A CLUSTER STRATEGY IN SPECIAL ECONOMIC ZONES
Spread all over the country are a large number — 461 as of last count — of specifically designated areas known as special economic zones (SEZs). These are part of the government’s strategy of attracting foreign investment into the country by offering wideranging benefits, perks and privileges to prospective investors. These include exemption from income taxes and business fees, tariff-free importation of capital equipment and supplies, and special assistance in setting up and running the newly established business ventures.
Easily the largest among these SEZs, both in terms of geographic area and number of locators, and the one with the greatest potential for further expansion, is Clark Special Economic Zone (CSEZ) which operates under the administrative mantle of Clark Development Corp.
SEZs in the country employed over 1.4 million workers as of July 31, 2017, accounting for about 3.85% of total employment. Considering that locators in SEZs are bound to be more capitalintensive than business establishments located elsewhere in the economy, it is safe to assume that they contribute a somewhat larger percentage to the country’s GDP. However, if we consider the downside of SEZs, such as the economic and social disruption caused by the massive development projects in the local communities to make way for them, along with the social cost arising from corruption and mismanagement, the actual figure is more likely to be closer to 3%, a sizeable figure nonetheless.
NETWORK EFFECTS
For all their positive impact on the economy, there is yet another opportunity, heretofore un-
By sharing common resources, firms that comprise a cluster are able to achieve virtual economies of scale.
tapped, by which SEZs can create substantial value for Philippine society. This brings us to the notion of cluster policies.
Clustering, or cluster analysis is an analytical technique which is useful in many fields of study. At the most general level, a cluster is any grouping of similar items or objects distinct from any other in terms of some specific criteria. Concepts similar to it have widespread applications, ranging from anthropology (ethnic grouping), biology ( biological classification), mathematics (set theory), to Big Data analytics (data mining).
Of special interest to us is the application of cluster analysis in industrial organization and business management. In this context, a cluster is a group of geographically concentrated and interacting firms along with their specialized service providers, which include suppliers and distributors and support institutions such as universities and community organizations.
The existence of SEZs in the country provides a perfect opportunity for the implementation of a cluster policy in the Philippines because firms that are in geographic proximity to one another are already — or will soon be — in place.
What remains to be done are twofold:
• Identify the firms which
logically fall within a cluster, meaning, those that serve identical or similar markets, those that employ essentially the same production technologies, and those that require the same technical, manual and analytical skills — in sum, those that turn out comparable — not necessarily identical — outputs, require comparable inputs, and employ comparable technologies. • Require or encourage these firms to strategically interact with one another and with their respective service and input providers. Under deft managerial hands, doing so will enable them to create more value for their shareholders, their employees and their customers, and to serve their communities better.
By sharing their common and complementary resources with one another, firms that comprise a cluster are able to achieve virtual economies of scale and to effectively enhance the scope of their operations. Clustering also enables interacting firms to benefit from network effects.
These advantages of working together as a network put relatively smaller business firms on more orless equal footing with the more resource- endowed, more technologically advanced, and more globally networked Multinational Corporations, which are in a position to go it alone. These benefits come in the form of more efficient and cost-effective operations, higher-valued products and services, and sustained technological, product and process innovation. These are advantages that could not be achieved if these firms chose to operate in isolation from one another.
The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or the MAP.