Competitive Cities in the 21st Century Cluster-Based Local Economic Development Urban Development Series Economic challenges in developing Asian countries have become more complex: urban populations are growing at great cost to the environment, climate change has increased risks of natural disasters, and income gaps within and between developing countries are widening. These factors threaten the sustainable growth and development of urban areas, the drivers of Asia’s economy. A strategic approach for inclusive growth is needed. The City Cluster Economic Development approach provides a strategic Competitive Cities in the 21st CenturyCompetitive framework and a set of analytical tools, which governments, businesses, and communities can use to support the inclusive and sustainable development Competitive Cities of competitive urban economies in Asia. Said approach was developed and tested by the Asian Development Bank to improve the basis for integrated planning and development of urban regions in Asia and the Pacific. It also helps urban managers and other city stakeholders identify action plans and in the 21st Century determine priority investment areas. Cluster-Based Local Economic Development About the Asian Development Bank ADB’s vision is an Asia and Pacific region free of poverty. Its mission is to help its developing member countries reduce poverty and improve the quality of life of their people. Despite the region’s many successes, it remains home to two-thirds of the world’s poor: 1.8 billion people who live on less than $2 a day, with 903 million struggling on less than $1.25 a day. ADB is committed to reducing poverty through inclusive economic growth, environmentally sustainable growth, and regional integration. Based in Manila, ADB is owned by 67 members, including 48 from the region. Its main instruments for helping its developing member countries are policy dialogue, loans, equity investments, guarantees, grants, and technical assistance. Asian Development Bank 6 ADB Avenue, Mandaluyong City 1550 Metro Manila, Philippines www.adb.org ISBN 978-92-9092-430-2 Publication Stock No. BKK113970 Printed on recycled paper Printed in the Philippines Urban Development Series Competitive Cities in the 21st Century Cluster-Based Local Economic Development by KyeongAe Choe and Brian Roberts © 2011 Asian Development Bank All rights reserved. Published 2011. Printed in the Philippines. ISBN 978-92-9092-431-9 Publication Stock No. BKK113970 Cataloging-In-Publication Data Choe, K., and B. Roberts. Competitive cities in the 21st century: Cluster-based local economic development. Mandaluyong City, Philippines: Asian Development Bank, 2011. 1. Cities. 2. Competitiveness. 3. Local industry. 4. Economic development. 5. Development policy. 6. Small and medium-sized enterprises. I. Asian Development Bank. This report was prepared based on the results of the technical assistance project, City Cluster Economic Development: Innovative Interventions in South Asia, funded by the Asian Development Bank (ADB). The views expressed in this publication do not necessarily reflect the views and policies of ADB or its Board of Governors or the governments they represent. ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. By making any designation of or reference to a particular territory or geographic area, or by using the term “country” in this document, ADB does not intend to make any judgments as to the legal or other status of any territory or area. ADB encourages printing or copying information exclusively for personal and noncommercial use with proper acknowledgment of ADB. Users are restricted from reselling, redistributing, or creating derivative works for commercial purposes without the express, written consent of ADB. Note: In this publication, “$” refers to US dollars, unless otherwise specified. Asian Development Bank 6 ADB Avenue, Mandaluyong City 1550 Metro Manila, Philippines Tel +63 2 632 4444 Fax +63 2 636 2444 www.adb.org For orders, please contact: Department of External Relations Fax +63 2 636 2648 [email protected] Printed on recycled paper This work is dedicated to the memory of KyeongAe Choe, lead economist (infrastructure) and the chief ADB author of this publication. iii Contents List of Tables viii List of Figures xi Abbreviations xiv Foreword xv Preface xvii Acknowledgments xxii CHAPTER 1 CITY COMPETITIVENESS AND CLUSTER-BASED ECONOMIC DEVELOPMENT 1 1.1 The Competitiveness of Asian Cities 3 1.2 Shaping Local Economies with Competitive Advantage 5 1.3 Agglomeration and Transformation of Asian Cities 8 1.4 Cluster-Based City Economic Development 13 1.5 Changing the Development Paradigm for Asian Cities 15 CHAPTER 2 FACTORS SHAPING THE SPATIAL AGGLOMERATION OF ASIAN CITIES 16 2.1 The Changing Economic Geography of Asian Cities 16 2.2 Dynamics of Urban Economies 21 2.3 Push–Pull Factors Influencing the Agglomerated Economies of Asian Cities 29 2.4 Spatial Planning Approaches to Fostering the Economic Development of Urban Regions: Issues 34 2.5 Old Models of Urban Growth Must Change 39 CHAPTER 3 EMERGING FACTORS ACCELERATING URBAN ECONOMIC GROWTH 41 3.1 Demand-Driven Economic Development: Strategies and Approaches 41 3.2 Factors behind Demand-Driven Economic Development 45 3.3 Creating New Pathways for Sustainable Urban Economic Development in Asia 53 iv Contents v CHAPTER 4 THE CLUSTER: THEORY, A NALYSIS, AND EXPERIENCE IN AGGLOMERATED ASIAN CITIES 55 4.1 Porter’s Theory of the Competitive Advantage of Clusters 56 4.2 The Concept of Clusters 59 4.3 Review of the Literature on Clusters 61 4.4 Tools for Cluster Analysis 66 4.5 Competitive Cluster Development Initiatives 72 4.6 Applying the Lessons from Industry Development to Cluster-Based Economic Development 80 CHAPTER 5 BUILDING COMPETITIVE LOCAL ECONOMIES: APPROACH AND ANALYTICAL STEPS 82 5.1 The Three Principles of Competitiveness in New Urban Economies 83 5.2 Step 1: Review the National and Local Economic Policy Environment 87 5.3 Step 2: Analyze the Six Drivers of City Competitiveness 89 5.4 Step 3: Explore National and Local Multi-Sector Industry to Understand the Industry Structure 98 5.5 Step 4: Investigate Clusters by Industry Sector at the Selected City Level 102 5.6 Step 5: Evaluate Gaps in Competitiveness of the Selected Industry Clusters 105 5.7 Step 6: Prepare a Strategic Plan for Industry Cluster Development in a City or City Region 108 5.8 Step 7: Operationalize the Cluster Development Plans in a City or City Region 113 5.9 Replicate the Cluster-Based City Economic Development Approach 119 CHAPTER 6 CLUSTER-BASED CITY ECONOMIC DEVELOPMENT IN BANGLADESH 120 6.1 Urban Growth and Economic Development 121 6.2 Cities’ Competitiveness and Ranking 126 6.3 Multi-Sector Industry Analysis 129 6.4 Competitiveness of the Dhaka Capital Region 132 6.5 Analysis of Three Industry Clusters in the Dhaka Capital Region 140 vi Contents 6.6 Analysis of the Textile and Ready-Made Garments Industry Cluster in the Dhaka Capital Region 141 6.7 Analysis of the Leather Industry Cluster in the Dhaka Capital Region 152 6.8 Analysis of the Food and Beverage Industry Cluster in the Dhaka Capital Region 162 6.9 Cluster-Based City Economic Development in the Dhaka Capital Region: A Summary 174 CHAPTER 7 CLUSTER-BASED CITY ECONOMIC DEVELOPMENT IN INDIA 176 7.1 Urban Growth and Economic Development 176 7.2 Competitiveness of Cities 180 7.3 Multi-Sector Industry Analysis of the Central National Capital Region 187 7.4 Emerging Patterns of Industry Clusters in the Central National Capital Region 202 7.5 Diamond Model Analysis of Three Industry Clusters in the Central National Capital Region 203 7.6 Conclusions 219 CHAPTER 8 CLUSTER-BASED CITY ECONOMIC DEVELOPMENT IN SRI LANKA 221 8.1 Urban Growth and Economic Development 222 8.2 Competitiveness of Cities 226 8.3 National and Local Multi-sector Industry Analysis of the Colombo Metropolitan Region 231 8.4 Geographic Mapping of Three Industry Clusters in the Colombo Metropolitan Region 239 8.5 Analysis of Three Industry Clusters in the Colombo Metropolitan Region 241 8.6 The Textiles and Apparel Industry Cluster 242 8.7 Information and Communication Technology and ICT-Enabled Industry Cluster 248 8.8 Rubber Industry Cluster 255 8.9 Conclusion 263 Contents vii CHAPTER 9 INSIGHTS GAINED FROM THE THREE COUNTRY CASE STUDIES 264 9.1 City Competitiveness Index Scores 264 9.2 Relationship between City Size and Competitiveness 266 9.3 Analysis of the Six Key Drivers of City Competitiveness 267 9.4 Multi-Criteria Analysis of City Competitiveness and Multi-Sector Industry Analysis of Capital City Regions 269 9.5 Structural Changes in the Economies of the Capital Cities 271 9.6 Mapping Out Industry Clusters by Standard Industrial Classification 272 9.7 Deficiency Gap Analysis 273 9.8 Action Planning for Cluster-Based City Economic Development 278 9.9 Pre-Feasibility Studies for CCED 279 9.10 Fostering Industry Clusters at Different Stages of Development 280 9.11 Other Insights Gained from the CCED Approach 281 CHAPTER 10 A NEW PARADIGM OF LOCAL ECONOMIC DEVELOPMENT FOR GROWING ASIAN CITIES 284 10.1 Salient Features of the CCED Approach 285 10.2 CCED Applications in official Development Assistance 293 10.3 Aiming for Maximum Impact with Limited Resources 297 10.4 Key Observations: A Summary 299 10.5 Next Steps 301 REFERENCES 303 Tables 1.1 Elements of Competitiveness: Comparative, Competitive, and Collaborative Advantage 6 2.1 Urbanization Trends, Selected Asian Countries