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M & D FORUM Clustering Innovation: Regional Economic Development Path in Jiaodong Peninsula1 ZHANG Ping1, WANG Weide2 1. School of Economics, Shandong Institute of Business and Technology, P. R. China, 264005 2. School of Traffic and Architecture, Beihua University, P. R. China, 132001 Abstract: Clustering innovation is an innovative organization, which enhances clustering competitiveness and regional competition through competitive and cooperative innovation. Much study on it has been done by domestic and foreign scholars. Industrial clusters in Jiaodong Peninsula, which have a foundation as well as some urgent problems, is playing an important role in regional economic development. Clustering innovation, which will promote industrial structure adjustment, reinforce production interaction and increase economic development along with industrialization and urbanization, is a regional economic development path in Jiaodong Peninsula. Keywords: Clustering innovation, Jiaodong Peninsula, Regional economy 1 Introduction Clustering innovation can be simply defined as technological innovation through clustering advantages. It is an innovation configuration, which makes the region obtain more clustering and international competitiveness through competitive and cooperative innovation. It creates clustering innovative advantages and effects with specialization and collaboration by related firms or industries which sit together. Much study on the theory of clustering innovation advantages has been done by domestic and foreign scholars. 1.1 Theoretical study of foreign scholars on clustering innovation Representatives on industrial clustering innovation are Economic Externality Theory of A. Marshall, Industrial Location Theory of K. J. Button, Innovation Environment Theory of Groupement de Recherche Europeensurles Milieux Innovalieurs (GREMI) as well as New Competitive Economy Theory of M. E. Porter and etc. Study on industrial innovation are from various angles. Location economist A. Button discusses the relationship of innovation and industrial cluster. [1] 1.1.1 There must be competition, which promotes innovation, between enterprises because of geographical concentration. 1.1.2 Geographical concentration itself is helpful for more free information outspreading among manufacturers, suppliers and customers. Considerable innovations are just the results of solution of customers’ demand and enterprises’ supply. 1.1.3 Superior communication tools in concentration location accelerate the adoption of innovation by the enterprises in the location. Based on the definition of environmental innovation of GREMI, GREMI studies clustering innovation from innovation environment and innovation network. They link spatial concentration with innovation and stress the collective efficiency of regional innovation and collaborative effects of innovation conduct. They maintain that cluster has superior advantages of large scale, specialization of auxiliary industries, specialization creation and innovation of enterprises organization to single enterprise. It owes to innovative environment that innovative enterprises concentrate in a location with respective characteristics. Theory of innovative network pays more emphasis on interaction and interrelation among enterprises in clusters and between enterprises and institutes concerned, which generates endogenous creation and improves continual clustering innovation in enterprises. The effective 1 Research Fund: Natural Science Foundation of Shandong Province (2009ZR2009HL012). 129 M & D FORUM network of innovation is comprised of formal and informal communication and contact among enterprises. Professor Porter from Harvard Business School argues that enterprise cluster initiate from one or two innovative enterprises which stimulate others’ growth in concentration location such as MCI and AOL who lead the telecommunication cluster in Washington. D. C. Moreover, Fisher and Bergman outline the advantages sources of clustering industries: external economies, innovative environment, cooperation, competition and qwerty. [2] From empirical study, Saxenian proves that there are innovative advantages among clustering industries such as high mobility of technician in Silicon Valley is a main path of technological expansion in Silicon Valley, which largely promotes the capacity of regional innovation. [3] Baptists and Swann maintain that cluster generates promotion in regional innovation. 1.2 Theoretical study of domestic scholars on clustering innovation Wang(2002) suggested that innovation in regional economy often stems from clustering industries. There are not only enterprises and institutes that get pressure of innovation, but also stable and cooperative mechanism of study and communication and progress. Cluster creates a cooperation course for innovation of enterprises and organizations as well as advantages for individual and collective innovation. Clustering innovation, which has advantages of stimulation, study, cultural atmosphere and services, is an effective organization for technological innovation of enterprises especially small and medium ones. Liu(2003) proposed that advantages of innovation in clustering industries is mainly created in less transaction costs, value chain sharing, assets inter-complement, knowledge externality and economies of scale. These institutes and famous scholars talk about the advantages of clustering innovation from various angles such as external economies, the relationship of enterprises clusters and innovation, growth course of enterprises clusters, innovation network and environment, sustainable competition and their life cycle and etc. The paper maintains that clustering advantages realize the combination of vigor of enterprises innovation and economies of scale of innovation from innovation of single enterprise along with resources advantages of innovation scale of professional labor of enterprises, public goods and services concerned in clustering in clustering industry which may generates advantages of core ability, competition and innovation and etc. 2 Jiaodong Peninsula Regional Economic Development Status Quo Shandong Peninsula is located in the economically developed areas in eastern China, including Jinan, Qingdao which are two sub-provincial cities, and six cities of Zibo, Dongying, Yantai, Weifang, Weihai, Rizhao. It has 22 cities, 14 counties in 30 areas, with a total area of 7.3 million square kilometers, accounting for 46.6% of the total area of Shandong Province. Qingdao, Yantai, Weihai are also known as Jiaodong Peninsula area. Jiaodong Peninsula area, gathered in the main advantages of resources and advanced productive forces, is driving the economy and the province of Shandong unconventional, high-speed, leap-forward development of the "leading" regions as well as the highest level of developed, the greatest potential and the strongest economic region. Since 2003, the Jiaodong Peninsula, becoming the popular place following the Pearl River Delta, Yangtze River Delta to foreign and domestic enterprises. From the township and village enterprises, "every village fire, every household smoking" of the decentralized industry structure coming numerous industry clusters like "Planet around stars", industry cluster is the support of Jiaodong Peninsula which is highlighted in Shandong economic map. Through years of development and construction, manufacture in the peninsula is gradually developed into an effective platform for international industries transfer and open economic development in Shandong province. In2009, GDP of Jiaodong Peninsula is 1,058.837 brillion yuan, accounting for 31.3% of GDP of Shandong Province which is 3,380.53 trillion yuan. In which Qingdao has 489.033 billion yuan, Yantai City, 372.868 billion yuan, 196.936 billion yuan in Weihai City. It can be said that industrial clusters is a powerful vehicle of regional economic 130 M & D FORUM development and core power of regional economic development as well as the pocketbook of all levels of government finances and economic growth points. Industrial clusters in Jiaodong Peninsula, which have a solid foundation and part of which development have been on a higher level, is playing an important role in regional economic development with fundamental function of clusters. However, compared to industrial clusters in developed areas, there are many urgent problems which are unreasonable allocation of resources, low level relationship of enterprises and technology, weak competition of industries as a whole. The issues will hinder the rapid development of industrial clusters and even may make the momentum of development of industrial clusters tend to be reversed if not handled well. 3 Main Issues in Regional Economic Development in Jiaodong Peninsula Industrial clusters in Jiaodong Peninsula are in the embryonic and developing period with many evident weaknesses to solve. In addition to other reasons of history, economy, culture and region and etc, Industrial clusters in Jiaodong Peninsula still have some issues. 3.1 The environment for development is imperfect, which has adverse factors for the growth of industrial cluster In promoting the development of industrial clusters and the whole economic development, the government plays a leading role in ensuring the market mechanism in the process of economic operation and the allocation of resource. However, there are some parts of Jiaodong Peninsula, mainly depends on land management and policy incentives of various enclosure investment, taking attracting investment as its main function of the development of industrial clusters, and in the concept of industrial clusters based on local characteristics of the industrial structure, construction intermediary service system, the establishment of workforce education and training institutions, etc., the lack of comprehensive planning and effective action. Meanwhile, some localities also eager to build the so-called local brand names, resort to various administrative measures Destructive Enthusiasm, but they ignore the inherent laws of the formation of industrial clusters, are not good from the specialization and market segments that opportunity, training of local economic characteristics. Unable to provide a sound development environment, leading to industrial cluster inadequate supply of public goods, and many related industries and the lack of support for cluster industries, the lack of effective social service system support, hindering the further development of industrial clusters. 3.2 The low level industrial clusters are not able to obtain sustainable competitive advantage On the view of industrial clusters in Jiaodong Peninsula as a whole, most clusters are immature. Main features are that Most of the cluster a competitive advantage based on low-cost, low prices, especially on the basis of cheap labor, individual, small-production family enterprises occupy a large proportion, in addition to some key leading enterprises, not only the process generally relatively backward equipment and lack of skilled workers, technical level is not high. Strong competition in Qingdao City of traditional industries of textile and garment industry cluster, for example, although the start to the high-end development, but is not yet as advanced as the fashion in Paris, France or Italy as the cluster of high-grade garments cluster. Can not meet the needs of low-cost changes in industrial structure, and can easily lead to vicious competition, resulting in clusters recession. From the demand perspective, the industrial cluster of workers and peasants to labor-intensive processing industry, so long standing problem of insufficient domestic demand, these companies want to expand market share, more difficult. From the supply perspective, the labor-intensive industry, low barriers to entry, resulting in an increasingly competitive, and production cost competitiveness between enterprises based mainly inevitably to frequent price wars, a serious impediment to the overall development of the cluster. 131 M & D FORUM 3.3 Weak capacity of self-innovation is difficult to make the enterprise bigger and stronger Because the lack of high-quality talents, imperfect industry allocation, inadequate supply of public goods and other reasons, enterprises lack talents of self technology innovation, assets system and environmental basis with immature innovation system of clusters in Jiaodong Peninsula. Most companies do not own the core technology, but remain at a low level of reciprocating production, poor ability to resist risks. R & D capability is not only weak, but the basis of technological innovation as the low level of labor skills, many companies there is a "first class equipment, second-rate management, third-rate products," the phenomenon. Low starting point in most enterprises, small-scale and widespread low-level repetitive and excessive competition, the industrial division of labor between and within clusters and specialization must be limited. In addition, the industrial clusters in the pursuit of enterprises of different degrees, "small and complete" the tendency, not only has the potential to affect the growth of large enterprises, but also weakened the profitability of small enterprises and development of space, impeding the extension of industrial chain, threatening the Clusters of self-development and upgrading of competitiveness clusters. In short, the loss of creative power of the industrial cluster is impossible to maintain the sustainable development capacity, the cluster can not break through competitive enterprises bigger and stronger. Keep people lack reasonable business, employment mechanism. While low labor costs are Jiaodong Peninsula, the cost advantage of industrial clusters, but this cost advantage is not suitable for senior personnel within the enterprise, professionals, internal human mechanisms causing unreasonable senior technical personnel, the outflow of professionals. 4 Clustering Innovation: Development Path of Jiaodong Peninsula Regional Economy 4.1 Promoting structural adjustment of industries in Jiaodong Peninsula Clustering innovation by raising product, industry turnover, prompting a number of emerging and growth industries continue to rise, some of the existing status of the industry declined, or preliminary been eliminated and transferred to other regions, thereby promoting the industrial structure update Jiaodong Peninsula. Clusters and the promotion of innovation not only caused the upgrading of the product, but also changed the induction and orientation of the consumers consuming demand, leading to regional changes in consumption structure. Changes in consumption structure of production activities not only guide the promotion of regional industrial structure adjustment, but also instructions on the role of business and trade activities, lead and facilitate regional trade structure changes. 4.2 Strengthening interactive effects of products in Jiaodong Peninsula Companies through joint use of public facilities to reduce the spread of local additional investment to increase by industry to achieve the spatial agglomeration of similar enterprises in increasing the overall size of the external economies of scale generated by specialized division of labor among enterprises access to external economies of scope. Positive feedback mechanism, where once the industry cluster in certain areas, the external economy will become a new business to choose the location of the driver, this self-reinforcing mechanism to promote greater concentration outside the body for further economy. There are also conducive to professional depth. Clustering Innovation for the cluster of enterprises specialized division of labor. Specialization and division of the interests of the early writings of economist Adam Smith have been especially emphasized. Smith said: division of labor is the core of economic growth. In reality, the clustering innovation greatly facilitates the business and professional cooperation between enterprises to significantly reduce the cost and enhance international competitiveness of the region. When the Italian manufacturer of furniture from a single company a complete product transition to a single company only completed two processes together, specialization not only reversed once the original furniture industry slump, but also to the Italian furniture industry to become internationally international competitiveness of the richest in the industry. 132 M & D FORUM 4.3 Pushing forward industrialization and urbanization in Jiaodong Peninsula Industrialization and urbanization and clustering innovation are inseparable. Clustering Innovation can lead to the town and attract small businesses gather, share infrastructure, thereby contributing to the factors of production, including labor, including the continued shift from agriculture to industry to accelerate the industrialization process; the same time, industry cluster itself is the process of urbanization, promoting the construction of infrastructure, transport, communications and information modernization, urban development has provided financial, human, industry support, and promote the development of tertiary industry and market prosperity. Industrialization also contributed to the development of the cluster, and enhance the regional economy of scale, promote the natural formation of the city, improve the regional international competitiveness, promote the industrialization process. Cluster development to promote the rational flow of rural surplus labor and optimize the configuration, will gradually ease the problem of long-term employment, accelerate our long-standing and can be extremely difficult transformation of the dual economic structure, will continue to improve the region's per capita income, improve region's international competitiveness. 4.4 Promoting economic growth in Jiaodong Peninsula Clustering innovation has spawned many new products and services to meet the people's income and standard of living higher level after the demand for consumer goods. Industry clusters for more participants to enter and open new markets and enhance market competitiveness and the evolution of the new market structure. Meanwhile, extending from the industry chain and inter-industry cost savings resulting from consolidation, a large number of enterprises has greatly added to its value, which will ultimately increase revenue and by lower prices for consumers. Meanwhile, clustering innovation requires a lot of senior talent, personnel training and investment in human capital has significant economic effects of the double is to a certain level of economic development to promote regional economic cycle, after the booster, is itself a human capital investment have good labor market prospects of senior personnel production process itself can stimulate an increase in employment and labor productivity, human capital spending as a driving force of economic operation of the final in the modern economy can greatly stimulate production growth, thus contributing to regional economic development and regional economic growth. 4.5 Enhancing international competitive advantages in Jiaodong Peninsula Clusters form through corporate gathering, internal through forward, backward vertical linkages to form the vertical integration of large enterprises like the production process, and by the level of cooperation and competition among enterprises, promote innovation cluster is beneficial improve the overall efficiency and competitiveness, not only in terms of cost, price, marketing has certain advantages in international competition, and similar products of industrial clustering, products differentiation and diversification of function also has certain advantages in international competition, promoting the regional brand building. Meanwhile, the formation of industrial clusters of external barriers maintains a competitive position; internal promotion of the professional market, standardize competition and cooperation between enterprises in the cluster, and promote industrial development within the region. In China, the economy is relatively developed provinces cluster innovation is achieved by the great economic success. Is a typical, Zhejiang's industrial clusters in the textile, electrical, hardware, household commodities, and many other industries have achieved a competitive advantage. 5 Conclusion Based on the theoretical study of foreign and domestic study, the paper proposes that the path of developing Jiaodong Peninsula regional economy is clustering innovation after analyzing status quo and existing problems in Jiaodong Peninsula regional economy. Clustering innovation will promote 133 M & D FORUM industrial structure adjustment, reinforce production interaction and increase economic development along with industrialization and urbanization in Jiaodong Peninsula regional economy. References [1]. Tang Ming, Zhang Tinghai. Innovative Advantages of Industrial Clusters and Efficiency Improvement of SME Clusters in China, Economy and Management, 2004,(9) (in Chinese) [2]. Feser, E. Bergman, E. National Industry Cluster Templates: A Framework for Applied Regional Cluster Analysis. Regional Studies, 2000,34(3) [3]. Saxenian, L. Regional Advantage: Culture Competition in Silicon Valley and Route 128. Boston: Harvard University Press, 1994 134