industrial clusters in china overview of the - fung group · industrial clusters in china ... this...

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 GROUP


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

firms (including specialized supplier), knowledge producing agents (universities, research institutes, engineering

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 GROUP


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 GROUP


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 GROUP

10 11



LI & FUNG GROUP


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

critical mass of competitive factors, including

professionals, trained workforce, suppliers, buyers

etc. Growth rate of the cluster has stabilized. Very

often, successful people often split off from the larger

corporations and start their own enterprises in the

same area. Such spin-off activity adds values to the

cluster.

Decline stage

An industrial cluster may eventually lose its

competitive advantage and begins to experience

decline in sales, profitability and employment.

Clusters can lose their competitive edge due to both

external and internal factors. Technological

discontinuities are the most common external cause

of decline, because they can neutralize many of a

cluster’s advantage at once. Clusters can also lose

their competitive edge when the location or

workforce becomes too expensive and when labor

becomes too scarce (e.g. HK apparel in 1980s, GD

manufacturing in 2000s), or when demand shifts.

Source: ‘Annual Report on Urban Competitiveness, No. 3’, Ni Pengfei et al., Social Sciences Academic Press

Birth

Many industrial clusters in China often begin with

one to two enterprises (the pioneers) that start up

their business in an area for some reasons (e.g.

natural resource, proximity to market etc.)

Enterprises usually act independently with limited

local interaction and synergy in the ‘pre-cluster

stage’. As a cluster grows, the interdependency

among enterprises and service providers within the

cluster deepens.

3. Some industries are more likely to form clusters than others

Industrial clusters exist in many but not all industries. It is generally believed that industries with a high number of

process innovations and with a high rate of local cooperation with suppliers, customers and other related

industries are more likely to show clustering dynamic. In China, clusters are mostly found in the light

manufacturing industries, including textile and apparel, footwear, plastics, electronics, automobile parts, etc.

4. High degree of division of labour and specialization

Many industrial clusters in China demonstrate a high degree of division of labour or specialization in various

production stages. Taking the label and badge industrial cluster in Jinxiang in Cangnan ( ) as an

example, the production of a small badge involves more than a dozen of stages including designing, aluminum

melting, engraving, drilling, plating, pin making, assembling and packing, etc. Each process is done by

independent and specialized enterprises, and every semi-finished product is traded through the commodity

exchange market in the cluster. More than 800 enterprises are integrated together to form a complete production

line in the cluster.

5. Key enterprise shaping the development of the industrial cluster

In China, large enterprises often exert great impact on the development of industrial clusters. For example,

Nantou ( ) in Zhongshan, a renowned home appliances production base with the title of “Specialized Town for

Home Appliances in Guangdong” has attracted many home appliances manufacturers to locate in the area. The

arrival of Changhong and TCL has further attracted the clustering of related enterprises and given the town a

leading edge in the production of large appliances. As a result, Nantou has developed into one of China’s largest

production bases for high-end home appliances; whilst Dongfeng ( ) and Dongcheng ( ) have also

developed into specialized towns for small appliances.

6. Formation of commodity exchange markets in or near the industrial cluster

In China, it is common to find one or more commodity exchange markets in or near an industrial cluster. The

markets act as important trading and information platforms, marketing centres and distribution centres for the

products produced in a particular cluster. For example, the China Light Textile City in Xiaoxing ( )

in Zhejiang serves as a modern multiplex for the distribution of apparel and light textile goods as well as other

functions including trade and commerce, technological services, information exchange, logistics, exhibitions,

entertainment, etc.

Commodity exchange markets may exist in several forms, namely free association of market fairs at the

elementary stage, large wholesale markets built by the government, and specialized mega marts.

7. Industrial clusters going through life cycles

Most industrial clusters indeed run in life cycles, very much like product life cycles. Industrial clusters continuously

evolve as new enterprises emerge or decline, or as local institutions develop and change. In some cases, the

clusters will go through four stages, namely birth, growth, stable and decline. Exhibit 2 summarizes the common

features of the four stages. Of course, many industrial clusters in China can remain competitive for as long as

centuries - a typical example is the porcelain manufacture cluster in Jingdezhen in Jiangxi, which has a history of

over thousands of years.

Exhibit 2: The Life Cycle of Industrial clusters

12 13



LI & FUNG GROUP


LI & FUNG GROUP

4. Spurring innovation and growth

In addition to enhancing productivity, industrial clusters also play a critical role in stimulating innovation and

growth. The ongoing relationships among enterprises within a cluster enable them to learn early about evolving

technologies, availability of components, services and marketing concepts, etc., from other enterprises. The

transfer of knowledge and technology among the co-located enterprises may eventually lead to the development

of new value-added products and services. This in turn, may spur new industry growth and thereby help drive the

overall growth of the cluster.

5. Facilitating new business formation

Industrial clusters make it more attractive for entrepreneurs to establish new businesses because market

opportunities are easily perceived and the specialized inputs needed for new business formation (e.g. capital,

skilled labour, specialized equipment or components, suppliers, etc.) are easily accessed within the clusters.

Meanwhile, external scale economies make it more attractive for new enterprises to locate within these

concentrations. For example, a concentrated customer base in a cluster makes it easier for new suppliers to spot

market opportunities. Furthermore, lower entry barrier and easy access to capital are key factors in facilitating

new business formation.

6. Creating jobs and providing employment opportunities

The establishment of new enterprises in the industrial clusters will create huge labour demand. As the industrial

clusters grow and enterprises mushroom, more and more labour is needed. Hence, the industrial clusters have

become an important source of employment.

7. Promoting industrialization and urbanization

Industry clusters not only can help local employment, but also attract large number of external labourers. Since

the majority of the workforce is drawn from rural areas, industrial clusters are regarded as effective platforms to

promote industrialization as they can direct rural labor into modern industries. On the other hand, rural to urban

migration can accelerate urbanization and bring about modernization of the whole region.

8. Bringing about higher residential income

The residents of cities with well-developed industrial clusters often have higher per capita disposable income.

According to the Annual Report on Urban Competitiveness No. 3, the top 20 cities with sophisticated industrial

clusters include Shenzhen, Dongguan, Zhuhai, Zhongshan, Shanghai, Foshan, Taizhou, Ningbo, Beijing,

Shaoxing, Xiamen, Haizhou, Zhoushan, Quanzhou, Huizhou, Huzhou, Suzhou and Jiaxing. In 2003, the annual

per capita disposable income of all these cities were higher than that of the national average, which was 8,427

yuan. Of which, the annual per capita disposable income of Shenzhen, Dongguan, Zhuhai, Wenzhou even

doubled that of the national average, stood at 25,936, 18,471, 16,602 and 16,035 yuan respectively.

V. Socio-economic impacts of industrial clusters

1. Fuelling industrial development and enhancing the nation’s overallcompetitiveness

Clustering can help sharpen the competitive edge of local industries. In China, the outputs of many industrial

clusters make up significant shares of the national total and even the world’s total. Examples include: labels and

badges produced in Cangnan ( ) in Wenzhou account for 45% of China’s total output; lighters produced in

Wenzhou make up 70% of the world market; neckties in Shengzhou ( ) in Zhejiang account for 80% of

China’s production and 30% of the world’s total; and PC cases produced in Qingxi ( ) in Dongguan account

for 30% of the world’s total.

Moreover, industrial cluster is an integral part of the regional economy - if the local clusters grow well, the local

economy will also benefit. Many provinces and cities in China, especially those with high concentration of

industrial clusters, have witnessed rapid economic growth in the past two decades. According to the National

Bureau of Statistics, in 2004, the GDP growth rates of Dongguan and Zhongshan in Guangdong were 19.6% and

18.7% respectively; and that of Jiangsu and Zhejiang were 15.9% and 15.5% respectively. These cities and

provinces have a fairly strong industrial setting, with the existence of large number of industrial clusters; their

growth rates surpassed the national economic growth, demonstrating the positive effects of industrial clustering.

2. Fostering the development of leading centres for specific industries andpromoting regional branding

Industrial cluster has become a major source of regional competitiveness. The distinctive features and the

competitive advantages of industrial clusters may help a region emerges as a leading centre for specific

industries. For instance, the PRD has achieved a high level of international competitiveness in light manufacturing

industry, and become perhaps the world’s leading centre for a wide range of light-manufactured goods and one of

the leading locations for assembly manufacturing of electronics products. The region is also renowned for being

an important sourcing base for all sorts of inputs, materials, and capital goods.

3. Enhancing production efficiency

Due to close linkage within an industrial cluster, enterprises in a value chain can work more effectively together to

improve the efficiency of the production process and quality of products. Being part of a well-developed cluster

allows constituent enterprises to operate more productively in sourcing inputs. The industrial cluster thus offer a

specialized supplier base. Sourcing locally instead of from distant suppliers lowers the transaction costs. This

minimizes the need for inventory, reduces delays, and helps improve the productivity of enterprises.

14 15



LI & FUNG GROUP


LI & FUNG GROUP

VI. Obstacles to the development of industrial clusters

At present, most industrial clusters in China are full of vitality and becoming distinctive features of the local

economy. Nevertheless, there are some barriers to cluster development in China.

1. Multiple jurisdiction in some industries

In China, different industries may have different administrative requirements and are under different jurisdictions.

In steel, oil, chemical, automobile, computers, electronics, and printing industries, SOEs are under the control of

the central government, while private enterprises are under the authority of the local governments. Multiple

jurisdiction may lead to multiple decision making and very often with conflicting interests. This may affect the free

movement of factors of production and thus hamper the development of industrial clusters.

2. Absence of sound legal framework

In China, laws and regulations are promulgated by a host of different ministries and governments at the central,

provincial and city levels, and it is not unusual for the resulting regulations to be incomplete or even at odds with

one another. Furthermore, China’s policies, laws and regulations tend to be more general and ambiguous than in

other countries. While this allows the Chinese authorities to apply laws and regulations flexibly, it may also result

in inconsistency and confusion. This may deter foreign investments in a certain extent and pose a negative impact

on the development of industrial clusters. Today, a lot of laws and regulations (especially tax regulations)

mandated by the Central government, are ‘negotiable’ in small cities, particularly in Guangdong. This creates

uncertainties and risks for investors as ‘negotiable’ often mean ‘changing all the time’.

3. Weak linkages between enterprises

In general, traditional manufacturing industries in China are characterized by low threshold of entry; and most of

the enterprises in the traditional industrial clusters are SMEs. Linkages between these enterprises tend to remain

weak, resulting in overcapacity in production, duplicative factors of production, etc. Moreover, owing to their small

operation scale, enterprises often emphasize on short-term benefits and compete severely with, rather than

cooperate with one another. Hence, the clustesrs may remain uncompetitive.

4. Lack of innovation capability

In China, many industrial clusters are sustained by price-competitiveness rather than product innovation.

Enterprises of the traditional industries, in particular, tend to produce low-value added products rather than

innovative ones, resulting in shortage of internationally recognized brand. The PRD, for instance, is the world’s

largest manufacturing base of certain manufactured goods; but it has few internationally famous brands of its own.

5. Lack of relevant personnel and management experience

Enterprises of some industrial clusters lack suitable management and technicians to cope with the ever-changing

world. . For example, a major problem encountered by the Shanghai automobile industrial cluster amid its rapid

expansion in conjunction with the growth of the industry is the shortage of relevant skilled workers.

6. Lack of local industry culture

In China, some industrial clusters, especially those consist predominantly of foreign enterprises, set up not

according to the core principal of specialization and mutual development among industries, but rather to the

cheap land and favorable tax policies. They often lack the local industry culture (or so-called social

embeddedness) i.e. a common mission, trust and cooperation required for sustaining the development of the

industrial clusters.

VII. Role of government in cluster development

In China, many clusters were spontaneously formed and out of the plan of the local governments. Nevertheless,

the governments do play an important role in facilitating cluster development. The Provisional rules issued by the

State Council in 1988 concerning new technological industrial development experiment zones of Beijing

Municipality has encouraged massive enterprises to set up business in ZGC. In the early 1990s, the Chinese

government established Science and Technology Industrial Parks (STIPs) extensively throughout the country,

with an aim to speed up the development of high-tech industries. The industry-park movement specifically aimed

at attracting IT companies and did so with great success. Nowadays, about 50%-80% of IT products are produced

by enterprises in the STIPs.

Meanwhile, other local governments in the PRD have formulated preferential policies concerning land use,

taxation, administration services, charges, etc. so as to create a sound and flexible external environment to attract

foreign investments. Moreover, these local governments have also introduced initiatives and supportive

measures to boost the competitiveness of the commercial distribution sector. All of these initiatives have

considerable impact on cluster development.

In general, both the central and local governments shall assume an important supporting and facilitating role.

Meanwhile, they shall strive hard to overcome the hurdles mentioned in the last section. The major roles of the

governments are listed below:

1. Formulating measures and policies to attract investments.

2. Easing regulations and opening up more creative financing and taxing mechanisms.

16

LI & FUNG RESEARCH CENTRE May 2006 Issue 1


LI & FUNG GROUP

© Copyright 2006 Li & Fung Research Centre. All rights reserved.

Though Li & Fung Research Centre endeavours to ensure the information discussed in this material is accurate and updated, no legal liability

can be attached as to the contents hereof. Reproduction or redistribution of this material without Li & Fung Research Centre’s prior written

consent is prohibited.

3. Regulating the market order constantly to form a fair competition environment.

4. Improving local environment and providing sufficient infrastructure to support technology innovation, including

social institution, university lab, research centre, industry association, chamber of commerce, transport

network, public facilities and communication network.

5. Facilitating the opening of commodity exchange markets and expanding market scale.

6. Organizing commodity exhibitions and trade fairs to promote local products and fostering regional brands.

7. Providing necessary guidance to assist industry upgrading and technology transformation projects.

8. Coordinating integration between production and research to strengthen the technical innovation capability of

industrial clusters.

9. Strengthening personnel training and knowledge building.

10. Cultivating an ideology that nurtures cluster development i.e. a positive attitude towards entrepreneurship,

cooperation, the governance structure in a region; and

11. Cultivating a kind of local industry culture that can help various industry players including enterprises,

universities and local governments to communicate and cooperation with each other.

VIII.Conclusion

In the globalization era, cost competitiveness alone will not be sufficient to guarantee further success. In order to

remain competitive, there is a need for industries to upgrade their activities and move up along the value chain. To

do so, the industrial cluster shall constantly pursue enhancement and optimization of the value chain and develop

other capabilities i.e. improving design, R&D and innovation. And very importantly, enterprises within an industrial

cluster shall embrace the pursuit of competitive advantages and specialization rather than simply imitate

successful enterprises. After all, the role of governments shall not be overlooked. They will and continue to play

an important supporting and facilitating role, though not a leading role in making entrepreneurship easier. It is the

combined force of enterprises and governments that contribute significantly to the evolution of the industrial

clusters in China.

industrial clusters in china overview of the - fung group · industrial clusters in china ... this...

Documents