Global–local trajectories for regional competitiveness: Tourism innovation in the Western Cape

Introduction

Innovation ¹ is considered essential for competitiveness in advanced economies, driven by knowledge creation, technology and innovation (Fagerberg, 2013; Rodriguez-Pose and Fitjar, 2013; Varis et al., 2014). Equally, innovation leads to the long-term economic performance of individual firms, cities, regions and nations (Fagerberg, 2013; Porter, 2008; Rutten and Boekema, 2013). In accordance with this, innovation also is of consequence for the competitiveness of tourism firms, destinations and regions (Alsos et al., 2014; Rodriguez et al., 2014; Weidenfeld, 2013; Williams, 2014).

South Africa, like other emerging market economies in the global South, has adopted knowledge-based policies to accelerate economic catchup and enhance its competitiveness in the global economy (Blankley and Booyens, 2010; Gault, 2010, Kruss and Lorentzen, 2011). In South Africa, tourism is regarded as a vehicle for economic growth and regional development (Rogerson, 2013, 2015). In particular, tourism is considered a key growth sector in the Western Cape, one of South Africa’s premier tourism regions (Cornelissen, 2005). However, it is observed that innovation in tourism has hardly received any research or policy attention locally despite the considerable growth of tourism research in South Africa over the past decade (cf. Rogerson and Visser, 2011, 2014). Several authors point to the lack of micro-data to inform economic and innovation policies in South Africa, at both the national and regional levels (Booyens, 2011; Gault, 2010; Kruss and Lorentzen, 2011; OECD, 2008a). Regional economic and innovation policies matter for contemporary regional competitiveness as demonstrated in both developed and emerging economy contexts (Carrincazeaux and Gaschet, 2015; Chaminade and Plechero, 2015; Collits and Rowe, 2015; Crescenzi and Rodriguez-Pose, 2012; Lorenzini, 2014) – and specifically in South Africa (Lorentzen, 2009a, 2010; Nel et al., 2009; Turok, 2010). Whilst a number of provincial economic development policy frameworks exists, the role of regions in fostering national economic growth (OECD, 2008b) and the role of tourism for regional development (Brouder and Ioannides, 2014; Rogerson, 2015) remain relatively new concepts in South Africa. Therefore, it is argued that innovation and related issues such as networking relations and collaboration need to be understood better in the local context to support evidence-based regional economic and innovation policies.

This paper interrogates regional innovation and competitiveness by analysing tourism innovation using the example of the Western Cape region of South Africa. The economic significance of services and tourism in South Africa and the Western Cape, innovation performance in the Western Cape region and policy environment for innovation and tourism in South Africa and the Western Cape are investigated. The empirical analysis draws on micro-data from a survey of the innovation and networking activities of tourism firms in the Western Cape and a set of interviews with regional tourism system actors. Policy recommendations centre on global–local trajectories in relation to accessing global knowledge flows, whilst focusing on tourism as a local core competency and enhancing the capacities of local institutions to support regional innovation.

The growing economic significance of services and tourism

It is observed that service sectors have expanded in recent years, both in relative and absolute terms, at the expense of traditional drivers of the South African economy such as agriculture and mining. During the period 1994–2004, services accounted for 78% of gross domestic product (GDP) growth (Du Plessis and Smit, 2007). A time series analysis of gross value added reveals a structural shift, in the composition of GDP output away from resources and manufacturing and towards services (Figure 1). In 2012, services constituted approximately 70% of the GDP compared to about 52% in the mid-1960s. During the same period, the manufacturing sector exhibited a marked decline, and the contribution of agriculture and mining dwindled, particularly since the mid-1980s. In 2012, the collective contribution of the secondary and primary sectors amounted to 23% and 8% of GDP, respectively. OPEN IN VIEWER

Growth in tourism has coincided with this structural shift towards a service-based economy in South Africa. It is detected that the tourism economy which has grown significantly since 1994 continues to perform well despite slower growth over the last few years (cf. Rogerson and Rogerson, 2014). In 2013, foreign tourism arrivals reached 9.6 million, a 4.7% year-on-year increase from 2012 compared to 5.0% global increase during the same year (SAT, 2014).

National trends regarding the growth of services and tourism are mirrored in the Western Cape where regional economic growth is driven by the services sector (Wesgro, 2013, 2015). Services constituted 73% of the region’s gross geographic product (GGP) in 2011 (Figure 2). In relative terms, this share is higher than the national aggregate suggesting the particular significance of services in the regional economy. OPEN IN VIEWER

The fastest growing economic sector between 2001 and 2011 was the finance and insurance, real estate and business services sector which outperformed all of the other sectors. The manufacturing sector’s contribution to the GGP declined markedly during the same period (from 21% in 2001 to 17% in 2011). On the whole, the wholesale and retail trade sector contracted during this period, while the catering and accommodation sector exhibited strong output growth of 5% on average per annum. It is also observed that the finance and business services, and wholesale and retail trade, sectors have been the largest employers in recent years – each constituting 19% of total formal sector employment in 2011 (cf. Wesgro, 2013, 2015). The employment growth in services during this period compensated for employment losses in the agricultural, manufacturing and construction sectors (WCPT, 2012).

Tourism is a key growth sector in the Western Cape (cf. Cornelissen, 2005). Total tourism arrivals to the Western Cape amounted to 3.7 million in 2012 (11% of the national total during the same year; see Table 1). Of the total tourism arrivals, two-thirds were domestic tourists and a third was foreign tourists (1.3 million). Total tourism spend amounted to R 34.7 billion in 2012 (£1.6 billion) (21% of the national total in the same year). Foreign visitors were responsible for 53% of this spending, despite constituting a third of total visitors. The contribution of tourism to the GGP of the Western Cape was 7.7% in 2012, a decrease from 10.3% in 2010 when the FIFA World Cup was hosted in South Africa. In 2013, the number of foreign tourism arrivals to the Western Cape amounted to 1.6 million, a 1.6% increase from the previous year; whilst its share of domestic visitors (2.4 million trips in 2013) remained relatively stable (SAT, 2014).

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Table 1.

Tourism figures for the Western Cape (2010–2012).

Total tourists (numbers)	2010	4,028,873
	2011	3,838,718
	2012	3,668,114
Total tourism spend (R 1000, current prices)	2010	39,120,419
	2011	38,789,213
	2012	34,676,718
Total tourism spend as % of GGP (current prices)	2010	10.3%
	2011	9.4%
	2012	7.7%

Cape Town, the hub of the Western Cape tourism economy, experienced considerable tourism growth between 1994 and the early 2000 (CoCT, 2013b; OECD, 2013). Whilst Cape Town continues to grow as an international tourism destination, its tourism economy has exhibited weaker performance in recent years. An analysis of the tourism performance of South Africa’s largest cities by Rogerson and Rogerson (2014) reveals that Cape Town’s share of total tourism trips has decreased from 18.3% in 2001 to 13.3% in 2012. Rogerson and Rogerson (2014) explain that Johannesburg, as the commercial capital of South Africa, has been performing well in terms of business travel and that an increase of leisure travel (both domestic and international) is observed for the period under review. In contrast, while Cape Town has a strong leisure and international visitor base, Rogerson and Rogerson (2014: 17) observe that the city ‘exhibits relative demise for domestic tourism, business travel and VFR travel’. Their findings highlight the importance of innovation to counter the impact of the relative decline in visitor spend and domestic visitor figures in recent years and to enhance destination competitiveness of Cape Town.

Innovation performance in South Africa and the Western Cape

In South Africa, knowledge-based activities are primarily clustered in the largest, economic regions of Gauteng and the Cape Town city-region, followed to a lesser extent by the Durban city-region (Lorentzen, 2008, 2009a; Rogerson, 2002). The Gauteng and Cape Town city-regions are also the most innovative and most dynamic in terms of knowledge-based performance. These two regions have more highly skilled human capital, conduct more research and development (R&D), produce the major share of economic output and register the most patents in South Africa (Lorentzen, 2008, 2009a; SACN, 2011). In accordance, Lorentzen (2008) maintains that regional innovation systems exist to a limited extent both in Gauteng and the Western Cape, but there are little evidence to such systems elsewhere in South Africa.

The Gauteng and Western Cape regions also exhibit higher rates of economic growth than the rest of the country (Lorentzen, 2009a, 2010; SACN, 2011). Gauteng has the highest degree of specialisation and diversity of economic activity (Lorentzen, 2008). By comparison, the Western Cape region’s specialisation lies in agriculture, service sectors, trade, food processing and niche manufacturing. Similarly, the economy of the Cape Town city-region is centred on clothing and textiles, finance and business services, tourism, agriculture and agro-processing, particularly food processing and beverages (Lorentzen, 2010). A key feature of Cape Town’s city-region is the structural shift in its economic base towards finance and business services, logistics and tourism. In accordance with strong growth in the tourism sector in Cape Town since the late 1990s, the inner city has experienced dramatic urban renewal and has been transformed into an attractive investment, business, recreational, tourist, creative and residential space mirroring international trends (Booyens, 2012; Lemanski, 2007; Nel et al., 2009; OECD, 2013; Pirie, 2007; Rogerson, 2013). Alongside the strong performance of the tourism sector, increased international visitor numbers has heightened the awareness of Cape Town as an urban tourism destination, increased investment and raised the profile of the city (Booyens, 2012; OECD, 2013; Pirie, 2007; Rogerson, 2013).

Cape Town is an aspiring global city which aims to increase its competitiveness on the global stage (Lemanski, 2007; McDonald, 2008). In order to advance competitiveness, public policy makers strive to position Cape Town as a knowledge-based, creative and innovative city (Booyens, 2012; Lorentzen, 2010; OECD, 2013; Pirie, 2010). This said, it is significant that the Cape Town city-region is reported, to have poor innovation capacity and performance in comparison with Johannesburg (Lorentzen, 2010; OECD, 2008b). Various constraints to innovation performance and competitiveness exist in the region. It is argued that research and innovation initiatives are disconnected from regional key value chains such as agro-food, logistics and tourism (OECD, 2008b). Cape Town performs better in terms of R&D activity and knowledge production, as manifested in its higher scientific and technological outputs, than the Gauteng region (Lorentzen, 2008). However, whilst the knowledge base of the region is regarded as a key strength by policy makers, learning and graduate outputs are not sufficient to sustain a significant knowledge-based economy (Lorentzen, 2010; OECD, 2013; Van Heyningen, 2011). Lorentzen (2010) argues that when it comes to innovation and regional competitiveness, the focus should not merely be on highly skilled human capital, but the ‘right kind’ of human capital. In addition, innovation in the region is further constrained by higher education institutes, which are key role players in regional innovation systems, reportedly operating in silos and producing knowledge for their own purposes rather than for enhancing regional development (Lorentzen, 2008, 2010). Likewise, Van Heyningen (2011) remarks that higher education in the Western Cape is generally uninvolved in regional economic development which points to poor relationships between universities and businesses. These observations point to poor systemic relationships for innovation which is indicative of an underperforming regional innovation system (Lorentzen, 2008, 2010; OECD, 2008b). Indeed, Lorentzen (2008) argues that firm level innovation in the Western Cape does not result from systemic interactions at the local or provincial levels. To be specific in this regard, poor government capability and governance, poor leadership and strategic direction, as well as limited coordination between government agencies and departments, and weak collaboration between public and private entities is evident in the Western Cape and the Cape Town city-region (Lorentzen, 2010; Pieterse, 2010; Van Heyningen, 2011). For these reasons, Kruss and Lorentzen (2011) maintain that there is a systematic lack of coordination within and between government actors which are supposed to support regional innovation. This points to a breakdown of coordination and collaboration at all levels of a traditional innovation system between industry, academia and government, which in part, is attributable to a lack of understanding regarding the role of regional innovation systems and the roles of its actors (cf. OECD, 2008b; Van Heyningen, 2011).

The policy environment for innovation and tourism

A review of policy frameworks for innovation and tourism discloses that the rapidly growing service and tourism sectors are not considered in the national Science, Technology and Innovation policy frameworks. In addition, innovation is poorly conceptualised in tourism policy frameworks in South Africa (Table 2).

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Table 2.

Policy frameworks for Science, Technology and Innovation and tourism development.

South Africa
Key national Science, Technology and Innovation frameworks	White Paper on Science and Technology (RSA, 1996a) National Research and Development Strategy (RSA, 2002) Ten-year Innovation Plan (DST, 2008)
Key national tourism frameworks	White Paper on the Development and Promotion of Tourism in South Africa (RSA, 1996b) Tourism in GEAR: Tourism Development Strategy 1998–2000 (DEAT, 1998) National Responsible Tourism Guidelines for South Africa (DEAT, 2002) National Tourism Sector Strategy (DoT, 2011) Domestic Tourism Growth Strategy, 2012–2020 (DoT, 2012)
Western Cape
Provincial and local economic growth frameworks	Micro-Economic Development Strategy (WCPG, 2006) Western Cape Provincial Review and Outlook (WCPT, 2007) Western Cape Strategic Plan (WCPG, 2008) Economic Growth Strategy for the City of Cape Town (CoCT, 2013a)
Tourism development frameworks	Tourism Development Framework (CoCT, 2005) Tourism Development Framework 2013–2017 (CoCT, 2013b)

It should be understood that key national Science, Technology and Innovation policies deliberately are targeted to drive the economy’s transformation to a knowledge-based economy, and associated strategies seek to promote Science, Technology, R&D and Innovation within a national innovation system, techno-scientific approach (Blankley and Booyens, 2010; Booyens, 2011; Kahn and Hounwanou, 2008; Kruss and Lorentzen, 2011; Lorentzen, 2009b). Nevertheless, these policies are neither evidence based, nor appropriately informed by the local economy’s structure, strengths and conditions (Kaplan, 2008; Kruss and Lorentzen, 2011; Maharajh, 2012). In particular, the Organisation for Economic Co-operation and Development (OECD, 2007) advises that policies in South Africa are too narrowly focused on technological innovation and public R&D which obscure important issues such as non-R&D and non-technological innovation, especially in services. Evidence exists that South Africa performs well in terms of non-technological innovation (Van Heyningen, 2011), and service firms are dynamic in terms of R&D and innovation (HSRC and DST, 2011; Kahn and Hounwanou, 2008). Therefore, it is significant to record that the service and tourism sectors have been excluded from policy support. The review reveals further that tourism-specific frameworks regard tourism as a significant economic development tool in South Africa. Whilst certain tourism policy documents recognise that innovation is needed to ensure competitiveness in the tourism economy, it is concluded that there is no broad-based understanding of what innovation entails in the tourism industry. To be specific, the concept of what innovation entails in tourism has been poorly defined and developed, and remains an abstract notion which has neither been applied to the sector, nor translated into actual initiatives.

In the Western Cape, tourism is integral to regional economic growth and development policy frameworks. Yet, the policy frameworks reviewed make very little, if any, mention of tourism innovation. Equally, economic growth strategies make little mention of innovation. Where innovation is discussed, it is generally understood in the light of science and technology which mirrors national Science, Technology and Innovation frameworks. Regional innovation is highlighted with a focus on enhancing interaction between academia and entrepreneurs, but the potential role of tourism in a regional innovation system as an area of specialisation is overlooked (cf. WCPT, 2007). It is evident that regional policies and strategies in terms of innovation are mostly reflections of national policies and initiatives and do not focus on core regional competencies and resources. Strategies endeavouring to position Cape Town as a global city fail to allude to the important role which innovation can play in helping to achieve competitiveness and to the city’s role in a regional innovation system (cf. CoCT, 2013a). It is apparent that certain local economic growth strategies at municipal level are at odds with the provincial policy instruments which points to weak alignment between the efforts of the policy units at provincial and local levels.

Innovation and networking by tourism firms in the Western Cape

Core findings from a larger analysis of the innovation and networking activities by tourism firms in the Western Cape are distilled here. The empirical investigation consisted of a firm-level survey of 156 tourism firms across the Western Cape regarding their innovation activities during 2010–2012 and a set of qualitative interviews with key actors in the regional tourism system (N = 11). The Oslo Manual innovation definitions and typology was employed (cf. OECD, 2005), and selected Community Innovation Survey questions were adapted and expanded for a tourism sector-specific innovation survey. A purposive sampling frame was constructed from online and printed listings of tourism firms in the Western Cape. Care was taken to include a cross-section of tourism firms in the sample. Purposive sampling and a qualitative interview schedule were employed for the tourism system interviews.

Table 3 reveals that up to 60% of tourism firms surveyed can be regarded as innovative since they introduced new or significantly improved products, services, processes or business practices during the period under review. In addition, innovation was also observed in a number of government agencies concerned with economic development, tourism promotion and nature conservation in the Western Cape. Overall, the findings point to innovation being widespread in the Western Cape tourism economy and of significance for the competitiveness of the region. The results are in line with other tourism research investigations which confirm the prevalence of innovation in tourism (Alsos et al., 2014; Weidenfeld, 2013; Williams, 2014), as well as evidence that service innovation is widespread in South Africa (cf. HSRC and DST, 2011; Kahn and Hounwanou, 2008).

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Table 3.

Core findings on innovation and networking by tourism firms in the Western Cape.

1.	The majority of tourism firms surveyed (59.6%) introduced new or improved innovations during 2010–2012
2.	The majority of tourism innovations (two-thirds) can be regarded as incremental
3.	Tourism innovation is concentrated in Cape Town, the Winelands and the Garden Route regions
4.	Networking for innovation is limited, and innovative firms make use of strategic, external and non-local resources
5.	Systemic relationships for supporting tourism innovation and networking are weak

The Western Cape research draws attention to tourism innovation being non-technological and incremental. In the first instance, this investigation provides evidence that non-technological innovations (organisation, marketing, environmental, structural and social innovation) are more widespread than technological innovation (product and process innovation) in the Western Cape tourism economy (Booyens, 2015). In the second instance, incremental tourism innovations are observed to be more prevalent that novel tourism innovation, with up to two-thirds of tourism innovations regarded as incremental. Incremental innovation refers to improvements, rather than new developments, which add value to products, services, processes or business practices, and include innovations that are new to firm only, rather than new to market, first in South Africa or world-firsts (cf. OECD, 2005). Several authors point to the caveat of the non-technological and incremental nature of much tourism innovation, and innovation in South Africa as an emerging market economy in the global South (Alsos et al., 2014; Booyens, 2011; Gault, 2010; Kahn and Hounwanou, 2008; Rodriguez et al., 2014; Tejada and Moreno, 2013; Weidenfeld, 2013; Williams, 2014), which is confirmed in case of tourism innovation in the Western Cape.

From an examination of the geography of tourism innovation, it is evident that the incidence of tourism innovation is dense in the Cape Town city-region and further concentrated in main places (Figure 3). In particular, the regions with the highest innovation concentrations are Cape Town, the Winelands and the Garden Route, which are also the most popular tourism destinations in the region (cf. Cornelissen, 2005). This corresponds with the finding that large tourism firms, mostly located in urban areas, are more innovative than small firms as observed in this research. It was determined that large tourism firms introduce more innovations than small firms, and their innovations are also more novel. These findings confirm that competition drives innovation (cf. Fagerberg, 2013; Porter, 2008) since tourism innovation is more prevalent within popular tourism clusters in the Western Cape where more competition exists. In addition, the results of this investigation correspond with arguments that innovation is generally higher in urban, than in rural areas, due to agglomeration economies as evidenced in the South African context (cf. Lorentzen, 2008, 2009a). OPEN IN VIEWER

Another critical innovation finding points to the networking behaviour by tourism firms in Western Cape being predominately ‘loose’ and local. The primary purpose of networking by tourism firms is to enhance business prospects, whilst networking for innovation purposes is observed to be relatively weak. ² It is identified that innovating firms which introduce novel innovations make use of strategic linkages to access external expert, non-local and non-tourism sector knowledge. These results correspond with international research which highlights that external linkages among regional actors and between regional and extra-regional actors are of consequence for firm-level innovation in tourism, as well as for the long-term regional competitiveness of regions (cf. Brouder and Eriksson, 2013a; Carson et al., 2014; Collits and Rowe, 2015; Lorenzini, 2014; Martin, 2013; Rodriguez-Pose and Fitjar, 2013; Rutten and Boekema, 2013). Accordingly, the Western Cape experience underscores that whilst external entities are of consequence for novel innovation and the competitiveness of the regional tourism economy, local embeddedness remains of critical for tourism firm survival (cf. Brouder and Eriksson, 2013b). This offers a nuanced understanding of tourism networking, beyond a primary focus on extra-regional networking linkages for accessing knowledge.

Finally, the Western Cape investigation identifies weak systemic relationships between actors in the tourism system and other relevant role players (Booyens, 2015). Overall, the findings of this investigation point to fragmented tourism innovation and networking activities within the Western Cape tourism system at both the regional and local levels. In particular, public–private tourism networking forums do not support innovation activities; there is limited integration of government functions and poor cooperation between government agencies concerned with tourism planning and development is evident. Further, systemic relationships between the tourism industry, government and academia are, for the most part, non-existent. It is significant to report that several respondents reiterate that universities and other institutions of higher learning play a ‘very small role’ in the Western Cape tourism system. These findings suggest the absence of a functioning tourism innovation system against the backdrop of an underperforming regional innovation system (cf. Lorentzen, 2008, 2010; OECD, 2008b; Van Heyningen, 2011).

Policy recommendations

Based on this research, three sets of policy recommendations are offered for fostering regional innovation, competitiveness and growth in the Western Cape.

Concluding remarks

This paper argues for a policy focus on tourism to enhance regional competitiveness given the sector’s growth, economic significance and innovation performance in the Western Cape. The investigation offers a body of critical evidence-based contributions both to tourism and regional policy debates by revealing the widespread occurrence of innovation by tourism firms. Equally, the research underscores the important role of local institutions in fostering regional innovation. Moreover, a significant contribution of this research is a proposed rethink regarding the appropriateness of the adopted national and regional innovation system approaches, and Science, Technology and Innovation policies, which focus exclusively on ‘high-tech’ sectors, local systems and proximate learning relationships. It is argued that these approaches are the result of policy borrowing which does not take appropriate stock of local competencies, economic structures and challenges, and ignores the importance of growth and innovation in services. The Western Cape should not fall into this policy trap, currently evident at the national level in South Africa. Instead, the importance of an ‘open’ region which draws upon strategic, global knowledge flows for enhancing regional innovation and competitiveness is highlighted.