Munich Personal RePEc Archive Industrial Clustering Policy and Economic Restructuring in Vietnam Pham, Thi Thanh Hong and Nguyen, Binh Giang School of Economics and Management, Hanoi University of Science and Technology 14 September 2012 Online at https://mpra.ub.uni-muenchen.de/41471/ MPRA Paper No. 41471, posted 22 Sep 2012 20:32 UTC INDUSTRIAL CLUSTERING POLICY AND ECONOMIC RESTRUCTURING IN VIETNAM Pham Thi Thanh Hong1 Nguyen Binh Giang2 Abstract The study figures out the characteristics of today Vietnam’s economy as well as the history of industrial agglomeration in Vietnam. Applying the conceptual framework of Kuchiki (2005), the study considers factors of industrial cluster development in Vietnam and reveals that among four types of industrial agglomerations - Marshallian industrial cluster, hub-and-spoke cluster, satellite industrial cluster, and state-centralized industrial cluster, the second type is the most suitable to the real situation of Vietnamese economic restructuring. Keywords: industrial agglomeration, industrial cluster, economic restructuring, Vietnam 1 School of Economics and Management, Hanoi University of Science and Technology. 2 Institute of World Economics and Politics, Hanoi. than other regions. Countries having good 1. OVERVIEW condition for agglomeration can keep Since Alfred Marshall (1890) has discussed the enterprises from tax and labor cost 1 impacts of industrial agglomeration on competition from other countries (Readle and enterprises and the development of “industrial Record, 2005; Ozawa, 2009; Nguyen, 2010). districts”, there are a number of authors making research on such topic. Although focusing on • Secondly, industry agglomeration in East- industrial agglomeration, managerial science Asia is encouraged by production researchers especially focused on how enterprises fragmentation of transnational corporations in cooperate to gain benefits and improve Japan, the US, South Korea, Taiwan, etc. competitiveness as well as innovation and Hsinchu-Taipei Corridor is an area of creation competencies. industrial agglomeration for IT industry as IT companies in Silicon Valley finding Industrial agglomeration – (typically ODM/OEM partners in Taiwan. In turn, 2 mentioned by NEG ) or industrial cluster Guangzhou, and some Chinese coastal (typically refered in management science) - is that locations become industrial agglomeration enterprises co-locate with other enterprises in the areas as Taiwanese firms invested in same industry. In other words, the enterprises in (Kuchiki, 2008). Eastern Bangkok and the same industry and supporting industries are surrounded areas, Jakarta and neighbourhood, geographically concentrated. Not just only Shanghai, Changchun (Jilin), Tianjin, Beijing, studying enterprises solely, management Guangdong become industrial agglomeration researchers also consider the relationship among areas for automobile industry as Japanese and enterprises and universities and/or institutes as the US automobile firms coming to invest. well. Similar, Pearl River Delta in Guangdong, Research on industrial agglomeration refered China, Penang in Malaysia, Singapore, following key points: Bangkok become industrial agglomeration areas for electronic industry. Phnom Penh and • Firstly, firms can receive positive externalities neighbours are becoming industrial when geographically concentrated. The agglomerations for garment, footwear benefits include gaining a bundle of business industries. Kolkata (West Bengal, India), information, making strategic partners, Okinawa (Japan) become the place gathering richness of logistic system, availability of call-centers. industry specific inputs, etc. Enterprises are so excited with these impacts that if a region has • Thirdly, although there is no common size in good conditions for industrial agglomeration, terms of area for such industrial they can attract investment even that they agglomeration, the zone should not be too offer fewer preferences or labor cost is higher small because of needed places for a large number of firms. Besides, the zone should not be too large because it is dealing with service 1 Marshall identified knowledge spillovers, labour connections among firms. According to market risk pooling, and vertical linkages as the main Japanese researchers, gathering zone for sources of industry agglomeration economies manufacturing should be set up under 50 km 2 The New Economic Geography - NEG is an of radial distance. This is adequately for the analytical framework initiated by Paul Krugman [1][2] condition that averaged commercial in early 1990s in order to explain the formation of a transaction among firms is one per day, the large variety of such economic agglomerations in delivery time is lower than 2.5 hours, geographical space, and has grown as one of the major branches of the spatial economics today. To date, the transportation mean mainly is truck, delivery NEG remains to be the only general equilibrium distance is lower than 100 km. In the other framework in which the location of agglomerations is words, industrial agglomeration should be determined explicitly through a microfounded mechanism. suitable for JIT logistics. Meanwhile, Michael Porter refered to the zone of 200 miles of theory for calculating indices. He referred radial distance (equally 320 km). The US’s industrial clusters as an important factor. automobile agglomeration takes Detroit as the About the types of industrial cluster, NEG center and stretches out followed 65 and 75 identified four types, including: state highways through Indiana, Ohio, Kentucky, to Tennessee – extending upon • First, Marshallian industrial cluster is the corridor pattern to thousands km. The same location gathering SMEs in an industry. point among such two theories is that • Second, hub-and-spoke cluster is the location geographical distance should help firms to with one anchor firm and its affliated firms. meet each other to directly take transactions Japan calls this type as company town. (Porter, 1998a, 1998b). • Third, satellite industrial cluster is the • Fourthly, industrial agglomeration may not be location gathering supporting firms. covered in one country bounders. There are industrial agglomerations located in the • Fourth, state-centralized industrial cluster is border region between two countries, the location where firms are gathered around especially in Europe. For example, Basel one or several state-owned enterprises. This located in the border region of France, type is typically in national defence industry. German, and Swiss is agglomeration of chemical industry, Meuse-Rhine located in the border region of Belgium, Germany, and 2. ECONOMIC RESTRUCTURING AND Holland is agglomeration of mechanical INDUSTRIAL CLUSTERING POLICY IN engineering and automobile manufacturing VIETNAM industry, Detroit-Windsor located in the 2.1. Vietnam’s Economic Restructuring border region of Canada and the US is The 11th National Congress of the Communist agglomeration of automobile manufacturing Party of Vietnam (CPV) adopted its Resolution at industry. the closing session on January 19. In the • Fifthly, since the beginning of 2000s, as Resolution, CPV declared the idea of restructuring theory of industrial agglomeration and the economy with four major points: improve the industrial cluster is growing up, there are a economic structure, relocation of production number of countries, especially developed territory, improve competitiveness, and improve countries, building up industrial clustering effectiveness. policy as well as regional industrial policy. Till now, industrialized-economic structure is Japan officially implemented industrial diversified into several stages: (1) the economy clustering policy since 2001, Europe is about that led by resource-intensive light industries such 1999, South Korea is since 2002. Some as the textile industry that performs labor- developing countries also apply somewhat intensive production; (2) the economy that led by industrial clustering policy as implementing capital-intensive and large scale heavy industries developing strategy for specific industries. such as metallurgical industry and chemical • Sixthly, industrial clusters have been industry; (3) the economy that led by capital impacting evidently on innovation and intensive and modular production industries, such creations, creating strong spillover effects, as automobile manufacturing, electronic industry; developing regional economies positively. To (4) the economy that led by creative industries, somewhat extend, industrial agglomeration such as IT hardware manufacturing industry; and may become a growth pole. (5) the economy led by Internet, such as digital content creation industry (Ozawa, 2009). In Global Competitiveness Report 2008, Michael Porter contributed in composing microeconomic Meanwhile, three first stages are belonged to manufacturing economy, whereas the other two stages are belonged to knowledge economy. At Developing industrial clusters is also a major higher stages, an economy tends to perform solution to relocation production territory and to production fragmenting and distributing, improve economic effectiveness. Because including international production fragmentation. industrial agglomeration just forms up if it Besides, as being in the higher stage as larger satisfied some appropriate conditions (the proportion of soft infrastructure that facilitates availability of industrial parks, infrastructures and such stage to form up and develop. other firms, especially anchor