(FORTUNE Magazine) – Cheap air travel. Mobile phones. The Internet. These advances were supposed to mean the end of geography. But while technology has radically transformed notions of time and distance, the three fundamentals of real estate--location, location, location--remain unchanged. In fact, in today's global economy, with sophisticated knowledge workers at a premium, deciding where to set up shop is more crucial than ever.

To find the best international cities for business, Arthur Andersen ranked 85 foreign cities according to their business climate. It also surveyed hundreds of globe-trotting executives. One surprising finding: In each region, the top locations are also among the most expensive places to do business. But our best cities more than compensated for high costs with able labor forces, good transportation networks, pro-business legal systems, and a generally high quality of life.

Call it the Austin Powers Effect: Not since the '60s has London enjoyed the kind of economic and cultural renaissance it is currently experiencing. London remains the most common jumping-off point for U.S. firms looking to invade the Continent. Britain's traditional laissez-faire approach to commercial regulation is one critical advantage. So, too, is the city's entrepreneurial spirit, which has made it the beneficiary of a Europe-wide brain drain. Following Britain's decision to opt out of the new euro currency, experts feared London would soon be eclipsed by its Continental brethren. So far those worries have proved unfounded, and London still ranks as FORTUNE's best European business city.

Singapore isn't the world's most exciting spot, but its clean streets, English-speaking work force, and lack of corruption kept it on top of FORTUNE's ranking in Asia for a second year. The city weathered Asia's economic crisis better than its neighbors, and its GDP is expected to grow a respectable 4.5% this year. Singapore continues to attract foreign investors by offering generous tax breaks and grants for those who make it their regional headquarters. The government even helps foreign companies move manufacturing to industrial parks in Malaysia and Indonesia (where hourly wages can be 70% lower). And it ranks second only to Australia's urban centers in the number of computers per capita.

Monterrey, Mexico, has generated plenty of buzz lately. The city of one million near the U.S. border has emerged as the place to be for those looking for a gateway to Latin America's fast-growing markets. What's Monterrey got that Mexico City (the region's No. 2) doesn't? Monterrey is far less congested than the capital; its transportation system ranks among Latin America's best. There's a talented set of engineers and scientists fresh from the Monterrey Institute of Technology--Mexico's answer to MIT. Plus, labor costs are far lower than in Mexico City. All of which has made Monterrey a favorite among those looking to set up sophisticated manufacturing centers.

--Jeremy Kahn