The Chinese government have long exercised a degree of control over the economy. Evidence can be found in a wide range of examples, from the nations monetary policy, to the subsidies they grant select industries. The different methods employed all have one aim, to help stimulate growth. Cluster manufacturing is term to describe one way of how China has helped an industry.
A business cluster is not a new phenomenon. China did not invent the term. Clusters can exist on a small scale, as well as a large scale. The idea behind the theory is a business cluster helps encourage productivity and drive innovation. For example, Silicon Valley is the destination for any modern technology company. In turn, the location attracts a desirable workforce. On a much smaller scale, you may find it easier to imagine a shopping malls food court. There you will find all food outlets competing directly against each other. Initially you might think these businesses would lose sales as they are in competition. However, most companies benefit as the specified location brings in footfall.
Cluster manufacturing in China’s context generally refers to the production hubs found across the country. Shenzen is a fine example. 4,700 high level tech companies are based here, and over 30,000 science and technology companies. With such a high concentration of advanced firms operating from within the district, Shenzen has become the go to technological destination. Shenzen also resides within one of Chinas Special Economic Zones. Originally set up by the government to encourage trade.
Clusters have many advantages at a company level. However, there are many advantages to China as a whole. The current economic environment challenges China. Previously the country was seeing rapid growth rates. Recent years have seen the growth slow. A transitioning economy increases complications. Cluster manufacturing is a big help for this changing economy. China has consistently shown they want to drop the low cost manufacturing for a more specialized one. Clusters foster a more specialized workforce. Therefore, the cluster manufacturing hubs found in places like Shenzhen is an advantage in the context of China.
Innovation is another area which China has highlighted as important. Within these cluster manufacturing hubs, the process of innovation is sped up. With such a high concentration of competition all located in the same area, if a company slacks, then they will quickly fade away. Information also spreads much quicker between competitors when everyone is so close to each other. Companies tend to prefer to keep secrets behind closed doors. Open secrets will create a more responsive industry.
Supply chains have been an area China has excelled in when compared to competing countries. Heavy investments in infrastructure has substantially put the country above competing Asian countries in this department. Though cluster manufacturing has also played a part. Basing your factoring in the middle of nowhere would make it hard to procure suppliers. In clusters where many factories locate, you often find suppliers moving to that specific location.
Cluster manufacturing has plenty of benefits, and companies and China itself have enjoyed a large array of these. However, drawbacks do exist. To put your eggs in one basket is considered a bad move. Clusters are effectively doing this. Detroit use to be an automotive city, but when this industry started to stutter the entire city did as well.