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Development of Industrial Clusters: East Asia Experience and New Development Strategy for Africa. Keijiro Otsuka November 29, 2006 FASID: Foundation for Advanced Studies on International Development.
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November 29, 2006
FASID: Foundation for Advanced Studies on International Development
The Labor Markets Team in the Social Protection Network in conjunction with PREM and DEC Development of Industrial Clusters:East Asian Experience and New Development Strategy for AfricaDate: Wednesday, November 29, Time: 2:30 - 3:30 pm, Room: MC3-570
- Cluster that is characterized by the dominance of SMEs.
- Pyramidal type in which there are one assembler, many sub-contractors, and so many sub-sub-contractors (e.g., Toyota).What is Industrial Cluster?
Geographical concentration of enterprises producing similar and closely related products in a small area (e.g., assemblers and part-suppliers).
We focus on the first type, because it is common in developing countries.
- Clustering is the key to successful industrial development because of
(usually through poaching)
- If an enterprise is located outside the cluster, it will find it difficult to learn from other enterprises, to sell/buy parts and recruit workers with desired skills.
Paul Krugman’s Theory of “Cluster”
Scale economies at the planet level
High transport cost between areas
- Reduction in transport cost due to clustering leads to geographical concentration of industries
Sonobe-Otsuka Theory of Cluster
Scale economies at the cluster level not at the planet level
Emphasis on reducing transaction costs, not transport costs
Emphasis on innovation possibilities in clusters
List of Case Studies in Asia
Surprisingly great similarity is observed in the process of industrial development among different industries in different countries
Most Important Finding
Stages of Industrial Development
1) Pioneer imitate foreign technology
2) Pioneer’s success in business
3) Emergence of followers (imitation of pioneer)
4) Expansion of production quantity
5) Decline in profit
7) Quality competition
First of all, the quality of products must be improved by employing engineers, designers, and skilled workers.
Since consumers do not immediately perceive the quality improvement, innovative enterprises must convey the quality information by establishing brand names, opening own retail stores, and so on.
Since improved products are differentiated products, innovative enterprises need special parts, which embody new ideas. To protect new ideas, they must develop trust and establish long-term sub-contracts with parts-suppliers.
Innovative enterprises should embark on exports, absorb non-innovative enterprises, and seek scale economies.
Such multi-faceted innovations can be carried out only by educated entrepreneurs.
Increasing importance of traders
Decreasing entry and surprisingly high growth of enterprises
Increasing importance of multifaceted innovations
Specialization and division of labor
Development of skilled labor markets
Transactions between manufacturers and wholesalers/retailers are also important
Accumulation of various human resources such as engineers, merchants, parts-suppliers, that leads to
Industrial Cluster Develops Market
and Enlarges Innovation Possibilities
Enlarges Opportunities for Innovation
New Development Strategy
Cluster promotes enterprise-enterprise and enterprise-merchant transactions by reducing transaction costs. (Transaction costs = cheating, stealing, lying, shirking, etc)
Cluster stimulates multifaceted-innovations by attracting a variety of useful human resources.
Cluster, however, discourages investment in innovation to the extent that benefits from innovation are reduced by imitation.
Construction of market-places and industrial zones
Appropriate training programs, once cluster is formed.