An entrepreneur seeking to enter industry faces high transaction and learning costs. Networks are one way in which entrepreneurs reduce search costs while also lowering the risks of embarking on a new venture. Industrial districts, or clusters of contiguous and often related enterprises, are one way in which networks form. However, today, in an increasingly competitive world, networks need to be global. Global linkages are critical for passing on information and ideas, providing catalysts and capital, and for gaining experience via learning from others. Vertical linkages among firms are formed through subcontracting: larger firms (often international) subcontract parts and processes to smaller (often domestic) firms. Horizontal linkages are those between more or less equals, and are formed either through geographical proximity (clusters), or networks. Global linkages occur most frequently through trade.
Trading networks have always existed outside of the artificial boundaries established by states, and both Southeast Asia and Subsaharan Africa today have impressive trading groups with extensive global contacts. Although many hope that small-scale artisans will make the transition to modern manufacturing, local entrepreneurs who start manufacturing ventures in less developed countries seem more likely to begin as traders. Trade provides a vehicle for capital accumulation and an intimate knowledge of markets and distribution. Travel provides exposure to new ideas and sources of information. Furthermore, traders that are part of an ethnic network have other advantages. As Murray Weidenbaum points out: "in a region where capital markets are rudimentary, financial disclosure is limited, and contract law very weak, interpersonal networks are critical to moving economic resources across political boundaries." Weidenbaum was describing East Asia, and of course, these conditions apply even more in Subsaharan Africa.
As the histories above make clear, both regions have different experiences of entrepreneurial accumulation, network formation, and global linkages. The Chinese and, less so, the Indian networks of Asia are legendary. Based originally on ties of kinship and of dialect, these networks provided credit, preferential distribution agreements, advice, information and contacts for their members. Extended family and locality-of-origin connections enabled Chinese networks of the 18th and 19th centuries to expand easily beyond national boundaries, reduce search costs, and resolve problems of trust. As the first generations of trading families reproduced, the following generations had those networks to draw on, and expand. The challenges of entering manufacturing from a family with its roots in agriculture, artisanry, or even government service, are much steeper.
African traders and other entrepreneurs also have extensive networks. Indeed, Hausa and Igbo trading networks are also "legendary" in West Africa. Likewise, clusters of enterprises are commonly found in Africa: the Suame Magazine in Kumasi, Ghana, for example. Much less research has been done on the nature of these clusters and networks as they facilitate modern industrial development. One exception is the study of a cluster of modern spare parts factories in the Igbo town of Nnewi in eastern Nigeria.
The Igbo of eastern Nigeria live in one of the more densely populated areas of Africa, which may explain why their people became traders, settling in other regions of Nigeria and of West Africa, but always maintaining their connections to eastern Nigeria. Nnewi entrepreneurs entered the palm oil market at the end of the 19th century, producing, collecting and later transporting palm oil. The area became a noted center for transport and a market for spare parts consequently sprang up. During the colonial period, several businessmen, including Philip Ojukwu, amassed considerable wealth through their transport businesses, one of the few areas that were open to indigenous entrepreneurs. By the 1930s, Nnewi people were at the center of an international trading network that dominated the supply of motor spare parts. Like the Chinese, Nnewi traders used family networks, clustering close relatives at the center of each web of distribution, and non-relatives (but generally co-ethnics) at the outer edges.
Although at first spare parts were imported primarily from Europe, Asian entrepreneurs soon penetrated the market, offering to produce copies of the European "original" brand name parts. Nnewi's first Asian contacts were with Japan, but soon Chinese networks based in Taiwan came to dominate the supply of motor vehicle spare parts with their "reproductions" of European brandname parts. Gradually Nnewi motor parts traders began marketing their own brand name products instead of the reproductions of "original" parts. These, too, were generally made in Taiwan. The great majority of industrialists in the cluster of spare parts factories in Nnewi are also traders, and most of these are producing one or more of the products they specialize in as traders (usually motor vehicle parts), and most began by distributing their products through their preexisting distribution networks. Family networks remained a factor, although they were weaker in manufacturing than in trade.
Nigerian traders received extensive exposure to production in Asia once their businesses grew large enough for the traders to make the trip to Asia for goods instead of waiting at home for Asian traders. One medium-sized manufacturer of plastic auto parts and batteries related how in the early 1980s his trading business had grown large enough for him to travel to the Far East to meet with his suppliers in Japan: "I saw their plant and how they produced, and I felt if I could produce these items at home, I could give people jobs, transfer technology to Nigeria, and make more profit." Another manufacturer commented, "For eight years I imported these things and saw how simple they were to make. So I decided to start manufacturing them."
Nnewi industrialists generally used imported machinery (sometimes second-hand) one step down the product cycle, at the technical level now being outgrown in the East Asian NICs. Some entrepreneurs were able to import machines from the factories they had been trading with in Asia. For example, an oil filter manufacturer bought out the Singapore firm who used to supply his business. In so doing, of course, Nnewi entrepreneurs were following the experience of Taiwan and Korea, who learned from Japan's slightly outdated production practices. Their extensive international ties gave them access to information that simply did not exist inside Nigeria: information on modern, medium-scale production technologies that Asian firms were beginning to outgrow. These contacts, combined with the advantages of the strong distribution system and the access to credit facilitated by ethnic ties, underpinned the lower transaction costs enjoyed by Nnewi entrepreneurs seeking to enter industry.
Another case of Africa-Asia networks can be found in Mauritius. Mauritius was the first African country to establish export processing zones (EPZ), in 1970, soon after independence. The idea for the EPZ seems to have come from a prominent Sino-Mauritian professor, Sir E. Lim Fat, whose family was originally from the Canton area, and who was linked through his brother-in-law's family to Chinese in Taiwan, where he visited the world's first EPZ. Taiwan offered technical assistance for establishing the zones, and the Sino-Mauritians advertised the opportunities through their contacts in Asia, and invested in the zones themselves. Between 1971 and 1975, EPZ exports grew at 31 percent per annum. Although expansion in the zones then went through a slower period, foreign investment from Hong Kong and Taiwan surged in the mid- and late 1980s, becoming the nucleus of a thriving knitwear and garment export industry. By the late 1980s, Mauritius was the third largest exporter of knitwear in the world.
Early in the life of the EPZs, joint ventures between East Asian and local investors were common, although this was not a requirement for foreign investment. Because Mauritius had wealthy entrepreneurs with the capital to invest and the desire to learn the business, while the Asian firms needed the capital, risk-sharing, and the local knowledge and contacts, joint ventures were genuine, not "paper" partnerships.
Although Mauritius relied initially on foreign investment and their production and marketing knowledge, entrepreneurs in Mauritius were quick to also take advantage of the business opportunities presented by knitwear, garments, and other products. Franco-Mauritians who had amassed capital in the sugar industry, and Sino-Mauritians who had become wealthy through trade, were eager to establish links to the new foreign firms, who acted as catalysts for local investment. Much as in the "Third Italy" of Emilia Romagna, local firms soon sprang up to take advantage of the fact that the garment export industry is subject to unpredictability, with frequently very rapid turnaround demanded on "rush" orders that a single factory may be hard pressed to meet on time. When a foreign factory needed to send some tasks out to local firms, they would at the same time train the local firm to meet their quality requirements. These frequent demands for subcontractors, as well as the ability of Mauritian firms to attract workers who had been trained in foreign firms and who brought useful skills into local firms, spread capacity throughout the industry. At present, Mauritian owners account for about 60 percent of the capital invested in Mauritius.
Finally, Africa-Asia linkages are also present in Lesotho, where many Hong Kong and Taiwanese investors have set up garment factories, and in Kenya, where Kenyan Indian entrepreneurs have recently established export processing zones on their own.
Industrial clusters that start with trade like that in Nnewi, or with artisanry, like the Suame Magazine in Kumasi, Ghana, are historically determined and may build slowly. In Indonesia, where these clusters are common, regression analysis suggests that agglomeration economies go far toward explaining regional enterprise concentration in Indonesia. Yet as van Dierman notes, "the mere occurence of clusters does not guarantee that productive networks will develop and agglomeration economies will accrue to individual enterprises within the clusters." Clusters of specialized industries may be unable to move toward the kind of collaboration found in Mauritius. Sometimes, the characteristics of an industry will lend themselves to the development of collaboration and horizontal relations. Garment manufacture is one good example of this, where a process that could be vertically integrated is instead disaggregated and parts are given to subcontractors. As Pederson notes, this may be rare in Africa:
"Many of the small industrial clusters found in Africa appear to have developed out of market towns rather than out of vertical sectoral disaggregation. They are often characterized by very limited vertical specialization and diversification and may develop into clusters of petty commodity producers rather than full-blown industrial clusters. This may be one reason for the limited success of many African enterprise clusters."
McCormick's work in Kenya underscores this conclusion. She found in the clusters that occured on the low technology end of the garment market "very limited contracting of specialized services" (117). The mass producers of garments were 100 percent Asian, while the custom tailors were 95 percent African. In this case, networks differed greatly, being segregated by ethnicity and level of education. Network characteristics "at least partially explain the different operating styles and growth potential among garment manufacturers." (120).
Recent work by economists has begun to quantify the advantages networks may (or may not) provide to entrepreneurs in Asia and in Africa. Stanford economist Marcel Fafchamps has established that personal networks do give entrepreneurs in Kenya and Zimbabwe significant, preferential access to supplier credit. The kinds of networks that could benefit from this access generally were limited to non-indigenous groups who could easily identify each other: Europeans and "Asians", who had access to information about the reliability of others in their network, but not those outside. Research by Oxford economist Abigail Barr suggests that network diversity among Ghanaian manufacturers is significant in explaining productivity differences between enterprises. Barr also demonstrates that networking helps Ghanaian entrepreneurs achieve increasing returns to scale, facilitating enterprise expansion. Her work suggests as well that networks can be divided into "local" and "globalizing" and that while local networks serve more to reduce uncertainty for entrepreneurs in marginal and traditional industries, globalizing networks provide relatively larger, more modern enterprises with the information they require about technologies, markets, and the external world. Van Dierman also notes that in his study of Jakarta's low technology garment and wood furniture entrepreneurs, "dense networks of inter-firm linkages were not significant" in their growth. But Rick Doner's research in Thailand suggests that Chinese informal credit networks and trading company links are still very important, especially during periods of economic downturn, and "for those firms just moving into manufacture for export".
Government policies can promote subcontracting and other kinds of linkages, although it is not clear that Southeast Asian or African countries have been effective in these efforts. Indonesia, for example, began in the late 1980s to actively promote linkages between foreign and domestic firms with a well-enforced local content scheme, and linkages between large and smaller firms with the "Bapak-Angkat" (foster father) scheme. When these programs are evaluated, we may learn more about their usefulness.
By: Deborah Bräutigam Local Entrepreneurship in Southeast Asia and Subsaharan Africa: Networks and Linkages to the Global Economy School of International Service American University Washington, DC
To learn more about this author, visit United Nations University's Website.
Like this article? Share it with your friends
|
|
|
![[Get Copyright Permissions]](http://license.icopyright.net/images/icopy-w.gif){kind=small}
Apparently the major TV networks have conceded this InterWeb thing may not be a fad after all:
