The Business of Cities: Business Innovation in Cities

Authors: Greg Clark and Emily Moir

In the last blog of this series, we explored the growing trend of tradable urban services and solutions, as identified in the Business of Cities essay. In this post we consider the fundamental role that cities play in business innovation.

Cities are centres of innovation. They are environments which encourage the exchange of ideas and bring diverse populations with different ideas together. As Ed Glaeser put it in his 2011 book The Triumph of the City, ‘cities enable the collaboration that makes humanity shine most brightly’(i). For Glaeser, as ‘the points through which knowledge passes’, cities are the natural homes of innovation(ii).

Cities support businesses as partners in innovation in a number of ways:

1. The nature of urban spaces encourages business and knowledge networks to form.
Cities are uniquely suited to the creation of knowledge networks, which increase the flow of innovative ideas and assists in bringing products to market(iii). Three characteristics of cities make them particularly appropriate as incubators of Cities bloginnovation networks. Firstly, the density of cities brings businesses working in similar sectors or fields into close proximity with one another. Academic studies have corroborated the anecdotal evidence of entrepreneurs as to the importance of geographical proximity in the creation of economically-useful knowledge (see for example Sonn and Storper 2003)(iv). Secondly, cities are generally well equipped with assets such as developed transport and communications infrastructure, which enable businesses to access each other. Thirdly, urban institutions (such as universities, incubators, economic development agencies) can act as important brokers, helping businesses to conduct transactions in the market and collaborate or share ideas. These institutions can help overcome co-ordination problems by promoting and sustaining networks(v).

2. Cities are test markets for businesses that want to trade globally.
The size and increasingly diverse nature of cities makes them particularly appropriate locations for companies looking to develop and trial products or services for global markets.  The most cosmopolitan cities are microcosms of the world at large. Between them, Londoners speak more than 300 different languages(vi), whilst in Amsterdam people from 174 countries live and work together(vii) Smaller cities are also becoming cosmopolitan. For example, around 20% of the population in Christchurch, New Zealand are foreign-born and 15% speak more than one language(viii). This diversity allows everything from food, to medicine, to fashion, to new technologies and gadgets to be road tested before release to a larger market.

Cities are aware that their diversity is appealing to businesses, and some actively market themselves as ‘test markets’.  For example, Invest in Brussels, the Belgian capital’s investment agency, describes the city as ‘a microcosm of European diversity’, ‘straddling the border between Anglo-Saxon, Latin and Germanic cultures’. As such, it argues, the city makes the perfect test market for businesses thinking about a pan-European launch. Mega-companies such as Beiersdorf and Coca-Cola are amongst those to have trialled products in the city(ix).

3. Cities have diverse links hand pointing at transparent control panel - shutterstock_130097879
Cities provide a deep and diverse pool of talent – their large, highly skilled workforces allow firms to adapt quickly to new challenges and opportunities(x). A growing body of evidence suggests that culturally diverse cities are the most innovative type of city, as they benefit from a wider range of international knowledge links, diverse decision making and are able to attract more innovative people(xi).  Companies based in culturally diverse cities have the opportunity to build diverse teams which can access additional upstream and downstream markets, assisting process innovation and the commercialisation of new ideas(xii) For example, IT and digital industries use the diverse labour forces which are based in cities to develop content which works across cultural barriers.

4. Business – city innovation partnerships.
Businesses are working in partnership with cities to develop practical new products that tackle specific city challenges. In the IT/smart cities sector, IBM has established a city-wide operation centre in Rio de Janeiro which connects all the city’s agencies (of which there are more than 30), from transport to the emergency services(xiii) The centre forms the company’s prototype for a co-ordinated city management product(xiv).  Similarly, Microsoft has developed a trial cloud-based platform with the city of Barcelona to collect, and make public, city data across a whole range of services(xv). Collaborative innovation is not limited to IT firms. Arup has worked with the city of Manila to explore practical solutions to address flood and water management issues(xvi). Veolia, the French environmental solutions giant, has embarked on an innovation programme called NOVEA in partnership with the city of Lyon. Stakeholders in the city pool skills and expertise, share engineering capability, create R&D partnerships and conduct tangible testing in order to speed up urban innovation and introduce new sustainable city concepts to the Greater Lyon area(xvii).


[i] Glaeser E (2011)  The Triumph of the City: Macmillanpp.221
[ii] Glaeser E (2011)  The Triumph of the City: Macmillanpp.19
[iii] NESTA: Innovation and the City  
[iv] Increasing Importance of Proximity in Innovation
[v]  NESTA: Innovation and the City
[vi] London: The only location for your European Headquarters
[vii] Life Sciences in Business
[viii] 2013 Census QuickStats about a place: Christchurch city 
[ix] Invest in Brussels
[x] NESTA: Innovation and the City
[xi] Hunt (2008), Pera (2009), (Niebuhr 2006) cited in Nathan and Lee (2011) Does Cultural Diversity Help Innovation in Cities?
[xii] Saxenian 2006 cited in Nathan and Lee (2011)
[xiii] Smarter Leadership: How Rio de Janeiro Created an Intelligent Operations Center
[xiv] Operational insight helps city leaders manage a safer, smarter city
[xv] Microsoft Case Studies: City of Barcelona
[xvi] Arup:Building a resilient Metro Manila with Makati City
[xvii] Vivapolis: Grand Lyon, Make the city more efficient

About the Author

Greg Clark has spent more than two decades putting his passion for cities to good use, by advising and mentoring global cities, firms and institutions. He has worked with over 100 cities around the world and holds senior advisory roles at international bodies including the OECD, Brookings Institution, ULI, and the Future Cities Catapult. A prolific author, Greg has published ten books to date on cities and investment practices, with three more in the pipeline for 2016-17. And as Chairman of The Business of Cities research and intelligence group, Greg leads a small high calibre team that advises and reports on global trends and changes in cities. In his academic life Greg is Hon Prof of City Leadership at UCL and co-chairman of the UCL City Leadership initiative, Visiting Professor at Strathclyde University, and Global Fellow at LSE Cities. He has received international awards for his work from cities as far afield as Barcelona, Brisbane, London, and Toronto and in 2016, Greg was honoured by HM Queen Elizabeth II with a CBE for his services to city and regional economic development. Meanwhile, outside of the day jobs, Greg is an avid tennis player, wine enthusiast, and lifelong follower of Arsenal FC.

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