Published 28 June 2016

Innovative global cities

– how places attract knowledge-intensive industries

This report provides a picture of what other countries are doing to create attractive cities. Examples in Japan, South Korea, China, India, Germany, the Netherlands, Brazil, USA and Canada are highlighted as inspiration for how this work is organised and implemented.

Growth Analysis has been commissioned in its letter of appropriation for 2016 to assist the government with its work on the Export Strategy. This report is part of that assignment and it focuses on the Export Strategy’s goal to increase Sweden’s ability to attract investments and competence by investigating what some of Sweden’s rival countries are doing in this field. The cities have been selected on the basis of thei focus on attracting knowledge-intensive industries.

Because regions and cities are becoming increasingly specialised, it is becoming more common that the competition for investments and competence is between regions/cities rather than between countries. New data show that 600 cities stand for 60 percent of the world’s total gross domestic product and most of these cities are located in Asia.¹ Creating attractive places for people, trade and industry is therefore high on the agenda in many regions and cities. What is sought after are activities with a high knowledge content since that generates innovation and productivity. The study describes what strategies and specific instruments are used to make places attractive.

Seattle in the USA is following a plan called “Greater Seattle Region Global Trade & Investment Plan” to strengthen its position within advanced industries by taking a holistic approach towards the promotion of direct foreign investments and exports. Seattle’s initiatives include creating preconditions to bring about a better return on their good relations with Asia, not least China, which is a huge export market but which is absent from an investor perspective.

In Montréal in Canada, the local ecosystem is interwoven internally and externally. This increases the region’s ability to utilise opportunities and key events in time and with fact-based analyses. The task of attracting knowledge-intensive industries is managed by the organisation Montréal International. Local, themed round-table discussions are organised regularly to shorten the time between local ideas for improvement and provincial and federal decision-making. This means the city is better able to take fast action to utilise key events, for example, decisions about possible relocation within strategically important industries and business groups.

Porto Alegre in Brazil collaborates closely with Medical Valley in Germany which wants to use partnerships to create global clusters that give access to several markets. This German node has begun to collaborate with partners in North America and China. The collaboration agreement has 250 partners from the private and public sectors and the academic community. Consensus has been reached and organisational preconditions established for policy at state level through a combination of different policy objectives for three prioritised policy areas: digitalisation, urban planning and health issues.

Amsterdam in the Netherlands is an innovative city with efficient infrastructure, good logistical opportunities and advantageous taxes. These factors coupled with good availability of housing, international schools and other soft components that enhance quality of life mean that both talent and head offices are attracted to the region. Amsterdam in Business works with prioritised focus countries and through marketing and the mapping of trade and industry, promotive initiatives are steered to match the ecosystem of companies. One weakness that has been identified is the low degree of establishment for R & D intensive companies and institutions.

München in Germany has a strong base within the manufacturing industry which is investing more and more in digitalising its operations. This constitutes an important attractiveness factor for innovation and talent within the IT sector. Access to strong universities and research environments is an important attractiveness factor. To promote the city’s attractiveness, the prerequisites for startup companies are being improved, collaboration between research and trade and industry is being developed, and the supply of competence is being supported through the universities and vocational study programmes. However, the most important measures are perhaps those linked to more general issues such as housing, premises and infrastructure.

After breaking free from Andhra Pradesh, the new state of Telangana, led by its capital city of Hyderabad, has introduced several new investment-promoting policies and has attracted new multi-billion investments in, for example, the IT and pharmaceutical sectors. All bureaucratic processes are permeated by clearly defined political leadership - a rare phenomenon in India - and this makes application processes simpler than in most other cities in the country, thereby making the city attractive. The companies also highlighted that it is easy to attract employees from other parts of the country since the city can offer good quality of life (for example, good schools and hospitals) at a lower price than in comparable cities.

Two cities in China have been studied: Chongqing och Shenzhen. These cities have changed considerably over the last 15-20 years and to some extent they are each other’s opposites. Chongqing focuses primarily on the domestic market while Shenzhen is striving to establish itself as a global name. Chongqing is western China’s industrial and economic base. The region is supported by some of the most advantageous investment programmes in the country. This is where the largest logistics centre in western China is being built and clusters are growing fast within the vehicle manufacturing industry. Shenzhen is already one of China’s most modern and developed cities with advanced manufacturing and the most important logistics centers in the country. This city was the first economic free zone. The positive business climate and the open culture are seen as the biggest advantages of engaging in business activities in this city. The attractiveness and growth of these cities is largely based on government aid such as tax benefits and funding, and in the case of Shenzhen, the fact that the state has taken a step back as regards the governance of the city.

Incheon and Busan in South Korea are two diametrically different cities which display surprisingly similar challenges, strategies and activities for attracting knowledge-intensive industries. Both cities focus on connections, whether it is closeness to airports and ports or a well-developed IT infrastructure. They build on local strengths that already exist and then supplement them to create completely new business areas. They help investors and businesses to navigate through tricky national rules as regards visas and other paperwork. The cities are responsible for their own marketing but they also utilise government initiatives as a reinforcement. Incheon works continually with focus groups with the city’s foreign residents who are asked to give feedback on what can be improved. There is always a focus on physical infrastructure. The physical location is used to try to quickly create an agglomeration and critical mass like in the new city Second Centum City in Busan where efforts are being made to bring together players from the ICT, vehicle and ship-building industries and it is hoped there will be convergence effects when these industries come together.

The Japanese cities Fukuoka and Naha are relatively far away from Japan’s industrial and political centres but they have succeeded with connection thanks to airports and IT infra­structure. They both aspire to be a gateway to Asia for Japanese companies and vice versa to Japan from neighbouring countries. Both cities/regions have succeeded in attracting a significant inflow of businesses within the knowledge-intensive ICT industry, for instance, through investments in business parks, the simplifying of regulations, tax benefits and social services for foreigners in the form of schools and hospitals. The cities have also chosen to focus primarily on fast-growth Asia from where they can attract talent and businesses. Asia is also seen a promising exports market.

Conclusions and general observations

Different types of public and place-specific programmes for regional development turn over large amounts of money. Federal aid for regional development in the USA amounts to USD 15 billion per year. If state and local aid programmes to attract FDI and stimulate regional development are included, the sum rises to USD 95 billion. Almost EUR 49 billion are paid out through the EU’s regional fund.² However, it is unclear what interventions work or do not work since the attractiveness of cities depends on a number of intertwined factors. The case studies above give a snapshot picture of some specific trends that have become apparent in recent years.

A general trend that is apparent in both Europe and other parts of the world is that attractiveness is often built up with economic incentives so as to make a city more attractive than other cities in the same country and also make it stand out internationally as an attractive place. However, the balance between general and specific instruments varies. Several countries use special economic zones so they can employ tax benefits that deviate from the national norm. In these zones, other types of rules simplifications are also tested, for example, special visa regulations for entrepreneurs. Research shows that small changes in rules that constitute an improvement can have major and long-term positive effects, something that can lead, for example, to much better availability of housing.³

There is a trend of creating completely new towns/town districts or taking measures to recreate existing districts by building a city so as to facilitate more efficient agglomerations of different industries which can thereby generate unexpected synergies and innovation. The case studies show that there is often consensus as regards policy areas and prioritising which development areas are important and which countries one wants to work on. This results in initiatives being focused and facilitates specialisation. One common observation is that there is great faith in the positive potential of ICT and other infrastructure.

These are part of the structural factors that create attractiveness in the investigated cities. However, the increasing specialisation of trade and industry means that talent, competence and knowledge are becoming increasingly important. Many place-orientated programmes have focused on structures but the trend is heading more towards an ever-growing focus on the development of the specific and specialist competences of persons and companies. The content of education and mechanisms for lifelong learning together with higher quality at the geographically-bound institutions constitute the challenge of the future in both Hyderabad and Stockholm.

¹ http://www.mckinsey.com/global-themes/urbanization/urban-world-mapping-the-economic-power-of-cities.

² Moretti, E, (2014), “People, Places and Public Policy: Some Simple Welfare Economics of Local Economic Development Programs” (with P. Kline), Annual Review of Economics, Vol. 6: 629-662

³ Moretti, E, (2015) "Why Do Cities Matter? Local Growth and Aggregate Growth" (with C. Hsieh), 2015.

Title
Innovative global cities – how places attract knowledge-intensive industries

Serial number
PM 2016:08

Reference number
2015/230

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