How To Get Businesses To Invest in New Cities

By Stacie Chang

Last week, we discussed the creation of new cities all over the world. One question seems to pop up every time – where do we start? Do we get businesses in first or people in first? It’s a chicken or the egg problem. Without businesses, no one will want to live there, and without people, no businesses will want to locate there. If one of the reasons we see massive migration to existing cities is because commerce and opportunities reside there, then I don’t see why it would be any different for new cities. So how do businesses think about investing time and resources into a new country or city?

1. First, and foremost, it must easy to get a company up and running. This doesn’t mean that everything needs to be ready to go before committing, but it does mean that the basics need to be there. Electricity and other utilities need to be planned, in process or ready. Additionally, there needs to be an accessible labor pool. The potential employees don’t need to live in the new city, but they need to be close enough that they can reach the office easily. “Middle of nowhere” new cities are acceptable as long as they are actually accessible by car, train, bus, bike or foot.

2. The government needs to make it relatively easy do business. This means taking a hard look at policies surrounding permits, taxes and IP transfers, among others and making changes. A government can streamline permitting processes, create tax incentives, and loosen IP transfer restrictions. Look no further than the successful China SEZ program. It’s not a one-way street though. Businesses also need to make concessions. Depending on what the government wants, one common practice is to guarantee certain employment minimums to ensure long-term job creation and, ultimately, GDP growth.

3. The business needs to see an opportunity for growth both in terms of increased revenue and a new labor pool. Businesses are looking for access to new markets. For example, take a look at Cisco’s 2008 investment in South Africa. The new center they planned to build guaranteed a minimum of one thousand new jobs (a boon for Pretoria and to Cisco). Additionally, they were trying to build and nurture talent in the area to ensure the workforce is ready for South Africa’s massive growth.

On top of all of this, there must be trust between the parties. If the government reneges on any of its statements or the business does not honor its commitments the entire project may be thrown out the window. I like the way Professor Macomber distinguished between “aligned governance” and “chaotic governance.” As a business moving into a new city, it wants to work in a place with aligned governance, thus solving part of the trust and commitment issues. The rest of the equation is all about risk tolerance and mitigation strategies.