A Study on Sustainable Development of Local Industrial Cluster

GUO Nan-yun1 SUI Guang-jun1,2 1. Institute of Industrial Economics, Jinan University, P.R.China, 510632 2. Guangdong University of Foreign Studies, P.R.China, 510420 gnywq@126.com Abstract This paper reviews literatures about sustainable development of local industrial cluster and indicates that simply introduction of foreign capital and embedding into global value chains system is not the sufficient and necessary condition for sustainable development of local industrial cluster. It is innovation uncertainty that influences sustainable development of industrial cluster. To solve the innovation uncertainty problem is the key to realize sustainable development of industrial cluster. Individual enterprise, network organization, and social environment are three aspects which need optimization. The paper architectures the mechanism of sustainable development of industrial cluster based on the optimization of these three aspects and analyzes its impact towards industrial cluster development. Keywords Industrial Cluster Uncertainty Sustainable Development

1

Introduction

The improvement of industrial cluster towards local economic development has reached consensus. While local industrial cluster brought growth to local economy, its own development encountered some problems as the mode of economic growth changed. Many local industrial clusters stepped into a fixed low efficiency status, which means in the cluster, industry stays at the bottom of value chain and with low technique and added value, but with high pollution and energy consumption. China government proposed scientific outlook on development towards this and conducted adjustment and upgrading to industrial structure. Sustainable development of industrial cluster becomes the hot problem among researchers. With the overview of researches, the focuses are about how to enhance the industrial cluster innovation and how to improve industry towards the higher end in global value chains.

2 Extant Literature Review about Sustainable Development of Local Industrial Cluster
Extant literature review about sustainable development of local industrial cluster mainly focuses on three aspects: one is global value chains perspective, the second is internal organizational structure and governance perspective, the third is industrial cluster life cycle perspective. 2.1 Global Value Chain Perspective Global value chain is a relatively new perspective. Kaplinsky & Morris (2001) indicate that from value chain perspective, local industrial cluster upgrading has four different types, i.e. process upgrading, product upgrading, functional upgrading, and chain upgrading. Gereffi (1999) indicates that transnational companies’ management towards value chain helps developing countries’ local industrial cluster achieve gradual upgrading in value chain. However, Wen & Zeng 2005 indicate that transnational companies play the determinant role in global value chain. The upgrading of those local industrial clusters who embedded in global value chains with semi-hierarchical relationship would be promoted or impeded by the value chain governors global leading companies , and the action is depends on whether local industrial clusters upgrading hampers their core competitiveness or not. Due to the core competitiveness of leading companies in research, development, design, branding, and marketing, they would lessen the threat of competition from local industrial cluster enterprise by
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So under the leading companies’ rule. raise the government investment in research. innovation is still a problem. while textile cluster failed to realize upgrading because of no cooperation between local companies. To understand industrial cluster sustainable development problem. that is the ability to functional upgrading and chain upgrading Zhang & Liu. Global value chain has a strict ranking system in space. 2. search the path of sustainable development of industrial cluster in China. including the breaking of administrative region. Brazil and indicate that ceramic cluster overcame the crisis in 1990s and realized upgrading through cooperation between enterprises. whose processing is high in terms of the contribution towards local GDP. ) ( ( ) ) ( 3 3. Dong Guan development mode is stepping into the path-dependent of foreign capital-driving and extensive growth Song. Inner organization structure helps to stabilize the industry cluster. So. In the real world. high energy consumption.1999) compare ceramic industrial cluster with textile cluster in Santa Catarina. but low in the profit. 2005 .impeding them out of these fields.1 Key Factors for Local Industrial Cluster Sustainable Development Capital Introduction and Embedded in Global Value Chain is not the Sufficient and 6 ) ( ; ) ( ; ) ( . local industrial cluster could achieve product upgrading and process upgrading but could not achieve functional or chain upgrading Humphrey & Schmitz . Sun & Yuan 2007 indicate sustainable development of industrial cluster origins from the cohesiveness of industry. 2006 . public policy adjustment should be made. It is the path of high pollution. To achieve the sustainable development of industrial cluster. According to the analysis of researches in sustainable development of industrial cluster problem. Zhang did research on Spanish shoe industrial cluster upgrading problem and indicates that Spanish shoe industrial cluster achieved upgrading under the pressure from both sides of global value chains. the author indicates that we should start from the real situation of China and realize all the uncertainty of industrial cluster development. which means to put the industrial value chain-related enterprises and sectors to a special region and manage the manufacturing operation and service in order to raise industrial cluster competitive advantage and ensure the continuous growth. and resource dependence. and the government should take charge to set industrial policy. and moving to high-end development. which could help other enterprises utilize all the resources in the network. core enterprise leading cluster has the Schumpeterian technology innovation and upgrading ability because the core enterprise has the monopoly profit in the cluster. Finally the whole cluster economy belongs to the low rank. 2007 . Each rank indicates many local industrial clusters in the same level. Then. which could not achieve sustainable development. From inner organizational structure of industrial cluster. 2. Powerful enterprises may not have innovation motivation.3 Life Cycle Research Perspective Chen & Wang 2005 indicate that China industrial cluster development has enter a fixed period. and deepen the reform of technical system.2 Internal Organizational Structure and Governance Perspective Meyer-Stamer(1998. to raise a monopoly enterprise and develop core enterprise leading industrial cluster is a viable mode. which would leads to the inefficient status of the cluster. although the literature emphasizes the importance of innovation. while enterprises with innovation motivation may not be powerful. starting from these uncertainty. Inner supporting system in the cluster is very sophisticated. planning the local industrial cluster enhancing the social credibility guiding cluster to be embedded in global value chains. If the core industry of local cluster belongs to low value type. which means the combination between research. Only through the core industry upgrading can the whole cluster reaches development Zhang. the supporting parts would also be in low type. For example. education. The main reason is the realization of self-design ability and the differentiate strategy which replaced the low price strategy.

ceramic tiles and color glaze. but also high pollution. high energy consumption industry is the policy guidance. is at the bottom manufacturing chain. China local cluster enterprises accepted external technology. Entry of technology and capital continuously improved local industrial cluster development. Although through OEM. whatsoever. Judging from the China economic development recent decades. and resource dependence. From the development of Dong Guan IT cluster these ten few years. However. China entered manufacturing process of global value chain through the introduction of Italian ceramic production line and OEM. especially when local production costs kept rising. system environment uncertainty. improvement of research and development were not developed yet. China industrial clusters have already embedded in global value chain systems. foreign capital enterprises would switch again to other places. Through observation towards foreign capital-driven industrial clusters. Enterprises’ suppliers and customers are mainly Taiwanese or transnational companies with low local enterprises connections. international market is unfamiliar. limitation to the development of high pollution. it is not only at the bottom of the value chain. many enterprises are thinking of the switching towards hinterland and even Burma or Vietnam. Now the source costs in Zhujiang Delta Region are keeping rising. Now that local industrial cluster embedded in global value chain could not realize sustainable development. To ceramic industry. This network joined in global value chain division system from the very beginning and. which is not the sustainable development. innovation risk 7 : : : : ) ( . it is an obstacle for Fo Shan ceramic cluster sustainable development. which is the result of global manufacturing shifts. in this value chain systems. For example. The development in this kind of industrial cluster is not sustainable. which formed enterprises in targeted nations the solely manufacturing position. Most enterprises in the cluster are Taiwanese enterprises. stop or change. Transnational companies did not put the research and development or operation function together to the targeted nations. which lead to much dependence to external communication Wen. 3. who control research and development of ceramic machinery.Necessary Condition for Industrial Cluster Sustainable Development Capital introduction and embedded in global value chain is not the sufficient and necessary condition for local industrial cluster sustainable development. technology level in China ceramic industry is low. most clusters are manufacturing enterprises. Fo Shan ceramic industrial cluster. During China industrial structure switching period. could those foreign capital-driven industrial clusters that embedded themselves in global value chain through introduction of foreign capital truly realize sustainable development or industry upgrade? The answer is absolutely not. and market self-determinant ability is poor. If local network is not tightly connected with foreign capital enterprises network. the high dependence of foreign capital made cluster development influenced by many factors. Although every place is thinking of the change of industrial structure to upgrade industry level. introduction of foreign capital largely improved China economic growth and technology innovation. enterprises’ production is mainly the external order and no self research systems at all. Introduction of foreign capital also improved exchange between local enterprises and foreign capital enterprises through participate in global industry work division systems. Foreign capital-driven industrial cluster could not form the sustainable development necessarily. 2004 . Why innovation is not at the satisfied level up to now even though we paid that much attention to it? This is related to innovation uncertainty. Innovation uncertainty includes industry or product technology path uncertainty. Products have been moving from domestic market to international market. marketing or branding. As a newcomer in international market. Dong Guan IT industrial cluster belongs to this sort of external embedded local network systems. these foreign capital-driven industrial cluster would decline. Now ceramic industry is facing the bottleneck of development. China local industrial cluster entered global value chain systems and technology level improved. high energy consumption. Italy and Spain are at the top level. local industrial cluster embedded in global value chain systems could not help the sustainable development of industrial cluster. like the ceramic industry. shaped the advantages of research.2 Key to Industrial Cluster Sustainable Development Innovation Uncertainty A conclusion could be draw from literatures: innovation is the main driver of industrial cluster sustainable development.

innovation process maybe uneven. Only big companies dare to face the high innovation investment and result uncertainty. China is now at the absence of intelligence property rights and patent protection. and so on.uncertainty. Innovation risk uncertainty includes innovation process and innovation result uncertainty. including individual enterprise. which finally suppress the cluster innovation. All types of innovation uncertainty are everywhere in three dimensions of industrial cluster and affecting each other.1 Individual Enterprise Level. capital or equipment is high. Industry or product technology path is uncertain. For electronics. industry or product technology path or innovation risk uncertainty could be very much relieved through cluster enterprises subjective efforts and cooperation. Small enterprises lack of the control of market due to the limitation of capital. big enterprises do not always do product innovation. Technology is copied by other enterprises at low costs. and social environment. a little change in environment would determine the prosperity or decline of industrial cluster. rather than do the fundamental innovation. In addition. single enterprise innovation return is most likely to be less than innovation investment. 2007 . big enterprises prefer to maintain technology. which finally influence industrial cluster development. System environment uncertainty is the intelligence property rights protection and patent system. 8 ) ( . and social environment optimization to lower innovation uncertainty and to realize local industry cluster sustainable development. Infant industry or product is a doubt in future. 4 Industrial Cluster Sustainable Development Mechanism: “Individual Enterprise—Cluster Organization—Social Environment” Optimization Industrial cluster is a network system. However. This kind of policy uncertainty is not good for the healthy development of cluster. Big enterprises rely on the capital. Only through the improvement of both subjective and objective environment to evoke enterprises and cluster innovation. 4. biology. this sort of high technology industry takes a long time to achieve innovation. rather than the non-production interest-seeker or system space. the change in environment. They preferred to do improvement in technology. The fault in design. as industrial cluster microscopic individual. However. Innovation enterprises get average innovation return soon. policy environment uncertainty. How to lower different uncertainty and improve enterprises and industrial cluster innovation ability? This needs to consider all three dimensions. which makes enterprises lost the driver of innovation Zhang. innovation investment is large. From individual enterprise. Many local governments paid attention to attract foreign capital while pay no attention to the infrastructure. To lengthen product market lifecycle. which need government efforts. Any development involves uncertainty factors. so that they are hard in forecasting the industry and dare not carry out the technology innovation activities. Uncertainty means change. In the absence of intelligence property rights and patent protection system. Technology overflow effect makes single enterprise innovation information spreads in network fast. Enterprises are core factors of industrial cluster.Microscopic Activities optimization Enterprises microscopic activities optimization is to improve innovation through heightening enterprises activity and lowering industry or product technology path uncertainty towards the trend of industry product. Now local governments set a lot of policy for industrial cluster. and the emergencies may lead to innovation failure. new materials. We can lessen the disadvantages of uncertainty. which leads to cluster enterprises copies everywhere and lacking of innovation. technology. mature industry or product is also the same situation. while system and policy environment uncertainty belong to objective factors. cluster organization. The requirement of human. From uncertainty factors. technology. while many small enterprises dare not to attend it. organization structure. industrial cluster would sustainable development. Policy environment is uncertain. industrial cluster policy is shortsighted. and human resource to suit the frequently changed and multiple path industry and thus control the industry product innovation. not stable or executively.

government participation and support are observed.S Taxation Law requires that technology-related research or experimental cost could be deducted and not calculated as accumulated depreciation. and thus lower the cluster’s overall innovation. small product-centric enterprises gather in the structure.S.2 Cluster Organization Level ——Organization Structure optimization Organization structure optimization helps to solve the knowledge overflow and lack of activity under innovation risk uncertainty. Law of Domestic Product Purchase regulates U. based on which innovation is carried out. single enterprises product innovation return would be separated in the network by the overflow effect quickly. Due to network level innovation return and enterprise level innovation have intrinsic conflict. In taxation. new taxation system should be set to support enterprises’ self-determinant innovation through using taxation policy to leverage enterprises to add more research and development investment setting up multilayer financial systems. and even the middle research result. social environment interests. the leading enterprise could accumulate the Schumpeter monopoly profit Zhang. Thus. the key technology. which results in the conflict between individual enterprise interests and cluster. considering first of those who have self-determinant intelligence property rights 9 ) 、 、 、 、 ) ( ; ) ( . and then self-determinant innovation. Enterprises’ activities innovation is limited to the learning ability or technology level. To small and mediate enterprises product. This could solve the conflict of innovation power and spillover effect. cluster organization structure optimization should shift the special market-leading cluster to core enterprise-leading industrial cluster structure. and thus single enterprise innovation investment could not be covered. 2006 . enterprises as network core has a shortcoming. ( 4. companies set up brand and enhances enterprises competitiveness. Microscopic enterprises do innovation because they expect innovation return is higher than innovation investment.3 Social Environment Level —System Optimization Policy optimization System and policy optimization is through external environment construction to lessen external environment uncertainty against industrial cluster sustainable development. 25% of the exceeded part is tax free Yuan. Furthermore. If research and development cost is above the average level of last three years. From copy technology to simulate innovation. through rating the subcontractors. self-determinant innovation activities. This is the foundation of industrial cluster sustainable development. For example.S government conduct protective purchase to technology industry and government should purchase the product in growing period. U. To set up and improve social environment by government sectors to facilitate technology innovation is the innovation leading nations’ and districts’ successful experience. Technology innovation leading nations such as U. setting the compensation mechanism from commercial banks to enterprises technology research and development. To make fully use of industrial cluster to improve the learning ability and sensitivity to market information and forecasting of future needs.enterprise’s goal is the optimization of economic return. so that small and mediate enterprises innovation could be encouraged Xu. that is enterprise cares only its own interest. 2007 . on the other hand. If network has a structure according to the scale. To those special market-leading local industrial clusters. No matter suppliers or enterprises. they care for sales and production. This needs enterprises to enhance the connection and to participate in network division system. technology spillover in cluster and the free ride of other enterprises would lower the enterprises innovation. the core enterprise in the core enterprise-leading industrial cluster structure could on one hand use the cooperation to control the largest share of the innovation. However. 4. large-scale enterprises could use the scale effect to cover the product innovation investment and set the advantage. Organizational structure optimization is then required to set up an enterprise innovation cluster structure. This solves the technology product market insufficient requirement in early period. the law also regulates that government purchase contract should first consider them. conducting support self-determinant innovation government purchase policy. industrial cluster innovation power and spillover effect are conflicting. Under this organizational structure. 2007 . China should also set up good environment through system and policy optimization.

cluster organization.Wuhan University Journal(Philosophy & Social Sciences). [2] Kaplinsky. Contemporary Finance & Economics.(48):37 70. 2006(5):360 365. 2004(6):36 42.G. R. Cluster organization is the bond. The Analysis of Constraints to Independent Innovation and the Design of Simulation Mechanism in High & New Technology Enterprises [J]. 2007(3):47 67. 2007(9):41 46. From three-dimension optimization to improve enterprises and industrial cluster overall innovation and finally achieve sustainable development of local industrial cluster. 10 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ . etc. Study on Forming and Evolving Mechanism of Innovation Dynamics in China’s LICs: From a Industrial Technology Track Perspective [J]. Industrial cluster sustainable development will not appear with the merge of local and external market. 2005(7):20 27. M. improve intelligence property rights protection system. & Morris. Zeng Gang. An Tongliang. Zeng Gang. Study of Global Value Chain Governance and Local Industrial Network Upgrading—Case of Pudong Integrated Circuit Industrial Network [J]. Construction of Incentive System on Enterprise Self-Determinant Innovation Basing on Government Perspective [J]. China Industrial Economy. This analysis indicates that foreign capital and embedded in global value chain systems is not the sufficient and necessary condition for local industrial cluster sustainable development. and social environment. Individual enterprise is the core of industrial cluster development. China Industrial Economy.product. Development of the Cluster Embedding in the Global Value Chain—The study of the global ceramic tile cluster [J]. and social environment. [5] Wen Hu. Zhang Shojun.143. [9] Zhang Jie. 2006(9):62 65. these three dimensions should be considered together. 2005(9):11 18. LIU Dong. Governance and Upgrading of Clusters under Globalization [J]. Economic Review(JINGJI ZONGHENG). 2007(1):69 76. [6] Xu Xia. Nankai Economic Studies. Liu Dong. Science of Science and Management of S. & T. [7] Yuan Jinyie. Spillover. cluster organization. It is far from enough to achieve industrial cluster sustainable development depending on foreign capital and embedded in global value chain. 5 Summary Local industrial cluster sustainable development is the topic which attracts lots of researchers. Local Enterprise Innovative Dynamic and Path Choice of LICs’ Upgrading [J]. [8] Zhang Hui. using government purchase as leverage to promote enterprises technology innovation. Industrial cluster is a complicated system including individual enterprise. A Handbook for Value Chain Research[M]. The key to industrial cluster sustainable development is innovation uncertainty. product innovation. 1999.2006(5):48 55. and social environment is the foundation. [3] Li Wenxiu. Journal of International Economics. References [1] Gereffi . Individual enterprise. and industrial cluster upgrade. Research on Upgrading Model of Local Clusters in Global Value Chains [J]. Besides system and policy optimization. On the Upgrading Path of Local Industrial Clusters: An Elementary Analysis Based on Organizational Division [J]. International Trade and Industrial Upgrading in the Apparel Commodity Chains [J]. [11] Zhang Jie. [10] Zhang Jie. [4] Wen Hu. ensuring enterprises innovation return.China Industrial Economy. Zhang Shaojun. 2001. government should introduce innovation source by setting up government-driven enterprises public technology innovation and promotion sectors to serve the cluster enterprises with new product design and experiment. China Industrial Economy. Liu Zhibiao.Prepared for the IDRC.

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