NEW YORK, Aug. 3, 2011 /PRNewswire/ -- As the trend toward urbanization explodes, particularly in the emerging world, how can corporate leaders prepare themselves? What does the growth of cities that are even more powerful than their host states mean for business? And what are the effects of this trend on markets, security, infrastructure, and the workforce?
"This demographic shift is a key mega-trend for global business," said Susan Stautberg, co-founder and global co-chair of WomenCorporateDirectors. "Directors at companies around the world must understand both the risks and the opportunities in this new breed of cities."
Urbanization and its impact on business was a topic explored by participants at the first-ever WomenCorporateDirectors Global Institute this spring. In a panel moderated by Alan Murray, deputy managing editor of The Wall Street Journal, experts looked at the challenges accompanying the trend and how the new breed of cities will affect the way companies conduct business in and with these markets.
'Feral' cities supplanting states as economic forces
"With the phenomenon of mega-cities exploding, particularly in the developing world, some cities now consume more than their states can provide," said Richard Norton, Professor of National Security Affairs at the Naval War College. "Lagos eats 45 percent of Nigeria's energy, and in India, urban centers eat 85 percent. As these 'feral' cities grow, what you end up having are islands of alternate governance in sovereign seas of state authority. The developing cities are uncontrollable by their so-called owning states."
"One in 25 people in the world lives in Chinese cities," said Elaine LaRoche, a former director of China Construction Bank. "In 20 years, over 220 Chinese cities will have populations of over a million; there will be 23 cities over five million and several over 20 million, and the Chinese are even studying the feasibility of cities of over 40 million. Will public sector funding and political institutions be able to keep pace? Will they provide the necessary public services to assure continued social stability and relatively full employment that are the primary goals of the Chinese government?"
As urban centers develop a stronger field of gravity within their countries, "maybe we don't need a G20 of nations anymore – maybe we need a G20 of cities," said Annette Schommel, founder of Arthesia and director of Kuoni Reisen Holding. "I'm not so sure that the U.K. will be a member of the G20 in ten years, but I'm pretty sure that London will still be a mega-city even 50 years from now."
"A failure of capacity"
The rise of big cities brings with it significant challenges, said the panelists – from providing enough energy, transportation, and food, to creating a safe and secure environment in which business can operate. These cities and what they consume are causing a failure of capacity, Dr. Norton argued, which will be one of the most challenging security issues of the coming century.
"Transportation is a necessary part of a vital city," said Linda Goodspeed, Vice President of Information Systems for Nissan North America and director of American Electric Power and Columbus McKinnon Corporation. "Developing countries like India will increase utilization of computers and electronics, which means that energy needs are going to put a tremendous drain on the current generation and distribution systems," she explained. "Energy storage is going to become more important than ever before."
The nuclear disaster in Japan raised the stakes on the energy crisis facing cities. As Alan Murray pointed out, China, and others, had thought that its solution to the serious polluter power plants was going to be nuclear energy. But even though countries are proceeding with nuclear power, Fukushima underlined the need to explore alternatives as well.
Linked to transportation and energy issues is the challenge of feeding the urban population. Lars Thunell, Executive Vice President of the World Bank's International Finance Corporation, said this will require massive investments in agribusiness across the food supply chain – from farming to transportation and storage to food processing. "Roughly 40 percent of food produced in the developing world spoils before it reaches the consumer," he said. "Investing in better logistics and processing to recapture this wasted food is one way to increase food supply without using more resources like water and land."
Another basic need threatened by "feral cities" is safety: in many cities – from Mexico City to Brazil's favelas – security challenges are overwhelming the capacity of law enforcement. Dr. Norton pointed out that South Africa was so concerned about the personal security of its stockbrokers that it had to move its stock exchange out of the downtown central business district of Johannesburg to a suburb 20 miles away.
The role of business
In thinking about how the interrelation of companies and cities can help drive change in the urban environment, corporate leaders must be open to new ways of engaging with local communities.
"The biggest question for directors is: how do you unlock the opportunities?" said Ms. Schommel. "Cities will be the place of greatest innovation, growth, and opportunities – no industry or company can ignore the trend. To build smart cities, the demand for solutions in the mobility, energy, health, education sectors, etc. will increase. Companies can profit from their innovative power to develop smart solutions in cooperation with inhabitants and municipalities. However, much more data is needed to fully understand the performance of cities."
Some argue that businesses can actually help bring solutions to these new cities more efficiently than their local governments can. "Business should be at the forefront," Ms. LaRoche argued, "and can be much more nimble and much more forward-thinking than politicians in any of these countries. Corporations have an opportunity to really be the global architects of many of the things that were, in the past, left to the politicians."
When it comes to creating jobs for the urban population, businesses of all sizes will play a role. "It's going to be the small- and medium-sized enterprises moving from the informal sector to the formal sector when companies start to take off," said Mr. Thunell. He also thinks that entrepreneurship is where the opportunity lies for women in emerging markets, but that his group and others must work with banks in these economies, who have traditionally not wanted to lend to women.
Anticipating the unknown
Ultimately, governments and businesses around the world are having to completely shift their paradigms of what is needed in today's cities – and where the opportunities, and weaknesses, really lie.
"Boards today have to ask management to stress test the supply chain," said Ms. Goodspeed. "We are going to run out of natural resources in some areas, but there may be alternate resources in other areas to compensate. We have to stress test the possibility of 'what if a city grows two or three times faster than you think?' What happens to your energy supply? What happens to your supply chain?"
"We have the concept of what cities can do," said Ms. LaRoche, "but when it becomes the issue of such scale, we have no history to say what the real issues will be."
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WomenCorporateDirectors (WCD) is the only global membership organization and community of women corporate directors, comprised of more than 1,000 members serving on over 1,200 boards in 32 chapters around the world. In this new era of responsibility, WCD is committed not just to good governance, but to governance with global vision. WCD launched is first-ever Global Institute in May 2011 in New York City, where it issued a "Call to Action" for improving the numbers of women on boards.
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