City Competitiveness: Concept, Factors, Model
JolitaSinkiene[1]
Abstract
Understanding the importance and specifics of functioning of state government units of sub-regional level, different competitiveness studies have been carried out in recent years. It is important to note that methodologies, models and approaches of these studies differ significantly.
Various public and independent research institutes as well as researchers have created and use different methodologies and tools to study local competitiveness issues. However, most of these studies focus on economic factors of place competitiveness; other areas such as social, historical, cultural, legal, political, environmental etc. aspects receive no or minor attention.
The key problem addressed by this paper is that contemporary scientific discussions do not provide a clear definition of the concept “city competitiveness”, the most important factors influencing city competitiveness are not defined and the system to operationalize comparable and acceptable city competitiveness factors does not exist.
The paper is based on a research, which aimed to prepare a city competitiveness model indicating the process of formation of city activity’s competitiveness and suggesting the key factors and elements of micro and macro environment that determine competitiveness of a contemporary city. Based on the theoretical model, a research aiming to identify the main factors of competitiveness of Lithuanian cities was carried out, and model of city competitiveness of Lithuanian cities was developed.
Introduction
Diversity of the methodologies and narrowness of the scope of the studies make the understanding, comparison and management local competitiveness factors in different countries very complicated. Although the importance of competitiveness of city economies is widely acknowledged, still there is a big lack of efforts to create methodologies and techniques to analyze the subject. Without such tools it is impossible to create effective city (consequently national) competitiveness improvement strategies.
The key scientific problem addressed in this study is that contemporary scientific discussions do not provide a clear definition of the concept “city competitiveness”, the most important factors influencing city competitiveness are not defined and the system of comparable and acceptable city competitiveness factors does not exist.
The object of this scientific research: key factors affecting city competitiveness.
Research aim: by referring to basic theories and concepts of city competitiveness to prepare the city competitiveness model indicating the process of formation of city activity’s competitiveness and suggesting the key factors and elements of micro and macro environment that affect the competitiveness of a contemporary city.
Methods of the research:
Scientific literature analysis was applied during the theoretical analysis of the problem. The greatest attention was paid to theoretical and empirical researches on the topic carried out in the fields of city theory, public policy, management, economics, sociology, geography.
Epistemological and methodological background of the research is based on the following theories and paradigms: competitiveness theory, systems theory, organizational theory, city growth theory, management reform theory.
In order to verify the theoretical basis for definition of the key city competitiveness factors, an empirical research was conducted. Experts representing institutions of local and national government level, business organizations and non-governmental organizations who personally deal with city competitiveness management issues were interviewed. A special questionnaire was distributed among 54 local government (out of total existing 60 municipalities) and 12 independent experts.
Theoretical city competitiveness issues have been analyzed using the following methods of scientific research: systematic, comparative and logic analysis of scientific literature, case analysis, synectic method, classification, prognosis, theoretical modeling, interpretation, theoretical generalization.
1. Concept of City Competitiveness
Cities are the centers and engines of national and international socio-economic growth, they help to achieve national goals and represent the focal points of human existence and life-style. The primary responsibility for the well-being of city population in most countries lays on the local government institutions. The following key aspects of city’s concept are: it is an administrative-territorial sub-unit of a state, a populated locality with clearly and legally defined territorial boundaries, having self-governance rights, the largest part of its population work in other than agricultural sector.
Summary of perspectives of different scientists towards the definition of “city” allows distinguishing the following types of the term:
· City as a process,
· City as a system,
· City as a place,
· City as a result,
· City as organization,
· City as a function.
The further research is based on the first two perspectives (Fig. 1).
Fig. 1. City as a system
The further analysis aimed to discuss the concept of competitiveness and approaches of study of the subject. It revealed four main groups of theoretical perspectives to the problem of competitiveness:
1) Comparative advantage and/or competitiveness perspective (Durand and Giorno, 1987; Fagerberg, 1988),
2) Empirical studies (Fakiolas, 1985; Clegg, 1987; Fagerberg, 1988; Porter, 1990; Cartwright, 1993; Rugman and D.Cruz, 1993),
3) Strategic and managerial perspective (Day and Wensley, 1988; Yip, 1989; Porter, 1985, 1990, 1999; D.Cruz and Rugman, 1993; Peters, 1988; Porter and Millar, 1985, Kogut, 1985),
4) Historical and socio-cultural perspective (Hofstede, 1980, 1983; Kenedy, 1987; Hofstede and Bond, 1988; Aakers, 1989; Franke et al., 1991).
Scientific literature on the subject showed that competitiveness is a multifaceted, depending on the subject of analysis field of research, and it can be identified at different - mega, macro, mezo and micro – levels (Table 1).
Table 1. Aspects of Analysis of Competitiveness Levels
Level of analysis / Researchers / institutions / Emphasized aspects of competitivenessMega / European Commission, 1999 / High and sustainable level of income, high level of employment
Macro / Porter, 1990; Dollar and Wolff, 1993; Bramezza, 1996; van der Berg, Braun, 1999; Harvey, 1989; Webster and Muller, 2000; Kaldor, 1970; Rowthom, 1999; World Economic Forum, 2005; other / High level of income, wellbeing, high level of employment, retaining successful firms
Mezo / Bryan,1994; Markusen, 1992; Blunck, 2006 / Competitive price, productivity, share of external markets
Micro / Casson 1991; Rugman, Hodgetts 2000; Faulkner, Bowman 1995; Porter 1998; Hamel, Prahalad 1990; Stalk, Evans, Schulman 1992; Hill, Jones 1992; Blunck, 2006; Chikan, 2001; Tyson,1993, other. / Productivity, superiority of product price, market share, profit share
In recent years the focus of international researchers on competitiveness issues of subjects of mega and macro levels has increased significantly. Competitiveness of cities, as units of sub-national level of governance, receives much academic attention. However, the number of city competitiveness studies is still very limited, and the methods of analysis of this subject are only being created.
The models of competitiveness represent all four levels of analysis: mega, macro, mezo, micro. The most known competitiveness models of macro level are: the Porter’s (1990) “Theory of Competitive Advantage”, the “Nine-Factor Model of International Competitiveness” by Cho (1994), the „Double Diamond Model“ by Rugman and D’Cruz (1993), the models presented in the reports on competitiveness of national economies by the World Economic Forum (2006), the International Institute for Management Development (2006), the World Bank (2006). The analysed models of competitiveness at sub-national level: model of DATAR (Delegation a l‘Amenagement du Territoire et a l‘Action Regionale, 1989), the „Rating of European Cities“ by Cheshire (1990), model of the National Bureau of Statistics of Great Britain (1996), model of the Mercer Human Resource Consulting (2007), model of the PriceWaterhouseCoopers (2005), model of the Metropolitan New Economy Index (2006), model of the European Competitiveness Index (2006), and the Index of Creativity by Florida (2002). Review of major competitiveness models used for analysis of subjects of subnational level revealed that most of the models emphasize economic factors affecting city competitiveness pay no or very limited attention to other types of factors, especially those that are outside of direct city control. As results of different theoretical studies show, competitiveness issue can be solved more effectively if a required attention is given to social capital (Putnam, 1993), institutional setting (Amin and Thrift, 1995), innovative environment (Camagni, 1991) and other areas of city functioning.
A detailed overview of general markets and types of city competition, also the analysis of different aspects of the term “city competitiveness” suggested by different authors prove that cities compete on different scales and by product types. According to Turok et al (2004), cities compete for the position of regional service centre, for nationally and internationally traded products, for inward investment, for skilled mobile population, and in “episodic markets” to host international conventions, cultural festivals, sporting fixtures and other hallmark events. A variety of definitions of city competitiveness and key aspects emphasied in each definition are presented in Table 2.
Table 2. Definitions of City Competitiveness
Author / Definition of City Competitiveness / Emphasized AspectsOECD / “The degree to which it can, under free and fair market conditions, produce goods and services which meet the test of international markets, while simultaneously maintaining and expanding the real incomes of its people over the long term.” / Competitiveness of city products; high/rising income of local population
Storper (1997) / Competitiveness reflects the capability of an economy to attract and maintain firms with stable or rising shares in activity, while maintaining stable or increasing standards of living for those who participate in it. / Attraction/retaining of successful firms; high standards of living
Webster ir Muller (2000) / City competitiveness refers to the ability of an city region to produce and market a set of products (goods and services) that represent good value (not necessarily lowest price) in relation to comparable products of other city regions. Non-tradables, e.g., local services, are part of the competitiveness equation. / Increasing competitiveness of local products
Gordon and Cheshire (2001) / May be conceived of as involving attempts by agencies representing particular areas to enhance their locational advantage by manipulating some of the attributes which contribute to their area’s value as a location for various activities.” / Increase of capital resources, control of markets, wellbeing of local community
Kostiainen (2002) / „An ability to attract flows of information, technology, capital,
culture, people and organizations that are important to the region, and along with it, the ability to maintain and develop the quality of life and standards of living of local residents, as well as an ability to create an innovative operational environment in which companies can develop their competitiveness“ / Ability to attract flows, innovative milieu, competitiveness of firms, high standards of living.
To better disclose the complexity and controversy of the concept of city competitiveness, critical views towards the issue must be respected (Sheppard, 2000; Krugman, 1994; Budd, 1998).
It can be concluded that competitiveness describes relations among two or more objects of analysis, and it can be applied to subjects of different levels of analysis, the city level as well. A specified definition for the concept of city competitiveness is proposed: “It is the ability of city population to maintain competitive position within a specific area (market) of competition among other cities of similar type and pursuing similar aims by conserving resources and improving wellbeing of city members by management of factors of external and internal environment.”
2. City Competitiveness Model and Structural Elements
It is important to define the general process of city competitiveness formation and also the most important factors with their structural elements influencing the formation of city activity results. As Begg (1999) denotes, “…understanding factors improving the competitiveness of cities in national and international markets helps to identify their current position more effectively and to foresee possible perspectives for a more targeted city development policy”.
The general process of city competitiveness formation is presented in Fig. 2:
Fig. 2. General city competitiveness model.
It is proposed to identify two levels of city environment – internal and external levels. Although the external city environment in the theoretical literature is usually split in two levels – the global and the national levels – it is suggested to identify one joint level of external environment of a city. This proposal is based on perspectives of Pumain (2003), Masure (2003), McAvoy (2002), Cheshire and Hay (1989), Budd (1998), the European Commission (2000) and others, suggesting that in recent years due to the processes of rescaling, cities of democratic states feel the growing and direct influence of global forces, which require to alter the structure and content of elements of their external environment. Webster and Muller (2000) denote that in most countries national factors lose their former importance due to impact of global forces: liberalization of trade, decentralization and other, which put the responsibility for many important factors of competitiveness on the local level.
Identification of factors representing the external and internal environments of a city, which have the greatest influence on city’s competitiveness, start from identification of external factors. It is important to emphasize the importance of external factors for cities and their results. National and supranational policies, such as structure of national economy, level of innovations, national tax policy, development of human resources, tariffs, initiatives of macroeconomics and industry, other public policy conditions, level of accessibility, labor force skills, etc. directly influence results of a city (European Commission, 2000; Webster and Muller, 2000).
Identification of most important factors of city’s external environment was based on the PEST analysis supplemented by an additional aspect, playing a very important role in the context of city competitiveness - the environmental-ecological aspect. A detailed description of all five external factors (economic, social-cultural, technological, political-legal, environmental-ecological) and their constituent elements.
Internal factors of city environment having the greatest importance for city activity results and thus its competitiveness were identified on the basis of a detailed analysis of theories and views of international scientists dealing with city competitiveness issues. As the set of the internal factors as well as their classification varies significantly in the academic literature, the analysis provided in this study follows such logic: the theories are grouped according to the perspectives of their authors into five groups: the inputs-outcomes factors perspective (Local Futures Group, 2002, 2003; Robert Huggins Associates, 2002; Parkinson and Boddy, 2005), the controllable-non-controllable factors perspective (Fried and Lovell, 1996), the economic and strategic factors perspective (Kresl, 1995; van Dijk, 1998; Jensen-Butler, 1997; van den Berg, 1993; Lever, 1997), the structural-dynamic factors perspective (Sutarauta, 2001; Linnamaa, 1999), and the internal factors perspective (Duffy, 1995; Oatley, 1998; Jensen-Butler, 1997; Savitch and Kantor, 2002, other).