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Cluster-based City Economic Development [CCED]: Analytical Methodology Assessing Clusters Competitiveness Application to Colombo Metropolitan Region Presentation by Dr. K. CHOE Co-Chair, Committee of Urban CoP Asian Development Bank 2 December 2010 TCI International Conference in Delhi, INDIA 1 Contributors to CCED Approach K. Choe Project Director (ADB HQ Manila, Philippines) R. Brian International Advisor (SPMS, Australia) C. Vaidya Team Leader for India (NIUA, Delhi) R. Singh APEX Ltd. (in association with NIUA, Delhi) R. Jayaratne Team Leader for Sri Lanka (SEVANATHA, Colombo) N. Nazem 2 Team Leader for Bangladesh (CUS, Dhaka) ADB STRATEGY 2020 Inclusive Economic Growth Environmentally Sustainable Growth ADB HQ in Manila, PHI 3 Regional Integration WHY IS IT IMPORTANT TO PAY ATTENTION TO URBANIZATION ? Why CCED? Urban Sector Economy: Higher Productivity INDIA: Share of GDP Contribution by Urban and Rural Urban 28% From Rural Agricultural Primary Industries 17% From Urban Economic Activities 83% Rural 72% Population Share GDP Share 5 Source: CIA World Data book 2008 Urban as Engines of Economic Growth: Positive Correlation as a Country Transforms its Economic Structure from Agriculture to Manufacturing/Service Sectors URBANIZATION AND GDP/capita ASIAN DMCs South Korea GDP/cap (PPP 2005 $constant) 25000 20000 y = 1060.1e0.0304x R2 = 0.6016 15000 Malaysia PRC India 10000 Nepal 5000 0 0 10 20 30 40 50 60 70 % Urbanized Source: WB 2007. World Development Indicators 80 90 100 A Premise: If urban economy is considered as “ENGINES OF ECONOMIC GROWTH, it’s better to take advantage of the urbanization process” as a tool for triggering economic growth, rather than restricting the opportunities of economic growth! URBAN ECONOMIES ARE COMPLEX….. But, We have poor knowledge of Understanding ‘What Makes a City Competitive for Local Economic Development ?’ A New Way of Pursuing Local Economic Development: Cluster-based City Economic Development Evaluating Cities Competitiveness Government as Facilitator and Partner Assessing Competitiveness of Industry-Clusters driven by private sector Private and public sectors collaboration: triggering local economic development 9 Increasing Income/Job Opportunities, thus Reducing Poverty CCED Analytical Methodology: Built-in Innovation and Replicability l Profiles of National Economic Strategy II Assess Cities Competitiveness Select cities III Multi-sector Industry Competitiveness Analysis IV Industry GIS Mapping & Industry Cluster Structure Analysis Competitive Industry prioritized Select industryclusters in the selected cities V Gap Analysis in Competitiveness BP & Action Plans Project Design and Infrastructure Feasibility Studies Executing a Project for Cluster Development Industry-Clusters networking and P/P Partnership platform VI VII 10 Decide the scope of urban areas Illustration of CCED Approach Following the 7 Steps of Analytical Process Pilot Case of Rubber/Latex Industry Cluster Colombo, Sri Lanka 11 STEP II STEP II: Analysis of Cities Competitiveness Key Index: Total 43 attributes under 6 key Drivers which are critical for enabling the business environment for economic, urban and social development of a city: 1. Cost of doing Business: How expensive is it to operate a 2. Dynamics of Local Economy: Am I making profit out of my 3. Human Resource and Training: Are the people well- 4. business in the city? business in the city?” equipped to work?” Infrastructure: Are the roads, bridges, electricity, telephone lines etc. in good condition ?” 5. Responsiveness of Local Governments to Business Needs: Is the city government able to respond to short-term 6. and long-term business issues?” Quality of Life: How well-off are urban residents in terms of quality life and environment?” STEP II Assessing Cities Competitiveness • Not just selecting a city, but where and what to strengthen ? the city be more competitive……. Decision to Select Colombo Colombo: • relatively strong human resources, • good infrastructure • but poor responsivenes s of local gov’t to business needs 13 STEP III STEP III. Identification of Key Industries Which clusters should be targeted ? STEP III Colombo Case (Bubble Analysis) The “Location Quotient Bubble Graph”--- separates industries in to four quadrants whether it’s growing or declining over time (x-axis), and whether it’s presence in the local area is bigger than national average (y-axis). The size of the ‘bubble’ indicates the size of employment in that industry sector 3.00 IT / IT Enabled Services 2.50 Financial,/ Insurance & Real Estate 2.00 Textiles & Wearing Apparel Chemicals & Chemical Products LQ 1997 Transport/ Storage/Communication Wholesale & Retail Trade 1.50 Rubber & Plastic Products Hotels & Restaurants 1.00 -40 -35 -30 -25 -20 -15 -10 -5 0 5 10 15 0.50 15 % Change in LQ (1997 to 2006) 20 25 30 35 40 45 50 55 STEP III WHO ARE THE CANDIDATES FOR CLUSTER DEVELOPMENT? Growth Potential Exists? Commitments to Co-OP & Government Support Presence of Absence of Willingness Willingness Feasibility & Competitiveness Low feasibility & no market competitiveness X X X STEP III Can Clusters be Created or Activated ? When is the time to intervene ? • Spatially Agglomerated only: spontaneous • Incubation Stage: spatial agglomeration, some kind of coordination activities on-going, but not yet functional as a collective • Action Stage: created a formalized organization to represent the interests of the cluster collective, but still needs external support • Functional Stage: fully functional representing the interests of the cluster as a collective, and a self-sustainable mechanism has established. STEP IV. a, b, & c STEP IV. Understanding Value Chains & Elements Affecting Clusters Competitiveness STEP IV.a STEP IV.b STEP IV.c GIS Mapping of Clusters Structural Mapping of Cluster Value-Chain Porter’s Diamond Analysis STEP IV.a STEP III.a Cluster (GIS) Mapping: Changes in Rubber & Plastic Industry-Cluster, Colombo Metropolitan Area 1997 1998 2006 Does a cluster boundary matter ? 19 STEP IV.b Colombo Case (Structural Mapping) Rubber Industry Cluster: Forward-Backward Linkage 20 STEP IV.c STEP III.c Porter’s Diamond Analysis of Industry-Cluster Selected And, Assessing Competitiveness of Industry Clusters • Porter’s diamond model : – Attribute Analysis on 5 Factors of Competitiveness for Private Sector Business Environment – Competitiveness Gap Analysis 21 Porter’s Diamond Model STEP IV.c Colombo Case: Analyzing Competitiveness of Rubber Industry-Cluster (5 Factors and 22 Attributes ) Global recognition for manufacture of quality products Availability of skilled workforce Good quality infrastructure services/logistics Good quality telecom services Easy and guaranteed supply of domestically sourced good quality natural rubber at competitive prices Good working conditions Θ Lack of education and training facilities Θ High cost of services (energy in particular) 22 Presence of reputed foreign firms Proactive Business Associations Θ Θ Low level of knowledge sharing Low level of technology application Θ Lack of Business development services Θ Low response time and quality of local support services Θ Firms inability to exploit value addition potential Θ Small domestic market Θ Slow responsiveness and innovativeness to change Θ Lack of demand expansion capacity for new products Θ Lack of readiness to face risks. Θ Less emphasis on product branding and marketing Government – Policy & Support High focus to enhance Natural Rubber production (Land extent) Θ Lack of government support for industry development (R&D, Cost of Utilities, Long-term plans) STEP V STEP V. Deficiency Gap Analysis to Understand the Bottlenecks of Competitiveness of Industry-Clusters • Identify deficiencies which hinder competitiveness of Industry-Clusters in the city or urban-region (from Porter’s Diamond Analysis) • Deficiency gaps are prioritized based on immediate urgency, medium term, and longer-term priority so that these priority actions are reflected in the Cluster Business Plan. 23 STEP V Colombo Case (Deficiency Gaps in Rubber Industry-Cluster) The following activities are part of the action plan to reduce deficiency: FACTOR CONDITIONS 1. Rubber compounding center GOVERNMENT 5.00 Labour 4.50 2. R&D for new products development 4.00 Value Adding Infrastructure 3. Water supply and effluent treatment 3.50 3.00 4. Expanded markets and enhancing 2.50 Supply Chains Endowed Resources market penetration 2.00 1.50 5. Improved supply chain management 1.00 RELATED SUPPORTING practices Social Environment 0.50 INDUSTRIES 0.00 6. Vocational training center 7. Improved access to finance and Technology Orientation DEMAND CONDITIONS logistics 8. Joint procurement of raw material Collaboration Structure FIRM STRATEGY, STRUCTURE AND … 24 Markets New Products Business Environment Current Competitive Position Rubber Cluster Future Desired Competitive Position Rubber Cluster STEP VI STEP VI. Project Preparation and Feasibility Studies for Supporting Infrastructure How to Enhance Competitiveness of Industry-Clusters? Where to Invest ? & What to Invest first ? STEP VI STEP VI. Concept Proposal for Priority Action Areas and Project Design • Industry-cluster’s business plan provides a long term vision and strategic action plans • Industry-cluster group consults with its stakeholders and prioritize project components • Project feasibility to design a bankable project 26 STEP VI Colombo Case: Project Concepts for Rubber Industry Cluster Development • Proposal: Rubber Industry Park or cluster support facilities to operate at peak efficiency levels, offering a unique competitive advantage to industry clusters. Key components of the propose project are, – water supply – common effluent treatment plants – cluster supporting services, such as vocational training center and raw material warehouses, and – improvement of value chain management, including logistics 27 Observations & Policy Implications 28 a. Disconnection between national economic policy and urban development policy Urgent need for policy reforms to link economic and urban policies, and support programs to demand-driven approach b. Significant structural weaknesses in urban economies Need to improve governance, government industry support, logistics of value-chains & vocational training c. Tools for competitive analysis techniques (location quotient, shift-share analysis, bubble analysis) provide detailed insights to understand the cities economic structure and dynamics Need to improve the benchmarking data, collection, availability. d. CCED mechanism engages in industry representatives, key public agencies and knowledge industry Motivates and creates action learning as well as collaboration e. CCED analytical approach proved to be powerful tool to understand complexity Enables informed policy decision; “WHERE TO INVEST” and “WHAT TO INVEST FIRST” for Maximum economic impact with limited resources. Thank you [email protected] (Kay) KyeongAe CHOE 29