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Clusters in consumer goods manufacturers in Guangdong Province developed differently to some extent to Zhejiang. Guangdong's cluster development can be traced back to Hong Kong investment. Hong Kong has been well known as 'a low-tech but high-IQ' regional center and earlier in the reforms many international firms allied with Hong Kong companies to gain access to the China market. Hong Kong was and still is the largest 'foreign' investor in Guangdong province as well as in Mainland China. By means of 'export processing trade,' (4) or Sanlaiyibu promoted by the Chinese government a large number of Hong Kong firms clustered in areas of Guangdong to continue their export-oriented production. The huge output value coming from these production bases has contributed partly to China's becoming one of the world's largest manufacturing countries. It was via Hong Kong that Peal River Delta (PRD) from this province and surrounding areas accelerated integration into global production chains.

By 2001 export in this area was valued at 50 billion dollars or 45% of national exports. Among 404 towns of the Pearl River Delta (5) one fourth are characterized by clusters most of which have developed on traditional industry. Like in Zhejiang province and other areas the rapid industrialization of PRD has been based on exploiting low costs of land and labor. It is imperative that these clusters increase their higher value activities and intensify local forward and backward linkages if the region is to maintain its development momentum. Nevertheless the landscape of Guandong province is impressive: it has undergone quick industrialization and urbanization largely based upon clustered consumer goods manufacturing in the past twenty years.

CASE STUDY: WENZHOU FOOTWEAR INDUSTRY

Footwear industry: Change in global production and China's opportunity

The footwear industry, one of China's traditional low technology sectors, has been viewed as a 'sunset activity'. Compared to other sectors its technological change has been slow. For a long time the sector has been exposed to severe international cost competition that has led to a decline in production sites at 'old' locations and migration of the industry to 'young' locations in low wage regions (Shamp & Main 2003). Labour costs continue to be a dominant factor in competitiveness. Entrepreneurs are induced to search for countries and regions with lower wages. More efficient use of labour is required even in regions/countries usually considered as sources of unlimited cheap wages.

Assembly of shoes began shifting from developed countries in the 1960s first to Japan; then to Korea and Taiwan; and in the early 1980s to Southern China. In the mid-1980s when Taiwan and Korea supplied 45 percent of world footwear exports 80% of Hong Kong manufacturers shifted a significant part of their shoe production to mainland China especially Guangdong Province. By 1994 the world exports share of Taiwan and Korea had dropped to 7 percent while Mainland China's share grew to 50 percent from 8 percent in 1986. With the support of a strong plastic industry and technology research on footwear-manufacturing at home Taiwan is in a strong position for production of rubber and man-made leather shoes. Over 90% of Taiwan's footwear factories (more than 1,000 companies) have set up plants in the mainland China especially Fujian Province and Guangdong Province.

Now China has become the world's largest exporter and consumer of footwear. In 2003 more than 20,000 companies produced more than 6 billion pairs of shoes of all kinds of which over 3.87 billion are for export. Footwear earns foreign exchange of 9.47 billion dollars. Sixty percent of the shoes made in China enter the international market accounting for 25% of the total turnover of the world's shoe industry. China accounts for about 68.3 percent of all footwear imports into the U.S a staggering increase of 2,700 percent since 1986. The low cost of labor in China makes it a very attractive place for foreign shoe manufacturers to build factories. However the shoe-making industry in China has been at the low end of the value chain. The industry is faced with challenges from both low cost production in Indonesia, Thailand, Mexico and India and high quality products from Italy, Spain and Portugal. Additionally some foreign factories in China pose extra pressures on local producers.

As in Italy and India, where footwear industries are clustered in certain locations, most of the shoe-related enterprises in China are also clustered mainly in the east coastal provinces--Guangdong Fujian Zhejiang and Shandong (from south to north) with a few scattered in the west. The volume of leather sport and cloth shoes from the eastern region accounts for as much as 80 to 90 percent of overall output. Most shoemakers are subcontracted to world brand names such as Reebok, Nike, Riddell, Wilson and WalMart and employ modern machinery and technology with technical assistance provided by the hiring company or machinery supplier to produce shoes of a quality acceptable to the world market. Most of them also engage in tanning, shoe mould making and shoe parts with the aim of cost reduction, production, flexibility and quality control.

Wenzhou footwear industrial cluster and its influential factors

The city of Wenzhou in Zhejiang province has a long history of shoe production. The first pigskin shoes in China, the first vulcanized shoes, the first press molding shoes and the first galoshes were all created in Wenzhou, one of the seedbeds of the Chinese shoe industry. In the 1930s Wenzhou shoes had sold all over China. Since China's economic reforms, Wenzhou has gained even greater momentum. Now it is the 'Footwear Capital' of China in terms of industry capacity, number of enterprises (the city has about ten thousand footwear enterprises), output and quality of shoe, and completeness of related or supportive industries. About 500,000 employees work in the shoe and leather-related industries, in firms equipped with more than 1000 imported advanced production lines, which in 2002 produced 1000 million pairs of shoes worth 30 billion Yuan ($4 billion equivalent) distributed to 100,000 stores in China and abroad.

The shoe industry in Wenzhou began in family firms. Today some are modern enterprises, the leaders of which have developed their own brands. Recently, increasingly more firms are connecting to the Internet supported by local specialized Internet services.

Three factors influencing development of the Wenzhou footwear cluster are:

* the local production network;

* the roles of local industrial associations; and

* the attitude of the local government.

Production network

Each independent small or medium-sized company in Wenzhou tends to cover an individual phase of production connected by specialized transaction networks and co-ordinated by more or less explicit forms of co-operation. This division of labour is made possibly by a production process that is technically divisible. In fact the economy of Wenzhou is better called the 'swarm effect'.

Wenzhou's shoe industry has grown significantly. Geographically it is concentrated in Lucheng District center of Wenzhou city territory: 905 shoe firms with 550 advanced production lines for shoe-making are gathered there producing more than 300 million pairs of shoe annually. They are sold to more than 20 countries and regions in North America, Europe, South America and the Middle East as well as to the domestic market.

This geographical concentration aided the division of labour among shoe makers as well as between producers and input suppliers and related services: around Lucheng Baishi of Yueqing town also specializes in shoe production; Yongjia of Huangtian town produces shoe adornments; Hetongqiao distributes shoe materials; and Shuitou town has a raw leather market leather machine market and leather chemicals market with sales of 2000 million RMB and growing.

Role of local industrial associations

Economies of agglomeration are an important but not sufficient condition for industrial growth and economic development. The footwear industry in Wenzhou developed from family workshops. Its folk character prevented heavy intervention by government administration forces in the early years when the government gave little help but posed no hurdles. The people of Wenzhou ran their businesses with wisdom, diligence, bravery and great creativity. They created various pretty low-price commodities that attracted consumers.

In the 1980s when shoes were in short supply in China the major problems encountered by Wenzhou producers were related to credibility and reputation. The quality of product was sometimes poor; in addition inferior counterfeit products often appeared in the marketplace from black factories. In 1987 angry costumers burned down Wenzhou shoes at the City Gate of Hangzhou the provincial capital. The Wenzhou shoe industry was almost beaten until the Wenzhou Lucheng Association of Shoes Industry was organized in 1991.