SME Cluster Strategy: A Study of High-Tech Parks in China Wang Li-ming, Sun Feng The Economics School of Shandong University of Technology,P.R.China,255049 Abstract Since 1951 when the Stanford Academe (a predecessor to the Silicon Valley) was founded, many scholars have conducted studies covering some 800 high-tech parks located in more than 50 countries around the world. These studies reveal that most of the successful high-tech parks have a common feature of an industry cluster.usually the mainbodies of industry clusters are SMEs. Many scholars have also done research on the clarification of the definition and characteristics of industry clusters, innovation advantages and some of the mechanism of industry clusters and cluster policies. Their efforts laid foundations of guiding and accelerating the development of industry clusters in high-tech parks. In china, the first Shenzhen high-tech park was founded in 1985. Since then we have seen the development of 53 high-tech national level parks and a number of them at the provincial level. Traditionally these high-tech parks have made significant contributions in the economic development process. However, decentralization, that is, many of the enterprises entered these parks from a range of industries has become key barriers to technological development and innovation. This research analyses some of the reasons for the problem. It also attempts to identify some countermeasures that can be used to resolve the problem.one important countermeasure is to examine and evaluate the SME cluster strategy and then change it from being primarily a policy based strategy to one based on an industry function area. Only favorable policy measures should be used to encourage the forming of certain industry clusters. Key words SME cluster strategy, High-tech Park, Countermeasure 1 Study on the development of high-tech parks and industry clusters in the world 1.1 Purposes of establishing high-tech parks Establishing and developing high-tech parks has been a successful try and common practice of many governments in the world.their purposes include: country purpose Supporting SMEs Table 1 Purposes of Establishing High-tech Parks Territory reconstruct Job creation Founding High-tech enterprises Attracting High-tech enterprises Others British 51.2% 14.6% 9.8% 61.0% 22.0% 9.8% Germany 54.9% 12.7% 19.6% 82.4% 9.8% 6.9% Japan 51.4% 18.6% 28.6% 28.6% 47.1% 20.0% Liu Youjin, Innovation of SME clusters. Chinese Economic Press. [M].2004. 05. (In Chinese).p.22. We can see that the main intent is Supporting SMEs. In order to help the high-tech SMEs overcome the barrier of innovation, and prevent staying at a low economic development level, the western governments have established high-tech parks since World War II to promote and support the technical innovation of SMEs. Since 1951 when the Stanford Academe (a predecessor to the Silicon Valley) was founded, there have been above 800 high-tech parks throughout the world among which the western developed countries account for over 80%, e.g. over 300 in USA, over 200 in EU, and over 40 in France. Many scholars have conducted studies covering some 800 high-tech parks located in more than 50 countries around the world. These studies reveal that most of the successful high-tech parks have a common feature of an industry cluster which creates innovative clusters effect and improves the regional competition advantage. For example, the silicon valley of USA is the most famous high-tech park in the 96
world whose semi-conductor industry cluster is well known throughout the world. The world-famous Scotland high-tech park in Britain gathered a great number of electronics manufacturers and related R&D companies as well as sales companies, having become the electronics production base of Britain and even the whole Europe. The Xinzhu science and technology park in Taipei, China, is the largest semi-conductor hardware processing base in the world. The Indian government helped create 17 software high-tech parks including International Tech Park, Bangalore, and over 70% of software export is done by these technological parks. 1.2 Researches about clusters The success of overseas high-tech parks is closely related to the cluster policies which are based on the research on clusters. Overseas scholars have done thorough research on: 1.2.1The classification, definition and features of industry clusters:spatial concentration(alfred Weber,1929;Baptista,1996;Swann,1998;Porter,1998), flexible specialization (Piore and Sable,1984),cooperation network(keeble,1999) and social culture(mashall,1964;bacattini,1978 ; Saxenian,1994;Poter,1998;Wang jici,2001). 1.2.2 Innovation advantage:mainly in the knowledge spillover effect caused by clusters(mac Dougall,1960 ; Audretsch,Freldman,1996 ; Rui Baptsta&Peter Swann,1998), the availability of innovation resources(a.saxenian,1994), chasing effect, pulling effect(michael E.Poter,1990) and embeddedness(granovetter,1985;uzzi,1996;johannisson,2001), etc. 1.2.3The mechanism of the creation of innovation advantage:saving transaction cost(a.j.scott,1986;storper,harrison,1991), sharing value linkage(michael E.Poter,1985), complementing resources(m.a.hitt,1995),exterior knowledge and exterior scale economy(marshall,1920;krugman,1991). 1.2.4The evolvement of cluster:the clustering and outlying behavior of enterprises, interior and exterior conditions and cluster policies(liu Youjin,2004). For example, Poter suggests that clusters are geographic concentrations of interconnected companies and institutions in a particular field. Clusters encompass an array of linked industries and other entities important to competition. They include, for example, suppliers of specialized inputs such as components, machinery, and services, and providers of specialized infrastructure. Clusters also often extend downstream to channels and customers and laterally to manufacturers of complementary products and to companies in industries related by skills, technologies, or common inputs. Finally, many clusters include governmental and other institutions - such as universities, standards-setting agencies, think tanks, vocational training providers, and trade associations - that provide specialized training, education, information, research, and technical support. Clusters represent a kind of new spatial organizational form in between arm's-length markets on the one hand and hierarchies, or vertical integration, on the other. A cluster, then, is an alternative way of organizing the value chain. Compared with market transactions among dispersed and random buyers and sellers, the proximity of companies and institutions in one location and the repeated exchanges among them-fosters better coordination and trust. Thus clusters mitigate the problems inherent in arm's-length relationships without imposing the inflexibilities of vertical integration or the management challenges of creating and maintaining formal linkages such as networks, alliances, and partnerships. A cluster of independent and informally linked companies and institutions represents a robust organizational form that offers advantages in efficiency, effectiveness, and flexibility. Cluster strategy is often fixed on small and medium-sized enterprises. Because numerous small enterprises can get the competition advantage similar to the big enterprise through the optimization of industrial organization and cooperative effect of the clusters, including external large-scale production effect, reduced space transaction costs, knowledge and technological innovation overflow and regional brand effect, etc. It offers an effective regional organizational form and policy guidance for the development of SMEs. Clusters policy is mainly composed of industrial policy (including small and medium-sized enterprises policy) and science and technology (S&T ) policy. Its goal is to stimulate and strengthen the connection among different parts of the network, such as the companies (including the specialized supplier), the organizations of knowledge production (universities, research institutions, etc.) and linking 97
organizations (the brokers, consultants). SMEs should also increase the added value of action. The difference between the traditional and the present industry policy lies in that the target clusters have been transferred from horizontal departments to the more extensive value chain, and that the supporting mechanism has changed from direct financial support to indirect promotion. 2 The current development situation and problems of China s high-tech parks Since 1985 when China set up the first high-tech park---shenzhen High-tech Park, until now, there have been 53 national level high-tech parks, 56 provincial level igh-techdevelopment zones and many other high-tech development zones at district, city, or county levels. Statistics in 2005 indicate that the value added of industry, profit, taxes paid and export foreign exchange income account for 41.5%, 42.3%, 39.5% and 46.2% of those of the whole country s high-tech industries respectively. The GDP per capita in these parks and zones has reached 10,000 US dollars, and the investment in R&D is 9 times of China s average level. Although the development of high-tech parks has contributed a lot to the economic development, the decentralization of most high-tech parks has become the biggest barrier to technical innovation of China s high-tech parks. 2.1China s high-tech parks are mostly policy districts The so-called policy districts means that some favorable policies (favorable policies on taxes, credit, land, and offices, etc.) are given to a particular district (instead of to a particular industry) in order to develop high-tech enterprises. The scattered policy districts which are different from industry preferential policy districts, are not good for the linkage and integration of industries, and make it difficult to form effective cluster units. 2.2Many of China s high-tech parks were set up and developed in a long-existing regional separation exterior environment When the market system is incomplete and the relevant laws are not perfect, the enterprises lack awareness of cooperation, and work separately. Therefore, industry clusters are not formed in the parks, and division and coordination of labor system has not been formed. Within the district there is a lack of industry linkage, and there is no internal mechanism for the enterprises to develop according to the industry. The linkage among the enterprises is weak. Some parks only emphasize favorable policies or the advantage of quantity, setting up many parks within one district, and ignoring the support in the industry. The parks lack division of labor and industry own features, so the phenomenon of assimilation is obvious, causing the over-competition in an industry and no competition advantage of each park. 2.3There is a lack of reasonable flow of production factors in a park. 2.4The enterprises cluster within the park is weak, and lack embedding Most of our high-tech parks attract enterprises to concentrate spatially through favorable policies in taxes, land, etc. and the advantage of labor. Some enterprises are even invested and set up by the local government. Therefore,the spatial concentration of the enterprises are not based on their internal mechanism and industry linkage. With the deepening of opening-up and reformation, the strength difference in policies disappears gradually, and the enterprises in the parks are ready to move to places which have better locations and enjoy more favorable policies. In the end, the industry structure and of each high-tech park tends to be the same, and the high-tech parks compete viciously at a low level. 2.5 There is a lack of industry cluster system They including industry network, an efficient cooperation of production,learning and research, and regional community culture, etc. We believe that high-tech parks should undertake strategic transformation from policy district to function district, and from cultivating competitive enterprises to cultivating competitive industry clusters. 3 Strategic research on industry clusters for promoting the development of China s high-tech parks and SMEs 3.1 Formulate policies that can guide and encourage industry clusters Governments can usually take the following measures to help and guide the formation of industry 98
cluster system. 3.1.1Reinforce planning. Developing industry clusters needs developing leading characteristic industries A high-tech park should concentrate on development of industry clusters which have innovation resource advantage or regional advantage. The governments should make good use of the specialized fields,technology, human and system environment as well as the basic conditions to form regional brand and regional competition. 3.1.2When supporting some important high-tech parks, governments should grant the preferential policies to technology and industry instead of to district. 3.1.3Under the overall plan of constructing industry cluster, attract particularly the projects which possess industry leading advantage, industry linkage effect and coordinating effect. Try to decrease the crowdedness effect caused by the blind entrance of low level enterprises and the over competition between theses enterprises and the existing firms in the course of formation of industry clusters. 3.1.4With the help of favorable policies, guide the investment on public goods or quasi public goods which are important for the development of industry clusters, especially the construction of infrastructure which is integral to industry development. Reinforce the soft environment through communication within the area, information service and information network. 3.1.5Formulate systematic policies to promote the cooperation of production,learning and research. Encourage the scientific and technological staff of universities as well as scientific and technological institutes to take part in the technology innovation activities in the high-tech parks. 3.1.6 Further perfect the venture investment system. Formulate policies to encourage venture investment organizations to settle in high-tech parks. 3.2 Create an inter-dependent industry system Create an inter-dependent industry system, extend the regional industry chain, and establish an industry network system of division of labor. Selecting and supporting the leading enterprise is the key to cultivate industry clusters. According to the rule of forming industry clusters, an industry cluster is formed on the basis of development and fission of a leading enterprise by means of innovation and imitation. The leading enterprise plays a significant role which can cause clustering effect in the course of formation of an industry cluster. Therefore, after the industry has been determined, it is critical to select the leading enterprise from the related industry. It is the key to cultivate comparative advantage to fully make use of the role of a leading enterprise in an industry cluster. With big enterprises as the core. Bring the related small enterprises into the whole development framework through encouraging the big enterprises, uniting the small enterprises group in close or loose form, and offering technology, information, fund and network on the market, etc. Form the long and steady business strategy alliance (e.g., Japanese automobile industry takes contract with external SMEs and makes an enterprise strategy union net.) 3.3 Establish and complete the market system and market mechanism in a high-tech park A kind of fair, reasonable, healthy and orderly competition market system and market mechanism should be created, according to the current situation of industry clusters in high-tech parks and development strategies. It is necessary to further complete the corresponding capital market, land market, product market, property right market, human resources market, and entrepreneurs and managers job market. It is also important to ensure the smooth running of fair competition system, credit system, factors flow system, human resources exploration system, and the government and society supervision system. All these will lay a solid foundation for good running of high-tech parks. 3.4 Perfect the service system The industry clusters in high-tech parks do not develop separately. There must be a perfect service system, which mainly includes: 3.4.1 Various kinds of consultancy and intermediary service agencies, such as market investigation agencies, technology consultant agencies, scientific results exchange center, intellectual property right service center, product display center, law firms and accounting agencies. 3.4.2Innovation center. To serve as the business incubator for the high-tech enterprises which are at seed stage or start-up stage. 3.4.3 Education and training system to ensure human resources supply. 99
Besides, lowering the barrier for high-tech enterprises and simplifying procedures should also be included in the service improvement program. For example, the one stop basic service can attract the existing and new enterprises both domestically and abroad. The high reputation of governments is the best advertisement for attracting new investment, and is also an important factor for industry clusters to attract international investment. 3.5 Cultivate regional innovation culture The innovation culture has helped the silicon valley achieve greater success. The most important thing in innovation spirit is encourage and tolerate failure, and then to be encouraged to accept new things and realize self value, and thirdly to stimulate every person s innovation and pioneering spirit from high-rank management to ordinary staff members. 3.6 Coordinate and utilize various policy tools to encourage innovation Innovation promotion policy is a comprehensive policy system used by a government on an innovation network in the aspects of science, education, information, law, tax, finance and banking, etc. To establish and perfect reasonable innovation policy system is the key to keep the high-tech industrialization and high-tech industry clusters in good motion. Only by coordinating the utilization of various innovation policy tools, can we fully make use of the policy tools and their coordinating functions. References [1] Gary Anderson, Industry Clustering for Economic Development[J].Economic Development Review, Spring 94, Vol. 12. [2] Liu Youjin, Innovation of SME clusters. Chinese Economic Press. [M].2004. 05. (In Chinese). [3]Michael E. Porter. Cluster and the New Economics of Competition [J]. Harvard Business Review, 1998,76(6),pp.77-90. [4] Michael E. Porter, The Competition Advantage of Nations [M] Free Press.N.Y, 1990. [5] OECD.Boosting Innovation: The Cluster Approach [A]. OECD Proceeding[C],1999. [6] Piore,M.and C sabel.the Second Industrial Divide:Possibilities for Prosperity.New York:Basic Books,1984. [7]Krugman,P.Increasing Return and Economic Geography [J].Journal of Political Economy,1991,V99(3) pp.483-499. [8]Scott A.J.Industrial Organization and location:division of Labore,the Firm and Spatitial Process[J].Economic Geography,1986,vol.62,no3,pp.215-231. [9]Swann.The Dynamics of Industrial Clustering[M]. London:Oxford University Press,1998. [10]Thomas Andersson Sylvia Schwaag-serger: The Cluster Policies Whitebook [M]. IKED August 2004. [11]Xiao Ying, An empirical analysis on industry clusters pulled by foreign investment. Economy Forum. [J]. 2004.06. (In Chinese). [12]Zhang Bingshen. Features of China s SME clustering. Economic Digest. [J]. 2003.10. (In Chinese). [13]Zhu Jingfen, Shi Zhanzhong. Resrearch on the cluster models of Chinese high-tech parks. Forum on Science and Technology in China. [J].2003.11. (In Chinese). [14]Zhu yingming,on industrial clusters. Economic Science Press[M]2003.12. (In Chinese). Introduction of the first author Wang Liming (1964.11-), Professor and the Dean of Economics Department in the Economics School of Shandong University of Technology Major research fields: Industrial Economics This paper is one research result of Shandong Province Soft Science Project No. B2005080: Research on the Innovation Model of SMEs and the Development Strategy of Shandong High-tech Parks. 100