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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

ü Inclusive Economic Growth

ü Environmentally Sustainable Growth

ü 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

Urban Sector Economy:Higher 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 Development:Cluster-based City Economic Development

Evaluating Cities CompetitivenessGovernment 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:Built-in Innovation and Replicability

Competitive Industry prioritized

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Industry-Clusters networking and P/P Partnership platform

VI

VII

IV

BP & Action Plans

III

V

Assess Cities Competitiveness

l Profiles of National Economic Strategy

Multi-sector Industry Competitiveness Analysis

Industry 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 cities

Decide the scope of urban areas

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Illustration of CCED ApproachFollowing the 7 Steps of

Analytical Process

Pilot Case of Rubber/Latex Industry Cluster

Colombo, 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 Competitiveness

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

Decision to Select

Colombo

Colombo:• relatively strong human resources, • good infrastructure• but poor responsiveness of local gov’t to business needs

STEP II

Which clusters should be targeted

?

STEP III

STEP 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 1

997

% Change in LQ (1997 to 2006)

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

Colombo Case (Bubble Analysis)STEP III

WHO ARE THE CANDIDATES FOR CLUSTER DEVELOPMENT?

Presence of Willingness

Absence of Willingness

Feasibility & Competitiveness XLow feasibility & no market competitiveness

X X

Commitments to Co-OP & Government Support

Grow

th Potential Exists?

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 Chains & Elements Affecting

Clusters Competitiveness

STEP IV. a, b, & c

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

Value-ChainSTEP IV.c Porter’s Diamond Analysis

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1998 2006

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

1997

Does a cluster boundary matter ?

STEP IV.a

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

STEP IV.b

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STEP III.c Porter’s Diamond Analysis of 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’sDiamondModel

STEP IV.c

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Colombo Case: Analyzing Competitiveness of Rubber Industry-Cluster

Government – Policy & Support

Å Availability of skilled workforce

Å Good quality infrastructure services/logistics

Å Good quality telecom services

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

Å Good working conditions Θ Lack of education and

training facilities Θ High cost of services (energy

in particular)

Å 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

Å Presence of reputed foreign firms Å 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

Å 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 Understand the Bottlenecks of

Competitiveness of Industry-Clusters• 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 (Deficiency Gaps in

Rubber Industry-Cluster)

0.000.501.001.502.002.503.003.504.004.505.00

FACTORCONDITIONSLabour

Infrastructure

EndowedResources

SocialEnvironment

DEMANDCONDITIONS

Markets

NewProductsBusinessEnvironmentFIRMSTRATEGY,

STRUCTUREAND…

Structure

Collaboration

TechnologyOrientation

RELATEDSUPPORTINGINDUSTRIES

SupplyChains

ValueAdding

GOVERNMENT

CurrentCompetitivePositionRubberCluster

FutureDesiredCompetitivePositionRubberCluster

Thefollowingactivitiesarepartoftheactionplantoreducedeficiency:1.Rubbercompoundingcenter2.R&Dfornewproductsdevelopment3.Watersupplyandeffluenttreatment4.Expandedmarketsandenhancingmarketpenetration

5.Improvedsupplychainmanagementpractices

6.Vocationaltrainingcenter7.Improvedaccesstofinanceand

logistics8.Jointprocurementofrawmaterial

STEP V

How to Enhance Competitiveness of Industry-Clusters?

Where to Invest ? &

What to Invest first ?

STEP VI

STEP VI. Project Preparation and Feasibility Studies for Supporting

Infrastructure

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

• 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: Project Concepts for Rubber Industry Cluster

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 Implicationsa. Disconnection between national economic policy and urban

development policy è 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 èNeed 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 è Need to improve the benchmarking data, collection, availability.

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

e. CCED analytical approach proved to be powerful tool to understand complexity è 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