Flowchart Approach to Industrial Cluster Policy from the point of Sequence Economics

Publication Type:

Conference Paper

Source:

Gerpisa colloquium, Paris (2011)

Keywords:

flowcart approach, sequence economics

Abstract:

Background: At the beginning of the 2000s, the west side of the Delta in southern China began to develop as Honda, Nissan and Toyota responded to the industrial cluster policy of Guangzhou municipality, creating an automobile industry cluster based around plants constructed by the three Japanese firms in Guangzhou. In 2001, the Shanghai municipality established Shanghai International Automobile City in 2001 as a base for auto production. Within the Tianjin Bohai New Area, the Tianjin Economic Development Area is crucial to attracting foreign investors to Tianjin. Toyota began to manufacture Vios-type automobiles in Tianjin in 2002, and its related firms began to agglomerate there.

Purpose: This paper attempts to establish ‘sequence economics’ in which time plays a crucial role. Our flowchart approach to industrial cluster policy proposes a practical method of the sequence economics to explain the automobile industry clustering in China. Based on the experiences of industrial cluster policies in China and other Asian regions, the flowchart approach is established to generate externality such as the backward linkage in the manufacturing industry in a region. The sequence of policy measures will change the investment environment for the clustering of firms in the labor-intensive manufacturing industry by implementing the sequence of policy measures. The model can be applied to other regions such as regions in Africa.

Review: Holt (2004) designed a method called branding genealogy by studying several thousands of advertisement on several major brands such as Coca-Cola and IBM. The model of Holt (2004) was derived by both inductive and deductive methods. Our flowchart approach is extracted by successful cluster policies by inductively studying the cases of cluster policy. But we cannot prove our hypothesis of the flowchart approach by inductive or deductive methods. We propose sufficient conditions for the success of industrial cluster policy. We can form an industrial cluster if we follow our flowchart approach that satisfies the condition.
Porter (1998) constructed a diamond model finding four attributes. However, every region is not easy to satisfy the four attributes at the same time. Kuchiki (2005) proposed the flowchart approach of the industrial cluster policy by sequencing the policy measures of factors in a line for the practical policy. The aim of the flowchart approach is to prioritize the policy measures in order, not on a diamond plane but on a line.
Fujita, Krugman and Venable (1999) established the models in spatial economics to discuss agglomeration. Our sequence economics analyses the dynamic processes of spatial economics and proposes a policy of the sequence of policy measures in practice for attaining the agglomeration of a region. The sequence of policy measures can change the attributes given to a region that determine the models in spatial economics. As a result, the region becomes competitive with other regions in inviting foreign investors in the labor intensive manufacturing industry to the region at the stage of agglomeration.

Flowchart approach: The flowchart approach to the sequence of policy measures consists of the following three steps. First, we will find ingredients or factors. In the case that the factors in the manufacturing industry are A, B, C, D, and E, the permutation of 5 is 120. Second, we will select the minimum number of factors from the factors above in order to succeed in industrial cluster policy. Suppose that A is an anchor firm, C capacity building, and E an industrial zone. Then the number of permutation is 6 even though the number becomes smaller. We can implement only one industrial cluster policy. Third, we will sequence the factors along a flowchart based on the successful cases of industrial cluster policy in the automobile industry policy.
Industrial clustering of our flowchart approach consists of two stages. The first stage is the process of agglomeration of firms in the same industry or different industries. The second stage is the process of innovation by the firms.

Hypothesis: The sequence satisfying a sufficient condition at the first stage of agglomeration in China is an industrial zone, capacity building, and an anchor firm.
We found the above sufficient condition for the success of the automobile industry cluster policy at the first stage of the agglomeration (Its proof is at Appendix 1). The elements(1) of building capacity for the stage of agglomeration include the construction of physical infrastructure, institutional building, human resource development, and the facilitation of living conditions amenable to foreign investors.

Reference:
Fujita, M., P. Krugman and A. Venables (1999), The Spatial Economy: Cities, Regions and International Trade, Cambridge, MA: MIT Press.
Holt, D.B. (2004) How Brands Become Icons: The Principles of Cultural Branding, Boston: Harvard Business School Press.

Papers:
Kuchiki, A. and T. Gokan (2011, forthcoming), “On the Sequence of Policy Measures in Industrial Cluster Policy for Creating Spatial Advantages, ” Kuchiki A. and M. Tsuji (eds.) Industrial Clusters, Upgrading and Innovation in East Asia, Cheltenham: Edward Elgar.
Kuchiki, A. (2011, forthcoming), “Promoting Regional Integration through Industrial Cluster Policy in CLMV, ” Kuchiki A. and M. Tsuji (eds.) Industrial Clusters, Upgrading and Innovation in East Asia, Cheltenham: Edward Elgar.
Kuchiki, A. (2010) “The Automobile Industry Cluster in Malaysia,” in From Agglomeration to Innovation, A. Kuchiki and M. Tsuji eds., New York: Palgrave Macmillan, pp.15-49.
Kuchiki, A. (2008a) “The Flowchart Approach of Cluster Policy,” International Journal of Human Resources Development and Management, Vol. 8, Nos. 1/2, pp.63-95.
Kuchiki, A. (2008b) “Theory of a Flowchart Approach to Industrial Cluster Policy,” in The Flowchart Approach to Industrial Cluster Policy, A. Kuchiki and M. Tsuji eds., New York: Palgrave Macmillan, pp. 285-311.
Kuchiki, A. and H. Tsukada (2008c) “Guangzhou’s Automobile Industry Cluster,” in The Flowchart Approach to Industrial Cluster Policy, A. Kuchiki and M. Tsuji eds., New York: Palgrave Macmillan, pp. 41-70.
Kuchiki, A. (2007) “Agglomeration of Exporting Firms in Industrial Zones in Northern Vietnam: Players and Institutions,” Industrial Agglomeration and New Technologies: A Global Perspective, M. Tsuji, E. Giovannetti, and M. Kagami eds., Cheltenham: Edward Elgar, pp.97-138.
Kuchiki, A. (2005) “Flowchart Approach,” in Industrial Clusters in Asia, A. Kuchiki and M. Tsuji eds., New York: Palgrave Macmillan, pp.169-199.
Books:
Kuchiki A. and M. Tsuji eds. (2011, forthcoming) Industrial Clusters, Upgrading and Innovation in East Asia, Cheltenham: Edward Elgar.
Kuchiki A. and M. Tsuji eds. (2010) From Agglomeration to Innovation, New York: Palgrave Macmillan.
Kuchiki A. and M. Tsuji eds. (2008) The Flowchart Approach to Industrial Cluster Policy, New York: Palgrave Macmillan.
Kuchiki A. and M. Tsuji eds. (2005) Industrial Clusters in Asia, New York: Palgrave Macmillan.

Note 1: (Capacity building) Physical infrastructure refers to ports, roads, communications, and so on. Institutional building, crucial to success in inviting foreign investors, includes the streamlining of investment procedures through one-stop services, the deregulation of laws, and the introduction of preferential tax system. Human resources include unskilled labor, skilled labor, managers, researchers, and professionals. Living environment, for example, includes the provision of hospitals and international schools in order to invite foreign firms. An anchor firm is expected to have a high value of the industrial backward linkage to use many parts and components.

Appendix 1:
The decentralization of the central government makes harder the competition of a local region with other regions in inviting investors. The optimal sequence of policy measures is a factor for the success of a region in industrial cluster policy. The sequence of policy measures is crucial to its success in inviting investors.
In the case of the automobile industry clusters at Guangzhou and Tianjin, China, the order of the industrial cluster policy is E – C – A. That is, once that an industrial zone is established, capacity is built, and an anchor firm moves in the industrial zone, then its related firms of suppliers follow the anchor firm, resulting in the industrial agglomeration of firms at the zone. Among possible permutations, the flowchart approach to industrial cluster policy chooses the permutation that consists of the minimum number of factors to succeed in the policy.

The sequence of policy measures: Suppose that a firm in an advanced country will invest in a region in an emerging country. There are two candidate regions of A and B. At an initial stage, the investment environment of A is better than that of B at an initial stage to be invested in. But the region B adopts its industrial cluster policy to change its investment environment by implementing the sequence of policy measures. The policy measures change the spatial condition of B.

A simple model of Sequence Economics:
The sequence of policy measures of industrial cluster policy changes the investment environment of region B for the firm to choose its location of a plant.
1. The flowchart approach: The sequence of policy measures to form a production function
{s1 à s2 à s3}
2. Production functions at region A and region B, respectively: Y A and Y 1B.
Production function becomes increasing returns to scale in region B (Y iB ) by implementing the sequence of policy measures: i= 1, 2, and 3.
The production function after implementing the sequence of policy measures of {s1}becomes :
Y 1B = f ({s1}),
The production function after implementing the sequence of policy measures of
{s1, s2}:
Y 2 B = f ({s1, s2}),
The production function after implementing the sequence of policy measures of
{s1, s2, s3}:
Y 3 B = f ({s1, s2, s3})
Production function in region A: Y A.
3. Preference conditions for choosing a location by a firm in an advanced country:
L (Y 1 B) < L (Y A)
L (Y 2 B) < L (Y A)
Region A is preferred to region B due to the increasing returns to scale at region B.
4. The decision on choosing the location of a plant of the firm has been changed after implementing the sequence of policy measures.
L (Y 3 B) > L (Y A).
Region B is preferred to region A. It is noted that the inequality remains unchanged when the sequence of {s1, s2, s3}is different from the order of {s1, s2, s3}, say{s1, s3, s2}. That is,
Y 3 C = f ({s1, s3, s2})
L (Y 3 C) < L (Y A).

Proof of Hypothesis 2: The prototype of export processing zones was seen in Kaohsiung, Taiwan, which became a model for free trade zones in Malaysia (Kuchiki(2010)), eastern seaboard in Thailand (Kuchiki(2011)), northern Vietnam (Kuchiki(2007)), Guangzhou (Kuchiki and Tsukada(2008a)) and Tianjin (Kuchiki(2005)) in China . The model is suitable for other East Asian countries, provided that they satisfy the preconditions of political and macroeconomic stability and public security.

Copyright© Gerpisa
Concéption Tommaso Pardi
Administration Géry Deffontaines

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