In leading cities, companies gain access to knowledge and networks.
Organizations have often turned to well-established and very competitive global cities when looking to expand their markets. However, new research suggests that many corporations have been going to these cities for the wrong reasons and consequently have missed opportunities to build strategic advantages and organizational capability. In a January 2008 working paper titled Gaining Advantage through Global Learning Hubs, three researchers at the Zicklin School of Business at Baruch College, City University of New York argue that, with the high entry cost and competition inherent in moving into a major city, it is important to go in with the right plan and the right expectations. The authors — Robert Laud, distinguished lecturer of management, Andreas Grein, associate professor of marketing and international business and Lilach Nachum, professor of international business — advocate viewing affiliates in global cities as “global learning hubs” tied together in a network that builds strategic advantage by drawing on the interactions between global cities. Prior research has shown that a commonly cited reason companies seek increased presence in global cities is to enter new markets to grow sales and diversify risk. However, the authors argue that, for many companies, a different set of drivers is powering international expansion. They conducted a survey of 140 foreign-owned affiliate companies of various sizes and industries that had chosen to establish a new presence in New York City. The researchers then conducted interviews with top strategy experts from two major consulting companies who set up affiliate operations overseas. From this research, the authors concluded that major world cities offered more than merely new markets. The responders primarily viewed the cities as a source of strategic advantages, such as points for exchange of information, new labor and capital, sophisticated banking and financial markets, and human resources. The authors then went on to identify four objectives for gaining the most advantage from a “global learning hub.” First, companies succeed when they widen the goals of their presence in a global city to emphasize learning. Systematic attempts to improve business relationships and networking skills can improve all aspects of the business. For example, increased global knowledge management can speed new products or data to market and thereby gain advantage over the competition. Learning hubs make access to these advantages much easier.