The growing potential of secondary cities offers much food for thought for investors, with country capitals and megacities having traditionally dominated the FDI landscape. The new fDi Tier 2 Cities of the Future 2020/21 aims to take a closer look at the non-capital cities capturing investors’ attention. Since there is no standard definition, the ranking defines secondary cities as non-capitals that attract no more than 20% of their country’s total FDI projects, and no less than 1%, with a total population of under eight million.
San Francisco takes the crown overall among Tier 2 cities, as well as scooping the top prize in the Economic Potential category. According to data from greenfield investment monitor fDi Markets, San Francisco-based companies created more than 900 FDI projects between May 2015 and April 2020, the highest number out of all locations analysed. The city saw a 65.8% increase in outward FDI projects between 2015 and 2019, with companies such as Prologis, Uber Technologies and CloudFlare contributing to a record 257 outward FDI projects last year.
In addition, San Francisco boasts the highest gross domestic product (GDP) out of all locations analysed (more than $550bn at purchase power parity based on data from the US Bureau of Economic Analysis). The city also reinforces its status as a premier hub for innovation with around 70,000 patents registered there between 2003 and 2019, according to the United States Patent and Trademark Office.
Montreal comes in second in the overall ranking, as well as both the Economic Potential and Human Capital and Lifestyle categories. Research and development (R&D) is the leading business activity, representing over a third of total inward FDI projects in the five years to April 2020, when Montreal attracted 73 R&D projects and over $5.6bn in R&D capital investment, the highest out of all the cities included in the study. Greater Montreal also claimed first place in the FDI strategy category.
US-based Zesty.ai, which develops artificial intelligence enabled building analytics platform for the property insurance industry, announced the opening of its lab in Montreal in February 2020. Its reason was that the city “is well positioned to attract local talent in computer vision and data science, which is both plentiful and of high quality”.
Houston comes third in the overall ranking. The Texan city is a reputable talent hub and, according to the 2019 Academic Ranking of World Universities, is home to five of the global top 500 universities, as well as over 30 international baccalaureate schools. This contributed to its achieving third place in the Human Capital and Lifestyle category.
Houston also placed sixth in the Business Friendliness category. The city’s welcoming business environment is clearly a hit with investors, as it recorded 53 expansion or co-location projects between May 2015 and April 2020, representing more than a quarter of its total inward FDI and the second highest out of all locations analysed.