London can strengthen its position in the by attracting companies from emerging markets, but it must not be complacent, or it risks falling out of the premier league of “World Cities”, especially if it fails to address aviation capacity.
So said speakers at the Centre for London event focussed on how the global corporate lansdcape will change over the next decade.
Jaana Remes of McKinsey Global Institute presented their recent report on the rise of emerging market companies – Urban World: Shifting Global Landscape – which says that the number of large emerging market companies (turning over more than USD1bn) will triple by 2025. This will shift the global balance to a point where large companies headquartered in the developing world will almost equal the number in the old world.
If the pace of this change seems frightening, the momentum should terrify. The UK took 150 years to double GDP per head when the population was 10m. China has just doubled the GDP/head of a population of 1bn in 10 years. That’s 100 times the population in a tenth of the time, or 1000 times the economic momentum. What will China do in the next decade?
In 2010 there were 8000 companies worldwide with revenues over $1bn. Together, they were responsible for 90% of global GDP. Three quarters were based in the developed world, with 10% based in China.
In 2025, says the report, there will be 15000 such companies, but nearly three quarters of the new ones are expected to be from the developing World. This would lead to 45% of all large companies in 2025 being from emerging markets.
This is good news in general for good cities. Large companies base themselves in leading cities. It could be excellent news for London, which is number three in the list of World cities for hosting large company headquarters, but number one in the list for large company subsidiaries.
This is undoubtedly a great starting position, how can London use it to stay in the lead?
Simon Kennedy, Chief International Economics Correspondent at Bloomberg said that infrastructure development is key. In particular he said that airport access must improve, with connections to emerging markets the crucial element.
Colin Stanbridge, Chief Executive of the London Chamber of Commerce and Industry, echoed the aviation call, saying that “we can’t mess around with aviation capacity forever”. He said that someone needs to have the courage to take a decision.
Other infrastructure investments – Crossrail 2 – were important to the future growth of the London economy too. Skills were also important, about which Stanbridge said “we need an education system aligned with delivering people to jobs”.
Kennedy said that insularity would be a bad thing, that London needs to be in Europe, to offer financial services to chinese and islamic companies.
Stanbridge agreed, saying that any increase in islander mentality would be dangerous, and called for a change to visa rules. “London has thrived on being welcoming”, he said, saying that getting a UK visa was much harder and more expensive than getting a Schengen visa to visit the rest of the EU.
David Slater, Director of International Business Development at London & Partners, said that their focus would be on getting subsidiaries of developing market companies to locate in London. For this to succeed he said that London needs to remain the key European location for such markets, echoing the thoughts of the other speakers.
Ben Rogers of Centre for London asked if there were other cities London could learn from. Singapore was commended for its skills and resources, New York for its desirability, a number of emerging market cities for their ability to spend on infrastructures, and Paris for its ability to decide on and deliver a grand plan.
What unites these cities is that they have more financial freedom than London. All are able to make decisions, and spend local tax revenue as they see fit. This is something that London, and other UK cities, have been calling for here, and perhaps this is evidence that would be a good idea.
Tony Travers of the London School of Economics, speaking from the audience, warned that cities can fall out of top ten. He noted that 100 years ago it would have looked very different – with Berlin, Vienna, and Milan probably in the list. Those cities were nowhere near the premier league now, and this was a salutary warning for London.