City Branding Dilemma

In a free market economy each city should have its own business plan or a brand-book as well as other attributes typical of a commercial project. Consultants are positive that overseas experience is to be transplanted to the Russian soil, but for now the attempts at brand building made by local administrations are very sporadic and timid. Reformers tread a thorny path of outlaws.

The Bureau of Urban Projects in Perm is getting ready a new master plan standing out among similar urban development plans elaborated for other cities, as it is pivoted on the local real estate market dynamics, rather than the traditional standards and codes. As a result, Perm’s master plan proposes specific development patterns aimed at precluding oversaturation in some real estate segments and scarcity in others. “Forecasting the regional needs for commercial and residential real estate enables the local administration to correct the plans of investors. In its turn, information on the future shortage of any particular function serves as a reference point for investors in conceptual development of their future projects,” says Dmitry Zolin, Partner of LCMC. In his words, most Russian regions lack such master plans and some are only considering their expediency. Meanwhile the Russian authorities are yet to adopt his approach to master-planning characteristic of the West, for this is the only possibility to harness the urban dynamics in a market environment. Andrei Golovin, Director of The Bureau of Urban Projects which is developing the innovative plan, said they realized in Perm that the Soviet standards and codes elaborated to cater to the needs of the command system are no longer relevant. “We were guided by the fact that business would involve in urban development. However we are not going just to slave to market elements, but rather strive to realize the key trends and foresee the patterns of business expansion on this territory,” he commented on the new master plan’s philosophy. New challenges called for new approaches. The Perm master planners capitalized on the market capacity identification methods typical of the business environment. “We focused on the purchasing power of our population, rental rates and the level of vacant areas,” says Mr. Golovin. Instead of setting rigid rules, we tried to pinpoint the market potential and needs. “You may steer the process both in case of a dramatic splash of market activity and in case the interest of investors flags. We can ensure any demand for office and retail space,” he argues.

The Bureau of Urban Projects invited Western advisors to assist in the process of urban conceptual development. This approach evoked harsh criticisms on the part of the “traditional school.” Western experts are rebuked for being ignorant of the city specifics. “The champions of Soviet planning see only the standards that have existed since the 1950s while anything else is superfluous in their eyes. Fortunately the choice belongs to the master planners who order the documentation,” says Mr. Golovin. Vera Setskaya, President of GVA Sawyer, believes business assessment is of secondary importance. The main thing is strategic development of the entire region, rather than the city. “To come up with an accurate forecast of real estate market development in the city, it is certainly advisable to study the global dynamics of real estate markets. Yet the urban development strategy, or how a given city positions itself among the other cities, has obviously the greatest effect upon any particular market segment. Strategic development of a city as a financial, industrial, scientific or tourist center is closely related to the development of contiguous cities and regions and defined at the national, rather than regional level,” she assumes.

In the opinion of Vera Setskaya, the master planners should take a model of a similar Western city as a basis for conceptual development and then refine it with regard for the historic statistics of real estate market in the city in question. Thus it makes sense to benchmark Moscow against Berlin, London and Paris while Hamburg is a good match for Saint Petersburg. “This comparison is made on a provisional basis, to be sure, even in terms of “per unit” indicators (per capita, GRP etc); moreover a correct selection of cities for benchmarking and accounting of their local peculiarities is in itself a rather difficult task. Yet the use of this approach in defining the standard parameters is warranted,” she specifies.Eventually several city development scenarios can be considered; the master planners should forecast the housing market quantitative dynamics under each of the scenarios and stay their choice on the most suitable scenario.

“Each city needs to be separately studied as no universal approaches exist. Some populist shortcuts may trigger a time bomb,” warns Ilya Shuravin, Partner of S. A. Ricci/King Sturge. Case studies are numerous indeed. Even relocation of large-scale operational industrial zones outside the city boundaries within a short period of time will lead to the reduction of jobs in the city and affect the city treasury while increasing the transport load on the city-province links. Overland light metro lines are a good solution even for the Moscow weather conditions. However incompetent disbursement of the funds allocated for the former program can motivate the new authorities to dismiss this program for good.

Discourse with businessthe driving force of urban development. According to Piotr Isaev, Director of Commercial Real Estate Department, Capital Group, there is no contradiction between business and power: they move in the same direction and solve common problems: both developers and town planners want to have a nice and convenient city to live in. However market development defies planning, as was justly noted by Vera Setskaya, for this contravenes the very essence of the market which is influenced by economic factors and demand and supply mechanisms. We may only talk about the market development within the designated frames agreed with the public. Developers are also part of the city community so do we actually need a wide discourse with them? “The joint elaboration of clear-cut rules by developers and city administrations will have a positive effect for developers, in the first place,” Ms. Setskaya remarks. Quite a few cases in the newest history of Russia can be brought to memory when ambitious development projects disgusted the local residents, whereas the involvement of business in the elaboration of new rules was instrumental in lifting almost all barriers in the way of developers. With all the nice words about social responsibility it is obvious that making maximum profit remains the main goal of any business. The city authorities should take the market factors into consideration but never be on the bit of business. Andrei Golovin says that his department actively communicated with businessmen for the sheer purpose of winning them over, rather than gaining new insights. In the beginning the town planners contracted consultants capable of assessing the market capacity and potential, and after taking their stand they sought to bring it home to the business. Piotr Isaev says it should be realized that any developer acts within the framework of a single project. His task is to develop a quality project which will ensure an acceptable level of return on investments while promoting the interests of all potential consumers, including the city. “Creating a comfortable urban environment is the remit of the city administration representing the interests of city dwellers and having a command of all issues involved in town-planning, including those at the level of regional policies,” notes the expert. Nevertheless Mr. Isaev is confident that collaboration between business and power is essential almost in any matter. Thus while “social encumbrances are unavoidable they must be economically expedient.” The model that suits both parties is rather traditional here. A developer may act within the existing master plan or initiate amendments whenever they are advisable for the city as he sees them.

A city is like a juice pack

Urban space develops following the same laws as any real estate asset so proper emphasis is to be placed on creating a quality city brand. A German town of Oberhausen exemplifies a city brand created anew. The town subsisting on the taxes paid by coal enterprises like some Russian mono towns found itself on the brink of extinction after the largest production facilities had been closed down. However the city authorities turned the grim coal town into a tourist center as old factories were replaced with exhibition venues and huge malls.

In the words of Alexei Vanchugov, managing partner of CityMarketing, the brand building for a given territory is little different from general brand building. Working on the city brand is pivoted on three main pillars. The first pillar is creating a certain philosophy. It is necessary to decide on the future thrust of the city, whether it will become a tourism center, huge exhibition venue, pilgrimage center or something else. “Mecca is also a peculiar brand. Understandably this is a holy place for Moslems, but this is also a brand drawing numerous tourists,” comments Mr. Vanchugov giving a vivid example. Like any other brand, a territory brand has its values which must be brought home to the target audience. “For instance, talking about Canadian Quebec, its key values include the solicitous upkeep of urban environment, quietness and tranquility. The values of New York include the business drive and aspiration for success. London takes pride in its conservativeness, aristocratic and bourgeois chic. Far from being the real assets of various cities, these values are immaterial and perceived by those who decide on the city positioning,” notes Mr. Vanchugov.

The next pillar is positioning; this is a matter of brand perception. Thus Rio de Janeiro is perceived as a city of carnivals worldwide, rather than a city of slums and drug mafia. Once a brand is conceived and ideologically justified, it needs to be identified. The city is given its proprietary style and a brand book is developed as a collection of certain rules. It is decided where the brand will be placed in urban environment. Huge urban space gives experts tremendous opportunities. While some may find this simile insulting, from business perspectives the city brand is little different from the brand of a juice pack. The city brand can even be franchised by carrying it over to consumer goods made in a given place. This is exactly what happened to the town of Essentuki.

Russia is now making its first city branding attempts. “Kazan tries to promote its image and perception as the third Russian capital. The Kaluga province is already a well-established brand of a well-to-do and economically advanced area,” continues Vanchugov. Examples of unsuccessful branding are more numerous, though. The city authorities are often unwilling to embrace the main rule well-known in the FMCG market: you cannot tell outright lies to your clients. “The Kaluga brand is successful because the city became economically advanced, in the first place, and was then set in a brand rim. A far-out massive promotional campaign will never produce a viable brand. For instance, the resorts of Dagestan or Vladikavkaz look lovely indeed, but in this case form does not keep pace with content. It would be naive to think that the North-Caucasian district is a tourist cluster and everything it needs is an appropriate brand. The Krasnodar Territory has launched an ambitious tourist attraction campaign; however it’s more like an anti-brand as year after year it breaks records in terms of negative responses of tourists. This is the very case when to be is more important than to seem. If consumers are disenchanted, such a place or brand won’t last long,” reasons Vanchugov. In his words, cities with great potential are often crippled by wrong positioning. Thus it would be wiser to position Saint Petersburg as a palace city, in Vanchugov’s opinion. But instead of this winsome brand, the unintelligible label of “cultural capital” has clung to the city. “Do many people want to visit the cultural capital of Latin America? There are not so many empires with capitals worthy of seeing. We know about New York as an attractive business capital and Washington as an administrative capital. That’s about all. Each particular city should offer some unique advantages. But if they are very generally formulated the city may forever remain a cultural capital and a dull place for potential clients,” Mr. Vanchugov shrugs his shoulders.

In his opinion, the city brand elaboration is yet another Western brand to be adopted by the national authorities. However, only first shaky steps are taken in this field. “We helped several districts in the Moscow province identify some dominant features of their historical and cultural heritage, but the matter did not move farther than general ideas and philosophies. We developed an integrated branding project but encountered the unwillingness of officials to put these ideas into practice,” he says. For now City Marketing has engaged in the positioning of some European cities for the Russian audience and anticipates a boom of city branding within the next five years after the investment climate improves.

Law does not slumber

It should be noted that the lack of commitment on the part of the city authorities may well be justified. Thus the implementation of advanced experience in Perm entailed litigation. Not all city dwellers liked the idea to invite overseas companies. An anonymous address was posted on the General Public Prosecutor’s site, in the Corruption section, and this triggered a check-out. The UFAS Commission admitted that the city administration had violated the federal law On Competition Protection. The problem is that the Bureau of Urban Projects developing a master plan invited foreign experts without announcing a tender. “When non-trivial efforts are needed, a standard tender procedure will hardly work. We cannot attract experts whose approach does not align with ours and in a tender everything depends on the price. Under this arrangement it is unreal to draw experts willing to work constructively instead of arguing the minutes,” wonders Mr. Golovin. This is not the end of the story. The Perm administration disagreed with the UFAS decision that it transgressed the law and filed a claim at the regional arbitrage. The litigation is now under way and the master plan that caused the censorship of UFAS is being finished in parallel. Andrei Golovin believes that if his organization were doing anything unlawful, its activity would have been arrested long ago. However, in the lawyer opinion the odds that the court brings its verdict in favor of the city administration are not high. “If an organization obtains budget financing and wants to procure goods and services from a third party it is bound to hold an auction in some form or other,” notes Marat Muradov, Partner of Baker & McKenzie. In his opinion, alternative approaches related to local specificity are certainly possible, but even a fleeting glance at the problem reveals that the court does not have too many options and to all appearances there is no way to evade restitution. We see the law actually fettering the local administration which decides to attract overseas celebrities in order to breathe new life into their city.

Now experts are saying that Russian cities will inevitably adopt the Western experience which will give them momentum under the present-day circumstances. Drawing parallels with the wonderfully transformed Western cities, though, one should bear in mind that the situation is way different in Russia. The local reformers are more judicially vulnerable and the intensity of struggle between representatives of different town-planning schools is much higher. The old norms regulating the urban development want an upgrade. It remains to hope that in the course of struggle between the old and new our beautiful Russian cities won’t be damaged beyond repair.

CRE Russia #3 (155), February, 01–15 2011