A Study of the Upgrading Paths of Industrial Clusters from the Global Value
Chains Perspective
Wen-yan Lai
Department of Economic Management，Guangdong Radio & TV University，Guangzhou P R, China
(458989141@qq.com)
Abstract-The global value chains theory provides a new
method to upgrade industrial clusters. From the global value
chains perspective, this paper analyses the existing problems in
the upgrading process of China's industrial clusters, and
proposes some upgrading paths: China's industrial clusters
should gain access to the high-end parts, strengthen the
technological innovation capability, enhance the industrial
relevance, and improve the capacity of international market
expansion.
Keywords-Existing problems, industrial clusters, the global
value chains, upgrading path
I.
INTRODUCTION
As economic globalization continuously progresses,
production processes gradually break down in the world,
most enterprises in developed countries occupy high
value-added areas, while most Chinese enterprises only have
areas of low value-added. This development tendency makes
us not to do our study of industrial clusters upgrading merely
focusing on the level of three industries, but to explore it
from the view of global value chains. With the rapid
development of world economy, value creation system of the
world appears unprecedented vertical separation and
reconstruction, global value chains has become an important
form of expression of economic globalization. If China
implements active international strategy learns technology
and management expertise from the advanced countries via
global value chains, China will be able to enhance the
industrial competitiveness effectively. In recent years, even
though China's industrial clusters develop rapidly, since most
of them develop under imperfect market mechanism and the
low standards of whole technique and management level of
industries, there is still a big disparity of competitive
compared with transnational corporations, thus China's
clusters are faced with alternatives of transforming or
upgrading. Therefore, it is needed to study China's industrial
clusters upgrading problems from the point of view of global
value chains.
II.
A CORRELATION ANALYSIS OF THE GLOBAL VALUE
CHAINS AND INDUSTRIAL CLUSTERS UPGRADING
The world economic system in the background of
globalization is like "a string of pearls", pieces of gold thread
which string these pearls (industrial clusters) together are the
global value chains [1]. This metaphor vividly illustrates the
relationship between the global value chains and industrial
clusters.
A. The global value chains theory
Value chains concept was first proposed by Professor
Porter of Harvard Business School. He considers that value
chains mean a set of processes for product design and
production, product sales, until the final consumption and
use of products, including all the value creation activities of
the company, i.e. "the company value chains" [2]. Gerry
Fong expanded the visual angle of value chains to a nation,
even to the world, and developed "the global commodity
Chains Theory". He lays stress on the importance of country
cooperation in forming the global trade value chains [3].
With the acceleration of economic globalization, global
configuration and integration of the value chains grow in
intensity. Facing this background of the big conversion of
international division, the global value trains theory came
into being. It discusses about products on a global scale,
discusses all the value-creating activities at all life cycle of
products, from product conceptual design to production and
consumption until product scrapping and recycling,
including product design and production, product marketing,
distribution, and end user support services, etc.. Its basic idea
is that the global value chains are composed of many "value
links", not every link creating equivalent value, value created
is discretely distributed to the value chains. The global value
chains are actually separated into several fragments which
are generally discretely distributed to all over the world
spatially. Every fragment value that is separated out
generally has a characteristic of high geographical
concentration, i.e. "discrete in large area, concentrate in
small region".
B. The theory of industrial clusters
The earliest research on the economic phenomenon about
the globalization of industrial clusters can be traced back to
Adam Smith's “The Wealth of Nations”. in the late 19th
century, Marshall described the phenomenon that a large
number of relevant sector enterprises concentrate in the
"industrial districts" of specific areas. Later in 1929, Weber
published a book — "location of the original theory" — in
which he proved the location choice of industrial
agglomeration from the views of costs and benefits. From the
economics of competition point of view, Porter defined
“industrial clusters” as a collection of companies and
organizations which are interrelated in a specific field and
geographically concentrated, including interrelated industries
and other entities important to competition [2]. After that,
different scholars put forward different definitions of the
concept of industry clusters. To sum up, “industry clusters”
could be defined as a group in a particular region, with
competitive and cooperative relations, which are composed
of interrelated and geographically concentrated enterprises,
specialized suppliers, service providers, financial institutions,
manufacturers of related industries and other relevant bodies.
Industrial clusters have become important economic and
social phenomenon and a form of industrial organization. It
can strengthen the division of labor based on specialization,
play the full roles of industrial linkage and cooperation,
lower innovation and transaction costs, and promote the
rational flow and optimal allocation of factors of production.
C. Mechanism of industrial clusters upgrading in the global
value chains
With the acceleration of economic globalization,
industrial clusters, as an important carrier of the regional
economic development, is now presenting new
characteristics: It is embedding into the global value chains
in different ways. Embedding into the global value chains
enables local suppliers to obtain the opportunity of gaining
market access, increase production capacity and realize the
redistribution of global interests. Besides, it can also help to
perfect industrial clusters network, makes enterprises
possess a global perspective and have more chances to do a
higher level of technology transfer and management
learning. Although industrial clusters embedding into the
global value chains has effect on strengthening itself
continually, this process is not a straight line, it needs each
economic actor's continuous joint efforts to complete.
Integrating into the global industrial networks, not only
provides more opportunities for cluster development, but
also makes clusters face more intense challenges and
competition. In the process of embedding into the global
value chains, industrial clusters usually improves its own
competitive capability through the core link, and then uses
this opportunity to spread and extend towards a higher value
added link. Facing the new global competitive situation, the
first thing for enterprises of industrial clusters to consider is
how to find the position which is suitable for the current
status of economic structure and industry development, and
then continually achieve the upgrading of industrial
structure and competitiveness along a feasible path.
III. THE EXISTING PROBLEMS IN THE UPGRADE PROCESS
OF CHINA'S INDUSTRIAL CLUSTERS BASED ON THE GLOBAL
VALUE CHAINS
A. Relatively low level of development of industrial clusters,
mainly concentrated in the low-end link of value chains
The overwhelming majority of China's industrial clusters
are labor-intensive, mainly depending on the advantage of
low cost. Their capacity of obtaining value from value chains
is rather low, and their space of anti-risk on the prise is also
small because of thin profit margins. In 2008, 153 among the
world top 500 are American enterprises, compared with only
35 of China. America is in the high-end link of industrial
chains. She controls the key links, such as product design,
raw material purchase, retail and terminal, etc., and creates
value accounted for 90%. While China is in the low-end link
of industrial chains in international division. Knowledge and
technology diffusion is rather limited in labor-intensive
enterprises. Industrial clusters formed from this are surely
big but not strong, and can only obtain lower added value.
The Wall Street Journal once reported that in America, the
retail price of Logitech wireless mice which were produced
in Suzhou, China, is set at around 40 US dollars, but China
only gets 3 US dollars for all the payments, including salary,
power, logistics and more. The reasons for this are as follows:
on the one hand, local enterprises are content with OEM
mode of receiving orders and production, and lose the
motivation of initiatively extending towards the high-end
link of value chains, which results in cut-throat low price
competition and smaller space for value realization; on the
other hand, although China is abundant in labor, local
industrial networks do not form unique regional brands and
core brands, most products are sold in the mode of OEM
sales in foreign markets, which causes that a lot of value
drain away to foreign countries, while China can only earn a
meager processing fees by contract manufacturing.
B. Underpowered cluster innovation, path dependence on
the exterior
The technological innovation capability of enterprises of
industrial clusters is not strong, most enterprises are mainly
based on applicable and simple technology application, and
still remain more imitation than innovation, which causes
"path dependence" on the exterior of industrial clusters. On
the one hand, enterprises of China's clusters easily generate
excessive dependence upon the external relations. They
actively connect and participate in global industrial clusters
through value chains. With a steady flow of capital,
technology and management experience inputs, local
enterprises usually generate heavy reliance on multinational
corporations, which leads to a serious lack of innovation
capability. Besides, as compared with the high-cost inputs
the firm's own designing, research and development (R & D)
need, the costs for continuing knowledge and technology
diffusion of external advanced clusters is much cheaper, and
the risk is also lower, which leads to the absence of
independent innovation ability. On the other hand, the level
of technology of China's industrial clusters is relatively low;
the mechanism of interactions between universities, research
institutes and enterprises of industrial clusters is not perfect;
China's patent results transformation rate is slow; China
lacks high-quality personnel. All of these make the R & D
capacity of enterprises of industrial clusters weak. According
to statistics, China's patent technology transformation rate is
less than 1%, which causes serious waste. The root causes of
a large number of unused patent results are: production, R &
D is out of touch with the market, and the R & D results fail
to meet the market demand.
C. The lack of the basis of clusters' social networking,
relatively poor industry relevance
At present, the situation of many vicious competitions
among clusters exists in China. The lack of the basis of
social networking and many deformed internal industrial
chains lead to a high level of homogeneity within products of
industrial clusters, more competition than collaboration
among enterprises, and poor industry relevance. Failing to
construct high-tech industrial zones by imitation which is
found everywhere in China is a case in point. In the
meantime, industrial clusters are also facing the challenges
from foreign advanced technology industrial clusters, which
arouses China's clusters' exclusion against foreign countries
and forms the situation that various industries fight
separately, shutting the door on others, leading to the relative
lack of synergistic effect. Industry associations are an
important part of social service system. Many small
enterprises can be connected as a whole through associations,
which helps to promote both division of labor and
cooperation between enterprises. However, there are no trade
associations and other coordinating bodies in many industrial
clusters in China. Due to the lack of complete service
networks and functional platforms, the cluster development
models around the country are quite similar, which restricts
the competitive advantage of industrial clusters from
bringing into play. Take China ceramic industrial cluster for
example, a large number of enterprises from Guangdong,
Shandong, Fujian, Hebei, Sichuan, Zhejiang and other places,
pour into the ceramic industry, leading to the rapid expansion
of production capacity. Outwardly industrial clusters in
different regions have different advantages, but it is difficult
for industrial clusters to develop their comparative
advantages in a relatively short period of time.
D. The lack of strategic partners of core enterprises in the
global value chains, difficult to promote the optimization
and upgrading of industries
Economic globalization embeds industrial clusters into
the global industry development networks. The optimization
and upgrading of industrial clusters is a process in which
industrial clusters realize sustained upgrading in the global
value chains dominated by multinational companies by
maintaining, increasing, creating and capturing value. Core
business partners of foreign value chains make a significant
contribution to industrial clusters upgrading. However,
China's industrial clusters always lack investment partners of
core strategy links in the global value chains, which means
there are hardly any core businesses of the global value
chains doing any joint venture with enterprises of clusters, or
doing any strategic cooperation in designing, R & D,
production and operations, and marketing channels. For most
exogenous clusters, due to the lack of core business partners
of value chains, export processing enterprises stagnate at the
stage of OEM production for a long time, and lack their own
brands. In order to maintain their technological competitive
advantages, multinational corporations leave core technology
and core product development, designing and production
behind in home country, making the spillovers of knowledge,
technology and management experience rather limited; Some
system defects also hinder the path of direct investment
technology spillovers from multinational corporations; Some
multinational corporations adopt the actions of exclusion and
suppression against China's industrial clusters embedding
into the global industry value chains, etc.. All of these
seriously affect the upgrading and optimization of China's
industrial clusters.
IV. THE UPGRADING PATH OF CHINA’S INDUSTRIAL
CLUSTERS BASED ON THE GLOBAL VALUE CHAINS
A. Change its position in the global value chains, gain
access to enter the high-end link
In different types of industries, various specific links of
the value chains have their own characteristics, and value
distribution of each value chain is also different from others.
Value analysis enables the clusters to find appropriate market
segments, determine the best way to cut-in, adjust the links
of the global value chains, and achieve the upgrading of links.
Enterprises of industrial clusters should according to their
competitiveness, meticulously divide every link and the
source, composition and distribution of the value in related
industry value chains, and then determine a clear market role
and targeting. Enterprises should also fully use external
contact networks to explore the links which have greater
potential of increasing value in the global value chains, and
determine their "strategic links" in the global value chains.
Moreover, China should accelerate the formulation and
promulgation of China's own industry standard, protect
China's core competencies, enhance the ability to address the
financial crisis, and help Chinese enterprises directly enter
the terminal and high-end link of the global value chains. If
industrial clusters want to gain higher levels of competitive
advantage, they must innovate continually, overcome the
shortcomings of comparative advantage, surpass cluster
competitive advantage rigidity, and integrate themselves into
a higher level of global industry development system.
Enterprises of industrial clusters should also according to the
size of added value, analyses the value of each link, fully use
capital, technology, management and other resources of the
value chains, continually improve their own international
competitiveness, and eventually shift the focus of cluster
enterprise development from the low-end link of the value
chains to the high-end link which is mainly on technology,
knowledge, R & D, brand, standard, etc..
B. Enhance the technological innovation capability of the
industrial clusters, achieve industrial upgrading
First of all, government should encourage, support and
guide enterprises of industrial clusters to innovate
independently from the policy-making, environment-creating,
and investment in R & D-increasing, etc., and provide an
excellent hardware support for networking. The national,
provincial and municipal departments responsible for the
allocation of innovation funds should be inclined to
industrial clusters properly, so that clusters can attract
innovation resources gathered from various aspects, and
attract multinational regional R & D centers and R & D
headquarters of leading domestic enterprises to settle in,
making innovation a driving force for the development of
industrial clusters. Secondly, enterprises of industrial clusters
should strengthen R & D institution building, strengthen the
construction and management of the operational mechanism,
funding input, development results, and other aspects of the
R & D institutions, and enhance enterprise capacities for
self-development. What's more, enterprises should focus on
the need of industrial clusters upgrading, take a form of joint
production, knowledge and research, collect and obtain a
number of advanced technologies and core technologies, and
enhance the level of industrial technology. Finally,
enterprises of China's clusters need to reduce their reliance
on external, and avoid the impact of financial crisis. The
global value chains are in a continuous dynamic change,
therefore, China's industrial clusters ought to continuously
explore their own endogenetic factors, use clusters' self
intensification effect and accumulation effect, take the
initiative to continuously change their own position in the
global value chains, minimize their dependence on external.
Technology innovation should be based on the market
orientation, throughout the whole process of achieving
market value. It can help to increase the technological
content and added value of products, and enhance the
competitive advantage of export products.
C. Industry associations should play the role of bridge to
enhance the industrial relevance
Government need to formulate a corresponding
"industrial clusters plan" to guide the rational distribution of
the whole industrial chain, actively guide cooperative
relationship between enterprises within industrial clusters,
and establish cooperation mechanisms. The cooperation
mechanism should be formed aiming for connecting related
or complementary enterprises and sharing resources.
Gathering the same or similar input elements of production
process in a certain area can help to realize resource sharing
between enterprises. By combining the advantages of cluster
technologies, strengthening the intrinsic relevance of unit
technology in the technology system, promoting cluster
members to innovate and cooperate, government can
effectively promote the development of the network of
technology industrial clusters. At the same time, industrial
clusters should grasp the dynamic change of global industries,
actively obtain external resources, change the "multi-cluster"
model from "homogeneous competition" to "heterogeneous
complementary", so that they can overcome the rigid defects
of strategic convergence of various horizontal enterprises in
the industry value chain, and form the advantages of
dislocation competition. Moreover, government should guide
and support industrial clusters to develop industry
associations, let them play an active role in promoting
industry upgrading, safeguarding enterprises' legitimate
rights and interests, standardizing the market order,
unfolding vocational training and implementing industry
self-regulation, etc., and actively make them become
platforms for international cooperation and exchange and for
responding to trade friction. Industry associations should
play the role of bridge between government and enterprises
to help industries for developing markets, allocating
resources, maintaining the market order and developing
industry standards, etc..
D. Improve industrial clusters' capacity of international
market development, promote the optimization and
upgrading of industrial clusters
Industrial clusters should strengthen the connections with
the core businesses of the value chains and the relevant
international economic organizations, try to obtain guidance
and support from international institutions, improve
industrial clusters' capacity of value capture. The UNIDO
Business Partnership Programme is exactly a noteworthy
effective channel for industrial clusters to embed into the
global value chains; the business partnership has become an
important carrier for the United Nations to stimulate
industrial development at the local and international levels.
Enterprises of industrial clusters ought to use their own
existing industrial base to attract those core enterprises of the
international value chains to enter their industrial clusters, so
that they can use multi-dimensional external links to
strengthen collaboration, fully obtain plenty of knowledge
and information, and upgrade the internal forces of the
clusters. For industrial clusters in the value chains,
strengthening the collaboration with the core enterprises of
the value chains can help them to get different degrees of
enhancement of process and product innovation. By
continuously exploring clusters' own endogenetic factors,
using clusters' self intensification effect and accumulation
effect, taking the initiative to continuously change their own
position in the global value chains, and continuously
adjusting the way of embedding into the value chains,
industrial clusters can certainly promote their optimization
and upgrading.
[10] J. Zhang, Z. B. Liu, and S. J. Zhang, "System distortion and
[11]
[12]
[13]
V.
CONCLUSION
In the era of economic globalization, enhancing the
international competitiveness of industry, gradually
occupying the high value-added links of the global value
chains, strengthening internal cooperation within industrial
clusters, and trying to get the chances to cooperate with the
core enterprises of international value chains, are the
effective ways of upgrading industrial clusters. In the
prospects for the future cluster development, successful
industrial clusters will strive to climb to the upstream link of
the global value chains, continuously innovate and upgrade
themselves to create sustainable competitive advantages, and
eventually become an influential force in the global economy
through this path of accumulation.
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