Overview of the Industrial Clusters in China I. Introduction ‘A chopstick can easily be snapped, but a dozen is hard to break’ - this Chinese adage is true for the development of industrial clusters in China. Recently, the concept of industrial cluster has become the focal point of analyzing regional economic development. National and regional economies tend to develop, not in isolated industries, but in clusters of industries related by buyer and supplier relationship, common technologies, common inputs or common customers. China, with no exceptions, is also dominated by industrial clusters – geographic concentrations of interconnected enterprises in a particular industry that gain competitive advantages through co-location. The concentration of enterprises facilitates linkages with suppliers and buyers, as well as fosters a mixture of cooperation and competition that can give rise to vibrant local economies. The presence of the industrial clusters enhances the competitiveness of the region’s economy in a number of ways. First, the presence of multiple enterprises in an industry tends to embed the industry in a particular location, making it more difficult to compete against it or displace it. Meanwhile, such clusters are not reliant on a single enterprise for success, but rather take advantage of the skills, capabilities, and resources of many enterprises sharpened by local competition. The result is a far deeper and more competitive situation than in the case of single enterprise development. IN THIS ISSUE : I. Introduction 1 II. What is industrial 2 cluster? III. Major types of 5 industrial clusters in China IV. Characteristics of 7 industrial clusters development in China V. Socio-economic 12 impacts of industrial clusters VI. Obstacles to the 14 development of industrial clusters VII. Role of government 15 in cluster development VIII. Conclusion 16 Map:Selected industrial 8-9 clusters in China LI & FUNG RESEARCH CENTRE – Industrial cluster series May 2006 Issue 1 LI & FUNG RESEARCH CENTRE MEMBER OF LI & FUNG GROUP 13/F, LiFung Centre, 2 On Ping Street, Shatin, Hong Kong. Tel: (852) 2635 5563 Fax: (852) 2635 1598 E-mail: [email protected]http://www.lifunggroup.com/ Contact person: Ms Teresa Lam LI & FUNG RESEARCH CENTRE
9
Embed
Industrial Clusters in China Overview of the - Fung Group · Industrial Clusters in China ... this Chinese adage is true for the development of ... the fireworks manufacturing clusters
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
Overview of the
Industrial Clusters in China
I. Introduction
‘A chopstick can easily be snapped, but a dozen is hard to break’ -
this Chinese adage is true for the development of
industrial clusters in China.
Recently, the concept of industrial cluster has become the focal point of
analyzing regional economic development. National and regional
economies tend to develop, not in isolated industries, but in clusters of
industries related by buyer and supplier relationship, common technologies,
common inputs or common customers. China, with no exceptions, is also
dominated by industrial clusters – geographic concentrations of
interconnected enterprises in a particular industry that gain competitive
advantages through co-location. The concentration of enterprises facilitates
linkages with suppliers and buyers, as well as fosters a mixture of
cooperation and competition that can give rise to vibrant local economies.
The presence of the industrial clusters enhances the competitiveness of the
region’s economy in a number of ways. First, the presence of multiple
enterprises in an industry tends to embed the industry in a particular
location, making it more difficult to compete against it or displace it.
Meanwhile, such clusters are not reliant on a single enterprise for success,
but rather take advantage of the skills, capabilities, and resources of many
enterprises sharpened by local competition. The result is a far deeper and
more competitive situation than in the case of single enterprise
development.
IN THIS ISSUE :
I. Introduction 1
II. What is industrial 2
cluster?
III. Major types of 5
industrial clusters
in China
IV. Characteristics of 7
industrial clusters
development in China
V. Socio-economic 12
impacts of
industrial clusters
VI. Obstacles to the 14
development of
industrial clusters
VII. Role of government 15
in cluster
development
VIII. Conclusion 16
Map:Selected industrial 8-9
clusters in China
LI & FUNG RESEARCH CENTRE
– Industrial cluster seriesMay 2006 Issue 1
LI & FUNG RESEARCH CENTREMEMBER OF LI & FUNG GROUP13/F, LiFung Centre, 2 On Ping Street, Shatin, Hong Kong. Tel: (852) 2635 5563 Fax: (852) 2635 1598
E-mail: [email protected] http://www.lifunggroup.com/ Contact person: Ms Teresa Lam
LI &
FU
NG
RE
SE
AR
CH
CE
NT
RE
2 3
LI & FUNG RESEARCH CENTRE May 2006 Issue 1 Industrial cluster series
LI & FUNG RESEARCH CENTRE
LI & FUNG GROUP
LI & FUNG RESEARCH CENTRE
LI & FUNG GROUP
2. Two types of linkages
(1) Vertical linkage - supplier and consumer relationship
The vertical relationship consists of core enterprises that produce the products and services that are sold to final
consumers. It also encompasses enterprises at an earlier stage of the value chain that supply the inputs such as
raw materials, intermediate goods and services that are used in the assembly of the final goods and services.
Distributors of the final goods and services, where separate from the producers are also part of the cluster.
Enterprises in this vertical dimension benefit from intensive transactions within the cluster and form networks of
traded interdependencies. The idea behind this is that an existing agglomeration of specialized producers gives
rise to a substantial demand for specialized inputs. This creates an incentive for suppliers to move close to the
customers to supply the growing regional market. The enterprises, in turn, benefit from low transportation and
transactions costs, as well as economies of scale, and thus gain a competitive advantage. In part, this explains
why existing clusters tend to grow, giving rise to labor market specialization.
(2) Horizontal linkage - competitor and collaborator relationship
The horizontal relationship consists of enterprises that produce the same or similar goods and services at a
specific level in the value chain. Both competition and cooperation occur in this relationship. Rival enterprises may
compete intensely to win and retain customers. However, they may yield collective efficiencies in the form of
reduced transaction cost, accelerated innovation through greater market access, and etc. Besides, positive
externalities are generated by agglomerations through innovation and the availability of skilled labour, raw
materials and certain types of infrastructure and innovation. The process of networking also augments the
competitiveness and growth of the participating enterprises.
In China, industrial clusters are located mostly around booming cities and towns in the eastern coastal region –
particularly the Yangtze River Delta (YRD), the Pearl River Delta (PRD) in Guangdong, as well as in the Bohai-rim
region in the north. The three regions have developed a broad range of clusters in various industries. Products
produced in these clusters account for the vast majority of the country’s total production, making the regions
important sourcing bases for all sorts of inputs, materials, and capital goods.
Industrial clusters are not unique, but they are highly typical. Hence, the “Industrial cluster series” aim at giving
you a general picture of the of industrial clusters in China.
This Issue will present an overview of industrial clusters development in China, including the definition and
different types of industrial cluster, their major characteristics and socio-economic impact, obstacles hindering
their further development, as well as the government’s role in cluster development. A map showing the major
industrial clusters in China is also included.
II. What is industrial cluster?
1. Definition
In general, industrial clusters represent geographic concentration of interconnected enterprises in a particular
industry that share related production inputs, specialized labour pools, distribution and communication channels,
and network association. They can be characterized as being networks of production of strongly interdependent
companies), bridging institutions (brokers, consultants) as well as distribution channels and customers, linked to
each other in a value-adding production chain. The cluster approach focuses on the linkages and
interdependence between actors in the network of production when producing products and services and creating
innovations. Exhibit 1 depicts the general structure of a typical industrial cluster.
Broadly speaking, 2 types of linkages can be identified.
4 5
LI & FUNG RESEARCH CENTRE May 2006 Issue 1 Industrial cluster series
LI & FUNG RESEARCH CENTRE
LI & FUNG GROUP
LI & FUNG RESEARCH CENTRE
LI & FUNG GROUP
III. Major types of industrial clusters in China
In China, industrial clusters have a fairly long history. Jingdezhen ( ) has a pottery and porcelain production
cluster with a history of more than 1,400 years; while Shenze Town ( ) of Wujiang ( ) in Jiangsu has
been one of the well-known silk centres in China for hundreds of years. Nevertheless, the development of
industrial clusters gained momentum after the country implemented its reform policies in 1979; the following types
of industrial clusters have emerged and established firm footholds ever since.
1. Self-augmented clusters
Most self-augmented industrial clusters were set up by the small and private enterprises. The swift development
of this type of clusters began in the early 1980s, when urbanization took place in Wenzhou ( ) in Zhejiang and
gave rise to the formation of certain industrial clusters. Under the pressure of excess manpower and limited
farmland, many peasants in the rural areas had turned to run their own household-based workshops. Thanks to
market innovation and technological progress, they later on yielded tremendous success. Their success has
served as a role model to be followed by other fellow-villagers. Many similar household-run workshops were
clustered around the area and this formed the basis of industrial clusters.
Industrial clusters of this type are characterized by labour-intensive, low technology content and low threshold of
entry. Enterprises in these clusters are mostly entrepreneurial and family-owned, often with a craft tradition, where
skills are passed on to the next generation.
Many industrial clusters located along the coastal regions in China were formed in this way. Typical examples
include the development of the lighting cluster in Wenzhou in Zhejiang; the metal processing cluster in Xiaolan
( ) in Zhongshan (Guangdong); the fireworks manufacturing clusters in Wanzai ( ) in Jiangxi and Liuyang
( ) of Wunan.
2. Export-oriented clusters
Export-oriented industrial clusters, by and large, are dominated by foreign direct investments. The formation of
these clusters dated back to the early 1980s, when some cities and counties in Guangdong such as Shenzhen,
Zhuhai, Zhongshan, Shunde, Nanhai and Donguan, formulated preferential policies to attract overseas investors
to set up outward-processing factories in the PRD. In order to utilize the advantages of lower land and labour costs
and other tax concessions offered to foreign investors, many Hong Kong and foreign businesses set up
production branches and engaged in export sales in the PRD. They use the region as an export-processing base,
with products destined for overseas markets.
Exhibit 1: General structure of a typical industrial cluster
Source: “Industrial clusters in Zhejiang” (“Zhejiang Chan Ye Qun”), Zhu Hua Sheng, Zhejiang University Press, 2002
6 7
LI & FUNG RESEARCH CENTRE May 2006 Issue 1 Industrial cluster series
LI & FUNG RESEARCH CENTRE
LI & FUNG GROUP
LI & FUNG RESEARCH CENTRE
LI & FUNG GROUP
After the formation of these markets, a lot of capital has been attracted to the cluster. This in turn, has helped drive
the development of other related industries in Linyi and boost its manufacturing, commercial and logistic
development.
The various types of industrial clusters defined above are somewhat pure categories and in practice, clusters in
China are ofter combinations of one or more types.
IV. Characteristics of industrial clusters development in China
1. Majority of enterprises in the industrial clusters are privately owned SMEs
Except for very few large enterprises, most of the enterprises in the industrial clusters are privately owned small-
and-medium sized enterprises (SMEs). For instance, as the birthplace of industrial clusters in Zhejiang, Wenzhou
has very few state-owned enterprises (SOEs), over 97% of enterprises are privately owned. However, there is an
exception to this. Many enterprises founded in ZGC cluster in the 1980s were sponsored and funded by the
Chinese Academy of Sciences, Beijing University and Tsinghua University; thus the ZGC cluster has a much
higher proportion of SOEs.
2. Uneven distribution of industrial clusters across China
Geographically speaking, industrial clusters are not uniformly distributed across China. Most of them are
concentrated in the South-eastern coastal regions, mainly in the PRD ,YRD and the Bohai-rim region.
In the PRD, approximately one-fourth of the 404 townships have developed industrial clusters of some types.
Major industrial clusters of the region include textile and apparel, footwear, plastic products, electronics and
electrical goods, printing, electronic information, communication and technology (ICT), logistics, etc. Among these
clusters, the electronics information, the textile and apparel and the electronic and electrical manufacturing
clusters are the strongest.
In the YRD, Zhejiang province boasts the largest number of industrial clusters. According to statistics, 85 out of the
88 county level cities have developed industrial clusters of some kinds; and over 800 clusters of various sizes are
scattered in the province, with approximately 237,000 enterprises employing over 600,000 workers.
After over two decades of rapid development, the PRD has developed a broad range of internationally competitive
clusters in a number of industries such as electronics and electrical goods, textile and apparel, footwear, plastic
products, financial services, logistics, etc. Apart from producing the finished products, many of these clusters are
developing deep supply networks to provide core inputs to the finished products. Hence, the region not only is a
renowned production centre, but also one of the leading sourcing centres in the country.
3. High-tech industrial clusters
An entirely different type of industrial cluster – the high-tech industrial clusters, also emerged in the early 1980s.
These clusters were formed by a group of scientists and scholars from universities and colleges, and located in
the surrounding areas of the universities and research institutes. They play a crucial role in knowledge generation.
In China, Zhonguancun (ZGC) ( ) in Beijing has been seen as a role model for the high-tech industrial
clusters. ZGC benefits greatly from being situated in a research environment where a number of high-level
research institutes are located, which mainly belong to the Chinese Academy of Sciences. In addition, a number
of colleges and universities including the Beijing University and Tsinghua University are also located in the vicinity.
The opening policy of China provided new possibilities for researchers to become entrepreneurs; and the
closeness to the Central government and funding agencies in Beijing has continued to favour entrepreneurs,
researchers and enterprises in ZGC. As a result, ZGC has become the largest high-tech R&D centre in China and
the largest distribution centre for IT products in northern China.
4. Resource-driven clusters
Some industrial clusters, like furniture cluster and jewelery cluster, relived heavily on the natural resources of the
region such as mines, forests or quarries. The enterprises in these clusters started off by widely exploiting the
ample supply of natural resources. Overtime, they initiated a process of specialization built around the core
product. Meanwhile, they harnessed their skills and strived hard to upgrade the overall quality of their products.
Typical examples of the resource-driven clusters are the food processing cluster in Luohe ( ) in Hunan and
the timber processing cluster in Pizhou ( ) in Jiangxu.
5. Market-driven clusters
This type of clusters was formed under the driving force of the market. The wood cluster in Linyi ( ) in
Shangdong provides a good illustration. The cluster has over 44 wholesale markets and over 5,000
manufacturers selling various types of wood products. The favorable geographical location and convenient
transportation network of Linyi have contributed significantly to the successful development of the wholesale
markets - the city is conveniently located in Shandong; it is just 2-3 hours' travel to Jinan ( ) and Qingdao
( ) and is also very close to Zhejiang and Jiangsu.
Sources: Li & Fung Research Centre; "Annual Report on Urban Competitiveness, No.3, Ni Fenghei et al." Social Sciences Academic Press; “Regional Powerhouse: The Greater Pearl River Delta and the Rise of China", M. Enright et al. John Wiley & Sons (Asia) Pte Ltd, 2005
* Please refer to Industrial Cluster Series Issue 2 and 3 for more in-depth analysis of the PRD and YRD clusters
8 9
Selected industrial clusters in China*
LI & FUNG RESEARCH CENTRE
LI & FUNG GROUP
10 11
LI & FUNG RESEARCH CENTRE May 2006 Issue 1 Industrial cluster series
LI & FUNG RESEARCH CENTRE
LI & FUNG GROUP
LI & FUNG RESEARCH CENTRE
LI & FUNG GROUP
Growth stage
Enterprises are attracted to the area by the success
of the cluster leader and come to support or learn
from the leading enterprises. The success of the
industrial cluster leads to high growth rates and
builds a critical mass of enterprises. Linkages
between enterprises increase, so does the
concentration level of the enterprises within the
industry.
Stable stage
At this stage, a fully-developed industrial cluster has