new city-business interaction: current trends and future outlook · 2015. 11. 2. · 7 |...

Discussion paper | June 2015

City-business interaction:

current trends and future

outlook

This discussion paper was produced for the inaugural Global Cities Business Alliance (GCBA) Symposium in June 2015. It draws on the findings of a survey of some 2,000 businesses from a representative range of industries, sectors, and countries. A series of interviews with Alliance Partners and city administrations provided further insights. Analytical support was provided by McKinsey & Company. The views expressed are those of the GCBA.

Contents

Executive summary 2

1. Context 5

2. How do businesses perceive cities? 9

3. How do businesses engage with cities? 13

4. How can city leaders and businesses work together to make cities great? 19

Conclusion 26

1 | City-business interaction: current trends and future outlook

City-business interaction: current trends and future outlook | 2

Executive summaryContextCities are centres of society, commerce and politics, home to more than half of the world’s population, and key drivers of economic growth, generating more than 80 percent of the world’s GDP.

Global economic activity is predominantly centred on those business capitals with strong international links, at least 5 million inhabitants and GDP of more than $200 billion. These cities are leading hubs for creativity, talent and innovation, opening up opportunities for business and city leaders to work together to help increase their commercial competitiveness as well as ensuring they are good places to live and work.

How are cities changing?Across the world, more and more people are moving to cities. Every year the global urban population grows by 65 million – equivalent to almost seven Chicagos. By 2050, the urban population is expected to hit 6.4 billion people, 66 percent of the global population. As urbanisation increases, businesses are taking more interest in cities, and cities are becoming more reliant for their economic success on the new business activities they attract.

However, the global economic landscape is changing as cities grow at different rates. By 2025, London and Paris are likely to have dropped out of the world’s top five city economies, to be replaced by Shanghai and Beijing. Cities in emerging markets will be home to 1 billion more consumers by 2050. Economic growth will also be concentrated in these urban centres: nearly half of the GDP growth in the next ten years will come from 440 cities in emerging markets.

How do businesses perceive cities?McKinsey & Company surveyed for this paper a worldwide sample of executives to understand how they approach cities and engage with their administrations. The survey revealed that most executives see cities primarily as places where their customers are concentrated, while financial services institutions value cities for the access they provide to markets and investors.

Executives’ view of the cities that matter most for their business can change rapidly. For instance, Shanghai was among the top three cities named in the survey, yet as recently as 2010 it failed to feature in the 25 most popular cities for global headquarters or foreign subsidiaries.

Despite the importance of cities to business success, executives are far more likely to plan at the regional or country level. However, they engage with city authorities when they are seeking to improve business conditions or want to network with other businesses and stakeholders.

How can city leaders and businesses work together to make cities great?Research indicates that city leaders who succeed in improving their cities have three things in common – achieving smart growth, doing more with less and winning support for change – each of which requires collaboration between cities and businesses.

Smart growth means economic growth that delivers a better quality of life for city dwellers without harming the environment. To do this, they need a strategic approach that identifies where their city’s competitive advantages lie and which clusters of businesses – existing or new – may be able to power growth. Businesses can help cities with this as well as how to manage the impact of their growing populations on housing, transport, schools and other aspects of city life, from improving cross-city mobility to supporting regeneration.

Doing more with less means making the most of the resources available through prudent budgeting and cost-efficient operations. Partnerships with the private sector can help city authorities to achieve this goal. City leaders need to be willing to embrace innovative solutions and engage with businesses to see how new developments can best be applied in their city.


Winning support for change calls for a high-performing team of civil servants, a working environment that holds all employees to account and consensus between stakeholders.1 Cities can harness the power of business communities through formal organisations or collaborative partnerships with chambers of commerce or trade bodies.

Opportunities for collaborationTo thrive, cities need to harness the dynamism, innovation and resources of the private sector. In return, businesses can make a practical contribution to developing cities as centres for talent, creativity and innovation; and in being good places to live.

The Global Cities Business Alliance could help cities and business to connect, collaborate and take action in a number of ways: by helping to improve the effectiveness of interactions between cities and businesses and bringing leaders together; by supporting businesses and cities in opening up new forums for interaction; by focusing on specific areas of urban development such as expanding business clusters; and by acting as a general sounding board for issues as they emerge.

1 Shannon Bouton, David Cis, Lenny Mendonca, Herbert Pohl, Jaana Remes,

Henry Ritchie, Jonathan Woetzel, How To Make A City Great, McKinsey

Global Institute, 2013


Context


Cities are centres of society, commerce and politics, home to more than half of the world’s population and key drivers of economic growth, generating more than 80 percent of the world’s GDP.

Global economic activity is predominantly centred on those business capitals with strong international links, at least 5 million inhabitants and GDP of more than $200 billion. These cities are leading hubs for creativity, talent and innovation, opening up opportunities for business and city leaders to work together to help increase their commercial competitiveness as well as ensuring they are good places to live and work.

The business community has a vital role to play in realising these opportunities. As traditional models of government evolve, these global business capitals will have more in common with each other than with their smaller peers. It is in their interest to work with each other and with business on major economic and social challenges.

How are cities changing?Across the world, more and more people are moving to cities.

� Every year the global urban population grows by 65 million – equivalent to almost seven Chicagos (Exhibit 1).2 By 2050, the urban population is expected to hit 6.4 billion people (66 percent of the global population), up from 3.9 billion (54 percent) in 2014 and 746 million (30 percent) in 1950.3

2 Richard Dobbs, James Manyika, and

Jonathan Woetzel, No Ordinary Disruption: The

four global forces breaking all the trends, Public Affairs

Books, 2015.

3 UN World Urbanization Trends 2014.

x7

…that’s the equivalent of seven

new Chicagos a year

The urban worldExhibit 1

City populations are growing by 65 million a year

…in emerging markets will account

for nearly half of global GDP growth

440 cities 46

…of the world’s 200 largest cities will be

in China

By 2025

2.5 billion

…people – nearly half the world’s city dwellers –will live in Asian cities

Countries are becoming much more urbanized

Context


� Between them, India, China and Nigeria are expected to account for 37 percent of the projected growth in the global urban population between 2014 and 2050.

� By 2050 there will be an extra billion consumers in emerging-market cities,4 representing a 70 percent increase since 2014.

How is business in cities changing?As urbanisation increases, the interdependence between cities and businesses grows stronger. Businesses take more interest in cities, and cities become more reliant for their economic success on the businesses they attract.

� Global GDP will double between 2007 and 2025 according to McKinsey estimates. Nearly half of this GDP growth will come from 440 cities in emerging markets.

� Life in these cities is likely to be complex and demanding as their growth is driven by rising productivity and population growth rates 60 percent higher than the world average. By 2025, these cities will be home to 310 million more people of working age than in 2007, and 13 million more children.

� In 2010, the largest city economies were London, Los Angeles, New York, Paris and Tokyo. By 2025, London and Paris are likely to have dropped out of the top five, to be replaced by Shanghai and Beijing (Exhibit 2).

4 “Consumers” are defined as people with an annual

income of more than $3,600 or $10 per day at purchasing power parity;

see Urban world: Cities and the rise of the consuming

class, McKinsey Global Institute, June 2012.

The future city landscape

Source: McKinsey Global Institute, Cityscope 2.01 GDP at predicted real exchange rate; 2 Below the age of 15; 3 In purchasing power parity; 4 Mexico City Metropolitan Region

Households with annualincome over $20,0003Rank GDP1 Total population Children2 Total households

1 Tokyo Tokyo Tokyo TokyoLagos2 New York Shanghai Shanghai BeijingKinshasa3 Shanghai Beijing Beijing ShanghaiKarachi4 Los Angeles São Paulo Osaka OsakaDhaka5 Beijing Dhaka Chongqing New YorkKhartoum6 London Mumbai São Paulo LondonMexico City4

7 Paris Mexico City4 London ParisManila8 Osaka Delhi New York Rhein-RuhrDelhi9 São Paulo Karachi Lagos MoscowTokyo10 Moscow New York Tianjin Mexico City4Mumbai11 Chicago Chongqing Mexico City4 São PauloKolkata12 Rhein-Ruhr Lagos Guangzhou Los AngelesNew York13 Tianjin Osaka Paris TianjinBaghdad14 Washington DC Kolkata Rhein-Ruhr DelhiCairo15 Guangzhou Manila Wuhan MumbaiLahore16 Houston London Delhi SeoulSão Paulo17 Dallas Buenos Aires Moscow IstanbulBuenos Aires18 Nagoya Tianjin Mumbai NagoyaLos Angeles19 Shenzhen Los Angeles Shenzhen ShenzhenLondon20 Istanbul Guangzhou Dhaka ChicagoIstanbul

22 Mexico City4 Cairo Chengdu GuangzhouShanghai23 Chongqing Kinshasa Buenos Aires CairoHyderabad (India)24 Singapore Khartoum Rio de Janeiro MilanJakarta

21 Randstad Istanbul Los Angeles Buenos AiresLuanda

25 Hong Kong Shenzhen Nanjing RandstadBeijing

Exhibit 2

City rankings, 2025

How do businesses perceive cities?


Much of a city’s success rests on businesses. McKinsey & Company surveyed a worldwide sample of executives to understand how they approach cities and how they fare when engaging with city administrations.

Cities are where customers and talent areThe survey found that executives see cities primarily as places where their customers are concentrated. When they are deciding which city is most important to their business, their choice is driven by where their customers are, whether that means consumers or business clients. The exception is the financial services sector, for which the most important aspect of a city is the access it provides to markets and investors (Exhibit 3).

Where clients are and where talent can be recruited are the main considerations for PwC in determining where it should be located, according to Kevin Ellis, Managing Partner, PwC UK. He notes that young people considering career opportunities are increasingly deciding where they would like to live and then looking at companies based in those cities, rather than the other way round. How attractive a city is to live in is something that city authorities can help influence in many ways, for example by improving transport links, ensuring an adequate housing supply and supporting the development of a local culture. The former mayor of Bogotá, Enrique Peñalosa, believes that “an advanced city is not one where even the poor use cars, but rather one where even the rich use public transport.”5

5 Enrique Peñalosa, “Why buses represent democracy in action,”

TED talk, September 2013, at http://www.

ted.com/talks/enrique_penalosa_why_buses_

represent_democracy_in_action?language=en

Source: Economic Conditions Snapshot, March 2015: McKinsey Global Survey results (n = 1,013)1 Excluding the city in which your company is headquartered

Why do cities matter to business? Exhibit 3

Survey question: For the city that you consider the most important one for your business,1 why is that city important?% of respondents within each industry; respondents were allowed to select two answers

15

62

Growing population

Other or don’t know

Access to government and regulators

Access to business services

Geographic location (e.g., good transport links to key markets)

Access to talent and skills

Access to financial markets and investors

Large concentration of customers

ManufacturingHigh tech & telecom

FinancialBusiness, legal & professional services

Which cities matter most and why?When executives considered which cities – apart from the locations of their global HQ – were most important to their business, three emerged as preeminent: New York, Shanghai and London (Exhibit 4).

Shanghai’s presence in the top three may seem surprising. It failed to feature in the 25 most popular cities for global headquarters or foreign subsidiaries in 2010 (Exhibit 5). The fact that executives now class it as one of the three most important cities for their business reflects its rapid ascendancy. Moreover, for companies with revenues in excess of $1 billion, Shanghai was selected as the most important city by 27 percent of executives, putting it well ahead of New York in second place, selected by 14 percent of executives.

If cities can rise to prominence in as little as five years, as Shanghai has, how can businesses best plan their global locations with an eye to emerging trends? Striking the right balance calls for a systematic approach. Demographic and economic factors such as working-age population and GDP per capita can be used to generate an initial long list of locations, augmented by the views of internal stakeholders and external experts. A rough filter can be used to narrow down the options, with criteria such as geopolitical risk, language requirements, coverage of business needs, locations of existing vendors and in-house centres, and future skill requirements.

Source: Economic Conditions Snapshot, March 2015: McKinsey Global Survey results (n=952)

Which cities matter most?

1 City chosen in top five most important cities

Exhibit 4

Most important city for respondent’s business (excluding global HQ location) % of respondents

Top five cities for respondent’s business (excluding global HQ location)1

% of respondents

28

8

9

12

14

14

15

17

18

19

27

38

39

39

Tokyo

Singapore

New York

London

Mumbai

Shanghai

Sao Paulo

Chicago

Istanbul

Seoul

Dubai

Other

Mexico City

Paris

Tokyo

New York

London

Shanghai

Other

Mumbai

Istanbul

Dubai

Seoul

Singapore

Chicago

Paris

Mexico City

Sao Paulo

19

0

1

1

3

3

3

4

4

4

7

12

19

20


The short-listed cities can then be assessed by the key areas of competitiveness, including cost, talent, business risk, environment, quality of infrastructure and maturity of industry. At this point, business leaders’ relationships with city administrators can make a real difference. One global business was considering opening an office in a city but was worried about the availability of top talent. Its concerns were allayed when city administrators gave it a list of expatriates with relevant skills who would be willing to repatriate.

Location of headquarters and subsidiaries

Source: Capital IQ; McKinsey analysis1 Non-exhaustive, limited to companies that reported at least $1 billion in revenues in 2014

Exhibit 5

Number of headquarters/foreign subsidiaries 20141

OsakaBeijingLondonSeoulTokyo

Chicago

Istanbul

MoscowDublin

TorontoKuala Lumpur

Sao Paulo

Bangkok

Santiago

New York

Shenzhen

Atlanta

Calgary

StockholmSingapore

TaipeiMumbai

ShanghaiParisHouston

109116

185211

515

31

34

3134

3837

39

37

40

96

52

35

45

4344

6453

738689

Seoul 15Jakarta 16

Sydney 4Singapore 5

Amsterdam 6Rome 5

Barcelona 6

Brussels 5

New York 7

Auckland 10

Sao Paulo 8

Lima 5

Santiago 8

Istanbul 7Luxembourg 8

Dublin 9Milan 9

Moscow 9Paris 9

10Mexico City

London 44Hong Kong 37


How do businesses engage with cities?


6 Urban world: Cities and the rise of the consuming class,

McKinsey Global Institute, June 2012. A city is defined

as a connected urban region including a core city and its surrounding metropolitan areas.

7 “Relocating for growth,”

McKinsey Global Survey, conducted in February

2012. These findings are quoted in Urban world:

Cities and the rise of the consuming class, McKinsey Global Institute, June 2012.

Most planning remains at a country levelAlthough cities are critical to the success of businesses – 72 percent of global GDP was generated in large cities in 20126 – only 27 percent of businesses believe it is extremely or very important to have a city-level strategy. Even fewer would appoint a director at the city level (Exhibit 6).

This corroborates a 2012 survey of businesses undertaken by McKinsey & Company, which found that fewer than one in five business executives make planning, strategy and resource decisions at the city level. Nor did respondents expect this to increase over the next five years. Of those surveyed in 2012, 61 percent felt that executives do not plan at the city level because cities are perceived as “an irrelevant unit of strategic planning.”7

Businesses are far more likely to plan at the regional or country level. 52 percent of executives say that when they are seeking to succeed in a particular city, one of the factors they consider as extremely or very important is to create a strategy for that region or country.

As a result, business engagement with stakeholders also defaults to a country rather than city level. 36 percent of executives consider it extremely or very important to engage with the relevant national government, compared with 24 percent for the city administration.

Source: Economic Conditions Snapshot, March 2015: McKinsey Global Survey results (n = 1,013)

1 Excluding the city in which your company is headquartered2 Respondents could rank as many activities as they liked as “extremely important” or “very important”

How do businesses engage with cities?Exhibit 6

Survey question: For the city that you consider the most important one for your business,1 how important are the following activities in meeting your strategic goals?% of respondents considering a factor as “Extremely important” or “Very important”2

20

24

27

32

36

39

52

Being a member of a city-based businessorganisation, chamber of commerce or trade association

Engaging directly with the city’s national government

Engaging directly with the city’s administration or government

Having a city-level strategy

Having a city director

Having a strategy for the city’s home region or country

Having a director for the city’s home region or country


Executives recognise the opportunities at the city levelHowever, the executives interviewed do recognise the opportunities opened up by interactions with city authorities. They engage when they are seeking to improve business conditions in a city, or want to network with other businesses and stakeholders, or can see a partnership opportunity to help cities overcome urban challenges. This fits with the approach that great city leaders cultivate in engaging with industry leaders and helping to connect businesses with investors and talent.

In the UK, Local Enterprise Partnerships (LEPs) provide a platform for cities and groups of local authorities to collaborate effectively with businesses. Set up in 2011, LEPs are voluntary partnerships between local authorities and businesses that help determine local economic policy and set priorities for investment in roads, buildings and facilities. Joe Mitton, special adviser for business and science to the Mayor of London, has seen cities and businesses strike up relationships through their membership of LEPs. Kevin Ellis of PwC notes that LEPs have enough prestige to attract top talent from the public and private sector, including partners from PwC.

Business-city interaction: motives and resultsBusiness executives report varying levels of satisfaction with their discussions with city authorities. 35 percent report they were only somewhat satisfied with the outcome; 7 percent were not at all satisfied. The largest proportion, 41 percent, did not know the outcome of the discussions or considered it not applicable, suggesting it was not of material importance for their businesses (Exhibit 7).

33 percent of executives believe the most important factor in their decision to engage with city administrations is the opportunity to network with other businesses and stakeholders. A similar proportion (35 percent) state that it is to improve the city as a place for doing business or resolve issues that affect their business (Exhibit 8).

Source: Economic Conditions Snapshot, March 2015: McKinsey Global Survey results, n = 1,013

Are interactions successful?Exhibit 7

Survey question: How satisfied are you with your interactions with the city administration on business conditions? % of respondents

41

7

35

17Extremely or very satisfied

Don’t know or not applicable

Somewhat satisfied

Not at all satisfied

Strategic engagement with cities: two examplesBudget cuts of up to 40 percent are forcing local authorities in the UK to work more creatively with private-sector partners. The energy and support services company Engie is responding to these challenges by offering new service models that drive down costs and carbon footprints while helping to create sustainable communities. For one council client, the company is providing a city-wide strategy that includes solutions for local low-carbon energy generation. Any surplus energy can be used to serve local businesses and communities and create additional revenue for the council to re-invest in front-line services, environmental enhancements or local community projects. Engie also offers strategic support with a long-term holistic approach to energy, analysis of how and where energy is used and efficiency services to further reduce consumption, including the replacement of aging assets.

Arcadis, a global design, engineering and management consultancy, launched an initiative in 2014 to make cities more liveable by providing sustainable solutions for challenges in transport, the environment, water supply, urban planning and building design. It selected twelve cities, including Los Angeles, São Paulo, London, Doha and Shanghai, and appointed a city director for each to engage with city authorities, politicians and other stakeholders. These directors have been able to collaborate and share knowledge to help cities respond flexibly to concerns about mobility, regeneration and resilience. As an example, Arcadis is supporting the mayor of New York with the design and implementation of the city’s “Big U” resiliency strategy in the wake of Superstorm Sandy.

City-business interaction: current trends and future outlook| 16

Joe Mitton, the Mayor of London’s special adviser for business and science, believes the most productive exchanges are with companies that understand how City Hall works and have particular aims in mind. He advises businesses to come to discussions with specific requests, and city leaders to communicate more clearly exactly what they can and cannot do.

The survey showed that there is a difference between types of business in their motives for engagement. Consumer-facing businesses want to engage with cities to resolve short-term problems and improve business conditions, presumably so that they can provide a better service to their local customers. Meanwhile, B2B businesses are interested in opportunities to network with other businesses and stakeholders, and look to city authorities as a means of connecting them to customers and partners (Exhibit 9).


Why do businesses engage with cities?Exhibit 8

Survey question: Which of the following reasons are the most important in your organisation’s decision to engage with the city administration? % respondents

18

6

8

33

35

Don’t know

Improve the city as a place to live

Network with other businesses and stakeholders

Improve the city as a place to do businessor resolve issues affecting your business

Represent the company’s views in discussions of city policies



B2C and B2B businesses have different motivesExhibit 9

Survey question: Which of the following reasons are the most important in your organisation’s decision to engage with the city administration?% respondents

B2B businessesB2C businesses

16

6

20

49

5

12

19

5

37

32

Represent the company’s viewsin discussion of city policies

Network with other businesses and stakeholders

Improve the city as a place to do business or resolve issues affecting your business

Improve the city as a place to live

Don’t know

As power and responsibility devolve from national and regional centres to cities, businesses will increasingly look to city-based business organisations and chambers of commerce to enhance their interactions with city authorities. For many executives, belonging to these bodies is more important than engaging direct with a city administration. Being a member of a chamber of commerce is rated as extremely or very important by 32 percent of executives, while 24 percent attribute this level of importance to engaging with a city. This suggests that businesses recognise the benefit of combining their voice with others when interacting with city administrations. In addition, these groups can help facilitate direct engagement between businesses and cities.


How can city leaders and businesses work together to make cities great?


In this rapidly changing landscape, what does it take to drive city performance? Research conducted by McKinsey & Company indicates that leaders who succeed in improving their cities have three things in common.8

� They achieve smart growth

� They do more with less

� They win support for change

Each of these three elements requires collaboration between cities and businesses. Just as cities are increasingly seeking the input of businesses, so companies can benefit from building cities into their strategic thinking. For instance, a company seeking to identify market opportunities can build its strategy around clusters of cities.

As urbanisation continues, the benefits of closer interaction between cities and businesses will become increasingly evident.

Achieve smart growthSmart growth means economic growth that delivers a better quality of life for citizens without harming the environment. To achieve it, city leaders need a strategic approach that identifies where their city’s competitive advantages lie and which clusters of businesses may be able to power growth. These may be existing clusters that can be strengthened, or new clusters that can be nurtured.

City leaders also need to ensure that costs in their cities are low enough to attract businesses. Simply offering tax breaks to entice newcomers or trying to lure companies in the latest nascent industry alone is unlikely to have the desired effect. A more rigorous approach is needed to identify a city’s best growth prospects. Cities in the southeastern United States, including Atlanta, Savannah, and Nashville, for example, have succeeded in attracting foreign automakers because of their core strengths: talent, proximity to centres of innovation and higher education, good transport, and low input costs.9

Economic growth is likely to be stronger if companies from one or more sectors gather into clusters. Their physical proximity will reduce supply costs, improve R&D collaboration and help build a skilled workforce.

Over the past few years some city clusters in the UK have experienced high levels of growth. East London’s Tech City was instrumental in fuelling 17 percent growth in London’s digital sector between 2009 and 2012.10 There are well-established clusters in other high-growth sectors in London, with life sciences around Euston and King’s Cross, for instance, and financial services in the City and Canary Wharf.

8 For more detail, see How to make a city great, McKinsey

& Company, 2013. This report drew on a comprehensive

database of economic, social and environmental performance indicators,

interviews with 30 mayors and other city leaders from

four continents, and findings from 80 case studies.

9 Shannon Bouton,

David Cis, Lenny Mendonca, Herbert Pohl, Jaana Remes,

Henry Ritchie, Jonathan Woetzel, How To Make A

City Great, McKinsey Global Institute, 2013.

10 Tech Nation: Powering

the digital economy 2015, Tech City UK, at http://

www.techcityuk.com/wp-content/uploads/2015/02/

Tech%20Nation%202015.pdf


The power of clusters can be seen in other countries too. The German government has taken advantage of the presence of major corporations to encourage the development of several regional clusters, including Munich and Stuttgart for hi-tech and cars, Frankfurt for finance and Cologne and Hamburg for shipping, aircraft and media. Max Nathan, a research fellow at LSE Cities, draws parallels between Munich and California’s Bay Area: “Over the past 60 years, both have shifted from mainly rural communities to hi-tech hubs. Both offer a strong economy and an excellent quality of life – something that’s helped keep people in the area.”11

Cities can attract companies to clusters by holding regular conversations with industry leaders to forge connections between businesses, investors and talent. Starting these conversations early, while a city is still developing its strategic approach, can help maximise the impact. This is even more true if the city is still being built, as for example the engineering and construction company Bechtel is doing in the Middle East through its relationships with such bodies as the Economic Cities Authority in Saudi Arabia.

To attract business, cities may also need to make targeted public-sector investments. Dubai’s huge investment in infrastructure helped it transform itself into an international business and tourist centre and the world’s largest port, with offices for 120 of the Fortune Global 500, whose activities generate 25 percent of Dubai’s annual GDP.

Once a city has an economic growth strategy in place, it needs to plan how to manage the impact of its growing population on housing, transport, schools, medical services and other aspects of city life. When cities expand rapidly without any kind of planning, the results can be chaotic, impeding future development and harming the environment and the quality of life for city dwellers. Planning is an area in which businesses can support cities. Interviews with business leaders from the Global Cities Business Alliance reveal that businesses can bring a range of expertise, from improving cross-city mobility to helping with regeneration. This can be seen in cities like New York, and Johannesburg, where the development of the Maboneng Precinct, an urban regeneration project designed to turn a blighted and empty neighborhood into a mixed-use creative hub, was driven by the business community.12

Smart city administrations engage the private sector early in urban planning and are thoughtful about the way different activities link together, according to Ann Cairns, president of MasterCard International Markets. MasterCard was a key partner to Transport for London (TfL) in its move to open-loop ticketing. This allows passengers to tap in and out of the Underground network with a debit or credit card instead of buying a ticket. Businesses are involved not only in the execution of initiatives like this, but also in providing advice, research findings and experiences from other markets. London Underground now sees around a million taps a day from cards registered in 35 different countries. The customer journey data it captures helps the parties involved to make smart decisions about future investments.

Do more with lessMost city budgets are under pressure. To make the most of the resources available, city leaders need prudent budgeting and cost-efficient operations. Partnerships with the private sector – sponsorship agreements, public/private partnerships, technology deals, and the like – can help them achieve more with less.

Thanks to technological advances, city leaders now have the tools to collect and analyse vast quantities of data that can be used to increase revenues, reduce expenditure and improve services. For instance, smart technology can be used at road junctions to reduce queues at traffic lights and cut journey times and air pollution. To make the most of technology, city leaders need to be willing to embrace innovative solutions and open to engaging with businesses to see how new developments can best be applied in a city context.

11 Quoted in Julia Kollewe, “How Bavaria became a

European silicon valley,” The Guardian, 15 March 2011.

12 http://hallway.evans.

washington.edu/cases/details/maboneng-

place-light-case-study-urban-regeneration-

johannesburg-south-africa

Reaching populations at scale: social payments in South AfricaThe rapid growth of urban populations is opening up new opportunities to reach large numbers of citizens and consumers more efficiently, especially in emerging markets.

One example is the new approach to social payments in South Africa. Over eight months in 2012, 10 million debit cards with biometric functionality were issued to people receiving social grants. Instead of having to collect large amounts of cash, grant recipients now have the convenience and security of using their debit cards to pay for goods at till points or withdraw cash at ATMs. Thanks to the new system, the South African Social Security Agency has seen a sharp fall in its operating costs, while the use of biometrics to identify card owners is helping the government to reduce fraudulent grant collection.

The card roll-out required partnerships across the public and private sectors, with the involvement of the national finance minister, city and township officials, and national and local businesses.


Boosting infrastructure investment through cross-sector partnershipsIn the US, a recent initiative called RE.invest (Renewable Energy Global Investors) brought together philanthropic funds, public resources and private finance and expertise from Bechtel and other companies to help cities reimagine their civic infrastructure systems.

RE.invest has four main objectives:

� Easing the burden on government by bringing together technical experts from inside and outside government

� Reducing private investment risk to mobilise resources to protect communities

� Increasing vulnerable cities’ resilience through a system-wide approach that offers a model for infrastructure planning, delivery and investment

� Improving planning capacity at the local level by creating a template for cross-sector design and project implementation.

RE.invest selected eight cities, including San Francisco and New Orleans, and provided them with seed funding and technical support from leading engineering, law and finance firms to create new community investment vehicles. These are designed to attract hundreds of millions of dollars of private investment in local infrastructure. It is hoped that RE.invest will serve as a model for spurring innovative approaches to infrastructure investment in cities across the US.

Through its work with RE.invest and other initiatives, Bechtel is exploring how to bundle infrastructure projects across power, transport, communications and other sectors to drive sustainability and community value. It is also examining how to transfer delivery models between cities to address the demands of increasing urbanisation and growing populations.



Encouraging innovative approaches from businessesAs part of a business-focused strategy, São Paulo set up São Paulo Negocios (São Paulo Business) in 2013 to build more effective long-term relationships with businesses and attract investment. Several successful public/private partnerships have emerged from this initiative to provide facilities such as street lighting and day care. The latter originated in an idea put forward by a private company which the administration then developed into a workable solution.

São Paulo City Government, primarily via São Paulo Business, also promotes public policies aimed at improving the business environment and reinforcing competitiveness. São Paulo aims to enhance its position on the World Bank "Doing Business" ranking - a good benchmark for measuring a city's business environment.

The administration is keen to build on their positive experience of public private partnerships. Communicating that it is open to new ideas from the business community is key to their approach. “The manifestation of private interest when a company presents an idea to the city government on a project it wants to develop – which could possibly become a public/private partnership if it is in the interest of the city – is something we have a structure in place to facilitate,” says Mariana Azevedo Noronha, office of the deputy mayor. She notes that all ideas submitted, if they are of interest, are subject to the same public approval process to ensure that bidding and awards are open and transparent.

Win support for changeMany city leaders craft a personal vision that inspires their endeavours. To deliver on this vision, they need to win long-term support for the changes they plan to make. Success calls for a high-performing team of civil servants, a working environment that holds all employees to account for their actions and consensus between stakeholders. Building consensus with local people and the business community calls for transparent two-way communication.

During the development of Hong Kong’s MTR transit system, Rio de Janeiro’s Metrô Rio and London’s Crossrail, city leaders were able to foster an open, engaged relationship with business, providing “clarity and certainty around whether the project was going to be a ‘go,’” according to Bechtel’s Toby Seay, Global President of Infrastructure. In London, Kevin Ellis, Managing Partner PwC UK, commented that businesses are speaking up to ensure their needs for infrastructure are met, by engaging in conversations about projects such as Crossrail, the HS2 rail network and airport expansion.

Cities can harness the power of business and civic communities through formal organisations or collaborative partnerships with chambers of commerce or trade bodies. When the political landscape shifts and city administrations change, the repercussions for everything from vision and direction to taxes and funding can make it difficult for businesses to maintain their involvement in long-term projects. Groups such as London First and Partnership for New York City have helped to overcome this challenge.


ConclusionMore than half the world lives in cities. To thrive, cities need to harness the dynamism, innovation, and resources of the private sector. Businesses can make a practical contribution to developing cities as creative, successful, and enjoyable places to live and work. Research shows that interactions between businesses and cities are already creating value, but there is scope to do more, as a few best-practice examples indicate.

The Global Cities Business Alliance could contribute to these relationships in a number of ways. It could help improve the effectiveness of interactions between cities and businesses and bring leaders together to start discussions at an early stage in the planning process. It could support businesses and cities in opening up new fora and opportunities for interaction. It could focus on specific areas of business involvement in cities, such as expanding business clusters, supporting city planning for population growth or encouraging cities to adopt innovative technologies developed by businesses. Alternatively, it could maintain a broader focus and act as a general sounding board for issues as they emerge.

Business and city leaders will gather in London in June 2015 to launch the Alliance and further shape its direction.

Alliance Partners

new city-business interaction: current trends and future outlook · 2015. 11. 2. · 7 |...

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