Thursday, November 15, 2012

Searching for the city's “Value Flow"

We’ve established earlier that the primordial city latches onto an elementary level of energy, i.e. food through the agriculture, the rivers, oceans as well as valuable metals in mining towns.  Initially there would be a swarm of smaller companies leeching off the primary flow of resources into manufacturing engines; unfortunately, not all of these companies will survive and oligopolies quickly take form when weaker competitors die off, leaving a few primary players to completely dominate the source.

Take away the source of “energy” and we have a stark reminder through the island of Hashima, Japan (HQ to Bond’s nemesis in Skyfall), once the most densely populated area per sq/km with 5,000 people living within a 150m x 450m area due to its coal mining operations; Hashima was soon abandoned when coal ran out in the 1970s.

Island of Hashima, Japan

Inside the abandoned city
For more on the city, checkout this blog by messynessychic.

In the modern city, the whole notion of living off a single “source” of value will lose relevance. Manufacturers can buy raw materials from other cities, and food as well as supplies can be shipped from locations where it is cheaper to grow and produce.

The following are crucial criterion in order for a city to succeed and grow.

A) The final products and services need to be exported (internal demand is insufficient)
Arbitrage has to happen – where revenue and margins returned outweighs the cost of production and manufacturing of the product. We use the term product interchangeably with services; and the raw material for services comes from people of a certain skill set to deliver the service at the quality required to succeed.
Only then can ancillary services survive to support these larger production and manufacturing businesses because they live off the excesses of the manufacturing process. More importantly, it is crucial for the ancillary services to make the primary businesses successful.

B) Decision nerve centres generates gravity between businesses
Modern cities continue to exist sans natural resources because they are headquarters, regional centres and/or country representative branches. The city then becomes an aggregation of decision making nerve centres of various productions and manufacturing organizations; and the interplay of communications and consumption between the businesses then sustains value within the city.
This is essential as the economics of logistics and communications allows cross selling of services to occur more easily. The analogy of nerve centres are used because nerve cells are clustered and strengthened the more the brains computes and uses a particular area of the brain.  
In short, people come together because everyone is there!

C) Achieving the Critical Mass of Flow
Which brings us to a conundrum, how do we achieve critical mass; within the context of artificially created cities when nothing is there in the first place; taxation policies, cheap office buildings, great logistical and communications infrastructure comes to mind including the required people power to manned the fancy empty buildings. But having all this secret sauce does not make a good restaurant without good marketing; not to mention the key to any real estate investment – location, location, location.

So city buildings have several options:-
  • Create one as an extension to the existing city, allowing the flow of value from the current city to be enhanced with the new. The Iskandar region in Johor, Malaysia is a good example as Singapore can become the staging ground to international customers. Assuming again, that the macroeconomics of Singapore can survive the tribulations of the recent economic crisis. More importantly, the satellite city needs to add symbiotic value instead of existing as a parasitic leech.
  • Stands independently and hopefully becomes a beacon to businesses and consumers. For the consumer we see entertainment and retail centres, and for businesses, the traditional attraction of the nation’s natural resources comes to light.
Regardless of the options, the global economy needs to be growing before value can flow into a new location, naturally immediate economic energy needs to start from the nation of the city. Otherwise it begets an even crucial question, would a multinational choose to relocate their business from an existing mecca to a new one considering that there are no surpluses to spill over.

D) Supplying the Soul of the City
As we strip away all the outward fittings of high tech building infrastructure and logistics, what remains are the people. The city needs to be cognizant on the type of talents that needs to populate the new environment. Are we creating and aggregating low end factory workers or are we producing planners, managers, technologists, engineers and innovators. If that cannot be sourced from the locale, the city has no choice but to lower immigration laws and allow influx of foreigners that exhibit the qualities required for the city to succeed.

It is the soul that allows value to be created, and foremost, value that are generated without resorting to siphoning the natural resources are the most admired. This can be seen from the fields of biotechnology, medicine, electronics and information technology. If the country is still stuck in the rut of manufacturing, then it must persist to continuously shave off waste and innovate to produce products that are more efficient, enduring and better than the competitors whilst being economically more competitive. The whole notion of productivity, discipline and anti-corruption is fundamental to the issue.

E) Working against the tide of technology
We have seen hints of the surging technological tidal wave in the form of teleworkers. Organizations that outsource work to individuals versus corporations; this creates a negative flow that pushes against the aggregation of people into city centres as organizations no longer require an army of individuals to be physically location together for productive work to occur. Payables processing happens offshore while receivables are directly debited from customer accounts. Payroll and tax administration gets reduced down to mere mouse clicks while legal firm from 5,000 km away tightens up the contracts.

The city of tomorrow may be smaller and stretched out versus sky scraping monoliths that extend the corporate ego. Organizations will migrate to building campuses and research centres as the focus shifts towards innovation versus processing administrative work. We’ve seen this happened successfully to give birth to the Toyota Prius as they crammed substantial workforce within a wide open space – “Obeya” to heighten communication and productivity.

To end, we covered 5 criterions for success, the ability to export products and services generated from the city, creation of a nexus for trade to happen through establishment of decision centres i.e. headquarters, attaining critical mass, supplying talents and lastly working with technology and shifting the paradigm of tall skinny buildings. The table below underscores the evolution of tomorrow’s city.

City of Today
City of Tomorrow
Manufacturer Plant
Processes and Produces Products
Outsourced to cheaper nations, with clear build and quality specifications
Head quarters
Processes Administration
Showcase for customers, vision of the company’s potential and future. A mecca for business to occur.
Research Centres
Small cramped underfunded facilities that double as a warehouse
Campus wide facilities that co-exist with top management to allow seamless communication and flow of ideas

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