Sunday, April 16, 2017

http://dailyasianage.com/news-category/14/Editorial
Cluster of industries for development
M S Siddiqui

The transformation of the economy and rapid urbanization present many challenges to the
government. The economy is integrating into the global economy, especially through export-oriented
manufacturing and human resource exports. Cities are becoming more important in diversifying the
economy, creating jobs, and attracting FDI. But productivity and competitiveness are low by
international standards.

Three factors account for the country's rapid urbanization: The natural increase in the urban
population, the territorial extension of urban areas and changes in the definition of urban areas and
the migration of people from rural to urban areas.

The social scientists, economist and planners have no disagreement to shift the production and
service enterprises from city areas. Government policies to ease congestion and to decentralize
investment and employment pushed people and industries to edge or linear cities along major
highways. The enterprises also faces congestion, problems with logistics, and restricted access to the
skills that kept companies competitive made it more difficult to achieve economies of scale and lower
transaction costs as cities grew.

Business enterprises also try to shift to new urban growth poles, new towns, or economic enterprise
industrial zones were created on pre-urban areas. Clusters of cities thus became part of city regions,
some with spatial concentrations of manufacturing and service industry activities. Growth spilled
over into surrounding areas and satellite towns sprang up as production systems in larger cities
became more organized and transport systems expanded.

This growth sustained the manufacturing supply chain and consumer demand. Eventually, adjacent
towns were absorbed into the larger cities, giving rise to metropolises and polycentric patterns of
urban form and economic activity. In some parts of the world, especially in Asia, metropolitan cities
have become megacities, or clusters of interlinked cities and economies. Some of these have
developed along the major roads connecting cities and towns.

The spatial agglomeration of business activities creates economies of scale, and competitive
businesses and markets. Co-located businesses can also take advantage of externalities and shared
infrastructure to reduce transaction costs. Many countries have tried to develop agglomeration
economies with a range of spatial tools such as the base economy and industry attraction models.

City clusters can offer shared access to common infrastructure, geospatial proximity for supply
chains and networks, and concentrations of human resources and skills, and thus help to lower
production and transaction costs. Industry clusters are significant drivers of local economic
development. Asian megacities have swallowed up surrounding villages and small towns, and linked
with other cities to become city clusters or city regions. Dhaka has been extended toward all direction
and township of Tongi, Gazipur, Savar, Narayanganj and Narsingdi.

Much of the thinking about industry clusters has grown out of the concept of agglomeration and
endogenous growth theory, where knowledge drives innovation. Cities like Bangalore, Seoul,
Singapore, and Hong Kong, China have turned away from conventional infrastructure, low labor
costs, and low taxes, and toward highly competitive industry clusters, specialized industries, high-
level skills, and innovation, to develop their economies.

The earliest cities were planned, and infrastructure, housing, and public utilities built, to serve the
needs of expanding local populations. Later, as roads and shipping improved, cities began to trade
with others, and economic activities in urban areas became more specialized and spatially
concentrated. Increased specialization in production and in the functions of cities led to a growing
trade, which fueled the economic development of most cities before the Industrial Revolution.

In transforming to become more market driven and integrated into global trade systems, cities in
Asia have developed somewhat differently from those in the industrialized countries. Asian cities
that have been better integrated into the global economy have invested in maintaining and
improving infrastructure services and the environment, and have supported more open information
sharing and transparent governance. Industry clusters-like-minded businesses and talents in a
specific geographic location or area-have existed for centuries in cities, which became known for
their specializations.

But the industry clusters of today, unlike those of the past, are global, highly specialized, and
integrated with multinational corporations and dominated by them. For example, cities like
Hyderabad and Mumbai have become important global centers of information and communication
technology (ICT), finance, and multimedia, Dhaka is among the world's largest readymade garment
production centers.

New economic growth theory rests on encouraging the geographic clustering of economic activities
and their supply chains in urban areas, giving rise to a whole new area of knowledge on the
development of industry clusters. There has been increasing interest in industry clusters among
governments intent on making local economies more competitive but not succeeding despite various
reforms. Other factors, many of them related to industry agglomeration, have been seen to come into
play. But what makes for the successful development of industry clusters, especially in Asia, is not
well understood.

Agglomeration economies have enabled Japanese industries to play the role of "lead goose" in Asia,
blazing new trails in finding locations in the region that offer a competitive advantage to companies
setting up manufacturing facilities offshore. Many of the cities that have been highly successful in
attracting companies from Japan, and later from the Republic of Korea and Taipei, China, especially
cities in the coastal regions of China, have strong spatial and economic agglomeration
characteristics. This suggests that foreign and local businesses co-locate in those cities to gain
advantage from sharing the costs of infrastructure and utilities, collaborating with competitors in
purchasing and transport, and networking with competitors to share information and acquire
knowledge.

Most businesses in the region recognize the benefits of agglomeration but tend to think of themselves
as competitors rather than collaborators. Since industry clusters and agglomerated cities offer
opportunities for competitive advantage to competitor companies in the same geographic area, a
deeper look into how they function would provide important clues as to how businesses and
governments in Asia could become more competitive, productive, and sustainable in support of
economic development.

Pursuing the investigation of the economic aspects, two important concepts regarding the planning
and transformation cities through clusters have emerged. The first has to do with developing
infrastructure, land, and government services and utilities to stimulate economic development. The
second concept, a recent one that has gained prevalence because of the effects of globalization and
integration of economies, is concerned with creating an enabling business environment in which
businesses and governments can stimulate, create, and respond to opportunities and changes in
consumer markets and purchaser needs.

Supply-side development tries to create comparative advantage for cities and towns by filling the
gaps in basic urban infrastructure and services. Demand-side development, in contrast, recognizes
that the means of production and demand for goods and services are dynamic and change very
rapidly, so local economies and businesses must respond quickly and manage risks. The second
concept is based on keeping the factor costs of production, basic services, taxes, and materials lower
than those of competitors. Both approaches are linked to local economic development and to cluster
development in cities and city regions as a mechanism for economic sustainability and urban
development. Supply-side development views spatial planning and infrastructure as the primary
drivers of development.
For demand-side development, on the other hand, the economic factors of competitiveness and
governance are the primary drivers. Making Asian cities more sustainable in response to
globalization and climate change issues requires a balanced effort that combines both supply- and
demand-side development.

The Custer-based City Economic Development (CCED) designed and promoted by Asian
Development Bank for sustainable economic growth and development in cities by fostering
agglomeration, innovation, integration, and clustering of productive economic activity and land-use
activities. The ultimate aim is to create more jobs and income opportunities in cluster cities or city
regions. The framework to improve understanding of the factors associated with localized,
concentrated patterns of employment and economic activities in cities. Satellite township
concentrations of companies in those townships engage in similar types of activities and are often
linked by networks of economic activities into larger urban clusters.

The cluster approach to industry economic development and analysis focuses on the cluster actors
that think and act together for their individual and collective benefit. Collective gains transcend the
sum of the individual gains, because collective thinking, action, and unity, coupled with higher
visibility and consequent attention by markets and institutions, lead to exponential returns.

The much talked Detailed Area Plan of Dhaka has a note on Industrial Development only to restrict
industrial developments related to ship building and cold storage go down only in the river levee, to
ensure environmental requirements for brick manufacturing units and to provide essential support
facilities for effective functioning of the industries.

CCED approach provides a systematic methodology to understand the major drivers of local
economic development, and to assess strengths and deficiency gaps in advancing the
competitiveness of industrial clusters and city-regions. This approach connects knowledge with
practice, provides strategic entry points of public-private partnership, and can be a good decision-
making tool for policy makers (or private sector investors) to have better-informed decisions on
investments. Importantly, understanding the anatomy of key competitiveness drivers of urban
economies can frame the most effective ways of reducing poverty through the creation of sustainable
jobs, best utilizing and building on the skill sets available in the city. Most of this economic growth
has been fueled by industrialization in Dhaka and other urban centers. Bangladesh must develop
cluster of industries to make the production competitive and to compete with other cities of the
region.

The writer is a legal economist