Authors: Greg Clark and Emily Moir
In the last blog of this series, we outlined the themes identified in the recently published Business of Cities essay. This paper examines the new dynamics of cities and businesses, looking at six key trends which are changing their relationship. In this blog we explore Trend 1 – Cities as Emerging Markets for Business.
The term ‘emerging markets’ has become part of the everyday vocabulary of the business world. Most people use it to mean nations that are in the process of rapid growth and/or industrialization, and offer great potential for businesses, albeit with a potential degree of risk. The phrase has become particularly associated with the BRIC countries and perhaps also the MIKT countries (Mexico, Indonesia, South Korea and Turkey). But at The Business of Cities, we believe the term needs to take on new meaning – the true ‘emerging markets’ are cities, not countries.
Since the days of the Ancient Greek Agora and the Roman Forum, cities have always been hubs for trade and commerce, and traders and businesses have recognised cities as key markets for their wares. However, in the latest cycle of globalisation, businesses are focusing on cities and city dwellers more than ever as a means of enhancing their growth and profitability. Cities are emerging as the key market for businesses for three main reasons:
Firstly, cities have grown in scale and density to such an extent that they cannot be ignored by businesses. They are already home to more than half the world’s population, and that proportion is only set to grow over the next generation. Twenty-eight cities worldwide are home to more than 10 million people each – which is more than the populations of entire countries like Sweden, Paraguay and Israel. The relentless growth of purchasing power in most cities has created massive markets for the consumption of advanced goods and services. By 2025, the Mckinsey Global Institute predict there will be a two billion-strong ‘consumer class’ in cities in emerging markets (to use the term in its traditional sense). Whether they are selling goods or services, businesses benefit from the synergies and economies of scale serving these large, dense markets of customers and clients.
Secondly, the past generation has seen a shift towards products which are inherently urban in nature. The growth of the service and innovation sectors has encouraged the commercialisation of urban space. New products and services ‘suit’ cities. Booming amenity and leisure industries including restaurants, bars and retail benefit from dense city locations. Equally, and as Richard Florida has observed, companies in the thriving technology sector, and particularly tech start-ups, instinctively see cities as their natural habitat: dense spaces which are fertile environments for innovation.i
Finally, cities themselves have become customers of increasing importance. As cities have grown in size, their governments have developed greater purchasing needs. Population growth is placing a strain on urban infrastructure, which needs frequent expansion, upgrading or replacement. The building and retrofit of cities creates boundless demand for the deployment of advanced technology and innovations in the design, finance, and delivery of city systems. Business consulting firm Booz Allen Hamilton estimates that the world’s cities will have to spend around €27 trillion over the next 25 years to modernise and expand their infrastructures. City governments themselves are also important customers of services, buying everything from legal to landscaping services. In the UK, local government spends over a quarter of its annual expenditure on procuring goods and services from third parties.ii And what about new cities? Cities like Songdo in South Korea, Hope City in Ghana, and Masdar City in Abu Dhabi are literally being built ‘from scratch’ – they have a long shopping list.
In short, if an ‘emerging market’ is a place which represents huge and growing potential for business, then ‘cities’ are the very definition of the term. Businesses are fast waking up to this fact, and the coming blogs in this series will explore how many are rapidly adapting and evolving to make the most of the opportunity that beckons.
[i] Why Today’s Start-Ups Are Choosing Urban Lofts Over Suburban Office Parks
[ii] UK Local Government Procurement