This section seeks to map the presence of SME clusters in Brazil, China and India. As we state at the outset, one under-emphasised aspect of the international competitiveness of these distinct emerging economies is the significance and importance of SME clusters within them, and the role that they play in fostering industrial development and trade. Clusters, we argue, are key to the economic and trade dynamism observed in each of these Rising Powers. Further underlying this we show how policy frameworks have explicitly sought to promote cluster development strategies in two out of these three countries. Next, in light of our interests in how Rising Power clusters engage with local and global standards relating to social responsibility concerns, we look at the main drivers of compliance. Finally, we outline the distinct social contracts that apply in Brazil, China and India. We argue that while engagement with standards partly differs by sector and by case as illustrated in the case study literature, we also see more structural differences in engagement with standards between these three countries that can be traced back to their different ‘social contracts’.
We start to discuss India, where the social contract contains the lowest internal pressures towards compliance with social standards, and where most clusters focus on cut throat price competitive markets in which standards are less important. China provides the in-between case, while firms in Brazilian clusters are most familiar with actually implemented public regulations and private compliance expectations.
Clusters abound in India, both in a wide variety of industrial, artisanal and agro-processing activities. Any trader and most consumers in India can tell you that the better shoes, locks, sarees, textiles, jewellery, pottery, etc. originate from specific cities or regions. According to the Indian cluster observatory website (www.clusterobservatory.in) there are more than 1,000 industrial clusters and over 6,000 micro-enterprise clusters. These together are said to account for 45 % of total manufacturing production, 50 % of total exports and 90 % of all enterprises in India. As a phenomenon, clustering dominates the landscape for Indian micro, small and medium enterprises (MSMEs), with over 80 % of all MSMEs operating in spatially and sectorally defined cluster settings, and over 90 % of MSME exports originating from clusters. Clusters are also highly diverse in India, from microenterprise based rural clusters, rural and urban artisanal clusters, urban and peri-urban industrial clusters, services clusters especially around the informational technology sector, and finally hub and spoke clusters that operate around large enterprises (FMC 2007).
Clustering in India has been well studied in the academic literature (see, for example, the edited volumes by Holmstrom and Cadene 1998; and Das 2005). Many of these case studies marvel about the resilience of artisanal clusters in a modernizing and increasingly globalizing economy. While some emphasize more their competitive dynamics, others stress the embeddedness of traditional skills and the challenges of upgrading these clusters. A number of authors explore the export competitiveness of Indian clusters (see, for example, Knorringa 1999; Tewari 1999).
While clusters are not only widespread and have a long history in the Indian context, institutional support for cluster promotion is a relatively recent experience. The Abid Hussain Committee in 1997 provided the first official documentation on the extent of clustering and the need for a focused policy framework targeted at clustered enterprises (Hussain 1997). The leading cluster development programme within India at the time was that initiated by the United Nations Industrial Development Organisation (UNIDO) in 1995 (Ceglie et al. 1999). This programme initially focused its efforts on identifying and intervening in a small number of pilot industrial clusters with the aim of promoting networking and collaboration between clustered firms to encourage technological upgrading and improved marketing that could effectively strengthen the national and international competitiveness of these clusters (Russo et al. 2000). By 2003, the UNIDO programme broadened its scope to include interventions that aimed primarily to promote poverty alleviation in rural, peri-urban and artisanal clusters. A cluster development strategy was designed and implemented by UNIDO for the state of Orissa, one of the poorest states in the Indian Union, and targeted at a range of low-income artisanal clusters. Towards the end of its programme the UNIDO initiative focused on two specific aims. First, to mainstream the cluster development strategy within Indian industrial and SME development programmes. Second, to initiate an agenda on clusters and corporate social responsibility (FMC 2007; Gulati 2012).
On mainstreaming, the UNIDO programme was incredibly successful. It was able to convince key government agencies on the potential benefits in terms of economic, export, employment and incomes growth to be had from targeted cluster development programmes (CDP). The national Ministry of Micro, Small and Medium Enterprises (formerly the Ministry of Small Scale Industry) started with a budget of INR 7 billion (approximately US$ 130 million) allocated to 24 CDPs to be completed by 2006, with cluster promotion interventions taking place in over 1,300 clusters (FMC 2007). The primary objective in these programmes was to strengthen infrastructure within clusters, and a variety of national and state-level public and private bodies were identified through which CDPs were to be administered. The Government of India’s subsequent 11th Five Year Plan (2007–2012) earmarked INR 45 billion (approximately US$ 830 million) to cluster development during the plan period while the 12th Plan (2012–2017) raised the overall budget for cluster development strategies to US$ 2.5 billion (Planning Commission Government of India 2013).
Cluster promotion strategies have involved a number of federal level ministries (Ministry of MSMEs, Ministry of Textiles, and Ministry of Commerce and Industry), state-level governments (including the governments of Orissa, Gujarat, Kerala, Rajasthan, Madhya Pradesh and West Bengal) and various parastatal agencies (including the State Bank of India, the Small Industries Development Bank of India, and the National Bank for Agricultural and Rural Development) (FMC 2007). Cluster promotion activities have focused on a range of areas, including the development of networks to undertake bulk purchasing of inputs (such as in the Bangalore machine tools cluster, the Alleppy coir cluster, the Chanderi silk weaving cluster, the Rajkot engineering cluster), the development of market linkages through bulk tendering (such as in the Rajkot engineering cluster), common market outlets (as in the Ludhiana garment cluster) and the promotion of trade fairs (as in the Jaipur handblock textiles cluster). A number of CDPs have targeted technological upgrading and knowledge dissemination, such as design development (in the Jaipur handblock textiles and Chanderi handloom silk textiles cluster), promotion of quality systems (as in the Pune food cluster, the Tiruppur garment cluster) and common training facilities (for example in the Jalandhar cluster). Finally, infrastructure development and infrastructure facilities have been central to CDPs focusing on the tannery clusters in Tamil Nadu (through the development of common effluent treatment plants), the Pune food cluster (through the building of research and development facilities) and the Bangalore machine tools cluster (through the common design facility) (FMC 2007).
In ‘pro-poor’ interventions aimed primarily at rural and artisanal clusters there has been a focus on the use of micro-credit interventions, targeting of poor and vulnerable workers and communities, the linking of health and education to local entrepreneurship, the promotion of local self-help groups (SHGs), and the training of women workers (as seen, for example, in the UNIDO programme in the Chanderi silk handloom cluster, the Orissa cluster programmes, and the work of the Apparel Exporters Association in the Ludhiana cluster) (Ray and Sarkar 2007). Finally, a few initiatives have sought to focus on the promotion of corporate social responsibility concerns, especially with respect to labour and environmental considerations. One of the most significant of these has been the interventions undertaken in the Jalandhar football cluster (see Lund-Thomsen and Nadvi 2010b; Khara and Lund-Thomsen 2012).
Our aim in this paper is not to assess the effectiveness of the policy interventions on cluster development initiated by UNIDO and then subsequently by various Indian public agencies. This is clearly a key area for future research and policy given the emphasis, and the budgets, being placed on cluster development initiatives in India. Instead, what we have sought to do here is to provide a sense of the wider institutional policy framework that has been constructed to promote growth and competitiveness of Indian MSME clusters. We turn now to reviewing how the Indian experience on clusters, and cluster policy, has to be seen within a wider understanding of the ways in which the ‘social contract’ in Indian policy has been shaped.
While many of these clusters have been long-standing and successful exporters, by far most of them focus on relatively low quality markets, and specialize in relatively smaller and flexible orders for more labour-intensive varieties of traditional products. In many global value chains Indian suppliers are seen as, and identify themselves, as ‘job-workers’, firms with little ambition towards functional upgrading in the future but more interested in making a margin today. This attitude among entrepreneurs can at least partly be traced back to the traditional caste-based division of tasks in many of these sectors, with a chasm between traders as entrepreneurs and artisans as workers. For example in the Agra footwear cluster, ‘traders are predominantly forward caste Hindus, …, Sikhs and some well-to-do Muslims.’ (Knorringa, 1999, p. 1591). In turn, ‘footwear workers are predominantly Jatavs, a subgroup of the Chamars, …, who are found close to the bottom of the caste hierarchy.’ (ibid).
Production in many Indian clusters often takes place either in home-based units run by artisans with mainly family labour, or in workshops run by white-collar trader-entrepreneurs who usually pay piece rates and often sub-contract labour recruitment to some master-artisans (Mezzadri 2014a, b). In such working environments labour conditions cannot be gauged through an assessment of formal labour contracts. Moreover, what in a ‘Western consumer’ perspective would be seen as ‘child labour’, is at local level identified as an ‘apprenticeship system’, which allows young boys to learn the ‘tricks of the (caste-based) trade’, often on a part-time basis. The absence of formal contracts does not imply that workers are an anonymous mass. Instead, intricate relations of obligation, debt and patronage exist, but within a broader context of highly exploitative labour relations. Volatility is a key characteristic in the seasonal production patterns of most clusters, and the dominant piece-rate system effectively passes on this instability to workers (Mezzadri 2014a). While workers may have the upper hand in a few peak-season weeks every year, a labour surplus characterizes most clusters for the main part of the year. Most trader-entrepreneurs simply see labour as a cost, not a potential asset, and investing in the quality of the labour force is virtually unheard of in these more traditional sectors. Only a very limited number of relatively larger export-oriented firms in high-profile consumer-facing sectors like garments and footwear actually offer labour contracts to workers.
As informality is the norm, an overwhelming majority of workers in Indian clusters are unprotected by public labour legislation and unions seldom achieve effective countervailing power. Moreover, Indian entrepreneurs are experts in manoeuvring around attempts by public private and civic actors to regulate their behaviour. For example, Mezzadri (2014a, b) reports how entrepreneurs in the export-oriented garment industry subcontract the more labour-intensive activities through layers of invisible contractors, thus aiming to thwart effective compliance with standards used by foreign brands. As most Indian clusters tend to focus on producing for lead firms who are less focused on compliance with labour and environmental standards, both domestic and internationally, they do not even need to try to thwart compliance. In effect, most entrepreneurs in Indian clusters face few pressures to comply with social responsibility concerns, neither from their private value chain relationships nor from Indian public agencies. Entrepreneurs may still wish to engage with these responsibility concerns out of their own moral values, but this would imply ‘going against the tide’ in the predominantly cut-throat price-driven segments in which they operate (see e.g. Das 2005).
Nevertheless, this rather gloomy picture from a social responsibility perspective needs to be qualified on at least three accounts. First, in a large country like India you are likely to find exceptions. One instructive exception is the case of environmental compliance in the leather sector (Kennedy 1999; Tewari and Pillai 2005). Kennedy’s study illustrated how civic pressure combined with judicial intervention could bring about collective response to address effluent treatment by tanneries in Tamil Nadu. Tewari and Pillai (2005) show how the Indian leather goods sector adjusted to a German ban on importing leather goods that used PCP and Azo dyes. Because exports to Germany were critically important to the Indian leather goods industry (and vice versa!), producers could not simply move towards alternative market outlets. Moreover, German importers, industry associations, and governmental agencies were keen to assist Indian actors to effectively respond.
This case study from the Indian leather goods industry shows how Indian government agencies (in particular the Ministry of Commerce which saw a major threat to exports), private firms and boundary spanning organizations (key business associations with quasi-governmental status and a research and development (R&D) institute subsidized by the government working on behalf of the industry) entered into a process of ‘negotiated’ collective action (Tewari and Pillai 2005). Instead of following the dead-end standard approach of trying to force a sprawling network of small-scale tanneries to stop using dyes with these ingredients, the Indian government passed a law to ban the import and production of dyes that contain PCPs or Azo. Even though the chemical companies who produced these dyes initially vigorously contested this ban, it turned the input industry into a de facto diffuser of environmental compliance among small-scale tanneries (Tewari and Pillai 2005). This would not have been possible without synergetic interaction between public and private compliance mechanisms. While recent research emphasizes the importance of these types of synergy and the relative ineffectiveness of compliance mechanisms that aim to ‘stand on one leg’ (Knorringa 2014; Mayer 2014), more longer-term collaboration between public regulators and labour or environmental inspectors on the one hand, and private compliance consultants on the other, is unlikely to occur in India. In effect, this compelling case study (Tewari and Pillai 2005) shows how far fetched such a successful compliance scenario is for most artisanal clusters in India.
Second, many observers in India are enthusiastic about the recent and ambitious implementation of what might become a ‘social floor’ in the Indian labour market, through the so called Employment Guarantee Act. Initial findings suggest that in regions where these programs have been implemented, the daily wage rate for unskilled labour tends to rise, which makes it a potentially important instrument to raise the effective—be it informal—minimum wage level in India (Basu 2013). Finally, India recently passed a law that obliges larger firms to re-invest 2 % of their turnover in CSR-related activities. It is too early to assess whether this will become a significant driver of more socially responsible investments in India (Gulati 2012).
Notwithstanding these qualifications, we conclude that by and large the rather implicit Indian social contract does not provide clustered entrepreneurs with any incentives to engage with responsibility concerns. In some cases such pressures are exerted through the value chain, but their ‘bite’ is often blunted by difficult to trace layers of subcontracting. Finally, for clustered entrepreneurs with personal moral incentives to engage with responsibility concerns it is difficult to put this into practice. Most of them compete in cut-throat price-driven market segments without a premium for a higher responsibility profile (see e.g. Khara and Lund-Thomsen 2012).
While there are no accurate measures of the numbers of clusters in Brazil, the phenomenon of clustering, known locally within Brazilian policy circles as ‘arranjos productivos locais’ (APLs- or local productive arrangements), is widespread. One recent study suggests over 2,000 potential cluster regions within the country (Pires et al. 2013) while there are over 260 officially recognised APLs. These include a number of cases that have been documented in the cluster literature, such as the well-known shoe cluster of Sinos Valley (Schmitz 1999; Bazan and Navas-Alemán 2004; Navas-Aleman 2011), the ceramics cluster of Santa Catarina (Meyer-Stamer 1998), the furniture clusters in Rio Grande de Sol and Santa Catarina (Puppim de Oliviera 2008; Navas-Aleman 2011), and the auto and auto components cluster of the Sao Paulo ABC region (Quadros 2004; Lema et al. 2012). In addition to these relatively mature clusters located in relatively more affluent regions of southern Brazil, there are a number of clusters to be found in the more impoverished Northeast states including the fruit clusters in the states of Ceara and Rio Grande de Norte (Gomes 2006), the jeans cluster of Toritama (Almeida 2008), and the organic honey and oil for cosmetics clusters in Piauí and Maranhăo states (Puppim de Oliviera and Fortes 2014). Examples of Brazilian clusters extend from agro-processing activities to labour-intensive manufacture, capital-intensive and knowledge-intensive industries as well as in the services sector. Moreover, clustered firms are engaged in developing products and services for export and domestic markets.
The promotion of industrial clusters has been a key plank of Brazil’s industrial strategy, with a primary objective of raising employment and incomes especially in poorer regions in the country. As the strategy unfolded, enhancing competitiveness of clustered firms also led to a growing emphasis on firm and cluster upgrading. Thus, in more recent years cluster promotion policies have in large measure addressed firm-level technological upgrading, cluster-level research and development activities including building linkages with universities and research centres, and improving the capabilities of clustered firms and workers through training programmes. The key agencies implementing these cluster development activities are the Brazilian Support Service for Micro and Small Enterprises (better known as SEBRAE) and the National Service for Industrial Training (SENAI). SEBRAE employs more than 4,000 employees and over 9,000 consultants distributed between the headquarters and 27 state-level centres who deliver services to SMEs through 750 points of service delivery. SENAI runs a large network of vocational training, technical education, and innovation of industrial technologies initiatives. These institutional interventions have a long history. SENAI, for example, was founded in 1942. It has over 780 operations unit, including 323 mobile units, with many located in and undertaking specific training functions for designated clusters.
Brazil is known for its relatively strong labour and environmental regulations (Posthuma and Bignami 2014). Yet, the Brazilian experience on the engagement of local clusters with national social and environmental considerations is mixed. Tendler (2002) made a very powerful observation when she noted that in order to ‘protect’ relatively weak and under-resourced SMEs Brazilian politicians and government regulators would take a more lax approach on the enforcement of labour, environmental and social regulations for clustered firms. This ‘devil’s deal’ as she coined it was seen as one way to promote small producers in relatively backward regions.
Brazilian clusters have faced pressures on labour and environmental norms. What distinguishes the Brazilian experience is that while such pressures may emanate from global buyers down the value chains to local clustered suppliers,Footnote 4 equally and in some cases more significant has been the driver of domestic regulations and their enforcement. As Puppim de Oliviera (2008) notes the literature on clusters in developing countries rarely takes note of the significance of national regulations on labour and the environment, and its consequences for promoting social upgrading.
Almeida’s study on how the Toritama jeans cluster in Northeastern Brazil addressed environmental pollution and improved working conditions illustrates how critical local regulation and local public enforcement can be to environmental and social upgrading within clusters. According to Almeida (2008, p. 111) the Toritama cluster of 2,000 firms contributed 15 % of Brazil’s total blue jeans production. The washing and chemical processing of jeans required high levels of water consumption (in excess of 21 million gallons a month) and resulted in substantial levels of polluted effluent discharge (twelve times the level permitted under Brazilian environmental regulations). The cluster’s laundry practices not only undermined the water quality of the region but also led to very poor working conditions, and meant high costs to firms in terms of their need for scarce water that had to be transported to the cluster. Almeida’ study illustrated how key private and public actors within the cluster responded to these challenges. Firms realised the economic benefits to be had in developing low cost technologies that not only reduced pollution but also reduced water consumption costs for firms by relying on recycled water. The public attorney’s office, along with the state environment and water resources agency, was able to initiate a dialogue with the jeans laundries in the cluster to implement environmental and labour upgrading strategies with support from SEBRAE and other public agencies. The ‘stick’ of public enforcement (closure of laundries and the imposition of fines and other legal and judicial procedures) was combined with the ‘carrot’ of subsidies to undertake environmental and social upgrading and the associated costs reductions in water use (Almeida 2008).
Almeida’s case study is not unique in Brazil. The recent study by Posthuma and Bignami (2014) underlines the ways in public and private actors are able to come together to address regulatory gaps and thus improve working conditions. Drawing on the experience of the Sâo Paulo garment sector they illustrate how a private industry body, the Brazilian Association of Apparel Retailers (ABVTEX), was able to formulate a CSR initiative that sought to work with the public labour inspectorate regime to enforce labour standards down the garment value chain.
Labour regulation and enforcement in Brazil is notably strong (Locke 2013). Pires’s (2008) study on the labour inspectorate regime in Brazil shows how labour inspectors work with local firms, including clustered SMEs and farms, to address the root causes behind non-compliance and thus not only seek to implement Brazil’s strict labour codes but also to enhance the competitiveness of firms. As Pires (2008, p. 225) notes, this experience points to a very different regime of enforcement wherein a combination of ‘sanction with assistance’ is more likely to lead to sustainable outcomes. These observations are further borne out in Coslovsky’s (2014) recent study which illustrates how Brazil’s labour inspection regime works to enhance labour outcomes as well as returns to firms. According to Coslovsky (2008, p. 194) Brazil’s 3,000 labour inspectors on aggregate undertake inspections that cover 22 million workers a year (approximately one-fifth of the national labour force). Alongside the labour inspectors are up to 10,000 labour prosecutors, an array of specialist labour lawyers and a separate arm of the judicial system purely focused on enforcing the various aspects of the labour legislation. Drawing on evidence from four different sector case studies, namely sugarcane harvesting in Sao Paulo state, temporary agricultural workers in Parana state, and the clusters of firework manufacturers in Minas Gerais and charcoal producers (used for pig iron smelting) from Eastern Amazonia, Coslovsky (2014) shows how the public labour regulatory regime effectively led to improved outcomes for workers, such as through reduced incidences of accidents and better occupational health and safety standards (particularly noticeable in firework production), improved working conditions, higher levels of formalisation of the labour force (especially pronounced in sugarcane harvesting), and substantial reduction in the extent of servitude for workers in some of the sectors (such as in charcoal production). What is also apparent from a number of these cases was how the public inspectorate regime, combined the ‘stick’ of judicial enforcement with changes to the structure of the industry leading to closer ties between charcoal producers and pig iron smelters, or between sugarcane farms and the contract labour force used for harvesting. These closer relationships have resulted in wider changes in commercial practices, including increasing mechanisation in some sectors (such as sugarcane harvesting), improved quality outcomes through preferred user-producer ties (as in the case of the charcoal cluster) and enhanced national quality and safety standards (as in the case of the fireworks sector which also helped the sector to compete against lower quality Chinese imports).
The recent Brazilian experience suggests that what Tendler earlier termed as the ‘devil’s deal’ between lax enforcement of public regulations on labour and the environment and the needs for SME clusters to be ‘protected’ has now moved towards a more positive outcome. Threats of judicial sanction have combined with various forms of public assistance to bring about outcomes for labour and the environment across a number of sectors where clusters dominate, as well as enhance the capacity of clustered firms to upgrade and compete in national and domestic markets. This is not to suggest that there is a completely virtuous cycle in Brazil, but rather that the dominant ‘social contract’ in Brazil provides many more in-built pressures towards socially responsible behaviour from that seen in India.
The engagement between the private sector and the state around issues of corporate social responsibility is pronounced in Brazil. Brazilian private capital has worked closely with state institutions and labour bodies in taking on board a number of international initiatives on CSR. This includes, for example, the Global Reporting Initiative (GRI) and the UN Global Compact (UNGC). There are also a number of sector specific initiatives such as ABVTEX’s formulation of a domestic CSR code for the garment industry (Posthuma and Bignami 2014) and the role of the Brazilian sugarcane industry association in addressing ‘slave labour’ conditions in Brazilian sugarcane cultivate and in helping to formulate the international multi-stakeholder initiative (Bonsucro) seeking to improve sustainability goals in the global sugar industry code (author interviews, Sâo Paulo, April 2014). Possible the most significant example of private and public engagement around CSR is the Brazil’s role as Chair and Secretariat of the technical commission in the International Standards Organisation (ISO) that defined the international ISO 26000 standards on social compliance (Pena 2014).
Within Brazil, firms do complain about the costs associated with meeting Brazil’s labour and environmental codes and regulatory regimes (Coslovsky 2014). This is locally often termed as the ‘Brazil cost’, and a factor that can hamper the international competitiveness of Brazilian producers against other lower costs and more weakly regulated producers in the developing world. However, the evidence from Brazil on CSR engagement, suggests that despite the anxiety expressed on high regulatory costs, there is it appears a wider consensus between the state, civil society actors and key elements of private capital within Brazil that such labour and environmental norms, and their enforcement, are in the long term for the good (Posthuma and Bignami 2014).
China’s industrial development experience, and overall dynamism, is both remarkably different from and sharply distinctive to that seen in India and Brazil. In terms of trade and industrial growth, China represents a different scale and order of magnitude. Moreover, this has been achieved over a much shorter period. China’s transition from a global political superpower to becoming the rising global economic power began in 1980 when the first of the Special Economic Zones (SEZs), in Shenzhen, Zhuhai and Shanton (Guangdong province) and Xiamen (Fujian province), along the coastal belt, were opened up to foreign investment and private capital (Ge 1999). The initial platform for industrial and export growth was the city of Shenzhen, on the border of Hong Kong, which grew in terms of economic output at a phenomenal pace, 58 % per year between 1980 and 1984 (Zeng 2011, p. 9), attracting foreign direct investment particularly from Hong Kong and Taiwan and migrant workers from other regions of China. Shenzhen was soon followed by other major urban areas in Guangdong province, and then by the greater Shanghai region and the neighbouring provinces of Jiangsu and Zhejiang, being opened up as SEZs or as designated Economic and Technological Development Zones (ETDZs) and Export Processing Zones (EPZs).
It is hard to gauge the exact numbers of clusters in China. But the scale of clustering is substantial, its overall impact on China’s economic and export growth huge (Zeng 2011). Many of China’s leading industrial clusters have emerged out of the SEZs. These include: the electronics and information and communication technology cluster of Shenzhen and the electronics and biotech cluster of Pudong, Shanghai (ibid.). Some clusters are heavily dominated by foreign direct investment—the most notable being the electronics and computing cluster of Kunshan on the outskirts of Shanghai which is in large measure a cluster of Taiwanese firms that migrated from Taiwan to obtain lower wage cost advantages. Similar patterns of foreign direct investment driven clusters can be seen in other parts of Guangdong province (most notably in the city of Dongguan) and the wider Pearl River delta region (Enright et al. 2005).
Most Chinese clusters, however, have strong local roots. Such clusters tend to be dominated by SMEs and usually draw on a long standing tradition of local manufacturing skills, specialised capabilities and tacit artisanal knowledge, a history that often predates the Communist era. Many of the small and medium sized private firms that dominate these clusters have emerged out of town and village enterprises (TVE). The main concentrations of clusters are nevertheless along the coastal belt, and in regions that are well connected in terms of logistics, and domestic and export markets. These include the provinces of Zhejiang, Fujian, Jiangsu and Guangdong. A number of towns have emerged as leading centres of sector specialised production. For example, Qiaotou, Zhejiang province, a small town of 65,000, accounts for 60 % of world production of buttons with 500 factories generating a total output of nearly US$ 1 billion (Dinh et al. 2013, pp. 243–246). Yangzhou, Zhejiang province with a population of 36,000 is the toothbrush capital of China where 80 firms generated output of US$ 1.5 billion in 2009, and accounted for 35 % of the global market, and 90 % of the Chinese market (ibid: 261). Datang, again in Zhejiang province, is the world’s centre for sock production with over 5,000 firms (Zeng 2011). Haining, Zhejiang province has 400 warp knit factories with over US 1.1 billion of output of warp fabrics (Dinh et al. 2013, p. 236). Dieshiqiao, Haimen, Jiangsu province is the leading centre for home textiles manufacture in China—for both domestic and export markets (ibid.). And, according to Zeng (2011), the 228 clusters in Guangdong province together accounted for 25 % of the provincial gross domestic product (GDP).
There is no explicit policy framework for cluster development in China. However, while the central government has determined the planning framework behind the SEZs, the ETDZs and the new Hi-Tech Industrial Development Zones (HIDZ) from which many clusters have emerged; the key policy actor for most clusters is local government. City and municipal administrations have been particularly influential in assisting local SME clusters, especially through fiscal incentives, infrastructure development, marketing linkages and via targeted support from R&D and training institutions. City and municipal level governments also link closely to provincial government institutions in supporting local industrial strategies.
Chinese firms’ engagement with corporate codes of conduct has been closely studied, illustrating that such private measures often fail to improve working conditions (Sum and Pun 2005; Yu 2008) More recently there is evidence that Chinese firms engaged in GVC ties can and do engage more positively with CSR concerns (Egels-Zandén 2014). It is also clear that environmental considerations are increasingly becoming part of the Chinese industrial regulatory framework (Brandi 2014). There is a growing emphasis placed by national, provincial, and local governments to reduce environmental impacts, improve water and air qualities as well as promote green economy initiatives. Moreover, the labour regulations framework, including the labour contracts law of 2008 and the minimum wage legislation is being more actively used by the state, at various levels, to address issues in the labour market (Chan 2010) and drive geographical shifts in some labour industries away from relatively higher waged and better regulated regions along the southern coast to regions with lower wages and relatively more lax regulatory enforcement (Zhu and Pickles 2014). These developments help to shape our understanding of the institutional landscape within which Chinese clusters operate and the nature of the consequent social contract that applies.
Chinese manufacturing firms have been challenged over a number of years for their poor working conditions, their excessive reliance on long working hours and the nature of control exercised over dormitory based migrant workers (Chan 2010). Migrant workers, with limited citizenship (hukou) rights at their places of work, provide a labour regime in China that is associated with high levels of labour exploitation. Workers often work 10–12 hours a day (albeit 2–4 of these hours would be on an overtime basis) for 6 days a week. In many sectors pay is predominantly based on piece-rated production. Workers have limited representation and collective bargaining rights with factory unions usually being led by management nominated officials. The national-level trade union, the All-China Federation of Trade Unions (ACFTU) is a direct arm of the state and the Party (Chan and Hui 2014).
Consequently, many leading Western global brands have required their Chinese suppliers to conform to their specific codes of conduct. The compliance practices around such private codes, and their wider implications for workers and workers’ outcomes, have been substantially challenged by various authors, with documented evidence of labour abuse, poor working conditions and the control of workers that arise from the dormitory labour system (Chan 2003; Pun 2005; Sum and Pun 2005; Pun and Smith 2007; Chan 2010). While independent collective bargaining rights remain restricted in China, workers do exercise agency. The most obvious is through high levels of labour turnover, especially at the time of the annual Chinese new year holidays. At the extreme, there are now numerous cases of worker agitation and protest, including organised and wildcat strikes and at its most poignant form a number of cases of workers’ suicides (Chan and Hui 2014).
In recent years, the Chinese state has sought to respond to growing labour, and environmental, concerns through a variety of public regulatory initiatives. These have included the Labour Contract Law of 2008, the minimum wage legislation, social insurance legislation and a range of environmental measures (Brandi 2014; Chan 2010; Chan and Zhai 2013). There are also debates, and in some cases shifts in local policy, around extending some hukou (local citizenship) rights to migrant workers. One consequence of this has been the annual increases in minimum wages in much of the coastal regions, with minimum wages in Shenzhen rising by around 10 % a year over the past decade. There has also been a greater public investment with enhancing the standards regime in China, improving particularly standards related to quality assurance, food safety, and environmental impacts as well as a greater emphasis on investing in product standards. These moves within the regulatory environment are given shape by national government, and implemented by provincial and local governments. However, China’s devolved administrative structures have meant that public regulatory interventions, and their effective enforcement, are regionally uneven. Some of the most significant interventions are observed in the more developed coastal provinces. A key aspect of this is that in some regions, and clusters, local minimum wage legislations, enforcement of the contract labour laws and social insurance provisioning, as well as pressures around enforcement of environmental regulations, is resulting in both industrial upgrading as well as shifts in the geographies of production (Zhu and Pickles 2014).
China, therefore, presents a much more complex landscape in some ways then that seen in Brazil or India. SME clustering is not only extensive it is also a significant element behind China’s phenomenal record of industrial competitiveness. At the same time, while there is no clear and explicit national policy framework focusing solely on SME clusters, unlike the earlier initiatives around SEZs, there is substantial local government support to local industrial clusters, especially through infrastructure and R&D investments. It is also apparent, that there is an emergent ‘social contract’ being discussed and shaped in China particularly on environmental but also on labour issues. This is not as clearly marked as we observe in Brazil, yet in terms of public policy it appears far more substantial in terms of its overall impact as compared with India.