Post-Industrial East Asian Cities

1. Post-Industrial East Asian Cities Shahid Yusuf World Bank January 30, 2007

2. 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.

3. 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.

4. 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.

5. 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.

6. Share of National GDP

7. City GDP in 2003 (US$ billions)

8. 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.

9. 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

10. 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

11. 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

12. 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

13. 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.

14. 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.

15. Singapore’s Biotech Sector • Venture funds backed by government • Improving the quality of research at universities • Stimulating University-Industry Linkages • Teaching entrepreneurship

16. 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.

17. 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.

18. 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.

19. 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).

20. 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.

21. 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.

22. 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.

23. 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.

24. 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 Table of Contents

25. Thank You