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New Insights into ‘Smart City’ Constructions for ICT Enterprises

Safe City constructions combine human resources, physical facilities, and computer technologies to provide solutions that detect, analyze, and integrate the key information of a city’s core operating system. These solutions contribute to advances in the ‘Smart City,’ a general concept that covers nearly all fields of city development.

The principal goal of Smart Cities is to improve the quality of citizens’ lives and enhance environmental protection, public security, city services, and commerce. To have a more objective understanding of the concept, Information and Communications Technology (ICT) enterprises must break it down. The Boston Consulting Group (BCG) believes that Smart Cities consist of the following five parts.

  • Smart Energy: Smart Grid and demand-response energy systems, new energy vehicle infrastructure, and distributed-generation integration systems
  • Smart Transport: Intelligent transportation, congestion solution and tolling systems, smart parking, and intelligent public transport systems
  • Smart Water & Waste: Intelligent water distribution network and pollution monitoring systems
  • Smart Social & Safe City: Safety and security systems based on smart monitoring, eGovernment, and remote social insurance systems
  • Smart Buildings: Building and energy management systems and smart homes

New Insights into ‘Smart City’ Constructions for ICT Enterprises

Smart City Construction Schemes

Developed and developing countries have different goals and decision-making systems during the constructions of Safe Cities. BCG classifies current Smart City constructions into the following schemes based on such differences:

Brownfield Scheme

Most developed countries are adopting the Brownfield scheme for applying ICT technologies to improve the intelligence of city infrastructure and associated core systems. The ultimate goal is environmental protection and long-term and sustainable city development. Decision makers include the mayor and senior municipal government officials. Central and regional governments provide overall High-Level Designs (HLDs) and make decisions on key issues only. Therefore, the construction scope and progress are deeply affected by the opposition of stakeholders or related laws and regulations.

Greenfield Scheme

The Greenfield scheme is the preferred choice among most developing countries. It focuses on the satellite cities in core economic areas and results in large-scale development starting from scratch. For countries adopting this scheme, regional and city development plans are more important than the application of ICT technologies. The ultimate goal is to boost the economy of a city by leveraging certain benefits of constructing each Smart City, such as investment growth, land value increases, and additional services. Central and other higher-level governments make the decisions. Smart City installations are generally part of an overall national or regional development plan, which serves to guarantee their implementation. The scope and progress of the physical attributes seldom change, even when there are objections.

New Insights into ‘Smart City’ Constructions for ICT Enterprises

Smart City Implementation Schemes

An ICT enterprise must choose its financing and entry methods with caution when implementing its Smart City solution, no matter what field it enters or development scheme it adopts. Once a wrong method is adopted, major implementation difficulties could ensue.

Financing Methods

Currently, the typical financing methods include: sole investment from governments; Public-Private Partnership (PPP) and Build-Operate-Transfer (BOT) schemes, and sole investment from private companies.

Further investment brings additional decision-making power and higher risks. Some projects require more decision making power, while others require lower risks. ICT enterprises must make choices based on actual conditions. The investment percentage of private companies will rise because of increasing government debts and clearer monetization schemes. This requires a more comprehensive project and financial structure for the future cooperation between companies and governments.

Entry Method

Smart Cities remain a new concept for governments — with implementation programs often impeded by uncertainty. ICT enterprises need to actively participate with local governments in the planning, construction, and maintenance phases to promote Smart City implementation. The following best practices are worth consideration.

IBM ‘Smarter Cities’

IBM is promoting their Smart City brand and its technologies as follows:

  • Invested more than USD 50 million to provide free Smart City solutions for many cities
  • Set up an internal consultation department consisting of 150 full-time researchers
  • Launched an interactive website to promote Smart Cities
  • Initiated online and offline forums and permanent organizations around the world to promote Smart Cities

Siemens ‘Intelligent Infrastructure’

Siemens is providing the following assistance to Smart City developers:

Established a dedicated Smart City department as one of four principal departments and an interconnected department with own financing support division to facilitate market entry and financing

A focus on market expansion by setting up many localized research centers and sales centers in over 70 cities

Huawei Smart City Solution

Huawei provided an overall Smart City solution based on the cloud-pipe-device architecture to facilitate governance, benefit residents, and boost local economies. The solution includes many applications that target top-level consultation, overall planning, and various ICT infrastructures and industries. Huawei’s solution uses many innovative technologies, such as enterprise Long-Term Evolution (eLTE), Big Data, the Internet of Things (IoT), and cloud computing. Safe City constructions, transportation, energy, governance, education, and healthcare are among the key fields that the solution supports.

Challenges for Smart City Constructions

The Smart City industry is increasingly mature and able to provide clear opportunities for ICT enterprises. However, BCG believes that the Smart City industry will not achieve explosive growth before the following key issues are addressed by ICT enterprises:

Insufficient Investment Impedes Growth

  • Cause: Local governments are reluctant to continue the usual practice of debt financing; for ICT enterprises, financing is an increasingly large challenge.
  • Insight: To obtain sufficient capital, ICT enterprises must improve their own financing capabilities and enhance cooperation with other financing units.

Limited Vertical Integration Obscures Business Value

  • Cause: ICT enterprises have yet to acquire a clear monetization scheme.
  • Insight: ICT enterprises need to identify more profit points and establish a clear path to monetization.

General Lack of Business Cases Prevents Fast Replication

  • Cause: Current cases have their own characteristics that cannot be generalized into standard business schemes.
  • Insight: ICT enterprises need to enhance one-stop service capabilities, locate pain points, obtain city construction requirements, and develop unified solutions that can be applied across the board.

BCG believes that industry expectations for rapid growth in the global market for Smart City deployments will not be achieved until the higher requirements listed above are met.

By Carol Liao and Wu Zhizhong

Senior Partner and Managing Director/Project Manager, Boston Consulting Group

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