Do World Cities Have an Entrepreneurial Advantage?

According to media reports, a recent study by the Global Entrepreneurship Monitor (GEM) names Auckland as the OECD’s most entrepreneurial city. With all due respect, I beg to differ.

I could not find any recent reports by GEM specifically identifying Auckland as the most entrepreneurial OECD city, however I did locate a July 2008 paper exploring the hypothesis, proposed by the work of Prof. Richard Florida and others, that “world cities” attract creative people and enterprises and are hence more entrepreneurial.  Whilst I respect the idea that “creative class” and creative cities engender more entrepreneurial dynamism, I’m concerned by one or two shortcomings in the GEM methodology that seem to cloud some of the conclusions in the recent paper.

Firstly the GEM research questions subjects about their perceptions of entrepreneurial behaviours and opportunities and gives these values overly significant weighting, as opposed to assessing and reporting on actual levels of entrepreneurial activity. Furthermore it is assumed that regions with large numbers of aspirant or early stage entrepreneurs equates to economic success, when this is not neccessarily the case. An area with established and profitable businesses may be more economically successful than a region with many start-ups. The study is also a wee bit vague on defining exactly what a “world city” is. Finally, the research excludes a number of cities where high value technology entrepreneurship thrives such as Wellington, Adelaide, San Francisco and Taipei, for example.

Notwithstanding these shortcomings, it is a shame that the GEM research has not received funding in New Zealand over the last three years. The data is useful as a benchmarking tool and the methodology should be made more widely available so that excluded cities could make their own comparisons. It is unfortunate that no New Zealand data is available beyond 2005, hence we cannot be sure of what the current position might be. What we do know however, looking at the data up until 2005, is that when we include non-OECD cities, Auckland ranks similarly to Santiago, Buenos Aires and Bangkok in terms of “early stage entrepreneurial activity”.  Is that really the company we want to keep? In other words, high levels of entrepreneurial activity do not neccessarily equate to high economic returns. But there’s worse news.

When we consider the data on prevalence rates of entrepreneurial activity by city versus national figures, Auckland actually demonstrates levels less than that of New Zealand as a whole -at least according to the research.

4 thoughts on “Do World Cities Have an Entrepreneurial Advantage?

  1. I think there’s been enough research to show that cities do create conditions for innovation given they have many people and a short distance to connect them all.

    As to which city is better, well that’s debatable. I think Wellington has a nice geographic position as many people are located within walking distance. This creates a lively place for interaction. The downside is people spend to much time meeting for coffee and not enough time creating :-)

    I like Christchurch because of the space. You can still meet people quickly but not every time you step out the front door. Auckland seems a little dispersed but I’m sure they all have their advocates.

  2. I’ve had some great meetings in Wellington coffee shops that led to business opportunities downstream.

    The important issue is not who has the most entrepreneurial activity. What is important is the quality of that activity. Bangkok ranked highly as a hive of entrepreneurship because there are thousands of street vendors who go into business to survive. The businesses that grow and generate large economic returns such as biotech and ICT are not that well represented.

    I don’t understand what is meant by the term “world city”. Wellington, Christchurch and San Francisco have large communities of “creatives”, enviable geographic settings and punch above their weight in terms of economic presence on the Asia-Pacific rim. But these cities are not included in the research. Go figure.

  3. Purely a personal perspective – I’d rather live with Bangkok’s entrepreneurial street vendors than Posonby’s entrepreneurial wankers… Having said that, a city’s advantage for innovation sounds like something which would be terribly difficult to measure in any meaningful way and even if it were not, would only be a very minor consideration for most people looking for a good place to live. I don’t like Auckland any more than you, Paul but I try not to run it down every blog. Perhaps we should be pleased that at least one NZ city topped the list. We all know how subjective these reports can be especially with such a nebulous idea as this.

  4. The point is, the media claimed it topped the list, but I cannot see any evidence of this. If it were true I would happily applaud the success.

    Yes the effect of agglomeration on innovation is a nebulous idea, but not one altogether without merit. The problem is that you can show just about anything you like by dreaming up all sorts of clever indices.

    No matter what they tell us, NZ lacks scale and geographic proximity to markets and this impacts on our ability to generate and execute on high value business ideas. But in other respects remoteness is also our competitive advantage.

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