competitiveness of london - mckinsey & company
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Research by McKinsey about London CompetitivenessTRANSCRIPT
Sustaining and Enhancing London’s Leadership PositionVenkie ShantaramPartner
McKINSEY GLOBAL INSTITUTE
March 2012
Presentation to the LSE
CONFIDENTIAL AND PROPRIETARYAny use of this material without specific permission of McKinsey & Company is strictly prohibited
McKinsey & Company | 2
The McKinsey Global Institute (MGI) – An overview MGI location
MGI mission and aspirations
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▪ Provide a fact-base that contributes to decision-making on critical management and policy decisions
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Overview
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MGI’s core research areas
Global capital markets
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Technology and innovation
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Resources
McKinsey Global Institute
McKinsey & Company | 4
MGI’s report ‘Urban World’ highlighted the importance of 600 cities in driving future global growth
Today
▪ 1.5 billion people live in the top 600 cities – 22 percent of global population
▪ $30 trillion of GDP in 2007 – more than half of global GDP▪ 485 million households, with average per capita GDP of
$20,000▪ $21 trillion of GDP in 2007 generated by the top 100 cities
Tomorrow
▪ 2.0 billion people will live in these 600 cities in 2025 – 25 percent of the global population
▪ $64 trillion of GDP in 2025, nearly 60 percent of global GDP▪ 735 million households will live in these cities, with average per
capita GDP of $32,000▪ 235 million households in developing world cities will have
income above $20,000 per annum
SOURCE: Urban world: Mapping the economic power of cities, McKinsey Global Institute; McKinsey Global Institute Cityscope 1.0
1 The 600 are the top cities by contribution to global GDP growth from 2007 to 2025.
McKinsey & Company | 5 SOURCE: ONS, DEFRA, CLG Local Government Financial Statistics England 2010, Barker Review,
Successful cities will be the key to future economic growth in the UK
73% share of English population living in urban areas
26% local government share of public sector expenditure
78% share of English GDP growth from urban areas in last 10 years
81% of central government targets are on local spending
McKinsey & Company | 6
Key messages
London is one of the world’s great cities – An economic and cultural powerhouse
It has the potential to remain so, and generate significant economic growth over the next 20 years
However, there are potential threats to London’s pre-eminence
A clear strategy for London would increase the chances of it achieving its full potential
McKinsey & Company | 7 7
London is the third largest city in the world by GDP2007 city rankings
1 Developed regions comprise the United States and Canada, Western Europe, Australasia, Japan, and South Korea2 GDP 2007 in predicted real exchange rate3 Population below age 154 Households with annual incomes greater than $20,000 in purchasing power parity (PPP) terms5 Mexico City Metropolitan Region NOTE: For metropolitan regions, we use the first name of the region: e.g., New York for New York-Newark
SOURCE: McKinsey Global Institute Cityscope 1.3
Rank
Grey italic text Developing regions
Normal text Developed regions1
Households with annual income over $20,0004Total householdsChildren3Total populationGDP2
1 Tokyo Tokyo Mexico City Tokyo Tokyo2 New York Mumbai Mumbai Osaka Osaka3 London Mexico City Karachi New York New York4 Paris Sao Paulo Kolkata Shanghai London5 Los Angeles Osaka Tokyo London Rhein-Ruhr6 Osaka New York Sao Paulo Beijing Paris7 Chicago Shanghai Dhaka Sao Paulo Los Angeles8 Rhein-Ruhr Kolkata Delhi Rhein-Ruhr Moscow9 Nagoya Beijing New York Chongqing Chicago
10 Randstad Delhi Kinshasa Paris Nagoya11 Milan Chongqing Manila Mumbai Mexico City12 Washington, D.C. London Lagos Mexico City Seoul
13 Houston Dhaka Buenos Aires Los Angeles Milan
14 Dallas Buenos Aires Cairo Moscow Randstad
15 Philadelphia Los Angeles Chongqing Seoul Istanbul
16 Belgian central metro Karachi Los Angeles Buenos Aires Fukuoka
17 San Francisco Paris Istanbul Delhi Philadelphia
18 Boston Manila London Kolkata Taipei
19 Moscow Rio de Janeiro Osaka Rio de Janeiro Sao Paulo
20 Sao Paulo Rhein-Ruhr Lahore Chicago Hong Kong
21 Madrid Istanbul Rio de Janeiro Nagoya Miami
22 Mexico City Cairo Paris Milan Dallas
23 Atlanta Moscow Baghdad Tianjin Washington, D.C.
24 Miami Seoul Jakarta Istanbul Madrid
25 Rhein-Main Bangkok Lima Randstad Belgian central metro
McKinsey & Company | 8 8
… and the largest in Europe2007 city rankings
1 Share of population aged 65 and above.2 Households with annual incomes greater than €70,000 in PPP terms.
SOURCE: McKinsey Global Institute Cityscope 1.3
1 London London Trieste London London2 Paris Paris Genoa Paris Paris3 Rhein-Ruhr Rhein-Ruhr Chemnitz Rhein-Ruhr Rhein-Ruhr4 Randstad Milan Ravenna Randstad Milan5 Milan Randstad Livorno Milan Randstad6 Belgian central metro Madrid Parma Madrid Madrid7 Madrid Barcelona (ESP) Salamanca Lille Barcelona (ESP)8 Rhein-Main Belgian central metro Florence Belgian central metro Rhein-Main9 Munich Upper Silesian metro Perugia Barcelona (ESP) Athens
10 Barcelona (ESP) Lille Lubeck Naples Munich11 Rome Rhein-Main Nice Upper Silesian metro Rome12 Vienna Athens Turin Rhein-Main Lille
13 Hamburg Rome Leipzig Birmingham Vienna
14 Stuttgart Naples Rostock Rome Stuttgart
15 Lille Berlin Oviedo Athens Birmingham
16 Athens Vienna Hannover Vienna Belgian central metro
17 Stockholm Munich Toulon Munich Rhein-Neckar
18 Birmingham Warsaw Dresden Stuttgart Luxembourg
19 Oresund Stuttgart Braunschweig Manchester Venice
20 Oslo Hamburg Modena Budapest Gelderland
21 Dublin Birmingham Burgos Warsaw Manchester
22 Rhein-Neckar Budapest Limoges Hamburg Hamburg
23 Berlin Lisbon Bremen Lisbon Noord
24 Noord Rhein-Neckar Kassel Noord Stockholm
25 Venice Venice Corunna Liverpool West Yorkshire
Grey italic text Eastern Europe
Normal text Western Europe
Rank
Households with annual income over $70,000ChildrenShare of retirees1Total populationGDP
McKinsey & Company | 9
The 3 largest economies in Europe have different profiles – UK is unusually dependent on London
24
40 37
Germany
49
France
31
United Kingdom
43
2933
15
Top city
Middleweights
Small cities & Rural areas
SOURCE: McKinsey Global Institute Cityscope 1.2
Share of GDP%
868279
Share of population%
30
4943
GermanyFrance
18 14
33
United Kingdom
44
24
46
Per capita GDP gap to country Indexed, country = 100
106
157138
GermanyFranceUnited Kingdom
1129694
33 26 29
Number of cities
McKinsey & Company | 10
In terms of growth, while London outpaced the UK comfortably, Paris and Rhein-Ruhr were unable to outpace middleweights
39
39
22
SOURCE: McKinsey Global Institute Cityscope 1.2
London
14
46
40
MiddleweightsSmall cities & Rural areas Megacities
38
33
29
Paris
Rhein-Ruhr
Middleweights (examples): BirminghamManchester
Middleweights (examples): LyonLille
Middleweights (examples): MunichStuttgart
2.3
United Kingdom France Germany
2.2
3.0
1.7
2.0
1.9
1.7
1.5
1.5
2.5 1.8 1.6
Share of country GDP growth 2000-07 by city type%
CAGR, 2000-07, %
McKinsey & Company | 11
Key messages
London is one of the world’s great cities – An economic and cultural powerhouse
It has the potential to remain so, and generate significant economic growth over the next 20 years
However, there are potential threats to London’s pre-eminence
A clear strategy for London would increase the chances of it achieving its full potential
McKinsey & Company | 12 12
Top 25 hot spots in 2025 from MGI Cityscope2025 city rankings
1 Developed regions comprise the United States and Canada, Western Europe, Australasia, Japan, and South Korea. 2 GDP 2007 to 2025 in predicted real exchange rate.3 Population below age 15.4 Households with annual incomes greater than $20,000 in purchasing power parity (PPP) terms.5 Mexico City Metropolitan Region. NOTE: For metropolitan regions, we use the first name of the region: e.g., New York for New York-Newark.
SOURCE: McKinsey Global Institute Cityscope 1.3
1 Tokyo Shanghai Tokyo Kinshasa Tokyo Tokyo2 New York Beijing Mumbai Karachi Shanghai Osaka
3 London Shenzhen Shanghai Lagos Beijing New York
4 Los Angeles Guangzhou Beijing Mumbai Chongqing London5 Shanghai Tianjin Delhi Dhaka Osaka Beijing6 Paris Chongqing Calcutta Calcutta New York Shanghai7 Beijing Los Angeles Mexico City5 Mexico City5 Mumbai Paris8 Osaka New York São Paulo Delhi London Rhein-Ruhr
9 Rhein-Ruhr São Paulo Dhaka Manila São Paulo Los Angeles10 Chicago Wuhan Chongqing Tokyo Delhi São Paulo11 São Paulo Moscow New York New York Paris Moscow12 Shenzhen Shenyang Karachi Los Angeles Lagos Mexico City5
13 Moscow London Osaka São Paulo Rhein-Ruhr Seoul
14 Houston Hangzhou London Cairo Mexico City5 Nagoya
15 Dallas Chengdu Lagos Lahore Calcutta Chicago16 Guangzhou Singapore Manila Buenos Aires Tianjin Milan
17 Washington, D.C. Dallas Kinshasa London Shenzhen Mumbai
18 Tianjin Nanjing Los Angeles Baghdad Hangzhou Istanbul19 Randstad Tokyo Shenzhen Kabul Chengdu Hong Kong20 Mexico City5 Foshan Buenos Aires Luanda Los Angeles Dallas21 Seoul Bangkok Cairo Istanbul Moscow Randstad22 Nagoya Istanbul Istanbul Khartoum Wuhan Bangkok23 Singapore Paris Paris Paris Dhaka Shenzhen
24 Hong Kong Houston Tianjin Nairobi Buenos Aires Taipei
25 Atlanta Seoul Bangkok Dar es Salaam Seoul Houston
Grey italic text Developing regions
Normal text Developed regions1
Rank
Households with annual income over $20,0004
Total householdsChildren3
GDP growth2007-25GDP2
Total population
McKinsey & Company | 13 SOURCE: McKinsey Global Institute Cityscope 1.3
-10
0
10
20
30
40
GDP growth 2007-25USD million
1,000,000100,00010,0001,000100
GDP/Capita growth 2007-25USD ‘000
Barcelona
Milan
Madrid
Oslo
Munich
Randstad
Rhein-Ruhr
Paris
London
Median=9.5
London is expected to both grow substantially in absolute size and increase it’s GDP/Capita above the European median …
NOTE 1: Only European Cities shownNOTE 2: All figures relate to real exchange rate calculations
Megacities (>10 mn inhabitants)
Large middleweights (5-10 mn inhabitants)
Mid-sized middleweights (2-5 mn inhabitants
Small middleweights (<2 mn inhabitants)
Bubble size indicative of GDP/Cap, 2007
McKinsey & Company | 14 SOURCE: McKinsey Global Institute Cityscope 1.3
… the growth rate figures are in the mid tier of even the largest cities due to London’s high initial size
Paris
London 300
Belgian central metro 91
Randstad 128
Vienna 65
Berlin 47
Rhein-Main 96
Stuttgart 68
Rhein-Ruhr 215
Rhein-Neckar 59
Hamburg 87
Munich 115
Upper Silesian metro 52
Budapest 66
Warsaw 112
Birmingham 27
Barcelona (ESP) 42
Lille 37
Manchester
4
17
Venice 12
Athens 12
Rome
Naples
Milan 43
Lisbon 14
Madrid 44
25
233
NOTE 1: Only European Megacities, large- and midsized middleweights shownNOTE 2: All figures relate to real exchange rate calculations
2.0%
2.1%
2.2%
2.4%
2.5%
3.7%
3.9%
5.2%
0.2%
0.5%
0.5%
0.6%
0.6%
0.9%
0.9%
1.0%
1.1%
1.2%
1.2%
1.5%
1.6%
1.6%
1.7%
1.8%
1.9%
2.0%
GDP 2007USD billion
GDP growth rate, 2007-25Percent CAGR
42
38
47
46
22
42
33
30
42
42
64
64
53
34
51
54
35
51
62
46
53
43
49
23
12
23
Madrid
Barcelona (ESP)
Milan
Rome
Naples
Venice
Athens
Lisbon
Birmingham
Manchester
London
Paris
Belgian central metro
Lille
Vienna
Randstad
Berlin
Hamburg
Munich
Rhein-Neckar
Rhein-Main
Rhein-Ruhr
Stuttgart
Budapest
Upper Silesian metro
Warsaw
0.1%
0.1%
0.2%
0.2%
0.2%
0.2%
0.2%
0.5%
0.6%
0.7%
0.9%
0.9%
1.0%
1.2%
1.2%
1.3%
1.6%
1.7%
1.8%
1.9%
2.0%
2.2%
2.2%
3.5%
4.0%
5.1%
GDP/Cap 2007USD ‘000
GDP/Cap growth rate, 2007-25Percent CAGR
McKinsey & Company | 15
Key messages
London is one of the world’s great cities – An economic and cultural powerhouse
It has the potential to remain so, and generate significant economic growth over the next 20 years
However, there are potential threats to London’s pre-eminence
A clear strategy for London would increase the chances of it achieving its full potential
McKinsey & Company | 16
Potential threats to London’s pre-eminence
Reduced open-ness to skilled immigrants and international students
Loss of competitiveness in global financial services due to ‘super-equivalent’ regulation
Restrictions on London’s physical expansion
Reduced attractiveness as a HQ location due to poor infrastructure, uncompetitive tax regimes and restrictions on skilled immigration
Under-investment in London’s cultural and artistic heritage – a major driver of quality of life and essential to under-pin its attractiveness to global talent
Under-investment in primary, secondary and tertiary education in London
McKinsey & Company | 17
Despite the crisis, London remains the leading international financial centre
SOURCE: ONS Balance of Payments – Pink Book, IMF, The CityUK research
Contribution of Banks to financial services net exports EUR billions
Financial services net exportsEUR billions
CAGR1 %
24 8
-10 52
-7 -11
20 38
6 3
05-09
Financial services contribute 3-6X more to the overall balance of payments in the UK than they do in other countriesEUR billions
29,893
05
24,283
04
26,692
03
24,914
02
22,195
01
19,307
2000
15,784
1999
15,881
2009
41,849
08
50,557
07
40,426
06
16 14
9 15
1 Compounded Annual Growth Rate 2 FISIM stands for Financial Intermediation Services Indirectly Measured
-5-5
4
-1
023399
30
-5-5
5
-1
03531111
40
-6-6-1-1
3541213
51
Ireland US Japan Hong KongFranceGermanyUK Luxembourg Switzerland Mexico China
00-05
Other financial servicesInsurance
Baltic ExchangeFund Managers
Securities dealersBanks
CAGR1 %
18 19
4 12
12 -15
05-09
18,265
05
14,929
04
13,148
03
12,150
02
9,559
01
8,754
2000
6,958
1999
6,841
2009
25,336
08
31,049
07
24,431
06
28 16
16 14
00-05
Other exportsFISIM2
Fee incomeSpread earnings
2008
2007
2006
McKinsey & Company | 18
Multiple factors drive London’s competitive success
Source: Clusters and the New Economics of Competition (Michael Porter)
Overall context
Benign corporate tax rates Historically
predictable tax regime
Favourable personal tax rates
Noninvasive approach of
tax authorities
Regulatory system
and reputation
Commercially minded
employment laws
Openness to foreign ownership
Open migration
Stable legal
framework
Customer cluster
Welcometo foreigners
Strong ties to US
Global client baseTime
zone bridging
US and Asia
Cutting edge sophisticated
complex client needs
Proximity to eurozone
Must visit road-show destination
Global centre for research
Distinctive professional services
Primary international
transport hub
Robust technology
infrastructure/future
capacity
Extensive transport network
Leading, but unsupportive
financial media
System and
services
London retains top position in the Global Financial Center Index for 2010
People and
culture English speaking
Deep local talent pool
Cost of living
Strong arts and culture
Low crime rate
Magnet for global talent
Culture of innovation
McKinsey & Company | 19
However, the outlook is worrying on several factors
Source: Clusters and the New Economics of Competition (Michael Porter)
Competitiveness increasing
Competitiveness flat
Competitiveness decreasing
London retains top position in the Global Financial Center Index for 2010
Overall context
Benign corporate tax rates Historically
predictable tax regime
Favourable personal tax rates
Non-invasive approach of
tax authorities
Regulatory system
and reputation
Commercially minded
employment laws
Openness to foreign ownership
Open migration
Stable legal
framework
Customer cluster
Welcometo foreigners
Strong ties to US
Global client baseTime
zone bridging
US and Asia
Cutting edge sophisticated
complex client needs
Proximity to eurozone
Must visit road-show destination
Global centre for research
Distinctive professional services
Primary international
transport hub
Extensive transport network
Robust technology
infrastructure/future
capacity
Leading, but unsupportive
financial media
System and
services
People and
culture English speaking
Deep local talent pool
Cost of living
Strong arts and culture
Low crime rate
Magnet for global talent
Culture of innovation
McKinsey & Company | 20
Key messages
London is one of the world’s great cities – An economic and cultural powerhouse
It has the potential to remain so, and generate significant economic growth over the next 20 years
However, there are potential threats to London’s pre-eminence
A clear strategy for London would increase the chances of it achieving its full potential
McKinsey & Company | 21
5 levers provide a common architecture to identify opportunities for economic growth
Enablers
1
Economic sectors/ clusters
2
Human capital
3
Innovation and entre-
preneurship
4 Physical and virtual infrastructure
5 Public and civic institutions
Source: Team economic development plans; Brookings Metropolitan Policy Program, Chicago Plan for Growth
Concentrations of industries, functions, and occupations
Talent production, attraction, retention, and matching to jobs
▪ Government efficiency and efficacy
▪ Business environment
▪ Tax value proposition
▪ Innovation performance
▪ Entrepreneurial ecosystem
Linkages and movement of goods, people, and information
McKinsey & Company | 22
Priorities for London’s economic development
4 Physical and virtual infrastructure
5 Public and civic institutions
1
Economic sectors
and clusters
2
Human capital
3
Innovation and entrepre-
neurship
▪ Allowing London to expand – rethink ‘green belt’ policy
▪ Building more airport capacity▪ Investing in public transport
infrastructure▪ Eliminating road bottlenecks
through road-pricing and usage taxes
▪ Stronger decision rights for London, as part of de-centralisation of power in the UK to cities
▪ Investment in arts and culture, and public spaces
▪ Equitable distribution of planning gains to encourage development and reduce local taxes
Continued leadershi
p
▪ Openness to global talent ▪ Priorities
– Creative industries– Tourism – Bioscience– High tech– Prof & Business Services– Financial services
▪ Preserving London’s role as the leading international financial centre
▪ Expanding leadership in professional and business services
▪ Maintaining leadership in creative industries▪ Building on early success in High Tech and
bio science
▪ Remaining open to skilled immigration▪ Building on London’s great universities –
as knowledge factories and magnet for international talent
▪ Expanding affordable housing ▪ Providing more rented accommodation
for young citizens
Sustaining and Enhancing London’s Leadership PositionVenkie ShantaramPartner
McKINSEY GLOBAL INSTITUTE
March 2012
Presentation to the LSE
CONFIDENTIAL AND PROPRIETARYAny use of this material without specific permission of McKinsey & Company is strictly prohibited