A Resource-based View of the Competitive Advantages of Cities ...

A Resource-based View of the Competitive Advantages of Cities
A Resource-based View of the Competitive
Advantages of Cities :
Empirical Results on Advantages for
Headquarters in Vienna for Central Europe
Josef Windsperger
Abstract
We develop a resource-based approach to the competitive advantages of cities by combining Porter’s diamond model with a re-
source-based view of the firm. Locations may realize sustainable competitive advantage if they offer resources and competencies
that are difficult to transfer to and imitate by other locations, and if these resources are complementary to the core competen-
cies of multinational firms. By integrating Porter’s model with the resource-based view we can better analyse the competitive
advantages of locations, because – in addition to Porter’s diamond model – our approach includes the interaction effects (com-
plementarities) between firm-specific and location-specific resources. Location-specific resources influence the attractiveness of
locations for multinational firms, and investments of multinationals stimulate the development of location-specific resources and
capabilities. We present some empirical results for Vienna as a headquarters location in Central Europe.
J E L : O 1 2 , 0 1 8
1. Problem

Human capital, specific know-how, cultural and institu-
combining the Porter-model (Porter 1990; 1998a) with the re-
tional resources are becoming more and more important to source-based view of the firm. We derive the following thesis:
generate competitive advantages for nations, regions and cities.
a city as a headquarters location for multinational firms will
Researchers in the economics of development and geography
achieve a competitive advantage if it offers location-specific
have discussed different views regarding their importance for
resources that generate sustainable competitive advantages
achieving local competitive advantages (Glaeser 1999; Glaeser,
for multinational firms. In addition, we present empirical results
Saiz 2003; Berry, Glaeser 2005; Florida 2002, 2005; Peck 2005).
for Vienna as a headquarters location of multinational firms for
On the other hand, as Dunning (1998) argued, internationaliza-
Central, East and South East Europe (CEE, SEE).
tion theories - based on theories of firm and industrial orga-
nization from the 1970s and 1980s - do not take into account

The paper is organized into three sections. Section two
location-specific resources as drivers of the long-term com-
gives an overview of the relevant literature. First we present
petitive advantages of multinational corporations. Location Porter’s diamond model. He explains why multinational com-
factors are the basis for competitive advantage if they cannot
panies (MNCs) invest in certain nations/regions. MNCs invest
be easily transferred to and imitated by another location, and if
in certain nations/regions/cities if these locations offer eco-
they complement the competencies of the multinational firm
nomic conditions which increase their competitive advantage.
(Foss 1996; Anderson 1985). These resources are called loca-
Furthermore, we discuss extensions of this diamond model. In
tion-specific resources (Rugman, Verbeke 1992). The competi-
particular, we present research results regarding the relation-
tive advantage of a location (city/region) is influenced by the
ship between firm-specific resources and the competitive ad-
location’s policy, if it aims to improve its competitive position
vantages of regions. In section three we develop a resource-
by developing and upgrading its location-specific resources based approach of the competitive advantages of cities by
and capabilities (Blakely 2001). Thus the location’s policy has
*Windsperger : University of Vienna
a strategic function in international competition (Kotler et al.
Center of Business Studies,
1993; Sassen 2000). In this paper, we develop a resource-based
Brünner Str. 72, A-1210 Vienna, Austria
approach to analyse the competitive advantages of a city by
e-mail: josef.windsperger@univie.ac.at
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A Resource-based View of the Competitive Advantages of Cities
integrating Porter’s diamond model with the resource-based try/location-specific and firm-specific resources. Firm-specific
theory of the firm. Finally, we present empirical results on the
resources are strategic assets that generate sustainable com-
advantages of Vienna as a headquarters location in Central Eu-
petitive advantage (Barney 1991; Amit, Schoemaker 1993). Fur-
rope.
thermore, they differentiate between two types of firm-specific
resources, i.e. non-location and location-specific resources. The
2. Relevant Literature
latter are the basis for local competitive advantages because
2.1 Porter’s Diamond Model
they cannot be easily transferred to and imitated by another

location (Foss 1996; Lawson, Lorenz 1999). In the competi-

According to Porter’s diamond model (Porter 1990), the tive international environment locations (regions/cities) can
competitive advantage of a nation/region is influenced by only improve their competitiveness if multinational firms can
the following determinants: factor conditions, demand condi-
realize location-specific competitive advantages. Hence the
tions, related and supporting industries, and the contexts of interaction effects between location-specific and firm-specific
firm strategy, structure and rivalry. Factor conditions refer to resources influence the competitive position of the MNC. Grant
specific human capital, technological know-how, communica-
(1991) and Feldman & Francis (2000) criticise Porter’s model be-
tion and transport infrastructure, as well as traditional factors
cause he does not consider the interaction effects between the
such as land, labour, natural resources and capital. Porter dif-
‘pillars’ of the diamond and the strategy of the multinational
ferentiates between basic and advanced factors: basic factors
firm. In particular, the interactions between the advanced fac-
are natural resources, climate and geographic location of a re-
tors (such as specific human capital and know-how) and the
gion and less-qualified human capital. Competitive advantages
firm-specific resources and capabilities of the MNCs are very
based on elementary factors are less sustainable, because they
important for the creation of sustainable competitive advan-
can easily be imitated by other locations. The advanced factors
tages. Porter mentioned this theoretical deficit (Porter 1998c;
are decisive for local competitive advantage since they cannot
2000, 41; 2000) but has not offered a solution.
be easily imitated by and transferred to another location. They

can be upgraded through investments by the multinational
firms and other institutions (government, chambers, trade as-

2.1 Firm Specifi c Resources and Location-spe-
sociations). Examples are high-qualified human capital, specific
cifi c Advantages
research facilities, management and technological competen-
cies, and communication infrastructure. Additionally, the de-

Following Enright (1998), Foss (1996), O’Donnell & Blu-
mand conditions influence the competitive advantage of a mentritt (1999), Maskell & Malmberg (1999), Spender (1998),
region or city. High and sophisticated local demand results in
and Fahy (2002), the resource-based or competence-based
more product innovations and thus improves the firm’s interna-
theory of the firm offers a new starting point for the explana-
tional competitiveness. Related and supporting industries may
tion of location-specific advantages (Barney 1986; Wernerfelt
increase the firm’s competitive advantage if the suppliers offer
1984; Collis 1991; Grant 1991a, Rumelt 1984; Prahalad, Hamel
new technologies and products that are not available to com-
1990; Foss, Knudsen 1996). The resource-based approach views
petitors. The fourth factor of the ‘diamond model’ refers to the
the firm as a bundle of resources and organizational capabili-
firm’s strategy, structure and rivalries. Porter argues that new ties (competencies) which are difficult to imitate and substitute
strategies and strong rivalry between local companies create
(Barney 1991; Peteraf, Barney 2003). Competencies refer both
strong incentives for product and organizational innovations.
to static resources and dynamic capabilities (Amit, Schoemaker
Strong local rivalry improves the firm’s competitive capabilities
1993; Teece et al. 1997). The latter refers to changes in orga-
in international markets. These four determinants (‘pillars’) of nizational capabilities (learning and innovation capabilities)
the diamond model are further influenced by two other fac-
(Prahalad, Hamel 1990; Eriksen, Mikkelsen 1996). This approach
tors: government and chance. The government can influence
will be used to identify location-specific resources. Just as firms
the competitive advantage of a location by incentives and achieve competitive advantages (strategic rents) by investing
regulations that stimulate the creation and upgrading of these
in resources and capabilities that are difficult to imitate and
factors. Porter’s model was successfully applied in many em-
transfer (Winter 1995; Makadok 2001), locations (regions/cities)
pirical studies (Enright, Weder 1995; Porter et. al 2000; Sölvell et
can improve their competitive position by investing in loca-
al. 1991; Steinbock 1998).
tion-specific resources. Location factors are location-specific if
they cannot be easily transferred to and imitated by another

Rugman & Verbeke (Rugman, Verbeke 1992, 1993, 1998, location (Foss 1996; Lawson 1999).
2003) extend Porter’s model by differentiating between coun-
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A Resource-based View of the Competitive Advantages of Cities

O’Donnell & Blumentritt (1999) and Maskell & Malmberg
influence its advantages as a headquarters for firms? Only if we
(1999) argue that interaction effects exist between firm-specif-
can show that the determinants of the diamond model influ-
ic and location-specific resources. A city or region can realize a
ence the resources and capabilities of the firm- and hence its
sustainable competitive advantage if it offers location-specific
competitive position- can we derive a resource-based policy
resources that are complementary to the firm-specific resourc-
for locations.
es of the multinational firm and thus contribute to upgrading

Resources and capabilities that generate competitive
know-how. O’Donnell & Blumentritt show that firm-specific advantages may be location- or non-location-specific (Rug-
resources upgrade the know-how of a region/city and – in a man, Verbeke 1992). Location-specific and non-location-spe-
dynamic view – location-specific resources increase the attrac-
cific resources refer to the factor conditions in the diamond
tiveness of the location for the investments of MNCs. Therefore,
model (see figure 1). Location-specific resources result in local
complementarity between firm-specific and location-specific competitive advantages if they are complementary to the firm-
resources exists. Location-specific advantages which result specific resources and capabilities of the multinational firm
from the spill-over effects of MNCs’ investments in firm-specific
(Buckley, Carter 1999). Therefore, a multinational firm will invest
resources and capabilities can be further increased by a ‘snow-
in a certain location if the location-specific resources lead to
ball’-effect (Dugan 2000, 39), because the attractiveness of competitive advantages compared to investments in another
these locations stimulates further investments by MNCs (Scott
location.
2000; Fujita, Thisse 2000). The more important the strategic de-
cision-making role of the local headquarters of the MNCs, the
Figure1 : A Resource-based Approach to the
more the MNC will invest in firm-specific resources and capa-
Competitive Advantages of Cities
bilities at the headquarters location, and upgrade location-spe-
cific know-how (Malecki 1999; Florida 1996). Consequently, we
can conclude that the interactions between firm-specific and
Context for Strategy,
Diamond of the City
location-specific resources can only be examined if we apply
Structure and Rivalry
the resource-based view of the firm to evaluate the strategic
importance of location factors.
Related and
Demand Conditions
Supporting Industries
3. Competitive Advantages of Cities: A Re-
source-based Approach
FACTOR
CONDITIONS

Now we develop a resource-based view of the competi-
tive advantages of cities by combining Porter’s diamond model
Non-Location -
Location - Specific
Government
2
Specific
with the resource-based theory of the firm.
Resources
Resources
3

3.1 Complementarity between Location-spe-
cifi c and Firm-specifi c Resources
Firm Level

Following the resource-based view of the firm, sustain-
Firm - Specific
Resources
1
able competitive advantages can be realized if the companies
have firm-specific resources and competencies that result in
long-term profit advantages (as strategic rents) compared to
Competitive
their best competitors (Peteraf 1993; Peteraf, Barney 2003).
Advantages
These resources and capabilities enable the firms to succeed
in a dynamic international environment. In order to develop a

According to Porter & Sölvell (1998), specific human capi-
resource-based approach to the competitive advantages of cit-
tal and knowledge resources primarily generate long-term
ies, we have to answer the following questions: (1) What is the
competitive advantage. In addition, location-specific advan-
relationship between the ‘pillars’ of Porter’s diamond model and
tage also depends on physical and infrastructure resources
firm-specific resources for the creation of sustainable competi-
(Porter 1990; 2003). The degree of location-specificity consid-
tive advantages of a MNC, and (2) how can the location’s policy
erably varies between the different forms of resources. The
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A Resource-based View of the Competitive Advantages of Cities
higher the degree of location-specificity, the larger the loca-
resources; for instance, multiculturalism is the basis for the de-
tion-based competitive advantages of the firm; a change of velopment of the language and cultural skills of the people.
location would mean a loss of location-specific rents (Enright
1998). The location’s policy is only relevant to the MNC’s deci-
sion to locate its headquarters if it is able to influence the avail-
3.2 Resource Dynamics and the Competitive Ad-
ability of location-specific resources and competencies. The vantages of a City
more easily it can influence the location-specific resources, the

The resources and capabilities of the firm and the deter-
more likely a location policy may contribute to the upgrading
minants of the diamond frequently change in a dynamic in-
of know-how. A location’s policy can be initiated by the local
ternational environment. Only those firms that permanently
government and other institutions (e.g. chambers, trade asso-
develop new products and processes by upgrading their re-
ciations) to increase the availability of resources, e.g. through
sources and capabilities will succeed in this dynamic competi-
education, research, technology, transportation, labour market
tion (Schumpeter 1912, Prahalad, Hamel 1990). Hence, in order
and integration measures. In figure 2 we show that the effec-
to be able to permanently innovate, the firm must have ca-
tiveness of a resource-based location policy is positively related
pabilities to acquire and create new knowledge (i.e. dynamic
Figure2 : Location Specificity and Possibility to Influence
the Resource Availability Through Location Policy
Possibility to Influence
Less-qualified
Taxes and Fees
the Resource Availability
Human Capital
Subsidies
Highly-qualified
Human Capital
R&D-Know-how
Management
-Know-how
IT-Know-how
Increasing
Institutional and
Effectiveness of
Legal Infrastructure
Location Policy
Cultural Resources
Quality of Life
Transport Infrastructure
Knowledge of Foreign Languages
International Organizations
Political Infrastructure
Multiculturalism
Historical Ties
Geographic Situation
Natural Resources
Location Specificity of Resources
to the degree of location specificity of resources and the pos-
capabilities (Teece et al. 1997), see ‘1’ in fugure 1). Furthermore,
sibility to influence resource availability through the location’s
in a dynamic view, firm-specific resources and capabilities in-
policy measures. The higher the degree of location-specificity
fluence the development of location-specific resources by
of resources, the greater the location-bound competitive ad-
the upgrading of know-how (see ‘2’ in figure 1), which triggers
vantage, and, in addition, the more easily the availability of further interaction effects in the diamond model. Hence the
location-specific resources can be influenced by the location’s
‘stickiness’ of a location increases (Markusen 1996). A resource-
policy. Location-specific resources that can be influenced by based location policy can positively or negatively influence the
policy measures include qualified human capital, specific R&D-
competitive advantages of a city by changing the location spe-
and management know-how, institutional infrastructure and cific resources that are complementary to the competencies of
cultural resources. Location-specific resources largely outside the MNC (see ‘3’ in figure 1).
the influence of policy measures include natural resources, To summarize, the resource-based view of competitive advan-
geographic situation, historical ties and cultural characteristics.
tage of a city can be stated by the following propositions:
The latter determine the local competitive advantage not only
by directly influencing headquarters location decisions but (I) A city can realize a sustainable competitive advantage if it
also by stimulating the development of other location-specific
offers location- specific resources that are complementary to
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A Resource-based View of the Competitive Advantages of Cities
the firm-specific resources and capabilities of the MNC.
Table 1 : Characteristics of the Companies:
Industry, Company Size and Markets
(II) The location’s policy is effective if it positively influences the
of the CEE/SEE-Headquarters
development and upgrading of location-specific resources
Percentage
Industry
Chemical/Pharmceutical/Cosmetics Industry
29
4. Advantages for Headquarters in Vienna
Banking/Insurance/Services
16
for Central Europe: Empirical Results
Supplies
12
Machine Industry
9

We investigated the competitive advantages of Vienna as
Food Industry
7
Steel and Metal Processing Industry
7
a headquarters location for MNCs in Central Europe. In particu-
Construction Industry
5
lar, we examined the advantages/disadvantages of Vienna as
Appliances/Electronic Entertainment
5
a headquarters location (specifically as a CEE/SEE-headquarter
Agricultural Products
2.2
location) compared to the second-best headquarters location
Energy Industry
2.5
in Central Europe. The city is a headquarters location as re-
Tobacco Industry
2.5
gional home-base for MNCs that coordinate business activities
IT-Industry
2.5
in CEE/SEE (Central, East and South East European countries)
Size of the Firm
from Vienna. In 2001 and 2002 we sent out questionnaires to
< 10 Employees
5
134 CEE/SEE-headquarters in Vienna and received 51 question-
10 - 100 Employees
35
naires; 7 could not be used due to lack of data.
> 100 Employees
59
no data
1
CEE/SEE Markets
Czech Republic
43
4.1 Characteristics of the MNCs
Hungary
43
Slovakia
41

Before examining its advantages for headquarters we
Slovenia
34
present some characteristics of the MNCs in Vienna.
CEE (general)
32
4.1.1 Industry, Size of the Firm and CEE/SEE-Markets
Romania
32
Croatia
30

Most of the companies are in the chemical, pharmaceuti-
Poland
25
cal, cosmetics, banking, insurance and service industries, and
Bulgaria
20
almost 60 percent of the firms have more than 100 employees
Serbia and Montenegro
16
GUS-States
at their CEE/SEE-headquarters in Vienna (see table 1). The CEE/
14
Bosnia and Herzegovina
9
Macedonia
9
Baltic States
7
Table 2 : Competencies of CEE/SEE-Headquarters
in Vienna
Albania
7
20
18
SEE-headquarters coordinate the following markets from Vi-
17,4
16
enna. Most of the companies are present in the Czech Republic
15,3
(43 %), Hungary (43 %), Slovakia (41 %) and Slovenia (34 %) as
14
direct neighbours and almost one third of the companies are
12
11,1
generally active in the CEE-countries (see table 1).
10
9,5
8,9
8,4
8
7,9
4.1.2 Competencies of CEE/SEE- Headquarters in Vienna
6
5,3
4,7

Which decisions are made by the regional headquarters
4
3,7
2,6
in Vienna? This question is very important because it shows the
2
strategic role of the CEE/SEE-headquarters for MNCs. The more
0
g
n
strategic decision making competencies are transferred to the
ning
etin
R&D
headquarters, the stronger the headquarters’ influence on local
Pla
Finance
esources
Logistics
investment decisions. The data in table 2 indicate that CEE/SEE-
Controling Mark
R
AccountingDistribution
Production
Organizatio
headquarters in Vienna have an important strategic role; more
ategic
than 40 % of all decisions refer to strategic, control and organi-
Str
Human
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A Resource-based View of the Competitive Advantages of Cities
zational decisions.
The strategic relevance of the location factors (S’), which varies
between 1 and 5, are presented in table 3. The most important
location factors are highly-qualified human capital, knowledge
4.2 Specifi c Resources and Advantages for Head- of foreign languages, political stability, connection to the inter-
quarters
national airport, management know-how, traffic connections
to CEE and SEE and geographic distance to CEE and SEE. In par-

Following our resource-based approach developed in ticular, the transport infrastructure, human capital and knowl-
section three we examine the following hypothesis: Vienna can
edge resources (such as know-how in banking and information
realize a competitive advantage compared to the second-best
technology, knowledge of East European languages, quality
CEE/SEE-headquarters location if it offers location-specific re-
sources and capabilities. Since we do not have data on firm-
Table 3 : Strategic Relevance of Location Factors
specific resources and capabilities of the MNCs, we cannot
Strategic Relevance(S`)*
examine complementarity between firm-specific and location-
Highly-qualified Human Capital
4.55
Knowledge of Foreign Languages
4.10
specific resources.
Political Stability
4.10
4.2.1 Measurement of Advantages for Headquarters
Connection to the International Airport
3.95
Availability of Management-Know-how
3.90

We measure the advantages for headquarters as follows:
Transport Connection to CEE/SEE**
3.80
Geographic Distance to CEE/SEE
3.75
a.
Based on Porter’s model (1990), we differentiate between
Competencies of Banks (CEE/SEE)
3.70

the following location factors (see appendix 1): Physical,
Flexibility of Public Administration
3.60

human, knowledge, cultural, political and social resourc-
Labour Costs
3.55
es.
Availability of IT-Know-how
3.55
Efficiency of Public Administration
3.55
b.
Evaluation of the strategic relevance of the location fac
Knowledge of East European Languages
3.45

tors for the MNC. We asked the following question: how
Low Taxes, Fees
3.45

important are the location factors for the realization of
Low Strike Frequency
3.45

long-term competitive advantages of the MNC? (1 – not
Quality of Education (Universities)
3.40

important; 5 – very important).
Restrictive Reg.for Permits of Residence for Foreigners
3.40
Work Permits for Foreigners
3.40
c.
Determination of local advantages and disadvantages.
Availability of Logistic Resources
3.30

We asked the following question: to what extent do
Quality of Logistic Resources
3.30

the location factors - listed in appendix 1 - lead to advan-
Degree of Liberalization of the Labour Market
3.25

tages/disadvantages of Vienna as a CEE/SEE-headquar-
Quality of Education (Middle and High Schools)
3.15

ters location compared to the second best headquar
Quality of Life
3.15

ters location in Central Europe? (disadvantage: - 3 to -1;
Flexibility of Working Hours
3.15

advantages: +1 to +3; no advantage/no disadvantage: 0).
Historical Ties to CEE/SEE
3.05
Costs of Office Space
3.00
d.
The overall evaluation of strategic advantages/disadvan
Quality of Office Space
2.80

tages for headquarters is carried out by multiplying the
Availability of Office Space
2.75

location advantages/disadvantages with the strategic rel
Cost of Living
2.75
evance
factor.
Subsidies
2.65
Competencies of the Insurance Comp. (CEE/SEE)
2.65
4.2.2 Advantages for Headquarters in Vienna as a CEE/SEE-
Availability of R&D-Know-how
2.60
Headquarters Location
Cultural Resources/Events
2.60
Multiculturality of Labour Force
2.45

Before we analyse the advantages/disadvantages for
Availability of Public Transportation Systems
2.45
headquarters in Vienna, we have to evaluate the strategic rel-
Multiculturalism of the City
2.45
evance of the location factors for the MNCs.
Existence of International Organizations
2.20
Less-qualified Human Capital
1.55
1.
Evaluation of the strategic relevance of the location fac-
*S' varies between 1 (no strategic relevance) and 5
tors
(very high strategic relevance).
** (CEE/SEE): Central, East, South East European countries
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A Resource-based View of the Competitive Advantages of Cities
of education system), and institutional factors (such as regula-
Table 4 : Advantages/Disadvantages for Headquarters
tion of labour market and foreigners, work permits, efficiency
HQ Advantages/
and flexibility of public administration) have a high strategic
Physical Resources
Disadvantages
relevance.
Geographic Distance to CEE/SEE
1.37
Costs of Office Space
0.46
2.
Advantages/disadvantages for Headquarters
Quality of Office Space
0.95
Availability of Office Space
0.90
The strategic advantages/disadvantages for headquarters from
Availability of Public Transportation Systems
0.79
the point of view of the MNCs are determined by multiplying
Availability of Logistic Resources
0.78
the location advantages/disadvantages (L) with the strategic
Quality of Logistic Resources
0.90
relevance factor (S): HQ = L*S (see appendix 2). For this purpose
Connection to the International Airport
1.86
the strategic relevance factors (S’) in table 3 are recoded (S =
Transport Connection to CEE/SEE**
1.48
S’/5). We differentiate between physical, human capital, knowl-
Human Resources
Highly-qualified Human Capital
1.11
edge and cultural, political and social resources (see table 4).
Labour Costs
-0.81
The most important advantages for headquarters regard-
Flexibility of Working Hours
-0.30
ing physical resources are the availability of the international
Multiculturality of Labour Force
0.22
airport, transport infrastructure and the geographic distance
Less-qualified Human Capital
0.01
between Vienna and CEE and SEE countries, while the largest
Knowledge Resources
human resources advantages refer to highly-qualified human
Knowledge of Foreign Languages
0.57
capital. On the other hand, labour costs and low flexibility of
Knowledge of East European Languages
0.28
working hours are important disadvantages for headquarters.
Competencies of Banks (CEE/SEE)
1.41
Regarding knowledge resources, the competencies of banks
Availability of IT-Know-how
0.54
and insurance companies, management know-how as well as
Competencies of the Insurance Comp. (CEE/SEE)
0.87
the quality of the education system are important advantages
Quality of Education (Universities)
0.95
for headquarters. On the other hand, Vienna has deficits in
Quality of Education (Middle and High Schools)
1.04
Availability of Management-Know-how
0.99
R&D-know-how and foreign language skills. The largest disad-
Availability of R&D-Know-how
0.38
vantages for headquarters regarding cultural, political and so-
Cultural, Political and Social Resources
cial resources refer to the political infrastructure, quality of life,
Political Stability
1.99
historical ties to CEE/SEE and cultural resources. On the other
Low Strike Frequency
1.86
hand, important disadvantages for headquarters result from
Quality of Life
1.38
institutional barriers regarding the restrictive regulation of the
Historical Ties to CEE/SEE
1.29
labour market and foreigners as well as the low efficiency of
Cultural Resources/Events
1.11
public administration.
Existence of International Organizations
0.63
Multiculturalism of the City
0.53
4.2.3 Location Specifi city of Resources and the Competitive
Restrictiv
Quality
Cost of e
of Reg.for
Living
Permits
Education
of
(MiddleResidence
and High for Foreigners
Schools)
0.24
Advantage of Vienna
Public Subsidies
-0.20
Efficiency of Public Administration

Which of the resources are location-specific and thus
-0.35
Flexibility of Public Administration
-0.22
generate high competitive advantages for Vienna as a head-
Degree of Liberalization of the Labour Market
-0.52
quarters location? According to our resource-based view of the
Low Taxes, Fees
-0.64
competitive advantages of cities, the following factors show a
R
Pe
estrictiv
Quality
rmits e
of
of Reg.for
R
Permits
Education
esidence for o
F f
(MiddleResidence
and High
oreigners
for Foreigners
Schools)
-0.73
relatively high degree of location specificity (see figure 2): Geo-
Work Permits for Foreigners
-0.73
graphic distance, transport infrastructure (railways, airport),
specific human capital, management know-how, historical ties,
and the low efficiency and flexibility of public administration,
multicultural environment, quality of life and cultural resources.
are important location-specific disadvantages for headquarters
As argued above, Vienna’s advantages for headquarters primar-
because they negatively influence the headquarters’ decisions.
ily result from these factors. However, there are some important
In addition, the restrictive regulations for foreigners may have
deficits concerning knowledge of foreign languages (especially
an additional negative impact on the multicultural environ-
languages of CEE/SEE-countries), R&D- and IT- know-how
ment and consequently on language and cultural skills.

. Institutional barriers, such as restrictive regulation of the

In addition, we must consider the important interaction
labour market and foreigners (residence and work permits), effects between location-specific resources. A first indication
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A Resource-based View of the Competitive Advantages of Cities
shows the correlation coefficient (without controlling for other
be increased by additional empirical studies on the advantages
interaction effects): (a) the correlation coefficients between for headquarters in other cities.
the quality of education systems (middle and high school;
The main management implication of this study refers to
universities) and highly-qualified human capital are positive the location’s policy to improve the competitive advantage of
and significant (0.308 and 0,372). Hence know-how upgrading
its city. A resource-based policy for a location with the goal
requires investments in the quality of education systems. (b) of increasing advantages for headquarters must stimulate in-
Furthermore, the correlation coefficient between multicultur-
vestments in location-specific resources and competencies. As
alism and knowledge of foreign languages is also positive and
Markusen (1996) says, the goal of a location’s policy must be to
significant (0,548). Thus the multicultural social environment of
increase the ‘stickiness’ of that location.
a city increases its advantages for headquarters due to better
language skills.
4.3 Discussion and Implications

What are the competitive advantages of cities in a dynam-
ic international environment? This paper develops a resource-
based approach by integrating Porter’s diamond model with the
resource-based view of the firm. A city may realize sustainable
competitive advantages if it offers location-specific resources
that are complementary to the firm-specific resources of the
multinational firm. Our study presents some evidence for Vien-
na as a CEE/SEE-headquarters location for multinational firms
in Central Europe. Vienna’s advantages for headquarters are pri-
marily due to the existence of location-specific resources, such
as geographic proximity to CEE and SEE, specific human capi-
tal, management know-how in banking and insurance, histori-
cal ties, a multicultural environment, quality of life and cultural
resources. On the other hand, Vienna’s most important disad-
vantages for headquarters result from location-specific institu-
tional barriers and also from deficits in R&D- and IT know-how,
as well as lesser knowledge of foreign languages (especially the
languages of CEE/SEE-countries). A resource-based policy for a
location has to reduce these institutional barriers because they
directly influence the headquarters’ decisions and interaction
effects between institutional factors and other location-specif-
ic resources. In addition, the location’s policy has to stimulate
investments in education and research facilities.

There are several limitations of this study and also im-
portant research implications. First, the empirical evaluation
of advantages for headquarters requires additional informa-
tion on the firm-specific resources and capabilities of multi-
national firms in order to be able to evaluate the relationship
(complementarity) between firm-specific and location-specific
resources. Secondly, the selection of relevant location factors
should be based not only on Porter’s model but also on other
approaches. Thirdly, the measurement of advantages for head-
quarters must be improved by using additional indicators to
increase validity. Finally, the applicability of our results should
September 2006
27

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A Resource-based View of the Competitive Advantages of Cities
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