Springer Geography Shengjun Zhu John Pickles Canfei He Geographical Dynamics and Firm Spatial Strategy in China www.ebook3000.com Springer Geography The Springer Geography series seeks to publish a broad portfolio of scientific books, aiming at researchers, students, and everyone interested in geographical research The series includes peer-reviewed monographs, edited volumes, textbooks, and conference proceedings It covers the entire research area of geography including, but not limited to, Economic Geography, Physical Geography, Quantitative Geography, and Regional/Urban Planning More information about this series at http://www.springer.com/series/10180 www.ebook3000.com Shengjun Zhu John Pickles Canfei He • Geographical Dynamics and Firm Spatial Strategy in China 123 Shengjun Zhu College of Urban and Environmental Sciences Peking University Beijing China Canfei He College of Urban and Environmental Sciences Peking University Beijing China John Pickles Department of Geography University of North Carolina Chapel Hill, NC USA ISSN 2194-315X Springer Geography ISBN 978-3-662-53599-8 DOI 10.1007/978-3-662-53601-8 ISSN 2194-3168 (electronic) ISBN 978-3-662-53601-8 (eBook) Library of Congress Control Number: 2016961674 © Springer-Verlag GmbH Germany 2017 This work is subject to copyright All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed The use of general descriptive names, registered names, trademarks, service marks, etc in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations Printed on acid-free paper This Springer imprint is published by Springer Nature The registered company is Springer-Verlag GmbH Germany The registered company address is: Heidelberger Platz 3, 14197 Berlin, Germany www.ebook3000.com Acknowledgements We would like to thank Jennifer Bair, Robert Begg, Adrian Smith, Gary Gereffi, Meenu Tewari, Elizabeth Havice, Scott Kirsch, and Tu Lan for their careful review and recommendations on some chapters Colleagues in China assisted in fieldwork and interviews in 2011, 2012, 2013, and 2014 We would like to thank Hua Shan (the office director from the China Textile Planning Institute of Construction), Jian Zheng (project manager from the China National Textile and Apparel Council), Dr Jici Wang from Peking University, Dr Ningchuan Jiang from Chengdu Textile College, Allan Wong of Li and Fung, Stephen Frost and Jacky Wu of CSR Asia, Gu Qiang of the NDRC, Xubiao Zhang of ILO China, Benjamin Wong of Euro RSCG and the China Labour Monitor This research was supported in part by the National Science Foundation Grant Award No BCS 0551085, the Carolina Asia Center, Grier Woods China Fellowship, and by the Capturing the Gains Research Network on Economic and Social Upgrading in Global Production Networks (University of Manchester and UK DFID) We also thank the support of the National Natural Science Foundation of China (No 41271130) Finally, Dr Canfei He acknowledges the financial support of the National Natural Science Foundation of China for Distinguished Young Scholars (No 41425001) The authors are responsible for all errors and interpretations v Contents Introduction 1.1 Background 1.2 The Case of Ningbo 1.3 Methodology 1.3.1 Data Sources 1.3.2 Fieldwork 1.4 Synopsis of This Book References Part I 1 8 10 14 19 19 20 23 26 29 34 41 45 46 Government Bring In, Go Up, Go West, Go Out: Upgrading, Regionalization, and Delocalization in China’s Apparel Production Networks 2.1 Introduction 2.2 Bring in: Export-Led Assembly and the Rise of China in Global Apparel Value Chains 2.3 The Limits of Export-Led, Low-Wage Industrialization 2.4 Upgrading, Regionalization, and Delocalization in the Chinese Apparel Industry 2.4.1 Go Up: Policies Initiatives on Industrial Upgrading 2.4.2 Go West: Regionalization Policies and Inter-regional Competition 2.4.3 Go Out: From Bringing-into Outsourcing 2.5 Conclusion References vii www.ebook3000.com viii Part II Contents Firm Geographical Dynamics and Industrial Relocation: Spatial Strategies of Apparel Firms in Ningbo, China 3.1 Introduction 3.2 Conceptualization of Spatial Dynamics: Towards an Analytical Framework 3.2.1 Local/Localization 3.2.2 Global/Globalization 3.2.3 Regional/Regionalization 3.2.4 Application to Apparel Industry in China 3.3 Geographical Dynamics and Firm Relocation 3.3.1 Case A: Relocating as a Lead Firm 3.3.2 Case B: Going Out and Racing to the Bottom 3.3.3 Case C: Staying and Going Nowhere 3.3.4 Case D: Going Along the Coastline 3.3.5 Case E: Going in but not Far Away 3.4 Relocation in the Global, Regional, and Local Context 3.5 Conclusion and Discussion References 51 51 Global, Regional, and Local: New Firm Formation and Spatial Restructuring in China’s Apparel Industry 4.1 Introduction 4.2 Conceptual Framework and Research Hypotheses 4.2.1 Embedding in a Localized Cluster 4.2.2 Racing to the Bottom in a Globalized Value Chain 4.2.3 Relocating in a Regionalized Way 4.2.4 Firm Capability and Different Location Choices 4.3 Industrial Relocation and Transforming Pattern of New Firm Formation 4.4 Research Design 4.4.1 Variables 4.4.2 Model Specifications 4.5 Statistical Results 4.5.1 Transforming New Firm Formation Pattern 4.5.2 Temporal Variation 4.5.3 Firm Capability and Different Location Choices 4.6 Conclusion and Discussion References 52 52 54 55 56 58 59 60 61 62 63 64 68 70 73 73 74 74 75 76 77 79 80 80 81 83 84 86 89 91 94 Contents ix Turkishization of a Chinese Apparel Firm: Fast Fashion, Regionalization, and the Shift from Global Supplier to New End Markets 5.1 Introduction: Delocalization and Persistence in the Apparel Industry 5.2 Globalization and Regionalization: Upgrading Prospect for Geographically ‘Remote’ Firms 5.3 The Transformation of Seduno 5.3.1 Pre-Turkishization Development of Seduno 5.3.2 Seduno’s Turkishization Strategies 5.4 Findings of the Case Study 5.5 Conclusion References Part III 97 97 99 102 103 104 109 114 116 121 121 123 Spatial Articulation Institutional Embeddedness and Regional Adaptability and Rigidity in a Chinese Apparel Cluster 6.1 Introduction 6.2 Lock-In and Lockout 6.2.1 Two Trajectories of Path Dependence, Openness of Cluster, and Lock-In 6.2.2 Agents, Multiscalar Coevolution, and Lockout 6.3 Pipelines to External Knowledge and Negative Lock-In 6.4 Harmonies and Disharmonies in the Processes of Coevolution 6.4.1 Harmonies and Disharmonies in the Process of Upgrading and Relocation 6.4.2 Path-Dependent and Path-Breaking 6.5 Conclusion and Discussion References 123 125 127 130 131 134 137 140 Global and Local Governance, and Industrial and Geographical Dynamics: A Tale of Two Clusters 7.1 Introduction 7.2 Global and Local Governance 7.3 Research Design and Study Areas 7.4 Two Types of Local Governance 7.5 Governance and Industrial and Geographical Dynamics 7.5.1 Governance and Industrial Upgrading 7.5.2 Governance and Restructuring of Productive Spaces 7.5.3 Comparative Discussion 7.6 Discussion and Conclusion References 143 143 145 147 150 153 153 157 161 163 164 www.ebook3000.com x Going Green or Going Away: Environmental Regulation, Economic Geography and Firms’ Strategies in China’s Pollution-Intensive Industries 8.1 Introduction 8.2 A Heuristic Analytical Framework 8.2.1 Pollution Haven Hypothesis, Porter Hypothesis, and Firm Characteristics 8.2.2 Regional Hub Effect and Political Environment 8.3 Research Design and Site Characteristics 8.4 Different Firms, Differ Strategies 8.4.1 Firm A: Going Green in Situ 8.4.2 Firm B: Relocating to Industrial Parks 8.4.3 Firm C: Relocating to ‘Pollution Havens’ 8.4.4 Firm D: Outsourcing to ‘Pollution Havens’ 8.4.5 Firm E: Relying on Large Firms 8.4.6 Firm F: Waiting and Dying 8.5 Going Green or Going Away 8.6 Conclusion References Summary and Conclusion 9.1 Changing Industrial Policies from Various Levels of Governments 9.2 Firm Strategies to Increasing Competitive Pressures 9.2.1 Delocalization/Relocation 9.2.2 Upgrading 9.3 Spatial Articulation Between Changing Industrial Policies and Firm Strategies Reference Contents 169 169 174 174 175 178 179 180 182 183 184 184 185 186 192 194 199 200 200 200 202 203 206 Inter-regional relocation Inter-regional relocation** Intra-regional relocation* Low High Firm E High Low Firm D Low High Firm C Small Weak Big Locally based Firm B Large Strong Small Nationally or regionally based Firm A No Intra-regional relocation relocation* *intra-regional relocation to industrial parks in Shangyu **inter-regional outsourcing or subcontracting Source Compiled by authors Firm size Financial and technological capability Compliance costs per unit Geographical distribution of customers and suppliers Reliance on local clusters Supports from local governments in coastal regions Supports from local governments in inland China Relocation strategies Table 8.3 Comparison of pollution-intensive firms in Shangyu No relocation Firm F 8.5 Going Green or Going Away 191 www.ebook3000.com 192 Going Green or Going Away: Environmental Regulation, Economic … social network and higher capability to adjust to unfamiliar environment, than small firms They are also welcomed by local governments in inland China Consequently, firms in Region II tend to relocate their business activities (see firm C), or at least outsource part of their pollution-intensive production (see firm D), to regions where environmental regulations are relatively lax Medium-sized firms therefore appear to behave in ways that are suggested by the PHH, making Region II a ‘Pollution Haven Region.’ At the interface between Regions II and III, in some instances, firms may be relocating or outsourcing to new pollution havens, and simultaneously investing in innovation and upgrading as well (see firm C), resulting in a mixed situation where ‘Porter Region’ and ‘Pollution Haven Region’ overlap Our two-dimensional diagram therefore reveals the mechanism underlying the divergences of Shangyu’s pollution-intensive firms’ strategies (Table 8.3) 8.6 Conclusion This article formulates a heuristic analytical framework that synthesizes environmental regulation, regional hub effect, political environment, firm characteristics, and firm restructuring in an interactional way The usefulness of this framework is illustrated in our case study and subsequent analysis of how firm restructuring has been coshaped by various factors in ways that are much more nuanced than reflected by either PHH or PH alone In drawing from a single case study, we realize the potential limitations of our analysis However, the case of Shangyu provides a number of insights into the interpretation of firm restructuring, and our findings echo with other recent studies (Leiter et al 2011; Wang and Lin 2013) The high-growth, resource- and pollution-intensive industrialization model that China pursued has caused severe environmental pollution and deterioration, particularly in a number of clusters in the coastal regions of east and southeast China where the reform and opening-up policies first started The lack of uptake of environmental norms/values, as well as implementation deficit of environmental regulations and policies, and the lack of institutional capacity have been compounding factors Since the early 2000s, coastal factories have increasingly had to confront difficulties generated not only by the increasing environmental costs of this regionally concentrated pollution-intensive, low efficient growth model, but also by the growing social pressures against pollution As environmental standards were raised by China’s central government, the enforcement of environmental regulation has been compromised more in inland China than in coastal regions, due to the ‘decentralized governance structure’ and regional disparity in terms of both economic development and environmental pollution This chapter therefore argues that rising environmental regulations, especially in China’s coastal regions, have been particularly important in forcing China’s pollution-intensive enterprises to restructure 8.6 Conclusion 193 their production, through innovation, upgrading, geographical relocation, outsourcing, and plant closure Presently, while efforts to explain firm restructuring and environmental regulation have attracted increasing scholarly attention, most of the attention is directed toward analyzing firm restructuring and environmental regulation based either on PHH or on PH alone and extant studies have fallen short in disclosing the full picture where a variety of interrelated and interacting factors all have impacts over the articulation between environmental regulation and firm restructuring We therefore argue that fixation on either PHH or PH blinds us to the complex mechanism underlying firm restructuring First, firms are embedded in their original locations, to different extents, and benefit from local vertical and horizontal linkages they have cultivated over time in local clusters Second, incorporating state institutional actions is of central importance particularly in the context of China where the state remains a heavy-handed actor in regulating industrial activities Furthermore, not only has China’s central government been heavily involved in local economic development, the ‘decentralized governance structure’ has also empowered local governments to participate directly in the development process as planners, developers, and policy-makers, far beyond providing just public goods In addition, this chapter contributes to recent studies by developing a heuristic analytical framework that aims to be sensitive to the impacts of environmental regulation, political environment and regional hub effect over firm restructuring, but which does so by stressing these impacts are simultaneously inflected by firm attributes Small firms with limited financial and technological capability usually face resource constraints in the process of innovation; therefore, as environmental regulation increases (e.g., in Shangyu), they tend to relocate or outsource their pollution-intensive production, to regions where environmental standards are relatively low (e.g., inland China) However, their relocation capability has been not only weakened by their heavy reliance on regional environment but also inhibited by insufficient government support they are able to obtain In contrast, large, key enterprises that have a comprehensive resource base and adequate technological knowledge to bring about innovation have been encouraged and forced by local governments in coastal regions to switch to cleaner technology and to upgrade in situ Finally, medium-sized firms in between are most likely to act in ways suggested by the PHH In total, it suggests a roughly invert ‘U’-shaped relationship between firm relocation tendency and firm size (or capability), resulting from complex interactions between political environment, regional hub effect, and environmental regulation This chapter has two limitations First, it only examines pollution-intensive industries; therefore, the generality of the insights gained based on our analytical framework needs to be discussed Second, it is impossible to incorporate all dimensions that may have impacts over firm restructuring into our heuristic analytical framework One important dimension omitted in this research is the price of input factors based on the ‘factor endowment hypothesis,’ which emphasizes that abundance in resources improves the production possibilities of firms (Copeland and Taylor 2004) Firms tend to locate in or relocate to regions with abundant www.ebook3000.com 194 Going Green or Going Away: Environmental Regulation, Economic … resources that they need, or regions where specific resources are comparatively cheap These two issues can be partly solved through modifying our analytical framework and thinking environmental regulation as one specific type of input factor Increase in environmental standards leading to changes in compliance costs could therefore treated as a certain type of factor endowment change The reason why we only focus on environmental regulation and pay less attention to other factors (e.g., labor) is that the latter has relatively negligible impacts, compared with environmental costs, over firms’ strategies in pollution-intensive industries This heuristic framework can thus be flexible, if we change the dimension of ‘environmental regulation’ to ‘input factors’ in general and, in some stances, to ‘labor cost’ if we intend to analyze firms’ strategies in the labor-intensive industries In this sense, this heuristic framework is not designed to predetermine specific ways to examine firm restructuring, but to adapt to both different industries and different contexts and to be flexible and reflexive to its analytical limits References Altman, M 2001 When Green Isn’t Mean: Economic Theory and the Heuristics of the Impact of Environmental Regulations on Competitiveness and Opportunity Cost Ecological Economics 36 (1): 31–44 Amin, A., and N Thrift (eds.) 1994 Globalization, Institutions, and Regional Development in Europe Oxford: Oxford University Press Antonelli, C 2003 The Economics of Innovation, New Technologies, and Structural Change London: Routledge Bair, J., and E Dussel Peters 2006 Global Commodity Chains and Endogenous Growth: Export Dynamism and Development in Mexico and Honduras World Development 34 (2): 203–221 Barnes, T., and M Gertler 1999 The New Industrial Geography: Regions Regulation and Institutions, London: Routledge Ben Kheder, S., and N Zugravu 2012 Environmental Regulation and French Firms Location Abroad: An Economic Geography Model in an International Comparative Study Ecological Economics 77: 48–61 Chan, C.K., and X Yao 2008 Air Pollution in Mega Cities in China Atmospheric Environment 42 (1): 1–42 Copeland, B.R., and M.S Taylor 2004 Trade, Growth, and the Environment Journal of Economic Literature 42 (1): 7–71 Costantini, V., and F Crespi 2008 Environmental Regulation and the Export Dynamics of Energy Technologies Ecological Economics 66 (2–3): 447–460 Dam, L., and B Scholtens 2008 Environmental Regulation and Mnes Location: Does Csr Matter? Ecological Economics 67 (1): 55–65 Dasgupta, S., D Wheeler, and M Huq 1997 Bending the Rules: Discretionary Pollution Control in China, vol 1761 New York: World Bank Dean, J.M., M.E Lovely, and H Wang 2009 Are Foreign Investors Attracted to Weak Environmental Regulations? Evaluating the Evidence from China Journal of Development Economics 90 (1): 1–13 Dussel Peters, E 2008 Gccs and Development: A Conceptual and Empirical Review Competition and Change 12 (1): 11–27 References 195 Francesch-Huidobro, M., C.W.H Lo, and S.Y Tang 2012 The Local Environmental Regulatory Regime in China: Changes in Pro-Environment Orientation, Institutional Capacity, and External Political Support in Guangzhou Environment and Planning A 44 (10): 2493–2511 Granovetter, M 1985 Economic Action and Social Structure: The Problem of Embeddedness American Journal of Sociology 91 (3): 481–510 Hamamoto, M 2006 Environmental Regulation and the Productivity of Japanese Manufacturing Industries Resource and Energy Economics 28 (4): 299–312 He, C., and J Wang 2012 Regional and Sectoral Differences in the Spatial Restructuring of Chinese Manufacturing Industries During the Post-Wto Period GeoJournal 77 (3): 361–381 He, C., Y.H.D Wei, and X Xie 2008 Globalization Institutional Change, and Industrial Location: Economic Transition and Industrial Concentration in China, Regional Studies 42 (7): 923–945 Hicks, J.R 1932 The Theory of Wages London: Macmillan Hoover, E.M., and R Vernon 1959 Anatomy of a Metropolis: The Changing Distribution of People and Jobs within New York Metropolitan Region Cambridge, Massachusetts: Harvard University Press Hu, A.G., and G.H Jefferson 2008 Science and Technology in China In China’s Great Economic Transformation, ed L Brandt, and T Rawski New York: Cambridge University Press Jahiel, A.R 1997 The Contradictory Impact of Reform on Environmental Protection in China The China Quarterly 149: 81–103 Jahiel, A.R 1998 The Organization of Environmental Protection in China The China Quarterly 156: 757–787 Jeppesen, T., J.A List, and H Folmer 2002 Environmental Regulations and New Plant Location Decisions: Evidence from a Meta-Analysis Journal of Regional Science 42 (1): 19–49 Jo, Y and C.-Y Lee 2012 Technological Capability, Agglomeration Economies and Firm Location Choice Regional Studies, 1–16 Keller, W 2004 Internnational Technology Diffusion Journal of Economic Literature 42 (3): 752–782 Kumar, S and S Managi 2009 Win–Win Opportunities and Environmental Regulation: Test of the Porter Hypothesis In The Economics of Sustainable Development: The Case of India, ed S Managi and S Kumar, vol 32, 157–66 New York: Springer US Leiter, A.M., A Parolini, and H Winner 2011 Environmental Regulation and Investment: Evidence from European Industry Data Ecological Economics 70 (4): 759–770 Li & Fung Research Centre 2008 China’s Industry Relocation and Upgrading Trends: Implications for Sourcing Business, vol 56 Hong Kong: Li & Fung Research Centre Lieberthal, K., and D Lampton 1992 Bureaucracy, Politics, and Decision Making in Post-Mao China Berkeley: University of California Press Lin, G.C.S., C.C Wang, Y Zhou, Y Sun, and Y.H.D Wei 2011 Placing Technological Innovation in Globalising China: Production Linkage, Knowledge Exchange and Innovative Performance of the Ict Industry in a Developing Economy Urban Studies 48 (14): 2999–3018 Lo, C.W.-H., and S.-Y Tang 2006 Institutional Reform, Economic Changes, and Local Environmental Management in China: The Case of Guangdong Province Environmental Politics 15 (2): 190–210 Marshall, A (1920 [1890]) Principles of Economics, 8th Edition London: Macmillan Mulatu, A., R Gerlagh, D Rigby, and A Wossink 2010 Environmental Regulation and Industry Location in Europe Environmental and Resource Economics 45 (4): 459–479 Murty, M.N., and S Kumar 2003 Win-Win Opportunities and Environmental Regulation: Testing of Porter Hypothesis for Indian Manufacturing Industries Journal of Environmental Management 67 (2): 139–144 Myles Shaver, J., and F Flyer 2000 Agglomeration Economies, Firm Heterogeneity, and Foreign Direct Investment in the United States Strategic Management Journal 21 (12): 1175–1193 Piore, M., and C Sabel 1984 The Second Industrial Divide New York: Basic Books Porter, M.E 1990 The Competitive Advantage of Nations New York: Free Press www.ebook3000.com 196 Going Green or Going Away: Environmental Regulation, Economic … Porter, M.E., and C van der Linde 1995 Toward a New Conception of the Environment-Competitiveness Relationship Journal of Economic Perspectives (4): 97–118 Saxenian, A 1994 Regional Advantage: Culture and Competition in Silicon Valley and Route 128 Cambridge: Harvard University Press Schumpeter, J.A 1947 The Creative Response in Economic History The Journal of Economic History (02): 149–159 Scott, A 1988 Metropolis: From the Division of Labor to Urban Form Berkeley: University of California Press Shangyu Government 2013 Economic Development in Shangyu Shangyu: Shangyu Government Spatareanu, M 2007 Searching for Pollution Havens: The Impact of Environmental Regulations on Foreign Direct Investment The Journal of Environment and Development 16 (2): 161–182 Storper, M 1997 The Regional World: Territorial Development in a Global Economy New York: Guilford Press Sutherland, D 2003 China’s Large Enterprises and the Challenge of Late Industrialism London: Routledge Curzon Tang, S.-Y., C.W.-H Lo, and G.E Fryxell 2010 Governance Reform External Support, and Environmental Regulation Enforcement in Rural China: The Case of Guangdong Province, Journal of Environmental Management 91 (10): 2008–2018 Taylor, M.S 2004 Unbundling the Pollution Haven Hypothesis, Advances in Economic Analysis and Policy 4(2): (Article 8) Teece, D.J 2007 Explicating Dynamic Capabilities: The Nature and Microfoundations of (Sustainable) Enterprise Performance Strategic Management Journal 28 (13): 1319–1350 Testa, F., F Iraldo, and M Frey 2011 The Effect of Environmental Regulation on Firms’ Competitive Performance: The Case of the Building & Construction Sector in Some Eu Regions Journal of Environmental Management 92 (9): 2136–2144 Tole, L and G Koop 2010 Do Environmental Regulations Affect the Location Decisions of Multinational Gold Mining Firms? Journal of Economic Geography Van Rooij, B., and C.W.-H Lo 2010 Fragile Convergence: Understanding Variation in the Enforcement of China’s Industrial Pollution Law Law and Policy 32 (1): 14–37 Wang, J 2010 Beyond Industrial Clusters: Theorectical Research on China’s Industrial Clusters Beijing: Science Press Wang, C.C., and G.C.S Lin 2013 Dynamics of Innovation in a Globalizing China: Regional Environment, Inter-Firm Relations and Firm Attributes Journal of Economic Geography 13 (3): 397–418 Wang, H., and D Wheeler 1996 Pricing Industrial Pollution in China: An Econometric Analysis of the Levy System, vol 1644 New York: World Bank Wang, H., and D Wheeler 2000 Endogenous Enforcement and Effectiveness of China’s Pollution Levy System, vol 2336 New York: World Bank Wang, H., and D Wheeler 2005 Financial Incentives and Endogenous Enforcement in China’s Pollution Levy System Journal of Environmental Economics and Management 49 (1): 174– 196 Wang, C., G.C.S Lin, and G Li 2010 Industrial Clustering and Technological Innovation in China: New Evidence from the Ict Industry in Shenzhen Environment and Planning A 42 (8): 1987–2010 Wei, Y.H.D 2000 Regional Development in China: States, Globalization, and Inequality London: Routledge Wei, Y.H.D 2001 Decentralization, Marketization, and Globalization: The Triple Processes Underlying Regional Development in China Asian Geographer 20 (1–2): 7–23 Wei, Y.H.D., W Li, and C Wang 2007 Restructuring Industrial Districts Scaling up Regional Development: A Study of the Wenzhou Model, China, Economic Geography 83 (4): 421–444 Wen, M 2004 Relocation and Agglomeration of Chinese Industry Journal of Development Economics 73 (1): 329–347 References 197 Wheeler, D 1999 Racing to the Bottom? Foreign Investment and Air Pollution in Developing Countries, vol 2524 New York: World Bank Yang, C 2012 Restructuring the Export-Oriented Industrialization in the Pearl River Delta, China: Institutional Evolution and Emerging Tension Applied Geography 32 (1): 143–157 Yuan, Z 2010 Industrial Clusters in Shangyu District Economy 8: 38–39 Zhan, X., C.W.-H Lo and S.-Y Tang 2013 Contextual Changes and Environmental Policy Implementation: A Longitudinal Study of Street-Level Bureaucrats in Guangzhou, China, Journal of Public Administration Research and Theory Zhang, J., and X Fu 2008 Fdi and Environmental Regulations in China Journal of the Asia Pacific Economy 13 (3): 332–353 Zhou, N., M.D Levine, and L Price 2010 Overview of Current Energy-Efficiency Policies in China Energy Policy 38 (11): 6439–6452 Zhu, S., and J Pickles 2014 Bring in Go up, Go West, Go Out: Upgrading, Regionalisation and Delocalisation in China’s Apparel Production Networks, Journal of Contemporary Asia 44 (1): 36–63 www.ebook3000.com Chapter Summary and Conclusion Based on recent insights in economic geography and economic sociology on industrial relocation/delocalization, upgrading, governance, global value chains and global production networks, this book strives to understand the articulation between changing industrial policies and corporate strategies in China’s apparel industry Specifically, the central thesis of the research demonstrates the ways in which, as competitive pressures increase, new government policies and emerging firm strategies are restructuring the geography and organization of the Chinese apparel industry It is divided into three sections: (1) changing industrial policies from various levels of governments, (2) firm strategies to increasing competitive pressures, and (3) spatial articulation between changing industrial policies and firm strategies China’s emergence as a key exporter to the world has relied on low-wage and unskilled or semiskilled labor The apparel industry exemplifies this export-oriented development model Production and employment have become heavily concentrated in the coastal regions of East and Southeast China With growth in other sectors, prices, land costs, wages, and competitive pressures have all risen As production costs and competitive pressures both rise, the flexible business environment that export-led production used to embed in has undergone dramatic restructuring and this has further pushed forward new rounds of spatial restructuring, upgrading and relocation, especially in China’s highly export-oriented apparel industry The ‘race to the bottom’ that typified the ‘China price’ and the rapid rise of China as a global supplier of clothing over the past decade is now changing in ways that are having profound effects on the industrial organization and spatial structure of production and employment, and will change the ways in which we understand China’s role in global and regional export markets in the coming years This book focuses on the interaction between the different and related roles of governments and firms and their complementary and/or conflicting effects in restructuring the geography and organization of the Chinese apparel industry In doing so, it seeks to demonstrate that the model of inward investment, global sourcing, and export orientation is already undergoing fundamental restructuring, © Springer-Verlag GmbH Germany 2017 S Zhu et al., Geographical Dynamics and Firm Spatial Strategy in China, Springer Geography, DOI 10.1007/978-3-662-53601-8_9 199 200 Summary and Conclusion producing new geographies of production and employment, with the consequent need to re-assess the policy implications of China in the global production networks 9.1 Changing Industrial Policies from Various Levels of Governments China’s central government has been extremely pro-active in responding to these pressures and has approved a series of policy initiatives to encourage and support enterprises to implement industrial upgrading and relocation in three ways: GO UP (industrial upgrading), GO WEST (relocation to inland China) and GO OUT (relocation overseas) The central government has designated funds to support relocation, improve infrastructure, simplify relocation approval procedures, provide information about foreign apparel markets, increase investments and support for technological transformation, increase financial support and provide subsidies and support research on apparel-related technological innovations Local governments not always share the concerns that motivate central government policies and as a result, they have, at times, responded differently In recognizing that aggressive relocation to other provinces could harm the local economy and affect employment, local governments in coastal provinces creatively adapt relocation incentives to impede interprovincial relocation in favor of relocation within a province or upgrading locally By contrast, Western regions increasingly offer competitive advantages on wages, infrastructural costs and logistical support and their governments actively recruit enterprises away from established production centers to often well-provisioned green-field industrial parks by offering incentives and supports, such as tax breaks and subsidies The result is the emergence of a much more spatially extended and functionally articulated series of regional production networks Whether these regional production networks—with their higher-value cores, regionally extended assembly plants, and overseas outsourcing of low-value added contracts—will resolve the challenges of China’s dominant role in GVCs remains an open question For the moment, the rapid expansion of domestic consumption acts as a stimulus and subsidy while global markets remain turbulent and price sensitive 9.2 9.2.1 Firm Strategies to Increasing Competitive Pressures Delocalization/Relocation At the present time, while efforts to explain new firm formation and industrial relocation have attracted increasing scholarly attention, a great deal of attention is www.ebook3000.com 9.2 Firm Strategies to Increasing Competitive Pressures 201 directed toward analyzing industrial relocation and new firm formation in either global, regional or local context and most extant studies have fallen short in disclosing the full picture where all three aspects (global, regional and local) have profound impacts over the processes of industrial relocation and new firm formation in interactional and collective ways This book hence formulates a tri-polar analytical framework that combines all three aspects, and further demonstrates its usefulness by using it to interpret the geographical dynamics and industrial relocation in China’s apparel industry First, firms are deeply embedded in their original locations and keep benefiting from local vertical and horizontal linkages they have cultivated over time in cluster Second, the global factors emphasize cross-border linkages between global buyers from the North and local suppliers from Ningbo, and have been acting as a centrifugal force while driving firms to delocalize and relocate to lower-cost locations Third, regionalization draws attention to the assemblage of a range of forces including geographical proximity, delivery time, supply chain management as well as labor costs, all impacting on the geographies of sourcing decisions and production networks Combining these important pillars, our tri-polar framework interprets industrial relocation through systematic interrelationships and ongoing interaction between globalization, regionalization and localization In addition, the extent to which firm relocation processes are affected by globalization, regionalization and localization is determined by firm’s characteristic For instance, firm’s embeddedness into local cluster, its horizontal and vertical linkages with other firms colocating in the same cluster, and reliance on local supporting facilities largely explains its degree of localization and capability to resist relocation Furthermore, firm’s core competencies, main products, and business mode disclose its position in GVC and extent to which global buyers are able to affect its sourcing strategy and relocation processes These characteristics also decide firm’s need to handle quick response, short lead time, quick replenishment and therefore its tendency to embrace geographical proximity and regional production network Our argument is, therefore, not only simply about industrial relocation in the global, regional and local context where advantages of some untraditional factors can outweigh profit generated by lower labor cost, but about also the diversity of trajectories of relocation, some of which may not be reducible to a singular logic The statistical results also confirm that, as labor cost surges and competitive pressures intensifies in coastal region, employment and production of the apparel industry start to diffuse from overconcentrated coastal region toward central region which is moderately distant from China’s coastline While the vast majority of low-capability apparel firms follow this trend, their high-capability counterparts which manufacture high-end and time-sensitive items are resistant to the intensified competitive pressures in general and rising labor cost in particular The latter’s persistent preference of coastal region over central region is due in large part to its strong dependence on high-quality labor, the Jacobsian externalities, as well as geographical proximity to oversea end markets, all of which can only be realized by locating in coastal region 202 9.2.2 Summary and Conclusion Upgrading Based on recent debates on regional sourcing strategies, regionalized production networks, and geographical proximity, we want to caution against fixating on a dichotomy between low-cost, large-volume, non-replenishment-intensive, and non-fashionable production for geographical remote suppliers and high-quality, sometimes small-batch, replenishment-intensive, fashionable, responsive, and flexible production for geographical proximate suppliers By considering the role of interfirm learning in buyer–supplier relations, the role of innovation in management, and the emergence of new end markets, new configurations of buyer– supplier–market relations are emerging In the process, fast fashion suppliers in China have carved out high-quality, high-value niches in EU markets, while increasingly capitalizing on these skills to position themselves in the growing domestic markets in China We pay attention to the fluidity, complexity, variety, contingency, and dynamism of the idea of geographical proximity, by documenting the ways in which Seduno, as a low-cost supplier geographically remote to core markets in the North, has been transcending the confinement of geography, through a diversified and complicated process of Turkishization When low-cost apparel suppliers in partially industrialized countries, which are geographically remote to core markets in the EU or USA, start to feel the pressure derived from the rising labor cost and labor shortages, they should recognize and seize the potential opportunities for upgrading coexisting with the crisis At this conjuncture, they often face a rising domestic market and an ever-growing middle class due largely to the labor cost increase, and should foresee the possibility that global fast fashion retailers may enter into their domestic market in the near future, and they are also able to tap into it by starting their own OBM production This conjuncture is likely to shift their remoteness disadvantage into proximity advantage, and they should be prepared for the looming opportunities, have a strategic intent and resolution to ‘go Turkish,’ and become competent in design and quick-response production in advance, rather than feeling hopeless and remaining in low-cost assembly production merely because they are geographically remote to core markets in the EU and USA Geographical proximity or remoteness is not static or set in stone As a case study, Seduno’s contribution is not only about the fluidity, complexity, variety, contingency, and dynamism of the idea of geographical proximity, but also about the fact that upgrading is a complicated and diversified process in which firms could learn not only from global and local sources of capability but also from successful, sometimes remote, precursors In this regard, geographical legacies matter, but they not determine the full scope of opportunities for firms able to upgrade their production processes and re-orient their activities to the rapidly changing geographies of demand www.ebook3000.com 9.3 Spatial Articulation Between Changing Industrial Policies … 9.3 203 Spatial Articulation Between Changing Industrial Policies and Firm Strategies Recent studies in Evolutionary Economic Geography have critiqued the four-phase development of clusters in the standard traditional or canonical path dependence model, and have suggested a second type of trajectory which is more open and allows for constant endogenous change and evolution The second trajectory can be realized by keeping the cluster relatively open It has been argued that some ‘extrovert’ entrepreneurs who have deliberately developed pipelines to trans-local networks may be able to increase the variety of knowledge available to them, escape the potential problem of rigidification stemming from myopia and negative lock-in, and rejuvenate the cluster However, the idea that nurturing connections with distant actors may help prevent systemic negative lock-in is not always the case In the case of Ningbo’s apparel cluster, the historically evolved global pipeline, regional pipeline, and regional buzz rendered the entire cluster locked into specific initially successful ways of doing things that later emerged as shackles that inhibited further progress Different types of trans-local pipelines may have different effects in cluster evolution, and pipelines may become clogged over time In addition, this canonical path dependence model has perhaps focused too much on exogenous shocks in the process of path disruption and on ‘historical accidents’ in the early stages of path creation, implying that managers and policy-makers have few choices left thereafter We have suggested that path dependence is a socially dynamic process, forcing us to look at structure as well as the action of agents The agent-based approach helps researchers to understand exactly the ways in which a diverse range of agents are implicated in the construction and constitution of interdependent sequences of events and decisions In this process of coevolution, collaboration among agents (such as firms and governments) leads to certain process of path creation and maintenance by facilitating the intentional network coordination and generating the collaborative and deliberate planning However, such a process of coevolution and network coordination does not always emerge, and industrial restructuring may be fraught with conflicts and tensions between various actors By applying an agent-based approach in path dependence analysis, we have suggested that all actors can be both path-dependent and path-breaking, especially between the release (path disruption) and reorganization (path creation) phases Conflicts in the process of coevolution can be driven not only by institutional inertia and hysteresis, but also by the heterogeneity and divergence of various agents’ actions This type of divergence exists all the time, because the interactions between structure and purposeful actions constantly give rise to both on-path and off-path changes and innovations But during the release and reorganization phase, intensive conflicts and tensions between different actors may emerge in a more phenomenal way (in our case, different levels of governments and different kinds of firms) We also compare Ningbo’s apparel industrial cluster with another labor-intensive cluster—Yongkang’s hardware cluster By studying and comparing 204 Summary and Conclusion the grassroot, export-oriented models in Ningbo and the government-led, domestic-oriented model in Yongkang, we seek to shed new light on debates about the mechanisms underlying how developing country firms participate in the global economy The state, at national and local level, remains important in orchestrating and shaping the paths of development through industrial policies Firm’s participation into global economy has been altered by the micro-foundation of state-led development initiatives at the local level On the one hand, the current generation has been increasingly integrated into a global economic system dominated by concerns for ‘learning from global lead firms.’ On the other hand, the local agenda of industrial upgrading seeks to ultimately harness the opportunities of global production for domestic benefits The interaction of the global system and local industrial policies may produce different sources for firm upgrading at the local level Governance within GVCs and governance within local clusters both play critical roles in determining developing country firms’ upgrading prospect, as argued by GVC/GPN and developmental state perspectives, but we have to move beyond this to examine the articulation between local and global governance that profoundly shapes the source for firm upgrading and incentives of business at the local level This research therefore echoes with Wei’s (2010) idea of scaling up from the new regionalism perspective and scaling down the GPN/GVC perspective on regional development, but pays more attention to the articulation between ‘governance within GVCs’ and ‘governance within local clusters’ and to how global and local governance codetermine domestic firms’ upgrading sources, the strength of their local embeddedness, and the ways in which they conduct spatial and organizational restructuring, such as factory consolidation, factory closure, industrial upgrading, and geographical relocation Finally, we also examine China pollution-intensive industries and document some of the ways in which different levels of government and different kinds of firms are attempting to deal with new challenges emerged in the 2000s and the dilemma they pose We show that the interaction between the different and related roles of governments and firms and their complementary and/or conflicting effects in restructuring the geography and organization of the Chinese economy is also evident in these industries, but in different ways than in the apparel industry We argue that rising environmental regulations, as well as firm characteristics, regional hub effect, and political environment, have all been particularly important in forcing China’s pollution-intensive enterprises to restructure their production, through innovation, upgrading, geographical relocation, outsourcing, and plant closure, especially in China’s coastal regions We contribute to recent studies by developing a heuristic analytical framework that aims to be sensitive to the impacts of environmental regulation, political environment, and regional hub effect over firm restructuring, but which does so by stressing these impacts are simultaneously inflected by the nature and attributes of firms The empirical analysis suggests a roughly invert ‘U’-shaped relationship between firm relocation tendency and firm size (or firm capability), resulting from complex interactions between political environment, regional hub effect, and environmental regulation www.ebook3000.com 9.3 Spatial Articulation Between Changing Industrial Policies … 205 In drawing from China’s apparel industry in general and Ningbo’s industrial cluster in particular (and to a lesser extent from Yongkang’s hardware industrial cluster and Shangyu’s pollution-intensive industrial cluster), we acknowledge the limitation of this study However, these cases are not offered as definitive or representative, but in representing the diverse government policies and firm strategies in this way, we hope to open up a broader field for the discussion of firm tactics and regional strategies, highlighting in the process the contingent and conjunctural nature of economic decision-making, rather than seeing regional development and firm upgrading in linear terms The development trajectories of these industrial clusters and some ‘ideal typical’ apparel firms serve to illustrate the fact that the model of inward investment, global sourcing, and export orientation is already undergoing fundamental restructuring, producing new geographies of production and employment In this book, we not seek to develop a typology of regional development and firm strategies, but instead we use illustrative cases to show how our analytical framework helps to move thinking away from the earlier limits of GVC, GPN, and EEG analyses and—in turn—allows us to ask different questions regarding regional development Some crucial questions that have been asked in this research include the following: As competitive pressures increase, how are industrial policies from various levels of governments affecting the spatial patterns, organizational structure, and value segments of the Chinese apparel industry? (2) How are firm strategies affecting the spatial patterns, organizational structure, and value segments of the Chinese apparel industry? (3) How these new government strategies and emerging firm strategies are related and the extent to which they are complementary or in conflict Questions on the impact of global, local, and regional factors over firm strategies, the contingency of the concept of geographical proximity and regionalization, and the articulation between governance within GVCs and governance within local clusters have also be investigated There is increasing evidence that while upgrading and relocation may be apparent in China’s apparel industry as well as in other manufacturing industries, firm strategies and geographical dynamics have been articulated with a range of other causal mechanisms that relate to wider and changing economic, institutional, and historical conditions which are central in assessing the extent to which the process of firm relocation and upgrading is even possible Perhaps, the crucial point here is that the articulation between various types of firm strategies and governance at different levels, and between firm strategies and global, regional, and local factors needs to be not only understood as dynamic, contingent, and fluid, but also interpreted in ways which take into account the specific historical development of China’s apparel industry, the evolution of institutional arrangements for apparel (and other industries), and the ups and downs of globalization and global economy Furthermore, empirical studies also confirm that in these debates on firm strategies and geographical dynamics, it is also important that we take seriously the heterogeneity, complexity, and variety of such articulation 206 Summary and Conclusion Reference Wei, Y.H.D 2010 Beyond New Regionalism, Beyond Global Production Networks: Remaking the Sunan Model, China Environment and Planning C: Government and Policy 28 (1): 72–96 www.ebook3000.com ... Council and China Textile Planning Institute of Construction) Moreover, six interviews were conducted with the leading scholars of the apparel industry in China, including professors from Peking... investigation during the periods of 2011, 2012, and 2013, in Beijing and Ningbo, China The empirical foundation includes qualitative in- depth interviews with four groups of agents to understand the dynamics. .. process has increasingly come to drive China s rapidly changing economic geography creating upward pressure on wages and working conditions that are beginning to challenge the China price’ and the