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The most influential exponent of specialized industrial localization is Porter (1990; 1998) whose notion of industrial cluster has rapidly become the analytical concept and policy tool. Porter (1998) defines an industrial cluster as 'a geographically proximate group of interconnected companies and associated institutions in a particular field linked by commonalties and complementarities'. Porter also points out that geographic cultural and institutional proximity provides companies with special access closer relationships better information powerful incentives and other advantages that are difficult to tap from a distance. The more complex knowledgebased and dynamic the world economy becomes the more this is true. Competitive advantage lies increasingly in local aspects--knowledge relationships and motivation--that distant rivals cannot replicate.

Industrial clusters foster high levels of productivity and innovation with implications for competitive strategy and economic policy. The clusters affect competition in three broad ways: first by increasing the productivity of companies based in the area; second by driving the direction and pace of innovation; and third by stimulating the formation of new businesses within the cluster (Porter 1998).

Research on clustering in China has been inspired by the competitiveness of industrial districts in Italy. The industrial districts of Italy have established a strong position in world markets in a number of so-called traditional products--shoes leather handbags knitwear furniture tiles musical instruments food processing--and also in the industries which supply machinery to these sectors. From international debate the following have emerged as the main attributes of Italian industrial districts:

* geographical proximity;

* sectoral specialization;

* predominance of small- and medium-sized firms;

* close inter-firm collaboration;

* inter-firm competition based on innovation;

* a socio-cultural identity which facilitates trust;

* active self-help organizations; and

* supportive regional and municipal government.

As for business know-how a vital role is played in industrial districts by tacit rather than codified knowledge. While the latter is tied in with technical progress and transferability mechanisms that perform through the market tacit knowledge is a form of knowledge that depends on the specific socio-cultural environment where production takes place and which is rooted in the actions of economic agents belonging to that environment. It spreads throughout the local production community mainly by means of personal direct contact and is based on untraded interdependencies associated with daily business routine rather than on traded interdependencies involving input and output relationships.

Agglomeration and geographical proximity

Agglomeration and proximity are two related concepts in regional studies. However to differentiate them is not easy. In order to evaluate policy decisions, it is essential to make clear which concept is being used.

International experiences show that agglomeration economies are attractive to innovative firms because of the effect on competitive advantage. The basic idea of agglomeration economies is that links between firms institutions and other economic agents located in geographical proximity tend to generate advantages of scale and scope; e.g., development of general labor markets and specialized skills and enhanced linkages between suppliers and customers (Lloyd & Dicken 1990). A further idea is that geographical proximity and regional agglomeration may greatly facilitate the 'learning economy'. New views related to this idea are on industrialization as a territorial process and on innovation as a social process (Asheim & Cooke 1999).

Boschma (2005) claimed that geographical proximity per se is neither a necessary nor sufficient condition for learning to take place. Proximity may facilitate interactive learning by strengthening other dimensions of proximity but also have negative impacts on innovation due to the problem of lock-in. Accordingly not only too little but also too much proximity may be detrimental to interactive learning and innovation. Boschma (2005) discussed five dimensions of proximity: cognitive, organizational, social, institutional, and geographical. In fact the agglomeration which facilitates the 'learning economy' has all five dimensions of proximity defined by Boschma.

Therefore, agglomeration refers to geographical proximity plus local organizational proximity. The non-local linkage may happen in the spatial association because there is non-local organizational proximity.

DEVELOPMENT OF CONSUMER-GOODS MANUFACTURING CLUSTERS IN CHINA

Background

Thousands of industrial clusters dot the Chinese landscape. It is estimated that there are about 740 industrial clusters which have developed respective industrial associations in China. (1) The coastal area which includes six provinces (Guangdong Fujian Zhejiang Jiangsu Shandong Liaoning) and two cities (Beijing and Shanghai) has nearly 498 industrial clusters about 67% of the total. The inland area has about 250 industrial clusters counting for 34% of the total. If calculated only on cluster quantity the coastal/inland ratio would be 7/3. Considering the revenues and number of employees the ratio would be even higher say 8/2. That is to say industrial clusters in coastal areas have a much more significant role than those in inland areas.

Industrial clusters consisting of small and medium enterprises (SMEs) have been proliferating in areas where private sectors have successfully developed. Since 1978 when China's economic reforms began rural entrepreneurs of several provinces have succeeded in penetrating light industry. While the top-down public strategy in China stakes its future on a small number of big firms increasing in size and strength and on planned technology parks with special treatments for foreign direct investment (FDI) people from below grasp the market niches in traditional industries; niches left by the structural defects of a command economy.

Set up by rural households and starting with simple products like food clothes and ball-pen small manufacturing firms clustered in neighborhoods usually around a marketplace for their products. The local marketplace where enterprise managers can easily purchase materials from and sell products to local traders plays a critical role in stimulating the entry of new firms to the early stage of cluster development (Sonobe, Hu & Otsuka 2002). As a cluster develops, however, entrepreneurial ability for high-quality products and marketing plays a more significant role. After more than 10 years some of the rural grass roots firms began to establish brand-name at home and abroad. This process of spontaneous bottom-up industrialization in rural areas was usually referred to as job generator for surplus rural labor and as an engine to raise the income of local residents. The inherent competitive advantages of such clusters were not recognized until very recent years because they are inconsistent with nonlocally embedded high-tech sectors in China.

These clusters have been anchored to a network of small and medium-sized towns somewhere between the large cities and the deep countryside. With the expansion of cluster-based 'industrial parks' usually set up by local governments the urbanization process has accelerated. Rapid development of modern retail outlets--internationally such as Wal-Mart and Carrefour and domestically as well--has been a strong driver for those consumer-goods industrial clusters.

Representative provinces: Zhejiang and Guangdong

Zhejiang and Guangdong provinces are the most prominent in China's cluster development. Both provincial governments have pioneered promotion of this development. In 1999 the Department of Science and Technology of Guangdong Provincial government decided to encourage the establishment of 'Common Technology Platforms' for industrial clusters. (2) In 2000 the Office of System Reform Zhejiang Provincial Province publicized 11 industrial clusters (3) in Zhejiang Trade Fairs held at Ningbo city.

In Zhejiang more than 800 industrial clusters accounted for about half of the province's total industrial output producing output of 600 billion Yuan (US$72.6 billion) in 2001 and this share has been increased in following years. According to information provided by Zhejiang province a 'clump economy' is emerging in 85 of the 88 cities attributed at least in part to the numerous localized industrial clusters. A massive inflow of skilled labors from Shanghai and other industrial centres has enhanced the strengths of household manufacturing based clusters and the ease of subcontracting with state-owned firms in the surrounding areas facilitated their integration with the economy and reforms of China. Hundreds of clusters specializing in various segments of light industry--textiles garments shoes socks/stockings badges neckties fasteners slide fasteners furniture and pens--have proliferated and fuelled the growth of the province's economy.