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The Urban World: A New Reality

PorBen Schneider - 07 / 01 / 2014

Currently, sixty percent of the world's population, or 3.6 billion people, live in cities. The forecast for 2030 is that there will be 5 billion people living in urban settings, centered mainly in developing countries, subsequently providing a significant boost to the world's economy due to the emergence of a large middle class.

The consolidation of consumer markets in these developing countries will go hand-in-hand with the generation of large numbers of companies. Given the increasing turnover of these companies and their rapid growth, a profound change is to be expected in competitive dynamics as we know them.

According to the McKinsey Global Institute, by 2025 the participation of multinational companies with roots in developing markets will have risen from 5% to 45% of the Fortune 500. The reason for this is that three fourths of the 8,000 global companies with a turnover of more than 1 billion dollars are currently based in developing countries. It is estimated that this number will increase by another 7,000 companies in the next decade and that 70% of these will come from the emerging sector. To put the significance of this revolutionary process into perspective, it is important to remember that multinational companies that are the leaders in their sectors have maintained their position over generations. More than 40% of the companies from developing countries that appear in the Fortune 500 were established before 1900. Therefore, if the tendency continues, the 21st century will be known as the century when the multinational companies from emerging markets consolidated their leadership.

From the perspective of first-line corporations from developed countries, it would be a mistake to take these figures lightly. A similar situation occurred in the 1970's and 80's, when Japanese automobile manufacturers began their rise, only to be underestimated by the automobile industry in the United States. More recently, South Korean companies in the electronics and automotive sectors have become world-class leaders. These types of events will become more frequent in the coming years.

It will be essential for companies to become increasingly familiar to new consumers and to understand their needs. Another vital step will be for consolidated world-wide corporations to forge strategic alliances with dynamic companies in emerging markets.

The population centers in developing economies will therefore take center stage in this new setting, especially those that offer clear advantages such as modern airports serving multiple destinations, roadway and lodging infrastructures and modern digital communication networks that attract companies with the intention of installing their main offices or affiliates. Modern universities that are consonant with demand will also be key. Other requirements necessary to complete an attractive scenario are public safety, social peace and a thriving economy with a level playing field and a modern public administration.

There are currently 20 cities in the world that house the main offices of a third of the multinational companies with sales over one billion dollars, the most important being Tokyo, New York, London and Paris. Beijing and Seoul already appear among the top 10; however, there are no Latin American cities in the first 20 leading positions, according to a study carried out by the McKinsey Company.

The race to become one of the sites for the new generation of multinational companies has already begun. Which Latin American city will be the winner?