(FORTUNE Magazine) – BEHOLD THE ERA of the virtual corporation, when business pulses like a quartz watch 24 hours a day. The scattered work and workers are no longer confined to steel and concrete towers or sprawling complexes, but strung around the world like so many Christmas lights, linked--or is it bound--by technology. Who cares where you are?

Yet technology's prowess cannot replace the power of a simple handshake or compete with the creative energy generated by a roomful of brainstorming scientists, marketing managers, or production workers. Technology cannot create the corporate culture that solidifies a globalized business. You've got to be there.

So where's the best there, the place to base your business--or your life? Answering that question makes you face an even bigger one. "You have to ask, What is work?" says futurist Robert Elmore, a partner at Arthur Andersen in Boston. "Work is taking raw materials and machines and producing a product. Two of the three components of that theory are changing. The raw materials are changing to ideas, and the machines are changing to PCs. The only things not changing are the people."

That's why FORTUNE's 1995 best cities for business are those that best serve the evolving workplace. As life and work become more intertwined, people will flock to cities that cater most appealingly to both. The winners: the San Francisco Bay Area, which leads our U.S. ranking, and Singapore, No. 1 on the global list. Those dual rankings are a first that just makes sense. For most U.S. corporations business begins at home, yet even the smallest companies are increasingly operating on a global scale. With separate rankings, businesses can compare work environments among their domestic neighbors and assess opportunities abroad.

The Bay Area is No. 1 in America because it embraces great thinking and great living. Geographically it describes a collection of cities and towns that form a sort of open clamshell around San Francisco Bay. On the Bay's northeast shore lies brainy Berkeley, locus of the University of California, and Oakland, the region's industrial engine room. At the clamshell's southern hinge sits San Jose, America's 11th-largest city and the epicenter of global computing. San Jose and suburban Silicon Valley are home to some of the most esteemed technology innovators, such as Hewlett-Packard, Adobe Systems, National Semiconductor, and Intel.

Head northwest to where the Bay rushes beneath the Golden Gate Bridge, and you are in San Francisco, a truly spectacular urban setting and the West's financial center. "The Bay Area is definitely a world leader in innovation," says Kenneth Kuhl, a business location consultant for Arthur Andersen in Atlanta. "It's also a Pacific Rim gateway blessed with extreme cultural diversity that has taken very well in the area. There's a real desire by the people who live there to stay."

Singapore stares back at San Francisco from the opposite edge of the Pacific Rim. Although it's a city that behaves as if it were conceived entirely for business, Singapore is determined to offer an affordable, worry-free tropical lifestyle, especially when compared with its great rivals, Hong Kong and Tokyo. "It's a modern city sitting on the edge of one of the places with the greatest market potential," says Kuhl. "As Hong Kong increasingly turns inward and looks to China, Singapore will become the outward center of the Asian market."

Once just another cheap manufacturing base, Singapore is expanding its horizons. The nation has embarked on a talent hunt to supplement its tiny population of three million through highly selective immigration. It's also gearing up as a software center, expecting to double its population of computer programmers over the next five years. "The key is to create a 'learning nation' where workers relearn skills constantly," said Ko Kheng Hwa, director of economic development for Singapore in New York.

To learn what cities were best for business, FORTUNE teamed with business-location, operational, and industry consultants from Arthur Andersen to conduct extensive research. Andersen surveyed executives and economic development organizations from major cities worldwide. Ambassadors and governors were invited to nominate additional cities. Andersen then analyzed more than 60 cities' statistics, including unemployment rates, office rents, and wages. FORTUNE amassed its own picture of the future workplace by interviewing executives and economic development experts around the globe.

Companies looking to relocate don't just want a city. They want a site for at least one of four major business functions: headquarters, back office/operations, research and development, and manufacturing. All those functions--and what they demand of a city--are in the midst of transformation. And no matter which operations a company is moving to a city, it had better be a nice place to live. Top-quality workers demand a top-quality living environment. That means affordable housing, good infrastructure, and plenty of opportunities for recreation and culture. Lifestyle matters to talented people who have a choice of locations--as nearly all do.

ONE OF THE IRONIES of global commerce is that as the scope of business grows larger, the size and role of headquarters become smaller. The once monolithic HQ, where all things great and small took place, has been reduced to a home base for executive officers. It's a place where major decisions are made, but other facets of business, such as back office support and customer service, can't afford the rent.

As always, any city hoping to be a headquarters town must be deep in professional services. Avon, its midtown Manhattan lease expiring, launched a search for a possible new location. The company recently decided to stay in New York City (No. 4 in the U.S. and globally). "We wanted continued and uninterrupted access to the creative services and suppliers. They are essential to us," says Avon President Edward Robinson.

When Kalamazoo's Upjohn completes its merger with Stockholm's Pharmacia, the company will merge Swedish language and culture with Midwestern ethics. And they'll do it in London (No. 3 globally), where a management center will employ about 60 workers who can draw on the city's resources in finance, advertising, and other services. Two major airports make getting to Asia, the Continent, and even Kalamazoo less daunting.

The need to blend cultures also requires a city that mixes well, and few surpass the cultural appeal of London or New York. Expats needn't venture far to find reminders of home. The Big Apple has sushi bars in midtown, Russian nightclubs in Brighton Beach, and big international soccer matches broadcast live via satellite in neighborhood bars and restaurants.

Likewise, strong cultural and economic ties to Asia make the Bay Area an important connection to the Pac Rim. About 19,000 area jobs stem from some 175 Pacific Rim companies hailing from Eastern capitals such as Hong Kong, Tokyo, and Taipei. About a third of San Francisco's residents have roots in the East, creating a hospitable atmosphere for Asian business.

Importantly, the environment is also decidedly pleasant when you leave work. Carl Pascarella, president of Visa USA, moved to San Francisco two years ago after working abroad nine years. "It's one of the few cities where you can actually live and still be close to financial and industrial hubs, and the vibrant nature of a city," he says. An avid equestrian, he enjoys riding in nearby Portola Valley, an hour's drive from downtown through scenic, rolling hills. "There aren't many cities where you can ride 12 months a year that close to you and still live in a pure metropolitan environment," he says. "I wake up in the morning and can't believe I'm here."

IN THE COURSE of a morning jog you can enjoy splendid views of mountains sloping off into San Francisco Bay. The city's hallmark Golden Gate Bridge provides a northern route into neighboring Marin and Sonoma counties. A drive through Marin makes any commute worthwhile. It is home to the sailing enthusiasts of Sausalito.

The area is pricey by middle American standards. Rent for a two-bedroom apartment in San Francisco's tony Pacific Heights neighborhood can top $2,000 a month. A four-bedroom, executive-style home costs more than $560,000. But to Tokyo residents, Londoners, Parisians, and veterans of Hong Kong, those prices seem reasonable, and they get you a world-class city within a few hours' drive of Big Sur, Yosemite, and Lake Tahoe.

Atlanta (No. 2 in the U.S., No. 7 globally), which has absorbed foreign companies faster than foreign culture, is trying to make that step up to the global elite. It's got the airport and a gung-ho business environment. Soon it hopes to demonstrate its savoir-faire by hosting the Olympics, a golden marketing opportunity. Rapid growth has deprived Atlanta of its low-cost work force but given it an experienced one. Listen to Mark Rafuse, CFO of Liuski International, a computer assembler that recently relocated its headquarters and plant to Atlanta from Long Island, New York: "We felt that the work ethic was very strong. It wasn't cheaper, but we did get a better person for the price."

The good life is a powerful reason employees want to live in Atlanta. Vanity Fair Mills will relocate employees from New York and Alabama to Atlanta in 1997. The company had to offer an attractive alternative to its New York City employees, who are already immersed in a mecca of sophistication. Says Vanity Fair President J. Thomson Wyatt: "When you look at Atlanta, it offers us everything from a very rural, natural setting for people who enjoy a very calm family situation to a city that is very cosmopolitan."

A MORE SURPRISING headquarters choice is Denver (No. 3 in the U.S.), which recently lured Boston Market from Chicago (yes, it did start in Boston). The company sells home-style takeout food in locations nationwide. It could have moved anywhere but chose Golden, a few miles from Denver, in part for its Rocky Mountain lifestyle. Robin Showkeir, who helped organize the move for Boston Market, reveres the Denver area for the opportunities it offers her two children. "My kids are mountain-biking and rollerblading. They're on the cover of Loving Life magazine."

Denver is making strides not as a headquarters site but as an example of a new phenomenon: the emergence of back office and operations functions into "information factories." These are operations--claims processing, say--that were once done at headquarters, or at scattered sites, that are now being upgraded and centralized. Denver is home to customer service centers for Merrill Lynch, Janus, and Invesco. Merrill, which is constructing a major expansion of its Denver customer-support center, plans to employ 3,000 people at the location by the year 2000.

The Mile-High City is a perfect example of the clustering effect. "Once the financial services industry gets started in a community, the community grows itself," says Allen White, a Merrill senior vice president in charge of real estate. Other Western cities are jumping on the back office bandwagon. Charles Schwab has opened a new service center that processes customer transactions in Phoenix (No. 10 in the U.S.). The company expects to employ 2,300 there by 1997.

Corporate research and development goes hand in hand with first-class universities. That's another plus for the Bay Area: Industries feed on the flagship schools of Stanford and the University of California at Berkeley. Innovators in the San Jose metro area alone received 2,359 patents last year. Ten area university and biotech research centers invest about $510 million a year in bioscience studies. A large chunk of America's venture capital--over $1 billion last year--went to Silicon Valley. That kind of investment supports a slew of jobs.

Austin (No. 7 in the U.S.), home to 825 high-tech firms and an R&D leader in the computer industry, boasts the University of Texas, a world-class research facility. And few places match the intellectual power of Boston (No. 5 in the U.S.), a gathering place for 250,000 students and 100 universities and colleges, including the best and brightest from Harvard and MIT.

Two types of cities will own manufacturing: those offering value and those on the cutting edge. Labor cost will always be crucial to certain products, and cities like Kuala Lumpur and Taipei are the latest to become manufacturing capitals by providing cheap human muscle. Neither place can expect to be low-cost kings for long.

The work will move on unless the work force is continually upgraded--and that's true anywhere. "We're dipping below the college level," says H.C. Henry, executive vice president of corporate relations for BellSouth. In Atlanta the company contracts with local technical schools to train students for jobs it expects to be in great demand, such as radio-frequency-trained technicians. As the FCC issues more licenses for wireless systems, competition for wireless workers will become brutal.

Rosabeth Moss Kanter, Harvard business school professor and author of World Class, interviewed more than 100 companies in a study of global issues affecting small and medium-size businesses. "Everywhere, skill demand was going up and complaints about the low-skilled work force were also going up," she says. "The clerical work force--even people who deliver packages today--need to be computer literate. That's information technology, but it comes from the global economy. It has stimulated the need for upgraded skills."

To ensure that its workers are capable of building more sophisticated products, Georgia promotes its Quick Start program, in which the state trains workers to meet specific employer needs. Motorola is one of the companies that tapped into the program to staff its manufacturing facility in Atlanta for cellular battery and charging systems. Austin's Capital Area Training Foundation is an industry-led program in which career specialists work in high schools to help find occupational paths for students. The program features 11 areas of specialization, including manufacturing. CITIES IN FORTUNE's international listing are engaged in a titanic tug of war for jobs: Established, pricey European cities struggle to hold off Asian counterparts hitting their stride. Companies first came to Singapore for its low manufacturing costs. Those are long gone, but the place is now a prime site for product development. Siemens has invested $200 million in this island nation and plans to double the figure over the next several years.

The government's incentives make the investment worthwhile. "Dealing with the government isn't like talking with politicians, but businessmen," says Hartmut Lueck, managing director of Siemens Components, which makes memory chips in Singapore. "You can always negotiate a package." A grant from Singapore's Science and Technology Board covered more than one-third of a $7 million design center for memory chips. The government is trying to attract industries such as chemicals and electronics that tend to form clusters.

Hong Kong (No. 6 globally) has business makers biting their nails because the British colony will become a special economic region of China in just 20 months. So far there are no indications of a mass exodus--just a few desertions. Unisys is escaping high rents by moving its regional headquarters to Singapore. The Royal Bank of Canada is also shifting trading and treasury operations there. Whether or not its freewheeling economy will suffer from China's autocratic hand, one thing is certain: Hong Kong will still be the hub for dealing with the People's Republic.

London (No. 3 globally) may soon be defending its role as a pathway to the Continent as Paris (No. 9) tries to become more attractive to businesses. "Paris is clearly more committed to the Continent. If an American company goes to London and says, 'Now we're in Europe,' that's not seen as true on the Continent. It's still an Anglo-Saxon world," says Eric Wimmer, director of the European Science Center for San Diego-based Biosym/Molecular Simulations in Paris.

Wait a minute. Paris? Yes. A city whose protectionist attitudes once created a hostile environment for foreign businesses is emerging as a welcoming gateway to Europe. German-based BASF is reaping the benefits of a Parisian location. Philippe Krasnopolski, spokesman for BASF France, headquartered in the Paris suburb of Levallois-Perret, cites proximity to clients and French industrial decision-makers as a selling point. Artisoft, based in Tucson, recently opened a Parisian headquarters for European sales and marketing. Apple and Compaq have opened sales-support centers here.

"To get good people, it's easier to be in Paris," says Fernand Dehant, president of PPG Industries, France, an auto paint and glass maker. "It's more interesting and less painful for foreign personnel, and that's very important." French cuisine can ease the pain nicely.

Frankfurt (No. 5 globally) can't offer much in the gastronomy department, but to stake its claim in the workplace of the future, the city is polishing its image as a technological capital. It has made its mark on the Internet. The Frankfurt Digital Marketplace offers information about trade and industry as well as the addresses of 2,300 high-tech manufacturing companies in the region.

Germany needs to improve its inefficient and expensive telecommunications system. Frankfurt is encouraging companies such as MFS Communications, a subsidiary of Omaha's Peter Kiewit Sons', to provide a low-cost voice and data network. "Unlike in other cities, [Frankfurt] came to us saying that their primary concern was to make the city more attractive to financial companies," says Stephanus van Bergerem, network consultant at MFS.

Of any city on this year's global list, Tokyo (No. 10) faces the greatest challenges in maintaining a stake in the future workplace. Astronomical living costs and a lingering recession are driving companies away. Direct investment is costing foreign companies huge sums because of the yen's strength against the dollar. But as long as Japan remains a center of technological innovation, companies will be compelled to maintain a presence in Tokyo. Says Joseph Grimes, a former president of the American Chamber of Commerce in Japan and a senior executive there for more than 12 years: "You can't let your competitors have a sanctuary." Cities themselves would be well advised to act on the same principle.

Reporter Associate Kathleen Smyth