ANALYSIS OF ADVANCED BUSINESS SERVICE S WITHIN THE CONTEXT OF CENTRAL EUROPEAN CITIES

Michal Němec

March 2011

Analysis of Advanced Business Services within the Context of Central European Cities, 2011 City Development Authority Prague, Strategic Planning Department Author: Michal N ěmec, E-mail: [email protected] Translation: Petr Gibas, MSc.

CONTENT

1. Introduction ...... 4 2. Analysis of selected branches of advanced business services within the context of central European cities ...... 5-12 2.1 Law services ...... 6 2.2 Advertising and marketing services ...... 7 2.3 Engineering services ...... 7 2.4 Management consultancy ...... 8 2.5 Accountancy and auditing services ...... 9 2.6 Banking and financial services ...... 10 2.7 Insurance industry ...... 11 3. Conclusions – overall ranking of monitored cities ...... 13-15 3.1 Comparison of the conclusions with the outcomes of GaWC ...... 15 4. References ...... 16

Appendix: Location of the analysed companies in the area of the capital city of Prague .. 17

1. Introduction

The segment of advanced business services has recently been developing vigorously and its influence on the economies of advanced countries and regions has been rising consequently. Employing advanced business services has become one of the core elements of increasing the competitive advantage of modern economies. Typical of advanced business services is that to a great degree they cluster in important cities with a strongly diversified economic base and reported growth. The segment also requires highly qualified working force. One of the key factors for the development and expansion of advanced business services is a sufficient offer of business spaces. The size of the city together with its function (position in the hierarchy of settlements) and transport accessibility are all fundamental localizing factors. Advanced business services encompass quite a wide range of specialised and knowledge services such as law services, advertising and marketing services, services in IT and communication technologies, architectonical and engineering services, management consultancy, accountancy and budget consultancy, nonbank financial services, insurance industry, etc. Within the Czech Republic, progressive tertiary sectors have been developing since the transformational processes after the 1989. The capital city of Prague has met all the requirements needed for the advancement of the progressive tertiary and thus has become the most attractive city for the advanced business services companies in the country. The capital city of Prague has a strong and diversified economic as well as knowledge base, high rate of graduates, favourable geographical location and improving transport accessibility. The office spaces market has been evolving and currently the offer of modern office spaces can be assessed as sufficient. The dominant position of Prague fulfilling the role of the Czech centre for all advanced business services is undeniable. Clear majority of important foreign progressive tertiary companies that have their business representation in the Czech Republic reside in Prague. The main aim of the presented study is to analyse whether Prague, so dominant in the Czech Republic, represents also an important site for global companies in the field of advanced business services. We thus compare the occurrences of Prague business representation of the most prominent companies with their representations in nine important cities of the Central region.

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2. Analysis of selected branches of advanced business services within the context of central European cities

One of the ways how to evaluate and compare the significance of cities or regions concerning advanced business services is to identify there the number of branches of prestigious global companies. In our analysis, we thus compare the count of branches of important globally operating companies of advanced business services in ten key central European cities. For the purpose, we selected the capital cities of the Visegrad group (Prague, Bratislava, Budapest, Warsaw), Vienna, the capital of Austria, three biggest German cities of Berlin, Hamburg and Munich, and Frankfurt am Main as an important economic centre of Germany. From the same reason we included also Zurich, which functions in Switzerland similarly to Frankfurt in Germany. The geographical location of analysed cities can be seen on the map no 1.

Map no 1: analysed central European cities

Map base source: Seznam.cz, JSC; modification Strategic Planning Department/City Development Authority Prague (SPD/CDAP)

Further, we defined seven branches of advanced business services to be analysed. These are law services, advertising and marketing services, engineering services, management consultancy, accountancy and auditing services, insurance industry, and banking and financial services. Within these we identified 100 notable global companies showing highest profit or highest market value (sporadically also other criteria were used). A necessary condition for including a company in the analysis is its global scope (i.e. physical presence in at least two continents) as well as the presence of a company’s branch in at least one of the selected cities. For determining a physical presence of a company’s branch (or its absence) in a given city, the information stated at the company’s official internet pages by the time of our analytical work (fourth quarter of 2010) was authoritative.

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2.1 Law services

For the purpose of analysing the branch of law services, we selected 15 global law companies that in 2007 recorded highest profit 1. Based on this criterion, the strongest global law companies are British Clifford Chance, Linklaters, and Freshfields. It must be noted, that all fifteen companies are of either British, or US origin. It is not surprising then that within the European continent the most prominent city concerning the concentration of global law companies is London. Our analysis evidenced that business representation of the most notable worldwide operating law companies in central European cities is far from commonplace. This is demonstrated in the table no 1 where red colour symbolizing the absence of a given company’s branch dominates. Global law companies are most numerously represented in Frankfurt and Munich where thirteen or twelve of the fifteen selected companies have their branches. In other important central European cities, fewer than a half of the companies have their branches, which is true also for Prague where six prominent global law companies have their business representation. The lowest number of branches was identified in Zurich (two companies) and in Bratislava (three companies), which is generally rather unattractive for companies from the sector of advanced business services (see below).

Table no 1: Representation of global law companies in analysed cities

Name of the company (alphabetically ordered) Berlin Bratislava Budapest Zurich Frankfurt Hamburg Munich Prague Warsaw Vienna Allen & Overy Baker & McKenzie Clifford Chance DLA Piper International Freshfields Greenberg Traurig Jones Day Kirkland & Ellis Latham & Watkins Linklaters Mayer Brown Sidley Austin Skadden Arps Weil, Gotshal & Manges White & Case

The number of branches of law 5 3 5 2 13 5 12 6 7 4 companies Source: SPD/CDAP (Note: green = company has its business representation in a given city; red = company does not have a business representation in a given city)

1 Source: http://en.wikipedia.org/wiki/List_of_100_largest_law_firms 6

2.2 Advertising and marketing services

US companies dominate the market with marketing services, which is among others attested by the data on incomes. The list of “top ten” advertising and marketing companies ranked according to incomes in 2008 presents that seven of the ten companies are of US origin. The first four places are occupied exclusively by US advertising or marketing agencies BBDO, McCann-Ericsson, DDB, and TBWA 2. Table no 2 clearly indicates that the most prominent global advertising and marketing agencies are quite numerously represented in important central European cities. Two strongest global advertising agencies BBDO and McCann-Ericsson can even be found in any of the monitored cities. Table no 2 also confirms the fact that global advertising and marketing agencies are most strongly represented in Prague, Warsaw, and Vienna, where identically thirteen of the fifteen most important companies offer their services in advertising and marketing. By contrast, in Berlin only a third of the monitored companies opened their branches.

Table no 2: Representation of global advertising and marketing agencies in analysed cities

Name of the company (alphabetically ordered) Berlin Bratislava Budapest Zurich Frankfurt Hamburg Munich Prague Warsaw Vienna BBDO Worldwide DDB Worldwide Dentsu Draft FCB Euro RSCG Hakuhodo Inc. Grey Worldwide JWT McCann–Ericsson Ogilvy & Mather Publicis Saatchi & Saatchi TBWA Wunderman Young & Rubicam

The number of branches of 5 8 12 10 10 9 8 13 13 13 advertising and marketing agencies Source: SPD/CDAP (Note: green = company has its business representation in a given city; red = company does not have a business representation in a given city)

2 Source: http://top-10-list.org/2009/06/12/top-10-leading-advertising-agencies/ 7

2.3 Engineering services

Engineering services encompass a relatively wide range of specialised activities concentrating mainly around architect, engineering and project consultancy. Engineering services are usually demanded in relation with realization of projects in transport, environment, infrastructure, etc. Considering the extent of much of the commissions, this kind of services – contrarily to other branches of advanced business services – is often demanded by institutions of public sector. The table no 3 covers ten global engineering companies that in 2009 reported highest incomes. The strongest global companies offering architect, engineering, and project consultancy are often of US origin as testified by the data on incomes in 2009 according to which first places were occupied by US companies AECOM, URS Corporation, and Jacobs Engineering 3. What must be added to the above stated is that the primary area of operation – and also the main source of income – of these US companies is predominantly the continent of Asia and not (central) Europe. This can explain why the table no 3 is dominated by red colour indicating the absence of representation of the companies in given cities. In monitored central European cities, the prominent companies offering architect, engineering, and project services are most numerously represented in Warsaw, where eight of the ten companies have their branches. In other cities the level of representation of the companies is distinctively lower. In Bratislava, Vienna, and Zurich, none of the companies have any branch.

Table no 3 Representation of global engineering companies in analysed cities

Name of the company (alphabetically ordered) Berlin Bratislava Budapest Zurich Frankfurt Hamburg Munich Prague Warsaw Vienna AECOM AMEC ARCADIS Atkins CH2M HILL Fugro Worldwide Jacobs Engineering Mott MacDonald SNC-Lavalin URS Corporation

The number of branches of 4 0 3 0 3 3 4 4 8 0 engineering companies Source: SPD/CDAP (Note: green = company has its business representation in a given city; red = company does not have a business representation in a given city)

3 Source: http://enr.construction.com/toplists/GlobalDesignFirms/001-100.asp In case the company is not represented in any of the monitored cities, it is not mentioned in the table no 3 and its place is taken by the company that followed it on the list of incomes. This general principle is applied in all the chapters of the analysis. 8

2.4 Management consultancy

Great number of companies from the sector of advanced business services engage in management consultancy. For the purpose of the analysis of management consultancy segment, we have chosen only those important companies operating globally that are primarily specialised in management consultancy. For this reason, none of the companies from the “Big Four” audit firms (see chapter 2.5) were included in this chapter despite the fact these companies also offer the management consultancy services. Taking into account the above stated facts, and 4 can be proclaimed the most prominent consultancy companies regarding the incomes. Moreover, they are represented in all the analysed central European cities. On the basis of the analysis, we ascertained that in Munich all the fifteen monitored management consultancy companies have their representation. This suggests that the capital of Bavaria is the most prominent centre of consultancy in the central Europe region. Thirteen of the fifteen important consultancy companies are represented in Zurich and twelve in Frankfurt. In the capital cities of the Visegrad group, the highest number of global management consultancy companies are represented in Prague (ten in total).

Table no 4: Representation of global management consultancy companies in analysed cities

Name of the company (alphabetically ordered) Berlin Bratislava Budapest Zurich Frankfurt Hamburg Munich Prague Warsaw Vienna Accenture Arthur D. Little A. T. Kearney Bain & Company Booz & Company CapGemini IBM Global Services L.E.K. Consulting Logica McKinsey & Company Management Consult. Monitor Group Group

The number of branches of 10 5 8 13 12 9 15 10 9 10 management consultancy companies Source: SPD/CDAP (Note: green = company has its business representation in a given city; red = company does not have a business representation in a given city)

4 Source: http://www.careers-in-business.com/consulting/consrank09.htm 9

2.5 Accountancy and auditing services

The globalized market of accountancy and auditing services is dominated by four biggest auditing companies - PricewaterhouseCoopers, KPMG, Ernst & Young and Touche Tohmatsu. Often, they are referred to as the “Big Four” audit firms. These most prominent audit companies have their branches in the majority of the countries in the world. It is thus not surprising that they have their branches in all the ten central European cities we compared. In many cases, the companies have more than just one subsidiary in a given city. For the purpose of the analysis, we have chosen fifteen most prestigious global firms operating in the field of accountancy and auditing services 5 that are also but for exceptions represented in all analysed central European cities, which as this analysis demonstrates is far from typical for important global companies operating within other fields of advanced business services. The table no 5 implies that branches of all the fifteen companies can be found in Berlin, Budapest, Munich, Warsaw, Vienna, and Zurich. Fourteen companies are represented in Frankfurt, Hamburg, and Prague. In comparison with other cities, lesser interest on the side of accountancy and auditing companies is to localize the branch in Bratislava, where thirteen of the fifteen monitored companies have their business representation.

Table no 5: Representation of global auditing companies in analysed cities

Name of the company (alphabetically ordered) Berlin Bratislava Budapest Zurich Frankfurt Hamburg Munich Prague Warsaw Vienna AGN International Baker Tilly BDO International Crowe Horwath Deloitte Touche Tohmatsu Ernst & Young Grant Thornton LLP HLB International KPMG Mazars Group Moore Stephens International Nexia International PKF International PricewaterhouseCoopers RSM International

The number of branches of 15 13 15 15 14 14 15 14 15 15 auditing firms Source: SPD/CDAP (Note: green = company has its business representation in a given city; red = company does not have a business representation in a given city)

5 Source: http://www.vault.com/pdfs/uk/TOP20Accounting.pdf 10

2.6 Banking and financial services

Banking and financial services (together with insurance industry) is often not included into advanced business services. However, considering the exceptional strategic importance of banking and financial sector, we decided to include these branches into our analysis. The table no 6 contains the most important banking institutions operating worldwide that at the end of 2008 reported highest assets values 6. Based on this criterion, the biggest banking institutions are British Royal Bank of Scotland (RBS) and Barclays together with the third German Deutsche Bank. Frankfurt has been beyond all dispute confirmed as a financial heart of Europe (it is sometimes for that reason nicknamed to “Bankfurt”). All twenty most important banking institutions of the world have their business representation there. At the same time, the analysis also certified that banking is significantly represented in Zurich, where fifteen of the twenty monitored banking institutions have their business representation.

Table no 6: Representation of global banking institutions in analysed cities

Name of the company (alphabetically ordered) Berlin Bratislava Budapest Zurich Frankfurt Hamburg Munich Prague Warsaw Vienna Banco Santander Bank of America Bank of Tokyo–Mitsubishi UFJ BNP Paribas Bank Barclays Citibank Crédit Agricole Deutsche Bank Goldman Sachs International HSBC China Construction Bank ICBC ING Bank J. P. Morgan Chase Mizuho Corporate Bank Royal Bank of Scotland Société Générale UBS UniCredit Bank Wells Fargo

The number of branches of 7 7 10 15 20 9 10 12 12 13 banking institutions Source: SPD/CDAP (Note: green = company has its business representation in a given city; red = company does not have a business representation in a given city)

6 Source: http://seekingalpha.com/article/165213-the-worlds-50-biggest-banks-based-on-assets 11

2.7 Insurance industry

We monitored the number of branches of the ten most important global insurance companies that in 2009 reported the highest market value of the company 7. According to this criterion, the strongest insurance company is AIG (American International Group) that operates in more than 130 countries and with the market value of 172, 24 billions of dollars stands as a real leader of the field. Second was French AXA Group (66, 12 B $) and third was German Allianz Worldwide insurance company (65, 55 B $). The above named three strongest insurance companies have their branches in all the ten monitored cities of central Europe. This is also true for the fifth most important insurance company – Italian Generali Group. Apart from the above mentioned companies, the Dutch insurance company Aegon and British Aviva have their branches in Prague. Six of the ten most important globally operating insurance companies have their business representation in the capital city of the Czech Republic, which is the same as in Budapest. Higher representation of global insurance companies can be identified only in Munich (seven companies) and Warsaw, where eight of the ten strongest insurance companies have their branches.

Table no 7: Representation of global insurance companies in analysed cities

Name of the company (alphabetically ordered) Berlin Bratislava Budapest Zurich Frankfurt Hamburg Munich Prague Warsaw Vienna Aegon AIG Allianz Worldwide Aviva AXA Group Chubb Group Generali Group MetLife Munich Re Group Prudential Financial

The number of branches of 4 5 6 5 4 5 7 6 8 5 insurance companies Source: SPD/CDAP (Note: green = company has its business representation in a given city; red = company does not have a business representation in a given city)

7 Source: http://top-10-list.org/2009/06/16/top-10-insurance-companies-2009/ The table no 7 does not contain the fourth most prominent insurance company Manulife Financial because this Japanese company does not have any branch in any of the monitored cities In place of it, the important American insurance group Chubb Group is included into the “top ten” list. 12

3. Conclusions – overall ranking of monitored cities

The aggregate outcomes of the analysis of the individual branches of advanced business services imply that the most of the hundred analysed global companies is represented in Frankfurt, where more than two thirds of the companies have their business representation. More specifically, 76 of the 100 analysed global firms from the advanced business services sector have their branches in Frankfurt (see graph no 1). As also our analysis confirmed, Frankfurt can be designated as predominantly a centre of banking and financial industry of a global importance. In the city, we identified branches of all the twenty most prominent global banking institutions (see table no 8). Apart from banking and financial institutions, global companies offering law, accountancy and auditing as well as management consultancy services can be found in Frankfurt. On the basis of these facts, Frankfurt can be recognized as the most important city in central Europe as for business representation of global companies from the advanced business services sector.

Graph no 1: Overall ranking of analysed cities according to the number of branches of global companies from the advanced business services sector

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76 70 72 71

65 60 60 60 59

50 54 50

40 41

30

20 Representation of the global companies companies global the of Representation

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h e h a st in ric nn e urg rl agu p b e lava r Zu ie a B s Munic P V d m Frankfurt Warsaw u B Ha Brati

Source: SPD/CDAP

While the leading position of Frankfurt is not surprising, the second place taken by Warsaw could seem unthought of. 72 of the 100 analysed companies have their branches in Warsaw. On the basis of our analysis, the capital of Poland can be understood as the most important centre of advanced business services in the countries of the Visegrad group. The main reason for the favourable standing of Warsaw is the notable size of Polish market that houses a strong economic potential. In contrary to other monitored cities, global insurance companies and above all the companies offering architectonic, engineering and project consultancy are strongly represented in Warsaw. But Warsaw occupies front positions also in other branches (see table no 8). The third place in the overall ranking of the cities selected is (according to the number of branches of companies from advanced business services) occupied by Munich, where 71 of the 100 monitored cities have their business representation. In Bavarian capital, all the most prominent global companies specialised in management consultancy have their branches. Munich can thus be denoted as a central European centre of management consultancy. Leading global law firms are also strongly represented in Munich (similarly to Frankfurt).

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Table no 8: Representation of global companies in the cities analysed

Field of business (the number in brackets indicates the overall number of analysed companies) Berlin Bratislava Budapest Zurich Frankfurt Hamburg Munich Prague Warsaw Vienna Law services (15) 5 3 5 2 13 5 12 6 7 4 Advertising and marketing services 5 8 12 10 10 9 8 13 13 13 (15) Engineerin g services (10) 4 0 3 0 3 3 4 4 8 0 Management consultancy (15) 10 5 8 13 12 9 15 10 9 10 Accountancy and auditing services 15 13 15 15 14 14 15 14 15 15 (15) Banking and financial services (20) 7 7 10 15 20 9 10 12 12 13 Insurance industry (10) 4 5 6 5 4 5 7 6 8 5

The overall number of branches of 50 41 59 60 76 54 71 65 72 60 global companies (100) Zdroj: SPD/CDAP

In Prague, 65 of the 100 analysed companies from advanced business services have their branches. In this respect, the Capital of the Czech Republic occupies the fourth place, just behind Frankfurt, Warsaw, and Munich. Prague thus outpassed more populous cities such as Berlin, Hamburg, Vienna or Budapest. Typical for Prague is relatively strong representation of global companies across the range of individual branches of the advanced business services sector. Prague did not dominate in any of the analysed segments regarding the number of branches of companies when compared to other monitored cities. However, it did not fall behind in any of the segments either. This relatively diversified and levelled structure of advanced business services can represent a comparative advantage for Prague for it can in consequence results in eliminating negative effects of a potential crisis that would selectively affect only certain segments of the tertiary. As the graph no 1 shows, the fifth and the sixth positions are shared by Zurich and Vienna. In both these cities, 60 of the 100 prominent global companies from the advanced business services sector have their branches. The seventh place is occupied by Budapest, where 59 companies from the monitored segments have their business representation. Two positions next to the last belong to the two biggest German cities of Hamburg and Berlin, in which 54 or 50 of the 100 global firms offering advanced business services have their branches. This more or less corresponds to the fact that in Germany the states localised more to the south such as Bavaria, Baden-Württemberg, Hesse and others function as centres of economic growth and progressive economic segments. As expected, the last place belongs to Bratislava, in which only 41 globally operating companies in advanced business services have their representation. This conforms to the rather limited capacity of Slovakian market. It can be also ascribed to geographical proximity to more important European capitals of Budapest and Vienna.

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3.1 Comparison of the conclusions with the outcomes of GaWC

Globalization and World Cities (or GaWC) 8 represents an important research network established in 1998 by academic researchers from the Loughborough University, where research concentrates on defining, categorization, and comparison of cities with respect to their global importance. Among other means, the GaWC attempts to identify the level of importance on the basis of the degree of representation of the most prominent global companies from the advanced business services sector. The criterion is thus identical and allows comparing the results with our analysis. Nevertheless, the fact that the GaWC evaluated given cities more than 10 years ago (in 1999) must be taken into account. Apart from the cities outside Europe, it analysed also 53 European cities comprising also all the ten cities monitored in our analysis. While our analysis deals with 100 global companies, the GaWC concentrated on “only” 46 companies offering advanced business services 9. According to the final rating of one of the many inquiries done by GaWC, Frankfurt is the city with most numerously represented companies from the advanced business services sector as for the monitored central European cities. Frankfurt comes third in the European context (after London and ) and eighth in the world context (after New York, London, Paris, Hong Kong, Tokyo, Los Angeles and Singapore). Prague has been confirmed a very good standing by both analyses. According to GaWC, Prague was actually the tenth most important European city concerning the presence of branches of companies offering advanced business services. Within the ten monitored central European cities, it occupied the third place according to the GaWC study. Our analysis positions Prague only one place lower. Both analyses identically place Berlin to the last but one place and Bratislava, according to expectations, to the last place.

Table no 9: Ranking of analysed cities according to advanced business services (comparison of the GaWC and SPD/CDAP results) Ranking according to the Ranking according to the GaWC analysis (1999) SPD/CDAP analysis (2010) 1. Frankfurt 1. Frankfurt 2. Zurich 2. Warsaw 3. Prague 3. Munich 4. Warsaw 4. Prague 5. Budapest 5. – 6. Zurich 6. Vienna 5. – 6. Vienna 7. Hamburg 7. Budapest 8. Munich 8. Hamburg 9. Berlin 9. Berlin 10. Bratislava 10. Bratislava Source: SPD/CDAP, GaWC (Data Set 8.1)

8 Source: http://www.lboro.ac.uk/gawc/ 9 Our analysis took into account only physical representation of a given company (or its absence) in a given city. In this respect, the GaWC analysis was sophisticated because it recons also the importance of a particular company branch in a given city. 15

4. References

o Official internet pages of the companies analysed (see the list of the companies in tables 1 to 7)

o Globalization and World Cities (GaWC) – Data Set 8

o Careers in Business – Rankings: 2009

o ENR – The Top 150 Global Design Firms

o Seeking Alpha – The World’s 50 Biggest Banks based on Assets

o Vault – Top 20 Firms

o Wikipedia – List of 100 Largest Law Firms

o Top 10 list - Top 10 Leading Advertising Agencies

o Top 10 list - Top 10 Insurance Companies 2009

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Appendix: Location of the analysed companies in the area of the capital city of Prague

Table no 10: Branches of monitored global companies in Prague city sections

City section Law services Advertising and marketing services Engineering services Management consultancy Accountancy and auditing services Banking and financial services Insurance industry Total Prague 1 5 1 2 2 2 5 2 18 Prague 2 1 3 - 3 4 - 2 13 Prague 3 - 1 - - 2 - 1 4 Prague 4 - 1 1 1 1 1 1 6 Prague 5 - 2 - - 1 4 - 7 Prague 6 - - - 2 - - - 2 Prague 7 - 5 - - - - - 5 Prague 8 - - - 1 3 - 1 5 Prague 11 - - - 1 - - - 1 Prague 13 - - - - 1 2 - 3 Prague - - - 1 - - - - 1 Troja Source: SPD/CDAP

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Map no 2: Branches of monitored global companies in Prague city sections

Source: SPD/CDAP (source of the map background: ČÚZK)

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