What Attracts Investors To Cities?

By Mikkel B. Rasmussen

Cities are built on money — generally the money of big companies who invest in manufacturing and industry. For years it has worked like this: governments offer tax breaks to attract foreign corporations, investment agencies try to sell a developing city to a corporation to get from-scratch green field investments (a new chemical plant, say, may create some three thousand jobs). Regions that don’t push tax breaks tend to get left behind — a case in point is California, whose film industry slowly declined (36,000 jobs over a decade) as other states and countries offered better tax breaks to production companies. Things are changing.

In our research for Copenhagen Capacity, a Danish investment agency, we discovered that the future of a city is no longer exclusively dependent on low taxes. The new trend is to sell a city on its people and their lifestyle. Big companies are no longer looking for a single location that is the center of their business; instead, they are spreading their operations across multiple locations, where they don’t just develop their products but sell them too. Data backs it up. In China there’s a boom in second-tier cities, which are experiencing rapid urbanization and have a growing population of consumers who are eager to spend. Nestlé just announced they were building a new R&D center in India and would use local ingredients and create products for both global markets and the local Indian market. And according to green field investment data from fDI Markets, consumer-electronics companies expanding into the Middle Eastern market are investing not in manufacturing but in sales, marketing, and support.

Companies are distributing knowledge across the world

As globalization intensifies, corporations are looking not just to manufacturing to maximize their investments but are also developing new positioning strategies in different countries. The fastest way to expand your market, then, is to learn who your customers are and to develop products that suit their regional needs and preferences, not just those of customers in your traditional markets. As corporations decentralize and move to a hub-and-spoke model, more emphasis is placed on the values of the people in a particular location. Local design culture, the regulatory environment, specialized knowledge, and an advanced and sophisticated lifestyle are all important factors for companies.

The corporations we interviewed were consistent about their priorities: Adidas said you can’t design a football shoe for the European market in Vietnam; Visteon said they wanted to have their engineering footprints all over the world; Biocentric said they’re moving from being a guest to being accepted in their host countries; Microsoft said they chose London as their regional marketing hub and Paris as the European development hub; and Intel develops “regionally adjusted” products for locals. The new economic landscape means that Copenhagen, like all cities, must compete not for green field projects but for talent.

Copenhagen as a case study

We took a deep dive to understand what attracts businesses to Copenhagen. After interviewing several dozen multinational companies along with resident expats, we discovered that Copenhagen is a place that trumps many others when it comes to quality of life: it’s expensive and cold but it’s so clean that you can even swim in the ocean by the airport and you can happily raise a family without many financial constraints. The focus on people and lifestyle gives the Scandinavian country a clear advantage. People thought of Copenhagen as a city with a “consensus culture” that is good at teamwork and as a sophisticated, democratic, compassionate, and design-oriented place. They also thought of Copenhagen as a place where people are highly productive.

We then developed a future “business brand” for Copenhagen that riffed off of the city’s positive attributes. With the tagline “You can have both,” we sold the axiom that when you do business in Copenhagen you can be at once humane and tech-driven, green and profitable, soft and hard — and that this particular mix boosts productivity. We realized, too, that Copenhagen has a better chance of competing in specialized and niche projects than in selling itself as a mass-market location with a well-educated workforce — standards have improved across the world. Other assets include the Danish work ethic, the strong social fabric, and the fact that the city makes a good first impression. But key to the branding of Copenhagen is its local ecosystem of specialized talent, which can add value to any company. There’s life-science and environmental technology, a highly experimental public sector, and an advanced design culture with a solid heritage. Danes are good at developing clean and useful products. Pharmaceuticals, life-science research, and medical device manufacturing are thriving. The city is a leader in user-driven research and a testing ground for companies eager to mine the city’s tech-savvy citizens.

The big sell is a combination of efficiency and creativity. With a design culture and a workforce that was raised on being lean, the pitch for Copenhagen was about its performance culture—that it is a place with a smart way of working and a pleasant lifestyle to boot.

Jane Jacobs and the need for human scale

In a related project centering on an industrial area of Copenhagen that is slated to be rebuilt, we approached people who were emotionally connected to their own neighborhoods and asked them what was missing in the industrial neighborhood. They described its deficits in similar ways that reflected the area’s lack of “human scale” — a term that is now closely tied to the visionary urban planner Jane Jacobs. In other words, many people prefer not an architectural dreamworld but a livable place that is built for people.

Corporations are taking note. Mercer Consulting’s 2010 Quality of Living survey, which ranks Vienna as #1 in the world (as usual), now includes a new eco ranking for cities that optimize their use of renewable resources and minimize pollution. This is important because the researchers who conducted the survey pointed out that a city’s ecological attitude affects the quality of life. And quality of life is important for “companies that send employees and their families on long-term assignments abroad, especially considering the vast majority of expatriates are relocated to urban areas.”

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