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Asia Business Development – Asia Business Consulting » Cities – the Economic Actors of the future

SpirE-Journal 2010 Q4

Cities – the Economic Actors of the future

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Cities – the Economic Actors of the future

2008 marked the first year when the world’s urban population outnumbered its rural population1. Emerging countries are seeing explosive growth in cities, which are propelling the growth of market potential and productivity, which translates into volume and value sales. Tomorrow’s economic hubs may be leading cities rather than leading countries. What does this mean for business?

Mahatma Gandhi is reputed to have said, “The true India is to be found not in its few cities, but in its seven hundred thousand villages. If the villages perish, India will perish too.”2 As a huge believer in Swadeshi, or a “home economy”, Gandhi wanted India’s economy to be based around self-sufficient, loosely interconnected village communities. This idea was dismissed as rural romanticism and never quite took off in India. However, Gandhi may have been ahead of his time. A movement in this direction is evident among global cities.

Cities are now vying to steal the limelight from countries as the prime movers of economic cluster formation and innovation nourishment. Among the world’s cities, there are the mega-cities as well as emerging cities. The mega-cities have populations of over 10 million and massive pools of GDP. Mega-cities are well-established economic and even political actors, fiercely competing for investment dollars and frequently making bold moves to nurture the industries and practices of the future. Mega-cities are also setting up their own institutions to protect their interests, preferring not to leave this task to national governments. The New York City police department, for instance, has set up overseas offices to counter terrorism and organized crime, while the cities of Seoul and Busan in Korea have launched expensive international advertising campaigns to attract tourists and investors.

However growth in the mega cities is slowing. Emerging cities are vying to steal the initiative from these behemoths. As this article will show, the best business opportunities may lie in emerging cities.

An Urban World

At a time when city mayors of the 25 largest cities in the world are responsible for more residents than most Prime Ministers or Presidents3, and over 50% (or 3.5 billion) of the world’s population is reported to be living in cities4, cities have become not only the main drivers of progress but also the principal domicile of human life.

According to the United Nation’s 2009 Revision of the World Urbanization Prospects, the urban population share in Africa and Asia is expected to hit 62% and 65% respectively by 2050; up from the current 40% and 42%. Over half of the 958 cities with a population of at least 500,000 are from Asia.

With the sharp rise in population in these emerging cities, their GDP rankings among global cities are expected to surge between 2008 and 2025. In 2008, the hundred largest cities in the world accounted for approximately 30% of global GDP at Purchasing Power Parity (PPP); while the top 30 cities would represent 18% of the world’s GDP – outperforming medium-sized countries like Sweden and Switzerland. This figure is expected to rise.

In emerging market cities in Latin America, Asia, and the Middle East, growth of between 4.2% and 6.7% a year in city GDP have been observed. On the other hand, OECD cities are projected to grow at a slower rate of approximately 2% per a year. Cities like Sao Paulo, Buenos Aires, Rio de Janeiro, Shanghai, Beijing, Mumbai, Manila, Hanoi, Ho Chi Minh City and Istanbul are projected to be among the top climbers by 2025. As at 2008, there were 39 emerging economy cities in the top 100 largest cities in the world. 15 years down the road to 2025, this figure is expected to increase to 48 emerging cities.

Of the fastest growing emerging market cities, Hanoi and Ho Chi Minh City top the chart. According to Le Hoang Quan, city chairman of Ho Chi Minh City, the city’s economy is currently a third the size of the national economy.7 In third and fourth place respectively are Changchun and Guangzhou, both in mainland China. In this top 30 list are two Vietnamese cities, 12 Indian cities and nine Chinese cities.

All this points towards the fact that cities are well positioned to compete with countries in economic importance. With their strengths in population and economic growth, cities have begun to form the backbone of the new global economy, where emerging market cities are expected to make up 30% of the global private consumption by 2015. This has made municipal and national governments world-wide sit up and take notice.

Cities: defining economic opportunities

In tandem with their rising economic clout, cities are attracting more investment in infrastructure. It has been forecasted that between USD 30 trillion to USD 40 trillion will be spent on infrastructural investment in the leading emerging market cities over the next 20 year.

(Picture above): The Golden Quadrilateral which connects the cities of India together – from New Delhi to Kolkata to Chennai to Mumbai.
Source: Maps of India

For instance, the Government of India has shifted its focus to second tier cities such as Pune and Hyderabad. Amongst the many ambitious initiatives that will benefit cities are the Golden Quadrilateral –
a USD12 billion investment to upgrade the inter-state road network 10 – and the Delhi-Mumbai Industrial Corridor (DMIC). DMIC is a USD 90 million collaboration between Japan and India which aims to create a Dedicated Freight Corridor between Delhi and Mumbai.

(Picture above): The Delhi-Mumbai Industrial Corridor.
Source: The Delhi-Mumbai Industrial Corridor Website.

These initiatives were inspired by the success which the Indian Government experienced with Gurgaon. Once a satellite city located an hour’s drive from Delhi, Gurgaon was transformed from a small town into a bustling city housing multinational companies like Dell, Hewlett-Packard, Honda, Microsoft, Motorola and Wipro Technologies. Now, Gurgaon and Faridabad are the two main contributors to the economy of the state of Haryana.

A similar development can be observed in the Skolkovo Innovation City (SIC) in Russia. Skolkovo is a Special Economic Zone (SEZ) broadly modelled on places like Shenzhen in China and the Iskandar Development Region (IDR) in Malaysia.

Stealing the Economic Initiative from Countries

At the level of planning and spearheading urban investment (i.e. most investment), city governments are increasingly stealing the initiative from national governments. City governments are becoming increasingly confident of their role in this regard. City mayors are projecting themselves on the world stage and collaborating with one another across national boundaries.

An example of this is the annual World Mayor award, bestowed by the Europe-based City Mayors Foundation. Another example is the annual World Cities Summit, started in 2008 in Singapore, which brings together city governments as well as vendors hoping to do business with them.

In recent years, a number of headline-grabbing initiatives have been undertaken by or within cities, creating substantial and, in many cases, cutting-edge opportunities for business:

The Tianjin eco-city project, a bilateral initiative of the governments of China and Singapore, aims to build an urban zone close to Tianjin which embodies word-class levels of technology-driven sustainability, particularly in the use of electricity and water. The initiative was modelled on a similar partnership in the city of Suzhou that was launched a decade earlier.
Masdar, a “smart city” recently inaugurated by the Abu Dhabi government, which aims to house 40,000 residents, is entirely built on a raised platform, easing the process of installing and upgrading infrastructure.
Songdo city (near Seoul, Korea) is a USD 35 billion project aiming to house 60,000 people using the world’s most advanced Green technology, and with every location in the city enjoying high-speed internet access.

The Amsterdam Innovation Motor (AIM), a public-private partnership, has launched a dozen projects, mostly applying technology to further Green objectives, such as connecting ships berthed in the city’s port to the local electricity grid, thus reducing dependence on diesel generators.

To this should be added the litany of global advertising campaigns that have been launched for prominent cities or urban agglomerations, so as to attract investment or tourism. Such campaigns are often tied to major international events being held in the city. Examples of cities that have tried this include the Iskandar Development Region (IDR) in Malaysia, Seoul and Busan in Korea, Goa in India, Bahrain and Doha in the Gulf Co-operation Council (GCC) region, Chiang Mai in Thailand as well as a host of cities in China.


The rise of urbanization presents companies with a fresh challenge – tapping business opportunities at the level of cities, not simply countries. In order to leverage the opportunities created by urban initiatives launched in cities, companies will need to be flexible about customizing large-scale solutions that address issues of urban planning – such as Cisco’s city management software.

They will also need to deploy sales forces or reliable partners in key cities – not only the national capitals and major metros but also fast-rising, second-tier cities where the most exciting opportunities may lie.

There are, of course, limitations to how far products can be customized for individual cities. However, companies would be well-advised to give their local subsidiaries and partners maximum flexibility to tailor promotions and campaigns not only at the level of regions and provinces but also cities.As specific urban investment projects are rolled out within cities, there will be more divergence in the business landscape across cities.

However, as the examples above make clear, the development of cities is not breaking free of the orbit of national governments. Many of the exciting developments taking place at the city level are still being funded, if not actually driven, by national governments. The day when companies can de-prioritize their engagement with national governments will not come anytime soon – if ever.

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