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BLOG: How SMEs are turning around city economies

Filippo Sarti | Aug. 2, 2011
SMEs are leading recovery in cities and emerging markets, because they can deliver agility and innovation.

In the modern global economy, cities play a disproportionate economic role. In 2007, 150 of the world's largest metropolitan areas accounted for just fewer than 12 percent of global population, but around 46 percent of world gross domestic product. (GDP). [1]

It follows, then, that if you want to gauge the state of the global financial recovery, you follow the fortunes of those 150 metro areas. As well as showing income and employment trends, they reveal other patterns: shifts of economic power, and the shape of recovery.

A recent study by the Brookings Institution and the London School of Economics [2] highlights intriguing patterns in how different cities have navigated recession and recovery. In 2009-2010, of the 30 metros that showed the strongest growth in employment and per capita gross value added (GVA), 29 were outside the United States and Europe.

It is probably not a surprise that metros in the emerging markets of Asia, Latin America and the Middle East are leading the way post-global recession - indeed, some of them did not experience a recession. But the survey reveals some less predictable sub-narratives if you delve more deeply.

Take the U.S. The only city to make the top 30 ranked metros in 2009-2010 was Austin, Texas. But outside the gilded realms of the top 30, several U.S. metros that suffered severe economic declines before or during the recession of 2007-2009 have shown good income growth post-recession. Detroit, for example, was ranked 147th in the survey pre-recession, and 146th during the recession years. But post-recession, the Brookings and LSE researchers have it in 46th place.

The sad tale of Detroit's economy and its automotive industry is well-known. Earlier this year, census data for the state of Michigan showed the city's population had shrunk by 25 percent between 2000 and 2010. [3] In December 2010, the City of Detroit's unemployment rate was 19.1 percent.

A turnaround

So that is the familiar, bleak picture. But other snapshots show that Detroit may be experiencing a turnaround, fuelled by new opportunities in the automotive industry and a new layer of SMEs forming. For example, global workspace provider Regus operates four business centres in Detroit. During 2010 and 2011, demand for space at these centres has escalated. All four centres are fully occupied, and Regus plans to open two more centres before the end of summer 2011.

Much of this demand comes from companies that have identified new opportunities in the automotive business - for instance, as car manufacturers replace car stereos with Internet radio and petrol engines with green technology. This new wave of players think Detroit has a future, and they are looking for flexible, quick and cost-effective ways to establish a presence there.


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