Why liveability matters to global talent

29/05/2015
When opening a new office or plant in Asia, multinationals must look beyond financial incentives and a location’s pro-business environment. Firms must place equal importance on a city’s quality of life in order to attract and retain global talent, argues Iliyas Ong.

As Asia transitions into a knowledge-based economy, attracting and retaining highly skilled talent is a major concern for most multinational companies operating across the region. Rising affluence levels and the relative mobility of today’s workers, combined with a shortage of specialised skills and escalating employee turnover rates, means that talent has become the number-one concern for most businesses trading in Asia.

When choosing the location of a firm’s new office or plant, business leaders usually base their decisions on cost savings and potential profit margins. However, a city’s quality of life and general liveability is often ignored. This is a strategic error. While rent and lowly skilled workers in off-piste destinations usually save foreign conglomerates hundreds of thousands of dollars per year in operating expenditures, the reality is that any cost savings made in these areas are lost. By locating in business-friendly but unappealing cities, organisations frequently end up paying extremely inflated salaries in order to attract and retain talent, who are increasingly declining to move to such locations. The liveability of a city, therefore, matters greatly to workers.

In the past, people tended to move to cities where they could be most productive and earn the most money. However, this appears to be changing. Many urban economists today believe that migratory movements are driven by other factors. The US National Bureau of Economic Research reports that quality of life will soon become critical in determining the attractiveness of particular location to skilled workers.

Key Considerations

Organisations should study how civic authorities are making their cities attractive to workers. A Harvard University report argues that organisations should look for
locations that can offer four critical urban amenities:
• A rich variety of services and consumer goods, such as restaurants and theatres;
• Aesthetics and physical setting, including elements such as architecture and a favourable climate;
• Good public services, such as schools and law enforcement; and • ‘Speed’, which includes the efficiency of public and private services, as well as the sophistication of a city’s transportation infrastructure. The report concludes cities that can successfully develop these urban amenities are more attractive to talent – and hence organisations. A survey of 150 leaders from the top- 500 fastest-growing American companies found that liveability factors – such as the presence of parks and efficiency of transportation infrastructure – trump business-related resources when it comes to setting up an office in a new location.

Take Melbourne, Australia as an example. A series of urban renewal policies in the 1990s transformed the city. These included encouraging residential development in the city centre, creating pedestrian and bicycle-only routes, and building museums, public squares and leisure amenities. It also fuelled
massive private investment, creating more jobs – about 450,000 in 2009 compared to 200,000 in 1980 – in the process. Melbourne topped the Economist Intelligence Unit’s (EIU) Liveability Index in 2013 and its population is expected to eclipse Sydney’s by 2053 .

“Ten years ago, I wouldn’t have felt it even necessary to come down to Melbourne to do business,” Mark Steinert, Managing Director of property development firm Stockland, told The Australian Financial Review. Now he believes the city is a strong contender for businesses looking to base their operations in Australia and cannot be ignored by both domestic and foreign investors.

Money Still Matters

Tangible and intangible aspects of liveability are key factors in whether a city is able to attract and retain talent – and they should be on the checklist of business leaders looking for appropriate cities in which to set up shop. However, remuneration and career growth opportunities are still important incentives for organisations to attract talent. As Kevin Stolarick, Research Director of the Martin Prosperity Institute, told the EIU, “Just having great quality of life is not enough. If you don’t have work [opportunities] for [talent], then it doesn’t matter how wonderful your quality of life is, you’re not going to
be able to attract people.”

For example, the Chinese city of Shanghai might rank near-bottom of a PricewaterhouseCoopers report measuring cultural vibrancy, city living, health, safety and security, but it is beginning to attract more global talent than Hong Kong. According to recruitment agency Hays, when compared to Hong Kong, Shanghai offers faster salary growth, wider career opportunities and – in certain fields – higher starting wages. “We’ve got a lot of inquiries from expats who want to relocate to Shanghai,” Simon Lance, Regional Director for Hays China, told the South China Morning Post. “They are prepared to accept compromises on life, air quality and those sorts of things.”

Accordingly, employers must strike a delicate balance between consumption and productivity incentives to offer potential hires. A report by the International Regions Benchmarking Consortiums recommends the Rosen- Roback model in urban economics to calculate the ‘utility function’ of metropolitan areas. In this model, an organisation should complete the sum:

Wages + Amenities – Housing cost – Transportation cost = Utility function

From this equation, a reduction in commute times, for instance, will lower costs and consequently make a city more attractive. The Rosen-Roback model suggests that the attractiveness of a city to talent is derived from a complex ecosystem of factors, within which liveability is growing in prominence vis-à-vis productivity incentives. For business leaders to be attuned to the shifting needs of the global workforce and understand the engines that drive migration patterns, they must study the ways in which cities are developing their infrastructure, urban planning and amenities. The quality of life of a
city might neither be sufficient nor necessary to attract workers – but it is a critical enough incentive that organisations cannot risk ignoring it.

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