Industrial clusters can help boost economic growth

Industrial clusters can help boost economic growth

Md. Joynal Abdin

The Financial Express on February 03, 2016

 Cluster development is considered as an effective tool for fostering economic growth and innovation. Industrial clusters serve as one of the most effective mechanisms for spurring income and employment growth especially by micro- small- and medium-sized enterprises. Industrially developed or progressing countries have separate policies for industrial cluster development. But in Bangladesh, industrial cluster development concept is comparatively a new one. Previously the government was considering Export Processing Zone (EPZ) and Special Economic Zone (SEZ) as a means for promoting export and industrialisation. EPZ concept has many success stories in Bangladesh. But their scope is very limited and expensive for countrywide industrialisation. On the other hand, SEZ concept is still in the conceptual stage in Bangladesh.

Michel Porter, father of industrial cluster concept, defines a cluster as a ‘geographically proximate group of interconnected companies, suppliers, service providers and associated institutions in a particular field, linked by externalities of various types’. In Bangladesh, the SME Foundation has defined for the first time SME cluster as ‘a cluster having a concentration of 50 or above enterprises producing similar products or services and is situated within an adjoining geographical location of 5 kilometre radius and having common strengths, weaknesses, opportunities and threats.

There are 177 naturally grown SME clusters all over Bangladesh, developed on the basis of  raw material availability, skilled manpower and indigenous technical know-how of local people. These clusters have passed a long way to create demand of their products in the existing markets, to build supply chain networks, linking up the enterprises horizontally or vertically based on their nature of businesses. The biggest advantage of SME clusters over EPZ or SEZ concept is they have presence in every avenue of business of their own. The role of the government or development agencies would be to identify their growth barriers and addressing those in proper platforms. It is very easy to provide industrial infrastructure in a particular location for 50 enterprises than the same number of enterprises located in a scattered way.

 SME clusters are located in 51 districts of the country with representatives of every region. Therefore, development of SME clusters could facilitate balanced development of the country and reduce people’s pressure on the cities, especially Dhaka and other divisional cities. There are many promising and export potential clusters among these 177 if they could be introduced to the formal channel of doing international business. It is the government’s turn to enact a comprehensive SME Cluster Development Policy and deploy a dedicated body for cluster development. Previously many development partners, NGOs (non-governmental organisations) and government agencies like the Bangladesh Small and Cottage Industries Corporation (BSCIC) and the SME Foundation have undertaken cluster development initiatives on a piecemeal basis. They have achievements as beginners but how long will we stay as beginner with this important national issue? We should have a dedicated specialised body or at least a strong team to actively look after SME cluster development with cordial support from the highest authority of the government.

Why is cluster development important? Industrial cluster is important because it includes not only the concentration of output producing enterprises, but also input suppliers, output buyers, various service-providers and in some cases, the government and non-governmental institutions. It provides a competitive but mutually beneficial environment to the enterprises to become more competitive and profitable. It reduces the volume of investment of a particular entity and offers different segmental inputs and output of a product’s value chain. Availability of inputs, specialised labour and various services in a cluster helps reduce costs of doing business within clusters. Internal competition results in specialisation of labour and improved quality of products in a cluster.

Two types of linkages could be developed among the firms of a cluster. These are vertical networking among suppliers, buyers, wholesalers, retailers etc. and horizontal networking among different manufacturing enterprises like tanneries, shoe-makers, branded shops etc. Therefore, an SME cluster could be an ideal place to serve all possible stakeholders and vice a versa. Clusters could be of two types based on their initiation pattern like naturally grown cluster and government created cluster. A basic difference between SME clusters and BSCIC industrial estate is that SME clusters manufacture same/similar  products with their forward and backward linkages. On the other hand, the BSCIC industrial estates have the mixture of heterogeneous industries with or without any mutual networking. It would not be a wise decision to mix up two separate concepts of industrialisation into a broad head. Because, each of the concepts has advantages and disadvantages.

Naturally-grown cluster is a widely available phenomenon in every type of economies whether in a developing or a developed country. High-tech industrial cluster of Bangalore in India, the wine cluster in Chile and Sialkot surgical instruments cluster in Pakistan are examples of many successful cases of naturally-grown clusters. Best cluster development policy could be to upgrade the backward natural clusters by promoting the supply of local and regional services that cannot be provided by the market itself. A cluster development policy should take into consideration identification and analysis of naturally-grown industrial clusters, updated information about problems and prospects of each cluster, proper monitoring and evaluation mechanism to look after implementation status of the cluster development action plan, sustainability mechanism in a cluster and internationalisation or local network development of a developed cluster etc.

The ministry of industries could take an initiative to frame a cluster development policy. The national committee for industrial development (NCID) could play the role of an advisor or facilitator in the whole process. The BSCIC, the SME Foundation, the Bangladesh Bank, the BITAC, the BCSIR etc. could be the stakeholder organisations for cluster development. But we should remember that piecemeal activities of different organisations could not be substitute for a dedicated body for cluster development.

The government could establish a dedicated body for cluster development like the BEPZA or establish a specialised department in the SME Foundation or the BSCIC or the Prime Minister’s Office to look after the cluster development issue with specialised knowledge and services. Cluster development should be one of the top priority issues for the government to generate employment, create self-employment through entrepreneurship development, revenue earnings, reduce poverty and finally increase GDP growth.

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Md. Joynal Abdin

Development Researcher, Columnist and Author

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