Centre	Global	International	Niche	National	Regional
London	√	√	√	√	√
Hong Kong		√		√
Chicago		√		√	√
Hamilton			√	√
Sydney		√		√	√

Who Will Upset The Apple Cart?

If a city’s ranking changes markedly when re-ranking the centres without one area of competitiveness (e.g. ‘People’), it indicates that this city has more sensitivity to the factors and will thus have more volatile rankings in the future:

This categorisation identifies four types of global financial city:

• leaders: obviously London and New York, but also centres with strong sub-sectors and strong domestic markets;

• minor: cities that are not rated as highly, and are highly unlikely to improve in the near term.  It is interesting to note that Rome, Mumbai and Seoul fall into this category.  Each of these has large domestic markets, but seem unlikely to change their poor ratings soon;

• volatile: cities that are not rated as highly, but might be able to move upwards rapidly if they could fix some factors.  Interestingly, Athens has gained from improvements in infrastructure due to the 2004 Olympic development, but needs similar improvements in the other four groups of factors;

• evolving: cities with high ratings, but susceptible to change.  It is interesting to see that Dubai and Shanghai are already matching some established centres in certain factors.  Dubai has clearly focused on attracting regional business, while Shanghai has been the focal point for its domestic business.

Very few people believe that London or New York will lose their positions as global financial centres within the next ten years.  Research in 2005 showed that people factors were most important.  Now the biggest threats, and opportunities, for London and New York come from changes in the regulatory environment.  Sarbanes–Oxley has adversely affected New York and tax levels in the UK raise concerns.

Apples for Big Fish?

The Santa Fe Institute has found evidence of increasing returns to scale in city inventiveness and creativity.  These increasing, and accelerating, returns emerge from the fact that the value of connections rises with the number of participants in the network.  Each participant connecting to the network improves their productivity markedly, while also contributing to the productivity of those already connected.  A thought experiment affirms the idea of network benefits – if there were two world wide webs, wouldn’t they be even more powerful if they were connected into one? And network dangers - might they also be more vulnerable?

One area for future research and work on instrumental factors is the ability of a global financial city to harness effectively the work of other specialist financial centres.  London seems to do this well, witness the strong links with Dublin, Hamilton, Switzerland and the Channel Islands.  Presumably, a more mixed model of a global financial city is that it leverages on the strengths of its connections – culture, immigration, taxation, air transport, telecommunications – with other financial centres.  The following diagram illustrates the strength of connections.  When looking at people who ranked three cities or more, not based in the UK or the USA, it becomes obvious that London and Hong Kong are the ‘foreign’ cities non-residents know best and are prepared to rank.  New York drops to 6th in this regard, indicating that for a significant number of non-residents it is not their ‘connected’ global city.  There may be a number of reasons ranging from visa issuance, to telecommunications or old school ties, but New York just isn’t as connected with non-nationals.
 

As with any home team bias, cities need to play to their strengths.  This suggests at least two ways for smaller cities to compete.  First, make sure that the inducements to set up new businesses are high, e.g. Dubai.  After you have the people, the home team bias might help them stay.  This approach is an old one, witness the large number of development agencies, overseas representative offices and other inducements to help people and organisations make the first big step, any presence at all.  To this mix should clearly be added regulatory competitiveness.  Secondly, promote your focal sector with zeal.  Rather than stretching credulity by claiming to be a global financial centre across the board, be very specifically honest.  Define your competitive sphere so narrowly that you are guaranteed to be ‘first in your class’. Then proclaim loudly that you are the pre-eminent centre for that small global financial sector.  If you can’t be a Big Apple, being a “big fish in a small pond” will do nicely.

Thanks

My very special thanks to Mark Yeandle of the Z/Yen Group for his very significant help with this article, and to the City of London Corporation, especially Malcolm Cooper, Shaun Curtis and Gail Armstrong, for all their support and advice during our research.  All of our thanks are given to those financial services professionals who provided GFCI rankings - http://www.zyen.com/Activities/On-line%20surveys/GFCI.htm.

References

• Michael Mainelli and Mark Yeandle, The Global Financial Centres Index - 1 , 64 pages, City of London Corporation (March 2007).

• Michael Mainelli, "Global Financial Centers: One, Two, Three ... Infinity?", Journal of Risk Finance, The Michael Mainelli Column, Volume 7, Number 2, pages 219-227, Emerald Group Publishing Limited (March 2006).

• Mark Yeandle, Michael Mainelli and Adrian Berendt, The Competitive Position of London as a Global Financial Centre , Corporation of London,  67 pages, (November 2005).

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Professor Michael Mainelli, PhD FCCA FSI, originally undertook aerospace and computing research, followed by seven years as a partner in a large international accountancy practice before a spell as Corporate Development Director of Europe’s largest R&D organisation, the UK’s Defence Evaluation and Research Agency, and becoming a director of Z/Yen (Michael_Mainelli@zyen.com). Michael is Mercers’ School Memorial Professor of Commerce at Gresham College (www.gresham.ac.uk).

 

Z/Yen is a risk/reward management firm helping organisations make better choices. Z/Yen operates as a think-tank that implements strategy, finance, systems, marketing and intelligence projects in a wide variety of fields (www.zyehttp://www.zyen.comn.com), such as developing an award-winning risk/reward prediction engine, helping a global charity win a good governance award or benchmarking transaction costs across global investment banks.  Z/Yen’s humorous risk/reward management novel, “Clean Business Cuisine: Now and Z/Yen”, was published in 2000; it was a Sunday Times Book of the Week; Accountancy Age described it as “surprisingly funny considering it is written by a couple of accountants”.