Catch‐up via agglomeration: A study of township clusters

• Author: Yaqin Zheng,Sali Li,Steve Tallman,Liangding Jia
• Published date: 01 May 2017
• DOI: http://doi.org/10.1002/gsj.1154
• Date: 01 May 2017

CATCH-UP VIA AGGLOMERATION: A STUDY

OF TOWNSHIP CLUSTERS

LIANGDING JIA,

1

SALI LI,

2

*STEVE TALLMAN,

3

and YAQIN ZHENG

1

1

Department of Management, School of Management, Nanjing University,

Nanjing, China

2

International Business Department, University of South Carolina,

Columbia, South Carolina, U.S.A.

3

Department of Management, University of Richmond, Richmond, Virginia,

U.S.A.

Research summary: This study examines both the horizontal and the vertical dimen-

sions of Chinese township industrial clusters in order to disentangle the determinants

of catch-up performance. By examining 87 township clusters in Jiangsu Province, we

find that a cluster’s competitive intensity partially mediates the relationship between

cluster size and cluster performance and that the number of R&D centers and interfirm

joint actions in a cluster positively affects a cluster’s innovativeness which, in turn,

contributes to cluster performance. Our study not only helps shed light on what strate-

gic factors led Chinese manufacturing clusters to catch up in the global value chain,

but our findings can be used as a basis for comparison with other types of clusters

around the world.

Managerial summary: Despite the emergence of Chinese manufacturing industries over

the past 30 years, little is known about how local clusters have helped Chinese firmscatch

up in global competition. By analyzing the performance of 87 township industrial clusters

in Jiangsu Province, we find that the level of competition in a cluster mediates the rela-

tionship between cluster size and cluster performance and that a cluster’snumberof

R&D centers and interfirm collaborations positively affect a cluster’s innovativeness

which, in turn, contributes to cluster performance. Our study contributes to a better

understandingof cluster catch-up strategies, helping compare and contrast the differences

between clusters fromdeveloping countries and ones from developed countries. Copyright

© 2016 Strategic Management Society.

INTRODUCTION

Over the past three decades, industry clusters have

become increasingly popular among countries trying

to organize their economic activities to face global

competition (Malmberg and Maskell, 2002; Martin

and Sunley, 2003; Porter, 2000). Following the

example of successful clusters in developed coun-

tries, many developing countries have recognized

the importance of leveraging the agglomeration

Keywords: township industrial cluster; China; cluster perfor-

mance; innovation; catch-up strategy

*Correspondence to: Sali Li, Moore School of Business, Uni-

versity of South Carolina, 1014 Greene Street, Columbia, SC

29208, U.S.A. E-mail: sali.li@moore.sc.edu.

Correction made on 3/31/2017, after first online publication:

The “Research Summary”abstract was mislabeled as a “Tech-

nical Summary”, while the “Managerial Summary”abstract

was mislabeled as a “Plain Language Summary.”This has

been corrected.

Copyright © 2016 Strategic Management Society

Global Strategy Journal

Global Strategy Journal, 7: 193–211 (2017)

Published online in Wiley Online Library (wileyonlinelibrary.com). DOI: 10.1002/gsj.1154

effect of clusters in order to catch up to their global

competition. However, most cluster research has

focused on develope d countries and on hig h-tech

clusters with relatively little effort to address how

developing countries can effectively use clusters to

catch up. Are the theories derived from the study of

clusters in developed countries equally applicable to

manufacturing clusters in developing economies,

especially when they are starting to catch up and to

engage in the global supply chain, or must we at

least recognize new approaches to existing concepts,

if not build new theories?

To address these questions, we examine a type of

manufacturing cluster unique to China—township

clusters. As a driving force of the Chinese economic

growth miracle, township clusters generated about

$0.6 trillion in 2010, or about 10 percent of China’s

total GDP (The People’s Republic of China Year-

book, 2010). Based on the Chinese central govern-

ment’s census, there were about 5,660 township

industrial clusters in China at the end of 2007, and

the number has increased since. The growth in num-

bers and size of these township industrial clusters

has greatly contributed to the emergence of China

as a global manufacturing powerhouse. However,

this phenomenon has been little studied in compari-

son with other clusters and types of clusters, such as

Silicon Valley in the United States and Emilia

Romagna in Italy. How these township clusters have

emerged and developed over the last 30 years and

whether they function differently from their counter-

parts in the developed economies have remained

mysterious. In this study, we investigate the key

determinants of performance variations among a

sample of township clusters. Our study helps serve

as a base to compare and contrast with other clusters

from around the world and shed light on successful

factors for clusters in the catch-up stage.

In this study, we follow Maskell’s model of clus-

ter organization (2001) to examine both the horizon-

tal and vertical relational dimensions of township

clusters and how they affect cluster performance.

These two dimensions describe the vertical or hori-

zontal directions along the value chain. The terms

are used in a loose sense to help highlight the com-

petitive and collaborative nature of a cluster—the

horizontal dimension mainly reflects competitive

advantages from variation and competitive response

in the development and performance of clusters

(Marshall, 1890), while the vertical dimension

represents the benefits of the collaborative and task

partitioning aspects of the theory of clusters. These

two dimensions not only address the basic structure

of how a cluster is built around value chains, but

also help us gain a better understanding of the role

of different strategies for clusters in different

phrases of development. As Lorenzen and Mudambi

(2013: 502) note, value creation and value capture

are two critical components of catch-up strategy for

clusters: ‘The former focuses on upgrading produc-

tion processes to move them closer to the technol-

ogy frontier as well as moving up the value chain

into higher value activities, such as R&D and after-

sales services…The latter involves upgrading out-

puts to achieve higher premiums on global markets.’

We argue that township clusters can harness strat-

egy components along these two different dimen-

sions in the value chains. We particularly associate

the cooperative vertical dimension with value crea-

tion through innovation by township clusters, while

the horizontal dimension is associated more with

value capture in the competitive interaction of firms

and networks of firms in the cluster.

By examining survey data from 87 township

clusters in Jiangsu Province, we find that both hori-

zontal and vertical forces play significant roles in

determining the performance differences among

these clusters, but the results also demonstrate

unique patterns in these relationships that reflect

the idiosyncratic attributes of Chinese township

clusters. Our results shed new light on the unique

phenomenon of township industrial clusters in

China and also provide important policy implica-

tions for industrial development in the catch-up

stage for emerging markets in general. This study

not only helps advance current understanding of

the determinants of the variation of cluster perfor-

mance, but also provides an elementary rubric to

compare and contrast township clusters with other

well-researched clusters around the world.

THEORY DEVELOPMENT AND

RESEARCH BACKGROUND

Horizontal and vertical dimensions and cluster

performance

Despite the fact that industrial clusters are world-

wide phenomena, most cluster research has focused

on clusters in developed economies and on the

question of why firms tend to cluster geographi-

cally (McCann and Folta, 2008; Storper, 1995).

More recently, scholars have started to shift their

194 L. Jia et al.

Copyright © 2016 Strategic Management Society Global Strategy Journal, 7: 193–211 (2017)

DOI: 10.1002/gsj