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Presentation by Dr. K. CHOE

Co-Chair, Committee of Urban CoP Asian Development Bank

2 December 2010TCI International Conference in Delhi, INDIA

Cluster-based City Economic Development [CCED]: Analytical Methodology

Assessing Clusters Competitiveness

Application to Colombo Metropolitan Region

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K. Choe Project Director (ADB HQ Manila, Philippines)

R. Brian International Advisor (SPMS, Australia)

C. Vaidya Team Leader for India (NIUA, Delhi)

R. Singh APEX Ltd.(in association with NIUA, Delhi)

R. Jayaratne

Team Leader for Sri Lanka (SEVANATHA, Colombo)

N. Nazem Team Leader for Bangladesh (CUS, Dhaka)

Contributors to CCED Approach

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ADB HQ in Manila, PHI

ADBSTRATEGY

2020 Inclusive Economic Growth

Environmentally Sustainable Growth

Regional Integration

WHY IS IT IMPORTANT

TO PAY ATTENTION TO URBANIZATION ?

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INDIA: Share of GDP Contribution by Urban and Rural

Population Share

Urban 28%

Rural 72%

GDP Share

From Urban Economic Activities

83%

From Rural Agricultural Primary Industries 17%

Source: CIA World Data book 2008

UrbanUrban Sector Economy: Sector Economy:Higher ProductivityHigher Productivity

Why CCED?

Urban as Engines of Economic Growth:

Positive Correlation as a Country Transforms its Economic Structure from Agriculture to

Manufacturing/Service Sectors URBANIZATION AND GDP/capita

ASIAN DMCs

y = 1060.1e0.0304x

R2 = 0.6016

0

5000

10000

15000

20000

25000

0 10 20 30 40 50 60 70 80 90 100

% UrbanizedSource: WB 2007. World Development Indicators

GD

P/c

ap (P

PP

200

5 $c

onst

ant)

Nepal

India

PRC

Malaysia

South Korea

A Premise:

If urban economy is considered as “ENGINES OF ECONOMIC

GROWTH, it’s better to take advantage of the urbanization

process” as a tool for triggering economic growth, rather than restricting the opportunities of

economic growth!

But, We have poor knowledge of Understanding

‘What Makes a City Competitive for Local

Economic Development ?’

URBAN ECONOMIES ARE COMPLEX…..

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A New Way of Pursuing Local Economic A New Way of Pursuing Local Economic DevelopmentDevelopment::

ClusterCluster--basedbased City Economic City Economic DevelopmentDevelopment Evaluating Cities Competitiveness

Government as Facilitator and Partner

Private and public sectors collaboration: triggering local economic development

Assessing Competitiveness of Industry-Clustersdriven by private sector

Increasing Income/Job Opportunities, thus Reducing Poverty

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CCED Analytical Methodology:CCED Analytical Methodology: Built-in Innovation and Built-in Innovation and

Replicability Replicability

Competitive Industry

prioritized

Competitive Industry

prioritized

II

Industry-Clusters networking and P/P

Partnership platform

Industry-Clusters networking and P/P

Partnership platform

VI

VII

IV

BP & Action PlansBP & Action Plans

III

V

Assess Cities Competitiveness

l Profiles of National Economic Strategy

Multi-sector Industry Competitiveness AnalysisIndustry GIS Mapping &

Industry Cluster Structure Analysis

Gap Analysis in Competitiveness

Project Design and Infrastructure Feasibility

Studies Executing a Project for Cluster Development

Select industry-clusters in the selected cities

Select industry-clusters in the selected cities

Select citiesSelect cities

Decide the scope of urban areas

Decide the scope of urban areas

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Illustration of CCED Illustration of CCED ApproachApproach

Following the 7 Steps of Following the 7 Steps of Analytical ProcessAnalytical Process

Pilot Case of Pilot Case of Rubber/Latex Rubber/Latex Industry ClusterIndustry Cluster

Colombo, Sri LankaColombo, Sri Lanka

STEP II: Analysis of Cities Competitiveness

Key Index: Total 43 attributes under 6 key Drivers which are critical for enabling the business environment for economic, urban and social development of a city:

1. Cost of doing Business: How expensive is it to operate a business in the city?

2. Dynamics of Local Economy: Am I making profit out of my business in the city?”

3. Human Resource and Training: Are the people well-equipped to work?”

4. Infrastructure: Are the roads, bridges, electricity, telephone lines etc. in good condition ?”

5. Responsiveness of Local Governments to Business Needs: Is the city government able to respond to short-term and long-term business issues?”

6. Quality of Life: How well-off are urban residents in terms of quality life and environment?”

STEP II

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Assessing Cities CompetitivenessAssessing Cities Competitiveness

• Not just selecting a city, but where and what to strengthen ? the city be more competitive…….

Decision to Select

Colombo

Colombo:• relatively relatively strong human strong human resources, resources, • good good infrastructureinfrastructure• but poor but poor responsivenesresponsiveness of local gov’t s of local gov’t to business to business needs needs

STEP II

Which clusters Which clusters should be should be targeted ?targeted ?

STEP III

STEP III. Identification of Key IndustriesSTEP III. Identification of Key Industries

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Wholesale & Retail Trade

Textiles & Wearing Apparel

Financial,/ Insurance & Real Estate

Hotels & Restaurants

Chemicals & Chemical Products

Rubber & Plastic Products

IT / IT Enabled Services

Transport/ Storage/Communication

-

0.50

1.00

1.50

2.00

2.50

3.00

-40 -35 -30 -25 -20 -15 -10 -5 0 5 10 15 20 25 30 35 40 45 50 55

LQ

199

7

% Change in LQ (1997 to 2006)

The “Location Quotient Bubble Graph”--- separates industries in to four quadrants whether it’s growing or declining over time (x-axis), and whether it’s presence in the local area is bigger than national average (y-axis). The size of the ‘bubble’ indicates the size of employment in that industry sector

Colombo Case (Bubble Analysis)Colombo Case (Bubble Analysis)

STEP III

WHO ARE THE CANDIDATES FOR CLUSTER

DEVELOPMENT?Presence of Willingness

Absence of Willingness

Feasibility & Competitiveness

X

Low feasibility & no market competitiveness

X X

Commitments to Co-OP & Government Support

Gro

wth

Pote

ntia

l Exis

ts?

STEP III

Can Clusters be Created or Activated ?

When is the time to intervene ?• Spatially Agglomerated only: spontaneous

• Incubation Stage: spatial agglomeration, some kind of coordination activities on-going, but not yet functional as a collective

• Action Stage: created a formalized organization to represent the interests of the cluster collective, but still needs external support

• Functional Stage: fully functional representing the interests of the cluster as a collective, and a self-sustainable mechanism has established.

STEP III

STEP IV. Understanding Value STEP IV. Understanding Value Chains & Elements Affecting Chains & Elements Affecting Clusters Competitiveness Clusters Competitiveness

STEP IV. a, b, & c

STEP IV.a STEP IV.a GIS Mapping of ClustersGIS Mapping of ClustersSTEP IV.b STEP IV.b Structural Mapping of Cluster Structural Mapping of Cluster

Value-ChainValue-ChainSTEP IV.c STEP IV.c Porter’s Diamond AnalysisPorter’s Diamond Analysis

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1998 2006

STEP III.a Cluster (GIS) Mapping: Changes in Rubber & STEP III.a Cluster (GIS) Mapping: Changes in Rubber & Plastic Industry-Cluster, Colombo Metropolitan AreaPlastic Industry-Cluster, Colombo Metropolitan Area

1997

Does a cluster boundary matter ?

STEP IV.a

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Colombo Case (Structural Mapping)Colombo Case (Structural Mapping)Rubber Industry Cluster: Forward-Backward Rubber Industry Cluster: Forward-Backward

LinkageLinkage

STEP IV.b

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STEP III.c Porter’s Diamond Analysis of STEP III.c Porter’s Diamond Analysis of Industry-Cluster Selected Industry-Cluster Selected

And, Assessing Competitiveness of Industry Clusters

• Porter’s diamond model : – Attribute Analysis on 5

Factors of Competitiveness for Private Sector Business Environment

– Competitiveness Gap Analysis

Porter’s Diamond Model

STEP IV.c

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Colombo Case: Analyzing Colombo Case: Analyzing Competitiveness of Rubber Industry-Competitiveness of Rubber Industry-

ClusterCluster

Government – Policy & Support

Availability of skilled workforce

Good quality infrastructure services/logistics

Good quality telecom services

Easy and guaranteed supply of domestically sourced good quality natural rubber at competitive prices

Good working conditions Θ Lack of education and

training facilities Θ High cost of services (energy

in particular)

Global recognition for manufacture of quality products

Θ Small domestic market Θ Slow responsiveness and

innovativeness to change Θ Lack of demand expansion

capacity for new products Θ Lack of readiness to face

risks. Θ Less emphasis on product

branding and marketing

Presence of reputed foreign firms Proactive Business Associations Θ Low level of knowledge sharing Θ Low level of technology application

Θ Lack of Business development services

Θ Low response time and quality of local support services

Θ Firms inability to exploit value addition potential

High focus to enhance Natural Rubber production (Land extent)

Θ Lack of government support for

industry development (R&D, Cost of Utilities, Long-term plans)

STEP IV.c

(5 Factors and 22 Attributes )

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STEP V. Deficiency Gap Analysis to STEP V. Deficiency Gap Analysis to Understand the Bottlenecks of Understand the Bottlenecks of Competitiveness of Industry-Competitiveness of Industry-

ClustersClusters• Identify deficiencies which hinder competitiveness of Industry-Clusters in the city or urban-region (from Porter’s Diamond Analysis)

• Deficiency gaps are prioritized based on immediate urgency, medium term, and longer-term priority so that these priority actions are reflected in the Cluster Business Plan.

STEP V

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Colombo Case Colombo Case (Deficiency Gaps in (Deficiency Gaps in

Rubber Industry-Cluster)Rubber Industry-Cluster)

0.000.501.001.502.002.503.003.504.004.505.00

FACTOR CONDITIONSLabour

Infrastructure

Endowed Resources

Social Environment

DEMAND CONDITIONS

Markets

New Products Business EnvironmentFIRM STRATEGY,

STRUCTURE AND …

Structure

Collaboration

Technology Orientation

RELATED SUPPORTING INDUSTRIES

Supply Chains

Value Adding

GOVERNMENT

Current Competitive Position Rubber Cluster

Future Desired Competitive Position Rubber Cluster

The following activities arepart of the action plan to reduce deficiency:1. Rubber compounding center2. R&D for new products development3. Water supply and effluent treatment4. Expanded markets and enhancing market penetration5. Improved supply chain management practices6. Vocational training center7. Improved access to finance and logistics8. Joint procurement of raw material

STEP V

How to Enhance How to Enhance Competitiveness of Industry-Competitiveness of Industry-

Clusters?Clusters?

Where to Invest ? Where to Invest ? & &

What to Invest first ?What to Invest first ?

STEP VI

STEP VI. STEP VI. Project Preparation and Feasibility Studies for Supporting Infrastructure

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STEP VI. Concept Proposal for STEP VI. Concept Proposal for Priority Action Areas and Project Priority Action Areas and Project

DesignDesign

• Industry-cluster’s business plan provides a long term vision and strategic action plans

• Industry-cluster group consults with its stakeholders and prioritize project components

• Project feasibility to design a bankable project

STEP VI

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Colombo Case: Colombo Case: Project Concepts for Rubber Industry Project Concepts for Rubber Industry

Cluster DevelopmentCluster Development• Proposal: Rubber Industry Park or cluster

support facilities to operate at peak efficiency levels, offering a unique competitive advantage to industry clusters. Key components of the propose project are,– water supply – common effluent treatment plants – cluster supporting services, such as vocational

training center and raw material warehouses, and – improvement of value chain management,

including logistics

STEP VI

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Observations & Policy Observations & Policy ImplicationsImplicationsa. Disconnection between national economic policy and

urban development policy Urgent need for policy reforms to link economic and urban policies, and support programs to demand-driven approach

b. Significant structural weaknesses in urban economies Need to improve governance, government industry support, logistics of value-chains & vocational training

c. Tools for competitive analysis techniques (location quotient, shift-share analysis, bubble analysis) provide detailed insights to understand the cities economic structure and dynamics Need to improve the benchmarking data, collection, availability.

d. CCED mechanism engages in industry representatives, key public agencies and knowledge industry Motivates and creates action learning as well as collaboration

e. CCED analytical approach proved to be powerful tool to understand complexity Enables informed policy decision; “WHERE TO INVEST” and “WHAT TO INVEST FIRST” for Maximum economic impact with limited resources.

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Thank you

kchoe@adb.org(Kay) KyeongAe CHOE