Every urban settlement provides consumer services to people in a surrounding area, but not every settlement of a given size has the same number and types of business services. Business services disproportionately cluster in a handful of urban settlements, and individual settlements specialize in particular business services.
Key Issue 3: Where Are Business Services Distributed?
Hierarchy of Business Services Geographers identify a handful of urban settlements known as global cities (also called world cities) that play an especially important role in global business services. A global city is a major center for the provision of services in the global economy. These services are classified as business services or consumer and public services.
Business Services in Global Cities As centers for the flow of information and capital global cities are most closely integrated into the global economic system. Business services (including financial institutions, headquarters of large corporations, and lawyers, accountants, and other professional services) concentrate in disproportionately large numbers in global cities.
Consumer and Public Services in Global Cities Because of their large size, global cities have retail services with extensive market areas. A disproportionately large number of wealthy people live in global cities, so luxury and highly specialized products are more likely to be sold there. Global cities are centers of national and international political power. Most are national capitals, and contain mansions or palaces for the head of state, structures for the national legislature, and offices for government agencies. Also clustered in global cities are offices for groups conducting business with the government, such as representatives of foreign countries, trade associations, labor unions, and professional organizations.
Ranking Global Cities Global cities are divided into three levels: alpha, beta, and gamma. A combination of economic, political, cultural, infrastructure, communications, and transportation factors are used to identify global cities and to distinguish among the various ranks. The factors include:
· Economic—headquarters for businesses that serve the global economy
· Political—national capital or headquarters for international organizations
· Cultural—variety of cultural institutions such as museums, educational institutions
· Infrastructure—major international airport, health-care facilities, and advanced communication systems
· Communications—links between global cities through computer and other technologies that support instantaneous communication (telegraph and telephone links in the nineteenth century)
· Transportation—modes supporting the quick delivery of people, inputs, and products (primarily rail links in the nineteenth century)
Business Services in Developing Countries In the global economy, developing countries specialize in two distinctive types of business services: offshore financial services and back-office functions. These businesses typically locate in developing countries for a number of reasons, including the presence of supportive laws, weak regulations, and low-wage workers.
Offshore Financial Services Small countries exploit niches in the circulation of global capital by offering offshore financial services. Offshore financial services participate in the circulation of global capital by providing tax havens and privacy laws protecting the identity of their clients. These features can provide havens for tax dodgers and illegal activities. Major offshore financial services are located in dependencies of the United Kingdom and other countries, independent island countries, and independent countries that are not islands such as Liechtenstein, Switzerland, Belize, Uruguay, Bahrain, and Brunei.
Business-Process Outsourcing A second distinctive type of business service found in peripheral regions is back-office functions, also known as business-process outsourcing (BPO). Typical back-office functions include insurance claims processing, payroll management, transcription work, and other routine clerical activities. Traditionally, companies housed their back-office staff in the same office building downtown as their management staff, or at least in nearby buildings. Rising rents downtown have induced many business services to move routine work to lower-rent buildings elsewhere. For many business services, improved telecommunications have eliminated the need for spatial proximity. Selected countries have been able to attract back-office work for two labor-related reasons: low wages and ability to speak English.
Economic Specialization of Settlements Settlements can be classified by the distinctive types of economic activities that take place there. All sectors of the economy—be they the various types of agriculture, the various types of manufacturers, or the various types of services—have distinctive geographic distributions.
Economic Base The economic activities in a settlement can be divided into two types: basic and nonbasic businesses. A settlement’s distinctive economic structure derives from its basic industries, which export primarily to consumers outside the settlement. Nonbasic industries are enterprises whose customers live in the same community. A community’s unique collection of basic industries defines its
economic base.
A settlement’s economic base is important because exports by basic industries bring money into the local economy, thus stimulating the provision of more nonbasic consumer services for the settlement. New basic businesses attract new workers, workers bring their families, and in turn, more nonbasic services develop to meet the needs of new workers and their families. Settlements in the United States can be classified by their type of basic activity. In a postindustrial society, such as the United States, increasingly the basic economic activities are in business, consumer, or public services. The result can be a cluster of businesses that reinforce each other’s growth.
Distribution of Talent Some cities have a higher percentage of talented individuals than others. Talented individuals are attracted to cities with the most job opportunities and financial incentives. Individuals with special talents also gravitate toward cities that offer more cultural diversity. Attracting talented individuals is important for a city because these individuals are responsible for promoting economic innovation. They are likely to start new businesses and infuse the local economy with fresh ideas. Talented individuals are attracted to locations based on cultural rather than economic factors.
12.3
Basic business A business that sells its products or services primarily to consumers outside the settlement.
Economic base A community's collection of basic businesses.
Franchise An agreement between a corporation and businesspeople to market that corporation’s products in a local area.
Global city A major center for the provision of services in the global economy.
World cities A large city that is very important to the global economy