Oct 21 • 4 min read
Share

Over the last several decades, an economic overhaul has changed the way global business interacts with its surroundings, both locally and globally. Multinational Enterprises (MNE) have long shaped international business and created global streams of goods, services and ideas in virtually all industries. 

But with a rising tide of global businesses, local economies—specifically cities and the roughly 20-mile ring of suburbs around them known as city regions—have experienced their own culture shock. Many companies have spread out and moved on from the downtown business district, leaving some city centers barren compared to the hustle and bustle associated with the traditional downtown neighborhoods. 

Economic research has shown these shifts are inevitable, but how can MNEs use their power to ameliorate the negative effects and help build up local city regions?

Ram Mudambi, Frank M. Speakman Professor of Strategic Management at the Fox School, along with colleagues in the International Business, Economic Geography and Innovation Network has been researching the dichotomy between global and local economies for the last 14 years. He has taken aim at this question in his recent article, International connectedness and local disconnectedness: MNE strategy, city-regions and disruption, which was published in the Journal of International Business Studies.

According to Mudambi, the traditional view of an MNE’s value chain was “output-oriented,” meaning that the relationship between company and country was based on an exchange of final goods traveling back and forth within a space. 

These early country-specific advantages (CSA), like natural resources and goods, have changed during the course of the 21st century, focusing on activities rather than final goods. Activity-oriented value chains are still based on CSAs, but the advantages associated with individual nations and regions are based on innovation and “knowledge ecosystems,” which can be sourced from all over the world. It’s the difference between focusing on the design versus the production of a shoe. 

“It’s all about technology and innovation,” says Mudambi. “So we see that the countries that are doing really well in the 21st century are not natural resource-rich at all. What they’ve done is invested in people, educational infrastructure and developed a highly educated workforce.” 

This model led to success for certain nations, regions and cities, causing hubs to pop up in places like Silicon Valley, South Korea, Singapore and Japan, which have all contributed greatly to advancements in technology over the last several decades.

To build a hub locally that contributes to the global economy, Mudambi suggests engaging with the local entrepreneurial ecosystem to create and renew local connectedness, a process dubbed “local spawning.”  This typically involves a triple helix model that incorporates the interweaving endeavors of corporations, universities and government. 

MNEs can leverage opportunities to develop knowledge ecosystems locally while contributing to the global economy based on three resources that most city regions have at their disposal.

  • Corporations: MNEs provide capital for innovation.
  • Universities: Universities are hubs for innovation and provide collaborative partnerships with local businesses.
  • Government: Government provides policy work and opens up opportunities for the development of a local and national partnership.

To put it simply, Mudambi says, “We need three things to make a city region grow: We need money, we need ideas and we need rules.” 

Mudambi uses the analogy of “pillars and ivy”: Large corporations (pillars) support a multitude of startups (ivy) that drive innovation and create opportunities for the local economy as a whole. Innovative ideas created in this space are then used globally and become an asset to both local and global economies. 

So what happens next?

The biggest step is to gain buy-in from the MNEs that are headquartered in city regions. 

“It comes down to enlightened self-interest,” says Mudambi. He says it is in a company’s best interest to encourage employment opportunities on a regional scale so that locals have a vested interest in the well-being of the company. Then, startups may follow in the footsteps of an MNE that has contributed to the growth of a region. 

During times of global disruption, like a pandemic, Mudambi suggests focusing more on the city region than the city center. Many major cities, like Philadelphia, New York City and Washington,  D.C., feared a fleeing workforce and disconnected economy. Mudambi and his team have taken a holistic look at this concern. While crowded center city districts may look less lively, the city-region as a whole can still likely remain healthy and engaged. 

“With most people working from home, folks currently living in a downtown high-rise may move from the center of a city to the suburbs. The distribution within these metropolitan areas is likely to shift over time, with or without the disruption of COVID-19, but these people are not picking up and moving to Montana,” says Mudambi. “The city region and its workforce will still be alive and well after this pandemic, as long as a region gives its people something to stay for via economic opportunity.”

Find out more about Mudambi’s research and other digestible insights at the Fox School’s Knowledge Hub. fox.temple.edu/knowledge-hub. 

International BusinessMNEMultinational EntreprisesRam MudambiStrategic Management