1. Introduction
Historically, managers face the fundamental decision problem of choosing a physical place in which to locate their firm when they are first established or additional locations to which to expand during internationalization. These decisions are considered of strategic importance and fundamental to businesses’ success [
1]. Many factors are traditionally weighed before making location decisions, such as agglomeration economies, workforces’ level of education, population density, energy costs, local economic conditions, or raw material supplies [
2,
3].
Currently, managers must consider additional factors that, due to their company’s surrounding environment, have acquired greater importance. These decision criteria include, among others, access to technology, regional legal and political security, gender equality, climate, and environmental factors. Given these complex variables, location decisions have become even more complicated, turning them into multi-criteria decision problems.
The literature includes many indices that have compared different cities based on varied dimensions and indicators. The Mori Memorial Foundation’s Global Power City Index [
4] and the Instituto de Estudios Superiores de la Empresas’s Cities in Motion Index [
5] are especially important. At the subnational level, the relevant indices are scarcer, but a significant contribution at the European level is the European Cities Quality Index (ECQI) [
6]. Most of the cited indices, however, focus on cities’ quality of life, and only a few evaluate metropolises from an investment perspective.
The present research’s main objective was to help managers make decisions about the location of the company. The study focused on Europe, identifying the best business locations among 66 cities based on 11 criteria (i.e., dimensions) and creating a preferential ranking of these metropolises. To this end, the preference ranking organization method for enrichment of evaluations (PROMETHEE) [
7] was selected for its simplicity and practicality compared to other multi-criteria decision models (MCDMs). This method was combined with the analytical hierarchy process (AHP) technique [
8], which was used to weight the selected criteria.
The present results’ main contributions arise from the inclusion of a climate dimension in the research model and the integration of the PROMETHEE and AHP to facilitate weighting the factors chosen. In addition, this study focused on dimensions of importance to management-level decisions rather than exclusively on cities’ quality of life, confirming that the criteria with the greatest weight in this decision problem need to be security and the available technology.
The remainder of this paper is divided into the following sections. The second half of this introduction provides a review of the literature on aspects relevant to location decisions. The second section explains the methodology applied in the research, including details of the database used and the criteria or dimensions analyzed using different indicators. The third section presents the results, and the final sections compare the findings with similar studies and offer conclusions.
Literature Review
Business location decisions are considered to be of strategic importance as they have a significant influence on companies’ survival and on their performance results [
9]. The literature offers studies that have examined both variables’ relationship in various business sectors, including research carried out on the Spanish hotel sector [
10,
11]. The choice of where to locate investments abroad is also a key decision within firms’ internationalization strategies [
12]. This decision problem has been studied at the country [
13,
14] and subnational level [
15].
Some authors have highlighted the role of “global cities” in subnational contexts as a key factor in the internationalization of multinational companies [
16]. The concept of a global city has, in general, been widely researched by academics [
17,
18]. According to Goerzen et al. [
16], global cities present a strong degree of connectivity, cosmopolitan environment, and high density of services. Based on this definition, Europe can be said to be home to many global cities [
19].
These metropolises’ characteristics make them attractive to investors and managers who seek to implement their organizations’ internationalization strategies. The specific facilities that cities offer and their agglomerations of activities and services increase the potential for interactions and knowledge transfer. Thus, global cities often become the cradle of new innovative companies that prefer to locate their facilities in places rich in specific knowledge in the early stages of their product cycle [
20,
21,
22,
23]. In addition, the patterns followed by human settlements include growing urbanization in recent centuries so that more than half of the world’s population now lives in cities [
23]. The latter naturally offer a multitude of business opportunities [
22].
Given the above findings, most decisions about where to locate business investments ultimately concentrate on large metropolises, although there are exceptions as Bartik’s research shows [
24]. These decisions’ intrinsic difficulty lies in choosing the best city in which to conduct business from among the multitude of urban centers available. To solve this problem, managers or decision makers must consider a multitude of criteria, which makes using mathematical multi-criteria analysis techniques quite suitable tools.
Among the MCDMs available, Brans and Vincke’s PROMETHEE [
7] is one of the best designed. This method facilitates preference rankings of the alternatives under evaluation, as well as being able to consider both quantitative and qualitative criteria’s importance to the decision problem at hand. PROMETHEE has been shown to have many practical applications in different areas, such as the evaluation of tourism destinations’ competitiveness [
25], hotel web pages [
26], and composting technologies’ sustainability [
27].
Geometric analysis for interactive aid (GAIA) [
28] is commonly used with PROMETHEE to provide a more visual representation of results. In the PROMETHEE, each criterion’s weight must be determined. Researchers have recommended the hierarchical analytical process (AHP) for this task because the combination of these methods generates operational synergies [
29]. Therefore, the two supplemental methods were also applied in the present study.
3. Results
In the present study, 66 European cities were compared using the criteria previously described. The factor analysis’s results confirmed that the accommodations and security dimension needed to be divided into the separate variables of accommodations and security. Thus, 11 criteria or dimensions were considered in the final analyses: health, education, employment, environment, equality, leisure, accommodations, security, mobility, climate, and technology. The process assigned a weight to each indicator and, finally, reduced them down to one for each criterion.
Factor Analysis has had several stages. First, the correlation matrix was calculated between all the variables used. The conditions for applying this technique were examined, that is, that the variables were highly correlated, but in turn presented heterogeneous data. The necessary factors were then extracted. Then the factor rotation was given and finally the factor scores were calculated, creating a new variable that encompassed each dimension.
The reliability of the scale of measurement was used the Cronbach’s alpha. Their results were higher than 0.7, so it can be said that they are at acceptable levels. The results are presented in
Appendix A (
Table A1). In relation to the results of the factor analysis, the KMO test yielded a value of 0.912. Since the value is close to 1, the data are susceptible to variable reduction through factor analysis. Bartlett’s sphericity test contrasted the null hypothesis that the correlation matrix is an identity matrix. The null hypothesis was rejected since the
p-value is less than 0.05, determining the adequacy of the data to the factor analysis. The matrix of rotated components is compiled in
Appendix A (
Table A2). From this information the dimensions were generated.
The AHP method was applied to weight the criteria. During this part of the process, a group of recruited experts jointly used the AHP to define the weights for the current decision problem.
The three authors of the present work chose a panel of experts with some considerations. The criteria for the selection of experts has been that they should be people with recognized experience in the management of organizations linked to the dimension studied or university professors who investigate that dimension. For each of the dimensions, there should be at least 3 experts who, together with the three authors, will analyze each of the dimensions. In total we worked with 30 experts plus the 3 authors of the present work. In health, 2 hospital managers and a manager of a nursing home. Regarding education, there was a primary school teacher, a secondary school teacher, and a university professor (in addition to the authors of this study, university professors). Regarding employment, we worked with a politician with responsibilities in this area plus two university professors who are experts in this area. In terms of the environment, there were 2 entrepreneurs from environmental consulting firms and a service manager from the local environmental administration. In terms of gender and equality, 2 people who work in the local administration and one in the regional administration in this area. As an expert in the Leisure dimension, there were two restaurant managers and a museum director. In accommodation and security we worked with 2 hotel managers and a policeman. In mobility, the experts were two policemen and a politician from that area. In the Weather area, the experts were 3 university geography professors. Finally, in Technology, we worked with 3 university engineering professors.
Once the panel of experts was formed, the Delphi research method was used. Expert estimates are made in successive rounds, anonymously, in an attempt to reach consensus.
The weights vector was obtained and incorporated into the analyses. The results are shown in
Table 3. The associated comparison matrix has a consistency index of 8.2%.
Notably, the comparisons between dimensions were made from the perspective of business investments rather than accommodations, quality of life, or tourists’ interests. This means that the ordering of the dimensions was done thinking about what the most important thing that the city should have is according to the managers to locate their company. Dimensions such as security and technology are thus a priority for company managers, while the environment and leisure dimensions are less important. The latter findings imply that the weights could change if the decision makers’ comparisons had been based on a different decision problem than where to locate business investments.
Finally, after the PROMETHEE II was applied, the results reveal that London is the best positioned city, followed by Paris and Barcelona. At the bottom of the ranking are Riga, Vilnius, and Zagreb. The intermediate positions are filled by Seville, Malaga, Helsinki, and Hamburg, among others. The final ranking is presented in
Table 4. A significant distance was detected between the first two cities (i.e., London and Paris) and the third in the ranking (i.e., Barcelona), which highlights the marked differences between them.
Figure 3 shows the results of the partial ranking obtained with the PROMETHEE I, which represents the positive (Phi+) and negative (Phi−) flows of the 66 cities. London, Paris, and Athens are at the top, listed here from higher to lower positive flows, while the lowest of all negative flows correspond to Paris, London, and Barcelona.
Figure 4 presents the net flow graph generated using the PROMETHEE II. The first positions in the ranking are occupied by London, Paris, and Barcelona, in order by strongest flow. As mentioned previously, the results reveal a large distance between the first two positions (i.e., London and Paris) and the third (i.e., Barcelona), but the differences between the rest of the cities is less noticeable.
Based on the bar graphs of six cities in
Figure 5, the best positioned metropolises in the ranking, that is, London, Paris, and Barcelona, present high positive flows in practically all dimensions. In contrast, the other three cities of Riga, Zagreb, and Vilnius have negative flows for almost all the variables.
The GAIA plane in
Figure 6 reveals that cities such as London, Paris, Stockholm, or Toulouse have similar patterns in health, mobility, equality, and leisure criteria. Barcelona, Malaga, Seville, Marseille, Murcia, and Lisbon are grouped around weather and security factors. The environment, technology, and education criteria are similar in other cities, for example, Berlin, Brussels, or Helsinki.
In addition, the above figure clearly displays the most distant cities in terms of all the criteria, with the worst positioned including, among others, Zagreb, Vilnius, Plovdiv, Sofia, and Katowice. The axis in red is the decision axis around which the best positioned cities in this study are located. The delta parameter is 64%, which is above the 60% suggested by Brans and Mareschal [
51] as an acceptable value in real-life GAIA applications. Thus, the above GAIA plane provides reliable information, visually representing the differences and similarities between cities according to the different criteria selected.
4. Discussion
The findings of this work illuminate in several aspects, among them, the dimensions dealt with and their importance in the location of a company. The AHP method served to have a very clear idea of what the dimensions are that are valued in the location of a company. First of all, the most important is safety. Company location destinations where there is no security are not chosen by companies to locate their production plant. If the companies still need to be strategically in that location, then they will choose different entry modes such as alliances, reducing the risk of the operation. Second, technology and education are also important factors. Good computer connections, a broadband network, together with a high education, especially in technology, will be very important. Equality, health, and employment will be very important. On the other hand, curiously, the least important will be the environment, followed by the leisure offer, mobility, housing, or the climate.
The above results were then compared with those obtained by other similar indices. The ECQI [
6] also assigns the first position in the ranking to London, but Paris is in ninth place. Berlin comes in third, even though this city is ranked eighteenth in the present study’s final ranking. These differences could be due to the inclusion of climate and technology dimensions that are not part of the ECQI, and to the different methodologies and approaches used to weight the criteria. While the ECQI focuses more on cities’ quality of life, the current research was designed to reflect a business or investment perspective.
In the Cities in Motion Index ranking [
5], London also appears in first place, followed by New York and Amsterdam in third position. Paris comes second in the present study’s ranking, but, in the cited ranking, this metropolis is in fourth place. The Cities in Motion Index, however, compares more than 100 cities worldwide, while the current study concentrated on European cities.
Finally, the results were compared with the Global Power City Index [
4], whose ranking places London first, New York second, Tokyo third, and Paris fourth. The cited index is clearly a worldwide ranking that focuses on cities’ power to attract people, capital, and companies.
5. Conclusions
This section summarizes the present research’s main theoretical and practical contributions. The main limitations are also discussed, and future lines of research are outlined.
5.1. Theoretical Implications
The decision of where to locate investments or businesses is of strategic importance and key to the survival and development of companies, so this is still one of the main problems managers must resolve within their companies’ expansion and internationalization strategies. A multitude of factors come into play in this type of decision, indicating that it should be treated as a multi-criteria decision problem. For this we have addressed the problem considering the main criteria that must be taken into account when facing the decision, taking as a reference base different index found in the academic literature, specifically the Cities in Motion, the ECQI and the Global Power Index. By incorporating a mathematical methodology in decision-making, arbitrariness is reduced, increasing the chances of success and allowing an improvement in decision-making of this type. This study thus applied appropriate mathematical techniques, namely, the PROMETHEE and the AHP method, to help decision makers make better choices. With these techniques it is possible to obtain a ranking of preferences between different locations (cities in our empirical case), which allows showing the relative position between them and also the state of each city in each of the criteria. The weighting vector can be changed according to the decision-maker’s preferences, but always subject to the consistency parameter provided by the AHP method, all of which allows obtaining different classifications based on the decision-maker and his preferences.
5.2. Practical Implications
The proposed methodology can serve as a decision-support tool for managers seeking to determine the most strategic location for their business and/or investments. The results offer a preferential ranking of 66 major European cities based on multiple criteria with a purely business focus.
5.3. Limitations and Future Lines of Research
This study’s main limitations included the difficulty of obtaining disaggregated data at the city level for the different dimensions and variables. The data had to be drawn from multiple sources such as the Gender Inequality Index (i.e., equality criteria), Global Innovation Index (i.e., technology criteria), and Perception of Corruption Index (i.e., security criteria). In addition, although this research relied on the AHP method to weight the criteria, this tool is not the only valid option in this context, as expert panels or other methods could also be applied.
Nonetheless, the combination of methodologies used in this study could also prove useful in the social sphere, as long as the proposed approach is adapted appropriately when making comparisons between dimensions. The results could include another ranking of cities according to better quality of life or tourism prospects. As indicated in the PROMETHEE methodology subsection, the choice was made to use a linear preference function with an indifference zone. In future research, another preference function such as the Gaussian function could be selected, and the results could be compared with the present study’s findings.