Written by Jillian Friesen, GEI Associate
Econintersect: The most recent edition of McKinsey Quarterly: Chart Focus Newsletter centered on the topic of emerging markets and how recent shifts in nation to city economic power is affecting multinational firms. Companies are now focusing on obtaining increased economies of scale by catering their business strategies to look at city-centric regions rather than countries. The major metropolitan areas of the future will prove to be vital aspects of the global economy, far over shadowing many nations in the McKinsey view.In 2010, emerging economies made up 39% of the world’s GDP. By 2025, this number is predicted to be over 70%. The need to adapt business models and strategies in order to gain a competitive edge over local industry is proving to be an urgent task.
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Photo: McKinsey Quarterly
According to McKinsey Quarterly, which has put countless amount of research and effort into better understanding of established as well as Western start-ups, one cannot ignore cities in development processes. The solution to competing with the rising competitiveness of cities along side nations does not entail a quick fix strategy. In the words of the editors at McKinsey,
“We wish there were a secret formula or key capability that could easily transform a company’s emerging-market efforts. In fact, our experience suggests the challenge in emerging markets more closely resembles a decathlon, where success comes from all-around excellence across multiple sports.“
In its newsletter McKinsey Quarterly suggested multinationals should revamp their strategies by grouping large cities with similar traits together to form a “supercluster”. This is only a part of the “decathlon,” but it is vital. In this way, businesses will have the benefit of functioning as a “unified hub”. When the need for more development arises, the cities would have a planned development process of branching off into separate clusters.
In a recent paper co-authored by Dirk Ehnts, titled, “From New Trade Theory to New Economic Geography: A Space Odyssey“, Dirk Ehnts cited a quote from “Cosmos”, written by Carl Sagan:
“Most of the world’s great cities have grown haphazardly, little by little, in response to the needs of the moment; very rarely is a city planned for the remote future. The evolution of a city is like the evolution of the brain: it develops from a small center and slowly grows and changes, leaving many old parts still functioning. There is no way to rip out the ancient interior of the brain because of its imperfections and replace it with something of more modern manufacture. The brain must function during the renovation. That is why our brain stem is surrounded by the R complex, then the limbic system and finally the cerebral cortex. The old parts are in charge of too many fundamental functions for them to be replaced altogether. So they wheeze along, out-of-date and sometimes counterproductive, but a necessary consequence of our evolution.”
Ehnts brought up the need to take a closer look at the core-periphery economic model as well as others resembling it.
This blueprint for creating future competitiveness comes especially useful in this day and age when demographics stresses are spreading, as well as in lands where multiple languages and cultures live side by side. China, for example, has around 56 varied ethnic groups with hundreds of different dialects. Major metropolitan centers which lie within hours of each other and can sometimes differ in both language and culture.
In Africa alone there are almost 2,000 different recognized languages and dialects.
There is also the obvious situations of talent moving to cities with specific related industries. Implementing a strategy which encompasses an entire nation while completely ignoring the finer details of the country’s diverse culture and industries disregards reality. There are cities which are already more powerful than many nations. The following example from the McKinsey report compares city regions in China with countries in Europe.
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Photo: McKinsey Quarterly
Many think the focus should be on emerging cities should be on how to properly develop them, not how corporations can gain competitive edges. Done correctly, a properly planned out city and surrounding sprawl could aid in the development of the city, its citizens as well as the nation as a whole. This in turn would create greater GDP and help companies that are invested within the nation. Paul Romer, an activist who supports the implementation of charter cities or, as he calls it, “special reform zones”, sees these planned-out cities as a way to bring about “peace and prosperity” to emerging cities and countries.
Paul Romer speaking on the idea of charter cities. (Click below)
Many are critical of this idea however and feel it may jeopardize the ability of individuals or enterprises to live up to their full potential. Dirk Ehnts is one of these who disagree with the notion of planned and developed cities:
“Society is complex, and building a Manhattan in a developing country won’t work. Take a closer look at Dubai and Singapore, and you will understand that not all is well.”
Whatever the case may be one thing is for certain, the world is changing. People and companies alike will have to keep on adapting and changing with the times or be left behind. The question of whether or not to plan out cities or have companies acclimate to the morphing demographic landscape remains to be solved.
Sources
- McKinsey Quarterly: Chart Focus Newsletter
- McKinsey Quarterly: Winning the $30 trillion Decathlon: Going for Gold in Emerging Markets
- Dirk Ehnts: Cosmos and the City
- Charter Cities: Summer in the City?