The advanced producer services complex as an obligatory passage point: Evidence from rent extraction by investment banks

Advanced producer services have long been theorized as pivotal in organizing the global economy. Finance takes centre stage in the advanced producer services complex as orchestrator of global flows, particularly in underwriting investment and evaluating corporate performance. The ascent of financialized globalization raises the suspicion that key advanced producer services act as rent-extracting ‘obligatory passage points’ in the orchestration of global financial flows. Competition within the financial sector is contentious given the sustained profits by globally connected banks operating in concentrated markets. Investment banks and other advanced producer services play key roles in underwriting of securities, raising questions whether underwriting is a competitive process. This paper interrogates the microeconomic foundations for the role of investment banks in investment chains to shed light on their rent extraction practices. Using a sample of 2940 initial public offerings for the USA, Canada, and Europe in the 1998–2017 period, we examine the structure of fees charged by investment banks for underwriting of equity securities. Our results are consistent with the proposition that investment banks with more market power and stronger network ties with institutional investors utilize their dominant position in the marketplace to extract rents from both issuers and institutional investors. Taken together, at times of spatial and sectoral consolidation, these results show compelling evidence for the status of investment banks and by extension the wider advanced producer services complex as obligatory passage points under financialized globalization.

Role of Advanced Producer Services Shaping Globalization Processes in a Post-Industrial Region: The Case of the Górnośląsko-Zagłębiowska Metropolis

The paper discusses the emergence of a new regional network of connectivities in the area of advanced producer services in a formerly industrial region in southern Poland. Changes in the region’s job market and the influx of foreign firm centers suggest the presence of globalization processes in the economy. Advanced producer service companies tend to cluster around the regional capital of Katowice and use the city as a gateway to other parts of the studied region. This process leads to the replacement of jobs characterized by lower qualifications with jobs requiring more advanced knowledge, new technologies, and a variety of forms of innovation. International economic networks play an increasingly large role in the entrenchment of economic globalization in the Górnośląsko-Zagłebiowska Metropolis, which has helped the city join other Polish cities in the classification of the World Cities Research Network.

Unpacking the advanced producer services complex in world cities: Charting professional networks, localisation economies and markets

Limited empirical evidence in support of world-city formation has been the ‘dirty little secret’ of the eponymous research area. Since the late 1990s, inspired by Sassen’s account of The Global City, the field focused on advanced producer services (APS) firms as primary actors in world-city formation. While generating robust insights into the shifting geographies of world cities, empirical attention has mostly focused on mapping inter-urban world city networks formed by APS firms. Despite a rich literature on APS clusters, the degree to which specific intra-urban agglomerations and their inter-firm connections shape up has received little systematic attention. Based on a company survey in Brussels (Belgium), our study charts interactions between APS professionals to better understand the geographies, quality and intensity of their encounters. Our findings reveal that the Brussels-based APS cluster constitutes a hybrid of an industrial complex with stable formal ties and a social network based on informal exchange. Financial services assume a central position in what might be called ‘a para-financial services complex’, revealing close ties with legal services, accountancy and audit, and ICT. Geographically, we find that the APS complex depends on fine-grained localisation economies, which allow a small share of APS professionals to service both domestic and international clients. We conclude that APS actors in Brussels exhibit a strong domestic anchoring, indicative of the continued relevance of world cities as national financial centres amidst financial globalisation.

Serving the culture: Spatial interactions between cultural industries and advanced producer services in mainland China

The location patterns and organizational networks of both advanced producer services (APS) and cultural industries have attracted extensive attention in geography and other related disciplines. However, most research on these two sectors has examined each one in isolation, without paying attention on how they are engaged with each other. Drawing on a network analysis of the inter-firm service provision relationships between 245 cultural firms and their APS providers during the firms’ public listing processes in mainland China, this paper presents a pilot study of the functional interactions between cultural industries and APS from a geographical perspective. Our purpose is to expand the research on these two economic sectors from the simple mapping and ranking of their individual industrial activities to an investigation of the city-based spatial relationships between them. The outcome reveals that while the leading cultural firms and their APS intermediaries have demonstrated similar location patterns across major Chinese cities, the spatial interactions and connections between them are much more complicated than their co-location tends to suggest. This paper enriches our understanding of the functions of local clusters and trans-local networks in the establishment of inter-industrial linkages between the different sectors of knowledge economies. The paper also sheds light on the impacts of institutional context on the (spatial) development of cultural industries in a transitional economy.

Should I Stay or Should I Go: Predicting Advanced Producer Services Firm Expansion and Contraction

The literature on firm location selection allows us to retrospectively explain why firms did locate in particular places. However, it remains challenging to prospectively predict where they will locate. In this article, we propose a simple conceptual model of firm location decisions, then operationalize it using the ordinal stochastic degree sequence model (oSDSM). We use this model to predict whether 104 advanced producer service firms will expand, contract, or maintain their presence in each of 525 cities, and find that these predictions are accurate in more than 86 percent of cases. We conclude with suggestions for further refinement of this model.