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Regional Economies in a Globalising World Enhancing Intellectual Capacity and Innovation Friday 21 November 2008, Cardiff University The New California and sub- Sahara in India Sharmistha Bagchi-Sen Department of Geography State University of New York at Buffalo
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Page 1: slides

Regional Economies in a Globalising WorldEnhancing Intellectual Capacity and

Innovation

Friday 21 November 2008, Cardiff University

The New California and sub-Sahara in India

Sharmistha Bagchi-SenDepartment of Geography

State University of New York at Buffalo

Page 2: slides

Globalization and Spatial Inequality

Innovation-led development /technology-led development

Pre-reform – S&T policy

Post-reform – recognition of innovation-led growth, FDI, trade

Outcomes – role of agglomeration, industrial clustering, regional and intra-regional disparity, slowdown in implementation of reforms

Some evidence from auto, software and bio-pharma sectors

Page 3: slides

Innovation-led Development

Characteristics An evolutionary path; resilient industrially advanced areas

are strengthened Non-linear processes / collaborative / alliance capitalism

Interaction between firms and other organizations (e.g., research institutes, universities, venture capital, financial organization, labor organizations, industry associations, government and non-government agencies)

Changing role of policy – centrally driven R&D or S&T policy to the recognition of endogenous factors; National Innovation and regional innovation systems (NIS-RIS)

Page 4: slides

Policy Shift

S&T to Innovation-led

S&T – stimulate basic research (e.g., the creation of CSIR and research labs), not much emphasis on transfer/dissemination

Innovation-led (NIS and RIS) – focus on industrial creativity (e.g., policies aimed at improving education, infrastructure and institutions, R&D base, entrepreneurship, IP, knowledge exchange) and subsequent development through the promotion of innovation (processes, products, services etc) and an economic structure conducive to innovation.

Page 5: slides
Page 6: slides

Innovation-led development and Industrial Clustering (geographic)

Porter’s Diamond – demand, supply, competition, related industries

Porter and regions/clusters – “a concentration of ‘inter-dependent’ firms within the same or adjacent industrial sectors in a small geographic area” (Isaksen 2001, p. 104)

Regional Innovation System / RIS is defined as the “cooperation in innovation activity between firms and knowledge creating and diffusing organisations …” (p. 107)

Porter – firm interaction RIS – interaction among firms and others; firms are

embedded in regions, state, international value-chains

Page 7: slides

RIS/Regionalization Regionalization – the concentration of location-specific

knowledge formation processes and capabilities in certain places (Kenney and Florida 2004)

Regionalization of national innovation policy – acknowledgment of local dynamics based on networks, trust, institutional mechanisms

RIS and endogenous growth model (Edquist 2001)Determinants of innovation versus “a region depends on technological development progress and the utilisation of knowledge that is conditioned by location” (agglomeration effects)

Page 8: slides

Regionalized Innovation Policy

Avoid imitation or “off-the-shelf best practice” (Asheim and Coenen 2005)

Avoid one size fits all Problems with RIS:

-Definition of the innovation system -Definition of the boundaries of the region (e.g.,

state/administrative, functional boundaries)-Determining if local institutions, actors, and relations are sufficient In reality, most RIS have elements of an open structure that promotes innovation through linking trans-territorial actors and institutions that have cognitive/knowledge proximity

Page 9: slides

Economic Development in IndiaOld Model (Planned Economy)-Government-driven (State is entrepreneur and regulator)-Private sector regulation through controls (industrial licensing,

import quota, use of foreign exchange, financial markets, pricing structure)

-Incentives to enterprises-State directing resources to backward areas (goal -> reduce

regional inequality)

New Model (post 1990-1991 reform)-Private sector driven, lesser role of the state-Collaborative with government, research institutions, etc-Private sector is attracted to areas with developed

infrastructure/already industrially advanced economy/agglomeration economies

Page 10: slides

Agglomeration Economies

Marshall (1920)

The sharing of inputs whose production involves internal increasing returns to scale

Labor market pooling that allows a better match between employer’s needs and a worker’s skills

Knowledge spillovers between workers

Other sources of agglomeration – home market effects, economies of consumption (Kar 2006)

Page 11: slides

Five Regions

North India, South India, West India, East India, North East India

Infrastructure - highlights

Himachal Pradesh, Goa and Punjab

-electricity to almost almost 100% of their households

-50% have no electricity in West Bengal, Orissa, Uttar Pradesh, Jharkhand, Assam and Bihar

Kerala - 84% of its resident families own a “pucca” house compared to 12% in Tripura

Tamil Nadu has topped in having the lowest number of persons in each household to be 3.5

Urban-Rural dichotomy everywhere

Page 12: slides

India – Regional Differences

Regional differences in growth reflect differences in marginal productivity of investments by sub-sector

Urban-focused as well as ports (Mumbai, Kolkata, Chennai and Kandla in Gujarat – international trade)

A clear East-West divide; no obvious north-south divide Rain-fed agricultural regions are lagging behind (low

productivity) Some benefit from international remittances - Punjab,

Haryana, Kerala (industrial progress is slow: long-term communist govt, labor union, resource-based ind.)

Within state variation is less in Punjab, Haryana, Karnataka, Kerala (lagging behind)

Intra-regional disparity in Andhra Pradesh, MP, Maharashtra (rural to urban migration)

Poorest states – BIMARU (Bihar, MP, Rajasthan, UP)

Page 13: slides

Three distinct Indian S&T phases

1947-66: Nation’s Trust in Science and Investment Power of science to solve real life problems invested significantly beyond the means of a developing

nation

1967-86: Nation’s Demands on Science and Delivery Science and technology provided viable solutions Self-reliance

1987-2006: Challenge and Introspection use of knowledge for generation of wealth and

development of economy(Aiyagiri 2007)

Page 14: slides

Regional Factors in Sectoral Growth

Key determinants for growth

Favored states Time period Current contribution to growth

Agriculture Climate, agri technologies

Punjab, Haryana

Green Rev1970s-1980s

Low

Manufacturing

Urban, coastal, major port, FDI locations and export orientations

Maharashtra, West Bengal, Tamil Nadu, Gujarat

1980s Rising importance in the 1990s

High

Tourism Historical and cultural, proximity to major entry points

Rajasthan (through Delhi), Maharashtra

1980s Onward

Moderate

High-Tech (finance and ICT)

Urban, skilled labor, universities

Maharashtra, Tamil Nadu, Karnataka, WB

Page 15: slides

Auto Clustering in India

1957 – import substitution strategyBirla – Hindustan Motors in KolkataDoshi – Premier Auto in MumbaiStandard Motors – Chennai*TELCO now TATA Motors – Jamshedpur*Ashok Leyland - Chennai

Restrictive policy until the mid 1980sRestriction of FDI in Auto1963 Monopolies and Restrictive Trade Practices PolicyMid 1980s – JV with Suzuki Motors

Page 16: slides

Chennai

Historical – TVS group (in business since 1911) set up an industrial enclave (parts and components) in Padi outside of Chennai in the post-indep period. It now has 29 companies.

Political – Local firms were supported by state politicians in getting licenses

Agglomeration – TVS, MRF, Ashok Leyland, Standard Motors, and the Rane Group (e.g., MRF’s start was in a toy ballon plant in 1946 in a chennai suburb; in 1952 – rubber mfg; in 1961 – technical collaboration with US Mansfield Tire and Rubber Co.; 1967- exports to the US; access to ports incl. all-weather Tuticorin

Recent FDI – Ford, Hyundai, Mitsubishi

Page 17: slides

Evolution of the Auto Sector in Chennai

(i) TVS’ Wheels India Ltd – a JV with Dunlop-UK (1960)

Lucas – TVS – a JV with Lucas Variety Group-UK (1961)

Other 1960s JVs with the UK are major exporters of parts and components

1980s, 1990s – Germany, Japan, and the US

TVS-Suzuki – 100cc motorcycles in 1984; 1999-2000 – TVS-Suzuki folded into Aundaram Auto Engineers Ltd and in 2000-2001, Suzuki ceased to be a shareholder

(ii) Rane Group’s Rane Engine Valve Ltd was estd in 1959; its companies continue to lead in valves; Japanese 50-50 collaborations for steering etc.;

(iii) Ashok Leyland – estd in 1948 (used to assemble Austin parts; 1955 – agreement with Leyland Motors UK; Ashok Leyland and TVS’ Sundaram Industries have a JV with Spain’s Irizar group to manufacture bus bodies in India

Page 18: slides

Evolution contd …1. IT firms in Chennai – IT enabled systems for OEMs andtheir suppliers (GM and Ford)2. US government discourages forging and casting firms,MNEs started to outsource, Chennai has been the recipientof many contracts3. Passenger car production and assembly by MNEs-Hyndai ($1billion), Ford ($400 million), and Hindustan Motors-Mitsubishi ($150 million) combined capacity of230,000 cars; Hyundai is 2nd now to Maruti; Ford andHyundai export; Hyundai has 100% owned subsidiary (estd 1998) and brought 14 component manufacturers; all havelocal content sourcing to some extent4. State govt invested in industrial estates to promoteSMEs earlier on; skilled labor formation/spillover

Page 19: slides

National Capital Region - NCR1982 – Maruti Udyog Ltd. – a JV with Suzuki – a greenfield

operation; 2nd plant (1992) in the same location (Gurgaon) and a 3rd in NOIDA in 1999; largest manufacturer

2003 – set up a foundry plant Suzuki Metal Ltd.

1990s – Daewoo and Honda but Daewoo failed and Honda just started production in 2000-01

Maruti’s suppliers are clustered in the same region:

-central govt is the partner

-local content requirement

-focused on domestic market

-attracted domestic supplier such as the TV group

-exchange rate (increased value of Yen in early 80s)

-early JIT system

Page 20: slides

Chennai and NCRNCR –

Anchor firm led cluster development; The role of the central govt; Proximity to the Capital region;

Chennai – Auto components sector in existence from pre-independence period; Role of indigenous business groups; Local politicians; More FDI than NCR

Both have access to engineering graduates and the supply of skilled labor force

Page 21: slides

IT ClustersRank 1980, India HQ 1990, India HQ 2004, India HQ Founder

1 TCS - Mumbai TCS - Mumbai Infosys- Bangalore MIT

2 Tata Infotech - Mumbai Tata Infotech - mumbai

Infosys – Bangalore U Mysore, IIT

3 Computronics - Mumbai Citibank- Mumbai Wipro – Bangalore Stanford, IISc

4 Shaw Wallace - Kolkata Datamatics - Mumbai

Satyam – Hyderabad Loyola-Chennai, Ohio U

5 Hinditron - Mumbai TI- Bangalore HCL – Delhi Coimbatore

6 Indicon System - Mumbai

DEIL - Mumbai PCS – Mumbai MIT

7 ORG - Mumbai PCS - Mumbai i-Flex – Mumbai Pilani, TCS, Citicorp

8 Systime - Mumbai Mahindra-BT-Mumbai

Mahindra-BT – Mumbai

Harvard

Mkt (%)

90 65 38

Page 22: slides

PharmaceuticalsThe pharmaceutical firms are mainly located in

Maharashtra, Gujarat, TamilNadu, and Andhra Pradesh.

Cases: MNE roots and indigenous firms1. Glaxo – estd 1924 in Maharashtra and now a plant in

Karnataka (started to distribute baby food)2. Cipla – estd in 1935 – Maharashtra – bulk drugs3. Nicholas Piramal – estd 1947 – Maharashtra-Gujarat

and now in TamilNadu and Andhra (in 1947, it was a subsidiary of British Schering but was acquired by Piramal in 1988)

4. Ranbaxy (1961) – NCR and Punjab – a JV with Eli Lilly5. DRL (1984)– Andhra and in London, Yorkshire, Goa,

and Pondicherry; strong in-house R&D

Page 23: slides

Biotechnology - Bangalore

RIS: Science, Markets and Institutions

-IT cluster – integrated chip design, telecom and system softwares

-Local educational and research institutions (e.g., IISc)

-Venture capital

-State offers tax breaks, uninterrupted power supply, electricity tariff, permissive labor law (employing women at night), single window agency to clear projects

-Biotech Parks (i) University of Agricultural Sciences and

(ii) Karnataka U – Dharwad (a marine biotech park closeby)

-Biotech corridor – IISc to U of Agricultural Sciences

-Vision Group of Biotech and taskforces

-Secoral specialization - Genomics, Biofuels, CROs, Bioinformatics (AstraZeneca, Biocon, Cadilla, Wockhardt, SmithCline)

Page 24: slides

Small-Scale Industries - clustersHorizontal, large-unit based, vertically integrated, mixed

Organic (market or resource based) or infrastructure (electronics, software, floriculture, and biotechnology)

Sectors: machinery, cotton text, chemical, metal, hosiery/garments, food, non-metallic mineral, electrical machinery, wool-silk-synthetic, transport equipment

Location: mainly in the N and W urban (Maharashtra, Gujarat, Punjab, Rajasthan, UP, Haryana, WB, TamilNadu, Himachal P – industrialized states)

Artisan-based clusters: low energy use, local markets

One-third of India’s exports: (i) gems and jewelry - Surat, (ii) textiles – Panipat, (iii) garments – big cities, (iv) leather – Agra, (v) handicrafts - Moradabad

Page 25: slides

NIS and RIS for SSI Clusters

Institutions (NIS) – many institutions set up to ease financing, provide training and marketing; separate provision for non-modern small units – e.g., small Industries Development Bank of India

RIS (state-level) – institutions to provide infrastructure, finance, export and technical assistance, and training (entrepreneurship development) – e.g., State Co-op Banks

District level – clearances, licenses, certificates under one roof (e.g., District Industries Center)

Page 26: slides

Linking systems for financing State Financial Corporations and State Industrial

Development corporations have been set up to cater to long-term needs and to participate in ventures through equity stake.

These units get refinancing from SIDBI (national insttn).

The state units can also generate their own funds through state govts, commercial borrowings.

Both national and state insttns now provide working capital.

Like commercial banks, state financial corporations have remained a source of credit for small and medium enterprises.

Page 27: slides

ConclusionsIndustrialized states have strengthened their placeAuto – some old clusters are doing well (Chennai)Auto – new cluster in NCR (state + Suzuki)In IT, Mumbai lost its place to BangaloreIn Pharma, Mumbai is still important but Bangalore and

Hyderabad are capitalizing on their RISIn biotech, imitative policymaking to develop RIS is

observed – almost every state has a biotech policyUrban areas are doing better compared to rural (mainly

because agriculture has been left behind in the reform era) – however property rights issues becoming critical

FDI focused regions are expected to do wellHDI – state and central governments are investing to

improve sub-Sahara conditions in education and health (malnutrition)

NIS and RIS coordination is important for innovation-led development in India

Page 28: slides

Future Investment in physical infrastructure and finance – e.g.,

control of central government over regional infrastructure was a problem

Investment in human capital, health and education, to raise productivity especially in backward states

Clusters are difficult to engineer but their existence indicate the presence of competitive advantage

Policies have usually focused on individual enterprises Sector/cluster-specific services emphasizing the whole

business system: (i) information provision, (ii) technology support, (iii) common facilities (iv) cluster-specific credit/financing for example for those dependent on seasonal fluctuations in raw material supply

Page 29: slides

S&T Policy (latest 2003)1. Science and Technology Governance and Investments2. Optimal Utilization of Existing Infrastructure and Competence 3. Strengthening of the Infrastructure for Science and Technology in

Academic Institutions4. New Funding Mechanisms for Basic Research 5. Human Resource Development6. Technology Development, Transfer and Diffusion7. Promotion of Innovation8. Industry and Scientific R&D9. Indigenous Resources and Traditional Knowledge10. Technologies for Mitigation and Management of Natural

Hazards11. Generation and Management of Intellectual Property12. Public Awareness of Science and Technology13. International Science and Technology Cooperation14. Fiscal Measures15. Monitoring16. The New Vision

Page 30: slides

Industrial Policy – selected pointsLiberalisation of the Locational Policy No industrial approval is required from the Government

for locations not falling within 25 kms of the periphery of cities having a population of more than one million except for those industries where industrial licensing is compulsory.

Non-polluting industries such as electronics, computer software and printing can be located within 25 kms of the periphery of cities with more than one million population.

Policy for Small Scale Industries Industrial undertakings with an investment upto rupees

one crore are within the small scale and ancillary sector. A differential investment limit has been adopted since for 41 reserved items. In total, 749 items are reserved for manufacture in the small scale sector.

Page 31: slides

References

A complete list of citations is available upon request for this review article/presentation. Many references are consulted and used to prepare this presentation. Due to space limitations, individual details are not provided.


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