Indian Industrial Clusters

Keshab Das

• Publisher: Routledge
• Year: 2017
• Print ISBN: 9780754636359
• eBook ISBN: 9781351928038
• Topic: Business
• Subtopic: Business General
• Index: Business

This book presents an in-depth analysis of the functional dynamics of Indian industrial clusters which have grown and stayed as hubs of business activity in India, thanks to a large calibrated domestic market for goods. The examples given contribute towards the understanding of theoretical underpinnings of small firm clusters in LDCs and also indicate steps towards effective policy making for SME development in general, and local economic regeneration in LDCs in particular. The industries studied include modern as well as traditional/artisanal sectors which span at least ten Indian states. They provide insights into informality, labour, inter-firm relationship (cooperation and competition), technological and organisational flexibility, and forms of supportive institutional arrangements and nature of linkages with agencies external to the cluster, among other things. This book will be of particular interest to SME practitioners and to students and researchers of economics, business management, regional development, economic geography, industrial sociology and industrial organisation.

Chapter 1
Industrial Clustering in India: Local Dynamics and the Global Debate

Keshab Das

Introduction

Over the last quarter century or so, there has been an increasing awareness across the globe of the complexities that constitute the organization of productive activities, particularly, concerning the small and medium enterprises (SMEs). The remarkable contribution of SMEs in economic development has enthused scholars, development practitioners and policy makers in comprehending and promoting this crucial sector. Gaining insights into the relative preponderances of factors such as hierarchies, markets and networks in SMEs has been a key concern. Significantly, clustering of SMEs, a particular form of industrial organization, has been hailed as the entity that merits substantial policy intervention. Notwithstanding the on-going rich ‘flexible specialization — industrial district’ debate, it has been recognized that studies focusing on experiences from less developed countries (LDCs) are still very few. The need to appreciate and incorporate the spectrum of specificities extant in the LDCs has been pressing as such perspectives would affirm or serve as correctives to the efforts towards policy formulation and relevant theory building. Moreover, in order to enrich the content of the debate per se and enhance its relevance to the LDCs, it is necessary to learn from as many cases as possible.

Industrial clusters have grown and come to stay as hubs of business activity in India, thanks to a large calibrated domestic market for goods. However, our knowledge about their actual functioning remains limited. It is important, hence, to explore the potential of collectivities and understand their functional dynamics. Why and how certain clusters progress and perform better relative to others? Explanations to this would, inter alia, help appraising the role of the state, local institutions and industry organizations in fostering clusters as sources of growth, particularly in the post-liberalization period.

The main purpose of this volume is to present a set of in-depth case studies on various aspects of Indian industrial clusters. Without pre-supposing a certain stylized cluster framework, the studies delve into aspects of functional dynamics of clusters and, deriving upon the field learning, provide insights into inter-firm relationship (cooperation and competition), technological and organizational flexibility, informality in the production process, labour, the role of the social milieu, forms of supportive institutional arrangements and the nature of linkages with agencies external to the cluster. The policy instruments for SME development, in general, and relevant local economic regeneration in LDCs, in particular, may benefit from the discussions of detailed case studies of clusters and perspectives emanating thence. Subtly though, a specific concern of this volume is to attempt to contribute, in a substantive manner, to the theorization exercises in industrial organization literature focusing clustering.

Industrial Clusters: Rise of a Reinterpretation

Nullifying the notion that small firms are essentially a transitional phenomenon and, in moving up in the scalar ladder, would eventually ‘wither away’, these enterprises are, in fact, back in the reckoning. The global recession during the 1970s and 1980s, triggered by consecutive oil crises, witnessed the large vertically integrated Fordist-Taylorist plants functioning under duress. This was not just because demand had been falling or wavering but also there was a discernible shift in the nature of demand that underscored the need for highly customized and, hence, small batch of production. The large units could choose between downsizing employment and output, but not coapting its organization of production. Unlike the large units, the small firms exhibited a remarkable resilience in catering to the emerging demand patterns through dynamism, alacrity and purport. It eventually involved a technological and organizational paradigm shift that would hinge upon flexibility. Small firms in many western industrialized societies as also in the newly industrializing economies of Asia and Africa, not only contributed to employment generation, endogenous entrepreneurial growth, regeneration of local economies and local innovative potential, but also competed in the global market earning valuable foreign exchange (Piore and Sabel 1984; Pyke and Sengenberger 1992; Regnier 1990; van Dijk and Rabellotti 1997; and Pietrobelli and Sverrisson 2004).

As interest grew in the achievement of small firms, a number of studies, carried out in different countries, highlighted the fact of spatial togetherness of firms engaged in manufacturing similar products and providing business related services. It was held that the collectivity not only provided economies of agglomeration, but also, as argued by Coase (1937), considerably reduced the cost of ‘organizing’ production, or the transaction cost so vital for firm growth. Over a century ago, spelling out the positive outcomes of industrial districts, i.e., ‘concentration of specialized industries in particular localities’, Alfred Marshall observed that “so great are the advantages which people following the same skilled trade get from near neighbourhood to one another. The mysteries of the trade become no mysteries; but are as it were in the air. Good work is rightly appreciated, inventions and improvements in machinery, in processes and the general organization of the business have their merits promptly discussed; if one man starts a new idea, it is taken up by others and combined with suggestions of their own; and thus it becomes the source of further new ideas. And presently subsidiary trades grow up in the neighbourhood, supplying it with implements and materials, organizing its traffic, and in many ways conducing to the economy of its material” (Marshall 1974: 225). Following from such conceptualization, in the later decades, much of the research on dimensions of agglomeration economies followed approaches steeped in strong neo-classical tradition wherein scale economies and linkages in physical production assumed significance. The positivist approach, however scientific in design, would falter to capture emerging dynamics of organization of production as on ground (Das 1995a: 37). The economistic treatment of clustering deserved a major refurbishing to reflect the reality. It was Becattini who provided a robust redefinition of the Marshallian industrial district reinterpreting it as “a socio-territorial entity which is characterised by the active presence of both a community of people and a population of firms in one naturally and historically bounded area. In the district, unlike in other environments, such as manufacturing towns, community and firms tend to merge” (Becattini 1992: 38; emphasis ours). By incorporating the role of the extra-economic factors, particularly the social, in the analysis of industrial districts the possibility of a realistic appraisal with a multi-disciplinary perspective could be affirmed.

As is well known, much of the inspiration for such reinterpretation can easily be traced to the striking performance of the industrial clusters of Third Italy, which has been made famous, inter alia, by Piore and Sabel (1984) in the modern classic The Second Industrial Divide and Sabel (1984)’s Work and Politics. Further, it is held that flexibility — the dynamic adaptability in the technological and organizational domain — is fostered best in such collectivities. Typically, in the literature on industrial districts, flexibility in the technological sphere refers to flexible manufacturing systems, flexible automation and so on. These, essentially, draw upon microelectronics having astounding properties to allow product/process differentiation, classification, replication and modification at great speed and occupying little physical space. The use of CAD/CAM processes and CNCMT in production exemplifies technological flexibility (Kaplinsky 1994; Lauridsen 1995; and James and Bhalla 1995). In most clusters in developing countries, however, microelectronics hardly exists or plays a role; the source of flexibility often may be attributed to what is widely known as intermediate or appropriate technology (Schumacher 1974), which underscores the significance of local knowledge and grass-root innovative capability. As is natural, technological flexibility has clear implications for the labour process. Organizational flexibility involves redoing the shop-floor arrangement, numerical manipulation of workforce and changing responsibilities within management. Flexibilities of this sort are in response to the changes in the nature of demand.

Eventually, the new perspectives on industrial clustering have assumed a broader scope. One outcome has been that the explanation to ‘why small firms cluster?’ can be established as the favourable effects of economies of scale and scope that facilitate local innovative activities as well (Alcorta 2001: 78–79; and Caniels and Romijn 2003). Moreover, the potential of ‘upgrading’ both products and processes by firms in a cluster is said to brighten up as they move up in the global value chain (Humphrey and Schmitz 2000: 3). Competition remaining the lifeline of business, the prevalence of trust, reciprocity and mutualism were found to be the high points of industrial clusters (Humphrey and Schmitz 1998). Encapsulating the benefits of clustering, i.e., the “competitive advantage derived from local external economies and joint action”, Schmitz (1995: 530) emphasizes that ‘collective efficiency’ acts as a catalyst for business growth. In fact, much of the policy intervention to promote clusters during the 1990s and beyond derives from these positive dimensions of collectivity.

Further, Porter (2000) visualizes a much larger role for clusters in the global economy, beyond their local level contribution to development. In a sense, the revived cluster phenomenon fits better to a globalized world raring to network for business and trade. Needless to add, these views on clustering, purely from a neo-localism perspective, assume both a certain minimum level of progress of the region (Das 2004a: 4923) and technological sophistication of the production process. Clusters in developing countries, as we shall see in this book and elsewhere, are often quite different from those highlighted as stylized facts in the western context. In fact, “there exists a dearth of studies focusing primarily on the whole gamut of issues on the ‘actual mechanisms’ involved in technology transfer, upgradation, product and process innovation and adoption in IDs of developing countries. This acts as a barrier to ‘import’ the European model, if there is one, to the developing countries” (Das 1995b: 37).

Key Dimensions of Industrial Clustering

Clusters differ from one another depending upon the history of emergence, nature of the product, markets and organization of production. Based upon these, a broad typological distinction has been made wherein clusters would be identified as being on the ‘high-road’ or ‘low-road’.¹ The former refers to cases where business dynamism is promoted through investment in ‘efficiency enhancement and innovation’ and the latter reflects negative firm strategies such as cost cutting via reducing labour income, poor input use, inadequate or no networking, what result in technological stagnation and sub-standard products. The ‘high-road’ syndrome is found common in developed nations (Pyke and Sengenberger 1992), where certain formal regulation, often devised at the cluster level, ensures collective vigilance against any unfair business practices. As of the developing nations, surveys of available evidence in Nadvi and Schmitz (1994) and Schmitz and Nadvi (1999) conclude that most clusters carry ‘low-road’ characteristics and some a combination of the two. None, however, has symptoms of an entirely ‘high-road’ variety.

Although such a ‘black and white’ classification, as the low-road and highroad, suggests a certain typological convenience, in reality, it is the grey — rather the many shades of it — that characterizes industrial clusters. From an analytical point of view, it is important to recognize at least three key dimensions of clustering: a) the nature of the market, both existing and potential as envisaged by the firms; b) the nature and degree of informality that sustains/drives the production regimes; and c) the macro policy environment that influences, directly or otherwise, the subsector or region or both.

Numerous clusters in India cater to the local, regional, national and international markets, which are both substantial and varied. In fact, so far as the domestic market is concerned, the crucial factors to reckon with are the sheer vast size of the consuming population and calibration of the market due to skewed income distribution or access to endowment. Depending upon what the product/byproduct/process is, firms set their target to respond to a certain market (demand). So long as demand for such products exists, or likely to come up, the production gears up to respond to that demand even if in a partial or limited manner. In keeping with the reality, not every firm produces or aims to produce for a high-end, global market. The market for certain products could be limited by the locality or culture-specific need or absence of cost-competitiveness due to high material or transport cost. For that matter, the ‘success’ of a cluster need not be measured by whether and to what extent its links exist with the international market; instead, supportive interventions need to be made towards product diversification and upgrading local technological capabilities of these clusters. This is in no way to undermine the importance of export-orientation, the ‘value of global value chains’ and the entrepreneur-exporters’ strive for enhancing product quality. Rather the emphasis here is to acknowledge the strong presence of a large segmented domestic market for products differentiated by quality and price. This is one dimension ruefully glossed over in the thriving literature on value chain analyses, which, in fact, does recognize that “integration into global trading systems could have both positive and negative effects for people in developing countries” (Gereffi et al. 2001: 2).

Once the character of the market is determined, firms would strategize to benefit from competition, by trying to improve the margin of net profit. It is in here that, being clustered, small firms may choose networking and collective action as a strategy to achieve what Brusco (1992) would refer to as real services. These would include basic facilities as roads, water, power, R & D, marketing outlets and so on. Such joint action, if opted, often seems to have been confined to those with a shared community²/caste/group/class identity rather than practised across the board. While much of the inter-firm cooperation may be seen well-functioning at an intra-community/caste/group/class domain, firms still would cooperate beyond, as sectoral/regional industry associations, for accessing certain larger facilities; for instance, basic infrastructure at the work sites, fiscal concessions and promotion of brand image of the subsector/location. That is a positive outcome of clustering, subject to the state — local and higher levels — assuming the role of an active facilitator. How best, hence, the policy apparatus can be persua...

Table of contents

• Cover
• Half Title
• Dedication
• Title Page
• Copyright Page
• Table of Contents
• List of Tables
• List of Figures
• List of Abbreviations
• List of Contributors
• Preface
• 1 Industrial Clustering in India: Local Dynamics and the Global Debate
• 2 An Italian Model and an Indian Reality: Searching for a Way-Out of Deteriorating Sweatshop Conditions
• 3 Flexible Accumulation and Labour Markets: Case of the Tiruppur Knitwear Cluster
• 4 Industrial Clusters and Labour in Rural Areas: The Brick Kiln Industry in Three States
• 5 Competition and Response in Small Firm Clusters: Two Cases from Gujarat
• 6 Organizational Forms, Technological Change and Income Generation: Handloom and Conch Shell Product Clusters in West Bengal
• 7 Variations on the Classical Model: Forms of Cooperation in Leather Clusters of Palar Valley, Tamil Nadu
• 8 Industrial Clustering and Cooperation: The Kanpur Saddlery Cluster
• 9 Flexible Specialization for Rural Industries? A Study of the Bamboo and Rattan Subsector
• 10 The Silver Filigree Cluster in Cuttack, Orissa: What Ails It?
• 11 Handicrafts and the ‘Cluster Development Approach’: The Hand Block Printed Textiles Cluster of Jaipur
• 12 Transforming Artisans to Entrepreneurs through Group Enterprise: The Footwear Cluster of Athani, Karnataka
• 13 Classifying Small Enterprise Clusters: A Conceptual Enquiry in Ahmedabad
• Index