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How cities can stay ahead of the competition 

02 July 2016

by Jonathan Andrews

The shift from country to city has contributed significantly to global economic growth but it has also greatly increased competition among cities for investment. Cities now need to increase productivity, stimulate job creation and boost their efficiency, or risk seeing a drop in the quality of life for citizens as they fall behind the competition. Jonathan Ballantine explains the steps cities are taking to become more competitive 

Despite their differences, cities share a common ambition to pursue sustainable urban development that enhances economic competitiveness while minimising negative social and environmental externalities.

This is requires city leaders to do far more than just keeping the lights on. Michael Bloomberg, the former Mayor of New York, noted that running a city isn’t what it used to be because the 21st-century global economy has generated a new responsibility: staying ahead of the competition.

Today, cities of all sizes and across all regions are competing with each other. They are in competition for talent, investment, businesses, events, students and tourists. This had led to the emergence of city branding as a key concept, where city leaders recognise a direct link between the perceived image of city and its ability to rise above the competition.

Pathway towards sustainable competitiveness

A World Bank report shows that improving the competitiveness of cities can help promote prosperity for all citizens. The report defines a ‘competitive city’ as a city that successfully facilitates its firms and industries to grow jobs, raise productivity and increase incomes of citizens. Similarly the Global Cities Initiative, a joint project of Brookings and JPMorgan Chase, has published a series of reports documenting the global economic competitiveness and connections of five cities. They define a ‘competitive city’ as one in which firms can compete successfully in the global economy while supporting high and rising living standards for local households.

So what can city leaders do to make their cities more competitive?

Both the World Bank report and the Global Cities Initiative research highlight that job creation, productivity growth and income equality are core factors in becoming a competitive city. According to the Global Cities Initiative the key drivers for achieving these are having globally competitive traded sectors, innovation ecosystems, and skilled labour supported by enablers such as modern infrastructure and a reliable system of governance. The World Bank report proposes four pillars that make a city competitive: economic structure, policy levers, growth coalitions, and implementation and delivery. There is of course no silver bullet to becoming a competitive city but the common themes that are critical for increasing city competitiveness are tradable sectors, innovation and talent.

As Michael Storper in his book explains: “however big the locally serving sector might appear it will always shrink if the tradable jobs go away, as cities such as Detroit know all too well.”

Developing tradable sectors

Cities must do more to develop, attract and retain tradable sector businesses, defined as sectors that produce goods and services used outside of the city’s region. The classification includes manufacturing, engineering or consulting, whereas retail and building services are part of the local sector economy. As Michael Storper in his book Keys to the City: How Economics, Institutions, Social Interaction, and Politics Shape Development explains: “however big the locally serving sector might appear it will always shrink if the tradable jobs go away, as cities such as Detroit know all too well.”

Tradable sectors can serve as the motor to a city-region’s economy through the provision of jobs. According to the World Bank, strong tradable sectors characterise competitive cities as they drive employment growth. This view is echoed by Storper who says that a tradable sector provides the jobs that come in to anchor labour and incomes so a local economy can be built.

The City of Amsterdam has an outstanding record for attracting foreign businesses and with its top-class airport, skilled labour force and tax regime, financial services has been a dominant tradable sector which the city had expected to continue for many years to come.

“The crisis made us realise that this vision was false and that we might lose a great part of our local economy,” says Edwin Oskam of the Amsterdam Economic Board. In reaction to this, the city looked to develop new sectors, deciding to give more attention to the potential of the technology sector. “At the time Amsterdam was, unlike for instance Eindhoven, never seen as a city for knowledge and technology, but in reality we had a greater population of beta scientists than Eindhoven,” adds Oskam.

The greater focus on the technology sector has contributed to more visibility and greater economic impact for the Amsterdam Science Park. The Greater Zurich Area is another interesting case study. With great foresight some regions of the Greater Zurich Area such as the canton of Solothum were able to redeploy the core competitive advantage of Swiss watch making and precision engineering, to develop new tradable sectors in Life Sciences, MedTech and Information Communications & Technology. Precision goods now account for more than 15 percent of the total output of the manufacturing industry in Switzerland.

“The Greater Zurich Area has the best business location conditions where sectors such as precision goods benefit from its proximity to the numerous IT companies located here, and also to the excellent education and research institutions in the field of digital technologies,” says Lukas Sieber, Director of the Greater Zurich Area.

City leaders must take action to boost their traded sector economy. Although some cities may have natural advantages such as climate, location or historic value, there are a number of steps cities can follow: invest in education, training and research; develop and maintain modern physical and digital infrastructures; allocate urban areas for new businesses; and create the necessary framework conditions (tax structure, labour laws) that encourage investment.

According to Richard Florida of CityLab, “start-ups also appear to be moving from their traditional locations in suburban office parks.” Twitter, for example, shunned Silicon Valley and opened their headquarters 
in downturn San Francisco, which has helped to regenerate the local area.

Innovation

The development of tradable and non-tradable sectors will provide cities with
a solid platform but to take advantage of changes in macroeconomic conditions, technology and demography, it is critical for city leaders to nurture innovation ecosystems. Innovation can help cities insulate themselves from disruptive developments, bolster diversification and foster entrepreneurship, which is essential for the development of new tradable industries.

Egon de Haas, PwC’s Global Director for Public Sector & Government Services
Egon de Haas, PwC’s Global Director for Public Sector & Government Services

“Whether the purpose is to restore economic growth (Detroit), diversify an economy (Moscow) or to find solutions for today’s societal challenges (Amsterdam) cities need to develop innovation ecosystems,” says Egon de Haas, PwC’s Global Director for Public Sector & Government Services.

Cities are pushing to become known as hubs of innovation and entrepreneurial activity, which is leading to the rise of
the start-up city. The 2015 Global Startup Ecosystem Report by Compass, provides
a ranking of the world’s leading start-up cities. The report is based on data from 11,000 global start-up companies, and gauges the world’s leading start-up ecosystems. Although there were no surprises at the very top–Silicon Valley ahead of New York and Los Angeles–
the ranking does highlight the rise of significant start-up activities in cities around the world such as Tel Aviv
(5th), Berlin (9th), Moscow (13th) and Bangalore (15th).

City leaders must look at how they can bolster start-up ecosystems within their cities. This will require new forms of collaboration and partnerships with urban actors, and greater degrees of knowledge sharing with peers.

According to Richard Florida of CityLab, “start-ups also appear to be moving from their traditional locations in suburban office parks.” Twitter, for example, shunned Silicon Valley and opened their headquarters 
in downturn San Francisco, which has helped to regenerate the local area.

The war for talent in cities

The ‘war for talent’ is a term first coined in a 1997 study by global strategy firm McKinsey, which recognised that competitive advantage comes from having better talent at all levels. According to URBACT, the EU-funded think tank, this war for talent applies to cities too.

Countries and cities now compete for talent on an international scale, and many now realise that future prosperity depends more on people than on natural resources or tax breaks. As author and investor Ziad Abdelnour puts it: “talent attracts capital more effectively than capital attracts talent”.

A city’s brand can serve as a beacon to catch the attention of talent from around the world, and the universities within a city serve as a magnet for temporarily attracting young talent, which may stay and be absorbed into the local urban economy.

In February, Copenhagen was ranked by fDi Intelligence as having the best strategy for a mid-sized city in Europe for attracting investment. “Access to talent
and qualified employees is quintessential to attracting and retaining companies,” says Claus Lønborg, CEO at Copenhagen Capacity, the promotion agency for the Danish capital. “Like most other large cities around the world, Copenhagen knows that the competition for bright minds is fierce.”

Facing a tight labour market and a shortage of skilled workers, many large companies say that a city or region’s population of skilled workers is the top factor in location decisions.

Lukas Sieber, Director of the Greater Zurich Area
Lukas Sieber, Director of the Greater Zurich Area

“Google, for instance, set up its European technological corporate headquarters in Zurich with 1,300 plus employees based on the supply of high quality talent,” comments Sieber.

The City of Amsterdam has established an International Talent Acquisition plan to attract both international students and knowledge workers to the region and to improve the attractiveness of the city more directly.

“Two years ago we realised our vulnerability when our yearly report Amsterdam Economic Verkenningen pointed out that the future supply of highly skilled labour in our region would not be sufficient to meet future demand,” explains Oskam.

Think like a business

For businesses to thrive they need to 
be able to attract talent and investment in order to compete in an increasingly competitive global market place. Thus sustaining long-term competitiveness 
is the core remit of business executives who need to be nimble and responsive in order to remain in the game. This 
is also true for city leaders. History highlights parallels between cities and businesses that rested too much on their laurels. For example, companies such as Kodak and General Motors, that once dominated the Fortune 500, lost their market dominance, just as the city of Detroit, once a powerhouse, has seen its population fall by a third since the 1950s. The commonality is that they lost their relevance in a changing world.

Remaining relevant is thus a critical part of sustainable competitiveness. This goes above and beyond setting traditional framework conditions such as favourable taxes, flexible labour laws and the like. Copenhagen’s Lønborg says that cities need to think more like businesses, so 
as to remain competitive, companies continuously have to evolve and adapt to changing market conditions.

Ever-changing global factors 
will significantly reduce the lifespan 
of competitive advantage through disruption. What may be seen as a competitive advantage today may become redundant very quickly. Thus city leaders must be responsive to change in order to remain relevant in a competitive world.

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