The Challenges Facing Industrial Clusters
In the major cycle of economic restructuring, traditional development driven by exports and investment is seeing diminishing returns. Local governments still prefer to drive the economy through investment attraction and capital deployment, but more economically developed regions, with fuller fiscal accumulation, can offer larger subsidies, producing a "siphon effect" that less developed regions find hard to match.
The Chenghai toy cluster in Guangdong was once a national model, with more than 16,000 manufacturing enterprises and 40,000 supporting enterprises, and output value of 46 billion yuan. Yet its path dependence on low-end manufacturing is deeply written into the supply-chain DNA. An ultra-low-cost model, while capturing the low end of the market, has also come with a cheap-goods label. As land and labor costs rise, without an increase in value added, the industry faces serious decline.
Theoretical Foundations for Industrial Cluster Development
Industrial upgrading requires a multi-pronged approach. Innovation value chains, dynamic capabilities, ecosystems, and industrial upgrading theories all emphasize that enterprises must maintain competitiveness through collaborative innovation, technological iteration, and adaptation to market change. Porter's competitiveness model notes that regions should develop advanced talent-factor inputs, optimize production allocation, and respond to shifts in market demand.
The "factor-based investment attraction" strategies of Jiangsu and Anhui are worth studying: mapping the industrial chain and doing targeted investment attraction along upstream and downstream segments; bringing in key factors such as R&D and intellectual property; and offering tax and housing preferences to R&D talent. In Zhejiang's Nanxun elevator industry, specialized division of labor and standardized manufacturing have cut costs by more than 20% and substantially raised competitiveness.
Paths to Innovation in the Chenghai Toy Industry
Goldster (Gaodes) supplies precision plastic building-block components that allow downstream enterprises to focus on brand and design innovation. Semba Culture, a partner of Goldster, secured "national-level" IP licenses such as The Wandering Earth, aircraft carriers, and the Forbidden City; its revenue in 2022 grew 102% year-on-year, a win-win outcome.
Wang Chubin, Party Secretary of Chenghai District, has proposed three directions: refining industrial division of labor and collaboration, branding enterprises and developing IP, and cultivating related new industrial ecosystems. He has also planned innovation "exclaves" in Guangzhou and Shenzhen to bring in talent in intelligent manufacturing, brand, and design to empower the toy industry.
From Toys to the Plastics Industry
Wang Chubin points out that the toy industry has built in Chenghai a powerful chain for precision plastics and plastics manufacturing. As materials technology advances, metal castings can be gradually replaced with plastics. The Pearl River Delta precision-casting industry is worth 300 billion yuan, and Chenghai has an opportunity to upgrade from the "toy industry" to the "plastics and toys industry."
Porter's theory notes that investment in advanced factors in related industrial clusters generates spillovers that benefit the industry. The development of Germany's textile industry, the US semiconductor industry, and Shenzhen's electronics industry all bear this out.
The Cultural Foundations of Industrial Dreams
Industrial development also involves "management ideology." German and Japanese enterprises are led by engineers and place a premium on manufacturing craft; American enterprises tend to be led by finance people. Japan, through investment in education, has cultivated a vast corps of engineers, which built the reputation of "Made in Japan."
Goldster's founder points out that Pearl River Delta workers have absorbed the ethos of industrial civilization — "scientific management and relentless pursuit of perfection" — while Chaozhou-Shantou, shaped by its commercial tradition, has "flexibility in abundance but not always the necessary rigor." For this reason, vocational-skills education linked to industry is especially critical in less economically developed regions.
In Closing
Reorganizing and restructuring industries is the necessary homework of an era of stock-based growth. Less developed regions should guard against impatience, put effort into building soft capacity, pursue differentiated development tailored to local conditions, and shape their own industrial niches. That is the way to find a development path that actually fits.
Originally published: Economic Observer · Microscope · 2023-11-11 · Read original →
Originally published in the "Economic Observer · The Walker’s View" column. The author is Executive President of the Guangdong SME Development Promotion Association. For reprints or citations, please contact the author or the Association Secretariat.