NZIER report and presentation to Sister Cities NZ
Sister City relationships sit neither in the central government country-to-country space nor in the private space of business to business. They occupy an odd middle ground, where they are neither influenced by geopolitics and international law (like country to country) nor contract law, the law of torts and conflicts of laws (like business to business).
For international relationships, they strangely respond to regional ratepayer political drivers. They do not involve selling goods and services to other cities. In between the large macro-level drivers of geopolitics and the small micro-level drivers of comparative advantage, the economics of trust explain their function and role.
Sister City relationships operate between pairs of local government councils and their communities. They produce two types of trust-generating economic outputs:
- Bilateral cultural-enhancing activity between city communities that creates and enhances community trust. The cultural-enhancing activity is visible and objectively perceived by the overseas Sister City and credibly signals commitment to a personal-level relationship between cultures.
- Trust and assurance between cities that reduce transaction cost at the international level. Council entities provide assurance that the international relationships are long duration and will last, the relationship is important, the rules of engagement between cities are within the control of the parties and each party will engage constructively whatever the circumstances.
It is because councils are long-term enduring bodies that are elected by a collective of people and make law that they have a capability to create trust between cities.
Councils can create a high-trust environment between international local governments that opens up economic opportunities for business and lowers risk, cost and uncertainty for business seeking to engage in bilateral trade.
Mayoral visits strengthen the commitment between the Sister Cities through showing the relationship is still valued and, more importantly, through personal in-presence face-to-face commitment by each mayor to engage constructively whatever the circumstances or evolving political context.
1. Personal relationships are important
Without exception, all interviewees emphasised the fundamental and paramount importance of keeping the relationships between Sister Cities alive through regular contact and communication. Successful Sister City relationships or trading relationships require a lot of effort and commitment to maintain regular working-level operational contact between cities and regular civic-level mayoral visits.
Maintaining relationships helps the parties keep up with the ever-changing global economic environment and growing social concerns, for example, climate change, consumer trends and geopolitical changes.
2. Cultural outputs matter
Cultural, art and sporting exchanges are all forms of gift sharing, which builds trust visible to the other party and shows a genuine commitment to an enduring relationship. The overseas city can observe the strength of the cultural relationship between the cities, and that impacts on the credibility of the trust built between the cities.
3. Trade happens through business, and business networks matter
Councils are not businesses, and they cannot engage in meaningful bilateral economic trade. The best councils can do is provide assurance and promote trust. Trade between businesses still needs to be conducted by business and comes with its own risks and uncertainties. Chambers of Commerce, with their networks into their overseas counterparts, can further reduce risk through maintaining a trusted network at the business level.
4. Culture happens through communities, and Sister City Society networks matter
Just as business networks can make businesses operate more efficiently, so to can community networks make cultural relations efficient. Their costs are minimal, but their ability to signal credibility to the Sister City is high. They are tangible demonstrations of the interest one city’s community has in understanding the culture of another.
5. Focus on marketing regional comparative advantage
The most successful Sister Cities have taken a strategic approach to tapping the economic potential of their city relationships through actively promoting the industries and sectors they are regionally best at. Once trade became established, they looked for opportunities to increase the value of the relationships through providing higher-value services.
Overseas delegations need to be strategic. The temptation to take a large mayoral-led business delegation overseas can result in an unfocused visit that is unable to meet all of the participants’ needs. Business and trade is ideally facilitated one on one, tailored to the business. It is less effective with a big delegation at a civic level.
6. Bring a team and pitch to each member’s comparative strengths
The most successful cities have taken a collective approach when seeking to open overseas markets, recognising interdependency between members. Councils can provide assurance needed for foreign business commitment but can neither enter into business nor expertly represent a sector. Likewise, business and sectors approaching overseas markets might find bureaucratic doors are closed without the prestige and mana of a mayor.
Bottlenecks to progress
1. Signalling commitment and maintaining trust
Trust is like a renewable resource that atrophies with disuse and multiplies with use. For signalling commitment to a relationship and maintaining trust, there is no substitute for face-to-face meetings. Without face-to-face engagement, relationships needed to maintain strong business connections will not develop. Economic opportunity will disappear if relationships are not maintained.
2. Limits of city-based economic production
The scale of opportunity in some international markets can be overwhelming. The pairing between New Zealand and Chinese cities, for example, can have New Zealand populations of 10,000–15,000 matched with cities of several millions of people. Even if a negotiation is successful, the inability to deliver Chinese-level volumes may prevent successful trade relationships. This highlights an opportunity for taking a regional or New Zealand-wide approach to potential business opportunities rather than focusing only on what can be done between the two cities.
3. Council bandwidth
A number of councils maintain several Sister City relationships with a ratepayer-funded staffing base. While the benefits and activities are varied, not all Sister City relationships can (or should) be commercialised. Creating an expectation of economic co-operation but not having the capacity to deliver may lead to loss of relationship and trust for some.
An across-council strategy for which overseas cities ought to be engaged by councils collectively and for which specific economic opportunities could help make best use of limited council resource. An across-council strategy should also include criteria for establishing new relationships – especially new markets of emerging importance for New Zealand – and how these can be effectively prioritised and balanced against existing relationships and resource commitments.
4. Brand New Zealand
New Zealand’s brand in an international market is either relatively unknown to some cities or viewed as having a relatively narrow offering. Within this narrow offering, New Zealand cities are constantly seeking to explain both New Zealand’s uniqueness and their regional New Zealand difference. Some interviewees saw this as just one aspect of the overseas marketing job, but there may be opportunities to deliver the New Zealand Inc. brand message more consistently via Sister Cities.
5. Communicating opportunity to a wider audience
Some Sister Cities struggle when the opportunities and benefits are not communicated regularly and effectively to their local stakeholders and communities. Promoting trade opportunities from Sister Cities back to the local region can be difficult. Regions have struggled to get business involved and commit to entering overseas markets. The people-to-people exchanges and bilateral cultural-enhancing activity (as described in section 4.1.6) also need to be more prominent and communicated to the community.
6. Business skills and becoming export ready
Many New Zealand businesses lack real knowledge of how to do international business contracts, especially in a culturally different environment.
Firms looking to enter overseas market need to be market ready and have the financial ability to get up into market multiple times before agreements occur. Sister City visits may be able to provide a useful window for market familiarisation, but businesses should make an effort to source other forms of advice via business or export networks, consultants, Economic Development Agencies or New Zealand Trade and Enterprise. This level of managerial requirement and financial capability may be a limiting factor for many businesses seeking to commercially benefit through Sister City relationships and visits alone.
Click on the PDF icons to view the full report and the presentation to the Sister Cities New Zealand conference in Palmerston North, 21 March 2019.