the proximity advantages that Urbanophile lists. Why choose one world city over another world city? The Boeing example speaks to that question, that geography.

    Perhaps I am making a moot distinction, but I wouldn’t lump Boeing in with the other two examples.

  4. thundermutt says:

    Ah. Here’s the root of our disagreement: I wouldn’t lump Seattle in with Chicago as a world city.

    Seattle has a regional advantage in trade and (trans-)shipping, but I don’t think it qualifies as a world city. Like Houston, it sits astride a major industry segment. But the very nature of a world city is that it does not mainly offer one particular regional advantage.

    True, all the world cities started with a purely regional domestic advantage, but all transcended that too.

  5. Jim Russell says:

    Interesting. If you don’t consider Seattle to be a world city, then which US cities would you characterize as one?

  6. The Urbanophile says:

    Boeing is an interesting case. Unlike Miller and Mead Johnson, it did not cite proximity to producer services as a reason for relocating. Rather, it wanted an HQ that was not co-located with the major operating location of one of its three lines of business (at the time, Boeing was structured in commercial, military, and space divisions). The candidate cities were Chicago, Dallas, and Denver. While subsidies played a role, I’ve go to believe Chicago’s global city status had something to do with it. However, it was a “thin” headquarters of the type I mentioned.

    I don’t know which cities would be considered real global cities in Sassen’s definition. New York, Chicago, and Boston, clearly. And it isn’t an all or nothing thing. Cities can participate in global subnetworks to different extents.

  7. Jim Russell says:

    Sassen is part of the Globalization and World Cities Research Network. If you are interested in empirical definitions of world cities:

    http://www.lboro.ac.uk/gawc/

  8. Anonymous says:

    Global cities in the US…hmmm…

    NYC
    Boston
    Chicago
    Washington
    Miami
    San Fran
    LA

    next tier
    Houston
    Dallas
    Atlanta
    Detroit
    Philly

  9. Anonymous says:

    thunder….

    Seattle is a 4 hour flight or more from just about everywhere in the US. That played into Boeing’s decision.

    Seattle is not a world city…it is not a “US” city….because it is remote.

    Without Microsoft, Seattle would be an after-thought in the realm of a ‘world city’ discussion…based solely on geography

  10. Anonymous says:

    “Need to be in a ‘world city’?”

    Nope.

    For international air service…it is likely quicker…or almost as quick…to take a connecting flight to ORD/ATL etc than it is to commute to those airports from the neighborhoods those international traveling types tend to live.

    As for the ‘int’l services’ like law, accounting, marketing, advertising….that talent/expertise exists in many non-world cities at definitely non-world city prices.

    Anyone who thinks differently should reflect on the current financial mess….why is the average compensation on Wall St $323K vs US average compensation of $46K? Without getting granular…people are (for the most part) smoking crack if they think they can not get high quality-world class services in places like Indy etc….and they can be had for far less $ than can be had in Manhattan and other world cla$$ cities.

    IMO, the current mess will bode well for those US cities that do not have ‘world class’ prices.

  11. Anonymous says:

    Long-time lurker, first time poster – BTW, terrific work Urbanophile, please don’t stop blogging.

    I am a senior officer of a global, publicly-traded company HQ’d in Chicago. We have 62 offices in 37 countries. Now there are lots of reasons why we are HQ’d in Chicago and not a second or third-tier city, but one of them is indeed local access to world-class talent and services. I lived in Indy for 5 years in the ’90s and can certainly vouch for the fact that there are lots of professionals working there who could service my company’s needs in the abstract. But while those professionals individually might be able to provide “world class” services, the firms they work for are generally not perceived as such. And that is a big deal. Yes, service providers in places like Chicago or NYC do cost more, but perception and reality are one and the same to our board of directors. They want what they think is the “best.” And I don’t believe the current financial meltdown will change that.

    To compete on the global stage, I need access to service providers with a network as big, and a reach as far, my company’s. And those firms, like mine, are almost always located in “global citys.”

    Again, that’s just one reason why we are HQ’d in Chicago. But it’s a reason that impacts my company every day.

  12. Anonymous says:

    I am not sure I would put Miami as a “world city”. It has a lot of cultural diversity and is a world tourist attraction…but I think you need more than that to be a “world city”

  13. Anonymous says:

    Anon 8:19

    With all due respect, your board of director’s ‘perception and reality’ is exactly the root of today’s problems.

    Those problems include:
    a) A legion of Ivy league educated MBA’s who concocted up ever more complex financial instruments that supposedly better dealt with risk…leading to today’s crisis
    b) Another legion of C-Suite executives who, in consort with their own Board of Directors, have received compensation packages that now average 360 x the avg US worker; they also get outrageous golden parachutes for ‘failure’

    I could go on and on….

    That ‘sense and perception’ is its own manifest destiny.

    The fall-out from the current financial mess will be far-reaching. For those publicly traded corporations who cling to ‘business as usual’ they will find themselves facing the wrath of activist shareholders who themselves will be much more ‘activist’ and much more powerful as a result of this crisis.

    There are global businesses that will continue to be HQ’d in world cities no doubt; there will also be global businesses who will determine that ‘perception is not reality’ and will seek locales where the cost of doing business are less.

  14. thundermutt says:

    Jim, working from anon’s lists, I think I would put Miami and Boston in the second tier and drop Detroit.

    Boston is similar to Philadelphia and neither is a world city. Miami, like Seattle, is a US gateway city only.

    Detroit is…Detroit.

  15. Anonymous says:

    I was once mocked on this blog for stating a class war was about to unfold…well guess what….

  16. The Urbanophile says:

    anon 8:19, thanks for reading and for the insights from the field. If you don’t mind unmasking yourself sometime, shoot me a note since I’d love to hear more about your global city experiences.

    anon 12:49, the durability of the global city model in the current environment is certainly an open point. I’ve argued myself that to a great extent the boom of places like London, New York, and Chicago is an artifact of the rise of structured finance. A lot of the improvements in the amenities there have been fueled by finance money.

    However, it is not just a matter of cost. While I would certainly not believe that I was immune from labor arbitrage strategies, regardless of industry, the services produced in global cities is qualitatively different. It isn’t principally that the people are better or worse. If you are looking to plot your entry into the Chinese market, and need assistance with your legal structures and approvals, financing, market research and strategies, etc., who in Kansas City are you going to turn to? There may be some specialized producer services firms or bright people in these smaller cities that play in the global game, but there is no the complete ecosystem you find in the global city.

  17. The Urbanophile says:

    anon 3:19, I don’t know if we are heading for a class war, but clearly there is a huge amount of anger at the finance industry, to some extent justifiably so. I think the American people by and large have no problem with people making huge money through entrepreneurship, hard work, or even some good luck. But the gigantic sums and lavish lifestyles of some people in the financial sector, which now appear to have been built on a foundation of sand which jeopardizes our economy, are incurring serious wrath.

    Please do keep in mind that the finance industry has lots of regular working guys in it to. A buddy of mine in NYC who works for Barclays bank making a regular white collar guy’s wage just got axed. I know other person in Indy who was in the wholesale mortgage business who lost his job as well. Neither of these guys were crooks or got rich off the system.

  18. thundermutt says:

    anon 3:19, it’s scary: times like these gave rise to Hitler and Mussolini. Too few alive today understand the lessons of history well enough to prevent demagogues from inflaming popular passions.

    This has always been my problem with presidential politics: every four years the Democrats trot out the “soak the rich” rhetoric (while the Republicans trot out “tax cuts” and “free markets”) as the cure for every ill.

    In a volatile (panic) situation, it’s not too far from “soak the rich” rhetoric to “kill the rich” crazies.

  19. Alon Levy says:

    Here’s the thing: none of today’s world cities developed as a finance center. New York and Chicago started out as manufacturing and shipping centers, and developed finance as a way of handling their growing urban economies.

    For a good case study of city redevelopment, look at Boston, sixty years ago as declining and forgettable as Pittsburgh. It didn’t develop by attracting corporate headquarters or finance; it developed by using its proximity to major universities to finance small businesses in the science industry, some of which went on and became big business.

  20. Anonymous says:

    Thundermutt, you mention how the rich might be in peril because of Democratic rhetoric, but McCain has been equally outraged, and if you have seen the types of people and their comments at his rallies, you would see that the crazies are in his base, not Obama’s.

    And your entire argument is absurd. No one is talking about killing the rich, and that never happened during the Great Depression, so you have no basis on which to make your slippery slope argument.

  21. thundermutt says:

    anon, I suggest you visit the Holocaust Museum some time for an example of what happened during the Great Depression in Europe. Inflammatory rhetoric kills people and has throughout human history, and I don’t think it’s absurd to caution against it.

  22. Alon Levy says:

    Yes, and remarkably little of that rhetoric was about the rich as a class. It was about bankers as a foreign element, the failings of the existing system, and the threat of communism.

    Let’s get something straight: raising taxes on the rich is what FDR did in response to the Depression. Somehow that didn’t result in people killing the rich.

  23. Anonymous says:

    First I am not trying to inflame anyone. Millions of “everyday” people are losing everythig they have so some fat cats could live unbelievedalb lives, then fail and jump out with even more millions.
    People are not stupid. The mistrust that has been created now is a deep on. It’s a game chager.

    Secondly, if you have watched the election even half heartdly you have to know by now McCain will say and do about anyting to get elected.

  24. Anonymous says:

    Additionally I will add that most American’s even older generates have now know for years that the “American Dream” no longer exist. Being smart and working hard gets….well what a lot op people are getting right now.

    For most middle class American’s even attempting to getting a good education is out of reach or at best leaves you with half a lifetime of debt almost impossilbe to get out from under. Those same people are also not to be naieve enough to think that large numers of people in this country did’t even make it to the upper class the old fashion way…education, hard work and honestly. They were either born with a silver spoon and are so detached from normal peopple they don’t even know what mainstream America is, or they are what we are now seeing…educated crooks.

  25. Anonymous says:

    I guess I am reminded of what people have to do that I have stop drinking do…a good 12 step program is in order.

  26. Anonymous says:

    But, as I understand the process; you first have to admit you have a problem.

  27. Anonymous says:

    My guess is that the first step is to admit that a level playing or anyting even remotely like it exist in this country today.

  28. The Urbanophile says:

    This thread is locked.

The Urban State of Mind: Meditations on the City is the first Urbanophile e-book, featuring provocative essays on the key issues facing our cities, including innovation, talent attraction and brain drain, global soft power, sustainability, economic development, and localism. Included are 28 carefully curated essays out of nearly 1,200 posts in the first seven years of the Urbanophile, plus 9 original pieces. It's great for anyone who cares about our cities.

Telestrian Data Terminal

about

A production of the Urbanophile, Telestrian is the fastest, easiest, and best way to access public data about cities and regions, with totally unique features like the ability to create thematic maps with no technical knowledge and easy to use place to place migration data. It's a great way to support the Urbanophile, but more importantly it can save you tons of time and deliver huge value and capabilities to you and your organization.

Try It For 30 Days Free!

About the Urbanophile

about

Aaron M. Renn is an opinion-leading urban analyst, consultant, speaker, and writer on a mission to help America’s cities thrive and find sustainable success in the 21st century.

Full Bio

Contact

Please email before connecting with me on LinkedIn if we don't already know each other.

 

Copyright © 2006-2014 Urbanophile, LLC, All Rights Reserved - Copyright Information