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ERROR: type should be string, got "https://blogs.wsj.com/cio/2019/01/18/the-rise-of-global-superstar-firms-sectors-and-cities/\nCIO Journal.\nThe Rise of Global, Superstar Firms, Sectors and Cities\nThe banking district's skyline in Frankfurt am Main, Germany, is seen behind historic loading cranes, Jan. 7, 2019. Photo: frank rumpenhorst/Agence France-Presse/Getty Images\nJan 18, 2019 2:13 pm ET\nIn the 1990s, the internet was supposed to usher a much more open, decentralized, democratic economy and society. Startups with innovative business models were now able to reach customers anywhere, anytime. Companies, from the largest to the smallest, could now transact with anyone around the world. Vertically integrated firms became virtual enterprises, increasingly relying on supply chain partners for many of the functions once done in-house. Experts noted that large firms were no longer necessary and would in fact be at a disadvantage in the emerging digital economy when competing against agile, innovative smaller companies.\nSome even predicted that the internet would lead to the decline of cities. People could now work and shop from home; be in touch with their friends over e-mail, video calls, and text messaging; and get access to all kinds of information and entertainment online. Why would anyone choose to live in a crowded, expensive, crime-prone urban area when they could lead a more relaxing, affordable life in an outer suburb or small town?\nBut, as we well know, it hasn’t quite worked out as expected. Instead, we’ve seen the rise of the global superstar company, the unicorn startup, and the winner-take-all city. As it’s turned out, the internet’s universal reach and connectivity has led to increasingly powerful network effects and to the rise of platform economies.\nScale increases a platform’s value. The more products or services a platform offers, the more consumers it will attract, helping it then attract more offerings, which in turn brings in more consumers, which then makes the platform even more valuable. Moreover, the larger the network, the more data available to customize offerings and better match supply and demand, further increasing the platform’s value. The result is that a small number of companies have become category kings dominating the rest of their competitors in their particular markets.\nNetwork dynamics also apply to metropolitan areas. For the past few decades, the demands for high-skill jobs have significantly expanded, with the earnings of the college educated workers needed to fill such jobs rising steadily. Talent has become the linchpin asset of the knowledge economy, making capital highly dependent on talented experts to navigate our increasingly complex business environment.\n“Just as the economy confers disproportionate rewards to superstar talent, superstar cities… similarly tower above the rest,” wrote urban studies professor and author Richard Florida. “They are not just the places where the most ambitious and most talented people want to be - they are where such people feel they need to be.”\nA few months ago, McKinsey published Superstars: the Dynamics of Firms, Sectors, and Cities Leading the Global Economy, a research article that aimed to assess the extent to which a superstar effect can be observed in each of these areas as well as to examine their key characteristics, similarities, differences and economic implications.\nDynamics of firms. For firms, the key metric used is economic profit, which reflects a firm’s net operating profit, and net invested capital.\nThe article analyzed data from nearly 6,000 large public and private firms with over $1 billion in revenues, which together account for 65% of corporate pretax earnings. It defined the top 10% as superstar firms. Collectively, these top 10% are capturing 80% of the economic profit of companies with annual revenues greater than $1 billion. The 1%, the top of the top, account for 36% of all economic profit. The middle 80% of firms have near zero economic profit in aggregate, while the bottom 10% destroy as much value as the top 10% create.\nThese disparities have widened over the past 20 years. Superstar firms have 1.6 more economic profit than their equivalent did 20 years ago, while the bottom 10% have a 1.5 times greater economic loss that their counterparts. But superstar firms face a high churn rate, with nearly 50% falling out of their top 10% positions in each of the past two decades. At the very top, two thirds of 1% firms are different from those at the very top ten years earlier.\nDynamics of sectors. McKinsey analyzed 24 different sectors of the global economy. The superstar effect is not as strong among sectors as among firms. Nevertheless, over the past 20 years, 70% of the economic gains were accrued by firms in just a few sectors, in contrast to previous decades where such gains were spread over a wider range of sectors.\nSuperstar sectors share a number of attributes, including fewer fixed capital and labor inputs, more intangible inputs, and higher levels of digital adoption and regulatory oversight. They tend to be two to three times more skill-intensive and also have relatively higher R&D intensity and lower capital and labor intensity than lower performing sectors. Their higher returns accrue more to capital than labor, including intangible capital such as software, patents, and brands.\nDynamics of cities. For cities, metrics include GDP and personal income per capita. McKinsey analyzed 3,000 of the world’s largest cities which collectively account for 67% of world GDP. It defined the top 50 as superstars cities. These 50 cities account for 8% of global population, 21% of the world’s GDP, 37% of urban high-income households, and 45% of headquarters of firms with over $1 billion in annual revenue. Their average GDP per capita is 45% higher than their peers in the same region and income group.\nOver the past decade, there’s been a 25% churn rate among superstars cities, especially as some advanced-economy cities are being displaced by emerging-market cities. In general, emerging-market superstar cities have increased their share of global GDP by 30% to 40% over the past decade, while the share of their advanced-economy counterparts has increased by 20% to 30%.\nBesides size and income, the 50 superstar cities exhibit a number of shared characteristics. 31 are ranked among the most globally integrated cities; 27 among the most innovative; 26 among the top global financial centers; 22 among the world’s largest container ports; and 23 among the most digitally advanced. They’re also wealthier, having a disproportionate share of their country’s national income compared to the size of their population.\nIrving Wladawsky-Berger worked at IBM for 37 years and has been a strategic advisor to Citigroup, HBO and Mastercard. He is affiliated with MIT and Imperial College, and is a regular contributor to CIO Journal.\nPrevious The Morning Download: Hey Big IT Spenders Next The Morning Download: Google Fine Tests Details of New European Privacy Law\nSHOW CONVERSATION HIDE CONVERSATION (4)"