Post-Industrial East Asian

Cities

Shahid YusufWorld Bank

January 30, 2007

Urban Transition

East Asia is urbanizing rapidly. Simultaneously, the pace of urban structural change in its major cities is accelerating: The displacement of key manufacturing industries by other activities is occurring in decades as against centuries.East Asia’s mega-cities need to find new engines of growth and new ways of financing ‘imports’ as their traditional manufactured exports diminish. Over the medium term, a city’s ‘current account’ (i.e. its transactions via trade and capital transfers with the rest of the world) must balance.

What is Accelerating Change Rapidly rising wages and overheads in major cities are affecting

competitiveness of labor intensive manufacturing industries. Global market integration, modularization and disintegration of

the production process, and more efficient logistics are exacerbating pressures from lower cost producers.

Technological advances are reducing the labor coefficients of manufacturing. Less labor is required and production is more skill intensive.

Terms of trade are shifting against manufactured goods because of relatively higher productivity and because the changing composition of demand favors services.

Why Focus on Urban Economies Salience of the urban economy: Share of population and GDP is

rising steeply. 85% of GDP is urban in high income countries, 55% in low

income countries. Importance of city size for agglomeration and scale economies which

can contribute importantly to urban productivity. Major cities which are nodes of global urban network attractive for

tradable business services (e.g. finance, legal, and accounting) and foreign direct investment.

Demographic patterns: currently a high percentage of the population is of working age; source of human resources, dynamism, and entrepreneurship.

Impact of cities on the environment, resource use, and health. In the United States, buildings account for 65% of electricity use, 36% of energy consumption and 30% of greenhouse gases.

Which Cities Matter and Why The Asian industrial miracle was and is an urban

phenomenon. Key players are a small number of cities, which over time have grown into mega-urban centers. Asia’s future linked to economic dynamism of these cities.

Among the principal foci of Asian growth are: Tokyo, Osaka, Nagoya, Seoul, Shanghai, Yangtze Delta Region, Bohai Region, the Pearl River Delta, Hong Kong, Bangkok, Taipei, Singapore, Jakarta, KL/Klang Valley.

Share of National GDP

City 1985 1990 1995 2000 2003

Bangkok 35.94 40.5 39.08 36.31 --

Beijing 2.1 2.7 2.4 2.8 3.1

Seoul 24.9 25.3 24.9 24 24.1

Shanghai 5.2 4.1 4.2 5.1 5.3

Singapore 100 100 100 100 100

Tokyo -- 17.6 16.1 16.6 --

City GDP in 2003 (US$ billions)

City Bangkok Beijing Seoul Shanghai Singapore Tokyo

GDP 4.46 44.26 146.9 75.52 94.61 764.17

What Brings New Industrial Engines to Life

National/subnational policies: Investment in tertiary level skills (especially science

and technology manpower), measures to raise quality of skills, funding for research.

Local incentives regime for industry: fiscal (e.g., tax incentives and grants), labor market institutions which induce skill formation and efficient allocation, financial (ease of raising funds from local sources, e.g. from angel investors), and government purchases of goods and services (e.g. IT).

Investment in and maintenance of high quality physical and IT infrastructure.

What Brings New Industrial Engines to Life

Coalition of supporting private interests, e.g. financiers, urban developers, NGOs, and industrial and professional bodies

Industrial organization: mix of large and small firms; R&D, organizational and marketing capabilities of large firms; and innovativeness of small firms

Open innovation systems and links with universities and research institutes

Urban environment: quality of amenities and public services and safety nets to minimize poverty/inequality and emergence of slums

How are Cities Pursuing Industrial Opportunities

The Tokyo case: developing multifunctional robotic technologies

The Singapore case: creating a biotech sector through FDI and investment in R&D infrastructure

The Seoul case: grooming an online videogames industry The Beijing case: cultivating the electronics sector through

FDI, skill development, R&D and start-ups The Bangkok case: developing the fashion and jewelry sector

through investment in design and marketing The Shanghai Case: enlarging the capabilities and export

potential of the construction and engineering services sector

How to Measure Impact and Potential of Emergent Leading Sectors

Growth and contribution to urban economic performance

Industrial linkages Employment, skill intensity Technological dynamism: Links with universities and

research institutes Corporate capability International market penetration Future demand prospects: Local and global

Growing New Urban Industries: Singapore’s Biotech Sector

In 2004, biomedical manufacturing (including pharmaceuticals and medical technology) accounted for 2.6% of employment, 9.1% of output, and 21.3% of value-added in manufacturing.

Singapore creating biotech cluster following the US model: Universities, and linkages with businesses Star scientists as inventors and entrepreneurs Role of risk capital Large pharmaceutical firms Clusters around key hospitals, universities, government

labs Urban amenities

Singapore’s Biotech Sector The creation of Biopolis

Investment of US$286 million Houses five public institutes Close to NUS Hospital Place where researchers can “work, live, play, and

learn” Attracting MNCs through FDI incentives (first for

manufacturing, then gradually shifting to research activities). Global linkages to make Singapore as a cost-efficient clinical

trial site.

Singapore’s Biotech Sector Attracting star scientists from abroad

Jackie Ying, Alan Coleman, Bernat Soria, Axel Ulrich, Sydney Brenner, Edison Liu, David Lane, Yoshiaki Ito.

Taking advantage of English being the official language which facilitates communication among researchers from around the world.

Investment in domestic human capital Establishment of specialized degree programs in Singapore. (bonded) Scholarship programs to provide overseas training. Modification of curriculum at tertiary and secondary school

to include subjects on life sciences and entrepreneurship.

Singapore’s Biotech Sector Venture funds backed by government Improving the quality of research at

universities Stimulating University-Industry Linkages Teaching entrepreneurship

Singapore’s Biotech Sector Competition: Korea, Taiwan (China), China, and India. The growth opportunity is large but uncertain.

US spends 16% of GDP on health care Other countries spend close to 6% With aging and rising incomes in other countries, the opportunities

for biotech sector is large, especially for medicine However,

Rising costs of new product development, yet fewer blockbuster drugs in the pipeline.

Possible backlash against rising medical costs in advanced countries and scandals with major drugs.

Whether Singapore has enough scale. Heavy reliance on foreign firms and talents.

Fashion Industry in Thailand Long history of sericulture, production of silk products, and of gemcraft.

Often done by farming households to supplement their incomes. Establishment of Department of Silk Craftsmen in 1903 marked the

beginning of the modern sericulture in Thailand. Modern silk industry emerged in post-war period. The establishment of

the Thai Silk Company by Jim Thompson, an important step. Introduced artificial dyes from Switzerland and Germany and printed

silk fabric. Encouraged creation of indigenous designs. Marketed to tourists and overseas.

Sorting, heat treatment, cutting, and setting of gemstones, local and imported has grown steadily.

Cutting, polishing, and setting of imported diamonds started in 1990s.

Fashion Industry in Thailand Fashion sector generates $12 billion in sales, employs 2 million

workers, mainly in 20,000 SMEs. Garment sector employs 81,000 people, accounting for 3% of

GDP, 7% of exports. But global share is less than 2%. Textile and garment industry invested $12.5 billion between

2001 and 2004 to upgrade dyeing, finishing, weaving, knitting, and spinning facilities.

Bangkok the dominant player in the fashion industry accounting for 74% of jewelry, 48% of garments, and 41% of leather goods.

Fashion Industry in Thailand Gem and jewelry industry’s output is about $500 million, employs 32,000, export

ratio is about 80%. Headquarters of gem and jewelry firms mostly located in Bangkok. Strength in heat treatment (to enhance color and quality of gem stones) and

synthetic gems. Silver jewelry, major export: competes against high-end products from Italy and

low-end from India and China. New technology (such as computerized sorting of gem stones) promises gains in

productivity but threatens livelihood of rural workers. Gemopolis Industrial Estate to promote the jewelry industry in Thailand

a complete supply-chain cluster. 50 manufacturers, more than 10,000 employed, exports of $500 million in 2003 Fiscal incentives (exemption from corporate income taxes, import duties, value-

added tax).

Fashion Industry in Thailand Fashion Centers around the world

Paris, New York, London, Tokyo, Milan Upgrading and adding value to garment and jewelry sector

products becoming necessary because of: Rising local costs. Increased competition from China, India, and other countries.

The push by the Thai government to develop the fashion industry The Bangkok Fashion City initiative. Gemopolis Industrial Estate. Investment in technology and training.

Fashion Industry in Thailand Favorable conditions

Rising incomes in East Asia – big middle class. Younger demographics in East Asia (70% of the

population working age, average age less than 40). Geographic shift of manufacturing to East Asia.

Unfavorable conditions Consolidation of global brands. Absence of major firms and of local brands with regional

or global recognition. Uncertainty over the global acceptance of local styles

and motifs.

Fashion Industry in Thailand Adding value and enlarging global market share requires:

Advances in design through development of local skills and outsourcing services.

Links with famous fashion designers. Local and overseas exhibitions. Strong marketing efforts aided by publications/advertising

industries. Strengthening of skills of workers. Advances in technology for designing, cutting, making, and

finishing garments and in sorting/cutting gems and working with metals.

Use of e-business for selling upscale clothing and jewelry. Creating viable urban clusters with the help of local

governments, developers, and industry associations.

Key Points Successful post-industrial cities will be ones that:

Fully develop and mobilize knowledge capabilities and capital from national and international sources;

Are globally linked and maintain open innovation systems;

Attract and retain dynamic and research-oriented firms;

And sustain an attractive physical and stable as well as creative social environment.

Table of Contents Chapter 1 Emerging

Cityscapes Chapter 2 Megacity

Profiles Chapter 3 Disappearing

Manufacturing Chapter 4 Deciphering

the DNA of the Biotechnology Industry

Chapter 5 Meet Astro Boy and Friends

Chapter 6 Fun, Movies, and Videogames

Chapter 7 Silk and Gems Chapter 8 Sculpting the

Urban Skyline Chapter 9 Gold in Silicon Chapter 10 Summing Up

Thank You