The Concept of Regional Competitiveness and its Characteristics

The common definition of competitiveness had continuously developed in the EU, later, in the 1990s it was used for even regions, in other words, it was more likely to use for regional and spatial context, too. The Organization for Economic Co-operation and Development (OECD) explained and defined the competitiveness of regions in many ways, that involves

„... competences for producing goods and services, which can be marketed nationally and internationally, while citizens achieve increased quality of life with long-term sustainability”

(OECD, 1997).

From several views and documents, as a conclusion, the common definition of competitiveness has emerged, that is the most widely known and used version even today according to the 6^th Regional Report of the EU. Considering this, the competitiveness is „the capability of enterprises, sectors, regions, nations and international regions for durably achieving relatively high levels of income and employment, while they are facing a global completion” (Sixth Periodic Report, 1999, 75).

The common definition of competitiveness can be considered as the more precise version of the standard definitions, as it focuses on two economic indicators, the relatively high levels of income and employment connecting to the quality of life, instead of using the quality of life itself, which is difficult to measure. This definition is quite flexible and can be used widely, because it considers complexity, as it involves all the economic units (enterprise, sector, region and nation), it focuses on two measurable economic categories (produced income and employment), and last but not least considers the participation in international competitiveness (opened economics, global competitiveness, marketability).

According to Imre Lengyel (2003, 2006, 2009, 2010), who deeply examined this question in the point of view of regional science, when concretizing the definition of competitiveness, there are still tiny differences in the cases of cities and sectors, or regions, cities or countries, as the features of the competition among them are different. Income and employment can also be explained and measured in different ways in different types of competition, so this is the reason for making difference between the competition of enterprises (microeconomic) and the competition of geographical units (region, countries).

Considering the theoretical examination of regional competitiveness, it is an important starting point that the basic types and objectives of the competition can be characterized by the competition for goods, services and resources in limited amounts and the exact objectives.

The common types of the competition and the objectives of the competition are:

 competition among creatures (plants, animals) for habitat, food and for the survival of the species,

 competition among social groups (groups, clans, nations, political parties) for political impact and power, and

 competition among market actors for economic advantages.

All of these three types are real competitions, as they are for goods in limited amounts.

In case of the first two listed ones, the competition objectives are rather out of economic reasons and rules, so the motivation is not that of economic kind, so the expression of “real competition” is not suitable at all.

In sector specific view, the third type of the competition has to be highlighted.

Considering regional competitiveness, the competition among market actors is definitely a real competition. This category can be further classified into three groups, focusing on the different targets:

 competition among employees (individuals) – in other words labor market competition for jobs;

 market competition among companies – for resources, market shares and profit;

 competition among geographical units (countries, regions and cities) – for the increase of quality of life and well-being (Lengyel, 2006).

Considering the compatibility of geographical units, there are differences between the competitions among countries and inside (sub-national) the countries. One of the publications examining the regional competition and compatibility highlights the fact that regions are increasingly independent from the national economics: today, the economic situation of cities and regions as successful “regional engines” determines the increase of the national economics, and this fact is not true vice versa (Malecki, 2002). “Enterprises can choose the location of premises from a large number of settlements, so the cities compete with each other for the profitable companies being in a limited number: determinant factors of the competition cover not only financial benefits (tax benefits, subsidies etc.) but primarily, the advantageous business environment itself (quality of infrastructure, flexibility and quality of educational institutions, the clear legislation, etc.). As a result of the accelerated integration in Europe, the main cities work on their own development strategies, and during the implementation, the cities compete with each other. In these competition strategies, they have to consider not only their own objectives, but those of the other cities, the other competitors as well. The competition of main cities is a real, and more expressed phenomenon” Malecki, 2002, 930 in Lengyel, 2006).

The definitions of regional competitiveness of sub-national regions mostly involve the normative system of the regional and local economic development, and regional competitiveness can be explained by the logical frameworks of the latter ones, that cover, in other words „the capability of regions for durably achieving relatively high levels of income and employment, while they are facing a global completion” (Lengyel, 2000).

Consequently, the regional competition is increasing on sub-national levels, because most of the business services can be operated everywhere, where suitable information technology is available. These services have increased economies of scale, utilize dynamic agglomeration advantages, and this phenomenon races the territorial concentration of these business operations up. Thus, the background situation of processing industry and the grater preference of business services both definitely intensify regional competitiveness. Only such cities and regions can develop quickly, where the new economic trends have been recognized and were met by suitable measurements. In practice, regional competition may develop due to the following reasons:

 for mobile corporate investments to create jobs: This may occur mainly in business

sectors (e. g. trade, real estate or information technology businesses). The main purpose is partly to maintain the local profitable firms and partly to attract other prosperous companies to the region.

 to attract more population to the area: to attract mainly highly qualified and competitive human resources and individuals having jobs with higher salaries.

 to obtain more budget resources: to obtain public funds, to create common goods (roads, educational and healthcare institutions etc.) and to establish public institutions.

 to arrange events attracting attention: to arrange culture, sports, political etc. events which form parts of a regional or city marketing program (Lengyel and Rechnitzer, 2004;

Lengyel, 2006).

Porter (1996) assumes that the most characteristic feature or differentiating specification of the economic competitiveness of regions is the fact that the competition between the various regional units (primarily the regions) is quite different from that of the various national economies. That is, the regions do not compete with their government (monetary, customs, export-subsidizing, taxation or investment) economic policies, since they do not have such policies. Nor do they compete like the companies, that is, the regions do not have any decision-making centres which would devise and implement regional competition strategies by taking the maximization of profits into account. Regions and cities compete by creating business environment which enhance the productivity of the local companies. Such a business environment can contribute to the successful operation of the companies and they include the following factors: specialized educational and training institutions, efficient special infrastructure, information-providing services which enhance innovation, business-friendly public administration, research and development institutions adapted to the profiles of the various clusters etc. The networks formed by the various local groups (trade chambers, institutes, universities etc.) also take part in the creation of the business environment.

Based on the characteristics of competitive advantages, there are three stages (factor-driven, investment-driven and innovation-driven) in the development of countries. These stages are built on one another (Porter, 2003). These stages devised for countries can be very well applied to sub-national regions as well (Figure 8.1.).

Figure 8.1.: The stages of competitive development

based on figures in Porter, 2003 ed. Lengyel, 2006.

The concept of competitiveness has been used for a long time but it is rather difficult to define. Basically, it means an inclination or skill for competition, an ability to gain positions and to resist constantly which is primarily marked by being successful, the size of the market share and the increase in profitability. Generally speaking, countries and regions take part in the global competition differently so the competition between them has two types:

direct and indirect. On one hand, a direct competition can be noticed when countries or regions belonging to the same stage of development compete with one another: they provide similar types of products and their global companies apply similar competition strategies. On the other hand, an indirect competition can be noticed as well, since every country or region is in competition with all the other countries or regions for inputs (raw material, energy

resources) and skilled workforce. Partly due to this fact, the economic policy-makers having no direct influence on the market trends wanted to know how and by what means they could improve the chances and competitiveness of their own national economies in the global competition. These indirect actions target the improvement of the background conditions determining the competitive advantages of companies (primarily the development of the business and institutional environment. These actions are basically the tools to improve the competitive advantages of companies in the global competition (Horváth, 2006).

The arguments about the interpretation of competitiveness raise two question types: a) how competitiveness can be defined and what indicators can be used to measure it; and b) how competitiveness can be improved and what government actions can be regarded more successful. The issues regarding the interpretation and measurement of competitiveness and those of the economic policy have the top priority in case of both the countries and the regions. The most relevant results of the abundant literature on the competitiveness of countries can be used to interpret the competitiveness of the regions as well. The competitiveness of the countries and national economies influence the regional competitiveness. In this context, all kind of competitions between the regional units are primarily for definite economic goals, the constant increase of welfare (standard of living).

In such a competition, the regions compete by creating a reliable and attractive business environment for the companies and by coaxing and keeping the successful companies (Lengyel, 2006).

From the viewpoint of improving the local economy and that of competitiveness, it is very significant to improve the standard of living. At the local levels, this is the most important (and in most cases the sole) purpose of all economic activities. A basic prerequisite of enhancing competitiveness is the production of incomes and the expansion of employment, which is the result of the local economy (primarily that of the activities of local companies).

The conclusion is that competitiveness can be achieved only through increasing the competitive advantage of the local companies (Figure 8.2.).

Figure 8.1.: The stages of competitive development

Source: based on figures in Porter, 2003 ed. Lengyel, 2006.

To sum up, when one interprets and measures the contents of competitiveness based on the regional and local contexts, it can be easily recognized that the dual (assumed as the combination of the productivity and employment factors) and the complex (separating the

above mentioned two factors into other mechanisms of action) interpretations of competitiveness are built on each other. This is the so called pyramid model which helps to exactly measure and study the specific characteristics regional competitiveness.