2013 Knowledge Sharing Program with Uzbekistan

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2013 Knowledge Sharing Program with Uzbekistan:

Innovation Strategy for Agriculture and Industrial Technology

MINISTRY OF STRATEGY AND FINANCE Korea Development Institute 2013 Knowledge Sharing Program with Uzbekistan 2013 Knowledge Sharing Program with Uzbekistan:

Project Title Innovation Strategy for Agriculture and Industrial Technology

Prepared by Korea Development Institute (KDI)

Supported by Ministry of Strategy and Finance (MOSF), Republic of Korea Korea Development Institute(KDI)

Prepared for The Government of Uzbekistan

In cooperation with Institute of Forecasting and Macroeconomic Research, Republic of Uzbekistan

Program Directors Hongtack Chun, Executive Director, Center for International Development (CID), KDI

Program Officer Hyunyi Choi, Senior Research Associate, Division of Policy Consultation & Planning, CID, KDI

Program Manager Taihee Lee, Director, Division of Policy Consultation & Planning, CID, KDI

Senior Adviosr Se-Ik Oh, Former President, Korea Rural Economic Institute

Authors Chapter 1. Kwang Suck Lee, Sungkyunkwan University Chapter 2. Kyung Ryang Kim, Kangwon National University Chapter 3. Seong Kwan Jang, Dep of Electronic Engineering Korea Polytechnic University Chapter 4. Woong Sae Choi, Dep of Electronic Engineering Korea Polytechnic University

Government Publications Registration Number 11-1051000-000475-01 ISBN 978-89-8063-855-0 94320 978-89-8063-849-9 (set) Copyright ⓒ 2014 by Ministry of Strategy and Finance, Republic of Korea Government Publications Registration Number

11-1051000-000475-01

2013 Knowledge Sharing Program with Uzbekistan:

Innovation Strategy for Agriculture and Industrial Technology

MINISTRY OF Korea Development STRATEGY AND FINANCE Institute Preface

In the 21st century, knowledge is one of the key determinants of a country’s level of socio- economic development. Based on this recognition, Korea’s Knowledge Sharing Program (KSP) was launched in 2004 by the Ministry of Strategy and Finance (MOSF) and the Korea Development Institute (KDI).

KSP aims to share Korea’s experience and knowledge with the partner countries to achieve mutual prosperity and cooperative partnership. Former high-ranking government officials are directly involved in the policy consultation to share their intimate knowledge of development challenges, and to complement the analytical work of policy experts and specialists who have extensive experience in their fields. The government officials and practitioners effectively pair up with their counterparts in the development partner countries to work jointly on pressing policy challenges and share development knowledge in the process. The program includes policy research, consultation and capacity-building activities, all in all to provide comprehensive and tailor-made assistance to the development partner countries in building a stable foundation and fostering capabilities to pursue self-sustainable growth.

In 2013, policy consultation and capacity building workshop were carried out with 36 partner countries covering over 140 research agendas. As a new partner country, Costa Rica, Belize, China, Russia, Hungary, Egypt were selected in consideration of the country’s policy demand, growth potential, and strategic economic partnership.

2013 marked the seventh year to conduct KSP with Uzbekistan, and the fourth year to conduct Strategic Development Partner Country (SDPC) KSP. Based on the written demand survey form as well as the discussion with the Uzbekistan government, the program entitled ‘Innovation Strategy for Agriculture and Industrial Technology’ was launched in August, 2013, focusing on the following four topics: A study of Production and Marketing for the Pilot Agro- Processing Industry Cluster in Uzbekistan, A Pilot Study for the Development of Agro-Processing Industry Cluster in Uzbekistan, Policy framework for building Techno Innovation Park, Strategy of improving competitiveness of SMEs (Small and Medium-Sized Enterprise) through industry- academic education program.

I would like to take this opportunity to express my sincere gratitude to Senior Advisor Mr. Se Ik Oh, Project Manager Mr. TaiHee Lee, as well as the project consultants including Prof. Kyung Ryang Kim, Prof. Kwang Suck Lee, Prof. Seung Kwan Jang and Prof. Ung Sea Choi for their immense efforts in successfully completing the 2013 KSP with Uzbekistan. I am also grateful to Executive Director Dr. Hong Tack Chun, and Program Officer Ms. Hyunyi Choi, and all members of the Center for International Development, KDI for their hard work and dedication to this program. Lastly, I extend my warmest thanks to the Uzbek’s counterparts, the Institute of Forecasting and Macroeconomic Research of Uzbekistan and other related agencies, program coordinators, and participants for showing active cooperation and great support.

In your hands is the publication of the results of the 2013 KSP with Uzbekistan. I believe that KSP will serve as a valuable opportunity to further elevate mutual economic cooperation of Uzbekistan and Korea to a new level. I sincerely hope the final research results on the selected areas could be fully utilized to support Uzbekistan in achieving economic development goal in the near future.

Joon-Kyung Kim President Korea Development Institute Contents

2013 KSP with Uzbekistan………………………………………………………………………………………… 017 Executive Summary………………………………………………………………………………………………… 022

Chapter 1 A Pilot Study for the Development of Agro-Processing Industry Cluster in Uzbekistan

Summary…………………………………………………………………………………………………………… 032 1. Introduction……………………………………………………………………………………………………… 035 1.1. Economic Transition and Agricultural Economy in Uzbekistan……………………………………… 035 1.2. Objective and scope of the study………………………………………………………………………… 040 2. Agenda for the Development of Agro-processing Industry in Uzbekistan……………………………… 041 3. Clustering Agro-processing Industry………………………………………………………………………… 044 3.1. Basic Principles of Agro-clustering……………………………………………………………………… 044 3.1.1. Development of cluster concepts………………………………………………………………… 044 3.1.2. Definitions and characteristics of clusters……………………………………………………… 045 3.1.3. Porter’s Diamond Model for developing countries…………………………………………… 046 3.2. New Paradigm of Agro-Food Policy in Korea………………………………………………………… 049 3.2.1. National Food Cluster……………………………………………………………………………… 049 3.2.2. Special Zone for Agro-processing………………………………………………………………… 050 3.2.3. Emerging Senary Industry………………………………………………………………………… 051 3.3. Selected Cases of Agro-processing Clusters in Korea………………………………………………… 054 3.3.1. Cheongdo Persimmon Cluster…………………………………………………………………… 054 3.3.2. The Senary Industry in Munkyung……………………………………………………………… 057 References…………………………………………………………………………………………………………… 077

. Chapter 2 Agriculture and Marketing Development for Agro-Processing Pilot Cluster in Uzbekistan

Summary…………………………………………………………………………………………………………… 080 1. Introduction……………………………………………………………………………………………………… 082 1.1. Background of the Study………………………………………………………………………………… 082 1.2. Purpose of the Study……………………………………………………………………………………… 084 2. Support Systems for Agro-Processing Cluster Pilot Projects……………………………………………… 084 2.1. The Need to Strengthening Agro-Processing Clusters………………………………………………… 084 2.2. The Concept of Agro-Processing Cluster Development……………………………………………… 087 2.3. Postharvest Management Support System for Agro-Processing Clusters…………………………… 089 2.4. Situation Analysis for Implementation of Agro-Processing Clusters in Uzbekistan……………… 090 2.4.1. Organization of Production……………………………………………………………………… 090 2.4.2. Establishment of Postharvest Management System…………………………………………… 090 2.4.3. Agricultural Processing…………………………………………………………………………… 091 2.4.4. Establishment of an Efficient Marketing System……………………………………………… 091 3. Support System for Agro-Processing Clusters in Korea…………………………………………………… 092 3.1. Organization of Production……………………………………………………………………………… 092 3.2. Agricultural Marketing and Distribution System……………………………………………………… 094 3.2.1. Characteristics and Features of the Agricultural Marketing………………………………… 095 3.2.2. Changes in Distribution Channel………………………………………………………………… 098 3.2.3. Changes in Agricultural Marketing Policy……………………………………………………… 101 3.3. Post-Harvest Management System Support for Agro-Processing Clusters………………………… 103 4. Establishment of Support System for Ago-Processing Pilot Cluster in Uzbekistan……………………… 106 4.1. Agriculture in Samarkand………………………………………………………………………………… 106 4.2. Selection of Pilot Clustering Project Areas……………………………………………………………… 108 4.3. Organization and Structure of Tomato Production in Bulungur District…………………………… 110 4.3.1. Current Situation in Bulungur District…………………………………………………………… 111 Contents

4.4. Organization and Structure of Apple Production in Jambay District……………………………… 115 4.4.1. Current Situation in Jambay District……………………………………………………………… 116 5. Suggestions for the support of Agro-Processing Pilot Clusters in Uzbekistan…………………………… 119 5.1 Ensuring stable supply of products……………………………………………………………………… 120 5.2. Enhancement of Production and Productivity………………………………………………………… 120 5.3. Contract Farming, Credit Access and Processing……………………………………………………… 120 5.4. Enhancement of Postharvest Management Practices………………………………………………… 121 5.5. Value Addition and Expansion of Market Access……………………………………………………… 121 5.6. Ensuring Food Safety and Quality……………………………………………………………………… 121 5.7. Human Resource Development………………………………………………………………………… 122 5.8. Expansion of Investment in Infrastructure……………………………………………………………… 122 References…………………………………………………………………………………………………………… 123

Chapter 3 Building Policy Framework to Establish Technology Innovation Park

Summary…………………………………………………………………………………………………………… 126 1. Industry of Uzbekistan………………………………………………………………………………………… 128 1.1. Composition of Uzbekistan’s GDP by sector…………………………………………………………… 128 1.2. Status of SMEs(Small and Medium-size Enterprises) in Uzbekistan………………………………… 130 1.3. Industrial development policies in Uzbekistan………………………………………………………… 132 2. Technology Innovation Parks(TIPs) in Korea………………………………………………………………… 133 2.1. Policies and Industry Development in Korea…………………………………………………………… 133 2.1.1. The 1960s…………………………………………………………………………………………… 134 2.1.2. The 1970s…………………………………………………………………………………………… 137 2.1.3. The 1980s…………………………………………………………………………………………… 140 2.1.4. The 1990s…………………………………………………………………………………………… 142 2.1.5. The 2000s (2000 through now)…………………………………………………………………… 143 2.2. Techno-Parks in Korea…………………………………………………………………………………… 147 2.2.1. Definition of Techno-Park………………………………………………………………………… 147 2.2.2. Institutional and Political support for Techno-Parks…………………………………………… 149 2.2.3. The Function and Role of Techno-Parks………………………………………………………… 150 2.3. Korea Polytechnic University’s TIP……………………………………………………………………… 151 2.3.1. Technology Innovation Park (TIP)………………………………………………………………… 151 2.3.2. Industry-Academy Cooperation of TIP…………………………………………………………… 152 3. Policy Recommendations for Establishing TIPs in Uzbekistan…………………………………………… 154 3.1. General Strategy for TIP’s in Uzbekistan………………………………………………………………… 154 3.2. Legal and Institutional Considerations………………………………………………………………… 155 3.3. The First Steps……………………………………………………………………………………………… 155 3.3.1. Direction for Establishing TIP……………………………………………………………………… 155 3.4. Second Steps………………………………………………………………………………………………… 160 3.4.1. Directions for Establishing TIPs…………………………………………………………………… 160 3.4.2. Second Step Promotion Strategies for TIPs……………………………………………………… 162 3.5. Expectations………………………………………………………………………………………………… 162 References…………………………………………………………………………………………………………… 163

Chapter 4 Strategies for Strengthening SME’s Competitiveness through Education Program of Industry-academy Cooperation

Summary…………………………………………………………………………………………………………… 166 1. Status and Development Policy of SMEs in Uzbekistan…………………………………………………… 168 1.1. SME’s Status in Uzbekistan………………………………………………………………………………… 168 1.1.1. Relevant policy to SMEs…………………………………………………………………………… 168 1.1.2. Policy on Investment for SME……………………………………………………………………… 170 1.1.3. Export relevant Policy……………………………………………………………………………… 170 1.1.4. Other Activities for Fostering SME……………………………………………………………… 171 Contents

2. Uzbekistan National University (NUUz)……………………………………………………………………… 171 2.1. Organization of the departments in NUUz…………………………………………………………… 171 2.2. NUUz’s R&D………………………………………………………………………………………………… 172 2.3. Current spatial status of NUUz for Establishing Techno Innovation Park (TIP)…………………… 173 3. Policy for Strengthening Competitiveness of SME in Korea……………………………………………… 175 3.1. Change of Support Policy for SME in Korea…………………………………………………………… 175 3.2. Industry-Academy Cooperation for Strengthening SME’s Competitiveness……………………… 176 3.2.1. Change of Cooperation Policy of Industry-academy cooperation in Korea………………… 177 3.2.2. Support Business for Industry-Academy Cooperation of Korean government…………… 180 4. Education Program of KPU’s Industry-Academy Cooperation…………………………………………… 183 4.1. Academic System Nurturing Technical Manpower Tailored to Industrial Settings………………… 184 4.1.1. Characterization of Education through Industrial-Educational Cooperation……………… 185 4.2. Characterization of Industrial-Educational Cooperation of Korea Polytechnic University……… 188 4.2.1. Promotion of Program of Characterization of Industrial-Educational Cooperation Following Regional Backgrounds…………………………………………………………………………… 188 4.2.2. Directions and Program of Characterization of Industrial-Educational Cooperation…… 190 4.2.3. Infrastructure of Industrial-Educational Cooperation for Realization of New Industrial-Educational Unified Engineering Education………………………………… 193 4.3. Core Model of Industrial-Educational Cooperation of Korea Polytechnic University…………… 195 4.3.1. EH: Engineering House…………………………………………………………………………… 195 4.3.2. Partner Company System………………………………………………………………………… 204 4.3.3. The case study of increasing SME competitiveness by Korea Polytechnic University……… 211 5. Consolidation of SME’s Competitiveness in Uzbekistan through Education Program for Industry- academy cooperation…………………………………………………………………………………………… 212 5.1. Establishment Direction of TIP for Consolidation of SME’s Competitiveness……………………… 212 5.2. Policy for Establishing Technology Innovation Park in NUUz………………………………………… 213 5.2.1. Legal and Institutional Considerations for Establishing TIP…………………………………… 213 5.2.2. Sectors for Establishing TIP in NUUz……………………………………………………………… 213 5.2.3. Space Program for TIP in NUUz…………………………………………………………………… 216 5.2.4. Future Promotion Plan…………………………………………………………………………… 217 References…………………………………………………………………………………………………………… 218 Contents | List of Tables

Chapter 1

Major Economic Indicators in Uzbekistan, 1991~2012………………………………………… 037

Production of Vegetables and Fruits in Uzbekistan…………………………………………… 039

UzbekistanTop Ten Agro-commodities: Export value in 2011………………………………… 041

Production and Processing of Fruits and Vegetables in Uzbekistan………………………… 043

Rural Industry Policy in Korea since 1990………………………………………………………… 051

Rural Industrial Projects by the Ministry of Agriculture, Food and Rural Affairs…………… 052

Sales Performance of the Cheongdo Persimmon Cluster, 2010-2012………………………… 056

Planted Areas for Fruits in Munkyung, 2000~2012……………………………………………… 061

Regional Capacity of Agro-processing in Uzbekistan, 2011…………………………………… 064

Uzbekistan fruit production and processing projections: 2012-2015* ……………………… 066

Uzbekistan vegetables production and processing projections: 2012-2015*……………… 067

Chapter 2

Step-by- step cluster support system……………………………………………………………… 088

Number of farms, processing companies and contractual deals, 2004 to 2008…………… 093

Overview of the development of Korea’s agricultural marketing policy…………………… 103

SWOT Analysis of Bulungur Tomato Cluster…………………………………………………… 111

SWOT Analysis of Jambay Apple Cluster………………………………………………………… 116

Chapter 3

Comparison of Industrial Policies and Technical Changes (1962 - 2008)……………………… 145

Comparison of Policies for Nurturing Industrial Technical Manpower (The 1960s -The 2000s) ………………………………………………………………………………………………………… 146

Techno-Park’s in Korea……………………………………………………………………………… 148

KPU’s TIP……………………………………………………………………………………………… 151

Share of industries in gross output of industry of region (%)………………………………… 157 Chapter 4

Number of SMEs in Uzbekistan…………………………………………………………………… 168

Investment Sectors in priority of SME…………………………………………………………… 169

Departments of NUUz……………………………………………………………………………… 172

Research Achievements of NUUz………………………………………………………………… 173

Remodeling Building in NUUz(To be used for TIP)……………………………………………… 174

Change of Support Policy for SME in Korea……………………………………………………… 176

Periodical change of Collaboration between Industrial companies and Universities……… 179

Technical Development Business by Collaboration between Industrial companies and Universities’ alliance…………………………………………………………………………… 182

Industrial companies and Universities’ Fusion Research Village……………………………… 183

System for Characterization of Industrial-Educational Cooperation………………………… 192

Characteristics of EH Education Model………………………………………………………… 200

Education Model centering on the field based on EH………………………………………… 201

Promotion of E/H by Stages……………………………………………………………………… 203

Participation in EH………………………………………………………………………………… 203

Number of partner companies…………………………………………………………………… 208

Main function of TIP……………………………………………………………………………… 214

Research Achievements of Department linked with NUUz’s TIP…………………………… 214

Linked Department with TIP……………………………………………………………………… 215

Space Program by Functions of TIP……………………………………………………………… 217 Contents | List of Figures

Chapter 1 [Figure 1-1] Map of Uzbekistan………………………………………………………………………………… 036 [Figure 1-2] Value added per agricultural worker in Uzbekistan, 1995~2010……………………………… 037 [Figure 1-3] Porter’s Diamond Model…………………………………………………………………………… 047 [Figure 1-4] Convergence of Industrial Sectors: Emergence of the Senary Industry ……………………… 053 [Figure 1-5] The Exhibition Site of the 6th Senary Indutrialization in Korea……………………………… 053 [Figure 1-6] Chungdo Bansi (Flat Persimmon)………………………………………………………………… 054 [Figure 1-7] Closed Tunnel for Tourism in Cheongdo………………………………………………………… 055 [Figure 1-8] Clustering System of the Cheongdo Persimmon Processing Industry………………………… 056 [Figure 1-9] Mission of Chung-Do Persimmon Cluster, 2013………………………………………………… 057 [Figure 1-10] Supporting System of Apple-processing Cluster in Munkyung……………………………… 059 [Figure 1-11] Munkyung “Apple Juice that Snow White Loves”…………………………………………… 060 [Figure 1-12] Vision of the Munkyung Agricultural Industry………………………………………………… 061 [Figure 1-13] Agro cluster organizational framework and network setting in Samarkand region …… 076

Chapter 2 [Figure 2-1] Export share in the major types of fruits and vegetables in2012-13 (in %)………………… 086 [Figure 2-2] Concept of cluster support system for agro processing of agricultural products…………… 087 [Figure 2-3] Structure of Sunchang Paste Cluster – Farmers’ Organizations……………………………… 093 [Figure 2-4] Comparison of Agricultural Marketing Level by Country……………………………………… 095 [Figure 2-5] Market Power Shift in Agricultural Products Distribution (Example of Korea)……………… 098 [Figure 2-6] Process of agricultural Products Distribution Channel in Korea……………………………… 099 [Figure 2-7] Changes in the number of sales of large retailers……………………………………………… 100 [Figure 2-8] Structure of postharvest technology……………………………………………………………… 104 [Figure 2-9] The map of Uzbekistan and Samarkand………………………………………………………… 107 [Figure 2-10] Fruits and vegetables network in Samarkand region………………………………………… 109 [Figure 2-11] Land use in Samarkand region for vegetables (tomato) in all types of farming…………… 109 [Figure 2-12] Land use in Samarkand region for fruits (excluding grapes) in all types of farming……… 110 [Figure 2-13] Location of existing and planned infrastructure for tomato clustering in Bulungur……… 110 [Figure 2-14] Land usage for tomato production in Bulungur district……………………………………… 112 [Figure 2-15] Tomato production in Bulungur district………………………………………………………… 113 [Figure 2-16] Harvesting of tomatoes in Bulungur district…………………………………………………… 113 [Figure 2-17] Location of existing and planned infrastructure for apple clustering in Jambay………… 115 [Figure 2-18] Intensive apple gardening in Jambay district…………………………………………………… 117 [Figure 2-19] Fruits packaging and storage in Jambay district……………………………………………… 118 [Figure 2-20] Processing of apples and tomatoes……………………………………………………………… 119

Chapter 3 [Figure 3-1] Uzbekistan’s Industrial Production by Sector…………………………………………………… 129 [Figure 3-2] Uzbekistan’s Industrial Production by Region…………………………………………………… 129 [Figure 3-3] Companies by size in Uzbekistan………………………………………………………………… 130 [Figure 3-4] SME’s by Sector……………………………………………………………………………………… 131 [Figure 3-5] SME Contribution to the Uzbekistan Economy………………………………………………… 131 [Figure 3-6] SME’s export and import status in Uzbekistan…………………………………………………… 132 [Figure 3-7] Function and Role of Techno-Park………………………………………………………………… 150 [Figure 3-8] Overview of Engineering House…………………………………………………………………… 152 [Figure 3-9] First step Establishment of TIP in Uzbekistan…………………………………………………… 156 [Figure 3-10] 1 step Establishment of TIP in Uzbekistan……………………………………………………… 159 [Figure 3-11] 2 step Establishment of TIP in Uzbekistan……………………………………………………… 161

Chapter 4 [Figure 4-1] Education through Industry-University-Institute………………………………………………… 185 [Figure 4-2] Model of Technical Department System of Korea Polytechnic University…………………… 188 [Figure 4-3] Role of Korea Polytechnic University in Industrial–Educational Cooperation……………… 189 [Figure 4-4] Directions of Operation of High Technology Cooperation Foundation……………………… 194 [Figure 4-5] Necessity of New Engineering Education through EH………………………………………… 196 Contents | List of Figures

[Figure 4-6] Virtuous cycle structure of increase of rate of employment and inducement of excellent students through EH………………………………………………………………… 197 [Figure 4-7] EH Operation System and Characteristics of EH Education…………………………………… 198 [Figure 4-8] Based learning of EH………………………………………………………………………………… 199 [Figure 4-9] Visions of Partner Company System……………………………………………………………… 205 [Figure 4-10] Operation System of Partner Company System………………………………………………… 206 [Figure 4-11] Distribution of Types of Industrial-Educational Cooperation between Korea Polytechnic University and Partner Companies……………………………………………………………… 207 [Figure 4-12] Comprehensive Strategy Supporting Partner Companies of Korea Polytechnic University ……………………………………………………………………………………………………… 209 [Figure 4-13] Industrial-Educational Cooperation Connecting Center……………………………………… 210 [Figure 4-14] Spaces for TIP in NUUz…………………………………………………………………………… 216 The 2013 KSP with Uzbekistan

Hyunyi Choi (Program Officer, Korea Development Institute)

Uzbekistan has recorded an annual economic growth rate of 4 percent after its independence from the Former Soviet Union and maintained an annual 8–9 percent since 2007 through the encouragement of private investment, tax reforms to attract foreign capital, vitalization of the capital market, expansion of financial freedom, liberalization of imports and exports, and other measures.

The Uzbekistan economy is well known to have strong economic potential with its gold and natural gas reserves and is working as an important growth engine for the economy. However, there is also a high dependency on primary industries, which is typical of developing countries, such as the agricultural industry, which took 17.5 percent of GDP and employs more than 50 percent of the working population.

When looking at the Welfare Improvement Strategy of Uzbekistan for 2008–2010 and the mid-term industrial infrastructure development plan, it is seeking to increase the efficiency and competitiveness of the industry through balanced industrial development, diversification through structural reforms, the expansion of exports, modernization of production facilities and the procurement of technology toward a knowledge-based economy.

The 2013 KSP with Uzbekistan began with this background and is in its seventh year since having begun in 2004. Highly satisfied with the consultation, the Uzbekistan government requested additional programs as a Strategic Development

The 2013 KSP with Uzbekistan•017 Partner. As a result, the Ministry of Strategy and Finance and the KDI provided policy consultations on Innovation Strategy for Agriculture and Industrial Technology in 2013.

Uzbekistan KSP Record

Year Project

Industry innovation strategy

Recommendations for the development of the renewable energy sector in Uzbekistan

Strategies for improving energy efficiency in Uzbekistan

Measures to develop, standardize and disseminate solar energy in Uzbekistan 2012 Agriculture and marketing for the agro-processing industry development in Uzbekistan

Recommendations for the development of the agro-processing industry in Uzbekistan - with special reference to fruits and vegetables -

Diffusion of S&T information on national Innovation System (NIS) in Uzbekistan Strengthening Uzbekistan’s National Innovation System

National science and technology policy in Uzbekistan

S&T human resource development policy: lessons from the Korea’s experiences

2011 A study of establishing policy infrastructure for technology transfer, commercialization, and promoting the technology innovation activities in Uzbekistan based on the experience of Korea’s policy implementation

Establishment and promotion of regional innovation system in Uzbekistan

Development of export-oriented small- and medium-enterprises Mid- and long-Term plan for promoting innovation and sustainable economic growth in Uzbekistan

Strategies for transformation to an innovation-based economy

National Innovation System and innovation-based economy Technology, incubation and private sector development 2010 Promotion of innovation clusters and network development among industry, university and research institute

Strategies for promoting export sectors and industrial development

Export financing in Uzbekistan: lessons from the Korea’s experiences Human resources development for export-oriented industries Strategy for modernization of the Uzbek Customs Clearance System

018•2013 Knowledge Sharing Program with Uzbekistan

Uzbekistan KSP Record

Mid- and long-Term plan for promoting innovation and sustainable economic growth in Uzbekistan

Strategies for managing macroeconomic stability and sustainable economic growth 2010 Monetary policy based on Korea’s experiences Development of the mid-term public budget plan: Korean practices and their implications for Uzbekistan Capacity building for economic forecasting and statistics

Development of the Navoi Free Industrial Economic Zone

Analysis of Uzbekistan's export structure and its implications on industrial composition in the Navoi FIEZ 2009 Investment promotion strategy and systematization

Operation system and policies for the Success of the Navoi FIEZ

Analysis of the legal aspects of the Navoi FIEZ Feasibility study on the establishment of an Uzbekistan Special Economic Zone (KIEP)

Experience and implications of the Korean Special Economic Zone (SEZ)

Uzbekistan’s economic conditions and prospects 2007 Uzbekistan’s environmental promotion of SEZ

Location requirement and evaluation

Estimation of the SEZ’s economic impact

Methods to create a SEZ Industrial development and export promotion policy for Uzbekistan

Uzbekistan’s development strategy and lessons from Korea’s experiences

In search of Uzbekistan’s industrialization and export promotion strategies

2004 Macroeconomic and financial policies for industrialization of Uzbekistan: lessons from Korea’s experiences

Reform of public finance in Uzbekistan: lessons from Korea’s experiences

Strategies for harmonization of industrial policy and trade liberalization

The 2013 KSP with Uzbekistan•019 The written demand survey for 2013 KSP was delivered in November 2012 for the 2013 KSP and was discussed at High-level Policy Discussions and Final Reporting Seminar of 2012. Korea and Uzbekistan agreed on four primary topics (Agro- Processing Industry Cluster, Agricultural Production and Marketing for Building a Pilot Cluster of Agro-Processing Industry, Techno Innovation Park, Strategy for Improving the Competitiveness of SMEs) for the 2013 KSP. Korea formed its policy consultation team (Taihee Lee (Project Manager) and three others) for the finalized topics.

A total of four topics were finalized during the Demand Survey and Pilot Study trip between August 11th and August 18th under the leading theme of ‘Innovation Strategy for Agriculture and Industrial Technology’: ① A Pilot Study for the Development of Agro-Processing Industry Cluster in Uzbekistan, ② A Study of Production and Marketing for the Pilot Agro-Processing Industry Cluster in Uzbekistan, ③ Policy framework for building Techno Innovation Park, ④ Strategy of improving competitiveness of SMEs (Small and Medium-Sized Enterprises) through an industry-academic education program.

2013 Uzbekistan KSP Korea Consultation team and topics

Topic Name Affiliation Academic background

Agricultural and resource Professor, ① Kwangsuck Lee economics, Sungkyunkwan Univ. University of Hawaii

Professor, Agricultural economics, ② Kyung Ryang Kim Gangwon Univ. University of Göttingen

Professor, Radio communication and ③ Seung Kwan Jang Korea Polytechnic systems, University Myongji University

Professor, Communication & ④ Ung Sea Choi Korea Polytechnic information systems, University Myongji University

The two countries continued their joint research through in-depth dialogue with local consultants through an additional pilot study held between September 20th and September 25th. The KSP team, headed by Taihee Lee from the KDI, conducted the Additional Pilot Study and Local Reporting Workshop in Tashkent and Samarkand, Uzbekistan. The Korean delegation successfully held a local reporting workshop at IFMR, with discussions and feedback from local consultants and relevant government officials. For the Additional Pilot Study, the Korean experts had a field trip and conducted in-depth study regarding the research topics.

020•2013 Knowledge Sharing Program with Uzbekistan Afterward, an Interim Reporting Workshop was conducted in Seoul, Korea, on October 21st, 2013 in order to have presentations and discussions on the interim research findings of the KSP with Uzbekistan. Korean researchers made presentations with contents that were updated from the local reporting workshop on September 24th, which had been held during the Additional Pilot Study and Local Reporting Workshop period. The Uzbek delegation provided their first presentations based on their research findings and gave feedback to the Korean researchers.

From October 22nd to October 26th, a Policy Practitioners’ Workshop was conducted to provide policy practitioners with firsthand experience regarding the research topics. They visited research institutes, companies, and other topic-relevant organizations by two Agriculture and Industry technology teams.

From February 16th to February 22nd, 2014, the research team led by Mr. Oh, Se Ik (Senior Advisor, ex-President, Korea Rural Economic Institute) conducted the Senior Policy Dialogue and Final Reporting Workshop in Samarkand, Uzbekistan to share the final research findings with high-level policy makers and local stakeholders from the public and private sectors of Uzbekistan. The Korean delegation successfully held the Final Reporting Workshop at IFMR (Institute for Macroeconomic Research), including the rectors of National University of Uzbekistan and Samarkand Agriculture.

On February 17th, around 100 people were invited to the Final Reporting Seminar at the IFMR Grand Meeting Room to share research results. The invites included embassy personnel, the IFMR Director and Deputy-Director, university professors and others. Others came from public research institutions and international organizations to participate in the discussions.

For the High-level Policy Dialogue, the Deputy Minister of the Uzbekistan Ministry of Agriculture and Fisheries Resource, the Ministry of Economy, the Ministry of Higher and Secondary Specialized Education took part in and showed great interest in the KSP. As a result, the presentations of the research team were met with great enthusiasm from the audience, followed by a great number of questions and comments. The Uzbekistan government showed great interest in continuing with the next program.

Lastly, Director Saikov of IFMR and Mr. Vladlen Kim jointed the team at the wrap-up meeting to congratulate the successful 2013 KSP and agreed to send a written request survey form for the 2014 KSP program and promised the continued cooperation with the KSP.

The 2013 KSP with Uzbekistan•021 Executive Summary

Taihee Lee (Director, Korea Development Institute)

1. A Pilot Study for the Development of Agro- Processing Industry Cluster in Uzbekistan

Along with capability to export an enormous amount of fruits and vegetables, Uzbekistan has a great capacity to obtain economic benefits by processing fruits and vegetables and it enjoys comparative advantages made possible by favorable natural environment. This study continues focusing on agro-processing industry in Uzbekistan, particularly in the context of pilot cluster. Clustering was recommended by the 2012 KSP Project entitled “Recommendation for the Development of Agro- processing Industry in Uzbekistan”.

Clustering agro-processing industry or regional specialization of agro-processing in Uzbekistan is believed to allow efficient use of resources with advantageous soil and climatic conditions in addition with traditions and mentality of the people in rural areas. In this respect, we intend to formulate a pilot cluster in a selected region of Uzbekistan. A pilot cluster is not to be physically established. Rather it is designed under hypothetical settings. This study provides useful guidelines for clustering agro- processing in Uzbekistan referring to Koran experiences.

Clustering in agro-processing industry in Korea has been strongly backed up by rural industry policy led by the Ministry of Agriculture, Food and Rural Affairs since

022•2013 Knowledge Sharing Program with Uzbekistan 2005. The policy includes two representative programs: Regional Strategic Industry Development Project and Local Resource-based Industry Development Project. Both projects aim at building innovation and networking system. The key element of these projects is the collaboration amongst industry, academic institutions and government which supports industrialization and marketing.

The conceptual framework of rural industry policy has been recently characterized by a convergence of agriculture, manufacturing and service industry. In other words, the senary(6th) industrialization becomes the main theme of rural industry policy in Korea. The senary industry could realize the creative agro/rural economic development by integrating the primary, secondary, and tertiary industries that are all related to the resources available in rural sector. The outcomes of senary industrialization will appear as the Agro-Processing Clusters. The examples of successful clusters include the Chung-do Persimmon Cluster and the Senary Industry in Munkyung (Apple Cluster).

Both clusters are systematically organized and operated under the efficient collaboration of industry, academy institution and government. The outstanding feature of the Cheongdo Cluster is recognized by the development of functional or medical products from persimmon as well as the establishment of four-season supply channel of the dried persimmon. The high value products are developed for export.

The senary industrialization in Munkyung was adopted to revitalize the regional economy after closing of coal mines in the area in 1994. The strategy of the new industry was to induce visitors to eat, buy, enjoy, and stay when visiting Munkyung. Production, processing, marketing and tourism constitute the Munkyung Cluster.

The backbone of the Munkyung Cluster is the network of agro-processing support centers, of which the Nurturing Program for Apple Processing and Shared Use of Juice Processing Plant seem to be the most distinguished element.

Basically, we recommend the government of Uzbekistan take into account, for designing policy alternatives, the investment and technology, the human capital and capacity building, the linkages between producers and processors, and the safety and quality of products. More specifically, when considering the importance of linkage between agricultural production and processing, we recommend that agricultural processing be re-organized in the form of clustering.

Executive Summary•023 addition, Samarkand region is located with good cluster initiatives such as local government, agricultural experiment center, and Samarkand Agricultural Institute.

Among 14 counties of the Samarkand region, Bulungur and Jamboy counties were picked up as pilot cluster candidates: Bulungur for apple processing and Jamboy for tomato processing. These clusters can be classified as knowledge-driven and local resource-based agro-processing cluster.

The implementation of the cluster mechanism in Samarkand region will require the adoption of a regional program which will be implemented by the local Bulungur and Jamboy administrations in close collaboration with all stakeholders: processing enterprises, farmers, Samarkand Agricultural University, laboratories, logistics companies and others.

The main role of local authorities is associated with providing cluster stakeholders with guidelines to identify the network setting for the effective use of resources. Besides, the local governments need to attract funding from national and regional specific programs to support the clusters.

The cluster involves the interaction between various institutions and organizations, so the membership of the Coordinating council is supposed to be open to all interested parties: representatives of local authorities, various associations, farmers, companies, educational and research institutions in Samarkand region.

The local credit institutions are required to provide the clusters stakeholders with favorable terms of financing. Also, the involvement of the local leasing companies as a cluster participant is very important in order to facilitate the purchase of modern equipment and upgrade of existing infrastructure.

024•2013 Knowledge Sharing Program with Uzbekistan 2. Agriculture and Marketing Development for Agro- Processing Pilot Cluster in Uzbekistan

Agriculture is still an important sector in Uzbekistan’s overall economy contributing with over 17% to the national GDP in 2010. While cotton and grain are the most important crops in Uzbekistan, horticultural products contributed significantly to Uzbekistan’s agricultural output in 2010(Hasanov and Ahrorov, 2013). Uzbekistan is one of the main producers of fruit and vegetables in the CIS, due to its conducive and fertile land. It produces a range of high quality agricultural products, from basic commodities such as cotton and wheat to higher value horticultural products such as cherries, pomegranates, and other fruits and vegetables. The high quality and wide variety of products, easy access to the growing Central Asian and Russian consumer markets, vast pool of skilled and inexpensive human resources and wide variety of Government incentives are contributing towards the attractiveness of this sector.

However, the processing sector in Uzbekistan has its challenges. Most fruit and vegetable producers are small and have low levels of mechanization; the distribution chain is developing, but still needs substantial investment; and quality standards are not uniform across products and producers. Moreover, much of the country’s agricultural output goes unprocessed and also suffers greatly from postharvest losses. Some estimates suggest that about 30-40% of fruit and vegetables in the country are lost after leaving the farm gate. Consequently, the need for improved postharvest management and processing of horticultural produce would have a considerable significance to reduce postharvest losses and contribute to the enhancement of the returns from the subsector. The development of Agro-based clusters facilitates the efficient provision of support services to farmers and other stakeholders that take part in those clusters. The process involves the clustering or concentration of farmlands and active involvement of farmers’ organizations as a prerequisite. Implementation of an agro-processing cluster in the fruits and vegetables subsector includes three inter-connected components. These include production, processing and marketing stages. In order to produce safe and high- quality products, a variety of postharvest technologies should be widely applied.

Executive Summary•025 the implementation of agro-based clusters in Uzbekistan. Special emphasis was given to postharvest interventions aimed at reducing postharvest losses at the various stages within the value-chain. The study focused on two districts – Bulungur and Jambay – which were selected as pilot for implementation of agro-based clustering for tomato and apple respectively. A supporting system for implementation of an agro-processing cluster, marketing, distribution and post-harvest management system is outlined in detail.

Accordingly, the policy suggestions forwarded included policy support and improvements in three stages: production, processing and marketing. At production stage, introduction of new varieties, improved methods of cultivation; awareness creation through training and expansion of extension services; promotion of establishment of farmers organization and provision of supporting systems for cooperatives, conduct training; dissemination of information and safety practices during harvest; creation of awareness on appropriate methods and time of harvesting; R&D focusing on design and efficiency of harvesting tools; awareness creation among farmers on appropriate methods packing through training; development and dissemination of information materials and promotion of financial support from government and private sector; and conducting cost-benefit analysis on the different storage systems were suggested.

With regard to processing stage, awareness creation and capacity building to farmers and other stakeholders through training, extension services and dissemination of information; expansion of public investment in infrastructural development; promotion of private sector participation in infrastructural development, enhancement of public-private partnership in provision of infrastructural services in the fruits and vegetables subsector; and expansion of R&D research for the generation of appropriate postharvest technologies and quality assurance system were suggested as a direction for improvement. Finally, at marketing stage, development of market information systems and marketing strategies; construction of suitable market infrastructure (market centers at various levels); construction of on-farm sorting, pre-cooling, packing and storage facilities, and establishing collection points to avoid delays which lead to significant loss were suggested for improvement of the existing situation in the pilot project sites and to ensure smooth implementation of the agro-processing clusters.

026•2013 Knowledge Sharing Program with Uzbekistan 3. Building Policy Framework to Establish Technology Innovation Park

Uzbekistan’s main industries are fuels (at 18%), followed by machinery and metallurgy (17%) followed by light industry (13%) and food processing (13%). In terms of overall economic output, primary industries (agriculture and extractive industries) account for 21.6% while secondary industries (manufacturing) does 37.5% and tertiary (service) industries does 40.9%. The economy is transitioning from primary industries to secondary and tertiary industries. However, the industrial structure is relatively vulnerable, especially in the secondary and tertiary industries. The government has been trying to develop an industrial development policy to address these weaknesses and attract foreign investment.

Small and Medium-size Enterprises (SMEs) account for 90% of enterprises in Uzbekistan, and their influence is steadily increasing. However, they are mainly still focused on agriculture and forestry and only 16% are on industry.

This study identifies the following issues for Uzbekistan’s industrial development:

1) Imbalance between extractive industries relying upon natural resources and other industries.

2) Vulnerability in secondary and tertiary industry infrastructure.

3) Imbalance in SMEs that make up a high share of total enterprises.

Korea’s own experience with economic development is instructive. It initially focused on large companies and conglomerates that were responsible for much of its industrial development. Later, it began promoting SMEs. In 1997, Korea began to establish Techno-Parks aimed at helping SMEs promote innovation. Based on those policies, there are currently 18 Techno-Parks throughout the country.

In order to establish these Techno-Parks, the Korean government enacted special legislation to support these industrial complexes. The SMEs in Techno-Parks receive tax benefits help with finding new markets and opportunities to bid for government contracts.

Korea Polytechnic University (KPU) started Techno-Innovation Parks (TIPs) which brings Techno-Parks into universities. TIPs provide a unique model for university- industry collaboration. They help SMEs become more competitive by providing access to advanced research and development resources. At the same time, TIPs

Executive Summary•027 provide students with unique practical training opportunities. The TIP fulfills KPU’s goals of training technology leaders.

One of the successful examples of university-industry cooperation is the Engineering House (E/H), where professors, students and companies jointly participate in a research program that provides both an educational opportunity for students and an R&D opportunity for the companies. Professors and students assist each other in solving difficult technical problems and the university helps companies by providing access to high tech equipment and facilities owned by the university. Students receive a unique opportunity to gain valuable professional experience by working on actual problems companies face in the field.

Based upon the experience in Korea and Uzbekistan’s current situation, we make the following recommendations for establishing TIPs in Uzbekistan.

It is too early to transplant Korean Techno-Parks to Uzbekistan. We recommend a step by step approach that can be expanded nationwide.

As the first step, we propose establishing TIPs based upon KPU’s model for 14 local industries with nearby universities. The first priority will be to find ways to transfer technology from the universities to local industries and also find ways to commercially utilize the university’s research capabilities. It will be important to identify the key industry in the local area and also identify nearby universities with excellent research capabilities.

The next step will be to expand the university-industry collaboration established in the first step. The TIPs established in the first step will be expanded to include more companies and help these companies grow. These steps will assist Uzbekistan’s policy goals to help promote its secondary and tertiary industries.

4. Strategies for Strengthening SME’s Competitiveness through Education Program of Industry-academy Cooperation

SME is taking a big part in the structure of Uzbekistan and their employment and income are rapidly increasing. Uzbekistan, recognizing the importance of SMEs in developing economy, has been actively pursuing to foster SMEs since the early 2000s.

However, agriculture, trade, forestry, and the other field share a lot in sectors. In addition, although exports are continuously increasing, imports are rather

028•2013 Knowledge Sharing Program with Uzbekistan high compared to exports. Thus, Uzbekistan government is promoting domestic production such as machine, automobile, etc.

The notable examples of Uzbekistan’s support policies for SMEs include their plans such as ‘The Year of SME’ and ‘SME Investment Sector in Priority’. Moreover, Uzbekistan is encouraging SMEs by investing in SMEs and its exports, and holding the international exhibition through The Korea Chamber of Commerce and Industry under those slogans.

Higher education in Uzbekistan shows a strongpoint in basic studies, but it is vulnerable in the sector of application. As a typical example, NUUz located in Tashkent is the best university in Uzbekistan as well as one of the biggest universities in Central Asia, with many research achievements. On the other hand, it has such problems in development of application sector and commercialization of research achievements. Therefore, NUUz is preparing to establishTIP (Techno Innovation Park) in the physics department in between buildings under remodeling in order to try to settle the matter.

In the case of Korea’s support policy on SMEs and the change of industry- academy cooperation, the policy called ‘long-term plan for SME promotion’ had started to protect and nurture them since 1980s with recognition on the importance of SMEs. Thus, the necessity of industry-academy cooperation was on the issue, and a practical program to support companies was promoted. In 1990s, it had started establishing nationwide Techno-Park which was able to promote industry-academy cooperation and support for companies at the same time.

KPU is a specialized university established in 1997 when industry-academy cooperation was actively harmonized and its importance was on the issue. Currently, KPU is running the program such as field training, graduation work associating with companies, Engineering House(E/H), family company system, business incubation center, Technology Innovation Park(TIP), public equipment support center, etc.

The main key point of each of these programs is: for TIP, it acts as a model of Techno-Park in the university, for E/H, it provides joint research among companies, professors, and students, and for family company system, it can educate and nurture companies in cooperation with neighboring industrial complex.

Executive Summary•029 best in Uzbekistan due to its excellent research achievement. In addition, in terms of geographical location, Tashkent city is most vitalized in industrial sectors. In conclusion, it is considered that Tashkent is an appropriate place to promote the model business for industry-academy cooperation.

Deployment of this study was based on recommendation of Technology Innovation Park construction policy which presented in Chapter 3. In the first step, as the Technology Innovation Park in Tashkent, the capital city of Uzbekistan, will be constructed in the National University of Uzbekistan(NUUz), in Section 1 and 2, the current status and development policy of SMEs in Uzbekistan and National University of Uzbekistan status have been analyzed. In Section 3 and 4 introduced the policy and strategy for the strengthening SME competitiveness in Korea and KPU education system for the cooperation between industry and university. The last section presented Technology Innovation Park building method for strengthening SMEs’ competitiveness in Uzbekistan.

030•2013 Knowledge Sharing Program with Uzbekistan 2013 Knowledge Sharing Program with Uzbekistan: Innovation Strategy for Agriculture and Industrial Technology Chapter 1

A Pilot Study for the Development of Agro-Processing Industry Cluster in Uzbekistan

1. Introduction 2. ‌Agenda for the Development of Agro-processing Industry in Uzbekistan 3. Clustering Agro-processing Industry ■ Chapter 01

A Pilot Study for the Development of Agro- Processing Industry Cluster in Uzbekistan

Kwangsuck Lee (Sungkyunkwan University) Vladlen Kim (Institute of Forecasting and Macroeconomic Research) Ibragim Ganiev (Samarkand Agriculture Institute) Zafar Urakov (Samarkand Regional Administration)

Summary

032•2013 Knowledge Sharing Program with Uzbekistan Clustering in agro-processing industry in Korea has been strongly backed up by rural industry policy led by the Ministry of Agriculture, Food and Rural Affairs since 2005. The policy includes two representative programs: Regional Strategic Industry Development Project and Local Resource-based Industry Development Project. Both projects aim at building innovation and networking system. The key element of these projects is the collaboration amongst industry, academic institutions and government which supports industrialization and marketing.

Samarkand region has high potential for agro-processing with fruits and vegetables. The remote production area in particular is suitable for producing fruits

Chapter 1 _ A Pilot Study for the Development of Agro-Processing Industry Cluster in Uzbekistan•033 and vegetables for processing. Many agro-firms with processing units are located in Samarkand. They could be good benchmarks for pilot study in Samarkand. In addition, Samarkand region is located with good cluster initiatives such as local government, agricultural experiment center, and Samarkand Agricultural Institute.

034•2013 Knowledge Sharing Program with Uzbekistan 1. Introduction 1.1. Economic Transition and Agricultural Economy in Uzbekistan

Uzbekistan is located in the heart of Central Asia surrounded by Kazakhstan, Kyrgyzstan, Tajikistan, Afghanistan, and Turkmenistan as seen in [Figure 1-1]. So, the country is landlocked. However, Uzbekistan is the most populous country in the region with rich natural resources and agricultural base.

The Government of Uzbekistan has committed to a gradual transition to a market-based economy since gaining independence in 1991, which resulted in remarkable achievements in its economy. The transition and modernization of Uzbekistan economy can be categorized into four stages as summarized below.

(1) The first stage (period 1991-1995) included the formation of market basis, sequential transformation of the economy and the adaptation of industrial enterprises to the new conditions. Policy emphasis was given to the sectors such as agricultural products processing, food, light, metallurgy, and energy.

(2) The second stage (period 1996-2000) is characterized by the stabilization of industrial production and the active involvement of new refining capacity. Agricultural products processing, food, textile, automobile machinery, oil and gas energy were included in the modernization plan.

(3) The third stage (period 2001-2005) accelerated the market reforms and moved towards the liberalization of economy by deepening the institutional transformation in whole industrial sectors.

(4) The fourth stage (since 2006) paid great attention to high value added industries including electronics, electrical appliances, IT, etc. Technological re-equipment and production diversification became the major modernization issue during this stage.

Uzbekistan is one of the major producers and exporters of cotton in the world. While the importance of cotton has declined significantly, other products of agricultural sector such as grain, fruits, and vegetables have supported the steady growth of agricultural industry in Uzbekistan. As commonly appears in most developing countries, the share of agriculture in GDP of Uzbekistan has slightly declined in recent years.(

)

Chapter 1 _ A Pilot Study for the Development of Agro-Processing Industry Cluster in Uzbekistan•035 [Figure 1-1] Map of Uzbekistan

Lake Balkash South Syr - Darya Aral Sea

Karakaipakstan KAZAKHSTAN Moynaq Turkistan Qonigirat Kyzylkum Nukus Desert Shymkent KYRGYZSTAN Uchquduk Urgench Tashkent Khiva Khorezm Aidarkul Lake Fergana Valley Kokand Osh Nurata Fergana

Bukhara Samarkand

Shakhrisabz TAJIKISTAN Turkmenabat Qarshi Dushanbe Ashgabat TURKMENISTAN Termiz IRAN AFGHANISTAN

Source: http://www.lonelyplanet.com/maps/asia/uzbekistan/

The value added in agricultural sector in Uzbekistan has been steadily growing since 1991. Its total value added recorded 5,420 million US dollars (2005 constant price) in 2012 which is more than double compared to that of 1991. In terms of value added, the share of agriculture in GDP declined to 18.9% in 2012 from 36.9% in 1991. Although the percentage share of agriculture in GDP declined, the value added per agricultural worker has significantly increased since 1995 as seen in [Figure 1-2].

036•2013 Knowledge Sharing Program with Uzbekistan

Major Economic Indicators in Uzbekistan, 1991~2012

1991 2000 2005 2010 2012

Agriculture, value added 2.4E+09 2.6E+09 3.58E+09 4.75E+09 5.42E+09 (constant 2005 US$)

Agriculture, value added 2.2 3.2 6.2 6.8 7.0 (annual % growth)

Agriculture, value added 36.9 34.3 27.9 19.0 18.9 (% of GDP)

Manufacturing, value 1.05E+09 1.16E+09 1.37E+09 1.49E+09 added (constant 2005 US$)

Manufacturing, value -1.3 2 4 4 added (annual % growth)

Manufacturing, value 9.4 9.0 12.7 12.7 added (% of GDP)

Industry, value added 3.45E+09 2.45E+09 2.96E+09 3.81E+09 4.13E+09 (constant 2005 US$)

Industry, value added 4.0 1.8 4.9 4 4.4 (annual % growth)

Industry, value added 36.5 23.1 23.1 32.5 32.3 (% of GDP)

Source: The World Bank(http://data.worldbank.org/country/uzbekistan)

[Figure 1-2] Value added per agricultural worker in Uzbekistan, 1995~2010

3000

2500

2000

1500 USD

1000

500

0 1995 2000 2005 2010

Year

Source: FAOSTAT, FAO (http://faostat.fao.org/site/666/default.aspx#ancor)

Chapter 1 _ A Pilot Study for the Development of Agro-Processing Industry Cluster in Uzbekistan•037 Uzbekistan has taken institutional and structural reform for the sustainable development of the agricultural sector since 1990s. The structural change was significantly influenced by a series of government efforts. Uzbekistan has adopted a number of laws to encourage agricultural growth and rural development including the Law on Farms, the Law on Dehkan Farms, the Law on Agricultural Cooperatives (shirkat), and the Law on Land Code. As a result of the transition, three types of farms were created in Uzbekistan: rural cooperatives (shirkats), independent private farms, and dehkan farms.

Since independence in 1991, cotton production in Uzbekistan has declined by approximately one-third. The major reason for the decline was a change in government policy. Uzbekistan has implemented extensive measures to increase production for the saturation of the domestic market of food products. The government allowed the transfer of areas previously used for cotton production to private cultivation of non-cotton crops, and encouraged a shift to wheat production in order to cope with economic and political disruption and to meet new targets for national food security. In order to move away from the cotton-centric monoculture system, the government tried to diversify its agricultural production in order to achieve food self-sufficiency and promote agro-processing industry for increasing value-added in agricultural sector.

In 2006, a holding company called “Uzvinprom-Holding” was established according to the Presidential Decree “On organizational measures to reform the horticulture and viticulture” which counted 170 enterprises, out of which 67 are wine processing companies, 65 primary processing and bottling and 84 specialized stores. Association of Food Industry Enterprises, launched in 2011, now unites over 180 enterprises throughout the country that specialize in the production of oil and fat, fruits and vegetables processing and meat and dairy products. The Association includes 17 joint ventures, established together with globally renowned companies such as “Nestle Uzbekistan”, “Coca-Cola Bottlers Uzbekistan”, “International Beverages Tashkent” LLC (“Pepsi-Cola”), and others.

The key documents setting out the Government policies for the agriculture and agro-processing industry development include: - Decree of the President of the Republic of Uzbekistan “On Measures for Intensification of Economic Reforms in Fruit and Vegetable and Grape Cultivation Sectors”, of 09.01.2006; - Decree of the President of the Republic of Uzbekistan “On Organizational Measures for Restructuring Fruit and Vegetable and Grape Cultivation Sectors”, of 11.01.2006; - Resolution of the Cabinet of Ministers of the Republic of Uzbekistan “On Adoption of the Resolution on Procedure of Establishment of Agricultural

038•2013 Knowledge Sharing Program with Uzbekistan Companies and Organization of their Activities in the Sectors of Fruit and Vegetable and Grape Cultivation”, of 10.03.2006; - Resolution of the President of the Republic of Uzbekistan “On Establishing of the Working Group for Preparation of the Proposals on Equipping the Farms with Modern Equipment and Mini-Technologies Required for Fruit and Vegetables Processing”, of 07.07.2006; - Resolution of the Cabinet of Ministers of the Republic of Uzbekistan, “On Adoption of the Procedure of the Preferential Crediting Scheme and Leasing Services to Farms and other Small Business Enterprises Engaged in Processing of Fruit and Vegetables and Livestock Products for Purchase of Mini-Technologies and Compact Equipment”, of 20.08.2007; - Resolution of the President of the Republic of Uzbekistan “On Program of Further Modernization, Technical and Technological Re-Equipment of Agricultural Production for 2012-2015”; - Resolution of the Cabinet of Ministries of the Republic of Uzbekistan “On additional measures on deepening processing of raw agriculture products, increasing volume of production and expanding assortment of food products for 2012-2015”, of 23.08.2012; - Resolution of the President of the Republic of Uzbekistan “On State Program “Year of the well-being and prosperity”, of 14.02.2013.

Along with these measures, agricultural production in Uzbekistan has continued to grow since 1991. As seen in

, the production of fruits and vegetables has grown by more than 2 or 3 times during the period of 1991 to 2011. In addition, such fruits and vegetables are rich with unique taste and flavor because of favorable environment and climate found in Uzbekistan.

Production of Vegetables and Fruits in Uzbekistan (1,000 ton) 2011 to 1991 Products 1991 2000 2005 2011 in %

Vegetables 3,348.0 2,644.7 3,517.5 6,993.7 208.9

Fruits and Berries 516.6 790.9 949.3 1,871.1 362.2

Grapes 480.4 624.2 641.6 1,090.2 226.9

Melons 925.8 451.4 615.3 1,294.7 139.8

Source: The State Committee of Statistics, Republic of Uzbekistan

In 2012, the total exports from about 185 kinds of fruit and vegetable products reached 1.3 billion USD which is 1.5 times more than that of 2003. Among this

Chapter 1 _ A Pilot Study for the Development of Agro-Processing Industry Cluster in Uzbekistan•039 amount, the export of fresh fruits and vegetables accounted for 65% while the export of dried and processed fruits and vegetables accounted for 23%, with remaining 12% coming from bean.

In the structure of fruits and vegetables export, the share of fresh agricultural products increased from 61% to 65% during 2003~2012. However, the share of processed fruits and vegetables remained 23% although the exported quantity increased from 104 thousand tons to 141 thousand tons during the same period.

Uzbekistan traditionally supplied fruit and vegetables mainly to Russia and Kazakhstan markets. Recently, however, the demand for fruits and vegetables produced in Uzbekistan has significantly increased in numerous European and Asian countries. Nowadays, fresh and processed fruit and vegetable products are exported to more than 80 countries. During the last 2 years, the trade market has expanded to include Norway, Thailand, Vietnam, Malaysia, Indonesia, Brazil, Cyprus, Macedonia and the United States.

The development of fruits and vegetables industry of Uzbekistan has great export potential in the future. Uzbekistan can be one of the largest producers and exporters of high quality and competitive fruits and vegetables in the world. The export potential of the industry is estimated to be more than 5 billion USD, which is significantly higher than the 2 billion USD of current cotton fiber exports.

1.2. Objective and scope of the study

This study continues focusing on agro-processing industry in Uzbekistan, particularly in the context of pilot cluster. Clustering was recommended by the 2012 KSP Project entitled “Recommendation for the Development of Agro-processing Industry in Uzbekistan”1).

Uzbekistan has a great potential to attain economic values added by processing fruits and vegetables which enjoy comparative advantages due to its favorable natural environment. The 2012 KSP report, however, indicates that the full potential of agro-processing industries has not yet been realized in Uzbekistan. The most imminent sources of obstacle to the development of agro-processing industries in Uzbekistan can be categorized into the following: (1) agro-processing industry itself; (2) availability or supply of raw materials (agricultural products); and (3) infrastructures found in above areas.

Under this circumstance, a special attention needs to be given to the agro- processing industries. Clustering agro-processing industry or regional specialization

1) Refer to Lee et. al., (2013).

040•2013 Knowledge Sharing Program with Uzbekistan of agro-processing in Uzbekistan is recommended in that it would allow efficient use of resources with advantageous soil and climatic conditions in addition with traditions and mentality of the people in rural areas.

In this study, we intend to formulate a pilot cluster in a selected region of Uzbekistan. A pilot cluster is not to be physically established since the establishment of a new cluster requires actual investment and collaboration among participants associated with strong government supports. Rather it is designed under hypothetical situations. This study, in this respect, provides useful guidelines for clustering agro-processing in Uzbekistan referring to Koran experiences. Policy framework will be suggested for developing a road map that can be used to establish agro-food cluster in Uzbekistan.

2. Agenda for the Development of Agro- processing Industry in Uzbekistan

Fruits and vegetables produced in Uzbekistan are believed to have a great potential for export to Russia, Kazakhstan, and European markets. The importance of fruits and vegetables in Uzbekistan agriculture can be evidenced by the fact that grapes, fruits, tomatoes, vegetables, peaches and nectarines, apricots, cabbages, and raisins are ranked top 10 agro-commodities in terms of export value in 2011(

Uzbekistan Top Ten Agro-commodities: Export value in 2011

Rank Commodity Value (1000 USD)

1 Cotton lint 646,190

2 Grapes 132,217

3 Fruit (fresh) 65,760

4 Tomatoes 60,765

5 Vegetables (fresh) 43,405

6 Peaches and nectarines 38,656

7 Wheat 35,346

8 Apricots 31,820

9 Cabbages and other brassicas 27,646

10 Raisins 27,526

Source: FAOSTAT, FAO (http://faostat.fao.org/site/342/default.aspx)

Chapter 1 _ A Pilot Study for the Development of Agro-Processing Industry Cluster in Uzbekistan•041 However, approximately 30 percent of the fruits and vegetables produced in Uzbekistan are known to be wasted without being properly handled or processed every year. The proportion of processing out of their total production remains lower than the potential for value-adding. This indicates that strategic plans are required to promote agro-processing industry, particularly for fruits and vegetables.

The 2012 KSP recommendation (Lee et. al., 2013) was based on the analysis of the limitations prevailing in agro-processing industry in Uzbekistan. Thus, it suggested a pilot clustering project of agro-processing industry in an effort to establish a road map for national or regional agro-food clusters.

A large number of the agro-processing firms in Uzbekistan were created during the period of the Soviet Union and and privatized after the Independence. The processed commodities by these firms are mainly exported to Russia and Kazakhstan and they include fruits juice, concentrated fruits, canned vegetables, frozen fruits and vegetables, vegetable paste and puree, dried fruits and vegetables, tea, and so forth.

The small-scale agro-processing units other than industrial firms are usually operated by farm households and located in rural areas where they produce dried fruits, juice, and pasta. These products are mostly traded unofficially and isolated from the main stream of the marketing channel.

The rates of processing of fruits and vegetables in Uzbekistan have not been significantly increasing since 2004 (

). Rather, their processing has stagnated after 2009. Furthermore, a forecast does not suggest a significant increase in the rate of processing for fruits and vegetables. The demand for vegetables for processing purposes is forecasted to be 11.9 percent of total production in 2015. This level is almost the same as in 2011. The forecasted processing rate of fruits is 20.2 percent in 2015, which is about 2 percent point increase compared with the level in 2011. Considering the fact that around 30 percent of the fruits and vegetables are to be wasted after harvest, the capacity of processing of these products looks like it’s too far behind to absorb the loss. If the current trend continues without any innovative attempts, the problem could not be solved.

042•2013 Knowledge Sharing Program with Uzbekistan

Production and Processing of Fruits and Vegetables in Uzbekistan

Vegetables Fruits Produced Processed Produced Processed Year B/A D/C (1,000 ton) (1,000 ton) (1,000 ton) (1,000 ton) (%) (% ) (A) (B) (C) (D) 2004 3,336.1 250.3 7.5 851.7 130.0 16.3 2005 3,517.5 308.1 8.8 949.3 201.7 21.2 2006 4,279.4 674.6 15.8 1,171.8 215.1 18.4 2007 4,669.9 634.0 13.6 1,269.1 165.9 13.1 2008 5,217.4 663.0 12.7 1,402.8 265.3 18.9 2009 5,704.7 679.6 11.9 1,542.9 293.5 19.0 2010 6,346.4 706.5 11.1 1,710.3 304.5 17.8 2011 6,605.0 762.5 11.5 1,746.8 320.2 18.3

2015 6,809.6 810.5 11.9 1,782.4 360.4 20.2 Forecasted*

Source: State Committee of Statistics, Republic of Uzbekistan Note: *refer to U. Mukhitdinova, 2010

The major factors constraining the development of agro-processing industry in Uzbekistan are found to be those associated with investment and technology, human capital and capacity building, and linkages connecting from production to final demand. Among these constraints, the linkage elements appear to be the most critical one.

Since the sufficient raw material in terms of quantity, quality, price, and time is the crucial element for the success of agro-processing firms, it is generally maintained that the agro-processing companies should be located mainly in rural areas. Likewise, the close link between agricultural producers and processors suggests the further development of agricultural sector.

When considering the importance of linkage between agricultural production and processing, we can recommend that agricultural processing plants should not only be located in rural areas but also in the form of clustering. Rural nonfarm activities like agro-processing tend to cluster geographically. Some recent literature on clusters has explored dynamic advantages of clustering, such as sharing the costs of technological change, sharing information on new designs, processes, products, and so forth (Schmitz and Nadvi, 1999; Schmitz, 1995).

Chapter 1 _ A Pilot Study for the Development of Agro-Processing Industry Cluster in Uzbekistan•043 3. Clustering Agro-processing Industry 3.1. Basic Principles of Agro-clustering

3.1.1. Development of cluster concepts

Clusters have become recognized as a potentially effective mechanism for enhancing competitive advantage. Thus, governments around the world have sought to develop mechanisms to identify actual and potential clusters and to promote their formation and operation.(Johnston, 2003)

The mechanism enables member organizations of clusters to drive the pace and direction of innovation, stimulate the formation of new businesses, and access new knowledge and learning. This leads to increases in productivity and economic performance of clusters.

However, it is evident that clusters cannot be artificially constructed like manufactured materials. Rather, the conditions can be established which facilitate the formation and contribution of clusters to economy.

The economic history of clusters traces back to the period long before the Industrial Revolution when geographic concentrations of trades and industries had apparently been the significant part of the economic landscape.

Alfred Marshall gave attention this phenomenon in 1890 and noted the tendency for specialized companies to be concentrated in ‘industrial districts’. Schumpeter(1934) also noted the evidence of clustering in terms of innovation activities when exposing the role of entrepreneurs and the creative forces of destruction in economic activity.

Porter (1990) tried to analyze the competitive advantage of nations by asking why some countries produce, relatively, so many more competitive firms. This brought the concept of industrial clusters to the attention of scholars and policy makers. According to Porter, the competitive advantage of firms is presented as resulting from the operation of a ‘diamond’ of four interacting forces such as (1) factor conditions, (2) demand conditions, (3) firm strategy, structure and rivalry, and (4) related and supporting industries.

When all the elements of the ‘diamond’ are working effectively, benefits flow forward, backward and horizontally. Porter (1990, p.151) states that: “Aggressive rivalry in one industry tends to spread to others in the cluster, through the exercise of bargaining power, spinoffs and related diversification.

044•2013 Knowledge Sharing Program with Uzbekistan Entry from other industries within the cluster leads to upgrade by stimulating diversity in approaches to R&D… Interconnections within the cluster lead to new ways of competing and entirely new opportunities.”

Clusters can also be viewed as a subset of networks. Marceau and Dodgson(1999) regarded clusters as open system of inter-connected firms and institutions with related interests. Offering a rich web of channels, network interactions generate social, market, and exchange relationships based, respectively, on trust, contracts, and alliances.

However, when a value chain is involved, clusters differ from networking. Clusters are an alternative way of organizing the value chain. Porter (1998, p.80) insists that “compared with market transactions among dispersed and random buyers and sellers, the proximity of companies and institutions in one location and the repeated exchanges amongst them fosters better coordination and trust.” In this regard, a cluster represents a robust organizational form. It offers advantages in efficiency, effectiveness, and flexibility.

3.1.2. Definitions and characteristics of clusters

The definitions of cluster have multiplied since the cluster has become popular to pursue a large variety of objectives. While, some emphasize location, some industry sector, and others innovation, ostensive definitions are commonplace: “Silicon Valley”, “the California wine cluster or the Italian leather fashion cluster”, etc. The common theme is that it is the linkages between firms and other organizations that provide the economic value of clusters.(Johnston, 2003)

Porter(1998) has defined clusters as “geographic concentrations of interconnected companies and institutions in a particular field.” In addition, Porter(1998) states the following : “Clusters encompass an array of linked industries and other entities important to competition. They include, for example, suppliers of specialized inputs such as components, machinery, and services, and providers of specialized infrastructure. … Finally, many clusters include governmental and other institutions - such as universities, standard-setting agencies, think tanks, vocational training providers, and trade associations – that provide specialized training, education, information, research, and technical support.(p.78)

Clusters take varying forms depending on their depth and sophistication. But they mostly include end-product or service companies; suppliers of inputs, machinery, and services; financial institutions; and firms in related industries. In addition, clusters often include government, universities, standard-setting agencies, etc. Simply

Chapter 1 _ A Pilot Study for the Development of Agro-Processing Industry Cluster in Uzbekistan•045 speaking, clusters are groups of industries related by links of various kinds.

The OECD(1999) provides a different working definition, placing greater emphasis on the knowledge dimension of clusters: “Clusters are characterized as networks of production of strongly interdependent firms (including specialized suppliers), knowledge producing agents (universities, research institutes, engineering companies), bridging institutions (brokers, consultants) and customers, all linked to each other in a value-adding production chain. Cluster policies comprise the set of policy activities which aims to: stimulate and support the emergence of these networks; strengthen the inter-linkages between the different parts of the networks; and increase the value added of their actions.( p.381)

What clearly emerges from all of this is that there is no single standard model of clusters. Every country or region has a different set of cluster characterized by historic background, strength of knowledge base, R&D intensity, share of innovative products and so forth. (Den Hartog, Bergman, and Charles, 2001)

Johnston (2003) provides a standard typology of clusters by differentiating them into two dimensions. The first dimension upon which clusters can be differentiated is whether they are primarily trade-driven or knowledge-driven. The former are based on enhancing business opportunities within the cluster, either through direct trade, or by pooling resources to compete for export markets.

The latter are based on opportunities for learning from a variety of different knowledge sources. They include clusters which develop around knowledge- producing institutions such as universities and government research agencies, but also inter-linked firms, suppliers and customers. In this framework, the primary benefit of the linkage is the sharing of knowledge and learning.

3.1.3. Porter’s Diamond Model for developing countries

The competitive environment characterized by the globalization and liberalization has dramatically altered the small scale agro-food businesses in the developing countries. It is true especially when extensive organizational, institutional and technological changes take place. In this regard, Neven and Dröge(2011, p.3) indicate that in the face of this daunting challenge, one industrial strategy that appears to warrant optimism for small and medium sized enterprises(SMEs) is clustering. They also argue that Porter’s prominent diamond model has been ignored in cluster research in developing countries.

Investigating the potential contribution of the diamond model by comparing it with

046•2013 Knowledge Sharing Program with Uzbekistan the other two models (flexible specialization and collective efficiency models) used to study agri-industrial clusters in developing countries, they conclude that the diamond model is superior in explaining the dynamics of clusters and their role in increasing productivity through the process of industrialization.” (Neven and Dröge, 2001, p.8)

Porter’s diamond model emphasizes four interrelated factors, each of which represents a determinant of regional advantage ([Figure 1-3]): (1) firm strategy, structure and rivalry (2) demand conditions (3) factor conditions, and (4) related and supporting industries.

Neven and Dröge(2001, p.4) explain that ““chance” and “government” are two factors that influence these four determinants, but are not determinants themselves”. These six factors differ from location to location, thus explaining why some firms (or industry) succeed in a particular location. This implies that these determinants arise not through a random process. Rather, the importance of the role of location is revealed.

Clusters are defined by Porter as groups of industries related by links of various kinds and upon being created, they evolve and ultimately disappear, just like organisms. The diamond theory explains clearly how each determinant is influenced by the other three determinants. For example, the intensive rivalry, the existence of world class research institutes and suppliers, and the sophisticated home demand all contribute to creating those advanced and specialized factors that result in increased productivity.

[Figure 1-3] Porter’s Diamond Model

CHANCE Firm Strategy, Structure and Tivaliy

Factor Demand Conditions Conditions

Related and Supporting GOVERNMENT Industries

Source: Neven and Dröge, 2011.p.4

Chapter 1 _ A Pilot Study for the Development of Agro-Processing Industry Cluster in Uzbekistan•047 A substantial body of case-study material emerged after the results from the Italian SME studies were made public (published in the late 80’s, early 90’s) (Schmitz and Nadvi, 1999). From this body of literature, several things became evident, as given below (Adeboye, 1996; Visser, 1999; Schmitz and Nadvi, 1999; Weijland, 1999).

Although less common in economically less developed countries than in developed countries, industrial clustering does exist and it appears to be significantly outperforming dispersed firms. Clusters cannot be created from scratch; there needs to be a critical mass of enterprises and skills, however rudimentary.

In developing countries, clusters play a critical role as seed beds of the industrialization process since they efficiently mobilize unused or hidden resources. After they have reached a more mature stage, clusters take up the challenge of globalization and liberalization. This requires international benchmarks of product quality (standards and grade, branding, etc) and production flexibility (consumer response).

These are all associated with the dynamic nature of the determinants and their interactions explained by Porter. This is why the Porter’s diamond theory is considered the best paradigm for the study of agro-food industry in developing countries (Neven and Dröge, 2001).

The dynamic features of clusters are more importantly engaged with the fact that clusters enable innovation and speed productivity growth than their capability to reduce transaction costs and boost efficiency. The other models such as flexible specialization and collective efficiency models focus much more on efficiency and transaction costs and leave out the important linkage aspects. For example, the collective efficiency framework shows deficiency in capturing the role of external linkages (Schmitz and Nadvi, 1999). In dynamic clusters, these linkages are more than mere spot market transactions influenced by market power. They involve the movement of capital (e.g., FDI), people (e.g., entrepreneurs), information (e.g., on shifting consumer tastes) and knowledge (e.g., technology) (Neven and Dröge, 2001).

It may appear that developing countries have little to start with: no rivalry, no effective home demand, no supporting industries and no factors other than cheap labor. To a large extent, such assessment is correct. There are however also “hidden resources” that allow for a lot of leverage but that face significant frictions (in the physical and transaction cost sense). Making these hidden resources surface will require an effort that is like “plowing the sea” (Fairbanks and Lindsay 1997).

Models currently used to study clusters in developing countries are either not very applicable to the developing countries (flexible specialization) or miss critical

048•2013 Knowledge Sharing Program with Uzbekistan elements like external linkages (collective efficiency framework). Porter’s diamond model thus appears to be intrinsically better in that it does not assume an initial starting point nor an ideal to strive for; rather it proposes processes that make a cluster move from one stage to another. In this respect, Neven and Dröge (2001) conclude that Porter’s diamond theory seems better than other paradigms currently used in the study of clusters in developing countries and it is hoped that such characteristic of Porter’s diamond theory contributes to its acceptance by the scholars of clusters in the developing world.

3.2. New Paradigm of Agro-Food Policy in Korea

3.2.1. National Food Cluster

The globalization and liberalization that began after 1980s provided a momentum for Korea to seek policy reforms and structural adjustments. The ongoing WTO negotiations are expected to focus on lowering trade barriers such as high-tariff and state-managed international trade. Non-tariff measures including quarantine are also hot issues on the negotiation table.

Consumer sovereignty is strengthened as the initiative of food market shifts from producers to consumers. The product differentiation will be accelerated which is closely related to the diversified consumption of food. As household income grows, the dining industry is also anticipated to expand. In this trend, the roles of the storage and processing will continue to increase and will be accompanied by the combined industrialization of the food industry through vertical integration.

Under these circumstances, the role of Korea’s future agriculture and food industry must be redefined and reshaped. The Korean agriculture as a life industry is supposed to supply cheap and high-quality food to people in safe and stable manners. The Korean agriculture should also contribute to the growth and stability of the national economy. Agriculture is one of the key industries that create jobs and value-added from its natural resources. It is also widely recognized that agriculture is the ground for traditional and regional culture as well as political and social stability.

In sum, the changing conditions that Korean agro-food industries face include strengthened consumer power for high-quality and diversified food and intensified global competition. In this regard, Korea’s policy for agriculture needs to be modified. This circumstance leads to a paradigm shift in Korea’s agricultural and food/agro-processing policies.

As the new millennium emerged with rapid growth of food industry including agro-processing, the Korean government believed that the Acts of nurturing agro-

Chapter 1 _ A Pilot Study for the Development of Agro-Processing Industry Cluster in Uzbekistan•049 processing industry which were enacted during 1990s were not enough to support the food industry, especially when it came to strengthening the linkages between the agricultural sector and food industry. New legal framework was required in this respect and the previous policies for nurturing agro-processing industry were replaced by ”The Food Industry Promotion Act (Act No. 8796)” in 2007.

The main objective of this Act was, by strengthening the linkages between the agriculture and food industry, to promote a robust food industry with competitiveness, thus providing people with diverse and safe food, and ultimately contribute to impvoring people’s quality of life and growing national economy.

One of the distinctive contents of this law includes clustering food industries: the law states that the Minister of Agriculture may build a food cluster by relocating firms, research institutes, colleges, and other related facilities in order to generate synergy effects in the food industry. The 2007 Food Industry Promotion Act was reinforced by the Act No. 10889 enacted in July 2012. The title of the law remains same as that of the previous Act No. 8796.

However, it differs from the previous one in few areas. The new Act particularly clarifies the clustering of food industries in the title of “National Food Industry Clusters”. This law provides more specific legal background to initiate the establishment of clusters. The “Foodpolis” is currently under construction as a convergence cluster of the food industry in an area of 232 ha. along with 126 ha. of residential zone. It is located in the city of Iksan, Jeollabuk-do Province. The Cluster is jointly being established by the Ministry of Agriculture, Food and Rural Affairs, Jeollabuk-do Provincial Government and Iksan City.

3.2.2. Special Zone for Agro-processing

The “special zone” system is administered by the Ministry of Knowledge and Economy in order to foster local economy. When a region is selected as a “special zone”, the region will be granted various favors such as financial supports and waives of legal restrictions from local government. The “special zone” system was launched by enacting “the Act of special waives for special development region” in 2004.

Although the special zone is selected by the central government (the Ministry of Knowledge and Economy), the local government is responsible for taking care of the zone with respect to performance of the project which is even being implemented autonomously. Under this scheme of the policy, a number of agro-processing clusters have been supported. The successful examples include Raspberry Processing Special

050•2013 Knowledge Sharing Program with Uzbekistan Zone in Gochang, Red Pepper Paste Special Zone in Sunchang, OMIZA2) Special Zone in Munkyung, and Persimmon Special Zone in Sangju, among others. The common characteristics of these “special zone” are the inter-linkages of agricultural production, processing, and tourism. In addition, they are established and operated in an association with the supporting agencies such as academia, research institutes, and governments (central and local).

3.2.3. Emerging Senary Industry

The agro-processing industry particulary located in rural area has been supported by the Rural Industrial Policy, which is mainly carried out by the Ministry of Agriculture, Food, and Rural Affairs. A series of rural industry policy since 1990 is summarized in

. The main theme of the programs in the policy during 1990~2007 includes the rural industrial park which is associated with the development of local agro-processing industries as well as the local resource- based industry development. However, since 2008, the convergence of agriculture, manufacturing and service industry has appeared as a new program. This also represents one of the features of new paradigm of Korea’s agricultural policy

Rural Industry Policy in Korea since 1990

Period Major Programs

Rural Industrial Park 1990~1999 Local Agro-processing

Rural Industrial Park 2000~2007 Regional specialized industry/Local resource-based industry Agro-processing industry

Rural Industrial Park Regional specialized industry/Local resource-based industry 2008~ Convergence of agriculture, manufacturing and service industry (the Senary Industrialization)

Source: rearranged from Kim, Y. R., et. al., 2012

These programs are currently implemented by the rural industrial projects including the Regional Strategic Industry Development(from 2005) and Local Resource based industry Development (from 2007), as seen in

. The above two projects are commonly designed to promote the business of rural industry through building innovation and networking system. The networking system is constructed by the linkages amongst industry, acadey, research institute

2) Fruits of Maximowiczia typica

Chapter 1 _ A Pilot Study for the Development of Agro-Processing Industry Cluster in Uzbekistan•051 and government. In other words, clustering becomes the main element of the rural industrial policy in Korea.

Rural Industrial Projects by the Ministry of Agriculture, Food and Rural Affairs

Regional Strategic Industry Local Resource-based Development (2005~ ) Industry Development (2007~ )

Financial $5 billion(3years) $3 billion(3years) Support

Business promotion Business promotion System (industry-academy-institution- (industry-academy-institution- government) government)

Building innovation and Building innovation and networking system networking system Contents Supporting industrialization and Supporting industrialization and marketing marketing

Source: rearranged from Kim, Y. R., et. al., 2012

The clusters of agro/food processing industries may have multi-dimensional aspects in terms of definition, organization, operation, and so forth. However, the most important base in forming a cluster would be the location factor. As explained in the Porter’s model, the four determinants are associated with regional advantage. In this perspective, the rural industrial projects represented by the Regional Strategic Industry Development and the Local Resource-based Industry Development are consistently complying with the cluster concept of the Diamond Model. The locational or regional competitiveness can be realized by utilizing comparative advantage of local-based resources under regional specific development strategy. Supportive infrastructures including logistics, R&D, human resources, and governmental administrative service will in turn strengthen the network system of the cluster.

The emerging concept of the senary industrialization is also local resource- based development strategy. The senary industry could realize the creative agro/ rural economic development by integrating the primary, secondary, and tertiary industries that are all linked to the resources available in rural sector ([Figure 1-4]). The convergence of the rural industries in a new (senary) industry can be termed a cluster. The clustering structure is embodied in this process.

The Ministry of Agricultur, Food and Rural Affairs supports the Exhibition of the Senary Industry every year (see [Figure 1-5]). In 2013, about 160 agro-clusters from 72 cities and counties participated in the Exhibition. During the event, the participants

052•2013 Knowledge Sharing Program with Uzbekistan open their booth to exhibit and sell their outputs produced from the clusters. Although the types of cluster are classified into four groups (corporate-driven, farm- driven, village-driven, and county-driven), they all originated from the local/regional endowments.

[Figure 1-4] Convergence of Industrial Sectors: Emergence of the Senary Industry

Primary Secondary Tertiary Sector Sector Sector (1) (2) (3)

The Senary(6) Industry (Clusters)

[Figure 1-5] The Exhibition Site of the 6th Senary Indutrialization in Korea

The Senary Industrialization Exhibition held during August 29 –September 1, 2013

Source: author’s own pictures at the site

Chapter 1 _ A Pilot Study for the Development of Agro-Processing Industry Cluster in Uzbekistan•053 3.3. Selected Cases of Agro-processing Clusters in Korea

3.3.1. Cheongdo Persimmon Cluster

Cheongdo High-Value Added Persimmon Cluster was established in October 2009. The representative company of the cluster is the Nature Farm, Inc., which was founded in June 2010. Cheongdo-gun(county) is located in the southernmost area of Gyeongbuk Province. The county neighbors seven cities and counties of Gyeongnam Provnce and Gyeongbuk Province. Cheongdo county is responsible for about 20 percent of total persimmon production in Korea. The Cheongdo persimmon is called Bansi because of its appearance. Ban means flat and si means a persimmon. So, Bansi indicates the flat persimmon (see [Figure 1-6])

Particularly, Cheongdo area is famous for its seedless persimmon in Korea3). So, Cheongdo Bansi has soft and sweet tastes while being convenient to eat and it is processed into various products: dried persimmon, half dried persimmon, frozen soft persimmon, persimmon wine, persimmon vinegar, Korean traditional confectionery called han-gwa, cosmetics, and so forth.

[Figure 1-6] Chungdo Bansi (Flat Persimmon)

Source: Cheongdo County Office

Cheongdo Bansi contains nutrients beneficial to human bodies such as vitamin and amino acid. It contains much more vitamin C than strawberry and orange. Especially, the vitamin C in Cheongdo Bansi is not as easily destroyed as the vitamin C in most other fruits when it is exposed to heat, water, or air. Thus, Cheongdo Bansi improves immunity of human bodies and is good for slowing down aging process, lessening fatigue, and preventing cold.

3) Geographically speaking, Cheongdo-gun is surrounded by mountains in all four directions. This feature makes it difficult for male pollen from outside to enter this area. Moreover, in May, frequently-occurring fog makes it difficult for insects to move pollen from flower to flower. This naturally creates an environment ideal for quality seedless persimmons.

054•2013 Knowledge Sharing Program with Uzbekistan Usually, persimmon seeds contain oil and small amount of toxin. So brewing wine using persimmons that contain seeds means that seeds must be removed. However, when Cheongdo Bansi (seedless persimmon) is used to brew into wine, the process of eliminating seeds becomes unnecessary and the whole process of brewing wine is shortened. The high sugar content of Cheongdo Bansi means that it also has a great merit for wine brewing.

With various processed products from persimmon, Cheongdo attracts tourists from all over the country. Tourism is also strengthened by the geographical, historical and cultural heritages in this area. This naturally induces the senary industrialization in Cheongdo in association with the persimmon-processing cluster.

[Figure 1-7] Closed Tunnel for Tourism in Cheongdo

Source: Cheongdo County Office

The Cheongdo persimmon cluster which is operated by the Nature Farm Inc., is interrelated with the four facets of clustering system such as R&D, supporting institutes, government, and local administration ([Figure 1-8]). R&D is linked with the academic institutes including Yeungnam University and Kyungbuk Science College and with lab systems including Korea Food Research Institute and other private companies. The Ministry of Agriculture, Food and Rural Affairs, Rural Development Administration and Kyungbuk Agricultural Technology Center are listed as the supporting governmental agencies in addition to the local administrations including Kyungbuk Province, Cheongdo County, Sanju City and Munkyung City.

outlines the performance of the Cheongdo Persimmon Cluster in terms of sales volume from 2010 to 2012. Chenogdo Persimmon Cluster (Nature Farm Inc.,) is composed of the main cluster in Cheongdo and a branch in Sangju. The total sales volume from the two clusters was 1,605 million Korean Won (which is equivalent to 1.5 million US Dollars) in 2010, the year when the Nature Farm was

Chapter 1 _ A Pilot Study for the Development of Agro-Processing Industry Cluster in Uzbekistan•055 founded. Its sales volume became 5,254 million Korean Won (about 4.8 million US Dollares) in 2012 which is about 3.3 times that of 2012. The total sales increased by more than 126 percent between 2011 and 2012. A surprising sales increase is realized in the cluster.

[Figure 1-8] Clustering System of the Cheongdo Persimmon Processing Industry

R & D Government

- Yeungnam University Persimmon - Ministry of Agriculture, - Kyungbuk Science Cluster: Livestock and Rural College NATURE A airs - Korea Food Research FARM - Rural Development Institute Administration - Ben’s Lab - Kyungbuk Agriculture Technology Center

Supporting Local Institutes Administration CEO - Sang Ju Persimmon - Kyungbuk Assocoation Province - Chung Do Persimmon - Chung-Do Assocoation County - Local Processing Co Strategic Business - Sang Ju City Planning (MSC) Marketing Supporting - Munkyung Team Team Team City

Source: Cheongdo Persimmon Cluster

Sales Performance of the Cheongdo Persimmon Cluster, 2010-2012

Sales Volume (Million Korean Won) B/A (%) 2010 2011(A) 2012(B)

Cheongdo Main Cluster 495 2,134 2,884 135.1

Cheongdo Cluster 1,110 2,021 2,370 117.3 (Sangju Branch)

Total 1,605 4,155 5,254 126.4

Source: Chueongdo Persimmon Cluster

056•2013 Knowledge Sharing Program with Uzbekistan The ambition and vision of the Cheongdo Persimmon Cluster can be seen in [Figure 1-9]. Maximizing high-value specialty is picked up as the mission for the year 2013. This objective seems appropriate to meet the new demand in the globalized food system since the food demand is now focused on the functional contents of food (Wilkinson, 2002). High-value specialty of the Cheongdo persimmon cluster has been pursued by developing pharmaceuticals and cosmetics from persimmon. These products are expected to further open up the export market.

[Figure 1-9] Mission of Chung-Do Persimmon Cluster, 2013

Maximizing High-Value Specialty

R&D AD/Marketing Functional Product 4 Season Metro-Sales Points (persimmon Oil Extract) Explore Export Market

Cluster Operational E cieicy by Small Leader Group

Industrialization Facilities Sharing Massive production System Low Temperature Constructing Additional Storage System Local Processing Plants

Capacity Building for Selected Elited Elite Group

Source: Cheongdo Persimmon Cluster

3.3.2. The Senary Industry in Munkyung

Munkyung is a medium-sized mountainous area located in the northwest part of Gyeongsangbuk-do, the southeastern Province of Korea. It shares a border with Yecheon County to the east, Sangju County to the south, Goesan County of Chungcheongbuk-do to the west, and Jecheon, Chungju and Danyang County of Gyeongsangbuk-do to the north.4)

The Senary Industrialization in Munkyung was motivated to revitalize the regional economy after closing of coal mines in the area in 1994. The regional

4) http://english.gbmg.go.kr/open_content/main/

Chapter 1 _ A Pilot Study for the Development of Agro-Processing Industry Cluster in Uzbekistan•057 administrative agency (Munkyung City) selected the local-based items to eat, to buy, to enjoy, and to stay as the strategic elements for regional development.

Clustering the primary, secondary and tertiary sectors was designed and initiated to the items including apple and Omiza(Maximowiczia typica) in this endeavor. Production, processing, marketing, and tourism became one organism of the local/ regional business. Convergence of the three related industrial sectors gave birth to a cluster, or in a new terminology, a senary industry. The dynamics of a cluster are embodied in Munkyung Agro-processing Cluster.

The supporting structure of the clustering in this area has been initiated and established by the Munkyung Agricultural Technology Center and it includes: Agro-processing Support Center since 2001 Industry-Academy Network since 2005 Nurturing Program for Apple Processing since 2007 Shared Use of Juice Processing Plant since 2009 Business/Marketing Center since 2009

Particularly, the Munkyung Apple-processing Cluster was selected as the Local Resource-based Industry Development Project of the Ministry of Agriculture, Food and Rural Affairs in 2012, which spurred the development of the processing industry with financial support.

[Figure 1-10] shows the network system of the Apple-processing Cluster in Mynkyung, which is very similar to the case of Cheongdo Persimmon Cluster. It consists of R&D, Design & Marketing, Administrative Service, and Local Research supports. R&D is linked to the Food Department of Kyungbuk National University, Munkyung IT Center, and Daegu Healing Food Project Team; Design & Marketing is supported by Daegu Design Center, Green AD Design Company, and Munkyung University; Administrative supports cover the sanitary treatment and market search; and Munkyung Agricultural Technology Center provides technical assistance for growing crops and fruits including apple

058•2013 Knowledge Sharing Program with Uzbekistan [Figure 1-10] Supporting System of Apple-processing Cluster in Munkyung

Networks of Agro-processing Supporting Center Munkyng

R&D Design& Marketing Administrative KNU Food Support Department Daegu Design Local Research ITC Center Center Sanitary Daegu Healing Green Design co Treatment Cash Crops Food Projects Team Munkyung Maeket Search Apple University Omiza

Design/Produce Tral Commodity

Tech, Develoment and AD, Marketing, Transfer, and feedback Sales Promotion

Supporting Center

Field Survey Analyze Marketability and Open Business

Source: Munkyung Agricultural Technology Center

One of the special programs in Munkyung Apple-processing Cluster is the nurturing program of apple-processing company, in which 38 new apple-processing firms were established out of 40 participants during 2007~2012. Being designated as a Local Resource-based Industry Development Project Team, the Munkyung Apple- processing Cluster was financially supported by the government to the amount of 3 billion Korean Won (about 2.5 million US Dollars) for the period of 2012~2014. This reinforced the nurturing program.

One of the outstanding performances that the Munkyung Apple-procerssing Cluster has achieved is the production of apple juice with the brand name of “Apple

Chapter 1 _ A Pilot Study for the Development of Agro-Processing Industry Cluster in Uzbekistan•059 Juice that Snow White Loves” as seen in [Figure 1-11]. In order to produce this apple juice, only organically grown apples with brix level higher than 13 were exclusively used.

This commodity significantly contributed to increasing the Cluster’s revenue by 5 billion Korean Won (more than 4.5 million US dollars) in 2012. The “Apple Juice that Snow White Loves” was even supplied as part of lunch menu to the schools (kindergarten, elementary school, middle and high schools) in Munkyung area. The amount of sales to the schools recorded 0.4 billion Korean Won in 2012.

[Figure 1-11] Munkyung “Apple Juice that Snow White Loves”

source: Munkyung Apple-processing Cluster

The development potential of the Munkyung Apple-processing Cluster can be recognized by examining the planted area for apple in this region compared with that of other fruits.

shows the planted areas for various fruits in Munkyung after 2000. Only apple shows a steadily increasing trend of its planted area during 2000-2011. In addition to the apple juice, apple cookies, apple chips, and apple cakes are also produced by the Munkyung Apple-processing Cluster. These products are being advertised to the consumers in Seoul Metropolis and they are also sold to vistors to Munkyung area.

060•2013 Knowledge Sharing Program with Uzbekistan

Planted Areas for Fruits in Munkyung, 2000~2012

Year Apple Pear Grape Persimmon Peach

2000 1,350.0 158.7 55.2 62.2 5.4

2002 1,303.0 127.2 34.0 68.2 7.0

2004 1,471.1 145.5 10.8 152.5 15.0

2006 1,616.2 126.4 8.3 137.0 10.1

2008 1,645.0 145.0 5.3 191.7 5.5

2010 1,745.0 69.8 4.7 162.3 6.5

2011 1,804.8 82.4 4.8 160.8 5.0

Source: Munkyung Agricultural Technology Center

[Figure 1-12] Vision of the Munkyung Agricultural Industry

Safe & High- Creative Business quality Production Center Munkyung Glocal Food Valley Agro-Processing Munkyung Supporting Regional Center Food School

Agro-Business Nurturing Center

Source: Munkyung Agricultural Technology Center

The current trial for the senary industrialization in Munkyung aims at establishing the Munkyung Glocal Food Valley in near future. [Figure 1-12] introduces the vision of Munkyung Agricultural Industry. The inter-linkages between safe & high quality production, agro-processing support center, agro-business nurturing center, regional food school, and creative business center are the critical bases for the dynamic operation of the Munkyung Agro-Cluster which will eventually lead to the Glocal Food Valley in this area.

Chapter 1 _ A Pilot Study for the Development of Agro-Processing Industry Cluster in Uzbekistan•061 Policy Suggestions for Clustering Agro-processing Industry in Uzbekistan

Importance of Agro-processing Cluster in Uzbekistan

Agriculture and Agro-processing industry in Uzbekistan are very important sectors of the national economy. Uzbekistan is famous for favorable conditions for and a long tradition of high-quality horticulture production. Over the past 10 years, Uzbekistan exports of fruits and vegetables increased more than two-fold, from 400 thousand tons to over 850 thousand tons, while export growth in value terms amounted to about 12 times. The rising volume of exports testifies to the high quality of fruits and vegetables produced in Uzbekistan, as well as the increasing demand in the world market due to climate changes and population growth.

In the structure of exported agricultural products remains a significant proportion of fresh vegetables, fruits, melons and beans. This situation in Uzbekistan calls for better use of existing capacity of producers along with introduction of new business models and innovative technologies for cultivation, processing, preservation and packaging of agricultural products.

Worldwide experience has shown that the creation of Agro-processing clusters provides efficient mechanism for organizing the production and distribution of goods and services to large groups of consumers. By changing the conditions in value chain, clusters, by consolidating prime agricultural producers, help achieve a cost- effective production and provide stability and opportunity to thousands of people. The establishment and development of agro-processing clusters can generate a series of best practices which have a great potential and are already being applied in Uzbekistan to create sustainable and diversified rural employment opportunities, improve household incomes and bring about faster equitable and inclusive economic growth.

The Republic of Korea provides various examples of advanced stage of agro- processing cluster development, characterized by well-organized industrial activities toward the senary industrialization that was introduced in the previous section. Close collaboration and successful application of the Korea’s best practices under the KSP framework and future joint projects could lead to desirable results and outcomes in agro-processing sector in Uzbekistan. In this respect, a pilot scheme of trial for establishing agro-processing cluster in Uzbekistan is recommended. Although a cluster is not physically established through this pilot project, it would provide the Uzbekistan agro-processing sector with practical suggestions to establish a real agro/food cluster in near future.

062•2013 Knowledge Sharing Program with Uzbekistan Pilot Cluster of Agro-processing in Samarkand

The clustering potential of fruits and vegetable processing in Uzbekistan was analyzed in various contexts to select a pilot study region5). Among the several eminent candidate areas6), Samarkand was suggested to be the place for pilot clustering study.

As of 2011, about 168 agro-processing plants are being operated for fruits and vegetables in Uzbekistan. Their locations are seen in

. Although their capacity is not comparable to the large processing enterprises, there exist 81 fruits-vegetables oriented agricultural firms (agri-firms) which own their processing plants. The agro-processing plants including these agri-firms are mostly allocated in Samarkand, Fergana, Tashkent, Namangan, and Andijan province.

The share of agro-processing by large scale processing enterprises is very low, as seen in

. The average processed rate of fruits and vegetables by industrial way was only 6.3 percent in 2011. This figure is less than half of the national total. However, rate of processing varies widely by region. The highest rate was seen in Samarkand with 17.8 percent, which was followed by 14.7 percent in Namangan. Other regions’ rate of processing remained lower than 7 percent in the same year. Considering these factors examined above, Samarkand is believed to be the most promising region for designing a pilot cluster of processing fruits and vegetables.

5) Refer to Lee et. al.(2013) for the details of analysis. 6) Andijan, Tashkent, Namangan, and Fergana were also considered to be the potential region for agro-clustering. Like Samarkand, these regions are located in the eastern part of the Republic.

Chapter 1 _ A Pilot Study for the Development of Agro-Processing Industry Cluster in Uzbekistan•063

Regional Capacity of Agro-processing in Uzbekistan, 2011

Number of Agrifirms Processing Rate of Fruits/vegetables Regions with own processing Fruits & vegetables* Processing Plants plants (%)

Karakalpakistan 5 2 3.2 Republic

Provinces:

Andijan 16 11 1.5

Bukhara 5 - 3.7

Djizakh 11 3 6.1

Kashkadarya 17 1 5.7

Navoiy 2 - 2.3

Namangan 18 12 14.7

Samarkand 18 16 17.8

Surkhandarya 10 0 1.5

Syrdarya 2 0 4.9

Tashkent 19 15 4.0

Fergana 17 16 1.5

Khorasm 8 5 1.2

Total or Average 168 81 6.3

Source: Ministry of Economics, Republic of Uzbekistan *includes industrial way of processing only

In addition, the potential of developing agro-processing industry in Samarkand can be identified by examining the projected production and processing volumes of fruits and vegetables from 2012 to 2015 (

and

). This projection is outlined by the “Program on Implementation of Additional Measures to Expand and Develop the Food Industry” which was approved by the Resolution of the Cabinet of Ministries of Uzbekistan entitled “On additional measures on deepening processing of raw agriculture products, increasing volume of production and expanding assortment of food products for 2012-2015” (August 23, 2012).

According to the Program, the production of fruits will grow from 2 million tons in 2012 to 2.3 million tons in 2015, while processing level will increase from 11.1% to

064•2013 Knowledge Sharing Program with Uzbekistan 16.6% (

). The production of vegetables is expected to increase from 7.7 million tons to 9.0 million tons with the level of processing increasing from 10.5% to 15.4% during the same period (

Within the State program “Year of the well-being and prosperity” framework, adopted in association with the resolution of the President (dated February 14, 2013), the Uzbekistan government pays a special attention to implementing additional measures to increase the production and processing of agricultural and food products, development of viticulture, livestock and sericulture, modernization and technical re-equipment of agriculture in the regions; with the expansion of lending by commercial banks to this sector, lending to the sector totaled 535.6 billion Soums ($ 264.9 million).

Under this program, the government studies the status and prospects of fresh and processed fruit and vegetables export, identifies the factors hindering the growth of exports and the industry in general, and designs the appropriate measures to eliminate the obstacles. In doing so, the government has approved a special measure for the further development of technical base and capacity of the storage for fruits and vegetables, construction of new and reconstruction of existing storages. Companies working in the storage business are waived until January 1, 2016 from the payment of customs duties on the imported refrigeration and other storage equipment. According to this program, the total amount of fruits and vegetables in cold storages is projected to increase up to 120.8 thousand tons.

Along with recognizing the nation-wide performances projected by the above program, it is important to note that the Samarkand region will occupy a leading position in the market of processed fruits (25% of processing rate) and vegetables (24.1% of processing rate) among all other regions of the Uzbekistan by 2015. These projected data consistently indicate that Samarkand region appears as the most suitable area to begin a pilot study of agro-processing cluster.

Chapter 1 _ A Pilot Study for the Development of Agro-Processing Industry Cluster in Uzbekistan•065

Uzbekistan fruit production and processing projections: 2012-2015* (1000 tons) 2012 2015

Share of Share of N Regions Fruit Fruits for processed Fruit Fruits for processed production processing fruit production processing fruit (%) (%)

Republic of 1. 26.7 1.0 3.7 31.1 3.0 9.6 Karakalpakstan

Provinces:

2. Andijan 412.8 36.2 8.8 479.6 69.8 14.6

3. Bukhara 170.9 14.3 8.4 200.5 22.1 11.0

4. Jizzakh 64.6 5.0 7.7 76.3 9.1 11.9

5. Kashkadarya 81.4 7.0 8.6 96.0 15.0 15.6

6. Navoiy 75.7 4.5 5.9 90.1 8.4 9.3

7. Namangan 157.8 35.1 22.2 186.0 51.2 27.5

8. Samarkand 278.1 48.0 17.3 325.0 81.2 25.0

9. Surkhandarya 109.9 7.7 7.0 130.0 13.5 10.4

10. Sirdarya 23.5 2.6 11.1 29.0 4.7 16.2

11. Tashkent** 174.3 30.2 17.3 207.0 54.0 26.1

12. Fergana 306.8 25.2 8.2 356.0 48.1 13.5

13. Khorezm 142.5 7.2 5.1 167.0 14.2 8.5

Total: 2 025.0 224.0 11.1 2 373.6 394.3 16.6

*) including dried fruits; **) including Tashkent city area. Source: IFMR, Uzbekistan

066•2013 Knowledge Sharing Program with Uzbekistan

Uzbekistan vegetables production and processing projections: 2012-2015* (1000 tons) 2012 2015

Share of Share of Vegetables Vegetables N Regions Vegetable processed Vegetable processed for for production vegetable production vegetable processing processing (%) (%)

Republic of 1. 159.3 5.5 3.5 185.0 11.2 6.1 Karakalpakstan

Provinces:

2. Andijan 1 000.4 93.2 9.3 1 110.0 137.2 12.4

3. Bukhara 417.1 32.2 7.7 490.0 63.2 12.9

4. Jizzakh 279.1 15.2 5.4 328.0 29.2 8.9

5. Kashkadarya 390.2 30.1 7.7 462.0 56.3 12.2

6. Navoiy 182.6 7.5 4.1 210.0 20.0 9.5

7. Namangan 526.6 40.1 7.6 610.0 60.2 9.9

8. Samarkand 1 303.8 256.0 19.6 1 515.0 365.0 24.1

9. Surkhandarya 582.0 37.2 6.4 685.0 68.5 10.0

10. Sirdarya 219.7 12.3 5.6 265.4 26.3 9.9

11. Tashkent** 1 649.0 200.0 12.1 1 950.0 410.0 21.0

12. Fergana 577.0 53.2 9.2 680.4 86.6 12.7

13. Khorezm 445.2 28.6 6.4 514.7 52.3 10.2

Total: 7 732.0 811.1 10.5 9 005.5 1 386.0 15.4

*) including dried vegetables; **) including Tashkent city area. Source: IFMR, Uzbekistan

Suggestions for Pilot Cluster Framework in Samarkand

Cluster Initiatives and Collective Actions

The benefits obtainable from clustering in the agricultural sector (seen in different areas) can be presented in many directions. Clustering can further the industrialization process and facilitate the dissemination of innovations and the

Chapter 1 _ A Pilot Study for the Development of Agro-Processing Industry Cluster in Uzbekistan•067 upgrade of firms in agricultural sector. Clusters can also attract foreign investment. And, in turn, the investors would bring with clusters new business and technological skills that contribute to upgrading cluster stakeholders. Clustering promotes an active dialogue between the private and public sectors. New agricultural policies and supporting institutions can be formulated from this dialogue.

Moreover, governments frequently find that organizing their support activities around clusters is easier and more focused and effective than other strategies to support the development of the agricultural sector (FAO 2010). This is actually reflected in the senary industrialization, the special zone projects, and the rural industrial projects in Korea.

When formulating a pilot cluster, we need to take into account the key elements and the challenging issues of clustering. Among others, cluster initiatives and collective actions are the most important key elements of clustering.

Clustering in most developing countries needs to be induced by outside intervention. Without any intervention from outside, agricultural sectors in developing countries tend to keep a vicious circle or status quo. The policies and programs to initiate clustering are required in this respect. They are called “cluster initiatives” which build alignment between the participants from the cluster, the public sector, R&D institutions, and academic institutions.

Thus, the actors of cluster initiatives could be the government, large local firms, international investors (FDI), and academic and research institutions. Cluster initiative activities usually involve a range of support actions and include the following (FAO 2010): “Actions which seek to promote cooperation between individual firms by creating conditions for more alliances and partnerships require a “cluster champion”. Support to education and training is needed in order to build capacity of all cluster members. Through policy actions such as public investment in infrastructure, efforts will be made to redesign the economy via cluster development and through strategic public policy support to industry. Actions related to innovation and technology will seek to enhance technological capacity in all clusters by, among other things, building stronger technology and applied research institutions.”(pp.63-64)

The important role of the initiative actors are given below:

Government: Government can facilitate clustering by building a stable environment for trade,

068•2013 Knowledge Sharing Program with Uzbekistan human capital development, foreign investment, financing, technology support, and so forth.

The types of actions that government implement include information collection and diffusion; design and implementation of cluster; provision of training and technical assistance; provision of finance; and R&D.

Foreign Direct Investment: FDI plays an important role as a funding source and a vehicle for transferring knowledge and technology.

FDI significantly contributes to the restructuring and modernization of agricultural clusters in developing countries.

Academic and research institutes: Universities and research institutes are also a crucial element of agro-clustering in developing countries.

Collaboration between cluster and these institutes facilitates the development of competitive products in cluster.

As emphasized in the Diamond Model, the dynamic features of cluster are importantly engaged with the fact that clusters enable innovation and speed productivity growth (Neven and Dröge, 2001). It seems that the collective actions of a cluster are the fundamental basis of its dynamic nature.

The collective actions include (FAO 2010, p66): the resolution of coordination problems (logistics, agricultural inputs supply, access to financial services, etc.); the creation of public cluster goods, particularly in the areas of infrastructure and research; the design and implementation of business intelligence strategies, including collective marketing and promotion, market research and product brand development; the undertaking of collaborative technology research and transfer; and the compliance with quality and safety standards.

In sum, collective actions are the cornerstone of cluster’s competitiveness. All the initiative actors could benefit from the design and implementation of collective actions.

Organizational Framework and Networks in Pilot Cluster

Chapter 1 _ A Pilot Study for the Development of Agro-Processing Industry Cluster in Uzbekistan•069 The establishment of agro-processing clusters seems to be an important agenda of the Uzbekistan governmental policies for regional development. The food processing industry cluster consists of value chains connecting raw materials, R&D, processing, packaging, transportation & storage, and marketing. Based on the availability of raw materials and current state and future development prospects of agro-processing industry in Samarkand region, the following two candidates are selected for pilot cluster study.

Bulungur district for tomato processing cluster; Jamboy district for apple processing cluster.

These clusters can be classified as knowledge-driven and local resource-based agro-processing cluster. According to Johnston (2003), a knowledge-driven cluster develops around knowledge-producing institutions such as universities and government research agencies. In this framework, the primary benefit of the linkage is the sharing of knowledge and learning. Xizhang, et. al. (2010) also suggests that in resource-based agro-processing industry cluster, universities and research institutes are sources of innovation knowledge, agricultural cooperative organization initiates and impels innovative activities, and financial institutions provide financial support for the conversion of innovation achievement and the proliferation of innovation knowledge.

Currently the main obstacles and barriers to the cluster development in Uzbekistan include the lack of institutional settings, technologies, and funds as well as the weak networking between agricultural producers and other institutions. In this regard, our suggestions for designing a pilot agro-processing cluster in Samarkand region are as follows: establishment of legal and regulatory frameworks; private sector development and constructing a close relationship between participants of cluster; and extensive financial support and investment promotion for the development of technologies in every value chains such as production, processing, storage, research and marketing.

The regional program for the establishment of Bulungur tomato processing cluster and Jamboy apple processing cluster includes:

070•2013 Knowledge Sharing Program with Uzbekistan formation of the Coordinating Councils; creation of the Association of cluster stakeholders, which will develop the program, coordinate cluster members’ activities and determine the rules and norms of interaction between cluster members in order to monitor the activities of the cluster and make an assessment of its effectiveness; creation of working groups on areas of cluster activity.

The credit agents currently operating in Bulungur and Jamboy districts are the local branches of Agrobank, Microcreditbank, and National Bank of Foreign Economic Activity. The local credit institutions are required to provide the clusters stakeholders with favorable terms of financing. Also, the involvement of the local leasing companies as a cluster participant is very important in order to facilitate the purchase of modern equipment and upgrade of existing infrastructure.

The clusters have to be supported by educational and research institutions that work directly on developing human and technological capital for fruit and vegetable production. The main educational institution in the region is the Samarkand Agricultural University and it can provide R&D activities to improve the technologies in the value added chains. Their contribution includes:

research on new and highly competitive apple and tomato varieties for the regions; development of intensive gardening production; and introduction of modern technologies for farmers and processors of fruit and vegetables.

[Figure 1-13] presents the organizational framework and network setting for the pilot cluster in Samarkand, especially for the two districts including Bulungur and Jamboy. This is illustrated by taking into account all the important factors affecting cluster establishment based on the earlier discussion of this chapter. The pilot project of agro-processing clusters in Samarkand region could become a model that show

Chapter 1 _ A Pilot Study for the Development of Agro-Processing Industry Cluster in Uzbekistan•071 an effective organization of interaction between members of different lines of business in agro-processing industry. It also suggests the way to create opportunities to improve the competitiveness of each cluster and the social services in rural areas and, as a consequence, the economic growth of whole Samarkand region.Summary and Conclusion

Uzbekistan can be one of the largest producers and exporters of high quality and competitive fruit and vegetables in the world. The export potential of these products is estimated to be more than 5 billion USD, which is significantly higher than the 2 billion USD of current cotton fiber exports. Along with this fact, Uzbekistan has a great capability to attain economic values added by processing fruits and vegetables which enjoy comparative advantages in terms of favorable natural environment.

This study focuses on agro-processing industry in Uzbekistan in the context of pilot cluster in particular. In this study, we intend to formulate a pilot cluster in a selected region of Uzbekistan. A pilot cluster is not to be physically established. Rather it is designed under hypothetical settings. Koran experiences, in this respect, would provide useful guidelines for clustering agro-processing in Uzbekistan.

The globalization and liberalization that began after 1980s provided a momentum for Korea to seek policy reforms and structural adjustments. As the new millennium emerged with rapid growth of food industry including agro-processing, the Korean government believed that the Acts of nurturing agro-processing industry which were enacted during 1990s were not enough to support the food industry, especially when it came to strengthening the linkages between the agricultural sector and food industry. New legal framework was required in this respect and the previous policies for nurturing agro-processing industry were replaced by ”The Food Industry Promotion Act (Act No. 8796)” in 2007.

The “special zone” system is also administered by the Ministry of Knowledge and Economy of Korea in order to foster local economy. When a region is selected as a “special zone”, the region will be granted various favors including financial supports and waives of legal restrictions from local government. The “special zone” system was launched by enacting “the Act of special waives for special development region” in 2004.

072•2013 Knowledge Sharing Program with Uzbekistan The agro-processing industry particularly located in rural area has been supported by the Rural Industrial Policy which is mainly carried out by the Ministry of Agriculture, Food, and Rural Affairs of Korea. Since 2008, the convergence of agriculture, manufacturing and service industry has appeared as a new program. This also represents one of the features of new paradigm of Korea’s agricultural policy

The emerging concept of the senary industrialization is a local rsource-based development strategy. The senary industry could realize the creative agro/rural economic development by integrating the primary, secondary, and tertiary industries that are all linked to the resources available in rural sector. The convergence of the rural industries in a new (senary) industry can be termed a cluster since a clustering structure is embodied in this process.

This study introduces two cases of cluster specializing fruit processing in Korea: Cheongdo High-Value Added Persimmon Cluster and The Senary Industrialization in Munkyung. The Cheongdo persimmon cluster which is operated by the Nature Farm Inc., is interrelated with the four facets of clustering system such as R&D, supporting institutes, government, and local administration.

Chenogdo Persimmon Cluster (Nature Farm Inc.,) is composed of the main cluster in Cheongdo and a branch in Sangju. The total sales volume from the two clusters was 1,605 million Korean Won (which is equivalent to 1.5 million US Dollars) in 2010, the year when the Nature Farm was founded. Its sales volume became 5,254 million Korean Won (about 4.8 million US Dollares) in 2012 which is about 3.3 times that of 2012. The total sales increased by more than 126 percent between 2011 and 2012. A surprising sales increase is realized in the cluster.

The Senary Industrialization in Munkyung was motivated to revitalize the regional economy after closing of coal mines in the area in 1994. The regional administrative agency (Munkyung City) selected the local-based items to eat, to buy, to enjoy, and to stay as the strategic elements for regional development. Integrating the primary, secondary and tertiary sectors was designed and initiated to the items including apple and Omiza(Maximowiczia typica) in this endeavor. Production, processing, marketing, and tourism became one organism of the local/ regional business. Convergence of the three related industrial sectors is called a senary industry. The convergence of the rural industries in a new (senary) industry can be termed a cluster. The dynamics of a cluster are embodied in Munkyung Agro- processing Cluster.

Being designated as a Local Resource-based Industry Development Project Team, the Munkyung Apple-processing Cluster was financially supported by the government to the amount of 3 billion Korean Won (about 2.5 million US Dollars)

Chapter 1 _ A Pilot Study for the Development of Agro-Processing Industry Cluster in Uzbekistan•073 for the period of 2012~2014. This reinforced the nurturing program. One of the outstanding performances that the Munkyung Apple-procerssing Cluster has achieved is the production of apple juice with the brand name of “Apple Juice that Snow White Loves”. This commodity significantly contributed to increasing the Cluster’s revenue by 5 billion Korean Won (more than 4.5 million US dollars) in 2012.

It is evident that clusters cannot be artificially constructed like manufactured materials. Rather, the conditions can be established which facilitate the formation and contribution of clusters to economy. When formulating a pilot cluster, we need to take into account the key elements and the challenging issues of clustering. Among others, cluster initiatives and collective actions are the most important key elements of clustering.

The actors of cluster initiatives could be the government, large local firms, international investors, and academic and research institution. The dynamic features of cluster are importantly engaged with the fact that clusters enable innovation and speed productivity growth. Thus, it seems that the collective actions of a cluster are the fundamental basis of its dynamic nature. Collective actions are the cornerstone of cluster’s competitiveness. All the initiative actors could benefit from the design and implementation of collective actions.

Samarkand region has high potential for agro-processing with fruits and vegetables. The remote production area in particular is suitable for producing fruits and vegetables for processing. Many agro-firms with processing units are located in Samarkand. They could be good benchmarks for pilot study in Samarkand. In addition, Samarkand region is located with good cluster initiatives such as local government, research center (agricultural experiment center), and Samarkand Agricultural Institute (University).

Based on the availability of raw materials, current state and future development prospects of agro-processing industry in Samarkand region, two candidates are selected for pilot cluster study: Bulungur district for tomato processing cluster and Jamboy district for apple processing cluster. These clusters can be classified as knowledge-driven and local resource-based agro-processing cluster.

074•2013 Knowledge Sharing Program with Uzbekistan The cluster involves the interaction between various institutions and organizations, so the membership of the Coordinating council is supposed to be open to all interested parties: representatives of local authorities, various associations, farmers, companies, educational and research institutions in Samarkand region.

The pilot project of agro-processing clusters in Samarkand region could become a model that show an effective organization of interaction between members of different lines of business in agro-processing industry. It may be useful as a primary road map to constructing competitive agro-processing clusters or agro/food valley in Uzbekistan.

Chapter 1 _ A Pilot Study for the Development of Agro-Processing Industry Cluster in Uzbekistan•075 [Figure 1-13] Agro cluster organizational framework and network setting in Samarkand region

Government Supports: Educational, research and - Samarkand regional DMAW; training institutions: -Jamboy district administration; - Samarkand Agricutural Institute - Bulungur Agroindustrial -Bulungur district administration profesional college; Rural apple and tomato - Bulungur Agricutural profesional Producers: college farmers, dehkan households -Jamboy Agricutural profesional college

Bulungur and Jamboy Facilitating agencies: Cluster Coordination Council. - Ware house Associations of cluster stakeholders State Testing and Serti cation - Transportation companies Center in Samarkand, Local leasing companies: - “Uzselhozmashlizing” State Phytosanitary station -”Uzbekleasing international” Regional Development Programs of: - Apple cluster in Bulungur district - Tomato cluster in Bulungur district Local banks: Processing companies: Agrobank, - JV “Lazzatmeva”(Jamboy district); Microcreditbank -”Bulungur-1” LLC(Bulungur district); Consumers: xalqbank -”Bulungur sharbati” LLC Supermarkets, specialised stores, National Bank of FEA (Bulungur district); wholesalers and small retailers, exporters

076•2013 Knowledge Sharing Program with Uzbekistan References

Adeboye, T, 1996. “Technological Capabilities in Small and Medium Enterprise Clusters: Review of International Experience and Implications for Developing Countries”, Science, Technology & Development, 14:3, 32-49. Den Hartog, P., Bergman, E and Charles, D., 2001. “Creating and Sustaining Innovative Clusters”, Innovative Clusters: Drivers of National Innovation Systems, OECD, Paris, 2001. Fairbanks, M. and S. Lindsay, 1997. Plowing the Sea: Nurturing the Hidden Sources of Economic Growth in the Developing World, Boston: Harvard Business School Press. FAO, 2010. Agro-based clusters in developing countries: staying competitive in a globalized economy, Agricultural Management, Marketing and Finance Occasional Paper 25. Johnston, Ron, 2003. “Clusters: A Review”, prepared for Mapping Australia’s Science and Innovation System’ Taskforce, Department of Education, Science and Training of the Australian Centre for Innovation Limited. Kim, Y. R., et. al., 2012. Evaluation of Rural Industry Policy and Recommendations for Its Development (in Korean), Research Report C2012-28, Korea Rural Economic Institute. Korea Rural Economic Institute, 2008. Agriculture in Korea. Landes, D., 1990. “Why are We So Rich and They So Poor”, American Economic Review, 80:2, 1-13. Lee, Kwangsuck, K. Mamarasulov, S. Hasanov, and S. Ortikov, 2013. “Recommendation for the Development of Agro-processing Industry in Uzbekistan –with special reference to fruits and vegetables”, Policy Consultation on Uzbekistan’s Industry Innovation Strategy, Ministry of Strategy and Finance of Republic of Korea and Korea Development Institute, KSP Report. Marceau, J., and Dodgson, M., 1999. ‘Systems of Innovation’, Paper No 1, Innovation Summit, Department of Industry, Science and Resources, Canberra. Marshall, Alfred, 1920. Principles of Economics, Macmillan, London (8th edition). Mukhitdinova, U., 2010. “Trends of development of the market of fruit-vegetable production in the conditions of modernizing the economy” Resume of the dissertation, Tashkent. Neven, David and C.L.M. Dröge, 2011. “A Diamond for the Poor? Assessing Porter’s Diamond Model for the Analysis of Agro-Food Clusters in the Developing Countries”, Proceedings of the 11th Annual World Food and Agribusiness Forum an Symposium.. OECD, 1999. Boosting Innovation: The Cluster Approach, Paris. Porter, M. E., 1990. The Competitive Advantage of Nations, Macmillan, London. Porter, M. E.,1998. “Clusters and the New Economics of Competition”, Harvard Business Review, November-December: 77-90.

Chapter 1 _ A Pilot Study for the Development of Agro-Processing Industry Cluster in Uzbekistan•77 Schmitz, H., 1995. “Collective Efficiency: Growth Path for Small-Scale Industry.” Journal of Development Studies, 31: 529–566. Schmitz, H., and K. Nadvi, 1999. “Clustering and Industrialization: Introduction.” World Development, 27: 1503–1515. Schumpeter, J. A., 1934. The Theory of Economic Development, Harvard University Press (translated from 1919 German edition). UNCTAD, 1998. Promoting and Sustaining SMEs Clusters and Networks for Development, Geneva: UNCTAD Secretariat. Visser, E.-J., 1999. “A Comparison of Clustered and Dispersed Firms in the Small-Scale Clothing Industry of Lima”, World Development, 27:9, 1553-1570. Weijland, H., 1999. “Micro enterprise Clusters in Rural Indonesia: Industrial Seed bed and Policy Target”, World Development, 27:9, 1515-1530. Wilkinson, John, 2002. “The Final Foods Industry and the Changing Face of the Global Agro-Food System”, Sociologia Ruralis, 42(4): 329-46. Xizhang, Xiang, Hu Kun, and Wu Suchun , 2010. “Study on the Innovation Model of Resource-Based Agro-Processing Industry Cluster”, Proceedings of the 7th International Conference on Innovation & Management, pp.504-508.

78•2013 Knowledge Sharing Program with Uzbekistan 2013 Knowledge Sharing Program with Uzbekistan: Innovation Strategy for Agriculture and Industrial Technology Chapter 2

Agriculture and Marketing Development for Agro-Processing Pilot Cluster in Uzbekistan

1. Introduction 2. Support Systems for Agro-Processing Cluster Pilot Projects 3. Support System for Agro-Processing Clusters in Korea 4. ‌Establishment of Support System for Ago-Processing Pilot Cluster in Uzbekistan 5. ‌Suggestions for the support of Agro-Processing Pilot Clusters in Uzbekistan ■ Chapter 02

Agriculture and Marketing Development for Agro- Processing Pilot Cluster in Uzbekistan

Kyung Ryang Kim (Kangwon National University) ChoriMurodov (Institute of Forecasting and Macroeconomic Research) ShavkatHasanov (Samarkand Agriculture Institute)

Summary

080•2013 Knowledge Sharing Program with Uzbekistan agricultural output goes unprocessed and also suffers greatly from postharvest losses. Some estimates suggest that about 30-40% of fruit and vegetables in the country are lost after leaving the farm gate. Consequently, the need for improved postharvest management and processing of horticultural produce would have a considerable significance to reduce postharvest losses and contribute to the enhancement of the returns from the subsector. The development of Agro-based clusters facilitates the efficient provision of support services to farmers and other stakeholders that take part in those clusters. The process involves the clustering or concentration of farmlands and active involvement of farmers’ organizations as a prerequisite. Implementation of an agro-processing cluster in the fruits and vegetables subsector includes three inter-connected components. These include production, processing and marketing stages. In order to produce safe and high- quality products, a variety of postharvest technologies should be widely applied.

In this study, the potential of the subsector is thoroughly examined with the aim of designing a comprehensive scheme for implementing agro-processing pilot clusters in Uzbekistan. A detailed assessment of the current situation of Uzbekistan’s agricultural production, processing and marketing stages with particular reference to the fruits and vegetables subsectors was made along with a review of the experience of agro-processing sector in Korea to draw policy recommendation for the implementation of agro-based clusters in Uzbekistan. Special emphasis was given to postharvest interventions aimed at reducing postharvest losses at the various stages within the value-chain. The study focused on two districts – Bulungur and Jambay – which were selected as pilot for implementation of agro-based clustering for tomato and apple respectively. A supporting system for implementation of an agro-processing cluster, marketing, distribution and post-harvest management system is outlined in detail.

With regard to processing stage, awareness creation and capacity building

Chapter 2 _ Agriculture and Marketing Development for Agro-Processing Pilot Cluster in Uzbekistan•081 to farmers and other stakeholders through training, extension services and dissemination of information; expansion of public investment in infrastructural development; promotion of private sector participation in infrastructural development, enhancement of public-private partnership in provision of infrastructural services in the fruits and vegetables subsector; and expansion of R&D research for the generation of appropriate postharvest technologies and quality assurance system were suggested as a direction for improvement. Finally, at marketing stage, development of market information systems and marketing strategies; construction of suitable market infrastructure (market centers at various levels); construction of on-farm sorting, pre-cooling, packing and storage facilities, and establishing collection points to avoid delays which lead to significant loss were suggested for improvement of the existing situation in the pilot project sites and to ensure smooth implementation of the agro-processing clusters.

1. Introduction 1.1. Background of the Study

Agriculture is still an important sector in Uzbekistan’s overall economy with over 17% contribution to the national GDP in 2010 and nearly 50% of its population is living in rural areas. Since the 1990’s, Uzbekistan has been implementing a transition to sustainable development of the agricultural sector through institutional and structural reform measures. Since independence, Uzbekistan’s agricultural policy has been focused on cotton and wheat production, and, as a result, relatively less attention was paid to the production of fruits and vegetables until recently. These days the policy is weighing more on diversification into the horticulture sector with emphasis on production of fruit and vegetables. However, organizational management, which is required to raise the sub-sector’s potential through value- addition, has been insufficient. Accordingly, the government of Uzbekistan has recently started implementing a policy of intensive support to the agricultural sector.

Government intervention in the agriculture sector is varied across subsectors. With regard to the two main strategic crops – cotton and wheat – government has continued to implement its intervention in the form of state orders. Accordingly, farmers receive binding directions on how much land area to crop and are obliged to sell their harvest to designated marketers at state-fixed prices. Farmers engaged in cotton and grain production are paid less than world prices due to government’s policy of subsidizing other capital intensive industries. On the other hand, in the fruits and vegetables subsector, farmers are relatively free to operate on their own because there is no official government price control system. Therefore most farmers concentrate on fruit and vegetable production on their small plots(Uzbekistan

082•2013 Knowledge Sharing Program with Uzbekistan Business and Investment Opportunity Yearbook)1)

Uzbekistan is among the major producers of fruits and vegetables in the CIS, due to its favorable and very fertile land. It produces a range of high quality agricultural products, from basic commodities such as cotton and wheat to higher value horticultural products such as cherries, pomegranates, and other fruits and vegetables. The high quality and wide variety of products, easy access to the growing consumer markets in Central Asia and Russia, vast pool of skilled and inexpensive human resources, and a wide variety of Government incentives are contributing towards the attractiveness of this sector.

A number of laws have been adopted by the government of Uzbekistan to support fruit and vegetable production.These include the Resolution “On the predictive parameters of production and use of fruits and vegetables, potatoes, melons and grapes in 2011” (2010), the Decree “On measures for deepening economic reforms in fruit and vegetable production and viniculture” (2006), the Decree “On additional measures on stimulating the attraction of direct foreign investments” (2005), and the Resolution “On additional measures on deepening processing of raw agriculture products, increasing volume of production and expanding assortment of food products for 2012-2015” (FAO, 2011).

However, the processing sector in Uzbekistan has its challenges. Most fruit and vegetable producers are small scale and have low levels of mechanization; the distribution chain is developing, but still needs substantial investment; and quality standards are not uniform across products and producers. Moreover, much of the country’s agricultural output goes unprocessed. During a peak season, a lack of adequate packaging and storage facilities causes a large volume of produce to be released onto the market, and this creates surpluses, which in turn lowers prices steeply. During the off-season, on the other hand, basic products such as apples are imported from China and Iran, and often cost up to five times as much as the cost of locally-produced fruits during the season. According to the Ministry of Foreign Economic Relations, Investments and Trade, only around 12.5% of fruits and vegetables grown in Uzbekistan receive some level of processing.

1) Volume 1 (Strategic and Practical Information), Global Investment and Business Center, USA,http:// books.google.co.kr/books?id=VecCKVq5x8IC&printsec=frontcover#v=onepage&q&f=false(access ed on 23 March 2014)

Chapter 2 _ Agriculture and Marketing Development for Agro-Processing Pilot Cluster in Uzbekistan•083 1.2. Purpose of the Study

The purpose of this study is to assess the current status of agro-processing of fruits and vegetables in Uzbekistan, to examine the potential of the subsector, and to design a comprehensive scheme to implement agro-processing pilot clusters in Uzbekistan. The study seeks to undertake a detailed assessment of the current situation of Uzbekistan’s agricultural production, processing and marketing stages with particular focus on the fruits and vegetables subsectors and to provide policy recommendation for the implementation of agro-based clusters in Uzbekistan. Specifically, additional emphasis will be given to postharvest interventions so that postharvest losses can be reduced at the various stages within the value-chain. This study is a follow-up of the project on “Agriculture and Marketing for the Agricultural Processing Industry Development in Uzbekistan”. The study focused on two districts–Bulungur and Jambay– which were selected as pilot areas for implementation of agro-based clustering for tomato and apple respectively. A supporting system for implementation of an agro-processing cluster, marketing, distribution and post-harvest management system is outlined in detail.

The study is divided into five sections. Following the brief introduction and background in section one, section two will provide an overview of why the development of agro-processing clusters in the fruits and vegetables subsector in Uzbekistan is needed. This section also outlines the importance of the clustering concept along with the supporting system that is required at each stage in the value-chain constituting the agro-processing pilot clusters. Section three presents Korean experience with emphasis on postharvest management. A detailed analysis of the present situation and the supporting system required for agro-processing pilot clusters in the two districts selected is provided in section four. Finally, section five provides the suggestions and policy recommendations for supporting agro-cluster pilot projects in Uzbekistan’s fruits and vegetables subsector.

2. Support Systems for Agro-Processing Cluster Pilot Projects 2.1. The Need to Strengthening Agro-Processing Clusters

Horticulture, which includes the production of fruits and vegetables among others, has emerged as a major economic activity. According to Choudhury(2006), there has been a rapid growth in horticultural production in Asia and the Pacific region. This is mainly due to changes in dietary habits among consumers due to increasing incomes, which continue to push demand for horticultural produce in the

084•2013 Knowledge Sharing Program with Uzbekistan region. Such increased demand has to be met in under a situation of dwindling land and water resources. Developments in science and technology could also create a conducive situation for intensifying the production of horticultural products(FAO, 2006). However, despite increased production of fruits and vegetables, the demand has not been metby the progressesin supply chain, or by the level of vertical integration of production with processing in many developing countries(Rolle, 2006).

Uzbekistan produces a range of high quality agricultural products, from basic commodities such as cotton and wheat to higher value products such as apples, cherries, pomegranates and tomatoes. It is one of the main producers of fruits and vegetables in the CIS and has a very fertile land suitable for producing a variety of horticultural products. The role of fruits and vegetable sector is significant in enhancing of farmers’ income, poverty alleviation, food security, and sustainable agricultural development, especially in developing countries like Uzbekistan. However, due to inadequate investment in the sector and problems related to agricultural marketing and distribution, the potential of the sector has not been exploited well. Productivity of major crops in Uzbekistan is low. Appropriate research and extension system are largely insufficient. Development and distribution of new technology have not been satisfactory. Moreover, the available technology is not disseminated properly and efficiently to the farmers in need. Consequently, improving productivity and competitiveness in rural areas to enhance incomes and to raise the living standards of farmers in rural areas of the country still remains as a challenge.

In particular, the fruits and vegetables subsector suffers greatly from postharvest losses. Huge postharvest losses lead to reducedreturns for producers. Application of appropriate postharvest management is crucial in terms of ensuring food quality and safety. In addition it enhancesmarket competitiveness and producers’ profits(FAO, 2006). However, the postharvest management of fruits and vegetables in Uzbekistan is far from satisfactory. There are many constraints such as inefficient handling, weak transportation; poor technologies for storage, processing, and packaging; and poor infrastructure. In particular, underdeveloped infrastructure for storage and processing in most parts of Uzbekistan is the main reason of waste. Limitations in key infrastructural facilities are hamperingthe marketing of horticultural products for local as well as international markets.

According to Choudhury (2006), small farmers face a significant amount of loss due to lack of resources and the ability to market their produce through application of proper postharvest management techniques.

Consequently, improved postharvest management and processing of horticultural produce would have a significant impact to reduce postharvest losses and contribute

Chapter 2 _ Agriculture and Marketing Development for Agro-Processing Pilot Cluster in Uzbekistan•085 to the enhancement of the returns from the subsector. In addition, they increase marketing opportunities of fresh fruits and vegetables. Application of processing would further lead to the creation of more rural employment and foreign exchange (FAO, 2006).

In this regard, the existing infrastructure related agricultural marketing and distribution system in Uzbekistan is not well organized and needs to be modernized. Moreover, the processing capacity in the country is quite low due to the limited number of processing companies that are largely old and inefficient. As a result, much of the produce in the subsector is sold with little or no processing and value addition. As can be seen from [figure 2-1] below, fresh fruits and vegetables accounted for over 74% of Uzbekistan’s exports in 2012-2013, while the proportion of processed produce was only 12%. These figures clearly indicate that the bulk of the country’s fruits and vegetables is exported without any processing and hence no value addition. The implication of this is that Uzbekistan is not utilizing its potential that it would obtain from processing. Hence, there is a huge potential for the fruits and vegetables subsector through appropriate development of agro-processing aimed at value-addition and reduction of postharvest losses, which can hugely contribute to the country’s earnings from international trade.

[Figure 2-1] Export share in the major types of fruits and vegetables in 2012-13 (in %)

6% 8%

12%

74%

Fresh fruits and vegetables Processed fruits and vegetables Dried fruits and vegetables Nuts

Source: Ministry of Foreign Economic Relations, Investments and Trade of Uzbekistan.

Therefore, it is crucial to reorganize the agricultural marketing system, especially in the area of distribution; improve the postharvest management of produce; and provide sufficient storage, processing facilities, transportation, and other infrastructures. One way of effectively addressing these issues is through implementation of agro-based clusters with concentration of interconnected processing facilities and strong market connections among the various actors in the value chain. In this regard, Uzbekistan has a huge potential for the implementation

086•2013 Knowledge Sharing Program with Uzbekistan of agro-based clustering approach in the fruits and vegetables subsector.

2.2. ‌The Concept of Agro-Processing Cluster Development

The development of Agro-based clusters facilitates the efficient provision of support services to farmers and other stakeholders who take part in those clusters. The process involves the clustering or concentration of farmlands and requires active involvement in farmers’ organizations as a prerequisite. The associated economic interventions include, but not limited to, enhancement of primary agricultural production, creation of jobs and improvements of incomes along the agro-food value chain. In general, production, collection, processing, and marketing (export) functions could be systematically linked to cluster development strategies. There is a need to introduce improved postharvest management techniques and raise the construction and utilization of such facilities.

Implementation of an agro-processing cluster in the fruits and vegetables subsector includes three inter-connected components. These include production, processing and marketing stages. The detailed framework of agro-clusters and the various support systems that are required for the implementation are summarized in [figure 2-2] and

below.

[Figure 2-2] Concept of cluster support system for agro processing of agricultural products

Farmers Post harvesting Exports Postharvest treatment Household Farmers Processing center

Agricultural Packaging and Firms Storage center Domestic market APC

Organization of production Agro processing cluster Market

Chapter 2 _ Agriculture and Marketing Development for Agro-Processing Pilot Cluster in Uzbekistan•087

Step-by- step cluster support system

Marketing and Production Processing export

Post harvesting and packaging Farmers’ organizations Quality standards center (sorting, packing, storage)

Processing center (juice, other Improving access to finance Packaging product forms)

Plan site selection for installation of Reduction of postharvest losses Logistics processing factories

Market and export Postharvest quality management Affordability, economic feasibility information

Mechanization PPP (Public Private Partnership)

Providing market information and production technology

The implementation of post-harvest management practices should be integrated at all stages of the value-chain from production to processing and finally to marketing (exports) as described below.

Production stage: One of the most important challenges is to improve efficiency in production. There are a number of techniques that help improve the efficiency in production. These include introduction of new varieties, the use of manure as fertilizer, application of pest control techniques, and the use of improved methods of cultivation. These agricultural technologies have been very effective to increase yield of crops. However, the effectiveness of such techniques requires sufficient know-how, skills and training. The fruits and vegetables subsector’s potential is huge and promising if farmers are given the necessary support, training and awareness creation accompanied by a well-thought organization of cooperatives.

Moreover, attention should be given to packaging and storage facilities. In addition, there should be a strategy to enhance access to financial sources such as credits and micro financing for smallholder farmers. This is crucial in terms of enhancing farmers’ production capacity and ensuring better utilization of postharvest technologies. Greater emphasis is needed on pre-harvest factors that affect postharvest quality through measuring quality related properties for vegetables and fruits such as sweetness, color, and taste. Proper handling conditions can help maintain post-harvest quality. Fruits and vegetables producers can also increase their returns through effective utilization of market information. In this

088•2013 Knowledge Sharing Program with Uzbekistan regard, provision of relevant market information and creation of awareness on better utilization of available information would help farmers in making informed decisions about their production(FAO, 2006).

Processing stage: Agro-processing is a process of transforming primary agricultural products into other commodities for marketing and value-addition. It includes postharvest activities related to the transformation, preservation and preparation of primary production for intermediary or final consumptionwith emphasis on food. Whether looked at from exports (especially “nontraditional”) or domestic market (population growth/urbanization), agro-industry is a key to income and employment creation in developing countries(UNIDO, 2012).

The importance and role of agro-processing in catalyzing economic activity through backward linkages with the farm/primary and input sectors, and forward linkages with downstream industries should not be underestimated.

Marketing stage: Given that agricultural products are perishable, collection and distribution must be timely conducted and any delay in collection leads to a significant loss. Therefore, collection centers play an important role during sales of agricultural products. The actual marketing system starts with assembly and collection points situated in rural areas near the producers. The next stage involves the storage areas at the various marketing facilities. Although the size and operation methods are different from country to country, in general the agricultural products are taken to the local assembling and collection points either directly by the producers themselves or by rural entrepreneurs(Crawford, 1997).

2.3. Postharvest Management Support System for Agro- Processing Clusters

In order to produce safe and high-quality products, a variety of postharvest technologies should be widely applied. Postharvest technologies include pre- cooling, cold chain system, sorting, packaging, transportation, etc. In the new marketing system, food safety is another important agenda. Adoption of GAP (Good Agriculture Practices) and traceability system is also an important component. Improved training on farm business management, grading, and postharvest handling and treatment is also very useful from producers’ point of view.

Insufficient planning between the market and the producers leads to a supply- demand mismatch. In particular, smallholder farmers face difficulties in accessing markets and in acquiring market information. Farmers rarely operate as farmer groups and endure high production costs due to the lack of scale economies. Expensive transport options prevent delivery to the market at a competitive price.

Chapter 2 _ Agriculture and Marketing Development for Agro-Processing Pilot Cluster in Uzbekistan•089 Unfortunately, many of the farms are too widely dispersed or have bad road conditions for buyers to source directly.

In such a situation, addressing the needs of both producers and buyers requires the creation of an effective collection and grading system. This could potentially generate higher returns throughout the supply chain. These centers could be an important component in improving the links between the buyers and the growers. A collection center could serve as a key provider of services like provision of market price and demand information; technical assistance and training on farming techniques; post-harvest handling and business management; and establishment of contracts with producers.

2.4. Situation Analysis for Implementation of Agro- Processing Clusters in Uzbekistan

2.4.1. Organization of Production

One of the major problems in Uzbekistan is the low level of productivity and instability in production. There is a lack of adequate use of modern varieties for increasing production and productivity of fruits and vegetables. Currently many farmers, especially smallholders, are dependent on traditional varieties with very low productivity. Moreover, smallholder farmers do not have sufficient knowhow and skills for application of improved production technologies. Inappropriate use of pesticides and fertilizers is also contributing to poor quality of fruits and vegetables produced in the region. Farmers are also not organized and are largely operating in a scattered way, which makes the provision of collective supporting schemes difficult. Lack of farmers’ cooperatives is also one of the constraints faced by producers in the region in terms of strengthening their bargaining power in purchasing agricultural inputs at a favorable price.

2.4.2. Establishment of Postharvest Management System

A significant portion of the postharvest loss in fruits and vegetables occurs during transportation, mainly due to the poor condition of roads and lack of knowledge of appropriate storage facilities. Lack of cold storage facilities during the periods of oversupply of fruits and vegetables is also a serious constraint for farmers. Farmers often do not operate as farmer groups or cooperatives and are exposed to high production and transportation costs due to a lack of economies of scale(FAO, 2006).

Fruits and vegetables in Uzbekistan are generally packed with little or no pre-treatment. Some are even transported without any packaging. Significant postharvest losses in fruits and vegetables are sustained due to lack of appropriate

090•2013 Knowledge Sharing Program with Uzbekistan harvesting equipment, poorly organized collection centers in major producing areas, commercial storage facilities. Lack of suitable packing boxes and cold chains as well as proper transportation systems are other constraints that influence postharvest management in the fruits and vegetables subsector. The existing system of postharvest management in these districts lacks components such as pre-cooling, cold chain system, sorting, packaging, transportation, etc(FAO, 2006, Paulson and Yuldashbaev, 2014).

2.4.3. Agricultural Processing

A considerable amount of fruits and vegetables is disposed without being properly handled or processed in Uzbekistan. This is mainly related to the nature of the agricultural commodities, which is characterized by seasonality, perishability instability and safety. In addition, a large proportion of the existing agro-processing industries isoperated with obsolete and worn-out equipment. A lack of highly qualified personnel working in those industries presents yet another constraint for the development of the processing industry. At present, Uzbekistan’s system of input procurement for processing is not stable. Due to absence of stable and long- term partnerships between suppliers and processors, a large proportion of the raw materials are not adequately delivered in terms of time, quantity, and quality. The processing sector also faces a severe shortage of packaging and labeling materials for their processed products. Even relatively basic investments, such as modern cold- storage or quick-freezing facilities, are limited in number and small in scale.

2.4.4. Establishment of an Efficient Marketing System

Marketing support systems regarding to price information are very weak, not reliable or are totally lacking.It is very important for producers to have real price information about their products in planning of marketing strategies for the purpose of profit maximization. Decision about product storage or transportation to distant markets due to higher price is influenced by price of the product in the market.Since farmers are not well informed about real market price, they are totally dependent on price information provided by traders or collectors.Wholesale traders and collectors in growing areas are vulnerable to information provided by traders who operate in big cities(FAO, 2006).

The local vegetable industry also hinders the effectiveness of marketing system in the region.The effects of these inefficient marketing systems might be low returns on produce, which in turn serve as a disincentive to improve postharvest technologies. Another important issue is the seasonality in the production of most fruits and vegetables. Excessive production during the peak-harvesting season causes a slump in market prices to unprecedented levels. On the contrary,

Chapter 2 _ Agriculture and Marketing Development for Agro-Processing Pilot Cluster in Uzbekistan•091 during the off-season, prices automatically increasedue to lower production and supply. This situation significantly affects market efficiency, in particular the export market because of price fluctuation and instability of supply throughout the year. Weak marketing channels that connect fruit and vegetable producers with urban supermarket networks and other buyers are another constraint preventing market improvement.

3. Support System for Agro-Processing Clusters in Korea 3.1. Organization of Production

The importance of organization in the area of agricultural production, which is the starting point of distribution channel for agricultural products, is to reduce vulnerability of smallholder farmers to ensure sustainable development in rural areas. Through the example that agricultural producer organization based on local area or varieties, etc. solve their problems, agricultural producer organization is considered as a very important part of basic level for producing agricultural products and managing their businesses.

In 1994, Korean government established professional organization through the first plan to establish distribution of agricultural products. In 1997, through the second plan, the government established a Committee to reform the distribution system for agricultural products and began a drive to modernize the distribution system (OECD, 2008). Government promoted comprehensive organization and established agricultural processing centers (APCs). In 1998, through the third plan, government established agricultural producer organizations with an aim of strengthening their co-shipping services. In 2000s, government expanded specialized Agricultural products Processing centers (APCs) to provide improved services such as co-marketing organization, co-shipment services and related services. The number of APCs, that manage the systematic selection, storage, packaging and marketing of products, was also increased (OECD, 2008).

Beginning from 2009, the main focus of policy became improvement of the efficiency of agricultural products distribution in rural areas. Attention was given to establish agricultural products distribution centers in producing areas and create the basis to scale up their activities. As a part of this policy, vertical integration was introduced along with improved distribution channel for enhancing stabilization of supply and demand of horticultural products. Contract farming arrangements are also pursued as they improve the stability of supply and demand through improving

092•2013 Knowledge Sharing Program with Uzbekistan a check-and-balance system.

Contract farming arrangements began to be increasingly employed by private companies in 2004. As shown in

below, the number of farms participating in such contracts increased 22 times between 2004 and 2008. Similarly, the number of processing companies and the volume of contractual production also increased by 4.8 and 15.9 times, respectively, during the same period. The major agricultural products covered in those deals also diversified to products like pepper, beans, Japanese apricots, glutinous rice, hulled barely, etc. The agency for contract farming of raw sauce products for paste is a private organization comprised of leaders from both producing farms and traditional businesses with ‘contract farming council’ under the guidance and policy support from the National Agricultural Cooperatives Federation (NACF).

Number of farms, processing companies and contractual deals, 2004 to 2008

Division 2004 2005 2006 2007 2008

Number of Farms 22 92 542 513 485

Number of Processing 6 21 28 30 29 companies

Contract volume 88,416 276,500 957,917 979,888 1,404,235

Source: Hwang, Y. M., The Way of Regional Agriculture, 2011,www.gsnj.re.kr

[Figure 2-3] Structure of Sunchang Paste Cluster – Farmers’ Organizations

Contract Cultivation Contract Cultivation Institution Council (NACF) Operation committee Audit (5 leaders from farms and processing

Town level farm leaders’ General meeting for Head meeting processing companies

O ce

In charge of Town level farm General Aairs meeting Environment-Friendly

Source: Hwang, Y. M., The Way of Regional Agriculture, 2011,www.gsnj.re.kr

Chapter 2 _ Agriculture and Marketing Development for Agro-Processing Pilot Cluster in Uzbekistan•093 The agency for contract farming of raw sauce products for paste in Sunchang county, which consists of 610 farms and 28 processing companies is an example of a successful contractual farming arrangement for the production and processing of red pepper paste cluster. As can be seen from the structure of this cluster presented in [Figure 2-3] above, the NACF is only involved in provision of support to the cluster.

3.2. Agricultural Marketing and Distribution System

Agricultural products in Korea undergo a complex channel of marketing and distribution. In particular, the marketing of fresh horticultural produce involves several steps owing to the fact that such products aremainly produced and supplied by smallholder farmers. Initially, the marketing system in Korea began to be modernized through the launching of public wholesale markets. Recently, however, the emergence of larger retailers has led to enhanced market efficiency for food processors. The distribution channel for horticultural products in general and vegetables and fruits in particular starts from the farms then goes to a local shipping agencies, wholesalers, and retailers before reaching the consumers. Horticultural products are difficult to standardize or to store. Hence, it’s hard to facilitate pooled or bulk shipments. Local shipping organizations include agricultural cooperatives (or crop units) and farming.

Agricultural marketing includes a series of logistics services that agricultural products undergo from producers to final consumers or users. It includes the grading, packaging, storage, processing, and transportation, and also covers its transactions and sales promotion activities, and after-sales services. The marketing process links production and consumption, and is both a cause as well as an effect of the consumption and purchasing behaviors of consumers. The process also mutually influences the production and shipment patterns of products.

094•2013 Knowledge Sharing Program with Uzbekistan [Figure 2-4] Comparison of Agricultural Marketing Level by Country

+ Increment

- Organization; USA - Marketing power; - Diversity of Wholesale market EU

Japan

Wholesale market

Auction Korea Direct Sales

Uzbekistan China

- Decrement

Source: Kim, B.R., The Transition of Agricultural Marketing Policy and Institutions, Kangwon Agricultural Forum, 2011

3.2.1. Characteristics and Features of the Agricultural Marketing

Seasonality of Agricultural Production: Agricultural products were traditionally seasonal in their production and supply. State of the art technology and breeding practices helps food manufacturers plan their production schedules in dependently of the season. Indeed, a major challenge associated with capital intensive food industry is the risk of incurring the high costs of under utilization of capacity. This means that farmers will have to compete in terms of reducing seasonality or fitting into a pattern of social competitiveness(Crawford, 1997).

Most agricultural products are seasonal in nature, while consumption occurs throughout the year, resulting in an imbalance between supply and demand with severe price fluctuations. Agricultural products can be sold directly or could be stored for sale at a later date. It can be sold as gathered from the field, or it can be cleaned, graded, and processed. Processing helps avoid the forementioned problems, and mitigates the seasonal adjustment of the production technology in order to facilitate efficient storage and shipment. Such issues need appropriate facilities and

Chapter 2 _ Agriculture and Marketing Development for Agro-Processing Pilot Cluster in Uzbekistan•095 technologies to be put in place.

Perishability of Agricultural Products: Many agricultural products are perishable and only available for a short period of time unless proper storage is provided. Processing extends the season for which they are available. Bulk purchase will be advantageous in terms of price. However, perishability of agricultural products is associated with high risk. Standardization can help reduce the volume. Expansion of distribution of agricultural products are also required in order to effectively carry out postharvest handling techniques and expansion of low temperature cold storage facilities and distribution systems, such as low-temperature transport (Cold chain system) is needed.

Standardization and Grading: Standardization refers to the process of setting up basic measures or standards to which products must conform to and taking steps to ensure that the goods actually produced adhere to these standards. Standards reflect desirable features of a product in terms of design, weight, color, etc. Standardization means that goods are of a specified and uniform quality. Grading is the process of sorting individual units of a product into well-defined classes or grades of quality. The goods are graded or sorted out into different lots in accordance with the specified standards. The established standards lay down the grades of the product. In case of manufactured goods, goods can be of uniform quality. But agricultural products like fruits and vegetables, etc., vary in quality. Therefore, classes or grades of quality need to be set so that different units of the product are sorted into the established standard grades. Thus, grading involves the division of products into classes made up of units with similar characteristics of size and quality.

Agricultural products are differentiated especially in terms of quality regardless of the production process. In recent years, selective breeding and the development of production technology have greatly reduced the difference between quantity and quality, but there is still a lot of room for improvement. Thus, the standardization of agricultural products is very crucial.

As Crawford (1997) states that standardization involves the creation and maintenance of unified measurements of product quality and/or quantity. It simplifies the purchase and sale of products as well as reduce stransaction costs through the precise specification of buyers needs and signaling of the willingness and ability of producers regarding the quantity and quality of products. Without such standards, trading becomes more costly or even impossible. In addition, Crawford (1997) describesthe most notable advantages of uniform standards as follows: More meaningful price quotations The possibility to sell commodities by sample or description

096•2013 Knowledge Sharing Program with Uzbekistan Assembling small lots of commodities with similar grade and quality, produced by a large number of small producers to take economies of scale advantage Buyers’ possibility of choosing quality of products they want to purchase given that the products are graded.

Quality differences in agricultural products occur for several reasons such as methods of production or the quality of inputs that were used. Application of technological innovation can improve qualities of products. Moreover, assessment of product’s quality by buyers expressed via their preferences may lead product differentiation.

As an example of buyers’ assessment, Crawford(1997) considers a market for bananas, where small bananas are judged to be ‘better’ than larger ones in some sense. Likewise, white sugar is often viewed to be ‘superior’ to brown sugar; whereas for white maize is preferred because it is ‘easier to digest’ than yellow-colored one. As such, the objectivity or subjectivityof the criteria on which such assessments are based doesn’t matter, since their effect in the market place is often the same. Rather, what matters in marketing is to understand how the buyer assesses ‘quality.

Diversity in Utilization of Agricultural Products: The primary use of agricultural products is related to supply of foods. In addition to the food industry, however, agricultural products are being used in various applications such as raw materials, pharmaceuticals, and energy sources. Now, because of the various uses for agricultural products, agriculture is the primary industry and not just a secondary or tertiary industry associated with the development of industry-based industrial complex.

Inelasticity of Demand and Supply: The demand for agricultural productsis inelastic regardless of the supply side. That is, the demand side doesn’t change much in response to any change to the level of supply for those products. Such a situation, which is inherent in agriculture, is problematic to farmers as a drop in price that spurs more quantity being sold due to inelastic demand results in lower revenues and profits for the producers. Therefore, prediction and control of the supply of agricultural products are one of the most important tasks of agricultural policy.

Smallholder Farming: Small-scale farming is not integrated and cannot systematically be organized. Moreover, the efficiency of agricultural products distribution has caused many problems. Thus, a large number of widely dispersed small-scale cultivation by farmers makes it hard to collect and ship products. In order to connect multiple distribution centers, there is a need to establish a cost-effective collection and distribution technique.

Chapter 2 _ Agriculture and Marketing Development for Agro-Processing Pilot Cluster in Uzbekistan•097 Another important phenomenon experienced by smallholder farmers, as a direct result of market access challenges, is the postharvest losses. Many smallholders are often not able to store or market their produce after harvest, resulting in tons of on-field wastage. This is due to certain structural supply-side constraints that smallholders often face, which are embodied in high transaction costs.

3.2.2. Changes in Distribution Channel

Korea’s rapid economic development resulted in drastic social changes. National income rose quickly and changed consumption patterns, leading to diversification of marketing channels for agricultural products. In particular, the marketing system for agricultural products has shown tremendous changes following the launching of 32 public wholesale markets in the mid-1980s and the subsequentrise in the number of large retailers since the mid-1990s. [Figure2-5] presents the trend in marketing channels and the shift in marketing power among the various channels during the 1980s and 1990s.

[Figure 2- 5] Market Power Shift in Agricultural Products Distribution (Example of Korea)

Bender Management Retail and Price Determination Markets by Large Retail Companies Market Power Shift Collection and (Market Power, BargainingDistribution, Power) Price 32 Public Wholesale Wholesale Determination by Markets Markets Wholesale Markets

Collection and Distribution, Price Determination by Local Local Assemblers Markets

1985 1996 Present Opening of Garak Opening of Agro- Wholesale market food service open markets

Source: Kim, B.R., The Transition of Agricultural Marketing Policy and Institutions, Kangwon Agricultural Forum, 2011

098•2013 Knowledge Sharing Program with Uzbekistan [Figure 2- 6] Process of agricultural Products Distribution Channel in Korea

Local Stage Wholesale Market Stage Retail Market Stage

Consumer Cooperatives

Producer Wholesale Market Traditional Market Farms Organization (Wholesale market company → (Agricultural Cooperative Intermediary Wholesaler) Farming Corporation) Consumer General Market Retail Market (Supermarket Grocery Store) Distribution Center Local Traders (Large scale distribution Industry Agricultural) Large Scale Discount Store (E-Mart, Lotte Mart, E-Land Retail, Local Discount Processing Industry Market)

Food service Industry

Source: Kim, B.R., The Transition of Agricultural Marketing Policy and Institutions, Kangwon Agricultural Forum, 2011

Distribution channels vary according to the types and characteristics of the product being distributed and the level of processing involved. The product may pass several distribution units before it gets to consumers. Usually, there are various channels of trade comprising of an established market mechanism for distributing and selling products that follows a well-defined set of merchandizing, settlement, and delivery policies. Consequently, distribution strategy encompasses elements of marketing, merchandizing, delivery and logistics.

The marketing channels for agricultural products involve a complex marketing system owing tothepeculiar characteristic of such products being produced in small quantity but with high marketing costs. Because of the uniqueness of the production and consumption process for agricultural products, collection and distribution system involved are relatively complex and hence often costly. Distribution channels of agricultural products usually consist of 2-5 steps; namely, from farm to a local shipping organization, then to wholesale market, to retail market, and finally to the consumer.

The Evolution in the Retail Marketing: Since the liberalization of the service market in 1996, the number of large retailers has increased rapidly. The retail food sector in Korea has evolved dramatically since the opening of the first large-scale discount store (i.e., hypermarket) in 1993 (E-Mart, LotteMart, and E-Land). Consequently, the rapid growth over the years of such modern markets as

Chapter 2 _ Agriculture and Marketing Development for Agro-Processing Pilot Cluster in Uzbekistan•099 hypermarket chains, grocery supermarket chains, convenience stores, and on-line retailers had a crowding effect on the more traditional street markets and family- operated small retailers. Such a trend coupled with the introduction of advanced information technologies has in turn induced changes inthe way of consumers buy their daily necessities, including food(USDA, Korea retail food sector report, 2013).

There are three major supermarkets in Korea: traditional supermarkets, department stores, and large retailers.Innovations in integrated purchasing and price leadership have led to the strengthening of the positions of large retailers in the market chains. Consequently, traditional markets and small and medium retailers have lost market shares. While the share of traditional supermarkets, which was 75.5% in 1995, dropped to 24.7% by 2005; and that of department stores also fell from 16.0% to 6.1% during the same period, large retailersenjoyed a significant increase in their market share from 8.3% to 69.2% respectively (see [Figure 2-7]).

[Figure 2- 7] Changes in the number of sales of large retailers

Number of Stores Sales 450 35 400 30 350 300 25 250 20 200 15 150 10 100 50 5 0 0

Number of Large Retailers Sales(Trillion won)

Source: KREI, Agriculture in Korea,2010

Changes in Distribution Channel: At production level, the largest number of items is shipped from large agricultural cooperatives, followed by individual suppliers and joint suppliers. Agricultural cooperatives provide systematic shipping services including individual settlement, joint packaging, and transportation. While individuals and systematic shippers supplied leafy and root vegetables, joint and systematic shippers supplied fruits and vegetables.

The decreasing use of individual shipping by local producers on the one hand and the increasing reliance on joint shipping on the other, have been the result

0100•2013 Knowledge Sharing Program with Uzbekistan of the individual farmers’ efforts as well as government support to enable the establishment of large-scale shipping firms. Local joint shipping firmsencompass local distribution organizations and their associated marketing agents. The National Agricultural Cooperative Federation and farming association corporations are increasingly taking over the role of local distributors, by constructing agricultural product packaging center (APC) through government support. Associated marketing organizations conduct collective marketing activities. In 2009, there were a total of 711 local producer marketing organizations (i.e., 599 agricultural cooperatives and 112 farming association corporations).

Shipment size and product are the major determinants as to where the sale of agricultural products should be located. The average shipment size is 2.6 tons for individual shipment and 15.6 tons for each joint shipment. A production structure that depends on small farms accounts for a similarly small-scale of shipments and transactions, with joint shipping organizations faring slightly better. Such a marketing schemeresults in lower efficiency in logistics while at the same time raisingmarketing and transaction costs such as searching costs.

Average farm size of Korea has increased from 1.0 ha in 1982 to 1.5 ha in 2002. Especially, producers specializing in fruits and vegetables increased over time. Various producer associations have been formed in recent years. Now there are 17,747 small product groups, 1,356 farming corporations, 1,130 local cooperatives, and 46 fruit and vegetable cooperatives. In terms of marketing facilities, there exist 208 APCs and 651 small-scale packinghouses. Most marketing facilities in producing areas are partly funded by the central and local governments (Dong Hwan Kim, 2005).

3.2.3. Changes in Agricultural Marketing Policy

Price instability has been one of the major problems in agricultural marketing has in many developing countries. In events of such instabilities, government is called for to intervene and consequently has been attempting to do so intervening in the agricultural markets. Consequently, the focus of policy in agricultural marketing has been placed on agricultural price stabilization during the period of 1960s and 1970s when Korea was facing food shortage. The volatility of price was mostly stronger in the fruits and vegetables subsector than other agricultural products. In circumstances where the processing industry of fruits and vegetables is less developed, price stabilization policies have been sought by identifying the cause of price fluctuations in order to appropriately address the fluctuations(Kim, 2012).

Beginning from 1980 to 2000s, agricultural marketing policies began to deal with several other issues resulting from rapid changes in that were happening in the marketing system in Korea. Accordingly, various strategies have been implemented

Chapter 2 _ Agriculture and Marketing Development for Agro-Processing Pilot Cluster in Uzbekistan•0101 as outlined below. One of the main strategies implemented by the government was to expand construction of wholesale markets in major cities and improve the operation of wholesale markets to address problems pertaining to wholesale markets. Moreover, a policy of expansion of direct trading between producers’ and consumers’ organization was also implemented during this period to solve problems related to lack of connections between producer and consumer groups, lack of marketing facilities of producers to sell to consumers. These measures also included establishing direct trading systems between consumer and producer groups, opening of building distribution centers for farm products in urban area, etc. Yet anothersimilar action taken was that of strengthening the marketing function of cooperatives. Agricultural cooperatives were made to expand their business activities into marketing. Shipment of packaged and graded agricultural products is also an important activity related to the problems mentioned.

Another strategy implemented during the period mentioned was strengthening of agricultural marketing information system. It was reached through upgrading of existing statistics of agricultural marketing to official statistics level. In particular, establishing the office for gaining agricultural marketing information and its efficient use was very important. Strengthening of marketing education and public relations in marketing was also a strategy implemented by the government during the period mentioned. This included strengthening of expertise in agricultural marketing and public relations for consumer protection as well as providing education to market participants.

102•2013 Knowledge Sharing Program with Uzbekistan

Overview of the development of Korea’s agricultural marketing policy

Year Policy goal Main contents

•Government recognize the importance of stability in agricultural products price and agricultural products marketing is on the rise Improve •law of agro-Fisheries products marketing and stabilizing 1970s food production price(1976) •Agro products stabilization fund on price(1968) •Emergence of marketing company and agricultural cooperative

•In 1985, starting with Garak market in Seoul, government Establish wholesale 1980s began to establish wholesalemarkets in major cities market •Auction system for price transparency

Expansion of Expansion of wholesale markets to solve problems in 1990s wholesale markets auction system (Inefficiencies of price, time, etc.)

•Diversified changes on agricultural marketing policy Enhancement •Improvement of trading system in wholesale market 2000s of producer •Introduction of new program for stable supply organization •Establishment of Rice Processing complex(RPC) and Agricultural Processing Center(APC)

Source: Kim, B.R., The Transition of Agricultural Marketing Policy and institutions, Kangwon Agricultural Forum, 2011

3.3. Post-Harvest Management System Support for Agro- Processing Clusters

Vegetables,fruits, and other horticulturalproducts are perishable and require postharvest techniques to maintain their qualities between harvest and distribution to customers. These include techniques such as processing, sorting,packing, storage, and transportation. Since perishability implies that the products will sustain physiological andmechanical damage, whichresults inhuge economiclosses, maximum care is needed at each stage of the distribution channel. In addition,in order to prevent prices slump due to over-supply, attention should be paid to maintain long-term quality of the products through appropriate postharvest management techniques. These management techniques should be employed at each stage of the value chain in which the products are subjected to multiple handling as outlined in [Figure 2- 8].

Chapter 2 _ Agriculture and Marketing Development for Agro-Processing Pilot Cluster in Uzbekistan•103 [Figure 2- 8] Structure of postharvest technology

Producers Production(Farm) Harvesting

Transporting

Packing House Inspection - Grading Packing, Cooling Storing

Transporting Transporting

Retailers

Selling Repacking Storing

Consumers Inspection - Grading

Postharvest Physiology: Fruit and vegetable tissues remain alive even after harvest, and continue their physiological activities. Physiological disorders occur as a result of mineral deficiency, low or high temperature injury, or undesirable environmental conditions, such as high humidity(Choudhury, 2006).

An important aspect of post-harvest handling is that it slows the ripening of fruits and vegetables, and thus prolonging their storage, by preventing tissue respiration. Postharvest storage techniques such as cold storage, gaseous storage, and waxy skin coatings are commonly used to preserve the physiology of fruits. Also, fruits and vegetables may be treated with ethylene to hasten ripening process.

The production of horticultural products is affected by seasonal fluctuations on the supply side. To minimize post-harvest losses and maintain a good quality of supply as much as possible, as well as to extend the period of postharvest physiological phenomena that occurs in nature, an understanding of the principles and quality control is essential.

Quality Control: After harvesting horticultural products, an objective quality assessment should be made to maintain uniform quality grading. The criteria include size, shape, volume, weight, color, taste, aroma, texture, toxicity, and food safety

104•2013 Knowledge Sharing Program with Uzbekistan issues. Non-destructive quality evaluation technology using the NIR method has the optical properties. X-ray and Magnetic Resonance Imaging (MRI) methods are also used.

Storage: The temperature for storage of fresh fruits and vegetables should be at the level when it does not cause chilling injury. Generally, mechanical refrigeration is used for the better storage of fruits and vegetables. However, it is expensive and energy intensive and requires initial capital investments. It also requires continuous supplies of electricity, which are not always available and easy to be installed.

On Farm Storage: On farm storage is needed in remote and inaccessible areas, in order to reduce losses of highly perishable fresh horticultural products. The high cost and high energy requirements of refrigeration, and the difficulties with installing and running of refrigerated facilities in remote areas, could be a major constraint with regard to the use of refrigerated storage. Low-cost, low-energy, and eco-friendly cool chambers made by using locally available materials, which utilize the principles of evaporative cooling, can therefore be developed in response to such constraints.

Packaging: Packaging is an important postharvest handling stage for long- distance transportation and storage of fruits and vegetables. Various types of bags, crates, baskets, cartons, and bins are commonly used packaging materials for perishables. Packaging is used to assemble the fruits and vegetables in convenient units for the purpose of transportation, marketing, and distribution. Good packages should cope with long distance transportation, changed conditions of storage, multiple handling. In many developing countries most fresh fruits and vegetables are packed in plastic crates, plastic bags, and bamboo baskets for transportation. Often, they are transported in a loose form. After harvesting, fresh fruits and vegetables are usually transported from the field to packing houses or distribution centers. Farmers sell fruits and vegetables either wholesale markets or in fresh markets. At the retail level, fresh fruits and vegetables are sold in unpackaged forms, or are tied in bundles. This type of market handling of fresh fruits and vegetables reduces their shelf life if they are not sold quickly. However, postharvest technologies help extend the shelf life of products, maintaining their freshness and reducing losses.

Transportation: Fresh fruits and vegetables are generally transported by roads, from farmer to consumer. During transportation fresh fruits and vegetables should be kept in the best conditions. In order to minimize losses during transportation, special attention should be given to vehicles, equipments, infrastructure and handling. Transportation of fresh produce can be carried out by using both non- refrigerated and refrigerated vehicles. Transport systems in the Unit Load System (ULS) are used to transport of agricultural products in such a way to reduce

Chapter 2 _ Agriculture and Marketing Development for Agro-Processing Pilot Cluster in Uzbekistan•105 packaging and transportation costs. Transportation costs may constitute 10 - 20% of the final price of the product. Many products are transported by freezer truckswhich causes no serious damage to the quality.

Standardization: Standards refer to globally accepted quality attributes of commodities that facilitate international trade. Such standards, if enforced properly, are essential tools of quality assurance during marketing and provide a common language for trade among growers, handlers, processors, and receivers at terminal markets (Kader, 2000). Therefore, standardization assures quality of agricultural products to consumers.

4. Establishment of Support System for Ago- Processing Pilot Cluster in Uzbekistan

The pilot project for agro-processing clusters in Uzbekistan is in progress, with the target areas already selected based on relevant selection criteria. First, three districts with high potential for production and processing of fruits and vegetables were selected as target areas for clustering. In subsequent selection criteria using coefficients of clustering potential, Samarkand province2) was selected for the pilot project.

4.1. Agriculture in Samarkand

Samarkand is region is located in the central part of Uzbekistan. The region is bordered by Djizzak region to the north and the north-east, Republic of Tajikistanto the south-east, Kashkadarya region to the south, Bukhara to the south-west, and Navoi region to the west and north-west. The area is located in the intermountain basin of Zarafshan River, and north- eastern spurs of the Turkmenistan range. The south-west side of the steppe stretches up to Karnabchul tothe north and up to KyzylKum Desert to the south.

2) This was reported in chapters 4 and 5 of KSP 2013 “Policy Consultation on Uzbekistan’s Industry Innovation Strategy

106•2013 Knowledge Sharing Program with Uzbekistan [Figure 2-9] The map of Uzbekistan and Samarkand

Ooraqaipog’iston

Kubla-Ustyrt

Muinaq K A Z A REPUBLIC OF KARAKALPAKISTAN K Marai Chinboy H

S NUKUS T Uchquduq KAZAKHSTAN A K I R G I Z S N TA UFGENCH Zarafshan N TASHKENT T U R K M E N I S T A N Boymurat NAMANGAN ANDIJAN Ququn GULISTAN FARGHANA Carmana JIZZAKH N Shahimardan Gasty NAVO Zamin A SAMARKAND T BUKHARA S

QARSHI K

Ghuzar I

Denav J

TERMEZ T AFGHANISTAN

Samarkand region occupies 3.7% of the country area and more than 11% of the total population. The annual growth rate of population is about 0.8-1.0% per year, and the density is 174.0 persons/km2. 74% of the population live in the rural area. The region consists of 14 rural districts and 11 cities. The capital of the region is the Samarkand city, one of the oldest cities in the world, and the center of tourism in Uzbekistan. The region has a well-developed transport infrastructure including an international airport. The region’s economy is predominantly agriculture oriented.

Samarkand region can be divided into four zones, based on weather conditions, water sufficiency, and land use conditions. First, farms located in upstream districts have sufficient water and are covered with crops like wheat, tomatoes, potatoes, tobacco, and fruits. Second, plain lands in the north and north-east regions of Samarkand city are endowed with sufficient flatland and ground water. Third, larger farms in the western part of the region, which are affected by severe salinity resulting from dreadful drainage systems, are mainly devoted to cultivation of cotton and wheat, where most of the farmers in these areas rely on pump irrigation systems. Fourth, downstream areas of the Zarafshan River in the west part of Samarkand region are areas mainly covered with wheat and cotton, with grapes and safflower grown in the upland areas.

Chapter 2 _ Agriculture and Marketing Development for Agro-Processing Pilot Cluster in Uzbekistan•107 4.2. Selection of Pilot Clustering Project Areas

The main potential cluster areas in the region are the eastern districts, such as Bulungur, Urgut, Taylak, Jambay, Akdarya, and Samarkand County, which are not conducive to cultivate cotton. These candidate districts have high density and share in gross regional product in the region. However, Urgut district is producing roughly 80% of the total tobacco production in Uzbekistan, with most of the irrigated land covered by tobacco and wheat. Only in higher mountain areas of the district are household farms producing fruits like table and dried grapes, nuts, etc. Therefore, this district was dropped from the candidates list. The remaining districts are eligible candidates for cluster in the region, based on population density, surplus of labor forces working for processing companies, shares in regional gross product, conducive land, and provision of adequate water.

To determine which district would be more suitable for agro-processing cluster piloting, a further study was conducted to assess the potential of each of these districts to select candidate areas for clustering. A number of coefficients have been estimated to assist the selection process. These included coefficient of potential clustering, coefficient of production, coefficient of specialization, coefficient of development of processing industry, and coefficient of per capita production3). Accordingly, Bulungur and Jambay districts were selected as a pilot region to implement agro-based clustering for tomato and apple respectively. [Figure 2-10] below shows the location of these two districts and the network of fruits and vegetables in the region.

3) This was reported in chapters 4 and 5 of KSP 2013 “Policy Consultation on Uzbekistan’s Industry Innovation Strategy”

108•2013 Knowledge Sharing Program with Uzbekistan [Figure 2-10] Fruits and vegetables network in Samarkand region

Jambay Bulungur (apple cluster) (tomato cluster)

M39

Samarkand

As can be seen from [Figure 2-11] below, Bulungur district stands first in terms of land use for vegetables (20.1%) followed by Samarkand (12.7%) and Taylak (10.8%). With regard to tomatoes, the lion’s share goes to Bulungur district with 17.2%, followed by Jambay with 11.5% and Samarkand with 11.2%. On the other hand, although Jambay district is not the top producer of fruits4) in general, it is one of the top apple producers in the region and more importantly, it was rated the highest in the coefficients of clustering that was reported in the earlier KSP report.

[Figure 2-11] Land use in Samarkand region for vegetables (tomato) in all types of farming

25 20.1 20 17.2 15 12.7 11.5 10 11.2 10.8 9.1 9.8 8.6 8.7 7.7 5 6.8 6.6 6.9 6.9 5.8 5.7 4.0 5.4 5.4 5.6 3.5 0 2.7 2.6 1.1 0.6 0.9 1.1 %

Taylak Urgut Jamboy Ishtixon Narpay Akdarya Payariq Bulungur Nurobod Pakhtachi Kushrabot Kattakurgan Pastdarbom Samarkand Vegetables Tomatos

Source: The State Committee of the Republic of Uzbekistan on Statistics, 2013

4) Fruits doesn’t include grapes as shown in Figure <12>.

Chapter 2 _ Agriculture and Marketing Development for Agro-Processing Pilot Cluster in Uzbekistan•109 [Figure 2-12] Land use in Samarkand region for fruits (excluding grapes) in all types of farming

14 13.3 12 11.5 11.4 10 8.8 8 8 7.1 6.6 6 5.8 5.4 4.7 4.8 4.7 4 3.7 3 2

Taylak Urgut Jamboy Ishtixon Narpay Akdarya Payariq Bulungur Nurobod Pakhtachi Kushrabot Kattakurgan Pastdarbom Samarkand

Fruit

Source: The State Committee of the Republic of Uzbekistan on Statistics, 2013

4.3. Organization and Structure of Tomato Production in Bulungur District

Bulungur district is located in the upstream part of Zarafshan River; it has very productive land resources, which makes it favorable for growing vegetables. The following map shows an overview of the district. It also depicts existing infrastructure, major sites and fields where tomato is produced, and future sites for processing. The SWOT analysis for Bulungur is provided in

[Figure 2-13] Location of existing and planned infrastructure for tomato clustering in Bulungur

Population:160.5 thousand Person; - 16 local communities which include 112 villages; -24,8 thousand(32% labor forces) people are working in agriculture

Total area is 35,0 thousand ha; Crop area is 14,3 thousand ha; (40.8%)

Tomato Fields

Existing Processing Paents

Future processing Plants

Worehouse

110•2013 Knowledge Sharing Program with Uzbekistan

SWOT Analysis of Bulungur Tomato Cluster

STRENGTHS OPPORTUNITIES

•Favorable climatic conditions •Very keen local administration to promote •Very productive land resources tomato cluster in the district •Surplus of skilled labor resources, possessing •Possibility of doubling tomato planting areas required knowledge for growing tomato •Potential processing companies with past •Good logistic infrastructure experience •Tremendous surplus of production volume •A good connection with Samarkand per capita of tomato High potential for Agricultural University, which allows selling tomato for export possibility of utilizing researchers’ knowhow in implementing the clustering

WEAKNESSES THREATS

•Low yield per hectare (Average yield of tomato •Lack of regional strategy to prepare for is 21 ton/ha, which maybe increased up to 32 the risks and mitigation, as district’s water ton/ha provision depends on border Tajikistan •Underdeveloped modern market •High competition and protectionism in world infrastructure. (Large storage facilities, food markets, unregulated trade collection points, field refrigeration, and •Lack of effective water transport links to packaging plants) domestic and world food markets •High amount of water losses •Limited capacity and dispersal of the internal •Lack of proper extension services market, the low purchasing power of the •Lack of modern processing companies that traditional markets of the CIS countries allows process of tomatoes in within days

4.3.1. Current Situation in Bulungur District

Production: In 2012, a total of 232,160 ton of vegetables was produced in Bulungur district, of which only 2.6 % of these commodities were processed by the processing companies (excluding domestic processing). The total tomato yield in 2013 in the district was 76,090 tons, of which 77.5% was produced by farmers. The total cultivated land area allotted to tomatoes in the district was 2000 ha in the year 2013. As can be seen in [Figure 2-14], production of tomatoes by farmers was consistently higher than that from household farms during the period of 2011-2013.

Chapter 2 _ Agriculture and Marketing Development for Agro-Processing Pilot Cluster in Uzbekistan•111 [Figure 2-14] Land usage for tomato production in Bulungur district.

1400

1200

1000 Farmers

800 Household farms

600

400

200

0 2001 year 2002 year 2003 year

Source: The State Committee of the Republic of Uzbekistan on Statistics, 2013

According to the data shown on the graph, farmers’ land for tomatoes increased gradually, whereas smallholders’ share in land usage didn’t change noticeably. However, if we compare tomato productivity, smallholders’ efficiency is higher than that of farmers’. On one hand farmers in Bulungur district are facing difficulties in storage resulting in an estimated 20-25 % of postharvest losses. In 2014 there is a plan to build one storehouse as a part of the State development program with a capacity of 1,000 tons. This will help store farmers’ commodities during on and off seasons for fresh consumption and processing.

In most cases smallholders grow tomatoes not only for selling, but also for self-consumption and home processing. However, post-harvest losses are lower for households compared to farmers. In most cases, because of high costs of transportation, many smallholders do not have incentives to grow tomatoes for selling.

The current tomato production system in Bulungur district is instable. Farmers, households and agro-processors can get benefit from participating in Agro-clusters. The government promotes agro-cluster policies to support agricultural units. In particular, clusters are considered to be beneficial for this group, as it enables them achieve economies of scale and share costs related to training, information sharing, certification, and technology adoption.

112•2013 Knowledge Sharing Program with Uzbekistan [Figure 2-15] Tomato production in Bulungur district

Postharvest management: The main problem of tomato production in Bulungur district is related to post-harvest activities, as about 25-33% of commodities is lost during post-harvest season. Problems of transportation, unstable contracts between growers and processors, and a lack of storage houses in rural areas have worsened the postharvest losses. Lack of postharvest research and development programs aimed at generating appropriate postharvest technologies in Bulungur district is also in serious shortage.

[Figure 2-16] Harvesting of tomatoes in Bulungur district

Chapter 2 _ Agriculture and Marketing Development for Agro-Processing Pilot Cluster in Uzbekistan•113 Research and development programs in postharvest must be established at local and national levels to assure and food quality and security by generating appropriate postharvest technologies, pre-harvest treatment, harvesting at maturity stages, postharvest handling of fresh fruits and vegetables, the application of postharvest treatments, proper transportation, cost effective packaging, the production of value added products, product formulation, dehydration, and processing.

Standardization and Grading: According to UNDP report, Uzbekistan is a member of the Codex Alimentarius Commission and a member of the International Organization of Standardization (ISO). However, internationally accepted quality standards like the ISO 9001, are slowly being adopted across the country. So far, though, only a few companies have obtained certifications. Substantial work, by both agricultural and other suppliers, is needed to ensure that products meet the required quality standards. For example, inappropriate grading and weak transportation means inevitable damage to a fraction of tomatoes. Existing delivery mechanisms also lack quality assurance and adequate standardization.

Much attention should, therefore, be paid to grading and accurate delivery of tomatoes to local markets. Government support is highly required in terms of ensuring of uniform of product quality control system for integration into global market.

Marketing: Tomato is marketed primarily in fresh form. After collection from the fields, most household farmers use paper and wooden boxes for packaging and transportation. Local farmers and household farmers supply domestic markets directly to retailers in Bulungur and Samarkand city. Market information systems are underdeveloped. A co-operative marketing infrastructure is lacking. Centralized grading, packing, transportation, storage facilities are also greatly lacking. The market infrastructure in Bulungur is underdeveloped.

Although most farmers and household farmers in Bulungur district have enough knowledge in growing tomatoes, in most cases, not much attention is given to the consumer’s demand for the diversity of tomato varieties. Hence, the entrepreneurial skills of farmers need to be enhanced.On-farm sorting, pre-cooling, packing, and storage facilities for tomatoes are essentially required for distant/export marketing.

Processing Facilities: The only processing company that exists in Bulungur district is “Afrosiab-Meva” JV with a processing capacity of 1800 tons/day. In 2012, the company was operating at only 32.4% of its capacity. Moreover, it processes only cherries and apples. However, there is no processing company in the district for tomato. Tomato is processed only at household level for self-consumption.

114•2013 Knowledge Sharing Program with Uzbekistan Therefore, there is an urgent need for large storage facilities, collection points, field refrigeration, and packaging plants. Considerable opportunity exists for processing of tomatoes in Bulungur district. Lack of organized production-processing linkages, limited/antiquated processing infrastructure and technologies, and inadequate packaging, however, pose major constraints to processing activities. Partnerships among farmers, household farmers, and processors could greatly enhance their operations.

4.4. ‌Organization and Structure of Apple Production in Jambay District

Jambay is the district selected as a pilot region for agro-processing cluster of apple. The map below shows an overview of the Jambay district along with the existing infrastructure, major sites and fields where apple is produced, and future sites for processing. The SWOT analysis for Bulungur is provided in

[Figure 2-17] Location of existing and planned infrastructure for apple clustering in Jambay

Population:146,9 thousand Person; - 8 local communities which include 150 villages; -17,5 thousand(31% labor forces) people are working in agriculture

Total area is 55,9 thousand ha; Crop area is 24,9 thousand ha; (44.5%)

Existing apple orchards

Future apple orchards

Existing Processing Plants

Future processing Plants

Warehouse

Chapter 2 _ Agriculture and Marketing Development for Agro-Processing Pilot Cluster in Uzbekistan•115

SWOT Analysis of Jambay Apple Cluster

STRENGTHS OPPORTUNITIES

•Favorable climatic conditions •Very keen local administration to promote •Availability of many manufacturing companies apple cluster in the district •Surplus of skilled labor resources, with ample •Possibility of doubling apple planting areas knowledge for growing apples •Existing processing companies with potential •Good logistic infrastructure ceased operation •Located in the center of apple growing area •State program that discourages cotton production and encourages production of fruits and vegetables

WEAKNESSES THREATS

•Underdeveloped modern market infrastructure •Lack of regional strategy to prepare for the •High amount of water losses risks and mitigation •Lack of proper extension services in growing, •High competition and protectionism in world processing, and marketing areas food markets, unregulated trade •Lack of modern processing companies •Lack of effective water transport that links •Weak attraction of foreign investment domestic and world food markets •Weak cooperation links between farmers and •Limited capacity and dispersal of the internal processors market, low purchasing power of the •High cost of intensive orchard trees traditional markets among the CIS countries •Lack of grading system for apples export

There is a favorable climatic condition for growing orchards, especially for apples in the district. The district has also several manufacturing companies, including five companies engaged in food processing. Among these, the biggest ones are: “Lazzat- Meva” (for processing apple and tomato juices, and jams), “Samaoil-Zenit” (for dried fruits), and “Samarkand Aqua-Line” (for apple juice, jams, and bottled mineral water). There is also a relatively large number of skilled-labor, with rich experience in growing apples. The government has issued state program that led to abandon cotton cultivation in the district and encouraged production of fruits and vegetables. As a result, in 2012, growers in the district started cultivating 300 ha of new apple trees. This gardening of apple is a government initiative as a part of nation-wide program for establishing intensive orchards.

4.4.1. Current Situation in Jambay District

Production: In 2012 farmers and households in Jambay produced 27,200 tons of fruits, of which 22,518 tons were apples. Only an estimated 12-15% of the total apple produce went to processing including household processing. During the 2012-2013 period, 220 ha of new apple trees were planted, and this will continue in 2014 to reach 687 ha by the end of the year. About 280 ha of the new orchards

116•2013 Knowledge Sharing Program with Uzbekistan are expected to be covered by high-yield varieties of up to 60 tons/ha. However, the current capacities of the processing companies in the district is not enough to process such a huge amount of apples and hence establishment of more processing companies with smaller and energy saving technologies is required.

There is a need to ensure the production of adequate volume and stability of apple production in the district. In particular, government should facilitate smallholders to be integrated in the supply chain of apples in the district. Currently, the share of smallholders in the total production of apples in the district is very low. There is relatively sufficient infrastructure, especially storage facilities. However, these facilities are largely underutilized. Smallholders could benefit by getting the storage facility services. In addition, contract farming arrangements could be implemented between the smallholders and the big producing companies or the owners of the intensive gardens.

[Figure 2-18] Intensive apple gardening in Jambay district

Postharvest management: As indicated above, 12-15% of apples produced in the district faces postharvest losses. Similar to the situation in Bulungur, there is a critical shortage of postharvest technology due to insufficient R&D in producing appropriate postharvest techniques. Although postharvest loss in the case of apples is relatively lower than that of tomatoes, there will still be some loss, which calls for similar actions. In addition, the R&D programs at national level should also take apple into consideration in terms of establishing appropriate postharvest technologies.

Standardization and Grading: The situation in Jambay is not much different from that in Bulungur with respect to standardization and grading. However, due to the special government support being given to intensive gardening scheme for apple production in the district, the sector is beginning to show some improvement

Chapter 2 _ Agriculture and Marketing Development for Agro-Processing Pilot Cluster in Uzbekistan•117 in terms of quality assurance and standardization, although not sufficient.

The increased emphasis on intensive gardening for apple provides an opportunity for economies of scale advantages in availing services of quality control and assurance centrally. Contract farming arrangements between smallholder growers and the bigger producers should also be strengthened.

[Figure 2-19] Fruits packaging and storage in Jambay district

Marketing: Apples produced by smallholders in the district are mainly delivered freshto domestic markets in Samarkand city through retailers. Some low quality apples mostly produced by household farms are used as fodder for livestock. On the other hand, upon orders from government, a cotton processing company and another company for wheat processing have started cultivating apple orchards on lands offered by the government. Apples harvested from those plantations during on-season are mainly stored for sale during off-season in fresh form, while a small portion of the harvest with low quality, inadequate for fresh sale undergoes some levels of processing before sale. However, the production of apples from recently initiated intensive gardens are not yet in the stage of mass harvesting, and hence there is no definitive scheme identified with regard to the description of its marketing.

Since there is a lack of network of local markets and a poor access to market information, National/Regional information networking systems should be established. There is also a need to develop market centers at different levels to fill the existing gap in market infrastructure. Last but not least, forging strategic alliances with multinational companies and corporations would enhance the marketability of apples both domestically and internationally.

Processing Facilities: There are ten storage houses built by a company in the

118•2013 Knowledge Sharing Program with Uzbekistan district, each with 830 tons capacity and in 2014, there is a plan to build one big storage house with 5000 tons capacity for various fruits including apples. These storehouses assist to keep agricultural commodities longer before getting to final consumers and processors during the off-season periods.

Lazzat-Meva is a joint venture company that processes fruits and vegetables in the district. The company’s capacity is 600 tons/day, but unfortunately in 2012, the company operated only at 11% of its capacity. Another processing company, Samarkand Aqualine LLC, has not been working properly recently due to a lack of raw materials and a shortage of energy provision. This indicates that there is an underutilization of facilities in the area.

To this end, there is a need to create awareness especially among smallholders towards utilizing these facilities. Regarding processing facilities, it is beneficial to construct apple-processing facilities in the district by combining government support and private investment.

[Figure 2-20] Processing of apples and tomatoes

5. Suggestions for the support of Agro- Processing Pilot Clusters in Uzbekistan

The situation analysis carried out at the various stages of the value chain and marketing channel in the selected pilot cluster areas is indicative of the need for corrective measures and intervention (government and others stakeholders) for a successful implementation of the pilot clusters. In this section we provide a brief summary of the policy suggestions proposed by the study.

Chapter 2 _ Agriculture and Marketing Development for Agro-Processing Pilot Cluster in Uzbekistan•119 5.1. Ensuring stable supply of products

Instability in the production of fruits and vegetables is one of the major problems facing farmers in Uzbekistan. In addition to seasonal fluctuation in supply of produce, lack of storage facilities is making the problem even worse. Farmers lack the knowledge and skills required to enhance their participation in value addition and market participation. Therefore, ensuring stable supply of vegetables and fruits requires a long-term approach rather than a short-term perspective, to establish processing and distribution system, which generally aims at increasing production. In particular, strengthening a stable production system coupled with capacity building of farmers is important for smooth implementation of agro-processing cluster. Stability of production does not only entail the stability of quantity, but also of quality of the products. Specifically, quality standards are imperative for foodsafety, security and international trade.

5.2. Enhancement of Production and Productivity

Low level of productivity and instability of production are persistent problems constraining the subsector. Farmers in the region are constrained by lack of modern varieties for increasing production and productivity of fruits and vegetables. The unsystematic operation of farmers presents yet another difficulty making the provision of collective supporting schemes and bargaining power in purchasing agricultural inputs at a favorable price challenging. Addressing these issues requires interventions such as: enhancing production and productivity through controlling crop diseases; introducing improved varieties; ensuring supply of appropriate agricultural inputs; improving access to skills (such as training, extension servicesand good agricultural practices); expanding R&D in horticultural production; promoting private sector participation; and supporting producer organizations.

5.3. Contract Farming, Credit Access and Processing

Many farmers in Uzbekistan do not have a guaranteed sale of their produce and hence are faced with high levels of risks and uncertainties. Processors too do not have an adequate and stable supply of produce for processing. Promoting contract farming between processors and growers is helpful for both parties. As a result of such contractual arrangements, farmers are often supplied with inputs such as seeds and fertilizers, and will have guaranteed market outlet with lower uncertainty in prices. Similarly, processors benefit from having a guaranteed and stable supply of agricultural products that meet their specifications regarding quality, quantity and timing of delivery. Government should make sure that an appropriate dispute settlement mechanism is put in place to settle risks that may occur during execution of contracts. Promoting bargaining power of producers, by supporting producer

120•2013 Knowledge Sharing Program with Uzbekistan organizations including access to credit, extension services, and managerial and legal support services are also beneficial.

5.4. Enhancement of Postharvest Management Practices

There is a considerable loss of produce during harvest and transportation in Uzbekistan due to such constraints as lack of collection centers in major producing areas, suitable harvesting equipment, storage facilities and proper transportation systems. The development of an integratedpostharvest management system for fruits and vegetables, with proper infrastructural facilitiesand logistical support is crucial for reducing postharvest losses in the subsector and improving the marketing of fruits and vegetables. A combination of interventions such as: awareness creation and capacity building to farmers and other stakeholders through training and extension services; expansion of public investment in infrastructural development; promotion of private sector participation in infrastructural development; enhancement of public-private partnership in provision of infrastructural services in the fruits and vegetables subsector; and expansion of R&D for the generation of appropriate postharvest technologies and quality assurance system; are required.

5.5. Value Addition and Expansion of Market Access

A large proportion of fruits and vegetables in the region is marketed mainly in fresh form with little processing and value addition. Interventions aimed at enhancing value-addition strategies could benefit both farmers and processors. This can be achieved by promoting commercialization of production, identifying potential markets, developing market information systems and marketing strategies, promoting private sector participation in agro-processing, ensuring quality standards, constructing suitable market infrastructure (market centers at various levels), and promoting joint marketing and distribution services. In addition, introduction of new and improved varieties and production technologies, adoption of efficient processing techniques, development of high quality processed food for export markets, expansion of R&D programs in processing, establishment of specialized research institutes, and identification of geographical advantages along with better understanding of the characteristics of export markets also present paramount benefit to achieving these goals.

5.6. Ensuring Food Safety and Quality

While there are practical measures and interventions being taken by the government to ensure safety standards, the level of implementation of such measures is still far from sufficient and needs to be improved further. Ideally, ensuring food safety and quality necessitates putting in place of such measures

Chapter 2 _ Agriculture and Marketing Development for Agro-Processing Pilot Cluster in Uzbekistan•121 as Good Agricultural Practices (GAP), Good Manufacturing Practices (GMP), and Hazard Analysis and Critical Control Point (HACCP). Addressing the challenges of safety standards also requires joint public and private efforts. In particular, the public sector should start to take the lead in policy (food-safety legislation and standards), in research on evaluating the risk and good management practices, and in disease surveillance. In addition, provision of services like appropriate food safety and quality laboratories and trained scientists areof paramount importance. Other interventions that need to be implemented include: creation of explicit standards covering domestic and international markets with appropriate inspection capabilities; training of horticulture value-chain participants; and dissemination of safety-related information and practices during harvest.

5.7. Human Resource Development

Human resource development is required at all levels. In this regard, educating and training of farmers, processors, extension agents, scientists, industrialists, and marketing agents are essential. Moreover, all human resource programs should consist of long- and short-term goals. Promoting attitude of self-help, cooperation, and hard work among farmers, as well as bringing about changes in mental reform are also very important. Training and extension services in postharvest treatment and management in fruits and vegetables subsector are strongly recommended to be offered to farmers, processors, researchers, and government officials in the relevant ministries.

5.8. Expansion of Investment in Infrastructure

Despite government efforts to mobilize and expand investments in infrastructural development, the available infrastructure in rural areas are still not sufficient. This calls for concerted efforts in availing key infrastructural services that include investment in construction of infrastructure for postharvest handling, logistics, and marketing; production of cold-chain infrastructure (refrigerated transport, cold rooms, and low temperature sale stands); provision of better quality roads, transportation, communication, electricity and other related services.

122•2013 Knowledge Sharing Program with Uzbekistan References

Choudhury, M. L., 2006. Recent developments in reducing postharvest losses in the asia- pacific region. In Postharvest Management of Fruit and Vegetables in the Asia-Pacific Region (pp. 15-22), Tokyo, Japan: Asian Productivity Organization (APO) and Food and Agriculture Organization (FAO) Crawford, I. M., 1997. Agricultural and food marketing management, FAOCorporate Document Repository.http://www.fao.org/docrep/004/w3240e/w3240e00.htm FAO, 2006. “Postharvest Management of Fruits and Vegetables in the Asia-Pacific Region”, Asian Productivity Organization (APO) and Food and Agriculture Organization (FAO) FAO, 2010. “Agro-based clusters in developing countries: staying competitive in a globalized economy”, Agricultural Management, Marketing and Finance Occasional Paper 25 FAO, 2011. “Trends of Agro-Industry in Uzbekistan”, Agro-industry Brief,http://www.fao. org/fileadmin/user_upload/Europe/documents/Publications/AI_briefs/Uzbekistan_ai_ en.pdf(accessed on 23 March 2014) Hasanov, S. and Ahrorov, F., 2013. “Uzbekistan’s agriculture- status quo, challenges and policy suggestions”, paper presented at the conference of Natural resource use in Central Asia: Institutional challenges and the contribution of capacity building, Giessen, Germany Hwang, Y. M., 2011. The Way of Regional Agriculture.www.gsnj.re.kr Kader, A. A., 2000. Quality assurance of harvested horticultural perishables. In IV International Conference on Postharvest Science (pp. 51-56) Kim, B.R., 2011. “The Transition of Agricultural Marketing Policy and institutions”(in Korean), Kangwon Agricultural Forum Kim, D.H., 2005. “4. Republic of Korea” Part II Resource Papers (2005): 12. http://www.apo- tokyo.org/publications/files/pjrep-04-ag-ge-sem-15.pdf Kim, K.R, Murodov, C., Ilina, D. and Hasanov, S., 2013. “Recommendation for the Agriculture and Marketing for the Agricultural Processing Industry Development in Uzbekistan –with special reference to fruits and vegetables”, in Policy Consultation on Uzbekistan’s Industry Innovation Strategy, Ministry of Strategy and Finance of Republic of Korea and Korea Development Institute, KSP Report Kim, Y. R., et. al., 2012. Evaluation of Rural Industry Policy and Recommendations for Its Development (in Korean), Research Report C2012-28, Korea Rural Economic Institute KREI, 2010.“Agriculturein Korea”, Korea Rural Economic Institute OECD, 2008. “Evaluation of Agricultural Policy Reforms in Korea”, Paris Paulson, J.K. and Yuldashbaev, N., 2014. “Uzbekistan Fresh Deciduous and Stone Fruits”, USDA Foreign Agricultural Services, Global Agricultural Information Network (GAIN) report Number: UZ4001

Chapter 2 _ Agriculture and Marketing Development for Agro-Processing Pilot Cluster in Uzbekistan•123 Rolle, R.S., 2006. Processing of fruits and vegetables for reducing postharvest losses and adding value. In Postharvest Management of Fruit and Vegetables in the Asia-Pacific Region (pp. 32-42), Tokyo, Japan: Asian Productivity Organization (APO) and Food and Agriculture Organization (FAO) UNDP, 2009. “Investment Guide to the Food Processing Sector in Uzbekistan”. Tashkent USDA, 2009. “Agribusiness for Africa’s ProsperityCountry Case Studies”, Vienna, Austria USDA, 2013. Korea retail food sector biannual report, USDA, Global Agricultural Information Network Xizhang, Xiang, Hu Kun, and Wu Suchun, 2010.“Study on the Innovation Model of Resource-Based Agro-Processing Industry Cluster”, Proceedings of the 7th International Conference on Innovation & Management, pp.504-508

124•2013 Knowledge Sharing Program with Uzbekistan 2013 Knowledge Sharing Program with Uzbekistan: Innovation Strategy for Agriculture and Industrial Technology Chapter 3

Building Policy Framework to Establish Technology Innovation Park

1. Industry of Uzbekistan 2. Technology Innovation Parks(TIPs) in Korea 3. Policy Recommendations for Establishing TIPs in Uzbekistan Building Policy Framework to Establish Technology Innovation Park

Seung Kwan Jang (Korea Polytechnic University)

Summary

This study identifies the following issues for Uzbekistan’s industrial development:

1) Imbalance between extractive industries relying upon natural resources and other industries. 2) Vulnerability in secondary and tertiary industry infrastructure.

126•2013 Knowledge Sharing Program with Uzbekistan 3) Imbalance in SMEs that make up a high share of total enterprises.

Based upon the experience in Korea and Uzbekistan’s current situation, we make the following recommendations for establishing TIPs in Uzbekistan.

It is too early to transplant Korean Techno-Parks to Uzbekistan. We recommend a step by step approach that can be expanded nationwide.

Chapter 3 _ Building Policy Framework to Establish Technology Innovation Park•127 The next step will be to expand the university-industry collaboration established in the first step. The TIPs established in the first step will be expanded to include more companies and help these companies grow. These steps will assist Uzbekistan’s policy goals to help promote its secondary and tertiary industries.

1. Industry of Uzbekistan 1.1. Composition of Uzbekistan’s GDP by sector

Uzbekistan’s major industries are fuels (at 18%), followed by machinery and metallurgy (17%) followed by light industry (13%) and food processing (13%). In terms of overall economic output, primary industries (agriculture and extractive industries) account for 21.6%, secondary industries (manufacturing) for 37.5% and tertiary (service) industries for 40.9%. The economy is transitioning from primary industries to secondary and tertiary industries. However, the industrial structure is relatively vulnerable, especially in the secondary and tertiary industries.

In order to improve this industrial structure, the Uzbekistan government has been trying to promote domestic goods to replace imports. It has been trying to attract foreign investment, modernize old facilities and equipment, and construct new facilities.

As a result, in 2013 1Q, the domestic production ratio increased by 25.5% on a year-to-year basis. There were 258 cases of foreign investments in light industry, construction supplies, food processing, leather processing, footware production and other sectors.

As of today, there is much inequality in the levels of industrial development by region. Collaboration between industries and universities is marginal.

Through the KSP, the Uzbekistan government is trying to enhance the competitiveness of its SME’s through university-industry collaboration. The government is pursuing policies to promote such collaboration.

Tashkent, the capital city, produces 25% of the entire GDP. Therefore, it makes sense to focus efforts to strengthen SME competitiveness in Tashkent.

Especially, as we know, Tashkent city’s production scale of whole industry comprises a quoter in all and we can find that the way to strengthen SME’s competitiveness should be proceeded together with Tashkent city as the central figure.

128•2013 Knowledge Sharing Program with Uzbekistan [Figure 3-1] Uzbekistan’s Industrial Production by Sector

Other industries Electric power 6% industry 8%

Food processing industry 13% Fuel industry 18%

Light industry 12% Ferrous metallurgy 3% Non-ferrous metallurgy 10% Building materials industry Mechanical 6% engineering and metal 17% Chemical and Timber, woodworking Petrochemical Industry and pulp and paper 5% industry 1%

Source: Industrial Development Plan of Uzbekistan, 2013

[Figure 3-2] Uzbekistan’s Industrial Production by Region

Industrial products 25.0 21.1 20.0

15.0 12.4 12.4 10.5 9.8 10.0 7.3

5.1 5.0 4.0 2.5 1.8 1.6 1.3 1.3 1.2 0.0

R.... Navoi Jizakh Andijan Tashkent Ferghana Bukhara Khorezm Syrdatya Samarkand Namangan Tashkent city Kashkadariya Surkhandariya

Source: Analysis of Industrial Complex in Uzbekistan, 2013

Chapter 3 _ Building Policy Framework to Establish Technology Innovation Park•129 1.2. Status of SMEs(Small and Medium-size Enterprises) in Uzbekistan

90% of the approximately 530,000 companies in Uzbekistan are classified as “small.” Small enterprises employ 74% of Uzbekistan’s working population and export $2.077 billion dollars. It is clear that improving the performance of these small businesses will be helpful to Uzbekistan’s overall economy.

[Figure 3-3] Companies by size in Uzbekistan

Large companies Small companies

52.407 10%

485,000 90%

Source: Analysis of Industrial Complex in Uzbekistan, 2013

Although the proportion of SMEs in Uzbekistan is high, they are concentrated in agriculture and forestry. Only about 16% of the SMEs are working in the industrial sector. Most of the SMEs involved in trade are concentrated in import and export of oil agricultural products and other primary industries. Therefore, the level of technology is weak.

130•2013 Knowledge Sharing Program with Uzbekistan [Figure 3-4] SME’s by Sector

2% 1% 2% Industry 3% 16% Construction Agriculture and fortstry Transport and communications 8% Othet manufacturing industries 29% Trade and catering Personal services Health, physical education, sports and social welfare

27% Education, culture, science and scienti c services 8% Other non-manufacturing industries 4%

Source: Main tendency of SME development, 2013

The number of employees working at SMEs were 74% of the total working population. Growth in SME employment was high. In 2000, 49% of the total working population was employed in SMEs. Also, SME’s output grew from 33.8% of the GDP to 54.6% in 2012.

29% of the SMEs were involved in trade, and 27% were involved in agriculture. Other areas where SMEs were involved were light industry, food processing, furniture production, and import substitution for machine parts.

[Figure 3-5] SME Contribution to the Uzbekistan Economy

80 72.3 75 74.2 74.3 74.4 69.3 70 65.5 60.9 60 56.5 54.5 52.5 54 49.7 50 50 45.7 48.2 42.1 40 38.2 33.8 34.6 35 35.6 30 20 10 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Share of small business in GDP production(%) Share of employed people in small business(%)

Source: State Committee on Statistics, Republic of Uzbekistan

Chapter 3 _ Building Policy Framework to Establish Technology Innovation Park•131 SME contributed to 18.8% of Uzbekistan’s exports (as of 2011). Exports increased from $335 million in 2000 to $2.077 billion in 2012. The main export items were food, energy and cotton. The main markets were CIS countries.

[Figure 3-6] SME’s export and import status in Uzbekistan

42,5 45 38,5 37,4 40 34,5 33,0 32,7 33,7 33,3 35 27,4 26,9 30 24,9 25 18,8 20 14,8 14,6 13,6 15 12,3 10,2 9,3 10,7 7,5 10 6,9 7,3 6,0 5 0

r. r. r. r. r. r. r. r. r. r. r. r.

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Export Import

Source: State Committee on Statistics, Republic of Uzbekistan

Uzbekistan’s exports have been rising. However, it is still dependent on imports. Therefore, the government has been pursuing the policy of import substitution.

1.3. Industrial development policies in Uzbekistan

Uzbekistan is trying to improve development of its industry but its industrial structure is still vulnerable in secondary and tertiary industries. Industries are focused on light industry and primary industries. Also, the government is encouraging foreign investment but the high technology infrastructure and application technology are weak.

Hence, Uzbekistan government has passed the following legislation to encourage innovation and modernization and collaboration between science and industry: Law of the Republic of Uzbekistan from Apr 25, 2003 N 482-II, ‘Law of the Republic of Uzbekistan from Dec 14, 2005 N ISG-11’, ‘Law of the Republic of Uzbekistan from Oct 10, 2006 N ISG-59’, ‘Law of the Republic of Uzbekistan from Sep 23, 2009 N ISG-224’ . Presidential Order “N PP-916 (2008) was intended to invigorate innovative projects and production technology.

132•2013 Knowledge Sharing Program with Uzbekistan In 2010, the government announced its ‘Priorities for Uzbekistan’s Industrial Development.’ The specific priorities are as follows:

• Acceleration of high technology development through long-term normalization of industrial structure and domestic production of industrial products.

• Restructuring of companies in energy development, petroleum and gas, chemistry, nonferrous metals, machines, construction, automobiles, construction materials, pharmaceticals, textile industries, and improved quality in agriculture.

• Acceleration of industries based upon innovation technologies through modernization of industrial facilities and building high technology equipment.

• Sustainable growth of export potential by high quality processing of local raw materials and market expansion based on the diversification of competitive export oriented industrial products.

• Development of an infrastructure for industrial collaboration and local adaptation of products, improvement in the environment for SME’s and entrepreneurial spirit, import substitution through the full utilization of regional products, improved quality of life and increase of high income population by job creation.

From these policies, we can see that Uzbekistan is planning to develop its national industries through developments in agricultureand fuel as well as the high technology industry.

2. Technology‌ Innovation Parks(TIPs) in Korea1) 2.1. Policies and Industry Development in Korea

The success of Korean economy is said to have been accomplished through the combination of well-educated and skilled labor, entrepreneurship without fear for adventures, high rate of savings and investment, favorable trade environment and the planning ability of Korea. This kind of assessment tells us that the basis for the economic development of Korea is the manufacturing industry. To that extent, the growth of Korean economy is in line with the development of industrial technology.

1) In order for good design of NUUz’s IAC program, This part was quoted from “Technical Engineering Education Model of Korea Polytechnic University in “Modularization of Korea’s Development Experience”(2011, Seung Kwan Jang and others)

Chapter 3 _ Building Policy Framework to Establish Technology Innovation Park•133 In the early days of industrialization in the process of development of Korean economy, Korea relied totally on the introduction of technology from advanced countries and afterwards operated the introduced facilities (the early 1960s through the late 1970s) and started to imitate simple technologies (the middle and late 1970s through the early 1990s) through the accumulated know-how and retrogressive technology.

Then, in the process of digesting and absorbing the introduced technologies, Korea started to accumulate technical ability and to localize the introduced technologies or to improve performance and ultimately went through the process to reach the stage of creating new technologies (the early 1990s through the middle 2000s). In addition, in the early 1990s, Korea began to develop products earlier than the advanced countries or to develop products superior in performance than the advanced technologies, such as the world-first 64M DRAM (1992), CDMA (1994) and so on.

2.1.1. The 1960s

Until the early 1960s, most Koreans lived in destitution and relied on agriculture. You can guess that from the fact that in 1960, the national per capita income was 78 dollars, Korea was a typical economically underdeveloped country. Therefore, in the early and middle 1960s after the Korean War, Korea laid stress upon import substitution that reduces import through domestic production of products with the enormous aid of the US and the UN like any other developing countries.

At that time, most factors for economic growth were due to the population growth. Korean economy couldn’t sustain itself without the aid from foreign countries back then. A considerable import substitution was achieved through the construction of fertilizer plants, cement factories, textile mills and so on with the aid funds of foreign countries, but, almost all raw materials, parts, production facilities and so on relied on import.

The Korean government strived to overcome the economic backwardness from various angles and provided policies for education to take on the aspects of means needed to facilitate the industrialization of Korea. Since the economic development plan for 5 years started to be pushed forward in 1962, the policies and investment for the nurture of manpower through related education began to be fulfilled in earnest.

The Korean industry pursuing import substitution met with a difficulty as it reached the limit of growth due to the saturation of domestic market. Hence, the Korean government considered to build an independent economic foundation by

134•2013 Knowledge Sharing Program with Uzbekistan changing the strategy of industrialization from import substitution to export-led strategy.

The Korean economy started to grow in earnest in 1962 when the country embarked on the promotion of industrialization whose core is the export-led growth strategy. The Economy Planning Board in charge of the role of locomotive for the economic growth of Korean style was established in 1961 and promoted the strategy of economic development through industrialization with ‘the 1st economic development plan for 5 years’ in 1962, the following year.

The gist of the strategy of promotion of industrialization is to develop the pertinent industry by intensively fostering the items that can be exported and to expand the scope by reinvesting the funds earned by export into the related industries or the industries with high added values and, meanwhile, to make the virtuous cycle of creation of national wealth by advancing that in quality. Korea built factories with the facilities introduced from foreign countries and produced light industry goods by utilizing the cheap labor almost unemployed and exported the goods overseas. The strategy of promotion of industrialization was to establish the independent economic foundation. This is the first moment for the Korean economy to make a remarkable growth.

The important goal in the period of the 1st economic development plan for 5 years was to secure the engineers to nurture the light industry. Therefore in this period, vocational high schools were expanded in quantity and enhanced in quality. The government established the plan for supply and demand of technical manpower as the first plan of the 1st technology promotion plan for 5 years and did its best to supply manpower according to the plan. Back then, skilled manpower in the technical manpower sector was not only insufficient in quantity but also very low in quality, and thus it was an urgent task to nurture and secure skilled manpower in a short period of time.

The government exerted itself to solve the problem in three directions to cope with the ever-growing demand for technical manpower. First, it expanded the quantity of vocational (technical) high schools and strengthened the industrial work experience in order to foster insufficient technicians. Second, it securedskilled manpower by promoting the twinning with technical high schools and enterprises, new establishment of vocational high schools affiliated with large companies, acquisition and operation of the existing technical high schools and so on. Third, it expanded vocational training to train the industrial technical manpower in a short period of time. The government enacted ‘the Vocational Training Act’ in 1976 in order to expand the job opportunity by increasing the labor productivity of simple labor manpower by letting them learn new functions or by having the teenagers

Chapter 3 _ Building Policy Framework to Establish Technology Innovation Park•135 who do not enter college or the skilled manpower of low level master proper techniques.

In the period of the 2nd economic development plan for 5 years (1967 through 1971) in which industrialization was promoted in earnest, Korea discovered the items that can be exported other than light industry goods and thereby expanded export constantly. The country discovered the items that can be produced through simple assembly such as black-and-white TVs, semiconductors and so on and promoted these items through joint-venture companies with foreign countries or companies with investment from foreign countries. Korea exported the products made there through OEM (original equipment manufacturing) and substituted import for the raw materials or intermediary goods for exported products and thereby increased the foreign-exchange earning rate and realized economic growth.

In the period of the 2nd economic development plan for 5 years (1967 through 1971), the government increased the quorum of colleges of natural sciences or engineering and established ‘the science technology education promotion plan for 5 years (1967through1971)’ that built additional technical schools and classes in order to make good a deficiency of scientific technicians and engineers.

a. To expand the quorum of colleges of natural sciences or engineering and to increase industrial, fisheries and marine schools or classes in order to redress the balance in the supply of technical manpower for each industrial sector.

b. To improve the policy for the uniform advancement of agriculture and industry by establishing the industrial departments proper for the industrial demands of local communities in the agricultural schools in the industrial complexes and enlarging them annually.

c. To improve the operation of the institutions training practical course teachers and strengthen on-the-job training and to thereby give better treatment in order to secure practical course professors and skill teachers and enhance their quality.

d. To improve and develop the curriculum and contents of education for them to adapt to the development of industry and to compile and issue the practical course textbooks that are insufficient.

e. To train and develop the audiovisual teachers for the innovation of education methods.

f. To enact the order for standards of experiments and practices and to plan the

136•2013 Knowledge Sharing Program with Uzbekistan efficiencies of facility investment through industrial-educational cooperation.

g. To annually increase the amount of state subsidies for expenses of facilities for experiments and practices and to thereby give subsidies also to private vocational schools.

h. To annually increase the amount of loan scholarship and to thereby expand the range of benefit.

Therefore, the vocational education in 1969 received heavy investments such as state subsidies for expenses of experiments and practices, expansion of facilities in technical schools and so on so that it is summarized as ‘the industrialization education for the modernization of the country’.

In 1962 through 1971, the export of Korea increased by 30% or more annually on average, and the manufacturing industry which occupied only 22% of the entire export in 1962 accounted for 86% of the entire export in 1971. The leading industries in this period were light manufacturing industries based on low wages. Those that led export were electronic assembly industry such as electronic calculators, transistors and so on, textile industry and simple manufacture goods such as bolts and nuts.

2.1.2. The 1970s

The export-led strategy kicked into high gear after the advancement of the industrial structure in the middle 1970s. In the early 1970s, the Korean growth strategy based on labor-intensive manufacturing industry was confronted with various difficult problems. First, the income elasticity of demands for light industry products was low, and thus the long-term prospect of light industry as a growth engine seemed gloomy.

The advanced industrial countries were entering into the cycle of low growth, and this caused a new flow of protectionism. Then, the exports of new developing countries such as Korea and Taiwan, in particular the textile industry and so on, became the subject of voluntary restraints. In addition, there was a pressure from the countries like Malaysia, Indonesia and India that participated in industrialization late. The increase of real wages aggravated this competitive environment. Those were huge variables considering that the export-led growth of Korea was based on cheap redundant labor force. Moreover, the oil prices hiked, and the Korean government tried to overcome the crisis by advancing the industrial structure from light industry into heavy chemical industry.

Chapter 3 _ Building Policy Framework to Establish Technology Innovation Park•137 Therefore, the Korean government attempted the change into heavy chemical industry through the 3rd (1972 through 1976) and the 4th (1977 through 1981) economic development plans for 5 years and since the 1970s, the scientific technical manpower of a high level was required more than engineers and technical experts in order to support the industrial growth following the development of heavy chemical industry, the policy for scientific technical manpower in the 1970s made the basic goal to deliberately supply the manpower characterized for each industrial field and each level adapting to the economic development strategy which is the advancement of industrial structure through fostering heavy chemical industry.

In particular, in the 1970s, Korea positively pushed ahead with the policy for classification of industrial schools and industrial-educational cooperation and thereby intensified vocational education. Recognizing that it is needed to have a mutual cooperation system in which schools supplement insufficient facilities for experiments and practices by utilizing new facilities of businesses and businesses receive the supply of needed manpower from schools or have their manpower reeducated, the government exerted itself to build an industrial-educational cooperation system. In 1973, the Korean government revised the Industrial Education Promotion Act and thereby made it an obligation for the students of vocational schools to practice in industrial settings during a certain period. It also concretely stipulated the matters of cooperation of businesses in the enforcement decree of the same Act, and, in order to actively push on with these policies, newly established the Department of Industrial-Educational Cooperation and thereby had it take charge of the business of industrial-educational cooperation, plans for education of heavy chemical industry, operation of the Central Industrial Education Council and so on.

In addition, the 3rd revision of curriculum was implemented in the same year, and this revision included ‘the renovation of knowledge and technology education’ as one of the basic policies of curriculum and presented the nurture of basic abilities, grasp of basic concepts, cultivation of judgment and creativity, reinforcement of education through industrial-educational cooperation and so on as the concrete matters for the realization of that.

The long-term plan for supply and demand for manpower and directions of policy(1971 through 1981) framed preparing for the era of heavy chemical industrialization in the 1980s became the basis for the policies for manpower development. This plan classified the types of scientific technical manpower into 3 kinds such as scientific technicians, field technicians and vocational technicians, predicted the concrete supply and demand for scientific technical manpower for each major type of business and type of occupation according to the plan for construction of heavy chemical industry and suggested the direction of policies

138•2013 Knowledge Sharing Program with Uzbekistan to supplement and develop the science and technology education and vocational training system on the basis of that.

At that time, what was the most emphasized in the development of scientific technical manpower was the expansion and characterization of colleges of natural sciences or engineering, and the government adjusted and expanded the quorum of 4-year-course colleges of natural sciences or engineering centering on the fields of machinery, electronics and chemical industry according to the plan for supply and demand for each type of occupation and nurtured characterized colleges in each region so that the colleges could contribute to the smooth supply of scientific technicians and development of local communities.

In addition, in 1974, the Korean government enacted and proclaimed the National Technology Qualification Act (enforced in 1975) and thereby had the graduates-to-be of technical schools take the technical qualification certificate examination obligatorily and elevated their status and put forth efforts to secure the quality of technical manpower needed for the nurture of heavy chemical industry. In 1979, the government established technology classes in middle schools and conducted basic technical education starting from the middle school courses and established the basis for technical education for the nurture of industrial technical manpower by supplementing the contents of technology subject of academic high schools.

The government announced the strategy to invest about 9.6 billion dollars in 6 fields such as steel, chemistry, nonferrous metals, mechanism, shipbuilding, electronics and so on that are heavy chemical industries in 1973 and thus the upbringing of heavy chemical industries such as steel, automobile, ship, petro chemistry, machinery and so on that started like this went through the gestation period of 10 years and led the key industries and exported products of Korean economy since the middle 1980s. In addition, the industrial structure was also converted from the labor-intensive industry into the technology and capital-intensive industry.

Like this, the promotion of heavy chemical industrialization was the most important industrial policy during the industrialization of Korea. Today Korea is the largest shipbuilder in the world, but until the middle 1970s, Korean shipbuilding industry had an uncertain prospect for the future due to the absence of domestic technology. Also, the chance for the growth of the semiconductor industry that represents Korea together with the shipbuilding industry was that the Korean government encouraged by the marvelous growth of the electronics industry which was pointed out as one of the 6 strategic industries for the promotion of heavy chemical industry established ‘the Semiconductor Technology Development Center’

Chapter 3 _ Building Policy Framework to Establish Technology Innovation Park•139 in 1975 with the aid of UNDP and actively cooperated with enterprises as a policy for enhancement of electronics industry.

2.1.3. The 1980s

In the 1980s, the Korean government let the industrial and economic policies focus on ensuring the internal stability of heavy chemical industry which built the foundation up in the 1970s and also on securing the technical skills for the development of high-tech industry.

In the world outside Korea, the global dynamics of industrial competitiveness was reorganized centering on the cutting-edge technologies starting with the advent of the microelectronics industry, and as the technology protectionism accompanied with this was intensified, the reorganization of industrial structure into technology- intensive industry was set as a new task. Hence, the industrial policy was also changed from the policy to foster individual industries into the policy to develop technologies, and restructuring was conducted into higher value-added businesses.

Before the 1980s, Korea mainly introduced and improved advanced technologies and applied them to industries, but, in the 1980s, the country made efforts to facilitate the key industries of Korea and technology intensification. It was widely recognized in Korea that it is needed to conduct research and development and innovation of technologies to advance and localize the technologies in the key industries such as textile, petro chemistry, electronics, machinery, and shipbuilding, automobile and so on and to secure technical skills in the fields such as semiconductors, communication, and fine chemistry and so on.

As the investment of the government in R&D was expanded and the inducements to accelerate the private R&D activities were strengthened, the private investment in R&D was also largely increased. Therefore, Korea started to gradually localize the technologies for which the country had been relied on advanced countries and, in some specific fields, the country entered into the level of technology of advanced countries also. As the weight of technical independence increased and the advanced technologies were improved, cutting-edge products such as semiconductors, mobile phones, LCD and so on came to hold the place of the products leading export. As a result, the industrial structure was increasingly changed from capital-intensive industry into technology-intensive industry.

The policies for industrial education and science education in the 1980s can be characterized with the changes of industrial policies centering on high-tech industries through the adjustment of industrial structure, the emphasis on the basic science education, expansion of colleges of natural sciences or engineering for the

140•2013 Knowledge Sharing Program with Uzbekistan nurture of technical manpower, the conversion of direction from the nurture of single-skilled workers to the nurture of multi-skilled workers, abandonment of the policies for classification of technical high schools, the drastic decrease of support for vocational high schools and so on. In 1982, the Korean government established and promoted ‘the plan for scientific technical education(1983 through 1986)’ together with the 5th economic and social development plan for 5 years and thereby exerted itself to expand the quantity and quality of scientists meeting the trend of advancement of industry, to solve the order imbalance of technical experts by the enhancement of quality, to improve the level of skills of skilled manpower and to create the climate for technical manpower to master technologies.

While the government underlined efficiency by concentrating investment on mechanical technical high schools and characterized technical high schools to satisfy the short-term demand for industrial manpower in the 1970s, it converted into the policies to meet the long-term demand for manpower in the 1980s. In the 1980s, as the advancement of high-class scientific technicians and industrial structure for scientific technical manpower for ensuring the internal stability of heavy chemical industry and intensifying technologies of high-tech industry made a rapid progress, the demand for the scientific technical manpower equipped with expertise increased greatly. The government designated the fields with comparatively substantial conditions of research for each college or the fields needing special support following the regional distinct characteristics of colleges as the fields for characterization and established research institutes and afterwards invested the research funds in these research institutes intensively and thereby imposed large- scale joint research assignments.

In addition, it was made as a prerequisite to assign duties for technical high schools to raise only the basic abilities and adaptability and for the businesses to teach the professional skills needed in the world of work. Thereby the education of technical high schools was made not as completed education but as a course of lifelong education and the goal of education was changed into the education that intensifies whole-person education not focusing only on professional education.

The traditional industrial-educational cooperation was conducted by businesses giving financial support for nurturing skilled workers to high schools as a kind of tuition and by high schools producing finished skilled workers to businesses, but the converted industrial-educational cooperation came to demand the division of educational activities by businesses and schools, and it can be said that the foundation of the model for industrial-education cooperation of today was arranged.

Chapter 3 _ Building Policy Framework to Establish Technology Innovation Park•141 2.1.4. The 1990s

In the 1990s, the rate of economic growth of Korea dropped due to the poor manufacturing industry which is the driving force of industry and the manufacturing industry also declined in importance in the entire industry. The Korean government made the strengthening of competitive edge of enterprises, the raise of social equity and balanced development and the promotion of opening and internationalization and formation of the basis for reunification of North and South Korea as the three major strategies with ‘the new economic development plan for 5 years’ containing economy-invigorating policies, and made an endeavor to vitalize the depressed economy through the plans for normalization of financial functions, tax reform, efficiencies of financial system and so on in the economic aspect.

The electronics industry was the most magnified in the 1990s, and made an eye- opening growth developing products earlier than the advanced countries such as the world-first development of 64M DRAM(1992), the development of CDMA(1994) and so on in the early 1990s and starting development of products with superior performance than the advanced technologies.

The electronics industry of Korea emerged as the industry with the largest export since the 1980s, and grew to be the 6th largest electronics industry in the world in 1992. In addition, the info-communications industry came to show an incredible growth on the basis of the electronics industry in the late 1990s. Since the financial crisis, the framework of industrial structure of Korean economy started to be changed, and young venture entrepreneurs equipped with cutting-edge information and communication technologies started to rise as a new axis of Korean economy.

Since the 1980s, the supply of those who are highly educated promptly increased, but, due to the insufficient cutting-edge scientific technical manpower and the insufficient skilled manpower especially in small and medium-sized manufacturing businesses, the economic and social phenomenon of serious order imbalance of manpower occurred.

Since the late 1980s, the industrial world centering on small and medium-sized manufacturing businesses complained of the shortage of skilled manpower, and in order to expand the supply of high-class technical manpower and raise the level of quality, the quorum of colleges of natural sciences or engineering of 4-year- course colleges and junior colleges was increased with the departments related to cutting-edge technologies as the center. In 1990, the government announced ‘the measure for supply and demand of industrial manpower: the plan to overcome the manpower shortage in the manufacturing sector’ interlinked with the demand of businesses for the expansion of skilled manpower.

142•2013 Knowledge Sharing Program with Uzbekistan This measure built additional technical high schools mainly among vocational high schools to expand the supply of skilled manpower and converted some general high schools into technical high schools, and also provided the opportunity for continuing education to the production workers of manufacturing businesses as one of inducements that can expedite the inflow of manpower into the manufacturing sector. In addition, the 1990s can be characterized with the continuous intensification of the fields of industry and science such as the normalization of operation of industrial colleges and so on, smooth supply of skilled manpower, nurture of vocational high schools for the reduction of the overheated demand of the society for entering college and the selective expansion of quorum of colleges for the supply of high-class technical manpower.

The Korean government implemented the policy to increase the quorum centering on the departments of natural sciences or engineering, induced colleges to characterize themselves and differentiate functions in education and research and selectively supported them following their performance. Also, at that time, it was decided to establish Korea Polytechnic University by ‘the expanded meeting of economy ministers’ as a part of the plan for improvement of technical educational system.

As a result of these efforts, in the 1990s, Korea was successful in the nurture and production of high-class scientific technical manpower, but, as the problems such as the order imbalance in quantity and quality of scientific technical manpower, unemployment crisis of students majoring in natural sciences or engineering, the phenomenon of students avoiding natural sciences or engineering and so on that were brought up since the late 1990s stood out, the limits of the policy for supply of manpower led by the government started to be magnified.

2.1.5. The 2000s (2000 through now)

In the 2000s, as the knowledge-based economy in which knowledge leads the global economy as the largest factor of production was opened due to the revolution of information and communication technologies, the paradigm of technology and economy started to be dramatically changed. In addition, countries in the world devoted themselves to the creation of a new growth engine due to the advent of new cutting-edge technologies such as BT, NT, ET and so on, and thus the world entered into the era of global technology competition.

The core source for competition of countries and individuals moved from material resources to human resources that are the main agent of production and utilization of knowledge following the historical environment of the society of knowledge-based economy, and the demand for high-class human resources came

Chapter 3 _ Building Policy Framework to Establish Technology Innovation Park•143 to be on the rise in quantity and in quality following the advent of new industries oriented to knowledge and information. As the fields leading growth moved from the traditional manufacturing such as electronics, automobile, textile, steel and so on to the high-tech businesses such as information and communications and so on, the nurture and supply of high-class scientific technical manpower that will play the main role in growth of new industries such NT, BT, IT and so on maintaining the competitive edge of traditional industries were required at the same time.

For this reason, the economic policies of Korea also began to be required to create a new growth engine based on the innovation of technology and to convert into an innovation-led economy, and the efforts for the growth in quality of science and technology came to be made in the 2000s.

The Korean government enacted ‘the Framework Act on Science and Technology’ in 2001 in order to provide an institutional strategy that can comprehensively and systematically promote the science and technology policy that meets the knowledge and information oriented society of the 21st century and supports the innovation- led economic system, set the medium and long-term development goals in science and technology on the basis of the Act and established the basic plan for science and technology as the plan to accomplish the goals by stages.

In this flow, the Korean government established ‘the basic plan for nurturing and support for manpower of natural sciences or engineering(2006 through 2010)’ based on ‘the Special Act for Support for Natural Sciences and Engineering for Strengthening National Scientific Technical Competitiveness’ and thereby started to comprehensively adjust general policies related to the nurture and utilization of science and technology across the government departments and began to promote the nurture and supply of high-class scientific technical manpower of new industries at the same time satisfying the historical environment of knowledge-based economy.

The government promoted the business to discover and nurture a new growth engine and to develop original technologies in priority as a part of that. The businesses with top priority are the next-generation growth engine business promoted across the government departments, the large-scale commercialization of national research and development that supports the tasks needing the promotion of commercialization, the 21st century frontier research and development that supports the development of the core original technologies and so on, and Korea is fostering the 6T industries through these businesses.

144•2013 Knowledge Sharing Program with Uzbekistan

Comparison of Industrial Policies and Technical Changes (1962 - 2008)

‘62 ‘67 ‘72 ‘77 ‘82 ‘87 '92~'97 ‘02~’08

•Dealing •Const- with the ruction Knowledge of the •Economic •Full- •Realization •Price and basis for and G Scale •Advance of stabilization •Balanced information self- social O Promo ment of self- •Market development oriented supporting advancement A tion of Industrial sustaining economy of society economy in l industriali structure growth function economy •Conversion •Start the 21st zation structure vitalization into the of century innovation-led industria economic lization system

•Nurture of industry with compare •Increase of advantage export •Raise of •Construction of light •Nurture of •Technical compe •Science of •Expansion of industry heavy advancement titiveness and society social products chemical of heavy of industry •Restructuring technology centering on Policies overhead •Import industry and chemical and into the of the l science with capital substitution of defends industry improvement higher evel of 7 •Establishment overri •Import intermediary industry •Enhancement of productivity value- advanced of the ding substitution goods •Export of of productivity •Conversion added countries national priority of consumer •Preparation intermediary through from the business •Development system goods of the goods and technical policy of high-tech for innovation basis for facilities development nurturing industry of science industrial individual technology advancement industry into the policy developing technologies

•Steel(special •Semicon- •Steel, steel), ductor, •Synthetic automobile, •Semicon- •Telecom •Fertilizer, industrial •Machinery cutting-edge textiles, textile home ductor, munication Strategic cement and electronic and home chemistry appliances, computers •Bio industry plywood, equipment, electronics, appliances, and electrical shipbuilding and Fine industry textile automobile parts mobile instrument and petro chemistry and so son and phones chemistry shipbuilding and so on

•Develop- •Discovery ment of techno- •Acquisition of cutting- logies Technical •Learning •Digestion of the edge i •Facilitation of promising develop- •Introduction of operating and technical level ndustrial introduction in the future ment of appropriate technology of absorption of advanced technologies of advanced •Develop- stra- technology introduced of advanced countries in •Enhance- technologies ment tegies technologies technologies specific fields ment of of core performance original of advanced technologies technologies

•60‘: •90’: Most of government R&D budget used by the •80’: Improvement of ability of enterprises, Technical government and research institutions Unsatisfactory industrial-educational Beginning of establishment of develop •70’: cooperation-255 college-affiliated research comprehensive research institutions -ment Development into the industrial structure institutes in 1985, Research expenses per person of large enterprises and creation of activi- focusing on manufacturing industry of only 10 million won technical development performances (the ratio of manufacturing industry: ties •90’: of a global level 18.5%(1970)→24.1%(1978), insufficient R&D and activities in private sector) Increase of the number of patent applications(5, •2000: out- •76’: 070(1980)→25,820(1990):Expansion of research Rapid increase of exports of comes 35% of total R&D investment borne by private ability of colleges(25.9 billion won(198) technologies and rise in research sector 12 enterprise-affiliated research institutes •244.3 billion won(1990) outcomes such as patents, SCI papers in 1975) and so on

Chapter 3 _ Building Policy Framework to Establish Technology Innovation Park•145

Comparison of Policies for Nurturing Industrial Technical Manpower (The 1960s -The 2000s)

The1960s- The 1980s The 1990s The 2000s The 1970s

•’62-’66:The 1st •’82-‘86: •’92: •’01: Manpower Develop- The 5th Manpower The Plan for Manpower National Basic Plan for ment Plan for 5 Years Development Plan for Policy Sector of the 7th Human Resources •’67-‘71:The 2nd 5 Years Economic and Social Development De Manpower Develop- •’87-‘91: Development Plan for •Start of promoting ve ment Plan for 5 Years The 6th Manpower 5 Years manpower nurturing lop •’72-‘76:The 3rd Development Plan for policies in the view of me Manpower Develop- 5 Years development of human nt ment Plan for 5 Years resources •’77-‘81:The 4th Manpower Develop- ment Plan for 5 Years

•Conversion of the plentiful •Expansion of scientists in •Solution of order imbalance •Balance between labor in cities and farm quality and quantity and of manpower due to regions/Choice and Direc villages into industrial construction of society the shortage of cutting- focus tions manpower on the basis respecting technology edge scientific technical of of the plan for supply and to form the climate for manpower and skilled policy demand of man-power technical manpower to study manpower focusing on conforming with the goals technologies SMEs in manufacturing of economic growth industry

•Establishment of •Nurture of R&D •Improvement of •Promotion of the 2nd vocational high schools manpower(upbring-ing education of colleges stage of (agriculture, industry, of graduate schools of of natural sciences or BK21business commerce, fishery, etc) natural sciences or engi- engineering •Establishment of peculiar neering) •Strengthening of •Promotion of the courses and special courses •Reorganization into roles of junior colleges plan for nurturing in technical high schools characterized high •Expansion of basic studies •Promotion of policies schools and general high-class scientific •The business Core nurturing model high high schools technical manpower strengthening the poli schools •Conversion of •Improvement of innovative capability cies •Arrangement of high education of agricul- vocational education of local colleges for and school textbooks for special tural high schools into for nurturing skilled rearing the colleges nur purposes an educational system manpower (NURI) and the •Designation of high focusing on nurturing •Intensification of business for colleges ture schools with special indepen-dent farmers roles of vocational centering on of purposes training industrial-educational indu •Promotion of charac- Commencement of cooperation strial terization of technical high BK21 business •Practicability of tech schools •Strengthening of college education and nical •Promotion of mea-sures support for R&D core strategies pro for equalization of high activities of colleges •Nurture of fessio schools (BK21 and support for manpower in nal •Privileges for students of excellent research industrial field vocational high schools centers) •Characterization for man going on to colleges of the •Decision of each college po same areas establishment of wer Korea Polytechnic University at ‘the expanded meeting of economy ministers’ as a part of plans for improvement of technical educational system

146•2013 Knowledge Sharing Program with Uzbekistan 2.2. Techno-Parks in Korea

2.2.1. Definition of Techno-Park

Techno-Parks were one of the ways Korea tried to foster an innovative economy and support SMEs. It provided a facility for SMEs and universities and local and central government agencies to collaborate in building a knowledge-based economy. It also aimed to create new industries by bringing together talent and material resources scattered in company research and development centers, universities, research institutes and government offices.

Korea realized there was a need for improved university-industry collaboration in the late 1980’s. It began promoting programs for collaboration between private enterprise, universities, public research institutes. It adopted best practices from around the world in fostering university-industry collaboration in establishing Techno-parks.

In late 1997, the Korean government launched the first Techno-Parks. They were the Ansan (now Kyunggi Techno-Park), Songdo, Daegu, Gyongbuk, Gwangju, Chungnam Techno-Parks.

In 1998, it enacted special legislation for the ‘Support of the industrial technology complex’ for promoting Techno-Parks. Currently, there are 18 Techno-Parks located throughout Korea.

Chapter 3 _ Building Policy Framework to Establish Technology Innovation Park•147

Techno-Park’s in Korea

Techno-Park Specialization Areas

Renewable bio-energy, Image media, Textile Gyeonggi/Daejon materials,

Biotech, Medical appliances, New Gangwon materials,Disaster prevention, Plasma, Marine biotech

NIT manpower training, Expert training of IT Seoul fusion, BT

Semiconductors, Electric & Electronic fusion Chungbuk components, Next-generation battery.

Auto-components, Biotech, Mechatronics, Electronic Incheon information

Information and communications technology, Biotech, Daejon Mechatronics, High technology components and materials

Electronics/Information and communications, Auto- Gyeonggi components, Biotech, Robotics

Nanotech, Biotech, Oriental medicine, Mobile, IT Daegu convergence, Green energy

Electronic/Information equipment, High-tech Auto- Chungnam components Agro-livestock bio

Machine, Automobile, IT convergence, Information Gyeongbuk and communications, Energy, Medical

Automobile/Machine industry, Bio industry, New Jeonbuk renewable energy and RFT

Nano electronic materials, Bio medical materials, Pohang new steel materials, Energy materials

LED/LD, Optical communication/Light application, Information Gwangju appliance components, Auto-components

Automobile, Marine shipbuilding, Advanced Ulsan Chemicals, Environmental technologies

New materials, Shipbuilding, Biotech, Distribution, Jeonnam Cultural tourism

Maritime, Machine component materials, Image & Busan IT, High-tech & Future technologies

Aerospace, Precision instrument, Mechatronics, Gyeongnam Robot, Intelligent home

Regional strategic industry, Knowledge-based Jeju industry

Source: www.technopark.kr

148•2013 Knowledge Sharing Program with Uzbekistan 2.2.2. Institutional and Political support for Techno-Parks

In 1995, The Korean Ministry of Commerce, Industry and Energy (currently reorganized as the Ministry of Trade Industry and Energy) established a five-year plan to expand Korea’s technology infrastructure. On the basis of this, it launched 6 models of Techno-Parks.

In order to streamline the operations of the Techno-Parks, in 1998, special legislation exempting the Techno-Parks from a variety of legal and regulatory restrictions (scale of factories, sale of public property, construction restrictions) as well as favorable tax treatment was introduced. This reduced the red-tape and other bureaucratic obstacles that could hinder these new industries.

Local government, universities and research institutes participated in task forces for establishing and operating the Techno-Parks. In 2008, the laws governing the Techno-Parks the Industrial Technology Complex Support Laws were further revised to invigorate manufacturing activities.

Such legislation covers establishment procedures for the Techno-Parks, operation guidelines, special rules regarding factories, laws regarding financing and employment laws to provide a smooth supply of manpower.

Some of the essential features are listed below:

• Establish a collaboration system for industry, universities, research institutions, local government and industry support groups. Address the multiple goals of these different organizations that include training and education, advanced scientific and technology research, industrial production, and corporate success. Take into account special local needs and circumstances, and find ways to utilize local characteristics.

• Support for regional development strategies regarding industry and technology.

• Education and training of human resources to work in industry and technology fields.

• Sharing of information on industry and technology.

• Support and cultivation of new technology start-up businesses.

• Provision of joint research and development facilities.

Chapter 3 _ Building Policy Framework to Establish Technology Innovation Park•149 • Pilot production

• Production and sales based upon the results of research and development.

• Businesses designated by The Ministry of Trade Industry and Energy to support collaboration enterprise, university, research laboratory, local government, industry support groups.

2.2.3. The Function and Role of Techno-Parks

Main function and role of Techno-Park is to improve region and national competitiveness, improve regional industry strategy and policy planning, strengthen collaboration and exchange between participants and cultivating successful new technology startups.

[Figure 3-7] Function and Role of Techno-Park

Strengthening Regional and National Regional Competitiveness Industry and Policy Planning

Technoparks as Basis for Nurturing Stronger Regional Cooperation Industry Among Related Parties

Fostering company Small-but- support Strong Businesses create of company technology innovation

Source: www.technopark.kr

Korean Techno-Parks focus upon 6 major objectives and 4 secondary objectives to implement the goals. 6 major objectives are composed of 1) research & development, 2) cultivation of business start-up, 3) utilization of equipment, 4) education and training, 5) information distribution, and 6) support for

150•2013 Knowledge Sharing Program with Uzbekistan pilot production. These 6 objectives aim to strengthen the competitiveness of participating companies by increasing their production efficiency and innovation capability.

The 4 secondary objectives include 1) technology transfer, 2) development of regional human resources, 3) incubation and nurturing of new technology startups and 4) coordination of the research and development infrastructures. These secondary objectives will be achieved through management of central government and local government projects aimed at these objectives.

2.3. Korea Polytechnic University’s TIP

2.3.1. Technology Innovation Park (TIP)

TIP in KPU is a model of university-industry cooperation. It aims to bring the Techno-Park model to universities. Universities can achieve their educational goals in training global technology leaders with practical and marketable skills that are useful to industry while at the same time, SMEs can achieve their goals of strengthening technology competitiveness.

The TIP provides students with an Engineering House (E/H) guesthouse, dormitory, sports center, restaurant, banking and other convenience facilities so they can perform research activities around the clock.

KPU’s TIP

TIP Floor Location

- Guest House 18F - Reception hall

- Living hall 7~17F - Living hall for language

6F - Sports plaza

3~5F - Engineering House

2F - Convention hall

- Convenience facilities(bank, bookstore, 1F convenience store)

- Food court B1F - Art Center

Source : KPU(www.kpu.ac.kr)

Chapter 3 _ Building Policy Framework to Establish Technology Innovation Park•151 2.3.2. Industry-Academy Cooperation of TIP

2.3.2.1. Engineering House System (E/H)

The Engineering House (E/H) is the core of the TIP’s university-industry collaboration. Professors and students and industry personnel share living and working spaces. They can participate in educational and research and development activities around the clock.

Industry experts from SMEs provide professors and students with engineering and technology problems to solve. Professors and students help SMEs develop, commercialize and market their products, and SME’s gain access to expensive high technology equipment owned by the university. Professors and students learn what kind of skills they need to develop to work in industry and that helps students maximize their marketability.

[Figure 3-8] Overview of Engineering House

● Project ● Facility

Engineering Student(third, fourth year) House Enterprise In-site education, Researcher, Specialized education Development of project based on research Professor Engineering education based on university-industry cooperation

Responsibility professor Participation professor Consultation professor

Source: KPU (www.kpu.ac.kr)

The advantages of university-industry cooperation through the E/H model listed below:

Companies gain access to highly educated and skilled research and development teams led by professors and graduate students. Companies will be able to receive research and development support from the university team. Students will have an

152•2013 Knowledge Sharing Program with Uzbekistan opportunity to supplement their training in the theoretical aspects of technology with real-world practical training. Graduates will be much better prepared for the job market and be able to maximize their engineering capabilities.

In terms of overall industrial technology development, by combining the practical commercial technology of industry with advanced equipment and facilities of universities as well as the skilled manpower from the university, the E/H will lead technology innovation in the regional industrial complexes. Universities will be able to focus their advanced research on future technologies that industry needs and this will help advance technology levels of industry.

Partner companies will receive support from the university in terms of skilled manpower for the problems they face in commercializing technologies and have access to advanced equipment and facilities of the university. A mutually beneficial symbiotic relationship between the university and partner company will develop.

2.3.2.2. Other University-Industry Cooperation Programs at KPU

KPU has established and has been operating many other University-Industry collaboration programs as well as TIP. These programs include the Partner Company System, Technology Business Incubator (TBI), and Common Equipment Support Center.

The Partner Company System links technology companies with professors working in the same field and fosters mutual cooperation between the professors and the companies. KPU has around 3,800 Partner Companies who are participating. The close collaboration has led many successful university-industry cooperative projects.

TBI arranges effective support for technology startups such as technical advice, policy and funding support. Professors provide startups with consulting services. Currently, 23 companies are being incubated at the TBI. These companies have 139 employees work and have received $14.7 million in funding.

SMEs typically have difficulty purchasing expensive equipment and training staff that can operate such equipment. The TBI has been operating the Common Equipment Support Center, where startups can share expensive equipment. The shared equipment helps startups commercialize their technologies.

The Common Equipment Support Center currently owns 23 pieces of equipment. It also owns 90 pieces of equipment outside the center. The Center earns $900,000 annually in revenues.

Chapter 3 _ Building Policy Framework to Establish Technology Innovation Park•153 3. Policy Recommendations for Establishing TIPs in Uzbekistan 3.1. General Strategy for TIP’s in Uzbekistan

Uzbekistan is trying to develop its national industries. However, the industrial structure is relatively weak in the secondary and tertiary industries and focused on light industry and primary industries.

The government is interested in establishing TIPs and providing a basic policy through this KSP business that can address these weaknesses. However, the original goals of TIPs in Korea was to enhance competitiveness of SMEs, and there are many different kinds of TIPs across Korea.

Uzbekistan has few companies in the secondary and tertiary sectors. Although there has been foreign investment, industry infrastructure in the high technology sector and the application of technology is still weak.

Advancing Uzbekistan’s industrial technology will require more than just a simple introduction of technology. Not only does Uzbekistan need modern facilities and equipment, but also it needs to develop its technical skills and train its industrial technology manpower. Uzbekistan needs full technology transfer.

TIPs can be helpful in providing such transfer if accompanied by foreign companies establishing themselves in Uzbekistan, joint research by Uzbeki companies and foreign companies, and efforts to train Uzbekistan’s technological manpower. For TIPs to be successful in this effort, there are many policy preparations that must take place.

Directly transplanting Korea’s TIP model directly to Uzbekistan is not appropriate. We recommend a 2-step process.

There are several excellent research universities in Uzbekistan. Examples are NUUz and Tashkent Engineering University, both of which are located near Tashkent.

The first step is to establish TIP links between these universities and companies. By establishing and cultivating continuous collaboration between these universities and industry, industries can grow by commercializing items developed by these research universities.

The second step, once these TIPs become established, is to expand them

154•2013 Knowledge Sharing Program with Uzbekistan nationwide and to other advanced industries following Korea’s model.

For these programs to be successful, Uzbekistan must establish at the government level, a support group for the TIPs that represents all of the participants (industry, universities, Ministry of Education, and other experts). We also recommend the participation of experts in the KSP. This multi-lateral support group must ensure the smooth operation of the TIPs.

3.2. Legal and Institutional Considerations

The Korean government established a 5-year technology infrastructure expansion plan in 1995. Based upon this plan, 6 model Techno-parks were established in 1997.

Uzbekistan has enacted various laws for promoting innovation and modernization, close links between industry and science, as well as research and innovation. Following Korea’s experience, the next step for Uzbekistan should be to appoint a task force for business promotion based upon the findings of KSP.

Uzbekistan must enact further legislation that will ensure the smooth operation of the TIP similar to the way Korea actively enacted legislation to prevent the Techno-Parks from being bogged down by bureaucratic red-tape and old laws. As Korea had to do so, Uzbekistan will also have to revise these laws to adapt to changes.

The multi-lateral task force should then establish a permanent body for operating the TIP where local government, universities, research organizations participate. It should be under the leadership of the central government and organized so that research and development can continue over the long term.

Momentum from the KSP should be fully utilized to establish a network through which Uzbekistan can learn from and adapt Korea’s own experience with TIPs. A key to success will be for Uzbekistan to utilize as much as possible, Korea’s advanced technology and manpower through collaboration.

3.3. The First Steps

3.3.1. Direction for Establishing TIP

Initially, the focus of efforts to strengthen technological competitiveness of SMEs in Uzbekistan should center on commercializing the research from Uzbekistan’s top universities. The Techno-Park should focus on this central task as illustrated in [Figure 3-9].

Chapter 3 _ Building Policy Framework to Establish Technology Innovation Park•155 [Figure 3-9] First step Establishment of TIP in Uzbekistan

Engineering House A company (E/H)

Technology Business B company Incubator(TBI)

High-end Equipment Support Center(HESC)

Partner Company Z company

R&D in Univ. Commercialization Products

University around Industrial complex Industrial complex

This TIP is formulated to have functions of E/H, TBI, Public Equipment Support Center, Family Company System based upon KPU’s experience in establishing and managing TIPs

There are 14 regions where TIPs can be established to foster university-industry collaboration. They are illustrated in

.The regions are classified into 4 groups.

The first suitable area for establishing a TIP is Tashkent which has the biggest industrial complex in Uzbekistan, and also has an excellent research university, NUUz. TIPs should be expanded to other areas in a step-by-step plan

156•2013 Knowledge Sharing Program with Uzbekistan

Share of industries in gross output of industry of region (%)

Main Industrial Fields University Priority

Engineering industry: 22.5%, Fuel National University of Tashkent industry: 20.4%, Food: 19.9%, Uzbekistan, Tashkent State 1 city Chemical: 8.4%, Light: 6.4% Technical University

Metallurgy: 36.4%, Non-ferrous metallurgy: 24.9%, Food: 14.6%, Tashkent Architecture and Tashkent Ferrous metallurgy: 11.5%, Construction Institute Power industry: 11.2%, Chemical: 9.7%, Light: 7.4%

Engineering: 76.0%, Andijan Engineering Institute , Andijan Light: 10.4%, Chemical: 3.6% Andijan State University 2

Fuel industry: 73.1%, Karshi State University , Karshi Kashkadarya Light: 7.5%, Power industry: branch of the Tashkent University of 6.0% Information Technologies

Metallurgy: 61.0%, Construction Navoiy materials industry: 12.8%, Navoi State Mining Institute Chemical: 9.7%

Fuel industry: 31.9%, Light: 23.4%, Construction materials Fergana State University, Fergana Fergana industry: 10.4%, Polytechnic Institute Chemical: 10.3%, Food: 8.8%

Samarkand branch of the Food: 40%, Light: 20.0%, Tashkent University of Information Samarkand Engineering industry: 18.3% Technologies, Samarkand State University 3 Bukhara Engineering and Technology Fuel: 42.2%, Light: 25.5%, Bukhara Institute of High Technologies , Food: 13.3% Bukhara State University

Namangan State University, Light:36.1%, Food:27.7%, Namangan Namangan Engineering Institute of Engineering industry: 9.5% Technology

Chapter 3 _ Building Policy Framework to Establish Technology Innovation Park•157

Share of industries in gross output of industry of region (%)

Main Industrial Fields University Priority

Light: 37.3%, Fuel industry: Samarkand Termez State University 15.6%, Food : 14.7%

Urgench State University , Urgench Light: 42.6%, Food: 21.2%, Khorazm branch of the Tashkent University of Power industry: 5.5% Information Technologies

Power industry: 50.7%, Sirdaryo Gulistan State University 4 Light: 27.8%, Food: 12.3%

Light: 24.5%, Power industry: Jizzax Jizzah Polytechnic Institute 23.7%, Food: 15.2%

Karakal Nukus branch of Tashkent University Power: 23.7%, Light: 24.5%, pakistan of Information Technologies, Food:15.2% Republic Karakalpakstan State University

The most important point for establishing TIP is how effectively the university transfers its research capability to companies and commercializes it. The university will also have to not only provide its research to companies but also train the skilled manpower that can utilize the research. The process of transferring technology to Uzbekistan’s industries will be the key to growing its secondary and tertiary sectors.

KPU’s experience in fostering university-industry collaboration will be helpful in establishing and operating the TIPs. The 14 regions should be prioritized in terms of regional importance. Uzbekistan will be able to avoid expensive trial and error in budgeting and operating these TIPs if it establishes priorities and distributes funds according to these priorities.

158•2013 Knowledge Sharing Program with Uzbekistan [Figure 3-10] 1 step Establishment of TIP in Uzbekistan

Navoiy

Khorezm Tashken Namangan Tashkentikity Bukhara Jizakh Syrdarya Andijan Ferghana Samarkand Kashkadarya

Surkhandarya

Given that Tashkent produces a quarter of Uzbekistan’s GDP, the establishment of TIP in the Tashkent area should be the top priority. Given NUUz’s history and research capabilities, it is the first candidate for a TIP.

The functions of TIP should initially be the following items. Based on the experience at Tashkent’s NUUz subsequent TIPs in other areas may expand upon these functions.

1. Research & development of new products by joint research between university and industry.

2. Cultivation of skilled manpower through field training for NUUz students at TIP partner companies and advanced training for partner company staff at the university.

3. Experimental production and prototyping support for small companies which have strong technical skills but cannot afford expensive equipment.

4. Support for new business and providing information about technology.

5. Support for start-ups that can commercialize the university’s basic research.

Chapter 3 _ Building Policy Framework to Establish Technology Innovation Park•159 In particular, expansion of university-industry cooperation through the establishment of a Business Incubation Center is very important because Uzbekistan doesn’t have many companies.

In order for the first TIPs to grow stably and continuously, the central government should establish plans for policy and legislative support as well as funding. New policies for the TIPs must continuously be developed and improved in parallel with funding.

In order to effectively promote Step 1 TIPs, the central government must provide leadership for local governments and regional universities. The central government must be prepared to provide help to local governments in establishing TIPs, until the TIPs become self- sufficient.

The central government should also provide opportunities for Uzbek TIPs to network and communicate with TIPs in Korea. They should provide ways to meet Korean university officials, managers of companies that were grown in TIPs in Korea, and Korean government officials to communicate their know-how and expertise to their counterparts in Uzbekistan.

3.4. Second Steps

3.4.1. Directions for Establishing TIPs

Once companies become established in the TIP, there will be a point when they become ready for the next challenge. That is the point at which the second steps must be taken.

In the second stage of growth, which will include expansion of TIPs to all 14 regions, the plans must consider the regional character and regional growth potential and be tailored for each region.

There may be decisions to be made about expanding existing TIPs or establishing new TIPs in more universities. The exact number and sizes of the TIPs will differ according to a range of local characteristics.

Regardless of the policies that each region eventually selects, the central government must continue to provide leadership and support for the TIPs, in terms of finance, policies and legislation. The government must be willing to learn from its own experience.

An important aspect of the second stage plans for TIPs will be to link as well as

160•2013 Knowledge Sharing Program with Uzbekistan expand the TIPs. [Figure 3-11] illustrates this stage.

The TIPs with the most contributions should be prioritized for support from the central government. The second steps taken for the TIPs should incorporate lessons learned from the first steps. Moreover, there should also be ways to incorporate lessons learned by Korean TIPs.

The following items will be important for the second steps:

1. Building the legal and institutional infrastructures for establishing TIP by region.

2. Support for the partner companies in terms of taxes and regulations as well as helping them commercialize and market their new products.

3. Government agency policy and legislative support for universities and university-industry cooperation.

4. Government’s legislative and policy support for commercialized technology.

5. Policies for revitalizing of university-industry cooperation

[Figure 3-11] 2 step Establishment of TIP in Uzbekistan

Reagioz A TP Reagioz B TP

TIP Industrial TIP Industrial Region A Complex Region B Complex

TP Networks Support Support in Uzbekistan Agency Agency

Tashkent

TIP Tashkent NUUz Complex

Support Agency

Chapter 3 _ Building Policy Framework to Establish Technology Innovation Park•161 3.4.2. Second Step Promotion Strategies for TIPs

One of the second step goals is to promote the TIPs to become self-sufficient and less reliant on direction from the central government. The role of the local government must increase.

However, in order to fully share information and help start up new businesses based upon newly found opportunities, the TIPs must maintain close links and easy communications. TIPs should serve as channels for companies, universities, governments to share information and form new relationships that can start new businesses.

The central government must continue to lead but it must also listen more to the local governments and other parties in the mature TIPs for advice on policies that can foster growth.

TIPs can also be used to share information and network with neighboring countries and cooperate with Korean TIPs. TIPs in both countries should benefit from such sharing. It can further develop into an industrial development model for technological innovation. By continuous improvement in the technology used in Uzbek industries and continued advances in research by Uzbek universities combined with increased international collaboration, the TIPs can provide a huge boost to Uzbekistan’s industrial technology.

3.5. Expectations

This study aims to provide a policy framework for establishing TIPs in Uzbekistan. We believe TIPs can improve the industrial structure in Uzbekistan and provide the infrastructure for industrial development.

In the first step, the TIPs will focus on providing manpower with technical skills and transferring technologies (including the capability to manage the technologies) to Uzbek SME’s. The next steps will expand the number and scale of the TIPs and also focus on fostering communication and sharing between TIPs. TIPs can also facilitate communication with international institutions. TIPs are well-suited for the Uzbekistan government’s policy for fostering the infrastructure of secondary, tertiary industry and improving industrial structure.

162•2013 Knowledge Sharing Program with Uzbekistan References

Kim-Jae Keun, 2013. techno-park’s function and role analysis for supporting SME Seung Kwan Jang and others, KDI, 2012. Train technical professionals through KPU Seung Kwan Jang and others, KDI, 2011. Technical Engineering Education Model of Korea Polytechnic University in Modularization of Korea’s Development Experience Korea policy society, 2012. 50-year history on SME’s policy and the future of SME’s policy Seo-Won Seok and others, 2010. ripple effect on the regional economy and research of policy project of techno-park, Korea regional development society journal Lee-Cheol Woo and others, 2009. outcome and policy project of techno-park’s establishment business, Korea economy geography society journal Lee-Seong Keun and others, 2004. establishment of regional innovation system and role of techno-park Gwon-Young Seop and others, 2003. nurture of knowledge-based industry and plan for establishing regional innovation system

Chapter 3 _ Building Policy Framework to Establish Technology Innovation Park•163

2013 Knowledge Sharing Program with Uzbekistan: Innovation Strategy for Agriculture and Industrial Technology Chapter 4

Strategies for Strengthening SME’s Competitiveness through Education Program of Industry-academy Cooperation

1. Status and Development Policy of SMEs in Uzbekistan 2. Uzbekistan National University(NUUz) 3. Policy for Strengthening Competitiveness of SME in Korea 4. Education Program of KPU’s Industry-Academy Cooperation 5. Consolidation of SME’s Competitiveness in Uzbekistan through Education Program for Industry-academy cooperation Strategies for Strengthening SME’s Competitiveness through Education Program of Industry-academy Cooperation

Woong Sae Choi (Korea Polytechnic University)

Summary

However, agriculture, trade, forestry, and the other field share a lot in sectors. In addition, although exports are continuously increasing, imports are rather high compared to exports. Thus, Uzbekistan government is promoting domestic production such as machine, automobile, etc.

166•2013 Knowledge Sharing Program with Uzbekistan problems in development of application sector and commercialization of research achievements. Therefore, NUUz is preparing to establishTIP (Techno Innovation Park) in the physics department in between buildings under remodeling in order to try to settle the matter.

Based on SME’s development policy on Korea and evolution of industry-academy cooperation as above, this study is to propose establishment of TIP in NUUz located in Tashkent city in which industrial sectors is most vitalized in Uzbekistan as a model business of the program of industry-academy cooperation to strengthen competitiveness of SMEs in Uzbekistan. As previously mentioned, NUUz is the best in Uzbekistan due to its excellent research achievement. In addition, in terms of geographical location, Tashkent city is most vitalized in industrial sectors. In conclusion, it is considered that Tashkent is an appropriate place to promote the model business for industry-academy cooperation.

Chapter 4 _ Strategies for Strengthening SME’s Competitiveness through Education Program of Industry-academy Cooperation•167 section presented Technology Innovation Park building method for strengthening SMEs’ competitiveness in Uzbekistan.

1. Status and Development Policy of SMEs in Uzbekistan

The number of SMEs is very high in Uzbekistan and their employment and income are rapidly increasing. Uzbekistan, recognizing the importance of SMEs in developing economy, has been actively pursuing to foster SMEs since the early 2000s.

1.1. SME’s Status in Uzbekistan

The total number of companies in Uzbekistan was 537,407 in 2012. Among them, the number of SMEs has been rapidly increasing to 485,000 now, which are 90 % of whole companies in Uzbekistan.

Number of SMEs in Uzbekistan

(Unit : 1,000) Category 2005 2006 2007 2008 2009 2010 2011 2012

Number of 268.6 346.1 392.0 398.6 422.9 459.5 470.0 485.0 SMEs

Source: State Committee of Republic Uzbekistan on Statistics

1.1.1. Relevant policy to SMEs

SMEs in Uzbekistan comprise around 90% of total companies. They employ 74% of total employed manpower, which gives great influence on Uzbekistan economy, and its ratio is rapidly increasing recently because Uzbekistan government, recognizing the importance of SMEs, is pursuing to foster them.

The policy related to SME in Uzbekistan is reflected on various legislations, although this is only performed by government plan called ‘The year of SME’. Main contents of this plan are as below.

- Simplification of registration process on SME and connection of electricity, communications network. - Upward adjustment of employment standards on SME from under 50 to 100

168•2013 Knowledge Sharing Program with Uzbekistan employed persons. - Exemption from the tax investigation for 3 years after the registration as new venture companies. - Accessibility improvement on SME’s supply to the government. - Reduction on tax rate of single tariffs. - Accessibility improvement on commercial bank of SME. - Handling within 3 days in loan application to a commercial bank of SME.

Uzbekistan government is supporting SME with selection of priority on each sectorial investment as well as with the plan above, ‘The year of SME’.

Investment Sectors in priority of SME.

Fields Sectors

Auto industry Assembled parts production

Alternative energy Bio gas, Solar and Wind power energy

Agriculture Agriculture and industry, equipment modernization

Electron Electronic components, Electricity and Energy saving technique

Textile Clothes and Accessory manufacture

Information and S/W and H/W, Electronic goods, Techno-Park, IT service Communications

Retail trade Base open of shopping mall and retail trade E-commerce revitalization

Development of resort, Improvement of tour infrastructure Tourism such as a hotel, establishment of ecosystem for tour

Food service Franchise, Coffee shop, Bar, Restaurant for internal and industry external cooking

Internet and IP phone, Information offered via call center or Service Another type, Passenger transfer service

Leather industry Shoes, Sports equipment, etc.

Construction Production of construction materials

Production of Home appliances, Plastic goods, Clothes, etc. consumer goods

Foods Dairy products, Meat, Flour, Grain, Fruit, Vegetable, etc.

Oil and Gas Arrangement of small medical offices and ambulances in rural areas

Source: Main tendency of small and private business development

Chapter 4 _ Strategies for Strengthening SME’s Competitiveness through Education Program of Industry-academy Cooperation•169 1.1.2. Policy on Investment for SME

In order to foster SME, Uzbekistan government is supporting activities for investment targeting SME with more than 50 laws including 7 laws for fostering SME, 18 resolutions of presidential decree and 20 resolutions of government cabinet. Typical laws regarding these activities are “Investment for foreigner”, “Investment activities” and “Measures to protect foreign investors’ right”.

In accordance with presidential decree in April 2012 of “Additional measures for promoting direct investment to attract of foreigners (UP#4434)”, activities for foreign investment are vitalized by following items.

a. Investment project

- More than 500 million dollars

- Less than 50% ratio of investment by foreigners

- Engineering networks by national budget

b. Reimbursement of zero costs through a direct contract with investors according to specific investment responsibility on the sales of liquid materials.

c. All tax, which is related to operation for 10 years from registered days, guaranteed to the companies with the investment scale of minimum 5 million dollars.

1.1.3. Export relevant Policy

Uzbekistan government is promoting the policy to foster export sectors including various kinds of laws and presidential decree. The major contents are as below.

- VAT exemption on the profit by exports for acquisition of foreign currency.

- Tax difference of income tax and property tax according to the exports of total sales volume occupies: 30% reduction of income tax and property tax when exports comprise of 15%~30% from the total sales, and 50% reduction when the weight of exports is more than 30%.

- Implementation of system ‘One window’ in order to arrange all kinds of customs procedures for exports at one place.

170•2013 Knowledge Sharing Program with Uzbekistan - Exemption of import tariffs on components for the production of export goods.

1.1.4. Other Activities for Fostering SME

Uzbekistan government is progressing the activity ‘investment attraction of foreigners’ to foster SME through The Chamber of Commerce and Industry. They are also promoting exports by holding an exposition to exhibit research laboratory products.

- Uzbekistan companies’ participation in overseas exhibition. · In 2013, 120 Uzbekistan companies participated in 27 overseas exhibitions for 6 months.

- Exchange of information regarding overseas cooperation partners. · Commerce, business society, etc. with more than 50 overseas countries.

- Organization of business forum. · In 2013, foreign delegates visited business forums 15 times for 6 months.

- Trade and investment house. · Opening trade and investment house in Korea, Russia, and India. It had been proceeded in Europe until late 2012.

- Cooperation for collaboration. · Progressed agreement for cooperation with overseas Chamber of Commerce and Industry. Currently, total 113 agreements have been progressed.

2. Uzbekistan National University (NUUz)

Uzbekistan National University is located in Tashkent, and was established in 1918 as a name of ‘People’s Uzbekistan University’ which was changed into ‘NUUz’ in 2000. NUUz is the best university in Uzbekistan and one of the biggest universities in Central Asia.

This Section is to indirectly analyze the current status of Uzbekistan’s higher education and industry-academy cooperation by researching its current status.

2.1. Organization of the departments in NUUz

The departments of NUUz have 13 categories in total. 6 fields are related to science and the other 7 fields are regarding sociology.

Chapter 4 _ Strategies for Strengthening SME’s Competitiveness through Education Program of Industry-academy Cooperation•171

Departments of NUUz

Faculties of natural sciences Faculties of Humanitarian

Mechanics and mathematics Philosophy

Physics Journalism

Chemistry Economics

Biology and soil sciences Uzbek Philosophy

Geology Foreign Philosophy

Geography Law

Education of NUUz is stronghold of basic studies but it needs to develop more in the fields of application.

2.2. NUUz’s R&D

NUUz receives better funding support from the government for basic studies than other universities do. In particular, it is operating a research center for chemistry, bio and physics. Its main research sectors are as below.

- High polymer chemistry center · Collaboration between physical laboratory and high polymer chemistry laboratory

- Microbiological center · Establishment by cooperating with Uzbekistan science academy · Complex form of education and science

- Nuclear physical center · Collaboration with Uzbekistan nuclear physical research laboratory

- AgroEcoBioTechnology center

- Geology center · Cooperation with Uzbekistan national university, Uzbekistan geological laboratory, mineral resources laboratory, and science academy

- Hydrometeotomy center · Collaboration between Uzbekistan national university’s geography professors and science research center

172•2013 Knowledge Sharing Program with Uzbekistan

Research Achievements of NUUz

Research type Number

Fundamental 42

Practical 25

Innovation 10

Rare objects 1

Fundamental and practical (young scientists) 7

Household contracts 25

Foreign grant projects 6

Specific subjects 1

Total 117

Besides above research centers, the achievements of research activities had accomplished fruitful outcome in 2012 such as 24 research papers, 31 science manuals, 203 international conference abstracts, 310 regional conference speeches, etc. as presented on

2.3. Current spatial status of NUUz for Establishing Techno Innovation Park (TIP)

NUUz has long history and Uzbekistan government is carrying forward the business of remodeling many buildings in NUUz.

According to the observation from visiting NUUz for this KSP business, the remodeling of physics building will be completed within this year and NUUz hopes to utilize some parts of this building for TIP.

This building has 4 floors, including research institute, office, personal cabinet, conference room, etc. and it is on the level of completion now. Around 1,419 m3 of total area will be used for TIP.

Chapter 4 _ Strategies for Strengthening SME’s Competitiveness through Education Program of Industry-academy Cooperation•173

Remodeling Building in NUUz(To be used for TIP)

Floor Name of room m2 Floor Name of Room m2

1 Conference room 106,0 2 Manager 65,0

1 Scientific Laboratory 32,4 2 Manager 32,4

1 Scientific Laboratory 65,0 2 Scientific Laboratory 65,0

1 Supporting room 32,4 2 Scientific Laboratory 65,0

1 The cabinet personnel 16,0 3 Auditorium 32,4

1 Scientific Laboratory 32,4 3 Scientific Laboratory 66,8

1 The cabinet personnel 16,0 3 Auditorium 32,4

1 Scientific Laboratory 32,4 3 The cabinet personnel 16,0

1 Scientific Laboratory 32,4 3 Scientific Laboratory 49,0

1 Scientific Laboratory 32,4 3 Scientific Laboratory 32,4

1 Scientific Laboratory 32,4 4 Head of the Laboratory 32,4

1 Scientific Laboratory 32,4 4 The cabinet personnel 23,6

1 The cabinet personnel 16,0 4 Scientific Laboratory 32,4

1 Scientific Laboratory 32,4 4 Scientific Laboratory 40,0

1 Scientific Laboratory 32,4 4 Scientific Laboratory 65,5

1 Scientific Laboratory 16,0 4 Scientific Laboratory 32,4

1 The cabinet personnel 16,0

1 Scientific Laboratory 16,0

1 Scientific Laboratory 32,4

1 Scientific Laboratory 65,0

1 Scientific Laboratory 16,0

1 The personnel cabinet 16,0

Total(㎡) 1,419

174•2013 Knowledge Sharing Program with Uzbekistan 3. Policy for Strengthening Competitiveness of SME in Korea 3.1. Change of Support Policy for SME in Korea

Support policy and legislation for SME in Korea started institutionalizing in 1960s, which, however, was relatively estranged from primary priority due to big companies. Since then, the policy for protecting and encouraging SME was earnestly promoted in 1980s through the establishment of ‘Long-term plan for SME promotion’ and unique business system.

From 1993 to 1997, the policy of SME was developed from mainly existing protection and cultivation to radical reform through autonomy and competition with chronological changes. Moreover, Small and Medium Business Administration was established to charge them exclusively.

From 1998 to 2002, Korea faced financial crisis in 1998 and had pursued SMEs and venture to start-up the businesses and reinforce their competitiveness as a way to overcome this crisis. Since then, it had innovated support system on the whole management such as technology, manpower, capital, market, etc. for SMEs from 2003 to 2008 in order to strengthen the role of SME as a central figure in implementing toward innovation driven economy.

After 2008, Korea tried to conduct the strategy accompanied growth with big and SME together based on company friendly policy to secure companies’ sustainable competitiveness under global competitive environment.

Chapter 4 _ Strategies for Strengthening SME’s Competitiveness through Education Program of Industry-academy Cooperation•175

Change of Support Policy for SME in Korea

Category ‘63~’79 ‘81~’92 ‘93~’97

Establishment of Implementation of long-term plan for Improvement of institutionalization SME’s promotion autogenic power Main goal for protecting and Positive protection via autonomy fostering SME and cultivation of and competitiveness SME

Expanding and reforming by The New establishment Expanding and Ministry of of The Small and Reorganizing Commerce and Medium Business Governance SME and newly Industry which takes Administration of Started SME into charge of company Exclusive SME Bureau task to The Ministry organization of Commerce & Industry

Category ‘98~’02 ‘’03~‘08 ‘08~

Innovative SME’s’ Relaxation in cultivation and regulation based on Start-up support for competitiveness company-friendly Main goal venture business reinforcement to policy, with IT sector as a implement toward accompanying growth center goal innovation driven with big companies economy

Introduction of the Reorganization of system to merge The Small and Establishment of department and Medium Business Governance presidential SME bureau in The Small Administration by ad-hoc committee and Medium Head office and team Business system Administration

Source: 50-year history and the future of Small and Medium Business’ policy

3.2. Industry-Academy Cooperation for Strengthening SME’s Competitiveness

University-Industry cooperation has the advantage that enables them to complement the capabilities between the industry and academy to share the risks and burdens, and to efficiently utilize the results. It has been applied in various forms

176•2013 Knowledge Sharing Program with Uzbekistan in developed countries. In the case of South Korea, industry-academy cooperation is very recessed up to the 1980s, and cooperation such a model was limited to the formal level.

Korea has settled Daedeok Research Complex and Gwangju High-Tech Industrial Complex for the purpose of expanding weak scientific technology infrastructure since the mid-1970s. However, it could not achieve the goal of government which was supporting the development of the infrastructure-oriented innovation and physical infrastructure, lack of resources, and immature social conditions.

Since the late 1980s, the need for cooperation between industry and academy is in relief, and programs to corporate and support university-industry-government collaboration were substantially promoted, but the cooperation was very weak. It is possible to begin to introduce university-industry cooperation model in earnest in Korea to the 1990s. In imitation technology, awareness companies cannot survive is now ejected from internal company longer, and initial activation has led to the introduction of the development policy of the new industries that government with a focus on infrastructure construction of technological development.

3.2.1. Change of Cooperation Policy of Industry-academy cooperation in Korea

Korean government’s cooperation policy of university-industry has been changed to correspond to economic development stage and the character of industrial development. The process of industrialization in Korea has been developed from the stage of labor-intensive industrialization with light industry as the central figure in 1960s, then through capital-intensive industrialization with heavy chemical industry as the central figure in 1970s, and to technology-intensive industrialization with high-tech industry as the central figure since 1980s.

Such cooperation policy of university-industry has been changed as the industry has been developed. Early cooperation policy of university-industry focused on the purpose of securing scientific technology manpower, improving laborer workmanship and securing skillful manpower, which is mainly on fostering technological manpower.

In 1960s, government was not much interested in industry-academy cooperation but the foundation of this was formulated with the establishment of relevant laws, ‘long-term comprehensive plan of scientific technology development’, ‘the third scientific technology program for 5-year plan’, ‘the third manpower development plan’. Besides, in 1968, Industry-academy cooperation such as spread of new technology was founded by the law promoting KIST, and industry-

Chapter 4 _ Strategies for Strengthening SME’s Competitiveness through Education Program of Industry-academy Cooperation•177 academy cooperation was started as the type of fostering technological manpower corresponding to companies’ field education and demand.

In 1970s, government enacted ‘law of technical development promotion’ which supports industry-academy cooperation. As main industry was changed from light industry to heavy chemical industry and skillful manpower was substituted from craftsman to technician, the influence of industry-academy cooperation on economic development was increased.

Researches on cooperation policy of industry-academy were emerged as an important subject on late 1980s, and most of technical development businesses were promoted by cooperation policy of industry-academy. In 1990, the infrastructure for joint industry-academy cooperation was established in earnest, and during this period, Korean government promoted the establishment of Techno-Park across the country to vitalize industry-academy cooperation.

Industry-academy cooperation with university was vitalized since 2000s. Government refurbished relevant laws and infrastructure in order to enable for participating parties to voluntarily co-operate with each other, and it has been promoting technical development and fostering technical manpower corresponding to companies’ need.

178•2013 Knowledge Sharing Program with Uzbekistan

Periodical change of Collaboration between Industrial companies and Universities

Period Periodical character Main contents

Joint collaboration • Securing technology manpower. focusing on the policy for research between fostering manpower Improvement of laborer workmanship industrial companies 1960s and securing technical manpower. and universities with • Enactment of ‘Industrial Education Promotion Law’, fostering manpower as ‘Professional Engineers Act’ ‘Vocational Training Law’ the central figure

Setting foundation for • Role conversion of KIST as a key party of joint research establishing industrial & development. Enactment of technical development 1970s companies and promotion law for national itself’s technical development universities’ individual promotion. Establishment of the fifth government-funded party. research organization

Earnest progress period • Earnest support through the business of national research of joint collaboration development research between • Establishment of the law to foster industrial technology 1980s industrial companies research association for support of cooperation research. and universities led by • Establishment of foundation to strengthen joint cooperation government of industrial companies and universities

Considerable improvement on • Independent and dispersive promotion by department of research development national research & development business 1990s business between • Promotion of business for establishing regional infrastructure industrial companies • Establishment of Techno-Park, regional cooperation research and universities led by center government

• Establishment and consolidation of university consortium between industrial companies and universities • Inducement of education with consumer as the center • Support for research project of socialization stage socialization promotion of research & development as a Promotion to revitalize priority collaboration • Consolidation of business incubation function in university 2000s between • Enactment of scientific technology fundamental law, industrial companies technology transfer promotion law, patent law, education and universities between industrial companies and universities and collaboration promotion law between industrial companies and universities, framework act on the development of human resources, ‘basic law for development of human resources’

Chapter 4 _ Strategies for Strengthening SME’s Competitiveness through Education Program of Industry-academy Cooperation•179 3.2.2. Support Business for Industry-Academy Cooperation of Korean government

To enhance the competitiveness of small and medium-sized enterprises, Korea is promoting business support for the industry-university cooperation of each ministry.

3.2.2.1. The Ministry of Education

The Ministry of Education has been promoting LINC to support industry-academy cooperation. LINC is a business that combines the existing support business of industry-academy cooperation, which had started in 2012.

LINC supports field training, individualized education at the field and startup education, and nurtures elites’ industry needs through this. In consequence of LINC, local universities’ employment rate increased from 51.3% in 2010 to 60% in 2013, and junior colleges’ employment rate also escalated from 55.6% in 2010 to 65% in 2013.

Besides LINC, the Ministry of Education is establishing the policy in support of industry-academy cooperation such as industrial complex campus, contracted subject, exclusive professor of industry-academy cooperation and commercialization of university’s research results.

3.2.2.2. The Ministry of Trade Industry and Energy

MOTIE’s representative supporting businesses on industry-academy cooperation include business for cultivating the leading industry, local industry and business for establishing local innovation center.

Business for cultivating the leading industry aims to develop promising products with global competitiveness under the reciprocal cooperation with company, university and research institute and to lead to the extension of company’s employment and sales, and the invigoration of local economy through this.

Business for cultivating local industry assembles and extends the ability of local development through cooperating promotion, connecting reinforcement between industry, university, research institute, government, supporting organization of inside and outside of company locally, invigorating local economy and creating employment by industrializing specialized resources in the area.

Business for establishing local innovation center aims at improving the ability of local innovation, extending growth potential through local strategy field and

180•2013 Knowledge Sharing Program with Uzbekistan building up and utilizing the equipment of university’s strongpoint field and R&D centered on university.

3.2.2.3. The Small and Medium Enterprise’s Administration

SMEA propels various kinds of business that supports SME, and among them, support program for industry-academy cooperation linked to university is a notable example. SME’s typical support businesses for industry-academy cooperation include fosterage of technological manpower tailor-made to industrial companies and universities, contracted subject with SME, support program for technical development by industry-academy cooperation and support program for common use of research equipment.

The business for fostering tailor-made technological manpower is being promoted for the purpose of nurturing and supplying company oriented technological elite as linking SME with university and contracted subject with SME is supporting the opening and the management of degree course intended for incumbent persons at SME.

In addition, the technology development support project of industry-academia- government collaboration, with the help of technology development resources excellent human resources of universities and research institutes, equipment, and technology development capabilities, technical capabilities of new technology / new product of vulnerable small and medium-sized enterprises I support the development.

Support business for common use of research equipment sponsors equipment’s fees in order to be commonly utilized for R&D at SME, which is the reason why it is difficult for SME to own high price equipment that university and research institute hold.

In case of the Small and Medium Enterprise’s Administration, it is promoting various kinds of support businesses for domestic SME and besides that, it supports industry-academy cooperation through many other programs because main companies, industrial companies and universities cooperate are SME.

3.2.2.4. Korea Industry-Academy Association

Korea Industry-Academy Association is conducting various kinds of support business of industry-academy cooperation by utilizing support business of government ministry as previously explained. It is also promoting support business for Industry-Academy Association in the way of ‘technical development by

Chapter 4 _ Strategies for Strengthening SME’s Competitiveness through Education Program of Industry-academy Cooperation•181 cooperating the industry-academy’, ‘fusion research village of industry-academy’, ‘common use of research equipment’ and ‘linked support with technical expert’.

A) Technical Development Business by Industry-Academy Cooperation

The Technical Development Business by Industry-Academy Cooperation Korea, with the help of business support by government agencies as described above, is promoting a variety of industry-university cooperation support business. The Technical Development Business by Industry-Academy Cooperation Korea, and to promote industry-university Research Support Project “Technical development of industry-academia-government collaboration”, “City of Industry-Academia fusion research”, “Shared use of research facilities” and “Cooperation assistance of technical experts” have.

Technical development business by industry-academy cooperation supports joint technical development of SME, which is weak in technical skills, and university research organization with excellent research infrastructure.

‌Technical Development Business by Collaboration between Industrial companies and Universities’ alliance

Classification Party for support

Companies which - Inno-biz / venture / companies which management innovative type is not need to secure certified growth engine - Companies which do not have the level of master and doctor.

Companies - Companies which their average profit rate for 3 years is less than that of which have average by industry. potential of - Companies which have no recruitment for 3 years jumping and - Companies which need growth through new technology and new growing product development

Annex research - Companies which do not have an exclusive department for research & institute development or research affiliated by company

B) Industrial companies and Universities’ Fusion Research Village

Village business of university-industry fusion research is a business that integrates the research functions of small and medium-sized enterprises in the university with an excellent research foundation, and supports the commercialization, research and development of industry-university cooperation.

182•2013 Knowledge Sharing Program with Uzbekistan

Industrial companies and Universities’ Fusion Research Village

1 year 2 year

R&D - Support for additional project development

- Support for - Support for metal mold development project R&D - Technological development for production development Commercialization process - Brand development, marketing, promotion strategy

C) Common use of Research Equipment

It supports consolidation of industry-academy cooperation and effective operation of regional equipment infrastructure. In using the equipment, companies with less than 5 years since their business start-up charge 30% of the rental fee and companies with more than 5 years charge 40%.

D) Support Business Links to Technical expert

It is a business that finds and links with optimal technical experts to settle SME’s research development procedure or technology process problem occurred at shop floor and technical problem, as well as supports the expenses to settle technical problem if required.

4. Education Program of KPU’s Industry- Academy Cooperation

Korea Polytechnic University has constantly developed the tailored educational system in which businesses directly participate in order to meet the demands of SMEs for nurturing manpower for the field. As a result, the university is running the Engineering House in which professors, students and enterprises conduct education, research and industrial-educational cooperation in the same space, and the university has started to nurture the industrial-educational unification of new engineering manpower on the basis of that.

As the TIP was completed and the internal stability of educational system for nurturing industrial technical manpower tailored to the field based on Engineering House is ensured, the university has enhanced the technical skills of local businesses and has dealt with the demand for manpower needed. In particular, the university has built the system of Engineering House based on technology convergence that

Chapter 4 _ Strategies for Strengthening SME’s Competitiveness through Education Program of Industry-academy Cooperation•183 will be needed for local businesses from now on and has nurtured future-oriented talents by educating and developing the educational contents related to that.

In addition, Korea Polytechnic University has grasped the international technical changes and nurtured the technical manpower with the ability to push ahead technical cooperation with diverse foreign institutions so that SMEs can carry forward the internationalization of technologies following the globalization of industry.

4.1. Academic System Nurturing Technical Manpower Tailored to Industrial Settings

Korea Polytechnic University is constructing the industrial-educational unified professor-student-business cooperation system in order to make use of the location at the center of Banwol, Sihwa and Namdong National Industrial Complexes. In the professor sector, the university mitigates the system of obligatory class hours and motivates the professors to practice industrial- educational cooperation through evaluation of results in industrial-educational cooperation and special treatment in personnel matters. In the student sector, the university boosts the outcomes of close connections between education and employment ultimately by executing the curricula that are closely related to industrial settings such as the system of obligatory credit for field practice, the system of graduation project, the formation of tailored curriculum meeting, the demand of the field of enterprises and so on. Businesses have the cooperation system such as education for officers and employees, joint development of technologies, adjunct professor activities, evaluation of students in field practice, donation of scholarship of partner companies, employment of excellent manpower and more by participating in partner companies.

Korea Polytechnic University is strengthening the characterization of education for the nurture of technical manpower tailored to industrial settings on the basis of this industrial-educational cooperation system. It has introduced ‘the characterized major system’ since the curriculum on 2000 under the purpose to establish ‘the nurture of high-class technical manpower with broad knowledge and practical ability on the basis of theories and field trip that can accord with the demands of the rapidly changing industrial world’. Also, it has completed ‘the curriculum tailored to users’ through the reorganization of the 2nd curriculum in October 2000 and has been applying it since the year of 2001.

The university has 11 undergraduate departments (machinery, machine design, mechatronics, electronics, computer, game, new materials, life chemistry, industrial design, e-business and nano-optical), specialized

184•2013 Knowledge Sharing Program with Uzbekistan in the engineering and supporting service departments, the Graduate School of Industrial Technology & Management and the Graduate School of Knowledge-based Technology & Energy as the educational basis. The university has secured the professors with working experiences of 5 years or longer in businesses, the engineers currently working in businesses and the adjunct professors with the qualification as researchers of research institutes such as Engineering House and more as the manpower supporting R&D.

4.1.1. Characterization of Education through Industrial-Educational Cooperation

The plans for characterization of education of Korea Polytechnic University are largely 1) the unified education connecting industry-university-institute, 2) strengthening of computer education that can lead the era of information, 3) intensification of foreign language education for globalization and advancement of technologies, 4) promotion of the system of technical specialist in enterprises after graduation, 5) training of cutting-edge technologies and development of textbooks by professors and 6) operation of characterized academic system.

First, the unified education connecting Industry-University-Institute. It is the education in which universities, enterprises and institutes participate together and conduct research by selecting the subject of research, sharing and putting the results to practical use and training the professional technical skills and manpower of universities and institutes in the early stage.

[Figure 4-1] Education through Industry-University-Institute

(University) • Lectures on results of research • Support for manpower • Provision of researchers Education and trainning training • Support for manpower of university

Research Industrial support

• Students and professors as researchers and • Raising research tasks persons resonsible for research • Support of research funds • Research tasks on problems of enterprises

Chapter 4 _ Strategies for Strengthening SME’s Competitiveness through Education Program of Industry-academy Cooperation•185 Second, strengthening of computer education that can lead the information era. It is the education that intensifies the computer education and thereby strengthens the ability to utilize ICT in the field in the early stage in order to deal with the rapidly changing flow of industrial technologies and to nurture the quality technical manpower through putting ICT into the manufacturing industry.

Third, strengthening of foreign language education for globalization and advancement of technologies. It is the education that teaches foreign languages by 2 stages, conducts the education of practical conversation mainly for lower graders and strengthens the education of Technical Spec and Technical Writing for higher graders. It establishes language labs with multimedia and nurtures global technical talents that can support the advance of the industrial world based on regions to the global world and the business of global companies with the industrial world within the region by making the passage of language tests such as TOEIC an obligation as the requisite for graduation and so on.

Fourth, promotion of the system of enterprise technical specialist after graduation. It is the education that grants the qualification of ‘enterprise technical specialist’, similar to the medical specialist in hospitals to those who go through the kind of ‘resident’ course, in which the students are employed to businesses on the basis of their ability accumulated through basics, major, enterprise internship and the system of graduate project during university years, and thereby they can experience the design process for new products, manufacturing process, manufacture, production and commercialization under the directions of the academic adviser.

Fifth, training of cutting-edge technologies and development of textbooks by professors. It is the education that collects the data about curriculum of theories, experiments and practices, internship, the system of graduation project and etc. through the training in cutting-edge industrial settings of each major field and in the fields of practical education at home and abroad (Fachhochschule in Germany, Polytechnic University of Japan, the Sandwich system of the UK and so on) and that makes trial textbooks and uses them.

In order to run these curricula, the university is operating an academic system, which is different from general universities and open universities (industrial universities) is operating.

Selection of students: Selection through the student record, interviews and etc. with the technical high school graduates and those who have career in business, but without reflecting the scholastic ability test

2.4-semester system: Introduction of the 4-semester system in order

186•2013 Knowledge Sharing Program with Uzbekistan to minimize the loss of classes and the number of subjects completed per semester and to thereby provide the concentration of curriculum.

Utilization of professors with experiences in businesses: Employment of the experts in each field with working experiences in businesses and with realization of the ideology of practical education.

Module curriculum on demand: Operation of learning programs in the shape of module (group of related technologies) following the orders of business.

Assistance for start-up with technologies by professors and students: Establishment of subjects related to start-up and support for start-up by giving tasks as a graduation project for the technical start-up (venture companies) to be possible for professors and students.

Korea Polytechnic University has presented the vision of mpanies) ts: Establishment of subjects related to start-up and support for start-up sinesd as the central university for industrial-educational cooperation through the efforts to build the basis for industrial-educational cooperation.

The university has officially launched the partner company system as the system for organic and lasting industrial-educational cooperation with the local businesses, and it now has about 3,500 partner companies. The partner companies have been playing the core role for the composition of the educational system by participating in Engineering House. The university has oriented the curriculum tailored to users through reflecting the demands of businesses by examining it every year on the basis of industrial-educational cooperation and at the same time conducting an active job analysis.

Korea Polytechnic University has continuously developed and ensured the internal stability of diverse curricula centering on the fields such as project practice, project research, graduation research, creative engineering education and etc.

Chapter 4 _ Strategies for Strengthening SME’s Competitiveness through Education Program of Industry-academy Cooperation•187 [Figure 4-2] Model of Technical Department System of Korea Polytechnic University

- High degree of understanding of majors and plentiful prior knowledge - Re ecting plans for future and demands of businesses

[Characterized education based on Industrtrial-educational cooperation] Engineering -Curruculum tailored to the eld Education Education -Invitation of experts in enterprises as professors Commissioned Tailored -Operation of classes for businesses meeting the needs of from Industrt Close to Enterprises businesses to Enterprises -Establishment and operation of departments and courses close to the eld -Simultaneous performance of industrial-educational cooperation and education(E/H system) -Follow-up service for graduates

Technical Department System Studying various technologies including not only technologies in one;s own major but also technologies in other majors by entering the university for each department

Re ecting plans for future and demands of businesses

4.2. Characterization of Industrial-Educational Cooperation of Korea Polytechnic University

4.2.1. Promotion of Program of Characterization of Industrial- Educational Cooperation Following Regional Backgrounds

Many of the types of business in the West Coastal industrial complex areas where Korea Polytechnic University is located are machinery, metals and chemistry, and in particular, businesses related to production basis such as mold, casting, heat treatment, surface treatment and etc., which causes environmental pollution, are concentrated. It can be said that it is desirable to support the research and technologies of production basis, production automation and more with focus on the field rather than the research function oriented to cutting-edge technologies of other nearby universities for the actual technical support for the businesses in neighboring industrial complexes that are SMEs.

188•2013 Knowledge Sharing Program with Uzbekistan Sihwa Seawall near the industrial complex where the university is located is being ceaselessly polluted due to the 3D types of business in the industrial complex. The university is thereby checking the surrounding living environment and national and local government determined to prepare the countermeasures. It needed to strengthen the cooperation system with national and local government and local government through aggressive supporting activities such as countermeasures for pollution of Sihwa Lake, removal of the cause of environmental pollution of businesses in the industrial complexes and etc.

In addition, as the internal factors of Korea Polytechnic University, it needed to develop and support various businesses of technical support such as technical directions and consultation for the vitalization of partner company system and to conduct an organic industrial-educational cooperation program such as cooperation with the field practice of students and support for start-up of graduates. With view on the intention of establishment of Korea Polytechnic University reflecting the role to support SMEs, it can be said that it needed to intensify the tie with local businesses in industrial complexes through supporting systematic services, such as the experiments, and measurement using the equipment owned by the university, for the university to settle down.

Finally, the program on characterization of industrial-educational cooperation by Korea Polytechnic University was needed to enhance professors’ ability on research in the university and for the lasting development such as joint research with local businesses.

[Figure 4-3] Role of Korea Polytechnic University in Industrial – Educational Cooperation

Ansan City Siheung City

KPU Ansan Techno Park The government -Execution of research tasks -Support for tasks Support for Focus on eld technologies tasks related -Field practice and Support for tasks to policies -Graduation prijects Technical service Testing & measuring service Local research Technical directions Technical consultation supporting centers Sihwa and of other Ansan Industrial Partner universities Complement Companies SMEs of KPU

Chapter 4 _ Strategies for Strengthening SME’s Competitiveness through Education Program of Industry-academy Cooperation•189 4.2.2.Directions and Program of Characterization of Industrial- Educational Cooperation

Korea Polytechnic University has put great efforts to realize the ideology of industrial-educational cooperation and the founding ideology of positivistic method as it stretched itself as the central university for industrial-educational cooperation. It has strengthened the system supporting local businesses by developing the research on education of the university and enterprise activities into industrial-educational cooperation in order to specialize itself for the materialization and systematization of the efforts.

As the basic policies for this, first, the university is sharing roles with the nearby universities supporting cutting-edge technologies. It is substantially supporting the businesses in the industrial complexes of the type of SMEs, which are proper for the characteristics of Korea Polytechnic University for the intensive backup for the research and technologies of the bottleneck field centering on the SMEs in the industrial complexes.

Second, the university has pushing forward a program of industrial-educational cooperation by cooperating with the government for the technical field which is the most urgently needed by the local SMEs such as the field of production basis technology, and the field of automation in order to specialize its function of support for research and technologies on each field. Also, it is promoting an industrial- educational cooperation program for the field of environmental technologies, close measuring, and the test and inspection services by working with local governments.

Third, the university is discovering and promoting the business of technical support for the vitalization and settlement of partner company system by unifying the system, which supports businesses of the university and conducts joint researches with enterprises. It is also developing constant supporting plans so that the business can be institutionally settled and the partner companies can actually feel the effects of support.

The system on characterization of industrial-educational cooperation by Korea Polytechnic University aims to add much to the improvement of national and technically competitive edge by nurturing professional technicians and technical experts of middle standing with strong ability to adapt to the field needed by the industrial world. Therefore, Korea Polytechnic University has established and is running the system on characterization of industrial-educational cooperation that can be differentiated from other universities.

The university has the system to give better treatment to those who have

190•2013 Knowledge Sharing Program with Uzbekistan worked in the industrial settings for 5 years or longer and to calculate the career at industrial settings when employing professors. The system that calculates the ratio of industrial-educational cooperation results in 50% or more in the evaluation of performance such as that for promotion of professors and so on and the system of the performance-related pay system.

The university is administering the systems such as the formation of subjects tailored to users reflecting the results of research on demands through partner companies, obligatory credit for practice in industrial settings, system to give credit for participation in project researches, obligatory submission of graduation project, operation of the class for education commissioned to businesses and etc.

The university has introduced the concept of Engineering House as a differential infrastructure system of industrial-educational cooperation. E/H (Engineering House) means to let all the research institutes, laboratories and equipment of the university be used by professors, enterprises and students as the space for joint research and education.

One of the main institutions of Korea Polytechnic University characterizing industrial-educational cooperation is the process of establishing the vision, making the medium and long-term plan, collecting the opinions of members and concentrating the ability of promotion.

Chapter 4 _ Strategies for Strengthening SME’s Competitiveness through Education Program of Industry-academy Cooperation•191

System for Characterization of Industrial-Educational Cooperation

Sector Main outcomes

• System of professor in exclusive charge • Discount of 50% for experimental equipment Partner company • Better treatment for workers applying for entrance system • Directions and development of technologies and so on • The meeting for transfer and exchange of technologies • Scholarship of partner companies and participation in E/H

• Full-time teachers : Those with work experiences in the field for 5 Employment of years or longer, calculation of career in industrial settings and results of professors performance of tasks in industrial-educational cooperation • Adjunct teachers : Those with field technologies in businesses

• Mitigation of application on the system of responsible class hours Evaluation of • Importance on the operation of partner companies with results of achievements of research tasks in industrial-educational cooperation, overhead incentives professors and so on

• Formation of subjects tailored to industrial-educational cooperation (research on demands) • Obligatory credit for field practice (8 credits) • Participation in the tasks of industrial-educational cooperation (1 credit per semester) Educational system • ‌Obligatory submission of graduation projects in industrial-educational cooperation • Operation of the class for workers commissioned from the field • Technical reeducation for workers and follow-up services for graduates • Formation and operation of the E/H curriculum • ITP

•Utilization of the research institutes, laboratories, personal research E/H systems centers of professors and so on as the infrastructure for technical innovation and commercialization in industrial-educational cooperation

Online industrial- • Provision of the latest technical information, policy information and more educational at the Website of the university cooperation

• Establishment and implementation of the medium and long-term development plan for characterization of the university in industrial- educational cooperation Vision and consensus • Establishment and execution of the medium and long-term development plan for each department • Workshops for all the teaching staff and more

192•2013 Knowledge Sharing Program with Uzbekistan 4.2.3. Infrastructure of Industrial-Educational Cooperation for Realization of New Industrial-Educational Unified Engineering Education

4.2.3.1. Techno Innovation Park (TIP)

Techno Innovation Park means the supporting space and system (Engineering House, dorms and convenient facilities) to build the industrial-educational cooperation network by considering the strategic industry of each region and the strategy on nurturing regional industries of Korea and to nurture manpower through industrial-educational cooperation.

TIP is a cutting-edge complex for industrial-educational cooperation and technical innovation established to strengthen the function of industrial-educational cooperation of Korea Polytechnic University and to realize the education focusing on the field by connecting itself to the dorm with EH, which is the core space for industrial-educational cooperation, as the center and letting the technical development of SMEs and the engineering education be conducted for 24 hours a day.

The main functions of TIP are as follows:

- Construction and operation of the network for the expansion of exchanges between enterprises and the university

- Support for commercialization, technical development, high-class manpower and equipment of SMEs centering on “Engineering House”, the space for joint research between enterprises and the university

- Learning close to the field for 24 hours a day by making students participate in the joint research projects of departments of the university and enterprises such as graduation projects, project practices, project researches and etc. as the education in industrial-educational cooperation.

4.2.3.2. Technical Business Incubator (TBI)

The functions of TBI of Korea Polytechnic University include: support for spaces, technologies and patents of enterprises, support for manufacture of trial products, management consulting, support for publicity, financing and mediation and support for consulting and seminars on general management of start-ups in order to effectively support those preparing and beginning start-up with the basis of the knowledge, technologies and information owned by the university.

Chapter 4 _ Strategies for Strengthening SME’s Competitiveness through Education Program of Industry-academy Cooperation•193 Currently, there are 23 enterprises located in TBI, and they have 139 employees and are achieving gross sales of 14.7 billion won. Those enterprises in TBI of Korea Polytechnic University are receiving the technical support needed not only for start-up but also for entire technical operation such as operation of enterprises, management, accounting, and marketing needed to grow further. This support by TBI has produced 31 robust technical enterprises until now, and TBI is being evaluated as having played the huge role on the growth of start-ups through the organic connection between professors, students and enterprises.

4.2.3.3. High Technology Cooperation Foundation

Korea Polytechnic University not only runs diverse industrial-educational cooperation programs for the technical innovation of Sihwa and Banwol Industrial Complexes but also has established and administers High Technology Cooperation Foundation to actively cope with the rapid technical changes and to support practical and technical high-class manpower and enterprises. High Technology Cooperation Foundation has been fulfilling a variety of education businesses in industrial-educational cooperation. Furthermore, it supports enterprises in order to double the values of industrial-educational cooperation and to emerge as the central university in the international industrial-educational cooperation with leading the industrial-educational cooperation of a global level, which is their vision.

[Figure 4-4] Directions of Operation of High Technology Cooperation Foundation

SME Support for High-end ondustry-academy Equipment cooperation support centre

KPU Technology High Technology Support for exchange Cooperation Foundation startups

Partner Engineering company house

194•2013 Knowledge Sharing Program with Uzbekistan 4.3. Core Model of Industrial-Educational Cooperation of Korea Polytechnic University

4.3.1. EH: Engineering House

4.3.1.1. Concept

Engineering House signifies the system in which the nurture of practical technical manpower and joint research of businesses are done together by conducting the development of business technologies and the educational activities of university in the same space inside the university.

Korea Polytechnic University has introduced an industrial-educational unified research and educational system that produces practical and technical manpower under the smooth connection and cooperation between enterprises, university and research institutes by way of showing an example since the 2nd semester in 2003 to strengthen the on-the-spot experience in undergraduate education, and this is Engineering House.

The Engineering House system opens all the laboratory facilities, research centers and cooperative research institutes, except the basic laboratories of the university, and lets researchers of enterprises, professors and students jointly participate in the technical innovation and development of products of enterprises. It has the merit that enterprises can maximize the performance on development of products and the university can cultivate the practical research abilities and strengthen the education centered on the field.

The existing college education system operates by dividing the education of theories and practicing over the 4 school years, but the Engineering House educational system is a new system that lets the 1st and 2nd year of undergraduate students receive the basic major education and the 3rd and 4th year receive the detailed major education centering on the field like what the graduate students receive.

Engineering House viewed from the spatial and substantial concept is complexly naming the educational centers for the detailed majors that the 3rd and 4th year of undergraduate of each department should intensively learn and the future-oriented cooperative research institutes. In particular, at least one enterprise must participate in Engineering House, and two to three responsible professors and participating professors operate one Engineering House together.

Chapter 4 _ Strategies for Strengthening SME’s Competitiveness through Education Program of Industry-academy Cooperation•195 4.3.1.2. Necessity of New Engineering Education through EH

The existing education of engineering colleges in Korea centers on graduate schools, large enterprises and theories. It had to introduce an industrial-educational unified educational system to effectively deal with the supply of technical manpower needed for technical innovation and expansion of foundation for development of SMEs. Therefore, a system of engineering education for a new concept was needed, and ‘the education and R&D system harmonizing enterprises in universities’ such as Engineering House is being evaluated as a good alternative.

Engineering House is an education of a new concept in which the development of enterprise products and education of students are conducted at the same time in the same space inside university. The education is conducted by following the curriculum of Engineering House, and at the same time the cooperative research institutes inside Engineering House where the product development by enterprises is conducted are contributing much to the education of practical work in the field. As a result of an active industrial-educational cooperation, Korea Polytechnic University achieved the great outcome; the scholarship by partner companies has constantly increased since 2004, and this scholarship was connected to employment. This is a good indicator that shows much interest and participation of enterprises in the Engineering House educational system, and it creates the structure of virtuous cycle in which the employments of graduates and support for enrolled students are increased thanks to the active participation and support by enterprises and at the same time excellent students are induced occur.

[Figure 4-5] Necessity of New Engineering Education through EH

Research on new technologles Education centering on of next generation graduate schools Focuslng on employment by large enterprises Exciting engineering College education Education focuslng on Research of theories Low abillty to adapt to the eld Evasion of SMEs Engineering House Industry based education How?

Demands for excellent talents with abillty to adapt to the eld that understand the Industrial settings Cooperative Realities of SMEs researdh institutes Research on Advent of emerging countries commerclallzation Market contraction due to technologles and deindustrialization production process technologles

SMEs/Colleges centering on industrial technology[becoming industrial park]

196•2013 Knowledge Sharing Program with Uzbekistan [Figure 4-6] ‌Virtuous cycle structure of increase of rate of employment and inducement of excellent students through EH

Reorganization of scholarship & educational system

Nurture of Excellent talents Enhancement of rate of Engineering House employment

Excellent students to enter

4.3.1.3. EH Promotion system

Engineering House was introduced the following demands for manpower with ability to work in the field without need for reeducation by SMEs for the university to produce professional and technical manpower with on-the-spot experiences, that had received the education centering on practical technologies for SMEs. The direction of promotion for Engineering House are as follows.

The first is to realize a new shape of a model, industry-university-institute collaboration. The second is to form a substantial research environment that can actively deal with the flow of industry. The third is to form an educational environment of a new concept to nurture the high-class engineers needed by enterprises. The fourth is to form the optimum industrial environment to maximize the industrial-educational cooperation activities by enterprises. The fifth is to form a space where students and enterprises can be organically connected among one another for24 hours a day. The sixth is to present a typical model of the several buildings with the same purpose that will be built from now on at home and abroad as an ideal shape of model of industry-university-institute collaboration. The seventh is to grant a new symbolism to the campus with the overall harmony with campus and to emerge as the leader of the era in the west coast.

The basic strategy for promotion of Engineering House has the partner company system and Sihwa Banwol Innovation Cluster as the institutional and environmental

Chapter 4 _ Strategies for Strengthening SME’s Competitiveness through Education Program of Industry-academy Cooperation•197 foundation and the experiences on the development of the curriculum tailored to users that Korea Polytechnic University, as the educational foundation, has conducted steadily and thereby carries forward ‘the realization of the new industrial- educational unified engineering education based on Engineering House.’

As the organization that operates and promotes Engineering House, the Engineering House Deliberation and Evaluation Committee consists of the EH Team inside the industrial-educational cooperation groups of Korea Polytechnic University as the center to plan and push ahead with the research and development on bottleneck technologies of enterprises, the support for enterprise R&D networks and the plan to utilize the research infrastructure of industrial-educational cooperation. Organic cooperation systems with the already composed Engineering House of Korea Polytechnic University were constructed in order to present and push forward the model to strengthen the middle and long-term research capability of the SMEs inside Banwol and Sihwa.

Korea Polytechnic University is running the Engineering House Team to support the Engineering House system and is thereby handling everything that has to do with the business and the support for the operation. Also it is leading research on demands and execution of tasks through individual Engineering House.

[Figure 4-7] EH Operation System and Characteristics of EH Education

Operation system of Engineering House Characteristics of EH Education

Advisor Director Level of Responsible professor experts

Regular education EH Graduate curriculum school

EH Start-up Professor undergraduate CooperativeEquipment 3rd and 4th Education research Surporting graders Center institute Center student Enterprise connecting facilities Joint Joint research

Education Adaptation to type of business participating in establishment Employment Enterprise

4.3.1.4. EH Educational System and Model

The educational system of Engineering House has improved the existing

198•2013 Knowledge Sharing Program with Uzbekistan educational method that has been conducted by dividing the education of theories with the practice of education systematized over the 4 school years. It is being operated as an educational system in which the undergraduate 1st and 2nd graders receive the basic major education and the 3rd and 4th year students receive the detailed major education, which is similar to the curriculum of graduate schools. The environment in which the participating students can always study in the research space of advisers, which is how the existing graduate school courses is formed, and the system is composed of the ‘Engineering House’ system that provides educational space for the 3rd and 4th year undergraduate students and of the ‘Industrial based learning’ operation model in which students can always have on-the-spot experience.

4.3.1.4.1. Industrial Based Learning

The system of cooperative research institute was introduced as a method to vitalize the industry-university-institute collaboration by smoothly connecting enterprises and university. The cooperative research institutes let the several enterprises be connected to the professors of detailed majors, and they also conduct the R&D for product development. In the R&D for product development, the system in which the undergraduate students participate and study is constructed, and on-the-spot experience is conducted frequently through connecting with the participating enterprises.

[Figure 4-8] Based learning of EH

Learning by participation in technical directions of SMEs Participation in joint research for development of products Frequent field practice of enterprises participating in cooperative research institutes

Engineering House Ties with enterprises University [Subject of on-the-spot [Cooperative education College education as basic major education experience/ research institutes] Field experiences as the concept of regular technical innovation] and integrated technical education Learning of field technologies through participation in industrial-educational cooperation In-depth educational system through the system of detailed major Project practice/research Systematic directions of advisers Education Graduation project system for undergraduate 3rd and 4th graders like Creative engineering education program the directions of masters course in graduate Professional engineer courses schools

Chapter 4 _ Strategies for Strengthening SME’s Competitiveness through Education Program of Industry-academy Cooperation•199

Characteristics of EH Education Model

Name Contents

• The new engineering educational system secures the Space for educational space of 3rd and 4th year undergraduate education students, which is called ‘Engineering House’. and • ‘The space of cooperative research institutes’ that comes Inputted research under the space for research is secured in order to secure the elements foundation for connection with enterprises. (Strategy for construction of • Security of educational facilities and research facilities to infrastructure) Facilities for secure the foundation to connect with enterprises Industrial • Each professor in charge of the university maintains constant based activities of connection with enterprises with the sense of learning duty for the basic research such as the projects of enterprises, the projects of the government and etc.

1st and • The basic major education/education of liberal arts which are 2nd year the same as the current educational system students

• Execution by integrating the regular curriculum and the curriculum of company inside the university. However, the students who do not choose the Engineering House educational system receive the education of current educational system. • The students who choose the Engineering House education 3rd and receive the education of required subjects and optional 4th year subjects and at the same time conduct the additional students Industrial based learning inside the Engineering House. • All the students who choose the Engineering House educational system have to enter the dorm in principle. • The students who choose the Engineering House educational system receive the credits of project practice, project Curriculum research, graduation project and more through the additional curriculum.

• Regular, continuous and integrated practice at the field of enterprises • Process of solution on bottleneck technologies by enterprises • Technical directions of enterprises/learning by participating in projects • Education to enhance the ability as a system engineer General through case study contents of • Education through the senior members of company inside learning the university • Seminars • Exchange seminars between Engineering Houses • Technical educational courses in which the engineers who graduated from the university participate • Execution of the education inviting figures of enterprises and other educational institutions and so on

200•2013 Knowledge Sharing Program with Uzbekistan 4.3.1.4.2. Educational Model centering on the field based on EH

Education Model centering on the field based on EH

Educational Model Contents

• Related subjects : Industrial-educational cooperation practice (tentative name) • Participation in the research tasks conducted by the cooperative research institutes of Engineering House • Details of participation - Market research, examination on trend of research, research on related technologies and analysis - Schedule of examination and analysis, schedule of execution of tasks, Learning by schedule of analysis of results and so on participating • Schedule management in development of - Participation in design, manufacture and execution of research products - Analysis and evaluation of characteristics of results and so on • Methods of execution - Presentation at seminars in which advisers and experts in company inside the university participate once a week - Framing and check of practice reports for the details in the records of daily work ▲Framing and submission of the comprehensive practice report for the comprehensive evaluation

• Related subjects : Industrial-educational cooperation practice (tentative name) and the subjects established on ‘Engineering House’s own • Operation by participation in work of technical directions by enterprises conducted in the cooperative research or in the shape of the subjects established on Engineering House’s own • Methods of execution - Deduction of plans for solution of problems by selecting 4 to 5 cases in total Learning by - Problem analysis, presentation of plans to solve problems, application, case study analysis of results and so on - Presentation at seminars in which advisers and experts in company inside the university participate - Framing and check of practice reports for the details in recordss of daily work (Omitted in case of the subjects established on Engineering House’s own) ▲Framing and submission of a series of reports covering the examinations for each case and analysis of results

• Related subjects : Operation of common subjects of Engineering House • Active utilization of outside experts as a prior education program for Learning for foundation inspiration of • Recommendation on operation of curriculum in the shape of mock founder spirit foundation in which actual cases of foundation are selected and analyzed

Chapter 4 _ Strategies for Strengthening SME’s Competitiveness through Education Program of Industry-academy Cooperation•201

Education Model centering on the field based on EH

Educational Model Contents

• Related subjects : The subjects under joint operation of Engineering House, the subjects established on Engineering House’s own and industrial-educational cooperation practice • Subjects of education - Experts inside company in cooperative research institutes - Experts Learning by outside of colleges, research institutes and so on inviting experts - Utilization of retired experts at home and abroad and more • Recommendation on operation of educator pool system : A manpower pool system composed of 4 to 5 people (team teaching system) - Learning by seminars on the theories of new technologies - Case study for groping for plans of solution and case study and so on ▲Execution of middle term evaluation and final evaluation

• Related subjects : Industrial-educational cooperation practice (tentative name) • Learning of the process and related technologies in the actual industrial settings by visiting the enterprises related to the themes of the industrial- On-the-spot study educational cooperation practice • Methods of execution - Field trip ▲Framing and submission of the field trip report

• Related subjects : Industrial-educational cooperation practice (tentative name) Learning by • Methods of execution graduation projects - It is executed as equivalent to the graduation projects of the regular courses, but centers on the development of new products and actively recommends the performance of a patent application.

4.3.1.5. Promotion stages and progress of EH

Engineering House did not secure a separate space in the stage of formation on foundation and was started by dividing some space of laboratories allotted to departments, and the government support such as the industry-university-institute consortium, the industrial-educational cooperation division business and etc. was started. Afterwards, it passed through the stages of model and operation, and the excellent modeling of Engineering House was discovered and the institutional support was settled.

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Promotion of E/H by Stages

Table Period Contents of promotion

• Establishment on the concept of EH and groping Stage of formation for supporting policies 2003-2004 of basis • Introduction and application of EH system by utilizing the practical rooms of department

• Security of an independent separate space and Stage of execution of trial operation 2005-2006 trial operation • Execution of institutional support for industrial- educational cooperation activities and education

• Settlement of the new engineering educational Stage of settlement system due to the completion of TIP 2007-2009 of operation • Development and operation of the system evaluating and operating EH

• Expansion and development of the new engineering educational system through EH Stage of expansion 2010-2013 subject and certification system and development • Spread of the successful operation model through the expansion and evaluation of EH

Currently, Korea Polytechnic University has established the industrial-educational cooperation system based on EH in order to expand and vitalize EH. It is expanding and managing EH in order to strengthen the technical innovation and in-service training of partner companies. Also, the university is inducing the vitalization of establishment of EH that can support the green growth and IT fusion technology that are newly demanded following by the technical demands of enterprises inside the Sihwa and Banwol Industrial Complexes which is the local industrial complex and the market environment.

Participation in EH

Number of Number of Number of Number of Number participating Year participating participating participating of EH researchers of professors enterprises students enterprises

2007 37 89 97 215 116

2008 41 95 136 299 119

2009 45 96 165 405 142

Chapter 4 _ Strategies for Strengthening SME’s Competitiveness through Education Program of Industry-academy Cooperation•203 For the operation of EH subject, the university is systematizing its own educational programs, seminars, practices and more conducted for the participating students in the individual EH through the 1st year of business, and it thereby is running EH subjects as a trial and converting them into regular subject. The university is also developing various practical textbooks with the grant of credits in EH subjects and conducting the intensified technical education utilizing that. Thus it is administering in the direction to strengthen the EH educational system, and nurturing enterprise-friendly practical talents, needed by enterprises, by cultivating the ability to adapt to the field and to perform projects through EH subjects.

In order to overcome the difficulties in pushing EH on in this way, it needed to reflect the demands of all members of EH, such as the participating professors, the professors in the field of enterprises, students for the promotion of EH subjects to be regular subjects and to design the subject by considering the requisites for graduation, the terms desired for bachelors and so on. In this connection, the university has been forming the consensus for the plans for promotion of EH subjects and the plans for operation of EH through the EH meeting and the surveys targeting the professors and students participating in EH.

In June 2009, the university did a survey targeting the professors and students participating in EH and held a meeting on the plans for operation of EH subjects on the basis of the results of survey. The respondents favored 33 out of 45 EH subjects (73%) and hoped that the EH subjects would be opened always during the semester and vacation. Many respondents said that it is proper to allot 2 credits for each EH subject. The university is establishment the final plan for operation such as the method of opening EH subject, type of operation of classes, acknowledgement of class hours, number of students attending and etc. jointly with the academic affairs office. It is conducting a public hearing for the professors participating in EH and is establishing ‘the EH subjects’ as the group for project practice among the regular subjects in the year 2010, and this is reflected in the academic system by holding the academic affairs committee in November, 2009.

4.3.2. Partner Company System

4.3.2.1. Concept and Vision

The partner company system presents the system of a companion-like innovation program in which the university and enterprises mutually share human and material resources on the basis of the tailored cooperation on education and research. In this system, the university completes the education centering on users, and enterprises create profits by planning the improvement of technically competitive edge. The partner company system is an industrial-educational cooperation system of a new

204•2013 Knowledge Sharing Program with Uzbekistan concept which is first originated by Korea Polytechnic University and presented as a new paradigm of industrial-educational cooperation and spread across the nation.

[Figure 4-9] Visions of Partner Company System

Creation of win-win cooperative culture between industrial and university Vision through omnidirectional Industrial-educational cooperation

Connecting Network Hub

Making partner companies amounting to 5,000 leading companies in Goals local industrial complexes

Partner Company Supporting Center

Engineering industrial SMEs Professors Industrial Division Industrial Education Supporters Connecting Education Meeting Education House cooperation Industrial cooperation Cooperation Connecting and Meeting Programs Center University

Strenathening of Close Industrial-Educational Cooperation Strategies Such as Research, Education and Exchanges with Partner Companies

- Establishment of technical visions of enterprises connectes with local strategic industry and construction of technical development System - Construction of industry - industry innovation network based on exchanges between divisions and types of business - Intensi cation of internal innovation capability through reeducation of workers and nurturing and supplying professional technical talents

Korea Polytechnic University was established in the industrial complex as a university characterized for industrial-educational cooperation in order for industry and university to cooperate and thereby increasing the technical competitiveness and nurturing excellent technical manpower needed by enterprises. About 90% of the enterprises in the industrial complex where the university is located are SMEs with sales of less than 10 billion won with 50 or less employees, and it is urgent to secure superior manpower for the development of products and technologies and more through industrial-educational cooperation.

In order to settle the issues of the businesses and environment on the local industrial complex, the university came to push forward the partner company system which is an industrial-educational cooperation system with a unified network in which professors and students of the university and local enterprises participate together, and it has been carrying forward diverse cooperative businesses such as the organic exchanges of information, joint technical development and so on between small and medium-sized businesses and the university.

Chapter 4 _ Strategies for Strengthening SME’s Competitiveness through Education Program of Industry-academy Cooperation•205 4.3.2.2. Operating system of Partner Company System

The win-win cooperation synergy between industry and university is being maximized through the system that strengthens cooperation by stages of the partner company system, and this is entering a virtuous cycle through the nurture and supply of professional technical manpower with the capability in the field.

[Figure 4-10] Operation System of Partner Company System

Tailored education based University on industrial- Professor educational 1st Stage: cooleration Student Release from Enterprise clustering class house Learning and better treatment for career in the eld resu from industrial- Research assistance educational cooleration Field practice 2nd Stage: Partner compant Employment Development into partner companies System Technical Development (3,356 companies) Technical transfer Adjunct professon Support of equipments Sharing brains and Research funds rd the latest equipments provision of 3 Stage: information Scholarship from Intensi cation of connecting activities from the eld Enterprise industrial- educational cooleration Field professor 4th Stage: Provision of space for EH win-win cooperation Industrial Setting Practice (Sihwa, Banwol and Namdong Inclustrial Complexes)

First, the stage of construction (starting of relationship) : Enterprise clustering

- A stage of invitation of partner companies. Introduction of the partner company system by the university and publicity of plans for operation to enterprises

- External proclamation of official activities such as the welcoming ceremony for partner companies, division meetings and so on Second, the stage of operation (formation of trust) : Development into partner companies

- Intensification of the ties between professors and enterprises through the partner company meetings for each type of business

- Beginning of directly related activities for the fields of demands of enterprises through advisers

- Operation focusing on the one-way connecting support from the university to enterprises such as technical directions, reeducation of workers, seminars for new technologies, support for utilization of equipment and so on Third, the stage of utilization (deepening of relationship) : Strengthening of connecting

206•2013 Knowledge Sharing Program with Uzbekistan activities

- A stage of concrete two-way cooperation between the university and enterprises through the systematization of the operation system of partner companies

- Full-scale participation of enterprises in the nurture of manpower such as provision of field practice, support for partner company scholarship and so on Fourth, increase of outcomes (the stage of completion) : The stage of EH win- win cooperation

- The cooperation and win-win development between the university and enterprises across the full virtuous cycle of technical innovation with the partner companies as the basis

- Creation of profits such as the technical transfer, commercialization, inducement of investment, establishment of technical holding company and so on through the close mutual connection

The types of industrial-educational cooperation programs can be divided largely into 3 types: technical exchanges, manpower exchanges and exchanges and cooperation, and the type which comprises the most among these types of industrial-educational cooperation programs between Korea Polytechnic University and its partner companies was manpower exchanges. It can be viewed that the demand for manpower with capability in the field by enterprises is high due to the characteristics of the academic system in nurturing technical manpower of the university such as the field internship, practice system and so on.

[Figure 4-11] ‌Distribution of Types of Industrial-Educational Cooperation between Korea Polytechnic University and Partner Companies

Technical Technical Technical exchange exchange 21.09% exchange 21.12% 24.85% Manpower 2007 Manpower 2008 Manpower 2009 exchange Year exchange Year exchange Year 44.60% 45.01% 45.87% Cooperative Cooperative Cooperative exchange exchange exchange 34.91% 30.27% 29.50%

Chapter 4 _ Strategies for Strengthening SME’s Competitiveness through Education Program of Industry-academy Cooperation•207 The university composes the professors with expertise and career in businesses, public institutions, research institutes of large enterprises and etc. As the optimum professors closely support the partner companies one to one, they provide the consulting with site visit through ‘the diagnosis card for partner companies’, and the partner companies participate in the network construction between them by operating self-regulating meeting, strengthening exchanges and cooperation.

The partner company system has the vision of creating win-win cooperative culture through the omni-directional industrial-educational cooperation, and the number of businesses that have joined as partner companies increased to 3,465 through the operation of the business link program by the Bucheon Industrial- Educational Cooperation Connecting Center established in the 1st year of the establishment of the Guro Industrial-Educational Cooperation Connecting Center.

Number of partner companies

Category Partnership Membership Remarks

Number of partner 987 2,478 As of March 2010 companies

Korea Polytechnic University is managing and supporting the partner company system with the Partner Company Supporting Center, and has been systematically connecting and supporting the advisers and partner companies. The Partner Company Supporting Center was established in the 1st year of the expansion and specialization of the organization of which the center takes the exclusive charge. It has been maximizing the ability of industrial-educational cooperation of the full- time professors by expanding the areas of activities of the center and strengthening its supporting ability through supplementing the personnel.

The university is vitalizing the industrial-educational cooperation through recruiting the professional supporting manpower in order to strengthen the support by enterprises and is expanding the areas of activities and strengthening the supporting ability of the Partner Company Supporting Center.

208•2013 Knowledge Sharing Program with Uzbekistan [Figure 4-12] ‌Comprehensive Strategy Supporting Partner Companies of Korea Polytechnic University

Industrial-Educational Maintenance of Supporting System Cooperation Connecting Center

Enactment of center managerial regulationa -Regional base for parthet companies -Revision of teacher achievement regulationa -Support Tailored to local industry -Support of various incentives -connecting education, research and employment

Partner Compant Supporting Center

Industrial -Educational HELP DESK SMEs Supporters Cooperation Connecting Professor

-Operation of diverse industrial-educational -Regulat support for technology and cooperation systems management of partner companies -Construction of regular consultation system -Support for activities of full-time leachers -Comprehensive supporting system visiting (advisers) partner companies -Support fkr employment by parhet companies

The Partner Company Supporting Center was established in the 1st year of the expansion and specialization of the organization of which the center takes the exclusive charge, and has been maximizing the ability of industrial-educational cooperation of the full-time professors by expanding the areas of activities of the center and strengthening its supporting ability through supplementing the personnel. The center also tries to increase the outcomes of technical innovation through expanding partner companies and developing the programs supporting superior partner companies.

The university is driving forward the expansion of partner companies to partner with companies including 5,000 membership and 1,500 partnership on the basis of making the systematic function connecting business commercialization and supporting programs as a package in order to discover new enterprises and to gain the convenience of support for enterprises by establishing the organizations in exclusive charge such as the Partner Company Supporting Center. In addition, the university is supporting the Sihwa, Banwol and Namdong Industrial Complexes where the university is located as the regions for direct support and the Bucheon and Guro Industrial Complexes where no 4-year-course engineering college is located by establishing the Industrial-Educational Cooperation Connecting Center.

Chapter 4 _ Strategies for Strengthening SME’s Competitiveness through Education Program of Industry-academy Cooperation•209 [Figure 4-13] Industrial-Educational Cooperation Connecting Center

IT/Service Bucheon Guro

Anyang

2nd Subject Nam Gunpo Euiwang dong Machinery Electronices/Auto Banwo mobile/Logistics 1st Subject Sihwa Korea Polytechnic University IT/Service Korea Industrial Complex Corp. Hwa Small & Medium Business Mechanical seong Corporation Equipment/Metals Bucheon Industry Promotion Foundation

Korea Polytechnic University is providing the one-stop technical management consultation service to its partner companies in order to closely support the SMEs in Banwol and Sihwa Industrial Complexes where SMEs are concentrated through technical directions, management consulting, patent consultation and so on. As the policies supporting SMEs focus on the bottleneck technologies in the field through this service, the university has been conducting the one to one tailored supporting measures needed for all the processes from the product development through entry into the market as the countermeasure for the absence of plans to solve the problems occurring in the actual operation.

Korea Polytechnic University is supporting the increase in satisfaction by its partner companies and stable operation of the Connecting Center through supplementing and utilizing experts with capability in the field as professors by establishing the industrial-educational cooperation connecting professor system. It is facilitating the cooperation in the areas with the employees in exclusive charge and the professors who can connect the industrial-educational cooperation among the diverse industrial-educational cooperation programs so that the companies with membership can be advanced into the companies with partnership, and is also developing the cooperative activities of the companies with partnership to a variety of fields such as technology, employment, education and so on.

210•2013 Knowledge Sharing Program with Uzbekistan 4.3.3. The case study of increasing SME competitiveness by Korea Polytechnic University

Korea Polytechnic University recorded 100% of employment rate for 5 consecutive years since 2002 and marked top position in the group of four-year University (1,000~2,000 graduates size University) for 3 consecutive years. And KPU provided the 3,059 graduates who had very excellent capability to SMEs during the past three years (2012-2014).

In terms of government support business, KPU marked top position in metropolitan area for Leaders in INdustry-university Cooperation (LINC) business in 2014, appointed education capacity building project for 6 consecutive years and pre-selected for the BK21 Plus Business. With these Government support Program, KPU has supported and promoted local industry high capacity and strong competitiveness.

KPU has developed and operated the educational programs for the technical ability improvement of the incumbent. Especially from the 2012, KPU has produced graduates of 949 people through the variety of employment and new start up company support program such as improve the job performance class for the incumbent, companies customized course, degree education for workers, and lifelong learning programs. Also industry-university cooperation undergraduate department operates degree programs for incumbents in machinery and industrial fields (regular incumbent education) and there are machinery and manufacturing engineering department, parts and materials engineering department.

KPU was appointed the first co-training center which is Ministry of Employment and Laborms priority business “Korean dual education concurrent support program” and doing the enterprise tailored education for 126 freshmen who are employment seekers. KPU is doing the OJT based on NCS(National Competency Standard) in every Saturday for 126 freshmen/transfer student in Dual Industry Department. There are 3 majors, ICT Smart Machine and Digital Design in Dual Industry Department.

The KPU has brought and spread out the various educational programs and joint technology development for strengthening competitiveness of SME through Engineering House. Based on the industry-university cooperation programs, many companies sales revenue and technical capabilities is increased and having rapid growth based on this.

Chapter 4 _ Strategies for Strengthening SME’s Competitiveness through Education Program of Industry-academy Cooperation•211 5. Consolidation of SME’s Competitiveness in Uzbekistan through Education Program for Industry-academy cooperation 5.1. Establishment Direction of TIP for Consolidation of SME’s Competitiveness

SMEs in Uzbekistan converge in petroleum, agriculture and forestry. The number of companies in the application technology sector is small, and the infrastructure of secondary and tertiary industries is very vulnerable. In particular, SMEs in Uzbekistan take up 90 percent of all industry and 74 percent of public manpower.

Trading relevant sectors take the highest ratio (29 percent) of SMEs, followed by the agriculture industry (27 percent). Other main SME industries are light industry, food, furniture, etc. Moreover, they produce machinery parts locally as well.

In order to stimulate those SMEs, from the early 2000s the Uzbekistan government has been implementing a policy which includes seven laws, 18 presidential decrees, and 20 government cabinet resolutions to put forward various kinds of support for SMEs.

Even though there are still many limitations for SMEs to enhance themselves with technical competitiveness, the Uzbekistan government has been continuously showing an interest in establishing TIP to effectively develop its industry.

Under the title Building a Policy Framework for Establishing TIP, the Uzbekistan government applied for a KSP in 2013 to invigorate its SMEs.

Furthermore, many universities in Uzbekistan are intensively conducting research in the fields of basic science and they have produced many good results. However, they have some issues regarding a poor ratio of basic science research and its corresponding practical application.

Regarding this issue, the way to achieve a consolidation of competitiveness of SMEs in Uzbekistan is to establish a system to support their commercialization by transferring university research results to companies.

Hence, it is proposed that the competitiveness of SMEs in Uzbekistan be consolidated through the establishment of TIP in NUUz based on the research paper titled Building a Policy Framework for Establishing TIP. In particular, given a successful TIP case from the KPU's industry-academic cooperation, it is suggesting its well- experienced management method be implemented.

212•2013 Knowledge Sharing Program with Uzbekistan 5.2. Policy for Establishing Technology Innovation Park in NUUz

5.2.1. Legal and Institutional Considerations for Establishing TIP

TIP in NUUz can be established in accordance with NUUz's Development Strategy 2020 and the Education and Cooperation Law. The organization for managing TIP can be set up in the "organization for collaboration between industrial companies" of the university. Accordingly, university regulations should be supplemented with additional functions and organization.

The organization of industry-academic cooperation can be divided into two parts: 1) the headquarters of industry-academic cooperation and 2) affiliated organizations. The head office consists of the industry-academic cooperation team, a company support team, and an E/H team which supports joint research with companies. Affiliated organizations are made up of a technology foundation support center and a public facility support center.

In order for those organizations to work effectively, internal NUUz regulations are required.

In order to effectively pursue commercialization by companies and industry- academic cooperation, it is necessary to make and promote separate corporations besides corporate universities such as a "consortium of industry-academic cooperation". In this case, legislation for their establishment should be adequately established.

Accordingly, organizations for business promotion should be formed and NUUz should belong to The Ministry of Education. It is necessary to include people from The Ministry of Education, since it would get a lot of support in terms of research and various cooperative relationships. The president of the university should be in charge of the head of the business promotion organization, and other experts from companies, research institutes, and university officials who participated in the KSP should be included in this organization.

5.2.2. Sectors for Establishing TIP in NUUz

Issues to be considered for establishing TIP in NUUz are the function of TIP, sectors of industry-academic cooperation, and the space programs of each sector.

Firstly, TIP is comprised of E/H for joint research with companies and university- developed research technologies, a Technology Business Incubator (TBI) using

Chapter 4 _ Strategies for Strengthening SME’s Competitiveness through Education Program of Industry-academy Cooperation•213 university-developed technology, and a public facility support center to support companies' research and production activities.

Main functions of TIP

Composition of Technology Function Innovation Park

Joint research with companies for Engineering House (E/H) commercialization

Technology Business Technology incubator using university’s Incubator (TBI) technology

Support for companies’ research and Public equipment support production activities

Company support system for collaboration Family Company System between industrial companies and universities.

In addition, major of TIP in NUUz is selected based on departments, which conduct many studies and industry-academy cooperation among.

Major target departments of TIP are selected in consideration of operability, research achievements of R&D research center, and recommendation by NUUz.

Characters and research achievements in 7 departments are as below.

Research Achievements of Department linked with NUUz’s TIP

Dept Research achievements(number)

Mechanics and mathematics 19

Physics 9

Chemistry 27

Biology and soil sciences 23

Geology 17

Geography 0

Economics 3

214•2013 Knowledge Sharing Program with Uzbekistan

Linked Department with TIP

Dept Feature

- Globally recognized scientific technology over many years Mechanics and mathematics - Possession of experience on research progress regarding basic field and innovative technology.

- Agreement contract regarding economy and innovation Physics - Possession of high level of experience in sector related to innovation

- Joint research with section as university related to science - Innovation subsidies, collaboration with chemical industry Chemistry working in economic cooperation - Employment link to the company in close cooperative relationship

- Recognition as a inherited study of Uzbekistan Biology and soil sciences - Economy improvement program and possession of experiences to participate in international innovation project

- Various kinds of consultation contracts with companies Geology - Collaboration with companies produce and process natural resources

- Possession of experiences on various cooperation with relevant Geography companies

- Necessity of cooperative management between TIP and another Economics organization

Chapter 4 _ Strategies for Strengthening SME’s Competitiveness through Education Program of Industry-academy Cooperation•215 5.2.3. Space Program for TIP in NUUz

Architectural space in the department of physics under remodeling by NUUz will be used for space program of TIP in NUUz, and detailed spaces plan by floor are as below.

[Figure 4-14] Spaces for TIP in NUUz

4th Floor 3rd Floor 2nd Floor 1st Floor

Floor Area(m2) Rooms Conference Room : 1 st Support Room : 1 1 736.4 Laboratories : 15 Cabinet personnel : 6 Physic Faculty nd Managers : 2 2 227.4 Laboratories : 2 Auditorium : 2 3rd 229 Laboratories : 3 Cabinet personnel : 1

th Laboratories : 5 4 226.3 Cabinet personnel : 1

Space for TIP in NUUz is a part of 4 stories in the building of physics department. It is total 1,419m2: E/H is 709 m2, TBI is 567 m2, public equipment support center is 141 m2, which respectively takes 50%, 40%, 10% of total area.

E/H was assigned the biggest area because it is the core function of industry- academy cooperation of TIP. Furthermore, enough space for TBI is necessary to vitalize new business incubation, which makes use of new technology in Uzbekistan or commercialization of research achievements in the university. Lastly, 10% of total area should be given to public equipment support center since it is important to effectively assign the equipment that companies need. It should use combined space rather than separated considering the size of equipment.

216•2013 Knowledge Sharing Program with Uzbekistan

Space Program by Functions of TIP

Establishment of Technology Innovation Park Area

E/H(Engineering House) 709㎡ (50%)

TBI(Technology Business Incubator) 567㎡ (40%)

Common equipment support 141㎡ (10%)

Family company system -

Total 1,419

5.2.4. Future Promotion Plan

The plan for establishing TIP in NUUz is suggested to commercialize R&D achievements NUUz has.

However, it is very important to make effective management plan for establishing TIP. It should prepare for the specific plans regarding E/H, TBI, Public Equipment Support Center and Family Company System as a management plan. Moreover, it should also reflect each sector of the university in detail.

Furthermore, policy excavation and trial plan for cooperation with government should be settled, and plan for expanding it as nationwide project should keep pace together as well.

In conclusion, Uzbekistan government needs to introduce KPU’s TIP as well as to transplant KPU’s operation management skills, and it is also important that the studies for operation plan should be proceeded continuously in the future.

Chapter 4 _ Strategies for Strengthening SME’s Competitiveness through Education Program of Industry-academy Cooperation•217 References

Korea policy society, 2012. SME’s policy 50-year history and future of SME’s policy The Korea development institute, 2012. fostering technical manpower through KPU Seung Kwan Jang and others, KDI, 2011. Technical Engineering Education Model of Korea Polytechnic University in Modularization of Korea’s Development Experience Korea research foundation, 2011. survey report of activity of university’s industry-academy cooperation Park-Byeong Moo, 2009. research on establishment of regional model of industry-academy cooperation and construction of network Lee-Yo Han and others, 2007. research on policy index for innovative policy of industry- academy cooperation Kwon-Doo An, 2006. proposal for industry-academy cooperation with internal stability between local university and SME Jang-Byeong Jip and others, 2005. research on the policy to vitalize the system of industry- academy cooperation

218•2013 Knowledge Sharing Program with Uzbekistan