Is the New Emerging Market a City?
What if the next emerging market were not a country but a city? Globalization, as seen through a more granular, sub-national perspective, has implications for how cities define their roles and their paths to economic growth. Such a lens also has relevance for how investors view and assess emerging markets.
There is a hunger for city leaders to be more deliberate in the ways that their regions engage with the rest of the world.
"Cities must have a global view— along with a metropolitan, regional view—if they want to succeed in today's global economy," says Brian Finch, executive director of the Global Cities Initiative at JPMorgan Chase. "The same holds true for institutional investors," said Finch. "They should increasingly think of global markets in terms of metropolitan regions, not just nation states."
Urban areas are driving global economic growth. Today, the world's 300 largest metro areas hold just 19 percent of the globe's population yet contribute 48 percent of its GDP.1 The largest 600 cities are projected to inject $30 trillion into the world economy by 2025.2 Urbanization has forged megacities like Shanghai, Manila and New Delhi with populations exceeding 20 million, including their surrounding metro areas. Business and investment leaders understand that urbanization is rapidly changing the world's demographics and, in turn, redefining the traditional notion of what constitutes growth markets.
Redefining the role of local economies
To harness the opportunities of globalization, cities and their leaders are increasingly coming to see that they must expand their traditional roles. This evolution of consciousness involves redefining what it means to be a global city. That term traditionally has been associated with financial centers like London, New York, Paris and Tokyo. Today, it's starting to be used more widely to describe the many cities—small, medium and large—that are building on unique strengths and assets to expand their local economies through increased trade and investment with the rest of the world.
This thinking is the foundation of the Global Cities Initiative, a joint project of Brookings and JPMorgan Chase, which encourages city and metropolitan area leaders to engage internationally to grow their regions' economies. In many ways, this shift toward global is bringing cities back to their historical role as centers of trade and commerce.
Data indicators help metro leaders
Through new research, the Global Cities Initiative is supporting cities in a self-assessment process. "Cities and their metro areas are the new unit of global competitiveness. In order to help them understand their competitive strengths, they need to have data at a metro-based level," says Finch.
New research is providing select metro areas with customized insights on their position in the global economy and on global engagement indicators such as exports, advanced manufacturing, aviation connectivity and the use of highly skilled immigrants in their respective metro areas. Other research is helping local leaders think about their investment in infrastructure so that companies doing international business can move their people and goods more efficiently and effectively.
Achieving global fluency
The concept of global fluency, introduced in the Global Cities Initiative 2013 study, "The 10 Traits of Globally Fluent Metro Areas," provides a way to understand the arc of development that cities must travel to achieve success with global commerce. Global fluency is defined as the level of global understanding, competence, practice and reach that a metro area exhibits in an increasingly interconnected world economy.
The path to fluency involves three stages:
- Gaining global awareness
- Shifting to a global orientation
- Becoming globally fluent
This transformation, which can take decades to achieve, supports a city's progress toward a desired economic future and an ability to influence and control its destiny, to become more competitive and to sustain an economic position. The more fluent a city, the better it can benefit from globalization while managing its challenges.
The 10 Traits study also identified strong determinants of a metro area's ability to succeed in global markets and to better secure its desired economic future. Based on a review of 42 U.S. and international cities, the study reveals that strategies toward attaining global fluency vary based on a region's distinguishing economic, political and geographic characteristics. The report offers a new framework for cities to assess how they are positioned in the global economy. As a first step, cities must know the strengths and weaknesses that define their global position.
A framework for awareness and action
As part of the Global Cities Initiative, Brookings and J.P. Morgan are helping cities take this first step by bringing together urban leaders to help them understand their position in the global marketplace. Forums are convening government, business, civic, university and nonprofit leaders to discuss how they might collaborate to make local economies more effective. "With fewer government resources available, it's more important than ever that the public, private and nonprofit sectors work together to advance important economic development initiatives in our cities," says Finch.
One finding of the 10 Traits study is that it takes intentional actions and smart policies to advance a city toward global fluency, and local leadership is critical to this process.
"A country is at essence a network of local and regional economies organized within national borders," says Bruce Katz, co-director of the Brookings Metropolitan Policy Program and co-director of the Global Cities Initiative. "Local leaders can move the needle to get things done to grow the economy," Katz said. "Part of the responsibility should be to reach out to the rest of the world as global ambassadors. It is not only the role of national leaders."
One intended outcome of the Global Cities Initiative is the creation of a worldwide network of reformers who will champion the advancement of metro areas in the global economy through the catalyst of trade and investment. "Local leaders want to be part of a learning network," says Finch.
As a next step, the Global Cities Initiative will help 28 metro areas in the United States over the next four years to develop regional export strategies and strengthen their foreign direct investment (FDI) plans. The development of exports and cultivation of FDI are ways for metro regions to forge international linkages and rebalance an historical reliance on domestic markets for economic growth. Work will include reaching out to small- and medium-sized businesses to help them learn about and reach new markets.
"We are seeing a lot of enthusiasm for this effort," notes Finch. "There is a hunger for city leaders to be more deliberate in the ways that their regions engage with the rest of the world."
A new lens for institutional investors
As cities and metropolitan areas increasingly become the new unit of global competition, institutional investors should take note. Understanding the traits that enable success and how metro areas are executing within this kind of framework may provide a useful lens to assess geographic-focused investment opportunities. This kind of thinking provides an overlay to existing methods for evaluating markets. It also suggests the need for a systematic approach to evaluating cities and their metropolitan areas as distinct markets.
One point is certain: understanding which urban areas are acting on their global competitive strengths can position investors to be early movers in identifying the most promising new markets.
More on the Global Cities Initiative: An Interview with Chairman Richard M. Daley
Richard M. Daley, Chairman, Global Cities Initiative
Richard M. Daley served as mayor of Chicago for more than two decades and is credited with overseeing that city's transformation into a prominent player in the global economy. Today, among his many activities, he serves as chairman for the Global Cities Initiative. Thought asked for his perspectives on the opportunities that the program offers.
THOUGHT: Why does the Global Cities Initiative find global engagement so important for the economic growth of cities?
DALEY: The Global Cities Initiative is helping cities and metropolitan regions to overcome a new 21st century reality: all over the world, cities and metros are now competing to attract residents, businesses, tourists and capital. If cities want to survive, local leaders must figure out how to tap into opportunities created by the global economy and compete in this new global marketplace. We already know that cities and metros drive national economies, so we need to ensure that our urban areas are successful—because if they are not, we jeopardize economic growth.
THOUGHT: In your role as chairman, how are you engaging with metro area leaders to move this initiative forward?
DALEY: As chairman, I work with JPMorgan Chase and Brookings to help cities evaluate their local economy, identify their assets and seek ways through which they can better compete in the global economy. We bring together local and regional government, business and civic leaders in various cities to discuss opportunities and challenges for global growth and to connect global cities with each other, so they can work together to find mutually beneficial economic opportunities. Most recently, we announced a new initiative that will help local and regional leaders in eight U.S. cities to create export plans.
THOUGHT: Why should institutional investors pay attention to cities as emerging markets?
DALEY: Almost all over the world, cities are not only growing, they are also increasingly acknowledged as the drivers of national economies. For the first time ever, the majority of the world's population lives in cities, and the global urban population is expected to grow significantly over the next several decades.
Cities are also centers of commerce—the places where the majority of business is transacted. In the United States, Brookings' research as part of the Global Cities Initiative shows that metropolitan areas are responsible for a vast majority of the nation's growth in GDP. As engines of growth and to keep pace with global competitors, many cities are ripe with opportunities for new sources of capital investment: real estate development, physical infrastructure modernization and expansion, and exports.
THOUGHT: What investment opportunities do you see for institutional investors as a result of cities globalizing their growth prospects?
DALEY: As federal government investment in cities continues to decline—especially in the U.S.—cities must look for innovative financing solutions to support the investments needed to remain competitive. They need to keep pace with investments that cities in other countries are making in their economic growth. This presents great opportunities for institutional investors who are willing to think outside the box to engage in investments like publicprivate partnerships, innovative bond financing and other creative initiatives.
1 Greg Clark and Tim Moonen, Global Cities Initiative, a joint project of Brookings and JPMorgan Chase, "The 10 Traits of Globally Fluent Metro Areas," October 22, 2013, www.brookings.edu.
2 Richard Dobbs, Jaana Remes, James Manyika, Charles Roxburgh, Sven Smit and Fabian Schaer, McKinsey Global Institute, "Urban World: Cities and the Rise of the Consuming Class," June 2012, www.mckinsey.com.