Local Clusters in Global Value Chains

Linking Actors and Territories Through Manufacturing and Innovation

Valentina De Marchi, Eleonora Di Maria, Gary Gereffi, Valentina De Marchi, Eleonora Di Maria, Gary Gereffi

• Publisher: Taylor & Francis
• Year: 2017
• Print ISBN: 9780367887063
• eBook ISBN: 9781351723992
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

The international fragmentation of economic activities – from research and design to production and marketing – described through the lens of the global value chain (GVC) approach impacts the structure and performance of small and medium-sized enterprises (SMEs) agglomerated in economic clusters. The consolidation of GVCs ruled by global lead firms and the recession of 2008-09 exacerbated the pressures on cluster actors that based their competitive advantage on local systems, spurring an increasing heterogeneity, both across and within clusters, that is still overlooked in the literature.

Drawing on detailed studies of different industries and countries, Local Clusters in Global Value Chains shows the co-evolutionary trajectories of clusters and GVCs, and the role of firms and their strategies in organizing manufacturing and innovation activities in the context of ongoing technological shifts. The book explores the tension between place-based variables and global drivers of change, and the possibility for territories containing such clusters to prosper in the new global scenario. By adopting insights from the GVC framework and management studies, the book discusses how the internationalization strategies of firms create opportunities as well as constraints for adaptive upgrading in clusters.

This book is of interest to both researchers and policy-makers who are interested in the dynamic sources of competitive advantage in the global economy.

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Industrial districts, clusters and global value chains

Toward an integrated framework

Valentina De Marchi, Eleonora Di Maria and Gary Gereffi

Introduction

The location of economic activities in specific territories and the reorganization of industries into global value chains have reshaped analysis on the competitiveness of regions and countries in recent decades. Starting in the 1970s in several developed countries, especially in Europe, industrial districts or clusters¹ represented the backbone of manufacturing, primarily in low-technology sectors, which drove exceptional export growth in international markets. Beginning with the seminal contributions by Becattini (1986), Piore and Sabel (1984), and Porter (1998), a broad literature developed supporting and explaining the specific advantages related to local production systems and their role in the development of regions and nations. Indeed, the cluster concept has enjoyed enormous success over the years (Schmitz and Nadvi, 1999; Lazzeretti et al., 2014), and this perspective became central in the action programs of many international institutions to support the competitiveness of SMEs and to foster the growth of less-developed countries and regions (e.g. Eastern Europe and Latin America).

International trade and cross-border production networks, however, shape the ability of clusters to deliver competitive advantages in the global arena. After the 1980s, manufacturing activities swiftly shifted from advanced to developing countries, due to the global outsourcing strategies of firms from the European Union (EU) and the United States (USA). Due to the transfers of knowledge and technologies related to the offshoring of manufacturing activities (Pietrobelli and Rabellotti, 2011), developing countries became central players in global supply chains, thus challenging the role of clusters in developed countries.

The global value chain (GVC) framework, whose origins date back to the mid-1990s, is particularly useful to analyse these global transformations and how industries are organized at the global level (Gereffi and Korzeniewick, 1994; Gereffi et al., 2005; Gereffi and Fernandez-Stark, 2016). This approach has been increasingly adopted by international organizations such as the World Bank, the Organization for Economic Cooperation and Development (OECD), the International Labour Organization (ILO), and the United Nations Conference on Trade and Development (UNCTAD) to guide development programs in poorer countries (Cattaneo et al., 2010; Gereffi, 2014; Werner et al., 2014). With specific industries or countries as the empirical focus of analysis, the GVC framework has been widely adopted to understand how industries and places (including clusters) evolve and how value is captured and distributed across diverse economic actors. Main players in this process are large multinational enterprises (MNEs) – including global buyers and brands, as well as producers – governing the activities of the chain, which is fragmented at the international level, and affecting the opportunities for firms, regions and countries to compete in global markets (Gereffi et al., 2005; Gereffi and Fernandez-Stark, 2016).

Over the years, the industrial district and GVC literatures have evolved considerably, impacting the international development agenda as well as policy intervention programs, but in a fragmented way. There are varied perspectives and goals: one emphasizing “local factors for competing in global markets” (Schmitz and Nadvi, 1999, p. 1503), and the other the role of large global firms in shaping local development, especially in developing economies (Gereffi, 1994, 1999; Morrison et al., 2008). This book aims at advancing concepts and theories that merge these perspectives to meet the challenges firms, regions and countries must cope with, and question the way the global-local nexus is rendered (Bair, 2008; Pietrobelli and Rabellotti, 2011). On the one hand, emerging economies are no longer just the factories for Western companies but are increasingly performing more value-added activities; “emerging giants” are playing a critical role in an increasing number of sectors (Khanna and Palepu, 2006; Sinkovics et al., 2014; Azmeh and Nadvi, 2014). On the other hand, recent discussions about backshoring and re-shoring scrutinize the consolidated position of advanced and emerging countries in the “smile” curve – depicting value-added at each stage of the chain (Mudambi, 2008; Gray et al., 2013; Bailey and De Propris, 2014; Fratocchi et al., 2014).

Researchers need new theoretical syntheses to integrate the global and local perspectives for a more comprehensive picture of how economic activities and economic systems are structured in the contemporary era. Indeed, complex interdependencies between the local and the global contexts – such as the access and use of technologies, knowledge creation and capture, product and process upgrading, stricter international regulations and standards, and management of social and environmental sustainability – call for an enrichment and synthesis of current theoretical frameworks. In this chapter, we outline a framework to enhance our understanding of the global/local nexus incorporating key elements from the GVC and industrial district/cluster perspectives.

Industrial districts and clusters: a brief overview

Research on clusters reflects multiple literatures and disciplines, including mainstream economics, business economics, regional science, and innovation studies (Lazzeretti et al., 2014). The goal is to understand how the local organization of economic activities based on SMEs in a specific socio-cultural context – compared to the production activities of large firms (Pyke et al., 1990) – could provide the same or better outcomes in terms of employment, value creation and innovation. In Europe, and in Italy in particular, the “industrial districts” literature highlights the role of social structure (the so-called “communitarian factor”) in supporting local externalities. In other settings, the cluster concept is more commonly used, including business economics starting with Porter (1998), who considered larger geographic areas and different combinations of firms and institutions beyond SMEs (Porter and Ketels, 2009), as well as economic geography (e.g. Bathelt et al., 2004) and development studies (e.g. Humphrey and Schmitz, 2002).²

Based on the inspiring studies of Alfred Marshall, Giacomo Becattini and other Italian scholars, Piore and Sabel (1984) were among the first to popularize the ability of small-scale districts to successfully enter international markets (Schmitz and Nadvi, 1999). Flexible specialization emerged as a new paradigm, in contrast to the Fordist mass production model dominated by large corporations. Italy became an interesting case since it offered an extraordinary research setting to explore the characteristics of industry-specialized networks of SMEs embedded in particular locales (Brusco, 1982; Pyke et al., 1990). Because of the concentration of small and export-oriented firms in traditional manufacturing industries, the Italian experience was a useful reference point for the developing country agenda as well (Schmitz, 1989; Rabellotti, 1997; Saxenian, 2006; Long and Zhang, 2011; Bellandi and Lombardi, 2012).

A key element of the ID is the division of labour across a number of co-localized SMEs involved in the different manufacturing steps needed to make a final product. Several agglomeration effects benefit firms participating in such networks (Belussi, 2006). The concentration of a critical mass of firms in a given industry increases firm-level efficiency and productivity due to the availability at the local level of specialized suppliers within an intense division of labour among local actors, with positive impacts on economic performance and competitiveness (Porter, 1990; Molina-Morales, 2002). Moreover, the local labour market ensures easy access to skilled labour and market mobility of workers among local firms. Industrial districts also facilitate entrepreneurship and new firm start-ups (Garofoli, 1992; Delgado et al., 2010); existing firms often support spin-off processes or sustain new ventures through collaborative supply-chain management practices.

Due to physical and cognitive proximity, firms within clusters benefit from explicit and tacit processes of knowledge sharing, where specialized knowledge flows between the firm and its suppliers, and among the many other actors of the clusters (e.g. training and research centres, local institutions) (Pyke et al., 1990; Corno et al., 1999). The knowledge dimension (Camuffo and Grandinetti, 2011) has been utilized as an explanation of the competitiveness and innovation of firms located in clusters. Thanks to knowledge spillovers, rooted in agglomeration, firms gain key knowledge to nurture their activities and support positive economic outcomes, based on specializations within the cluster. Scholars have devoted particular attention to exploring innovation paths and the dynamics of learning in clusters. Innovation in clusters can be rooted in informal processes related to learning-by-doing and social interaction, as well as more structured activities of knowledge exchange where research and development (R&D) is important (see Camuffo and Grandinetti, 2011 for a review).

Industrial districts are viewed as systems made up of a number of small and medium-sized companies (SMEs). Whereas in the traditional Marshallian model the homogeneity across local companies was considered a constitutive element (Becattini, 1990) – even if some larger trees are admitted within the forest, to quote a famous metaphor of Marshall’s (1919) – different typologies of firms within clusters have been studied as well. Along with the canonical Marshallian district, Markusen (1996) proposed a classification including two additional configurations: the hub-and-spoke and the satellite-platform districts. The former is characterized by the presence of a large firm dominating the relationships locally (where small firms depend on it) and linking the local systems internationally, while the latter refers to an agglomeration generated by the branch facilities of external players (firms but also government) in a specific location.

Studies on clusters have emphasized the role of local institutions³ – training centres, local research and certification centres, industry associations, municipalities or other local associations – in sustaining their competitive advantage (see Brusco, 1982; Porter, 1990; Corno et al., 1999, Molina-Morales and Martínez-Cháfer, 2016). Through dedicated intervention policies, shared projects or other initiatives, such institutions have facilitated knowledge sharing and collaboration among cluster firms and nurtured local “industrial commons” (Pisano and Shih, 2012) useful for the competitiveness of clusters and their firms.

Indeed, a key focus of the cluster literature has been the relationships across local actors. Within clusters, collaboration and competition among firms usually coexist, creating a fascinating mix that pushes forward innovation and even different forms of imitation, considered in positive terms (see Shenkar, 2010). Collaboration between the firm and its suppliers enables knowledge transfer, but also knowledge co-creation to achieve shared goals. Collaboration activities are particularly frequent in clusters formed by a large number of SMEs, where social and cultural proximity favours these dynamics and gives birth to communitarian structures among local economic actors (Lazerson, 1995; Dei Ottati, 1996).

Recent research directions in the ID literature

Considering the deep changes occurring at the local and global levels during the last 15 years, the research on IDs has developed along several trajectories, including: 1) the evolutionary processes of clusters; and 2) the opening up of the geographical boundaries of clusters.

An important stream of work focuses on the evolutionary processes of particular types of clusters (Whitford, 2001; De Marchi and Grandinetti, 2014; Tomas-Miquel et al., 2012; Hervas-Oliver et al., 2015). One topic is the evolving relationships among cluster firms due to different internal and external factors (Belso-Martinez, 2008). Clusters are classified in terms of their variety (Paniccia, 1998), suggesting it is no longer possible to talk about a single model for IDs (see also De Marchi and Grandinetti, 2014). Despite homogeneity in the size of firms as SMEs, many scholars note an increasing within-ID heterogeneity in terms of firm strategies, especially as far as internationalization is concerned (Chiarvesio et al., 2010; Rabellotti et al., 2009), and they highlight the rise of leading firms within clusters (Loren-zoni and Lipparini, 1999; Lazerson and Lorenzoni, 1999; Camuffo, 2003). Leading firms are generally larger, more vertically integrated, and able to develop advanced strategies in terms of innovation, marketing and internationalization.

A second topic related to the cluster model is the opening up of cluster boundaries. Scholars described the cluster by emphasizing internal dynamics that facilitated local agglomeration. However, globalization and stiff international competition, shifting geographic markets and the rise of new technologie...

Table of contents

• Cover
• Title
• Copyright
• Contents
• List of figures
• List of tables
• Contributors
• Foreword and acknowledgements
• Abbreviations
• 1 Industrial districts, clusters and global value chains: toward an integrated framework
• PART I Co-evolution of clusters and global value chains
• PART II The role of lead firms in global value chains and clusters
• PART III Value chain activities: rethinking the role of manufacturing and innovation
• Index