Clusters

Strategy for Cluster-based Industrial Development in Developing Countries
Keijiro Otsuka * and Tetsushi Sonobe *

In this short article we formulate an endogenous model of cluster-based industrial development based on case studies in Japan, Taiwan, and China. In this model, the initiation phase is followed by a quantity expansion phase through imitation and subsequently by a qualityimprovement phase through innovation. We argue that such a process of industrial development is supported by the development of market transactions among assemblers, partssuppliers, and merchants, as well as the stimulation of innovation made possible by the benefits of industrial clusters arising from a large number of enterprises and a variety of human resources being concentrated in a small geographicalarea. Based on this understanding, we argue that if we provide training programs in management and marketing for enterprise managers in stagnant industrial clusters, which are often found in developing countries, such clusters may be able to grow sharply; these training programs should stimulate innovation, which should encourage growth for the clusters.

1. Introduction
In order to reducepoverty and to achieve equitable and sustainable development, we have to develop industries that provide increased employment opportunities for the poor. Therefore, the development of labor-intensive industries ought to be a central theme of development economics and a central focus of development policies. Yet, there has been a sheer lack of empirical studies inquiring into the process of industrialdevelopment in developing economies; this lack has led to the absence of strategic industrial development policies in developing countries. Thus, we do not know the answers to even simple and fundamental questions on industrial development, such as what types of entrepreneurs initiate new industries, what institutions support the subsequent development of such industries, and under what conditionsnew major innovations

* A Professor of National Graduate Institute for Policy Studies and a Professorial Fellow at the Foundation for Advanced Studies on International Development.

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Keijiro Otsuka and Tetsushi Sonobe

take place. Without answering these questions, it is difficult to formulate appropriate policies to nurture new industries or to accelerate the development of existingindustries. This study presents an attempt to uncover the common processes of successful industrial development based on the case studies of selected industrial clusters in China, Taiwan, and Japan, as well as other case studies in Vietnam, Bangladesh, Kenya, Ethiopia, and Ghana. We focus on industrial clusters not only because many of them are found in developing countries, but also becauseindustrial clusters have clear advantages, particularly in developing countries where markets are less developed. The organization of this article is as follows. The next section synthesizes our case studies conducted in Japan, Taiwan, and China. Section III goes on to identify the causes of the success in East Asia. In Section IV, we reexamine the conventional understanding of the advantages ofindustrial clusters in light of our case studies. Finally, Section V concludes the paper by drawing implications for strategy to develop industries.

2. A Synthesis of East Asian Studies
A review of the literature on industrialization in Japan, Taiwan, and China as well as an examination conducted by Sonobe and Otsuka (2006a, 2006b) of township-level industrial data over time in the three East Asiancountries revealed that industrial clusters have made significant contributions to industrial development in these countries. We visited a large number of manufacturing enterprises in the major industrial clusters to identify the main features of the development process through open-ended interviews with enterprise managers, engineers, and public-sector administrators followed by formal...