Journal of International Business Studies (2013) 44, 953961

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2013 Academy of International Business All rights reserved 0047-2506

RESEARCH NOTE

Beijing or Shanghai? The strategic location choice of large MNEs host-country headquarters in China
Xufei Ma1, Andrew Delios2 and Chung-Ming Lau1
1 Department of Management, The Chinese University of Hong Kong, New Territories, Hong Kong; 2Department of Strategy and Policy, NUS Business School, National University of Singapore, Singapore

Correspondence: Xufei Ma, Department of Management, The Chinese University of Hong Kong, Shatin, New Territories, Hong Kong. Tel: +852 3943 7799; Fax: +852 2603 6840; email: xufei@cuhk.edu.hk

Abstract We argue that a multinational enterprises (MNEs) location choice for its host-country headquarters (HCHQ) in the geographic space of the host country is determined by the interplay between the strategic roles of HCHQ in the organizational space of the MNE and the institutional space external and internal to the MNE. We focus on the location choice between Beijing and Shanghai. We test our arguments using data for a sample of Fortune Global 500 corporations in China (1979 2005). This study contributes to international business (IB) research by reinvigorating research on HCHQ. We also complement economic geography research on subnational agglomeration by using an IB perspective with a focus on the institutional idiosyncrasies of cities. Journal of International Business Studies (2013) 44, 953961. doi:10.1057/jibs.2013.49
Keywords: location strategy; multinational corporations (MNCs) and enterprises (MNEs); host-country headquarters; institutions; emerging markets/countries/economies

Received: 27 November 2011 Revised: 29 June 2013 Accepted: 28 July 2013 Online publication date: 19 September 2013

INTRODUCTION Research on location choice has examined where to locate a multinational enterprises (MNEs) regional or divisional headquarters (Benito, Lunnan, & Tomassen, 2011; Birkinshaw, Braunerhjelm, Holm, & Terjesen, 2006; Enright, 2005). However, little is known about the location choice of a host-country headquarters (HCHQ), an increasingly important type of headquarters/subsidiary in the organizational space of an MNE, especially in emerging markets (Luo, 2007; Ma & Delios, 2010). We examine inuences on the strategic location choice of an MNEs HCHQ in China, where Beijing and Shanghai are the two largest, most important global cities (Goerzen, Asmussen, & Nielsen, 2013; Sassen, 2006). As Beijing and Shanghai have distinct institutional contexts (Ma & Delios, 2007), and these two cities become the dominant places for HCHQ location, we ask why an MNE chooses one city over another to establish its HCHQ. Drawing on research in international business (IB) and economic geography (EG) (Beugelsdijk, McCann, & Mudambi, 2010; Beugelsdijk & Mudambi, 2013), we propose that dichotomous distinctions between the two cities affect an MNEs location choice for its HCHQ.

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We compare Beijing and Shanghai from three important institutional and geographical aspects: (1) political center vs business center; (2) inuences of Chinese cultural values; and (3) geographic space within China. Selecting the HCHQ location strategically helps an MNE to better realize the HCHQs three strategic roles: corporate ambassador, subsidiaries administrator, and learning center (Birkinshaw et al., 2006; Chandler, 1991). Accordingly, we develop an IBbased conceptual framework to examine how government intervention, geographic proximity, and institutional distance affect this location choice. The research contributions of this study are twofold. First, we contribute to the MNE location choice and MNE subsidiary literature by linking HCHQs strategic roles to its strategic location choice. Second, our research complements EG research on subnational agglomeration (Fujita, Krugman, & Venables, 1999; Gabaix, 1999) by taking an IB perspective and focusing on the local institutional contexts of cities (Meyer, Mudambi, & Narula, 2011). Based on an IB perspective (Henisz, 2003), we argue that the choice of one city over another in establishing an MNE s HCHQ reects the alignment between an MNEs subsidiary-specic roles and the institutional idiosyncrasies of potential cities. We thus contribute to research on subnational agglomeration, such as Zipfs law for size distributions of cities in emerging markets, an important issue in EG research (Anderson & Ge, 2005; Giesen & Sdekum, 2011; Soo, 2005).

MNE Location Choice and Subnational Agglomeration Research on MNEs location choice has moved from the country level to subnational regions (e.g., Beugelsdijk et al., 2010; Ma, Tong, & Fitza, 2013). As stated by McCann and Mudambi (2005: 1862):
The locational analysis of the MNE at the subnational regional level is now coming to be regarded as ever-more important within individual countries, identifying the conditions under which MNEs will locate in large or small urban cities, in central or peripheral locations, and in specialized or diversied areas, is now regarded as essential.

BACKGROUND
The Strategic Roles of HCHQ An HCHQ is a special type of headquarters and foreign subsidiary. Building on Chandlers (1991) three functions of HQ units and IB research on host-country centers (e.g., Luo, 2007), we identify three strategic roles for an MNEs HCHQ:
(1) corporate ambassador to deal with host-country governments; (2) administrator to monitor and control all the MNEs host-country subsidiaries; and (3) learning center to exploit MNE-specic knowledge in the host country (Birkinshaw et al., 2006; Chandler, 1991; Ma & Delios, 2010).

A related important stream of EG research emphasizes subnational agglomeration, with a focus on the concentration of economy activity in cities within a country (Fujita et al., 1999; Gabaix, 1999; Soo, 2005). Within this literature, studies have addressed the rank-size rule for city sizes known as Zipfs (1949) law, which states that the upper tail of the city-size distribution can be described by a Pareto distribution with shape parameter equal to 1. This implies that a countrys largest city is approximately twice as large as the second largest city, three times as large as the third largest city, and so on (Giesen & Sdekum, 2011). In emerging economies, however, the patterns of the city-size distribution differ from the predictions of Zipfs law (Anderson & Ge, 2005; Soo, 2005). In BRIC countries (Brazil, Russia, India and China), there are two similarly sized, very large, prominent metropolises: Brasilia and So Paulo in Brazil; Moscow and Saint Petersburg in Russia; New Delhi and Mumbai in India; and Beijing and Shanghai in China (Ma & Delios, 2007). Even small emerging economies have two similarly sized distinctive metropolises, such as Ho Chi Minh City and Hanoi in Vietnam. These pairings of cities are strategic (Goerzen et al., 2013; Sassen, 2006). They represent either political or economic centers. There are two common agglomeration forces for HQ units (Davis & Henderson, 2008). First, HQ operations can be made more efcient by the existence of large-scale business and nancial intermediation services offered in central metropolitan areas (Bel & Fageda, 2008). Second, clustering in HQs can benet from the cross-HQ exchange of information on market, social, and environmental conditions (Lovely, Rosenthal, & Sharma, 2005). However, given the existence of two prominent metropolises, the choice of HCHQ location in large emerging economies is as a competitive choice between the two major cities, not a default to a central, dominant metropolitan area as suggested by Zipfs law.

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Research Setting: Beijing vs Shanghai We focus on China because of the diffusion of recent HCHQ establishment by Fortune Global 500 corporations in China, and the centrality of Beijing and Shanghai to HCHQ establishments. A survey of Chinas top 100 cities (NBSC, 2004), which used the weighted average scores of economic development, social development, human capital, physical infrastructure, and environmental development, ranked Beijing and Shanghai as Chinas foremost competitive cities (see Table 1). In contrast to Zipfs law, Beijing and Shanghai are almost equally competitive along economic/geographic dimensions, and they are the dominant choices for MNEs HCHQ in China. However, signicant differences exist between these two cities (Ma & Delios, 2007). Aside from the distinction between Beijing as a political center and Shanghai as a business center, Beijing is more inuenced by Chinas traditional cultural values, and Shanghai is a more foreign-oriented city (Schlevogt, 2001). Geographically, Beijing is located in the north, and Shanghai is in the south. These distinctions have important implications for HCHQ location choice.

institutional idiosyncrasies of potential cities. Using this logic, we develop a framework proposing that the HCHQ location choice in the geographic space of the host country is determined by the interplay between the strategic roles of the HCHQ in the organizational space of the MNE and the institutional space external and internal to the MNE (Lorenzon, Mauer, & Staber, 2012; Yeung, 2005).

THEORY AND HYPOTHESES DEVELOPMENT Recent IB research emphasizes an MNEs ability to manage idiosyncrasies effectively in its institutional environments (Henisz, 2003). We argue that the strategic location choice for an MNEs HCHQ aligns the HCHQs strategic roles (corporate ambassador, local administrator, and learning center) with the

Corporate Ambassador and Government Intervention As a corporate ambassador, the HCHQ represents the MNE in dealing with host-country governments, which control resources and opportunities shaping MNEs industrial landscapes (Ma & Delios, 2010). Industries vary in terms of government interventions. First, there are foreign ownership restrictions in designated industries (Lu & Ma, 2008). As Foreign Direct Investment (FDI) restricted industries are regulated in a non-market way by the central government, the effects of national-level government intervention are stronger in these industries. Second, industries vary in their requirements for global integration (Porter, 1986). In global industries, a rm congures its global value-chain activities to integrate its global efforts across different countries (Porter, 1986). However, if unmanaged, government intervention can make global integration difcult to achieve. HCHQ is the corporate ambassador to bargain and cooperate with the host-country government. If we compare Shanghai and Beijing, the potential

Table 1

A comparison between Beijing/Shanghai and the rest of Chinas top 10 citiesa,b

Overall

Human capital 59.50 40.33 49.92 33.77 22.76 27.15 4.54** 25.78 15.50 34.42 5.12***

Economic development 80.71 124.57 102.64 77.83 47.88 54.76 3.35* 77.83 48.88 53.75 3.41**

Social development 59.62 81.07 70.34 49.82 24.74 45.61 4.62** 49.82 21.66 48.68 4.37**

Physical infrastructure 66.81 87.77 77.29 54.12 26.87 50.41 3.50** 54.12 22.55 54.74 3.75**

Environmental development 23.72 35.88 29.80 23.19 7.57 22.23 4.11* 23.19 7.83 21.97 4.19**

Beijing Shanghai Mean of Beijing and Shanghai Maximum of the other eight top citiesc Mean of the other eight top citiesc Difference between meansc t-valuec Maximum of the other eight top citiesd Mean of the other eight top citiesd Difference between meansd t-valued

290.35 369.62 329.99 220.81 129.82 200.17 4.99** 220.81 116.42 159.13 4.76**

*p<0.05; **p<0.01; *** p<0.001. a Source: National Bureau of Statistics of China (NBSC, 2004). b Cell entries are scores. c NBSC ranking. d Fortune ranking.

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for central government intervention is higher in Beijing, as this is where central government ofcials and national-level ministries are situated. Further, given the hierarchical structure of governments in China, keeping good connections with the central government can help MNEs mitigate overall levels of government intervention, which is more important for MNEs in FDI-restricted or global industries. Selecting Beijing for the HCHQ location represents the strategic choice to deal promptly and effectively with government interventions (Davis & Henderson, 2008; Lovely et al., 2005). Hypothesis 1: MNEs operating in FDI-restricted industries are more likely to choose Beijing over Shanghai as the HCHQ location. Hypothesis 2: MNEs operating in global industries are more likely to choose Beijing over Shanghai as the HCHQ location.

China is positively associated with the likelihood of the MNEs choosing Beijing over Shanghai as the HCHQ location.

Local Administrator and Geographic Proximity An MNEs global HQ delegates responsibilities to its HCHQ, which as the local administrator manages the portfolio of local subsidiaries in the host country. In this setting, agency problems can arise from information asymmetry between an MNEs global HQ and HCHQ, as well as between the HCHQ and its local subsidiaries. Moreover, for the global HQ and HCHQ, monitoring and controlling activities necessitate costs to collect, synthesize, and communicate information across the units in the MNEs network of subsidiaries (Mariotti & Piscitello, 1995). Geographic distance amplies the above costs (Slangen, 2011). Therefore, when MNEs make a location choice, it is necessary to consider the factor of relative geographic proximity. Locating the HCHQ geographically closer to the MNEs global HQ eases communication, and facilitates more efcient interactions between global HQ and HCHQ (Benito et al., 2011; Birkinshaw et al., 2006). Perhaps more importantly, an MNE should locate its HCHQ closer to the aggregate distance of its portfolio of subsidiaries in the host country (Birkinshaw et al., 2006; Lin & Png, 2003), to achieve geographic proximity (Bel & Fageda, 2008).
Hypothesis 3: Beijings relative geographic proximity to an MNEs global HQ is positively associated with the likelihood of the MNEs choosing Beijing over Shanghai as the HCHQ location. Hypothesis 4: Beijings relative geographic proximity to an MNEs portfolio of subsidiaries in

Learning Center and Institutional Distance As an MNEs learning center, HCHQ helps in transferring its home institutional experiences to its subsidiaries. The effectiveness of this transfer can be inuenced by institutional distance, such as administrative distance (Ghemawat, 2001) or cultural distance (Kogut & Singh, 1988). A greater institutional distance heightens the uncertainty and complexity (Xu & Shenkar, 2002) faced by HCHQ managers, who must adjust their cognitive frames, mental models, or business practices (Holburn & Zelner, 2010). Adjustments can reduce the benets derived from the HCHQs learning center role as home-grown institutional experiences become more challenging to exploit (McGahan & Victer, 2010). Consequently, the response is likely to be characterized by a modied escape strategy (Oliver, 1991), by which the MNE avoids locating its HCHQ in a place that is strongly inuenced by Chinas administrative styles or cultural values. According to a classic categorization of world cities by the Chicago School of urban studies (Redeld & Singer, 1954), Beijing is classied as an administrative-cultural city which is dominated by the literati and indigenous bureaucracy. The administrative and political functions of the large government are also concentrated within its boundaries. By contrast, Shanghai is classied as a metropolis city, which is led by a managerial and entrepreneurial class that has emerged as a result of an advantageous urban location and dynamic economic activities. These distinct differences have become more acute since the 1990s (Li, 1996), with traditional Chinese cultural values, such as respect for seniority, loyalty, and collective orientation, exerting a stronger inuence in Beijing than in Shanghai (Schlevogt, 2001). An MNEs HCHQ will therefore be more likely to experience institutional pressures derived from China-specic administrative styles or cultures in Beijing than in Shanghai. Institutional pressures become greater as the administrative or cultural distance between an MNEs home country and China increases.
Hypothesis 5: An MNEs home-countryChina administrative distance is negatively associated with the likelihood of the MNEs choosing Beijing over Shanghai as the HCHQ location. Hypothesis 6: An MNEs home-countryChina cultural distance is negatively associated with the

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likelihood of the MNEs choosing Beijing over Shanghai as the HCHQ location.

METHODS AND RESULTS

Sample, Data and Variables We used the dataset on Fortune Global 500 rms subsidiaries in China from Chinas Ministry of Commerce (MOFCOM). By the end of 2005, 137 rms had established their China HCHQ; of these, 131 MNEs located their HQ in either Beijing (78) or Shanghai (53). In our sample, an HCHQ was established after an MNE had on average 8.60 subsidiaries operating in China, and after 8.32 years since the MNE had established its rst subsidiary in China. Location choice is the dependent variable, which is dichotomous: if a rm chose Beijing, it was coded as 1, and 0 if Shanghai. For the rst independent variable, we followed Lu and Ma (2008) to dene an industry as an FDIrestricted industry if local ownership was required. Based on MOFCOMs Industry Catalogue for Foreign Investment, if an MNEs main industry was FDI restricted, we coded it as 1. Second, for global industry, we used the list of global industries in Porter (1986), Yip (1995), and Zou and Cavusgil (2002). We coded an industry as 1 if an MNEs main industry was on this list. Third, Beijings relative geographic proximity to global HQ is the difference between Beijings and Shanghais geographic proximity to the MNEs global HQ. We measured the geographic distance using a spherical geometry process, with the geographic information from www.worldatlas.com. We used the logarithm of geographic distance. Fourth, Beijings relative geographic proximity to China portfolio is the difference between Beijings and Shanghais geographic proximity to the MNEs portfolio of subsidiaries in China. Using the spherical geometry method, we calculated the sum of Beijing (or Shanghai) distances to all the cities for an MNEs portfolio of subsidiaries in China. Fifth, administrative distance is the difference in the index calculated from the Fraser Institutes Economic Freedom Index, in which the MNEs host country and China are compared. The index comprises items such as government consumption spending as a percentage of total consumption, transfers, and subsidies as a percentage of GDP, government enterprises and investment as a percentage of GDP, and the top marginal tax rate (Gwartney, Holcobe, & Lawson, 1998; Howlett, 2002).

Sixth, we measured cultural distance between an MNEs home country and China using Kogut and Singhs (1988) computation with Hofstedes (2001) data. We included ve control variables. The logarithm of a rms total revenue (in billions of US$) controlled for rm size. China-specic experience was the logarithm of the total number of rm-years of experience in China. BeijingShanghai-specic experience difference is the difference between an MNEs Beijing-specic experience and Shanghai-specic experience. BeijingShanghai agglomeration difference is the difference between Beijing and Shanghai in the number of HCHQs established by Fortune Global 500 rms by the end of the previous year. Chinas overall FDI openness is the ratio of Chinas inow of foreign direct investments to GDP.

Analytic Techniques We used Lees (1983) generalization of the Heckman selection model to control for selection bias. We employed a piecewise exponential event history model (with robust clustering on each MNE) to predict the establishment of an HCHQ. The specication included an MNEs rm size, rm performance, rm diversication, cultural distance, Chinas GDP growth, the annual number of prior adoption of HCHQs, a measure of the MNEs local organizational complexity, and a set of industry dummies. Using the results from this model, we generated a selection variable (Lee, 1983), which was included in the focal logit regression models. Results Table 2 presents descriptive statistics and a correlation matrix for the variables. Inter-item correlations and VIFs suggested that multicollinearity is not a concern. We tested the hypotheses in eight logit models (Table 3). In all the models, the coefcient estimation for is not signicant, indicating no sample selection bias. Hypothesis 1 predicts that MNEs operating in FDIrestricted industries are more likely to locate their China HCHQ in Beijing. The coefcient estimation for FDI-restricted industry is positive and signicant ( p<0.01) in Models 2 and 8, supporting Hypothesis 1. Hypothesis 2 predicts that MNEs operating in a global industry are more likely to locate their China HCHQ in Beijing. In Models 3 and 8, the coefcient estimation for global industry is positive and signicant, supporting Hypothesis 2.

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0.04 0.02 0.01 0.01 0.15 0.17 0.15 0.02 0.33 0.03

Hypothesis 3 states that Beijings relative geographic proximity to an MNEs global HQ is positively related to its likelihood of choosing Beijing as the location for its HCHQ. In contrast to our expectation, the coefcient estimation for this variable is negative and signicant ( p < 0.10) in Model 4, but not signicant in Model 8. Hypothesis 3 is not supported. Hypothesis 4 predicts that Beijings relative geographic proximity to an MNEs portfolio of subsidiaries in China is positively related to the MNEs likelihood of choosing Beijing as the location for its HCHQ. The coefcient estimation for this variable is positive and signicant ( p < 0.01) in both Models 5 and 8, supporting Hypothesis 4. Hypothesis 5 predicts that the administrative distance between an MNEs home country and China has a negative impact on the likelihood of an MNEs choosing Beijing as its HCHQs location. In Models 6 and 8, the coefcient estimation for administrative distance is negative and signicant, supporting Hypothesis 5. Hypothesis 6 states that cultural distance between an MNEs home country and China has a negative effect on the likelihood of choosing Beijing as the HCHQ location. In Models 7 and 8, the coefcient estimation of cultural distance is signicantly negative, supporting Hypothesis 6.

11

10

0.11 0.12 0.06 0.05 0.14 0.08 0.17 0.10 0.05

0.01 0.21 0.41 0.04 0.02 0.47 0.08 0.11

0.04 0.15 0.17 0.06 0.04 0.02 0.04

0.53 0.04 0.15 0.02 0.18 0.15

0.20 0.07 0.20 0.01 0.07

0.10 0.10 0.07 0.10

0.00 0.26 0.38

0.01 0.13

0.12

DISCUSSION We addressed the strategic location choice of MNEs HCHQ in China, which has important implications for both research and practice. First, it advances our understanding of the drivers behind the subsidiary location choice, by linking the strategic roles of HCHQ. It serves as a bridge between the MNE subsidiary literature and the MNE location choice literature. This bridging not only integrates different research areas but also enhances the status of each area within several large literatures in EG and IB research. It is also important to reemphasize at this juncture that we are focusing on the location choice of HCHQ in this study, instead of other types of foreign subsidiaries or HQ units, which have been well studied in the IB and EG literature (Beugelsdijk et al., 2010; Birkinshaw et al., 2006). Hence this study is a useful step toward developing a more complete picture of the MNE location choice across all different forms of subsidiary units. Second, this study helps to develop a better understanding of subnational agglomeration or the concentration of economic activities in large cities in a country, an important research area in EG

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n = 131 firms. Significant at the 0.05 level (two-tailed test) when Pearson correlations > 0.17 or<0.17.

Mean

The likelihood of choosing Beijing Firm size China-specific experience BeijingShanghai-specific experience difference BeijingShanghai agglomeration difference Chinas overall FDI openness FDI industrial restriction Global industry Relative geographic proximity to global HQ Relative geographic proximity to China portfolio Administrative distance Cultural distance

Descriptive statistics and correlations

Variables

Table 2

0.60 10.03 2.70 0.69 0.58 4.69 0.70 0.65 0.06 0.44 1.31 2.97

0.49 0.91 1.31 1.59 0.21 0.87 0.46 0.48 0.19 2.08 0.69 0.55

s.d.

0.15 0.14 0.55 0.05 0.16 0.45 0.05 0.17 0.42 0.16 0.07

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Table 3
Variables Firm size

Logit models: The strategic location choice of Fortune Global 500 corporations host-country headquarters in China (19792005)
Model 1 0.26 (0.27) 0.18 (0.18) 1.03*** (0.18) 0.92 (1.69) 0.15 (0.36) Model 2 0.17 (0.28) 0.24 (0.20) 0.98*** (0.20) 1.78 (1.76) 0.47 (0.41) 2.21*** (0.58) Model 3 0.30 (0.27) 0.23 (0.18) 1.05*** (0.17) 0.59 (1.75) 0.20 (0.37) Model 4 0.26 (0.28) 0.20 (0.18) 1.02*** (0.18) 0.88 (1.71) 0.23 (0.37) Model 5 0.42 (0.31) 0.18 (0.17) 0.18 (0.24) 0.43 (1.75) 0.00 (0.40) Model 6 0.27 (0.32) 0.16 (0.18) 1.12*** (0.18) 0.80 (1.53) 0.02 (0.36) Model 7 0.23 (0.29) 0.18 (0.18) 1.07*** (0.18) 1.00 (1.53) 0.17 (0.35) Model 8

China-specific experience BeijingShanghai-specific experience difference BeijingShanghai agglomeration difference Chinas overall FDI openness FDI-restricted industry Global industry Beijings relative geographic proximity to global HQ Beijings relative geographic proximity to China portfolio Administrative distance Cultural distance Constant Log pseudo-likelihood Wald 2 (d.f.) Wald test of incremental addition to Model 1 (d.f.)

0.26 (0.34) 0.28 (0.23) 0.56* (0.31) 1.38 (1.78) 0.74 (0.58) 2.55*** (0.87) 0.94* 1.60** (0.52) (0.72) 2.45* 1.24 (1.38) (2.84) 3.87*** 3.93*** (1.06) (1.31) 0.78* 1.46*** (0.41) (0.47) 0.68** 1.18** (0.33) (0.49) 0.95 0.89 1.30 0.63 0.29 1.02 1.00 0.30 (0.85) (0.93) (0.96) (0.89) (0.66) (0.93) (0.96) (1.10) 0.98 3.73 0.43 0.16 0.91 5.05 3.35 7.83 (3.72) (3.99) (3.63) (3.86) (3.45) (4.70) (4.52) (4.82) 60.94 55.03 59.32 59.32 48.19 58.75 59.77 37.66 36.97*** 37.00*** 47.36*** 38.00*** 36.39*** 41.68*** 39.17*** 33.61*** 14.37*** 3.21* 3.13* 13.35*** 3.64* 4.18** 20.79***

n = 131 firms. Location choice = 1 if Beijing is chosen, 0 if Shanghai is chosen. Cell entries are unstandardized coefficient estimates. Numbers in parentheses are robust standard errors. Two-tailed tests: *p<0.10; **p<0.05; ***p<0.01.

(Fujita et al., 1999; Gabaix, 1999; Soo, 2005). Research has taken the perspective of government with a focus on the size distribution of cities, in particular based on the regularity of Zipfs (1949) law. The current study complements this line of research by taking an IB perspective and highlighting the importance of the local institutional contexts of cities for organizational decisions and strategies (Beugelsdijk & Mudambi, 2013; Ma et al., 2013; Meyer et al., 2011). Specically, we focus on the BeijingShanghai distinction in terms of institutional idiosyncrasies to examine why some MNEs choose one city over the other to establish their HCHQ. This distinction between Beijing and Shanghai permits us to examine how political and business centers are manifest in rm strategy in terms of subnational location choice. Other such pairings, such as New York vs Washington, Mumbai vs New

Delhi, Sydney vs Canberra, Cape Town vs Pretoria, Sao Paulo vs Brasilia, Amsterdam vs the Hague, and Zurich vs Bern,1 could also be explored to help expand on reasons for deviations from Zipfs law for cities in both developed- and emerging-economy contexts (Anderson & Ge, 2005; Soo, 2005). Aside from the implications for academic research, our ndings have a number of implications for practitioners. First, if MNEs operate in FDI-restricted or global industries, they should choose Beijing as the HCHQ location so that they can make good use of the corporate ambassador role to buffer potential intervention from Chinas central government. Second, as the HCHQ is an MNEs local administrator to manage the totality of its local subsidiaries, being close to the center of an MNEs portfolio of local subsidiaries does matter. Third, to nd a desirable location to fulll the learning center role of an

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MNEs HCHQ, MNE managers should consider the administrative styles and cultural values of the MNEs home country, host country, and the potential cities in the host country. Finally, the Beijing Shanghai dichotomous geographic outcome is also of interest to policymakers, given the penchant of many governments to explicitly relocate away from business centers to purpose-built capitals. Brasilia and Canberra are relatively older examples, but this trend continues with Nigeria moving its capital from the business center of Lagos to Abuja, and Kazakhstan moving its capital from Almaty to Astana.1 The limitations of this study offer opportunities for future research. First, as there are cases where even the government functions are split, such as in Pretoria (ofcial, administrative, and executive) and Cape Town (legislative), future work should extend our study to other countries. Second, future studies may measure administrative styles/cultural values at the city level, conduct in-depth interviews with MNE managers, and use ne-grained scales to better identify specic mechanisms on host-country strategies such as location choice. Finally, as we focused only on Beijing and Shanghai and the period 1979 2005, future studies may expand on the subnational context to include other potential cities across a

wider set of subsidiary location choices (Buckley, Devinney, & Louviere, 2007; Ma et al., 2013). To conclude, we examined the strategic location choice for an MNEs HCHQ. Our overarching argument is that an MNEs location choice for its HCHQ in the geographic space of the host country is determined by the interplay between the strategic roles of the HCHQ in the organizational space of the MNE and the institutional space external and internal to the MNE. The location choice reects the alignment between subsidiary-specic roles and the institutional idiosyncrasies of potential cities. It is our hope that this study can serve as a useful step toward a better understanding of MNEs geographic behavior.

ACKNOWLEDGEMENTS We would like to thank our editors and the anonymous reviewers for their valuable comments. This study was supported by two grants from the Research Grants Council of the Hong Kong Special Administrative Region (Projects No. CUHK451311 and CUHK4012PPR-10).
NOTE We thank our editors, Professor Beugelsdijk and Professor Mudambi, for this suggestion.
1

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ABOUT THE AUTHORS Xufei Ma (PhD, National University of Singapore) is an Associate Professor in the Department of Management at the Chinese University of Hong Kong. His research interests include strategy issues for foreign multinational enterprises operating in emerging markets, and for local emerging-market rms competing domestically and globally. This is Xufeis third contribution to the Journal of International Business Studies. His research has also appeared in the Academy of Management Journal and Strategic Management Journal.
Andrew Delios (PhD, Ivey Business School, Western University) is a Professor in the Department of Strategy and Policy at the National University of Singapore. Andrew is engaged in research that examines rm strategy and performance across varying institutional contexts, specically in the realm of decisions that concern the international expansion of rms. Chung-Ming Lau (PhD, Texas A&M University) is a Professor, Department of Management and Director, Center for International Business Studies of the Chinese University of Hong Kong. Chung-Ming is the founding President of the Asia Academy of Management. His teaching and research interests include strategic change, internationalization of Chinese rms, and management of church organizations.

Accepted by Ram Mudambi and Sjoerd Beugelsdijk, Guest Editors, 28 July 2013. This paper has been with the authors for three revisions.

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