Old cities compete for new growth
What kind of a city pulls in investments planned by major corporations? Not necessarily the classic metropolis, says urban researcher Joel Kotkin. Sometimes smaller is better.
Back in the 1980s, a small handful of cities— notably New York, Chicago, Paris, London and Tokyo—could arguably claim to assume positions of “command and control” over the global economy. In 1967, New York was home to 137 of the 500 largest firms in the United States while Chicago boasted 38. One of every three large US-based firms was based in these two primary cities. By 2005, the percentage of the largest firms headquartered in New York and Chicago had shrunk to barely 10 percent.
Much of this has been sparked by a shift to lower-cost, less-dense locales in the surrounding suburbs of these and other cities.
In 1969, only 11 percent of America’s largest companies were headquartered in the suburbs; a quarter of a century later, roughly half had migrated to the periphery. This is particularly true of the burgeoning tech economy. The world’s most important technology firm, Microsoft, has its headquarters in Redmond, a distant peripheral suburb of Seattle. Most of the other leading tech companies are based in the peripheries of such cities as San Francisco, Los Angeles, Seattle and Dallas. “The history of technology,” suggests Fred Siegel, Professor of Urban History at New York’s Cooper Union, “is essentially the history of suburbia.”
Back in the 1980s, a small handful of cities— notably New York, Chicago, Paris, London and Tokyo—could arguably claim to assume positions of “command and control” over the global economy. In 1967, New York was home to 137 of the 500 largest firms in the United States while Chicago boasted 38. One of every three large US-based firms was based in these two primary cities. By 2005, the percentage of the largest firms headquartered in New York and Chicago had shrunk to barely 10 percent.
Much of this has been sparked by a shift to lower-cost, less-dense locales in the surrounding suburbs of these and other cities.
In 1969, only 11 percent of America’s largest companies were headquartered in the suburbs; a quarter of a century later, roughly half had migrated to the periphery. This is particularly true of the burgeoning tech economy. The world’s most important technology firm, Microsoft, has its headquarters in Redmond, a distant peripheral suburb of Seattle. Most of the other leading tech companies are based in the peripheries of such cities as San Francisco, Los Angeles, Seattle and Dallas. “The history of technology,” suggests Fred Siegel, Professor of Urban History at New York’s Cooper Union, “is essentially the history of suburbia.”
Figures from the Regional Economic Information System (REIS) confirm that the rush to urban centers is over. According to REIS, employment in densely populated regions of the United States climbed by slightly more than 5 percent between 1990 and 1998, but in less densely populated areas as much as 20 percent. The global trend is similar. Data from Demographia, an information service, show the population of central London fell by 12.9 percent between 1965 and 2000; in Paris, it dropped by 24.1 percent; and in Tokyo by 8.6 percent.
The main reason for the change is that companies now select their headquarters location based on a city’s competitiveness and not, as many sources suggest, according to a city’s “hipness,” or artistic and cultural activities. By that measure, a natural advantage of classic cities has receded. Companies do not opt for art centers but for the most efficient locations—and they are often found in areas that used to be empty spaces on maps of the world economy. Consider Houston. In 1900, it was a backwater settlement in the marshes of eastern Texas. Today, the city is one of the most important urban centers in the country and has seized leadership in the energy sector from New York and New Orleans.
The main reason for the change is that companies now select their headquarters location based on a city’s competitiveness and not, as many sources suggest, according to a city’s “hipness,” or artistic and cultural activities. By that measure, a natural advantage of classic cities has receded. Companies do not opt for art centers but for the most efficient locations—and they are often found in areas that used to be empty spaces on maps of the world economy. Consider Houston. In 1900, it was a backwater settlement in the marshes of eastern Texas. Today, the city is one of the most important urban centers in the country and has seized leadership in the energy sector from New York and New Orleans.
More on cities and urban planning
Seeing the city as a brand
Competition among cities is tougher than ever. Telecommunications have enabled less-known cities such as Bangalore, India, or Fargo, North Dakota, to play important roles in international markets for services and information. Thus cities need to consider themselves as brands and not rely on appealing to a small group of creative people.
A city’s success in drawing business and population is more likely to depend on its investments in basic infrastructure such as roads, ship channels, industrial parks, and airports. It also helps if a city is perceived as dynamic and efficiently led.
This same dynamic can be seen throughout the world. The political corruption and physical bloat of the most populous megacities— Mexico City, Cairo, Mumbai, Kolkota, São Paulo, Manila—has driven business to other locales. In India, for example, much of the technology-related growth has gone to smaller, better-managed and less socially beleaguered settlements such as Bangalore and Jaipur, or the rising suburban developments ringing Mumbai and Delhi.
In the Middle East, smaller, more compact technology centers such as Dubai and Abu Dhabi have flourished. A dusty town of 25000 in 1948, Dubai has evolved into a city of almost 1 million half a century later. The emirate’s economy grew by 10 percent annually over the last 10 years, and it shows how a cosmopolitan approach, investments in the physical infrastructure and acquisition of talent paid off.
This pattern is also evident in east Asia, the critical nursery of 21st century. Relatively small cities such as Singapore and Kuala Lumpur have integrated themselves into the global economy more successfully than far more populous Bangkok, Jakarta and Manila. Even in highly centralized Japan, activities in software, call centers and other technology-centered fields have moved away from the great but overcrowded centers of Osaka and Tokyo. Hong Kong has hemorrhaged both high-tech manufacturing and engineering positions to surrounding, less densely populated parts of mainland China.
This shift toward more efficient, and often smaller, places is also happening in Europe. Gouda, a former cheese-making center, is now a popular destination for companies seeking to escape crime and racial tensions in nearby Rotterdam. The lack of a pressing need to concentrate corporate centers is also evidenced by Berlin’s failure to emerge, as widely hoped, as a major European business capital. Once known as “Chicago on the Spree,” it is now best known as a trendy bohemian tourist spot.
To reverse this corporate exodus trend, cities have to do more than position themselves as creative environments. They need to focus on the reasons why companies left to go elsewhere, including addressing profound problems pertaining to racial and social unrest, shortcomings in training and education, as well as an insufficiently solid physical infrastructure.
Competition among cities is tougher than ever. Telecommunications have enabled less-known cities such as Bangalore, India, or Fargo, North Dakota, to play important roles in international markets for services and information. Thus cities need to consider themselves as brands and not rely on appealing to a small group of creative people.
A city’s success in drawing business and population is more likely to depend on its investments in basic infrastructure such as roads, ship channels, industrial parks, and airports. It also helps if a city is perceived as dynamic and efficiently led.
This same dynamic can be seen throughout the world. The political corruption and physical bloat of the most populous megacities— Mexico City, Cairo, Mumbai, Kolkota, São Paulo, Manila—has driven business to other locales. In India, for example, much of the technology-related growth has gone to smaller, better-managed and less socially beleaguered settlements such as Bangalore and Jaipur, or the rising suburban developments ringing Mumbai and Delhi.
In the Middle East, smaller, more compact technology centers such as Dubai and Abu Dhabi have flourished. A dusty town of 25000 in 1948, Dubai has evolved into a city of almost 1 million half a century later. The emirate’s economy grew by 10 percent annually over the last 10 years, and it shows how a cosmopolitan approach, investments in the physical infrastructure and acquisition of talent paid off.
This pattern is also evident in east Asia, the critical nursery of 21st century. Relatively small cities such as Singapore and Kuala Lumpur have integrated themselves into the global economy more successfully than far more populous Bangkok, Jakarta and Manila. Even in highly centralized Japan, activities in software, call centers and other technology-centered fields have moved away from the great but overcrowded centers of Osaka and Tokyo. Hong Kong has hemorrhaged both high-tech manufacturing and engineering positions to surrounding, less densely populated parts of mainland China.
This shift toward more efficient, and often smaller, places is also happening in Europe. Gouda, a former cheese-making center, is now a popular destination for companies seeking to escape crime and racial tensions in nearby Rotterdam. The lack of a pressing need to concentrate corporate centers is also evidenced by Berlin’s failure to emerge, as widely hoped, as a major European business capital. Once known as “Chicago on the Spree,” it is now best known as a trendy bohemian tourist spot.
To reverse this corporate exodus trend, cities have to do more than position themselves as creative environments. They need to focus on the reasons why companies left to go elsewhere, including addressing profound problems pertaining to racial and social unrest, shortcomings in training and education, as well as an insufficiently solid physical infrastructure.
Joel Kotkin is an expert on global economic, political, and social trends. He has written seven books, including "The City: A Global History." He wrote this article exclusively for Roland Berger's award-winning magazine 'think:act'
Roland Berger Strategy Consultants has long been involved with issues of city planning. Most recently, a joint series with German newspaper DIE WELT has examined the future perspectives of the city of Hamburg.
If you have questions or comments concerning this or any other story, please do not hesitate to contact us:
Roland Berger Strategy Consultants has long been involved with issues of city planning. Most recently, a joint series with German newspaper DIE WELT has examined the future perspectives of the city of Hamburg.
If you have questions or comments concerning this or any other story, please do not hesitate to contact us:
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