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Weekly UpdatesSUMMARY
This paper provides a pilot study of the development of consumer-goods manufacturing cluster in China and is divided into five sections. The first section introduces the contribution of 'made-in-China' to the global economy. In the second the context of the theory of agglomeration and cluster are briefly reviewed. Subsequently the paper draws a general picture of the development of China's consumer-goods manufacturing clusters and illustrates these in two representative provinces--Zhejiang and Guangdong--in the third section. The fourth section analyses the case of Wenzhou footwear industrial cluster in detail. Finally the paper discusses some problems facing Chinese consumer-goods manufacturing clusters and calls attention to their need for innovation and upgrade.
KEY WORDS
China manufacturing; agglomeration theory; consumer goods; footwear cluster; proximity; Wenzhou case; original equipment manufacturing; original design manufacturing; own brand manufacturing
INTRODUCTION: CONTRIBUTION OF 'MADE-IN-CHINA' TO THE GLOBAL ECONOMY
Since China opened to the outside world in the 1980s foreign companies have worked closely and actively with Chinese consumer-goods makers to promote original equipment manufacturing (OEM). They consider China a big market as well as an important partner in their global strategy. Now China is known as a promising supplier to demanding customers and as an intimidating manufacturer to competing producers. China's entry into the World Trade Organization brought its industry into global prominence. Many estimate that China will become a sophisticated manufacturing centre, and no longer just a lowcost source of cheap goods, in the near future.
China's local clusters of consumer-good manufacturers contribute greatly to bringing China's industry to global prominence, as the following news items show:
China's advantages in the global marketplace are moving well beyond cheap equipment material and labour. The country exploits clustering in a way that some countries just can't match.... Drawing on its vast population and mix of free-market and central-command economic policies China has created giant industrial districts in distinctive entrepreneurial enclaves such as Datang. Each was built to specialize in making just one thing including some of the most pedestrian of goods: cigarette lighters badges neckties fasteners.... The clusters are one reason China's shipments of socks to the U.S. have soared from 6 million pairs in 2000 to 670 million pairs last year. Meanwhile American producers pummelled by imports from China and elsewhere saw their share of the U.S. hosiery market fall from 69% in 2000 to 44% in 2003 according to the latest industry data.
(Los Angeles Times, 10 April 2005)
Buyers from New York to Tokyo want to be able to buy 500,000 pairs of socks all at once or 300,000 neckties 100,000 children's jackets or 50,000 size 36B bras.... Increasingly the places that best accommodate orders are China's giant new specialty cities.... The niche cities reflect China's ability to form 'lump' economies where clusters or networks of businesses feed off each other building technologies and enjoying the benefits of concentrated support centres.
(New York Times, 24 December 2004)
Since multifaceted reform began in the 1980s China's clusters of consumer-goods manufacturers have emerged and developed rapidly in the coastal area especially in backward rural areas. The trajectory and specialization of those clusters is attributable at least in part to networked industrial systems based on the Italian model. At first the concept of cluster in China was politically delicate. Until the end of the 1990s Chinese policy makers neglected those clusters which were inconsistent with the rapidly growing non-locally embedded high-tech branch plants. Since the economic performance of those clusters became more and more obvious the concept of industrial cluster has appeared on the policy-making stage and been adopted.
Cluster development in China has passed three decades already. How good is its performance? What problems might arise from their continuing development? How do these problems manifest themselves in China? What lessons are there for developing countries? The purpose of this paper is twofold: firstly, to contribute to the understanding of local clustering of consumergoods manufacturers in China with particular reference to the Wenzhou footwear cluster; secondly, it discusses problems with their upgrade and innovation processes.
THEORETICAL CONTEXT
Agglomeration and cluster phenomenon
Over the last two decades there has been increasing evidence in developed countries that clustering and networking helps small and medium-sized enterprises (SMEs) to raise their competitiveness. The most studied contemporary examples of industrial clusters--the small-firm industrial districts of Italy (roughly corresponding to north-east and central Italy)--specialize in traditional industries such as shoes textiles leather goods furniture and ceramic tiles (Brusco 1982; Sforzi 1989). Germany's Baden-Wurttemberg is known for its mix of small and medium-sized makers of machine tools and textile equipment. Other prominent examples of clusters studied early in developed countries include watches in Switzerland film production in Hollywood machine tools in Sakaki Township in Japan and the aerospace electronics complex in Southern California.
Since the mid-1990s literature has emerged relating to policies for industrial clusters in developing countries. Examples include the Indian clusters--the metalworking and textile cluster of Ludhiana the cotton-knitwear cluster of Tiruppur the diamond cluster of Surat the engineering and electronics cluster of Bangalore and the footwear clusters of Agra. Other cases are: the footwear clusters of the Sinos Valley in Brazil Trujillo in Peru and Leon and Guadalajara in Mexico; the Korean textile cluster in Daegu; and Pakistan's sports goods and surgical equipment in Sialkot cutlery in Wazirabad and electrical fans in Gujrat. In Africa there are the metalworking furniture making garment and other clusters in Kenya Zimbabwe and Tanzania. Case studies suggest that the inter-firm division of labour and institutional support tends to be more developed in Latin America and Asia and less developed in Africa. There were only a few regions in Asia able to shift into relatively high-value-added activities by means of product differentiation and technological upgrading to become part of the newly 'organized' matrix of industrial space (Storper & Scott 1992).
A big difference between clusters in developed and developing countries appears to be the market niches on which they focus. Developed countries specialize in higher-value niches so those clusters are dynamic and require high levels of innovation and functional flexibility. Clusters in developing countries on the other hand appear largely (one may even say entirely) at the lower end of the market where there are less dynamics and where competitiveness is determined by price. Buyer pressure to move up the value-chain is all but non-existent. There are two main paths of insertion in the global economy. The high road is one of increasing and improving participation in the global economy realizing sustained income growth. Producers in the low road are engaged in a 'race to the bottom' where increased exports can be paid for only by lower wages (Humphrey & Schmitz 1995; Lagendijk 1997).
Why industrial clusters?
It has been widely recognized that the successful localization of flexible production found in both Western Europe and the United States is central to contemporary global economic development. The global economy then may be seen as consisting of a mosaic of interdependent specialized industrial clusters. Industrial clusters characterize today's economic world map: critical masses in one place of linked industries and institutions--from suppliers to universities to government agencies--that enjoy unusual competitive success in a particular field. In theory open global markets rapid transportation and high-speed communications should allow any company to source any thing from any place at any time. But in practice location remains central to competition (Porter 1998).
The literature on local production systems stems initially from analysis of successful industrial districts in developed countries in the 1970s and '80s. Industrial districts are defined as essentially territorial systems of small and mediumsized firms with spatially concentrated networks, often using flexible production technology and characterized by extensive local inter-firm linkages (Bellandi 1989; Harrison 1992). In other words industrial districts are local systems with an active co-location of people and of independent firms specializing in different phases of a single production process. This literature has repeatedly suggested that selected regions are capable of exerting powerful push effects on national economic development.
The most influential exponent of specialized industrial localization is Porter (1990; 1998) whose notion of industrial cluster has rapidly become the analytical concept and policy tool. Porter (1998) defines an industrial cluster as 'a geographically proximate group of interconnected companies and associated institutions in a particular field linked by commonalties and complementarities'. Porter also points out that geographic cultural and institutional proximity provides companies with special access closer relationships better information powerful incentives and other advantages that are difficult to tap from a distance. The more complex knowledgebased and dynamic the world economy becomes the more this is true. Competitive advantage lies increasingly in local aspects--knowledge relationships and motivation--that distant rivals cannot replicate.
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