City Competitiveness: Concept, Factors, Model Jolita Sinkiene1 Abstract

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City Competitiveness: Concept, Factors, Model
Jolita Sinkiene1


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.

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 competitiveness


European Commission, 1999

High and sustainable level of income, high level of employment


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


Bryan,1994; Markusen, 1992; Blunck, 2006

Competitive price, productivity, share of external markets


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


Definition of City Competitiveness

Emphasized Aspects


“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).

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



Human factors

Labor skills

Training and education possibilities

Local demographic situation

Local leaders

Innovativeness/ creativity/ talent of local people

Tolerance / culture / traditions of local people

Institutional factors

Local government effectiveness

Institutions - leaders

Institutional networks

City facilities and amenities

City development strategy

Physical factors

City location and accessibility

City infrastructure

Natural resources of the city

Economic factors

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

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.

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.

Fig.3. City competitiveness model

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).

Fig. 4. Model of Competitiveness of Lithuanian Cities

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.”

  1. 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.

  1. 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 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 environmental-ecological) and 2) key factors of internal environment, preconditioning the improvement of city competitiveness (four main groups of elements: human, institutional, physical and economic).

  1. 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.

1 Lecturer, Ph.D. Department of Public Administration, Kaunas University of Technology, Kaunas,  Lithuania. E-mail:

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