Researchers Kim and Le-Yin investigated the economic
develop of the province of Qingdao, Northern China, to determine how foreign
direct investment clustering set up by local government helped to create an
electronic industry renaissance (2008). Using the hub-and-spoke model of
geography with the flagship-and-five partner’s model of strategic management
offers an additional theoretical lens to spur economic activity. The key is to encourage the economic hub to
drive and influence the global network versus being perpetually dependent on it.
Direct investment in China has superseded
most countries of the world and has consistently beaten the U.S. since 2002. Chinese
leaders have set up economic zones in urban areas that are the center of
economic activity. As the investments in internal businesses rises so does the
exports of the nation. Electronics is one field in which the Chinese have
exceeded expectations.
There is a dependent and a developmental type
structure. In a dependent type structure, foreign investors seek to limit
information and attempt to seek gain from local resources and labor. In a
developmental structure information is passed so that local firms can develop because
the goal is to enhance local resources and labor. Profits can be realized in
either method through extraction of resources or enhancing of resources for
sustainable profits.
Local producers should be pushing to
influence the global networks by updating technology, communication, and
effectiveness. This helps them avoid a dependent position and helps to drive
the industry with new development and product releases. As the economic hub develops
and begins to lead the market the global network, it will seek to capitalize
off of local innovation to create a win-win situation.
There are primarily three major benefits in developing
economic hubs and zones that arise from reduced costs (Cumber and Mackinnon,
2004):
- Growth of industries that provide input
into the system.
- Development of local skilled labor.
-The creation of infrastructure and dedicated
resources.
As the work processes become more embedded
into new firms and labor an infrastructure is developed that encourages higher
local economic growth. It is the shared aspects of gaining knowledge and
economic advantages that encourages mutual growth. As this synergy rises the
area begins to flower and develop on its own. An economic hub can be defined
as, “socio- territorial entity which is characterized
by the presence of both a community of people and a population of firms’ and he
adds that ‘in the district, unlike in other environments . . . community and
firms tend to merge” (Becattini, 1990, p. 38).
The hub and spoke model helps in mapping and
understanding the structure of a local economic system. The model looks at
regional anchors of business and industry and how suppliers and other related
industries spread out like spokes on a bike (Markusen, 1996). Regional anchors can be seen as the cash cow
type large businesses that appear to influence the economic market of the area.
They can be connected to the natural resources of an area (i.e. mining, fishing,
etc.) or non-resource based industries (i.e. cell phones, technology, etc.).
A similar model also helps to describe the
economic activity of an area. The flagship and five partner model indicates
that a flagship firm (i.e. multi-national corporation) is vertically connected
to and provides leadership to suppliers, customers, competitors, and other
non-business infrastructure (Rugman and D’Cruze, 2000). The flagship is the
dominating multinational firm (or large firm) that influences the development
and direction of other firms in their economic vines.
The researchers (Kim and Le-Yin, 2008)
conducted interviews with companies around Qingdao to understand how these
firms work together for mutual benefit.
They delved into the various types of suppliers and products being sold.
It was important for them to also look at how multinational firms and direct
foreign investment can create higher growth within an area.
They found that larger firms created a
structure by integrating a number of firms and suppliers to work together.
These large firms stepped into fragmented industries and connected them to
produce significant benefits. As firms worked in research & development and
updated their technology the transference of information led to higher levels
of mutual growth. The larger firms were able to draw in more foreign direct
investment into the area. The key is to have firms work together in a dynamic
way creating higher levels of growth, exchange, and economic development.
The report does highlight the ability to use
the hub and spoke model as well as the flagship model to map an economic area. Previous
research has indicated that synergy can be created among the varying firms in
order to develop higher levels of growth. Furthermore, additional studies have indicated
that cognitive models develop within the population based upon culture, skills,
and social interaction that exists between the interlinking of these firms. It
is these new cognitive models formulated among the bounded rationality of firms
as well as the general population that can create perpetual growth upward. This growth and transference of knowledge can
be fostered by flagship businesses that encourage interaction among firms by
ensuring that a percentage of supplier capacity is open to working with other
companies.
Becattini,
G. (1990) The Marshallian industrial districts as a socio-economic notion, in
Pyke F., Becattini, G. and Sengenberger, W. (Eds) Industrial Districts and
Inter-firm Co-operation in Italy, pp. 37–51, International Institute of Labour Studies,
Geneva.
Cumber, A. & Mackinnon, D. (2004)
Introduction: clusters in urban and regional development, Urban Studies 41, 959–969.
Kim,
J. and Le-Yin, Z. (2008). Formation of foreign direct investment clustering-a
new path to local economic development? The case of Qingdao. Regional Studies, 42 (2).
Markusen, A. (1996) Sticky places in slippery
spaces: a typology of industrial districts, Economic Geography 72, 293–313.
Rugam, A. and D’Cruz, J. (2000) Multinationals
as Flagship Firms: Regional Business Networks, Oxford University Press, Oxford.
