As of 2009, the majority of people across the globe lives in cities and by 2050 that share is expected to reach 70%. In mature and emerging economies alike, cities are the engines of the global economy—in 2011, just the 300 largest metro areas accounted for 48% of total global output.
The growth of cities—and their middle classes—has developed larger markets for the consumption of advanced goods and services, causing corporations to become city savvy and pursue distinctive strategies. Rather than having a “China strategy” or a “US strategy,” corporations are customizing their growth plans for a Chengdu versus Chongqing or a Phoenix versus Pittsburgh. Rather than spending time with prime ministers or the heads of national ministries, they focus on work with mayors and local business chambers and universities.
Three strategies stand out as characterizing successful city savvy corporations.
1. Moving the core elements of operations to central cities.
This trend is particularly pronounced in the United States where innovative companies are spurning isolated corporate campuses in favor of collaborative, dense urban spaces, forming innovation districts in cities. Pinterest left the business parks of Silicon Valley to join Twitter, SalesForce and others in San Francisco, and even quintessential suburban companies like Microsoft and Google are locating satellite campuses around advanced research institutions and city-centered tech hubs—be it Carnegie Mellon in Pittsburgh, MIT in Cambridge, Chelsea Market in New York City or Kings Cross in London.
These companies are urbanizing because they need to be close to talented workers who favor places that are walkable, bike-able and connected by transit, and because they want to be near other knowledge intensive firms, share ideas and practice “open innovation.”
Startups are also choosing a different path. Entrepreneurs have left the garage behind and are founding their companies in collaborative spaces like 1871 in Chicago, the Cambridge Innovation Center, Techcity in London, 22@ in Barcelona, and Benjamin’s Table in Philadelphia, where they can mingle with other entrepreneurs and have efficient access to legal advice, business mentoring and venture capital.
2. Changing the product to cater to the needs of urban spaces and citizens.
The rise of cities is changing what companies make, provide and sell. City-savvy corporations are inventing new products and processes to help cities grow in more sustainable and efficient ways and help city residents master urban life. At the macro scale, leading technology and production companies like GE, Siemens, Hitachi, IBM and Cap Gemini are helping integrate so-called “smart city” solutions with their approaches to transport, energy, healthcare, security and water. Business service firms like Ernst & Young, PWC, McKinsey and Deloitte are helping cash strapped city halls design new tools to finance infrastructure. Even traditional suburban home builders like Lennar and Toll Brothers have established urban subsidiaries to provide the mixed-use development and multi-family housing that the market now demands.
On a smaller scale, urban tech companies are applying mobile technology to make everyday city life easier. Yelp crowd sources restaurant reviews. Waze (recently acquired by Google) gives real-time traffic updates. NextBus tells you when your bus will arrive. And companies such as Uber, Airbnb and Lyft are taking advantage of mobile platforms to make “collaborative consumption” more efficient and accessible.
3. Treating cities as working partners rather than mere markets.
Microsoft has collaborated with Barcelona on a cloud-based platform which collects city data across a whole range of services and makes it publicly available. In both Portland and Copenhagen, clusters of firms that make sustainable products and services joined forces with universities and local government to enhance exports and foreign investment through collective branding and marketing. These networks have the potential to share innovations locally, collectively solve technical challenges, and ultimately make both the firms and the region more competitive.