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The business of cities

Posted by: and , Posted on: - Categories: Economies, Governance

Office windows at night (jlcwalker/CC BY 2.0)

One important trend in the investigation into the future of cities is the rapidly evolving relationship between cities and business. Cities and commerce have always been inextricably linked, but at least 3 global trends appear to be changing the bonds between them:

  1. Cities are becoming essential places for businesses to locate in, sell to, and engage with, and are becoming assets for businesses in terms of brand, R&D, and innovation. Businesses are urbanising and re-urbanising.
  2. Businesses are re-organising their relationship with cities in an effort to generate advantage and move with the times. At the same time cities are seeking to become more entrepreneurial in their outlook and strategies.
  3. Cities and businesses are learning from one another and forming partnerships. Cities are taking on some of the features of globally trading businesses, and increasingly using business management tools to succeed.

In our paper, The Business of Cities, we seek to review and explain the important new agenda arising from the changing relationships between cities and businesses.

The changing dynamics of cities and businesses

The paper examines the new dynamics of cities and businesses, looking at 6 recent trends which are changing their relationship:

Trend 1: Cities as emerging markets for business
Cities have always been hubs for trade and commerce, and traders and businesses have recognised cities as important 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. The expanding size of city markets, the shifting nature of products with the growth of service economies, and the growing purchasing requirements of cities themselves are all playing a role in increasing the importance of city markets.

Trend 2: Re-urbanisation of business
Over the last 2 decades, there has been a noticeable re-urbanisation of business in upper income countries with industry, retail and offices reversing the decentralization trend of the second half of the twentieth century and moving their operations back to city centres. An urbanisation of business can also be witnessed in emerging cities and developing nations, where many flourishing home-grown companies are profoundly urban in nature, and where western multi-nationals are moving into core city areas.

Trend 3: Growth of tradable urban services and solutions
‘Urban services’ - industries which support city building and growth, including planning, architecture, design, energy, water, infrastructure, engineering, waste management, and even housing development - have become important tradable economic clusters in many developed city economies. Urban services businesses which emerged to meet the urbanisation needs of their own (now mature) cities are rapidly internationalising to support the growth of cities outside their own national systems.

Trend 4: Businesses rebranding for city markets and consumers
The growing importance of the city as a marketplace for companies is driving businesses to boost their engagement with cities. Companies are moving fast to align their products, services and operations to the rhythm and needs of cities in general and the distinctive competitive advantages of individual cities. As companies align their services and products to make the most of new city based opportunities, many are rebranding to adopt ‘city’ branded offerings.

Trend 5: Business innovation in cities
Cities support innovation in businesses by their very nature: by virtue of their density, communication and infrastructure assets and the presence of supportive institutions. They represent ideal test markets for new products, and have diverse populations and workforces which are well suited to the generation of new ideas. But cities are also now partnering purposefully with businesses to develop solutions to specific city challenges such as climate change, congestion and infrastructure enhancement.

Trend 6: Businesses restructuring to better serve city markets
City savvy global firms are reorganising themselves internally, so as to better align with city-based opportunities. They are creating new internal city divisions, placing key representatives and sales people in target cities, and becoming more intentional about how they build relationships with cities, building corporate strategies to manage their interactions with cities as current and future customers.

The new roles of business in city development

The second part of the paper looks at the new and increasingly important roles that businesses are playing in city development, acting both as inspiration for and partners to city governments. Three key roles are:

Role 1: Cities’ use of business approaches and tools
Cities are adopting private sector approaches and tools in order to better manage their cities and to become more competitive on the global stage. Cities are borrowing ideas from corporate branding and marketing theory, developing long-term strategic ‘business’ plans and making strategic interventions to increase their investment rate. Their leaders are developing the pragmatic styles honed by private sector CEOs and utilizing international benchmarks and indices to understand and improve their cities’ global positioning.

Role 2: Business and city partnerships
Businesses are partnering directly with city governments for mutual benefits. They are collaborating on the development of new cities, built ‘from scratch’, and joining forces on city marketing so as to enhance exports and attract investment. They are even providing financial support for city development – either as part of their business model or by way of philanthropic initiative.

Role 3: Business and city governance
Business is playing an increasingly important role in city governance, particularly through the formation of business leadership organisations, but also through its involvement in inter-city collaborative networks. Although the role of business in city leadership varies from place to place, not least because of the different perception of the business community in different parts of the world, many firms and group organisations are taking opportunities to fill governance gaps and build delivery capability for cities.

The changing dynamics of the relationship between cities and businesses mean that the 2 entities have become more similar and comparable in recent years. Both now compete in contested markets, must be innovative in their use of financial resources and have clearly defined goals. Concepts such as networking, R&D and innovation, branding and human capital are important to both businesses and cities. But cities remain distinct from businesses in some fundamental ways: their risk taking is controlled and they have limited choice when it comes to their ‘customers’, the services they offer, and in some cases even their leadership. Cities are also subject to complex governance and institutional arrangements that businesses are largely free of, and their institutional geography does not always fit their rational ‘market’.

Certainly, it is clear that in the new global era, cities and businesses have become strongly inter-connected and inter-dependent. But they are, and will remain, distinct types of entity. Nonetheless, both future businesses and future cities can reap rewards from understanding, enhancing and utilising their mutual imbrication.

Cities are now the most important markets for businesses. Businesses therefore need to embark on a journey to become city savvy. Mega-corporations like Siemens and IBM are leading the way, but there are benefits for businesses of all sizes and in all sectors. Businesses should be looking to adopt the ideas of the first movers and innovators. Those that are slow to adapt will find it difficult to reposition and rebrand.

Cities must also 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; this means learning to partner and serve businesses in order to be prepared, agile and competitive in the global marketplace, as well as cultivating a reliable supply of opportunities for inbound capital and a credible and efficient framework and process for investment
  • drawing inspiration and lessons from the private sector, and borrowing techniques and tools
  • collaborating with business for hugely beneficial outcomes; city-business partnerships have the potential to enhance innovation, governance and competitiveness
  • seeking support from the corporate world to negotiate desired future outcomes with higher tiers of government
  • welcoming diverse and international populations; the presence of a talented workforce is a major consideration for businesses deciding where to locate
  • remaining mindful of their distinctiveness from business, and the separate but complementary roles that cities and businesses each have to play

Read the full report

Let us know your thoughts in the comments below.

Featured image by jlcwalker on Flickr. Used under Creative Commons.

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