Chapter 12 Key Issue #4 Why Do Business Services Cluster in Large Settlements?

Hierarchy of Business Services  World cities: center of flow of information and capital; closely integrated into the global economy.  London, NY, Chicago, Paris, Hong Kong  Command and Control Centers: contain the headquarters of many large corporations, well-developed banking facilities, and other business services  Milan (fashion), Frankfurt and Zurich (banking)  Specialized Producer-Service Centers: offer a more narrow and highly specialized variety of services. Can also be state capitals with major universities  Detroit (motor vehicles), Lansing (MI capital & MSU)

Hierarchy of Business Services  Dependent Centers: provide relatively unskilled jobs and depends on their economic health on decisions made in world cities, regional commend and control centers, and specialized producer-service centers  Resort, retirement & residential centers  Manufacturing Centers  Military Centers  Mining Centers

Services in World Cities  Transportation and communication technologies reinforce the importance of world cities in the global economy  transportation services converge on world cities  Business services: World cities attract headquarters, stock exchanges  Consumer services: World cities have retail services with extensive market areas  disproportionately large # of wealthy people live in world cities  large # of leisure services (plays, concerts, restaurants, sporting events)  Public services: world cities may be center of national or international political power. Government offices, mansions

Business Services in LDCs  Offshore Financial Services: offered by small countries/islands/microstates  Taxes: taxes on income, profits, and capital gains are often low. Tax-free status offered.  U.S. loses about $70 billion in tax revenue annually  Privacy: bank secrecy laws allow individuals and businesses to evade disclosure in their home countries  Litigious professions (doctor, lawyer) can conceal some assets

Back Offices  Also known as business-processing outsourcing (BPO)  Processing insurance claims  Payroll management  transcription work  routine clerical work  Selective LDCs have attracted back offices because:  Low wages: 1/10th the wages paid for similar work in MDCs  Ability to speak English (India, Malaysia, Philippines)

Economic Base of Settlements  Basic industries: industries that sell their products/services primarily to consumers outside the settlement  Nonbasic industries: enterprises who consumers live in the same community (consumer services)  A community’s collection of basic industries defines it economic base  Important because it brings $ into local economy, stimulating nonbasic industries (consumer services)

Specialization of Cities in Different Services  Business services: Chicago, LA, NY  Consumer services: Las Vegas  Public services: state capitals, universities

Distribution of Talent  Talented individuals are attracted to cities with the most job opportunities and financial incentives  Talent is important because these people are responsible for promoting economic innovation  Cities with high cultural diversity tended to have relatively high percentages of talented people  Washington, San Francisco, Boston, Seattle