Introduction
Over the past 112 year, the Olympic Games is held after every four years. This event offers the host city opportunities to become the center of global interest. Several reasons prompt cities to stage the prestigious Games. They cover several sporting activities, and billions of people attend the event.
Further, the games provide a unique opportunity for governments and industries to budget hidden agendas such as improvement of sports infrastructure, housing, communication, traffics among other areas. The organization of the Games is a multifaceted complex project because it encompasses political, cultural, ecological and social issues.
Even though many of these issues have no economic aims, they remain closely related to economic issues for the reason that they have an economic impact on the host city (Holger, 2004, p.1). Host cities are also keen on the net benefit that will accrue to their countries after the event.
This work discusses the 2012 London Olympic Games. It focuses on the economic impact assessment and the economic impact of the event. Further, it discusses the coopetition strategy which can be used by firms before and even after the event. Finally, it talks about the benefits and shortcomings of coopetition.
Cost of the Games
It is reasonable to presuppose that only large cities of the world are well equipped to host the gigantic Olympic Games. This is for the reason that small cities often have budgets that are overwrought and are therefore are not able to provide sufficient Olympic infrastructure without massive public investment (Holger, 2004, p.1). The cost of hosting the prominent event requires billions of shillings.
As outlined in the British library, Sports and society (2011), the current budget for the London 2012 Olympics is at £9.35 billion. This amount includes a contingency fund of £2.7 billion. The government will directly contribute £6 billion towards the Games. The budget is set to increase due to the global financial crisis (British library, Sports and society, 2011, p.1)
Funding of the Games
Due to the scarcity of capital to invest in the multibillion prestigious event, capital can be obtained from two major sources. The event may be financed by either public funds (by use of public funds-tax payers’ money) or private shares (contribution by private sources such Organizing Committee of Olympic Games-OCOG).
There have been various criticisms as to exclusive use of either source of financing and in the near future, Games will be financed neither with a completely public share nor with a completely private share.
The objections to use of public financing are, first, private investors have become more important and willing to fund compared with the past and the rising costs of the Games may cause more severe protests by Olympic opponents if they are exclusively funded by tax revenues.
As much as private financing allows for flexibility, quick reaction to new situations and political independence and thus facilitate many preparatory processes, the Host City Contract strongly speaks against pure private funding. Therefore, pure private financing is not an option thus in the future there will be mixed financing (Rosner and Shropsire, 2011, p.107).
Economic impact assessment
“Economic impact assessment traces spending through an economy and measures the cumulative effects of that spending” (Government of Ontario, Canada, 2007, p.13). The process is important as it helps in understanding the potential benefits of various projects. Economic impact assessment generates an estimate of the economic consequences of a particular project on the community.
The assessment estimates measurable and direct impact of an undertaking. It does not take into account the social costs and benefits. Various typical measures of economic impact entail changes in employment level (Jobs), Values added (gross regional product), aggregate wages and salaries, wealth (including property value) and business output (Sales volume or spending).
All these measures look at improvement in well-being of the community (Government of Ontario, Canada, 2007, p.23). The assessment of economic impact can be done using two tools, that is, the input-output tables and computable general equilibrium (Fossati and Glenn 2002, p.45)
“Input-output table is a representation of the production side of an economy. The table provides numerical description of the size and structure of that economy in terms of interactions among producing and consuming components”, (Hewings and Madden, 2008, p.111). It offers one of the most detailed and accessible source of information on economic transaction.
To access the economic impacts of the Olympics, suppliers will be required to fill in the input-output table with all their transactions relating to the Olympics (Hewings and Madden, 2008, p.121). The data from the input-output table will be used to compute various variables for economic assessment.
On the other hand, Computable general equilibrium modeling (CGE) is commonly used for assessing the economic impact of tourism. They are more detailed and advanced compared with the input-output tables, and with time they will replace the tables (Fossati and Glenn, 2002, p.24). The main analysis of Sydney Olympics was conducted using CGE modeling.
Economic impacts of the Games
Economic impacts have become a subject of interest for bidders of this seasonal event for the reason that host countries would like to make a gain by staging the event. The prime objective of the bidding countries is to show both a surplus by subtracting expenditures from revenues and a macroeconomic success by measuring benefits against costs.
However, measuring the actual benefits and costs which accrue to a city after the event is difficult because they cannot be quantified with certainty, therefore, the true outcome is always measured in the infrastructural, social, political, ecological and sporting impacts a city and a country receives from the Games and not just in simple subtraction of the expenditures from revenue.
Further, the impact can be long term, short term, visible or invisible (Holger, 2004, p.26). By definition, “economic impact is a measure of the spending and employment effects of a specific project – in the case of the London 2012 Olympic Games” (British library, Sports and society, 2011, p.1).
These effects arise from capital costs such as spending on construction and transport upgrades, operating cost such as policing and broadcasting, this also includes spending by tourists, inwards investment or trade. Other than the economic benefits, future bidders are also keen on the variables and risks affecting them.
In general, the total economic impact (both benefits and costs) resulting from the games is the sum of direct and indirect impacts resulting from the games as discussed below (Holger, 2004, p.26).
Direct impacts
The direct impacts relate to the cost and benefits which can be quantified and expressly attributed to the events. Direct spending will comprises of capital improvement of the infrastructure, operating expenditures including construction for temporary facilities, legacy activities and other initiatives.
It also entail direct visitors spending including outlays by contractors, Games organizers, vendors, sponsors, participants and tourists in preparation for the Olympic Games ( Fuller, 2000, p.76). A summary of the sensitivity analysis of revenues and expenditures for the Games organization are shown below.
Table 1: Games organization Revenues (£million, 2004 prices).
Sources: Blake, 2005, p.27.
Table 2: Games organization Operating Costs (£million, 2004 prices).
Sources: Blake, 2005, p.27.
Table 5: Games organization Infrastructural Costs (£million, 2004 prices).
Sources: Blake 2005, p.28.
Direct benefits comprises of net spending by tourists who travel from out of town to attend the event, spending on capital items and infrastructure leads to long term benefits in form of low transport costs and sale of tickets (Fuller, 2000, p.3).
Indirect impacts
Indirect benefits may include possible advertising effects that make the host city or country more visible as a potential tourist and business destination. They can also be felt in the goods and service industries that receive expenditure by game organizers and robust demand during the games (Rosner and Shropshire, 2011, p.463)
Welfare and GDP
“The total net UK GDP Change resulting from the Olympics is £1.9 billion. It represent the difference in GDP between the without Games and with the Games Scenarios. Majority of the GDP gain is realized in the year 2012 (£1,067 million). The smaller gains spread over the years prior to (£248 million) after (£622 million)” (Blake, 2005, p.40).
Further, “the value of all future change in welfare attributable to the hosting of the Games in 2012 is £736 million”, (Blake, 2005, p.40). The overall change in welfare for the whole city and the country is expressed in monetary terms. The overall net effect is an increase in welfare of the nation. The welfare change for each and every component of the economy can also be computed.
For instance, to be able to assess the impact on households, a measure of utility will be used. The money metric utility function will put monetary measure on the consumer’s welfare. Most common measure used is the equivalent variation which captures the amount of money required to maintain a person’s satisfaction which is commonly done after the Olympics.
There is likely to be an increase in consumer welfare after the games with or without the economic recession. From supply side of the economy, impact of the games in all the twenty six sectors of the economy will vary differently.
Sectors which are directly involved with the Games will record an increase while those which are not directly related will contract (East of England Development Agency, 2006, p.13). In a summary, there will be improvement in welfare of the households, firms and overall GDP as a result of the Games.
On the contrary, the ecosystem of the city may be impacted on negatively due to massive increase in population and pollution. Also, there may be displacement and diversions of people and businesses due to perceived congestion. “First, foreign tourist may be displaced for the reason that they would have visited London or the UK but they are deterred because of the Olympics.
Secondly, domestic tourists and day trip visitors who would have otherwise visited London are deterred. Thirdly, investment that would have taken place in London in industries not directly affected by the Games is deterred because of higher prices.
Fourthly, migration patterns may be disturbed due to the Olympics and the activity during the construction phase makes London a more expensive place to live” (Blake, 2005, p.26). Hosting of the Olympics brings about social costs most of which cannot be quantified but they have a great economic impact on the communities.
Coopetition theory
Introduction
“Relatively stable markets have turned ‘hypercompetitive’ or ‘aggressively competitive’ or even into ‘voracious competition’” (Yami, Castaldo, Dagnino, and Le, 2010, p.2). Therefore, firms are left with no options but to take on an aggressive and hypercompetitive behavior to enable them strive and survive in the market. The cooperative point of view necessitates firms, divisions and functions to cooperate.
Using this approach, a firm establishes and strengthens its competitive gain through strategic alliances, networks or strategic ecosystems (Yami, Castaldo, Dagnino, and Le 2010, p.3). In addition, the cooperative relationship helps firms to access important resources and thus a relational benefit. On the other hand competitive view suggests that firms should be rivals and it strongly shuns cooperation.
“Competitive advantages stimulate the search for new rent-generating combinations of resources, skills and processes. Cooperation advantages allow access to rare and complementary resources. Therefore co-opetition encompasses complementor’s interest and goals which tend to appear when competition and cooperation are simultaneously executed (Hewings and Madden, 2008, p.43).
In game theory, resource-based view of the firm and social network theory, firms increasingly combine both aggressive and cooperative strategies (Yami, Castaldo, Dagnino, and Le, 2010, p.3).
Game theory analyses the interplay between competition and cooperation and firms usually use co-opetition strategy to enable them win games (Nalebuff, 1996, p.7). In coopetition strategy, which is a middle ground for cooperation and competitive behaviors, firms work together so as to gain competitive advantage and in the process they share common cost.
In the view of Dagnino and Rocco (2009), the coopetition theory brings out four inter-organizational relationships. To start with, firms can neither decide to adopt competitive nor cooperative behavior. This results to a monopolistic behavior.
Secondly, a firm can choose to be cooperative at the expense of competition. Third, a firm can choose to be competitive, that is being aggressive towards rivals. Lastly, the firm can adopt a hybrid behavior which has both aggressive and cooperative behaviors.
A firm may employ one or more of the behaviors that would enable it win a game. This may change from time to time depending on the rules of the game (Dagnino and Rocco, 2009, p.16).
Arguments for coopetition
For the 2012 Olympic Games, if firms decide to adopt the coopetition theory which exhibit both aggressive and cooperative behaviors then there are high chances that the event will be successful. Thus, if the cooperative behavior is adopted, they will work together towards the common goal and in the process, they will share the common costs. Competitive behavior will enable the firm be profitable and relevant in the market.
By being aggressive, they will be able to boost the bottom line of their firms at the end of the event (Luo, 2004, p.16). Application of the coopetition strategy would enable the firms to be innovative and productive especially during the Olympic preparation period. Firms have to be very productive and creative so as to meet the robust demand that is expected during the period of the event (Wignaraja, 2003, p.270).
In addition, if firms adopt coopetition strategy, it will have an effect of attracting inwards investment for the event especially in areas where UK do not have competitive advantage in production of certain goods. Finally, the strategy would facilitate entrepreneurship and decentralization (Rosner and Shropsire, 2011, p.23).
Therefore, a coopetition can be a very noble strategy for firms in London as it would greatly contribute to the success of the event.
Argument against coopetition
On the contrary the effectiveness in implementation of this strategy may not be as smooth as it may seem to be. This is because firms operate in different industries and therefore incur expenses of various kinds. Also, even firms in the same industry may be on different scales of operation, some may be just starting their operations while others may be well established.
Therefore, possibility of firms to adopt coopetition may be narrow (Hoskisson, Hitt, and Duane, 2009, p.256). One major shortcoming of this strategy is that it is difficult to come up with a balanced combination that would satisfy all the firms employing it for the reason that all firms would want nothing less than a win in outcome of the game.
Striking this balance may be very costly, time consuming and impossible (Richard, 2002, p.3). In as much the strategy seem to be very profitable, more research and studies have to be carried out with an aim of bridging the gaps which still exist (Luo, 2004, p.32)
Conclusion
Olympic Games attract attention all over the world. The numbers of countries bidding to host this event are increasing as years go by. The major concerns for these countries are the net economic gains that would flow into their countries before and even after the events. The costs of staging these events are considerable high and countries would always want to recover more than what the put in.
The economic impact of an event can be assessed using tools such as input-output models and computable general equilibrium. The overall economic impact of the Games in the economy of London and UK as a whole will greatly depend on the strategy adopted by the firms. Firms can either decide to be cooperative, competitive or coopetition. That withstanding, hosting of the games is likely to bring a positive economic impact in London.
Reference List
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