Invest & Innovation

Global Startups Enter a New Era of Executive Compensation

3 October, 2019
  • Varun Khosla

    Principal, Head Executive Remuneration, Middle East, Mercer

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"Investment companies must be diligent when determining executive compensation — it can ultimately be the difference between success and failure."

For decades, any conversation involving startups and executive compensation conjured images of Silicon Valley and shiny office buildings full of technology virtuosos working for innovative companies striving to be the next billion-dollar unicorn. Now, a new era of global startups is taking root in previously unexpected regions around the world.

In fact, recent research reveals that $893 million was invested in 366 startups throughout the Middle East and North Africa. That number represents a $214 million increase from 2017, which saw $679 million in startup investments.1

Similarly, startups are increasing in Southeast Asia, largely driven by "SEA turtles" — locally born residents who studied and worked overseas (mostly in the West, in places like Silicon Valley) and are returning home to launch their own startup companies. The region has experienced a major inflection point, with VC investors in Southeast Asia investing over $7.8 billion across 327 deals.2

There's one key component all these startups need, however: leadership. But attracting and retaining executive-level talent and management teams can be a major challenge for these burgeoning startup hotbeds, especially when it comes to compensation.

Corporate Investors Are Changing Executive Compensation

 

Many of the world's most recognizable startups were launched by charismatic, individual founding partners, such as Jeff Bezos, Jack Ma and Mark Zuckerberg. However, the rise of these luminaries and their compelling stories do not mirror the new era of startups blossoming around the world.

In the Middle East and North Africa (MENA), for example, investment companies are providing the initial financial backing needed to launch startups. These investment companies are there from day one to ensure the startups have the capital needed to secure subsequent rounds of funding. Additionally, the executives of these startups are not the original founders and, therefore, desire different compensation models to secure their continued loyalty, creativity and commitment.

Acquiring top C-level talent for startups can be a daunting task, as the risk level is high for businesses that do not have a proven track record — or any record at all. Traditionally, western-based startups have fashioned executive compensation packages around medium- to long-term benchmarks predicated on the company's expected growth, but triangulating growth models, investment strategies and executive payment packages can be a complicated and tenuous proposition.

Since most global startups today are built around investment companies instead of inspirational individual founders, these companies must be diligent when determining how or how much to pay the executives — who can ultimately mean the difference between success and failure.

How Much Should Executive Compensation Be?

 

Investment companies naturally want to maximize their profits, which means they want to retain as much equity in the startup and as many shares of the startup as possible. Every dollar, share of stock or option paid to startup executives is money the investment companies surrender to operational costs. However, low-balling startup executives or opting to hire those who aren't as skilled or experienced also comes with the risk of undermining the startup's ability to compete, grow and drive revenue.

Financial arrangements that provide management with a potential share of equity (or shadow equity) require careful thought and consideration. An executive compensation plan must act as an incentive and retention device for startup executives while delivering a fair return to investors and shareholders who have funded the company. Investors and shareholders must decide how much dilution of equity they are willing to accept to provide an appropriate equity pool for the management team.

This is why many companies decide to execute a scaled approach that decreases the size of the equity pool with each round of funding to accommodate the increasing value of the company. This type of program impacts the dilution of equity and can allow for more creative compensation strategies — particularly when dealing with more sophisticated startups, such as in the pharma and fintech industries, which require the talent and knowledge of more accomplished professionals and leaders.

Investment companies can offer either share options, which give employees the right to buy or sell stock at a designated time and price, or full-value shares, which offer employees actual ownership in the company. Both contribute to the dilution of equity, but options typically contribute more to the equity dilution than full shares. For example, an equity pool comprised of options may amount to 15% to 20% of a company's capital, while a pool comprised of shares may amount to as little as 3% to 5%. This indicates the same amount of long-term incentive awards paid in options will lead to higher equity dilution than awarding full shares. Investment companies must determine which strategy best suits their objectives.

When to Pay Executives and Management

 

Should investors pay their executives and management teams only after they have received a return on their investments? Or should executive compensation be based on employees performing their jobs to the best of their abilities, regardless of the outcomes — which are often determined by external economic forces beyond their control.

Many startups now implement the former strategy, believing that benchmarks for returns on investments motivate executives and provide them with the extra incentive to do everything possible to create shareholder value. In fact, in a majority of cases, long-term incentive plans only pay out when investors receive a return. Alternately, some startups choose to compensate executives and management based on specific, mutually agreed upon corporate goals and objectives. Compensation can then be provided as cash or shares, though there may be restrictions on when those shares can be sold or vested or whether they come in the form of options or full-value shares.

Startups are popping up all over the world, ushering in a new frontier of ideas and innovation, as well as investors and executives who will create the next generation of future unicorns. As new trends continue to emerge for how executives in these startups are compensated, global startups will need to review their options with scrutiny to attract the best executive talent while maximizing returns for investors.

Sources:

1. "2018 MENA Venture Investment Summary." MAGNiTT, January 2019,https://magnitt.com/research/2018-mena-venture-investment-summary.
2. Maulia, Erwida. "Southeast Asian 'turtles' return home to hatch tech startups." Nikkei Asian Review, 22 May 2019,https://asia.nikkei.com/Spotlight/Cover-Story/Southeast-Asian-turtles-return-home-to-hatch-tech-startups.

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Fabio Takaki | 19 Dec 2019

Influential women can make a transformative difference in a company, industry or even a nation. When women are leaders, they are more likely to contribute to education, health and community development programs in the areas where they work and live, according to Mercer's "When Women Thrive, Businesses Thrive" report. Despite the positive benefits women leaders bring to businesses and communities, female decision-makers remain difficult to find in leading financial firms around the world. Women are also significantly underrepresented on the leadership teams of companies that receive investment capital. A new report from Oliver Wyman (part of MMC group of companies) shows that globally, women hold 20% of positions in executive committees and 23% on boards, but only 6% of CEOs in financial institutions are women. However, in the Middle East — traditionally one of the most challenging regions for female leaders to scale — women are gradually being named to leadership positions in the region's financial sector.1 As women make their mark in Middle Eastern finance and, in turn, their communities and region, business leaders around the world should take notice. Women Leaders in Middle East Finance   The growing number of influential women in Middle Eastern finance includes those working in banks, investment firms, financial law and consulting companies.1 For instance, in September 2018, Ms. Rola Abu Manneh was named CEO of Standard Chartered UAE, becoming the first Emirati woman to lead a bank in the UAE. With a long experience in UAE banking, Ms. Abu Manneh has the knowledge and leadership competencies to bring important business to her bank. In her first year as CEO, she has already advised Dubai-based Emaar Properties on the sale of its hotels to Abu Dhabi National Hotels.2 Ms. Rania Nashar is another great example — she is the first female CEO of Saudi commercial bank, Samba Financial Group, one of the largest in the region. Ms. Nashar has over 20 years of experience in the commercial banking sector and was named CEO in 2017, becoming the first female CEO of a listed Saudi Arabian bank.3 That was also a moment when Saudi Arabia began implementing reforms to promote gender equality as part of the KSA's Vision 2030, and Ms. Nashar says she wants to continue doing more. "I have to not only prove to myself that a bank of Samba's size can be run by a female CEO — and can achieve the best results in its history — I have to prove it for all the women in Saudi Arabia and in the world," Ms. Nashar notes. "I hope that I can be an honourable portrait for Saudi women."4 Ms. Lubna Olayan is also an influential leader in Saudi Arabia. For more than 30 years, she was the CEO of Olayan Financing Company, the holding company through which The Olayan Group's trading, real estate, investment, consumer and industrial-related operations are conducted in the Gulf region. She has received numerous awards and recognition, including landing in Time's list of the 100 most influential people in the world, Fortune's list of Most Powerful Women and recognized as a champion of women's economic empowerment.5 Why Gender-Balanced Leadership Matters   Women leaders such as these are helping to advance and make a shift in the gender balance in the region's financial sector. While they represent progress, there is still much to be done. Governments are working to increase the gender balance but transforming the mindsets of business leaders and overcoming bias is a slow process. However, it's a process worth pursuing. For organizations and nations that are facing workforce challenges, an underutilized female workforce represents a strategic opportunity to compete, grow and win, helping to transform the entire economy. According to Mercer's "When Women Thrive, Businesses Thrive" report, women's essential roles as providers, caretakers, decision-makers and consumers make them instrumental in the education and health of future generations, as well as the development of their communities. Women leaders can also be instrumental in building stronger and more collaborative teams; retaining, developing and nurturing talent; and bringing a diverse and new perspective for organizations. In fact, the Mercer report also shows that increased participation from women in the workforce has implications for the economic and social development of communities and nations. Economists have calculated that eliminating the gap between male and female employment rates could significantly boost gross domestic product by 5% in the United States, 9% in Japan, 12% in the United Arab Emirates and 34% in Europe. Achieving Gender Equity in Underrepresented Sectors   Finding the right approach for sourcing and engaging female talent depends on the individual company's culture and needs, but there are some broad strategies that may be effective globally. Mercer research shows that the chief building blocks for achieving gender diversity are health, financial well-being and talent management elements. 1. Health   Health concerns are of special significance to the female population, as women are affected by different health issues and illnesses than men, and they experience and use the healthcare system in different ways than men. For example, there are gender specific risk factors for common mental disorders that disproportionately affect women, affecting their capacity to be productive at work. Unipolar depression, a leading factor of working disability, is twice as common in women than in men.6 To achieve gender equity in business, companies must make healthcare available to women in the ways they most need, including: 1.  Flexibility for maternity leave 2.  Physical health, wellness and mental health support 3.  More autonomy and access to health resources 4.  Psychological support for severe life events 5.  Confidential medical support dedicated for women 2. Financial Well-being   Women reportedly have greater financial responsibility and greater financial stress than men. According to a 2018 study conducted by Prudential, the average woman has saved less for retirement compared to the average man. Only 54% of women have put aside money for retirement, and on average, they have saved $115,412. By contract, 61% of men have saved for retirement, and on average, they have saved $202,859. This greatly increases the likelihood of a woman living in poverty in retirement and is exacerbated by women's longer life expectancies.7 To address this, organizations need to ensure that women receive fair financial compensation, greater coaching and educational support in planning for their financial futures, tailored retirement options for women, and encouragement for systematic and regular contributions to savings and retirement accounts. 3. Talent Management   Women need opportunities for advancement, as well as training and development opportunities. In addition, they also need flexible work options that make it possible for them to fulfill other essential roles outside of work. Attention to management positions are critical to further improve the gender participation in executive levels. These jobs are usually high demanding in working hours, requiring management of teams, clients and superiors. For women who achieve such positions, it may also coincide with motherhood period, making it even more challenging if companies do not provide adequate working arrangements — such as flexible working options leveraging technology, childcare support, mentoring and leadership support for women, business resource groups and diversity and inclusion efforts and training. Women in the workforce have an undeniable power to make meaningful contributions and expand businesses. When financial institutions and governments begin to focus on the strategies required to get talented women working and leading, they will begin to see positive results. Not only can influential women bring business acumen to help grow organizations, but their roles in societies also enable them to make significant improvements in education, communities and the transformation of countries. Sources: 1. "The 50 Most Influential Women in Middle East Finance," Financial News, 29 Apr. 2019, https://www.fnlondon.com/articles/the-50-most-influential-women-in-middle-east-finance-20190429. 2. "FN 50 Middle East Women 2019," Financial News, 2019,https://lists.fnlondon.com/fn50/women_in_finance_/2019/?mod=lists-profile. 3. "Rania Nashar," Forbes, 2018,https://www.forbes.com/profile/rania-nashar/#20d8136e473c. 4. Masige, Sharon. "Raising the Bar: Rania Nashar," The CEO Magazine, 27 Jun. 2019,https://www.theceomagazine.com/executive-interviews/finance-banking/rania-nashar/ 5. "Lubna Olayan Retires as CEO of Olayan Financing Co.; Jonathan Franklin Named New CEO," Olayan, 29 Apr. 2019, https://olayan.com/lubna-olayan-retires-ceo-olayan-financing-co-jonathan-franklin-named-new-ceo. 6. "Gender and Women's Mental Health: The Facts," World Health Organization, https://www.who.int/mental_health/prevention/genderwomen/en/#:~:targetText=Unipolar%20depression%2C%20predicted%20to%20be,persistent%20in%20women%20than%20men. 7. "The Cut: Exploring Financial Wellness Within Diverse Populations," Prudential, 2018, http://news.prudential.com/content/1209/files/PrudentialTheCutExploringFinancialWellnessWithinDiversePopulations.pdf.

Fiona Dunsire | 05 Sep 2019

The markets across Latin America, the Middle East, Africa and Asia are some of the most exciting in the world, amid a backdrop of economic growth and changes in demographics, investment markets and regulations. Mercer's Growth Markets Asset Allocation Trends: Evolving Landscape report examined retirement plans in 14 of these markets, with a look at current investment positions and changes over the past five years. The study included retirement fund assets of almost $5 trillion across markets in the Southern and Eastern hemispheres. These areas offer exciting potential for asset owners, managers and investors, as almost 70% of global growth now comes from these economies, according to the World Bank. We are also seeing a rapid expansion of the middle class, creating different patterns of consumption and savings. In addition, half of the top 50 global institutional investors are located in these markets.1 The Global Investment Landscape Is Becoming More Robust   Because the economies of Latin America, the Middle East, Africa and Asia are large and growing, with a rising share of wealth being held by individuals, they are of particular interest to investors around the world. These markets are also becoming increasingly open to foreign investors. At the same time, regulatory changes within these regions are allowing domestic investors to invest more broadly and outside their home markets. All these developments translate into a more open and robust investment landscape, with increasing opportunities for investors across the globe. The pension and savings systems in these regions are also undergoing reform, with the same trend toward increasing individual responsibility for retirement savings as seen in Western countries. Overall, we are seeing a shift to defined contribution (DC) plans at the expense of defined benefit (DB) plans across both corporate and government-sponsored schemes. These changes further emphasize the need to deliver effective investment solutions to meet future savings needs and ensure trust in the systems. 3 Ways Investors Are Responding   Investors and plan managers are responding to the changing environment in three key ways: 1.  More investors are putting money in equities. In the past five years, equity allocations rose approximately 8%, from 32% to 40%. For investors in many jurisdictions, the shift was intended to increase expected returns on the portfolio. Investors across the world face challenges amid an increasingly competitive investment landscape and a low return environment. Adding equities to the portfolio mix should offer greater return expectations over time. 2.  Market liberalization is enabling more diversified portfolios, through increased exposure to foreign assets at the expense of domestic assets. On average, foreign exposure in retirement plans increased from 45% of the overall equity portfolio to 49% in the past five years. Investors sought greater geographic diversification, especially in Colombia, Japan, South Korea, Malaysia and Taiwan. In some countries, such as Brazil, Colombia, Peru and South Africa, recent changes in legislation now allow increased foreign asset exposure. In Japan, the Government Pension Investment Fund has seen a move to more foreign equities at the expense of domestic equities in recent years. The shift to foreign assets was also present in fixed income, with the proportion of foreign allocations rising from 16% to 23%, in part due to less attractive local interest rates, as well as a search for increased diversification. Significant home biases remain; however, we expect this trend to continue as regulatory changes support broader global investment. 3.  Investors are showing slightly more interest in alternative investments. More investors are including alternatives in their portfolios, and Mercer expects that trend to continue on an upward trajectory. Among those investors who provided details on their alternatives asset allocations, more than 70% of the average allocations went to property and infrastructure, and approximately 20% went to private equity. Changing regulations have made alternatives more attractive for investors in some areas. For instance, in Chile, a 2017 reform to the investment regime passed, allowing pension managers to invest in alternatives up to 10%, though specific limits vary by portfolio. The main objective of this enhancement is to boost returns and ultimately retirement incomes. As investors seek to diversify their portfolios and seek return enhancement, we expect alternatives exposure to continue to grow over time. We hope investors use our report's findings as an opportunity to review their own portfolio and determine where they can improve their asset allocation to achieve even better investment outcomes. To learn more, download the full report here. Sources: Top 1,000 Global Institutional Investors." Investment & Pensions Europe, 2016. https://www.ipe.com/Uploads/y/d/w/TOP-1000-Global.pdf

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Nancy Mann Jackson | 30 Jan 2020

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Another Chinese company uses ankle bracelets on chickens to record the details of each chicken's life using blockchain, providing assurance to consumers that the free-range chicken they're paying for is actually free-range.2 Analysts expect that the blockchain technology market for agriculture around the world will continue to escalate, growing 56.4% from 2018 to 2022.3 Blockchain marketplaces allow producers and buyers to view trade history, local prices and other information that allow them to negotiate prices with confidence. As food producers around the world continue adopting blockchain technology, they bring more efficiency to their supply chains, improving food safety and traceability, as well as profit margins and consumer trust. Clearly, blockchain can bring about positive change in a variety of ways, but adopting and implementing the technology is much easier said than done. In an industry like agriculture, blockchain will have to reshape a decades-old framework, and that won't happen overnight. It's up to leaders everywhere to understand the value of this technology and get their teams on board with implementing it to achieve that value — even if it means starting small. Sources: 1. "Coffee Board Activates Blockchain Based Marketplace in India." Press Information Bureau, 28 Mar. 2019, http://pib.nic.in/newsite/PrintRelease.aspx?relid=189586. 2. Peters, Adele. "In China, You Can Track Your Chicken On–You Guessed It–The Blockchain." Fast Company, 12 Jan. 2018, https://www.fastcompany.com/40515999/in-china-you-can-track-your-chicken-on-you-guessed-it-the-blockchain. 3. "Global Blockchain Technology Market in the Agriculture Sector 2018-2022." Global Banking & Finance Review, 26 Sep. 2018, https://www.globalbankingandfinance.com/global-blockchain-technology-market-in-the-agriculture-sector-2018-2022-market-to-grow-at-a-cagr-of-56-4-with-agriledger-full-profile-ibm-microsoft-ripe-technology-te-food-dominating-rese/.

Jackson Kam | 30 Jan 2020

China is fostering a culture of innovation throughout its society — but most notably in its startup businesses. Multinationals can take advantage of this increased energy by investing in Chinese startups or taking a cue from how the successful ones — the "unicorns" — are meeting the demands of a growing Chinese consumer base. Multinationals must also be mindful of what Chinese workers desire most from employers, which is the ability to have a healthy work-life balance, according to Mercer's Global Talent Trends 2019 study. Currently, this is a very real challenge for employees working at tech startups. Developing a Culture of Innovation   To foster this culture of innovation within its industries, the Chinese government is making it easier for entrepreneurs to experiment and grow by implementing more "benign" business regulations. It's also ensuring that there is efficient infrastructure and local support in place.1 One sector that is particularly thriving under this new spirit is insurtech. For example: ZhongAn Online, a digital insurer backed by Ping An, Tencent and Alibaba, has launched a Software as a Service (SaaS) platform for insurance companies, giving them rapid access to ZhongAn's accumulated data on medical claims, medical insurance directories, drug prescriptions and local hospital information across the country.2 Another insurtech example is the partnership between Rui Xin Insurance Technology and China Lending, which aims to help the insurance company develop its own consumer financial platform offering China Lending's products. The two companies will also collaborate to develop more insurance products and attract more customers on both of their platforms.3 These insurtech partnerships exemplify how China is now setting the stage for experimental collaboration and innovation that challenges the status quo. Taking a Cue From Chinese Unicorns   Across many sectors, thousands of Chinese startups are disrupting industries — and stealing customers from established companies — by developing innovative business models to sell even more innovative products.4 Indeed, China has 120 successful startups, more than half of the 234 unicorns globally.5 Chinese startups are excelling because they can quickly reach scale in the large market, and they can tap a growing talent pool, particularly professionals with PhDs — twice as many as those in the U.S. They are also exhibiting a higher risk tolerance that's enabling them to conduct "fearless experimentation" to push out new products as fast as possible. With the rise of digital disruption, these unicorns are eager to take big risks and put their country back on the map as an innovator.5 How Multinationals Can Leverage This Energy   Hengyuan Zhu, associate professor and deputy chair in the Department of Innovation, Entrepreneurship and Strategy at Tsinghua University, believes that startups are successful because they are practicing "contextualized innovation." This entails collaborating with local customers within the country to make sure products meet the specific demands of those localities — and multinational companies operating in China should take a cue.6 "If they want to be successful, multinational companies will have to give more decision-making power to their local branches in China," Zhu said. "They need to do this so that they can leverage global resources, integrate into the innovation system and innovate in China for Chinese customers." An innovative workplace culture must be counterbalanced for organizations to be successful. For instance, organizations need to be willing to experiment but in a highly disciplined manner. Carefully taking this line of thought into consideration in all aspects of the workplace will ensure the success and application of a productive, innovative culture. Dealing with 996: An Unhealthy Work-Life Balance   There is a rising backlash occurring in the Chinese tech community, particularly among startups, that centers on what is known as "996.ICU." The name comes from the typical work schedule for Chinese programmers: 9 a.m. to 9 p.m., six days a week.7 Some startups are forcing their workers to abide by this schedule, either explicitly or by demanding certain KPIs in an unreasonable amount of time. Others are encouraging these schedules by appealing to long-held beliefs within the Chinese culture. For example, Alibaba founder Jack Ma has stated, "No company should or can force employees into working 996 . . . But young people need to understand that happiness comes from hard work. I don't defend 996, but I pay my respect to hard workers!"7 These sentiments are contrary to what the majority of polled Chinese workers shared during the Global Talent Trends 2019 study — that the foremost condition that would help them thrive in the workplace is the ability to manage their work-life balance. This also ranks ahead of their desire to have opportunities to learn new skills and technologies and have a fun work environment. Multinationals considering investment in Chinese startups or taking cues from unicorns may consider adopting many of the attributes of those successfully innovating while fostering a healthier work-life balance for Chinese workers — which can ultimately benefit the organization's bottom line, as well. Sources: 1. Jun, Zie. "Whole-of-society effort drives technology development in China," Global Times, 25 Jun. 2019, http://www.globaltimes.cn/content/1155732.shtml. 2. Fintech News Hong Kong. "ZhongAn Technology Launches AI-Powered Data Platform for China's Insurance Industry," Fintech News, 14 Aug. 2018, http://fintechnews.hk/6308/insurtech/zhongan-technology-saas-insurance-data/. 3. China Lending Corporation. "China Lending Forges Strategic Partnership with Rui Xin Insurance Technology to Develop Online Financial Services Platform," PR Newswire, 15 Jul. 2019, https://www.prnewswire.com/news-releases/china-lending-forges-strategic-partnership-with-rui-xin-insurance-technology-to-develop-online-financial-services-platform-300884622.html. 4. Greeven, Mark J; Yip, George S. and Wei, Wei. "Understanding China's Next Wave of Innovation," MIT Sloan Management Review, 7 Feb. 2019, https://sloanreview.mit.edu/article/understanding-chinas-next-wave-of-innovation/. 5. Nheu, Christopher. "The Secret Behind How Chinese Startups are Winning," Startup Grind, 1 May 2018, https://medium.com/startup-grind/the-secret-behind-how-chinese-startups-are-winning-44876b196626. 6. Zhu, Hengyuan and Euchner, Jim. "The Evolution of China's Innovation Capability," Research-Technology Management, 10 May 2018, http://china.enrichcentres.eu/sharedResources/users/4807/The%20Evolution%20of%20China%20s%20Innovation%20Capability.pdf. 7. Liao, Rita. "China's startup ecosystem is hitting back at demand-working hours," TechCrunch, Apr. 2019, https://techcrunch.com/2019/04/12/china-996/.

Andre Maxnuk | 30 Jan 2020

The megacity will define economic growth in the coming years. Citing Monterrey and Guadalajara, Mexico, as examples, these emerging centers of business and commerce are positioned to grow quickly and possibly outpace traditional capitals of commerce. They also have the potential to learn from the mistakes of traditional big cities and engineer smart, long-term, sustainable growth. Urbanization is developing at such a rate that nearly half (47 percent) of GDP growth will come from 443 growth economy cities between 2010 and 2025, as Mercer's People First report notes. These cities are also on a trajectory to amass 1 billion new consumers and, between now and 2030, will significantly change the way people live and work. How Urbanization Changes Local Economies   While widespread adoption of the internet and interconnected technologies was predicted to enable people to live and work anywhere, it's actually had the opposite effect. Instead, more people have been drawn into cities for work. Innovative workers are seeking one another to collaborate in developing new industries in today's rapidly evolving global economy. They want an environment in which they can be more productive and more creative with like-minded peers. As all these bright minds flock to growing metropolitan areas, cities have become the crucible of collaboration. Take Guadalajara, for instance. The city's technology industry traces its roots back to the 1960s, when high-tech foreign companies looking for cheap labor moved manufacturing operations there. These companies included Kodak, Motorola, IBM, Hewlett-Packard and Siemens. Yet, when many of those operations moved to Asia in the early 2000s, the city still found a way to persevere as a hub for technology. As Andrew Selee from the Smithsonian Institution notes, "Guadalajara reinvented itself as a major center for research and development, programming, design and other high-skilled tech occupations, building on the foundation that had been laid years earlier."1 Guadalajara's highly trained engineers "inverted the model," designing components in Mexico and having them manufactured in Asia, as one engineer told Selee. Today, many Silicon Valley–based tech companies maintain research, development and programming facilities in Guadalajara, and the city — now known for its engineering talent and creativity — is home to a wide range of technology startups. How Cities Can Prepare and Respond   Rapid growth in jobs and economic opportunities is positive yet challenging for cities such as Guadalajara, also known as "Mexico's Silicon Valley." The city's population has grown to include more than 8 million people and is now the second biggest metropolitan area in Mexico, just behind Mexico City.2 The population is expected to expand even more (over 15%) in the next decade. It is also the third largest economy in Mexico, with a GDP of $81 billion.3 Comparatively, Monterrey has a population of 5 million and is the third largest metropolitan area in Mexico.2 Monterrey's population is also expected to increase over 16% in the next decade. Its GDP is valued at $123 billion — making it the highest GDP per capita city in Mexico and the second highest in Latin America.3 Both Guadalajara and Monterrey will continue to grow and expand, as will their workforces, so it will be vital to understand what today's and tomorrow's employees want. New residents don't just bring creativity and an interest in collaborating with other like-minded individuals; they also bring needs for healthcare, education, recreation, infrastructure and security. In order to keep bright individuals in the city, contributing to the growing economy, an emerging megacity must be able to provide the environment and services those individuals and their families want for a satisfying life. While business leaders often assume that a good salary will motivate people to move to a city and stay there, human and social factors are actually more important for the workers making those decisions. To attract and keep people, a city must create an environment for them to thrive across multiple dimensions, focusing on what matters most to them. Most cities, despite their rapid economic growth, are not doing a great job meeting the needs of the people who live there, which creates tension between what people value and what a city is able to deliver. Mercer found a 30+ point gap between workers' quality-of-life expectations and how a city is meeting them. To reverse that trend, city leaders must understand their importance for future economic growth and adopt a new outlook that includes these three components: 1.  Focus on people first. As technology continues to enable people to work smarter and make faster decisions, jobs will continue to change. Technology, automation and digitization will make work more efficient, but unique human capabilities will propel growing cities. If the people needed to operate and manage artificial intelligence don't want to live in a city, all the automation won't matter. Cities — as well as employers — must focus on the value of human qualities and skills and how to help those humans find satisfaction. 2.  Understand what people want. More than a good job and a good salary, people want a high quality of life. That includes the ability to feel safe and access good schools for their children, quality healthcare, recreation, clean air and water, and other lifestyle factors. Companies may be able to attract top employees, but cities must focus on providing the environment and lifestyle that will keep those employees. 3.  Prioritize partnerships. Most cities have big challenges to overcome to provide the quality of life that people want. No single entity can solve systemic problems, so public-private partnerships are crucial to address macro issues and gaps, such as in infrastructure, as well as safety and housing, and overcome challenges before they become exacerbated. Public-private partnerships are essential for cities, businesses and people to succeed. Increased urbanization and the blossom of new megacities will send waves throughout the global economy in the years to come. But to foster positive growth and innovation, successful megacities must acknowledge and act upon the wants and needs of those skilled workers who will call these cities home. Sources: 1. Selee, Andrew. "How Guadalajara Reinvented Itself as a Technology Hub," The Smithsonian Institution. 12 Jun. 2018, https://www.smithsonianmag.com/innovation/how-guadalajara-reinvented-itself-technology-hub-180969314/#kc531GtO4OwhOKDi.99. 2. "World Urbanization Prospects 2018," United Nations, https://population.un.org/wup/DataQuery/. 3. Berube, Alan; Trujillo, Jesus L.; Ran, Tao; Parilla, Joseph. "Global Metro Monitor report," Brookings, 22 Jan. 2015, https://www.brookings.edu/research/global-metro-monitor/.

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