The Business of Cities
Greg Clark
Sao Paulo, September 2014
© The Business of Cities Ltd
The Global Urban Age
Much talk of:
• The Urban Age
• The management of urbanisation.
• The global economy.
• The global environment.
• The ‘rise’ of the ‘city state’.
• Smart cities, future cities, and more cities
Much less talk of:
• The challenges of weak city governance
• The urbanisation and re-urbanisation of business
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Cities and Business – A Rapidly Evolving
Relationship
Cities and commerce have always
been inextricably linked …..
….. but rapid andcontinuing
urbanisation and globalisation are
changing the bonds between the two.
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Part 1
The Changing Dynamics of
Business and Cities
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Trend #1
Cities are Emerging Markets for
Businesses
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Why?
• Size of the global metropolitan market
• 70% of world population of 9 billion by 2050
• 70 million people per year added to developing world cities
• 2 billion strong ‘consumer class’ in emerging market cities by 2025
World’s
Urban
Population
in 2050
Source:
UNICEF
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Why?
• Shift in nature of economies and products
• Technology is shifting which sectors globalise and how they
do so
• Growth of service economies encourages commercialisation
of urban space
• Cities are the natural habitat of innovation (Glaeser, Florida,
Hollis, Katz)
• Customers of increasing importance
• Expansion, upgrading, replacement of infrastructure = €27
trillion over next 25 years (Booz Allen Hamilton)
• Smart Cities market = $400 billion by 2020 (UK government)
• Building and retrofit – demand for advanced technology and
innovations in design, finance, and delivery of city systems
• Purchasers of huge range of services from legal advice to
landscaping
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Trend # 2
The rise of Tradeable Urban
Services
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• Growth of Tradable Urban Services
• Industries which support city building and growth have
become important tradable economic clusters e.g.
Planning, architecture, design, energy, water,
infrastructure, engineering, waste management, housing
development.
• Businesses emerged to meet the urbanisation needs of
(now) mature cities.
• Now, rapidly internationalising to support the growth of
emerging cities.
Sydney: Engineering and Construction to Dubai and Abu
Dhabi
London: Architecture and Urban Design Worldwide
Paris: Water, Waste and Energy to African cities
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Masdar City, Foster + Co Masterplan
Zaha Hadid deisgn for Abu Dhabi
Performing Arts Centre
Trend # 3
The growth of ‘city-brands’ by
businesses
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Cities are also key catalysts for businesses
• Effective marketing tools
• Organising ideas for other offerings
E.g. Philips – Liveable Cities brand
encompasses lighting, healthcare
and renewable energy
E.g. Grosvenor Living Cities brand.
• Means of fulfilling CSR imperatives
E.g. IBM Smarter Cities Challenge - $50m
competitive grant programme
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Grosvenor: Living Cities Corporate Strategy
Urbanising Services: City Brands
Sustainability
/ Eco-Cities
The ‘City of the
Future’
Audi
Deutsche Bank
Microsoft
Atkins
GDF Suez
Global Cities
JP Morgan
Aecom
AT Kearney
Siemens
GE
Arup
Bombardier
Smart Cities +
Networks
Cisco
Ericsson
IBM
Cap Gemini
Bird + Bird
Liveability
Mercer
Monocle
Grosvenor
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Urbanising Services
•
•
•
•
•
•
Research on urban issues
Signature centres of excellence
Benchmarking and city indexes
Awards and competitions
Sponsorship
Contributing to dialogue around the
future of cities
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Trend #4
Businesses are (Re)Urbanising
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Urbanising Locations: Higher Income
Nations
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(Re)Urbanisation – Evidence
Australia
• 42 major tenants moved from suburban locations to Melbourne
CBD between 2008 and 2013 (JLL).
UK
• 8/10 of Britain’s largest cities have seen private sector jobs
become more concentrated in city centres since 2008 (Centre for
Cities).
• Cities with high proportions of Knowledge Intensive Business
Services (KIBS) jobs have experienced particularly strong reurbanisation.
• Larger cities tend to have higher proportions of KIBS jobs e.g.
London – almost 50% jobs are KIBS.
• Examples
- Google, Amazon and LinkedIn: acquired major new premises in central
London
- BUPA, Jacobs (engineering): Business
parksof of
Cheshire
to Manchester
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Cities
Ltd
city centre
Distribution of
Private Sector jobs
in Milton Keynes,
2011 (Centre for
Cities)
(Re)Urbanisation – Evidence
Canada
• Commercial vacancy rates decreasing in downtown areas but
increasing in suburban areas (Colliers International).
• Movement especially noted amongst non-traditional occupiers of
core urban space.
USA
• Since 2011, commercial vacancy rates declined faster in core areas
than suburbs (Wall St Journal)
• US central city office space rated amongst best prospects for 2014
real estate investment, but suburban office space as worst
prospect (JLL)
• Venture capital investment now heavily concentrated in core city
areas (Richard Florida)
• Examples:
- United Airlines, Sara Lee: Suburban Illinois to Downtown Chicago
- Pinterest, Twitter: Silicon Valley to Downtown San Francisco
- Coca Cola: new 2,000 person office© in
Downtown Atlanta
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Cities
Investment
in Urban
Core (%)
New York,
San Diego,
Seattle,
Austin
80%
Boston, LA
c.75%
Dallas,
Washington
DC
60%
Venture Capital Investment
in Urban Core Zip Codes
Source: Florida
(Re)Urbanisation – Evidence
China
• In Beijing, core area office vacancy rate declined from 20.7% in 2009 to 4.2% in mid
2013 (Cushman + Wakefield).
• Trend is for foreign multinationals entering China to locate HQs in central areas, with back-office
business (R&D, logistics and data management) in suburban areas (Cushman + Wakefield).
Philippines
• Extraordinary office growth in central Manila and other cities fuelled by booming business
process outsourcing (BPO) sector.
• BPO workers are buying apartments close to work to avoid long commutes in heavy traffic, new
work-shop-live complexes have emerged in central urban areas (Oxford Business Group 2012)
Japan
• Tokyo CBD is expected to see the highest absorption of office spaces in the APAC region in 2014
(Cushman + Wakefield).
Major European Cities
• In Brussels, Paris, Amsterdam, Madrid, Berlin, Frankfurt, Munich and London cheaper rents in
CBD locations during the Global Financial Crisis attracted more occupiers to central areas,
pushing up average share of office take-up to 40% in 2010 compared to 33% in 2007 (Savills).
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Opportunities
to collaborate
Transport and
safety and
education
Improvements
Demographics
and lifestyle
Technological
Advances
Why are
businesses
moving back to
the city?
Policy-driven
and market
incentives
Sustainability
Concerns
(eg trade)
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Changing
Working
Practices
Urbanising Corporate Locations: Emerging World
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Trend #5
Businesses are restructuring to meet
City goals
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Urbanising Structure: Internal
Reorganisation
• Cities divisions
e.g. Siemens ‘Infrastructure and Cities’ sector
• Representatives in target cities
e.g. Bank of America ‘Market Presidents’
• Internal city advisory functions
e.g. KMPG Cities Global Centre of excellence
• City strategies
e.g. Air BnB
• CRM to manage interactions with
cities
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“Cities are a key growth
market for the future. By
establishing
the
Infrastructure & Cities Sector,
we’re
clearly
gearing
ourselves to the market. We
have the portfolio, the knowhow and the consulting
expertise to make cities of all
sizes greener and more
competitive…..”
Roland Busch, Siemens Managing Board,
Infrastructure & Cities Sector CEO
Case Study – Siemens
• Brand = Sustainable Cities
• 2011 Infrastructure and Cities (IC) division
created.
- 16.5 billion Euros annual revenue and 87,000 employees
• The ‘Crystal’, Royal Victoria Docks, London
- $46million visitor attraction and ‘knowledge hub’ for dialogue,
discovery and learning around cities.
- World’s largest exhibition focused on urban sustainability
- More than 100,000 visitors to date + high profile conferences
including G8 Innovation Conference
• The Green City Index (with the EIU)
- Benchmark assesses and compares environmental
performance of more than 120 cities worldwide.
• Technical collaboration with C40 Cities Network
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Case Study - JP Morgan Chase
Global Cities Initiative
• JPMC fund $10million Brookings Institution
initiative
• 5 year project (2012 to 2017) aims to help leaders
in U.S. metropolitan areas reorient their
economies toward greater engagement in world
markets
• Hosts supporting forums in US and global cities
Investing $100m in Detroit (2014-2019)
• Largest investment in a city in bank’s history.
• Loans and grants will help Detroit to finance
housing repairs, blight removal, job training and
economic development projects including new
M1 rail line.
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“We need to put capital and
knowledge to work in
partnership with local
governments and businesses so
that cities can invest in the kind
of 21st century infrastructure
and export capabilities they
need to compete and win in
today’s global economy.”
Jamie Dimon, CEO JP Morgan Chase
Case Study - JLL
• JLL Cities Research Centre
-
Original research, blogs and toolkits on cities.
Includes a proprietary database of KPIs covering more
than 650 cities worldwide.
Compiles benchmarks e.g. City Momentum Index,
Global Office Index, Real Estate Transparency Index,
Global Capital Flows.
• JLL Africa Cities Research Programme
-
Launched 2013
Focuses on 40 largest African cities
• Carbon Disclosure Project - Cities programme
-
JLL is lead sponsor
Seeks to improve climate change information disclosed
at city level.
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Case Study – Buro Happold
• ‘Living Cities’ brand - markets an
integrated approach to urban
development
• Brand combines the firm’s offerings in:
city diagnostics & strategy; environment
& resource management; infrastructure;
masterplanning; programme delivery.
• Buro Happold engineering division split
into two internal departments: ‘Buildings’
and ‘Cities’
• Firm is masterplanning several cities:
Kama Tri City in Russia, Sabah Al Ahmad
Sea City in Kuwait and Gia Lam in
Vietnam.
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Buro Happold – Living Cities model
Case Study - Philips
Brand = Livable Cities
• In house think tank which aims to “aid the transformation
of a city in its own unique setting through the lenses of
'authenticity, inclusion and resilience’’.
• Books and Reports e.g. Create the Livable City; Cities and
Ageing
• Twitterfeed, Blogs, Pinterest boards
• Hosts conferences e.g. Create the Livable City– Glasgow
2013
• Sponsors debates e.g. EIU debate on city sprawl
• Livable Cities Award – aims to generate innovative,
meaningful and achievable ideas to improve the health and
well-being of city-dwellers
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Case Study – Air BnB
Following tensions with city authorities, AirBnB has:
• Published studies to demonstrate its positive
impact in 9 cities.
• Launched ‘Shared City’ programme
- Aims to “help civic leaders … create more shareable, more livable
cities through relevant, concrete actions and partnerships.”
- Helps local governments collect hospitality taxes from users;
- Hosts can donate a percentage of their fee to a local cause +
AirBnB matches the donation;
- In Portland, working with the tourism bureau on joint campaigns
to promote the city and its small businesses
• Main sponsor of Jane’s Walks NYC, a festival of
guided walks celebrating the© The
legacy
of Jane Jacobs.
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More than 100 companies now
have city branded services and
products
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Trend #6
Cities are Hubs of Business
Innovation
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Cities as Test Markets
• The most cosmopolitan cities are microcosms of the
global market – ideal locations for developing / trialling
products
• Some cities promote their role as regional test markets
- Invest in Brussels: city representative of the European Market
- Jakarta – densely populated, high consumer confidence, testing
ground for emerging markets
• Others have become renowned as national test markets
- Columbus, Ohio – US fast food
- Bangalore – product testing for Indian market
• Diverse labour forces develop content which translates
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across cultural barriers
Business- City Innovation Partnerships
• Collaboration to develop products to tackle
specific city challenges
• IBM & Rio de Janeiro – City wide operation centre,
prototype for disaster management product
• Microsoft & Barcelona – Cloud based platform to collect
and share city data
• Arup & Manila – solutions for flood management
• Veolia & Lyon – pool skills and expertise to develop new
sustainable city concepts
• Living Labs
•
•
Experiments run in situ to increase understanding of urban environments and develop
new products
Usually collaborations between city governments, academic institutions and business
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of Cities Ltd
e.g. London (Intel); Smart City Malaga
(Endesa).
Part 2
The New Roles of Business in City
Development
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Role #1
Business and City Partnerships an
Joint Ventures
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Business and City Partnerships
• Collaboration in Development of New Cities
- Songdo & Cisco – supplies all network technologies
- Tianjin Eco-City: Panasonic, GM, Philips, Sky are partners
- Smaller companies too: RLG Communications financing 30% Hope
City, Ghana
• Joining Forces to Enhance Exports and Foreign
Investment
e.g. Portland’s Metro Export Initiative - companies in the
city’s clean tech, tourism and education sectors are
collaborating with local government in a “We Build Green
cities” branding campaign
• Financial Support for City Development
- Philanthropic: e.g. IBM Smarter Cities’ Challenge
- Business led e.g. Siemens part financed London’s Thameslink; JP
Morgan investing in new Detroit ©M1
rail line
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Role #2
Cities use Business Management
Approaches and Tools
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Benchmarking, Rankings and Indices
Produced by commercial outlets, but increasingly used by cities themselves:
Pedagogy
Comparative
pegging
Diagnostic
assessment
Leverage and
persuasion
Urban
performance
management
through
indexes
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Home truths
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Strategic Planning – Business Planning for Cities
• Adopted from business – influenced by models such as Porter’s Five Forces,
Barney’s VRIN model, the balanced scorecard. Increasingly popular in cities +
metros.
• Advantages
•
•
•
•
•
Prioritisation and Target Setting
Plan for land use, transport and infrastructure investments over the medium to long term.
Breed continuity of strategic direction beyond individual electoral cycles
Aid prudent budgeting and fiscal management
Address preparedness for population growth, environmental and technological change.
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City Branding
• Competitive cities.
• Customer orientation - business friendly, open for talent, investment ready
• More than logos or strap lines, city brands communicate a ‘whole story’ about
the value the city can offer to mobile activities.
• Developed from corporate branding
• BUT differences lurk: no overarching management body responsible for a city.
• Creating a coherent brand out of disparate images, groups and spaces = key
challenge in city branding.
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Cities + Investment
Investment rate matters to cities as well as businesses - they also compete and
face risks and costs, investment rate is part of productivity and competitiveness
and sustainability for cities.
Investment Rate or Investment Gap Deficit
Balance Sheet and Portfolio Management
How does Investment Rate matter to cities?
•
•
•
•
•
•
Operating platform for business/ Liveability platform for people.
Speed of adjustment of urban fabric and infrastructure.
Systems integration and smartness.
Business climate and incentive structure.
Value creation and capture.
Visibility of investment deficits and impact on reputation and confidence.
Internal Rate of Return
External Rate of Return
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Role #3
Business and City Governance
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Beyond privatisation
and PPPs
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Business Leadership Groups
• Overcome constraints which bind city authorities:
• Think beyond short term electoral cycles
• Look beyond political geography / electoral boundaries
• Members have experience in branding, sales, marketing, agenda setting,
prioritizing
• Strong bargaining position with central government as ‘customers’ rather than
subordinates.
• Develop strategies and advocate for policies to enhance a city’s
competitiveness.
• Often work collaboratively with local government and other city
stakeholders
• More dynamic and proactive than traditional Chambers of Commerce.
• Concerned with making contributions to urban and metropolitan
development.
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Business Involvement in City Networks
• Businesses are joining, funding or working in collaboration
with city-networks.
• Influential means of shaping policy
• Building relationships with city authorities and other
stakeholders
• Fulfilling CSR imperatives.
• Examples:
• C40 Climate Leadership Group – Arup & Siemens’
collaborations
• City Protocol – Network of cities, academic institutions and
businesses
• WBCSD’s Urban Infrastructure Initiative (UII) - experts from
14 leading global companies, join together to help 10 cities
around the world identify and develop sustainability
solutions
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Part 3
Are Cities Like Businesses?
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Are Cities Like Businesses?
•
•
•
•
•
•
•
Compete in contested markets
Innovative use of financial resources
Clearly defined goals
Networking
R & D, Innovation and Investment
Human Capital
Brand
• Leadership
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Are Cities Like Businesses?
• Risk taking is controlled
• Poor fit between institutional and market
geography
• Complex governance arrangements
• Cannot choose ‘customers’
• Cannot choose products and services
• Citizens have wider range of interests than
customers
• ‘Profit’ is retained by other tiers of Gov
• City leaders:
• democratically elected and accountable
• may have limited power.
• Identity and brand shaped by others
• Do not ‘fail’ to the point of extinction
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Concluding Thoughts
Business and the Future of Cities
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Business and the Future of Cities
Cities must look to take advantage of their new relationship with businesses in
order to secure their best possible futures. They can do this by:
• Being business friendly and Investment Ready
• Drawing inspiration and lessons from the private sector, and borrowing
techniques and tools.
• Collaborating with business for hugely beneficial outcomes, particularly
through innovation partnerships.
• Seeking support from the corporate world to negotiate desired future
outcomes with higher tiers of government and global economy.
• Welcoming diverse and international populations. Open Cities are innovative.
• Remaining mindful of their distinctiveness from business, and the separate
but complementary roles that each have to play.
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