City Competitiveness: Concept, Factors, Model
Jolita Sinkiene1
Abstract
Understanding the importance and specifics of functioning of state government units of subregional 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.
1
Lecturer, Ph.D. Department of Public Administration, Kaunas University of Technology, Kaunas,
Lithuania. E-mail: jolita.sinkiene@ktu.lt
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 subunit 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).
EXTERNAL ENVIRONMENT
Internal environment
INPUTS
Wokers
Food
Water
Fuel
Different other resources
...
CITY
OUTPUTS
Emissions
Visitors
Migrants
Urban sprawl
PROCESSES
Housing
Work
Leisure
Transport
...
City as an open system
Internal environment
EXTERNAL ENVIRONMENT
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:
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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).
Level of
analysis
Table 1. Aspects of Analysis of Competitiveness Levels
Researchers / institutions
Emphasized aspects of
competitiveness
Mega
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
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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.
Author
Table 2. Definitions of City Competitiveness
Definition of City Competitiveness
Emphasized Aspects
OECD
“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
„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.
Kostiainen
(2002)
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).
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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:
OUTCOMES
Competitive results
PROCESSES
Urban internal environment
factors
COMPETITIVENESS
INPUTS
Competitive values
GLOBAL ENVIRONMENT FACTORS
Urban external
environment factors
NATIONAL ENVIRONMENT FACTORS
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
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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).
Based on the detailed analysis of perspectives of different authors towards internal factors (also
structure and meaning) affecting city competitiveness, it is proposed to distinguish four major
categories of internal factors: human factors, institutional factors, physical factors, economic
factors. A detailed characteristic of each factor and its constituent elements are provided in Table 3.
Table 3. Internal factors affecting city competitiveness
Category
Elements
Human
Labor skills
factors
Training and education possibilities
Local demographic situation
Local leaders
Innovativeness/ creativity/ talent of local people
Tolerance / culture / traditions of local people
Institutional Local government effectiveness
factors
Institutions - leaders
Institutional networks
City facilities and amenities
City development strategy
Physical
City location and accessibility
factors
City infrastructure
Natural resources of the city
Economic
Economic structure
factors
High value-added activities
Local tax system
Local wages level
Access to capital in the city
Local institutions of scientific research and experimental
development
City industry clusters
The analysis of the factors improving city competitiveness must be carried out without any
preference to one particular factor; the analysis must be complex. All internal and external factors
create one entire system, all factors are interdependent.
6
Fig. 3 illustrates the proposed theoretical city competitiveness model and its strucutre. The model is
based on the “city as an open system” approach yet with regard to the specifics of a city and its
products. All factors are incorporated into one integrated and dynamic system, where each factor
supplements and strenghtens another. When distinguishing the most important city competitiveness
improvement factors, it was attempted to dissociate from factors which have no direct impact on
city competitiveness, are non-informative, their meaning is very limited. The sequence of groups of
factors is of equal value, i.e. their meaning does not depend on their position in the model.
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CITY COMPETITIVENESS
Internal city environment
Level of Quality of Life
People
Leisure
Transport
Institutional factors
Physical factors
Economic factors
Labour skills
Training and education possibilities
Local demographic situation
Local leaders
Innovativeness/ creativity/ talent of
local people
Tolerance / culture / traditions of
local people
Local government
effectiveness
Institutions - leaders
Institutional networks
Urban facilities and amenities
City development strategy
City location and
accessibility
Urban infrastructure
Natural resources of
the city
Economic structure
High value-added activities
Local tax system
Local wages level
Access to capital in the city
Local institutions of scientific
research and experimental
development
City industry clusters
Political and legal stability
International agreements of higher
authorities
External security
Activity of external interest groups
Activity of external institutions
Technological factors
Economic factors
Social-cultural factors
Development of ICT
Establishment of new industries
development of production
technologies
Polity of technology development
Macroeconomic situation
Fiscal Policy
Regulatory Policy
Development of Scientific Research and
Experimental Development
Development of Communications
Demographics
Gender equality
Life style specifics
Effectiveness of health care and
educational systems
External employment opportunities
Income level
Crime level
INPUTS
Human factors
Political-legal factors
External city
environment
Feedback
Work
PROCESSES
Housing
OUTPUTS
Productivity
Value added/person
Income/Purchasing power
Corporate profit
Inward investment
Growth of work places
Immigration
Physical city growth
City image/ attractiveness
Ecological situation
Ecological-environmental
factors
Climate
Water resources
Waste treatment systems
Land and land use
Biological assets
Energy resources
Natural disasters
Fig.3. City competitiveness model
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3. Application of City Competitiveness Model to Identify Factors Improving Competitiveness of
Lithuanian Cities
On the basis of the results of the theoretical research an empirical research was conducted, which
aimed to identify the importance of main factors of competitiveness of Lithuanian cities.
There are 103 cities in Lithuania. 6 of them have a status of the centre of municipality. Other cities
belong to other city or district municipalities. The group of experts (54) to be interviewed was
chosen based on the structure of Lithuanian cities – centres of municipalities. Employees of
municipalities who hold the position that allow to make important decisions of city development
and to objectively assess the existing competitiveness of their city. The experts answered questions
of both closed and open type, i.e. filled in a special questionnaire, which was distributed and
collected electronically. The statistical analysis of the data was carried out using the S.P.S.S.
program. Based on the results, the model of competitiveness of Lithuanian cities was developed
(Fig. 4).
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CITY COMPETITIVENESS
Internal city environment
Level of Quality of Life
People
Transport
Institutional factors
Human factors
Physical factors
Economic factors
Local government effectiveness
Institutions - leaders
Institutional networks
Urban facilities and amenities
City development strategy
Labour skills
Training and education
possibilities
Local demographic situation
Local leaders
Innovativeness/ creativity/ talent
of local people
Tolerance / culture / traditions of
local people
City location and
accessibility
Urban infrastructure
City natural resources
Economic structure
High value-added activities
Local tax system
Local wages level
Access to capital in the city
Local institutions of scientific
research and experimental
development
City industry clusters
Economic factors
Technological factors
Political-legal factors
Social-cultural factors
Macroeconomic situation
Fiscal Policy
Regulatory Policy
Development of Scientific Research
and Experimental Development
Development of Communications
Activity of external institutions
Development of ICT
Establishment of new industries
development of production
technologies
Polity of technology development
Political and legal stability
International agreements of higher
authorities
External security
Activity of external interest groups
Demographics
Gender equality
Life style specifics
Effectiveness of health care and
educational systems
External employment opportunities
Income level
Crime level
INPUTS
External city
environment
Leisure
Feedback
Work
PROCESSES
Housing
OUTPUTS
Economy productivity
Value added/person
Income/Purchasing power
Corporate profit
Inward investment
Growth of work places
Immigration
City image/ attractiveness
Ecological situation
Ecological-environmental
factors
Climate
Water resources
Waste treatment systems
Land and land use
Biological assets
Energy resources
Natural disasters
Fig. 4. Model of Competitiveness of Lithuanian Cities
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Main results and conclusions
1.
Analysis of theoretical researches dealing with the issues of competitiveness of sub-national
level subjects (cities) allows to conclude that city competitiveness concept can be characterized by
its high complexity and diversity, therefore in order to define it, it is important to denote key
characteristics of concepts of city/city and competitiveness:
- Literature suggests the following types of city’s concept: city as a system (systematic
approach); city as a place; city as a result; city as a function, city as an organization. The
systematic approach provides the best basis for understanding the functioning of a city
as a very complex social phenomenon. Following this standpoint, the results of city
functioning and their cause reasons can be best understood by its external and internal
environment factors and their interrelations.
- Competitiveness is a multifaceted and relational concept depending on the object of
analysis. Competitiveness of any particular object has to be analyzed with reference to
factors having the greatest importance for existence of the subject in a specific market of
competitiveness. Concept of competitiveness can be applied to different subjects and
sectors of society at a mega, macro, mezo and micro levels. It is important to emphasize
different abilities of subjects to co-exist among other similar subjects within the
environment of conflict of interests.
- Every city territory competes with other city territories by its functions and sphere of
influence (global, national or regional) within which they specialize. City competition is
not absolute; competition is possible only among cities with similar functions, size and
status. General aim of this competition is to retain existing or attract new successful
activities, residents or visitors.
- Referring to analysis of scientific literature, the following definition of a city
competitiveness is proposed: “City competitiveness 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.
The assessment of general competitiveness models of territorial subjects (blocks, countries,
regions) showed that these models can be applied for analysis of city competitiveness, though it is
important to pay attention to specifics of functioning of a city when distinguishing most important
factors for city competitiveness improvement.
- Scientific literature does not provide comprehensive researches on city competitiveness
factors, which could help to make decisions for a city competitiveness improvement.
Most researches in the contemporary literature on the subject deal with subjects of
higher governance levels – regions, states, blocks of states. Also, the greatest attention in
these researches is paid to economic aspects neglecting other important fields of social
existence, i.e. social, physical, environmental, historical, cultural, other.
- In scientific literature the analysis of city competitiveness factors is mostly based on
such approaches: input and output factors; economic and strategic factors; controllable
and uncontrollable factors; structural and dynamic factors; internal and external factors.
3.
A systematic analysis of theoretical city competitiveness studies showed that design of city
competitiveness model should first: indicate the process of city competitiveness formation; second –
characterize the content of each of the stages; third – determine most important factors of external
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and internal environment of a city and their elements, having the greatest influence of the city
results.
- City activity process should be subdivided into stages of input (human, institutional,
physical, economic) transformation (in the areas of population work, leisure, transport
and housing) into outputs (productivity, value added, income, physical city
development, etc.), emphasizing the feedback of the process.
- It is suggested to classify/group the city competitiveness factors into two major groups:
1) key factors of external environment, influencing acquisition, maintenance and
improvement of city competitiveness (to be subdivided into five general sub-groups of
elements: political-legal, economic, social-cultural, technological, and environmentalecological) and 2) key factors of internal environment, preconditioning the improvement
of city competitiveness (four main groups of elements: human, institutional, physical
and economic).
4.
The research of competitiveness improvement factors of Lithuanian cities showed that:
- The external environment factors providing basis for improvement of competitiveness of
cities in Lithuania are considered weaker than the internal factors, i.e. competitiveness of
Lithuanian cities mostly depends on the internal factors of a city.
- The greatest importance for competitiveness of Lithuanian cities has the following
external factors: macroeconomic situation of the state, national income level, national
fiscal policy, national demographic situation, and development of communications in the
country. In order to retain or improve the existing competitiveness level of Lithuanian
cities, a well-balanced development of these factors is necessary.
- Efforts to improve the competitiveness of Lithuanian cities should focus on
strengthening the following internal factors: raising effectiveness of local government
activity (to raise quality of implementation of local government functions), to improve
city infrastructure (to develop city transportation, energy supply, water treatment, public
spaces and other systems), to assure better city accessibility (by all means of transport
and telecommunication networks), to implement city development strategy (following
the integrated city development vision, priorities, strategy), to train and support leaders
of different city organizations.
- Lithuanian cities compete; competition takes place on different levels, having different
aims. It can be concluded that levels of competition of Lithuanian cities actually exist.
- Lithuanian cities compete on a different geographical scale for different aims; the
number of main competitors is usually small (2-4). National cities compete between
themselves and with cities of similar size and importance from neighbouring countries.
Regional cities compete with first of all other regional cities, especially from the
geographically closest region. District cities compete with other district level cities or
cities of specific function (ex. health resort cities).the suggested city competitiveness
models, developed for each of the three city levels of Lithuania, provide guidelines for
methods and means, which can be applied by a respective city aiming to improve its
competitiveness.
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