New Delhi, Jan 9 (PTI) A new study of multinational firms in 800 cities with airports suggests that subsidiaries are more likely to be located in cities reachable with direct flights.
It also suggested
that a 10 per cent increase in a city's air connectivity over a 10-year period increases the number of subsidiaries by 4.3 per cent.
Findings published in the journal Nature Cities indicate how a city's air connectivity can matter for business expansion, researchers said.
"We found a very strong empirical result about the relationship of parent and subsidiary firms, and how much connectivity matters," co-author Siqi Zheng, professor of urban and real estate sustainability at Massachusetts Institute of Technology, said
"The important role that connectivity plays to facilitate face-to-face interactions, build trust, and reduce information asymmetry between such firms is crucial," Zheng said.
The analysis suggests that a city without convenient air transportation could be left behind in a multinational corporation investment network, the researchers said.
Researchers analysed 7.5 million firms in cities across 142 countries, comprising a total of over 400,000 international flight routes during 1993-2023.
The study analysed flight data from the International Civil Aviation Organisation and firm data from the Orbis database, managed by Moody's Analytics, a US-based business intelligence company.
The authors "show that reductions in layovers are associated with a greater presence of subsidiaries in destination cities."
"We find that city pairs connected through at least one connecting flight are associated with, on average, 20 per cent fewer subsidiaries in the destination city, relative to otherwise identical pairs connected by a direct flight," they said.
Two or more connecting flights between two cities were related with 34 per cent fewer subsidiaries every 10 years during the 30-year period studied, translating into 1.8 per cent and three per cent fewer new firms per year.
Looking across industry types, air connectivity matters more in knowledge industries -- they rely on technology, innovation and human expertise -- such as finance, where face-to-face activity seems to matter more, the team said.
The study also described "degree centrality", a measure of how many places a city is connected to by direct flights.
A 10 per cent increase in a city's degree centrality over a 10-year period leads to a 4.3 per cent increase in the number of subsidiaries located there, it found.
However, it is not just about how many cities one place is linked to, but in turn, how many direct connections those linked cities themselves have -- this turns out to be the strongest predictor of subsidiary growth, the researchers said.
They added that the relationship between patterns of direct flights and multinational firm growth has held throughout the 30-year study period, despite an increase in teleconferencing, the COVID-19 pandemic and shifts in global growth, among other factors.
"Ironically, I think even with trade and geopolitical frictions, it's more and more important to have face-to-face interactions to build trust for global trade and business," Zheng said.
One still needs to reach an actual place and see their business partners, so air connectivity really influences how the multinational business copes with global uncertainties, she said. PTI KRS KRS SHS
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