Evolution of Structure

The Evolution and Structure of Industrial Clusters in Japan
Author(s): Hideki Yamawaki

Source: Small Business Economics, Vol. 18, No. 1/3, Special Issue: Small Firm Dynamism in East
Asia (Feb. - May, 2002), pp. 121-140
Published by: Springer
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The Evolutionand Structure

of
Industrial
Clustersin Japan
HidekiYamawaki
oftheseclusters
Whiletheeconomicsignificance
varieswidelyfromclustersproducing
primarily
toclusters
forexports
indigenous
goods
producing
littleknownoutsideJapan,an important
question
commonto theseclustersarise:Wheredo these
clusterscomefrom?Whatarethekeydriversfor
thebirthand growthof theseclustersin Japan?
Whatcompetitive
advantagedo theyhave? The
this
of
paperis to addresstheseissues.
purpose
factorsthat
the
Specifically, paperfirstidentifies
in shapingtheevolutionofclusters
areimportant
of
in Japan.Second, it describesthe structure
of
sources
their
and
examines
clusters
Japan's
advantage.
competitive
Whileclustersare definedgenerallyas geocomof interconnected
graphicconcentrations
business
in
a
institutions
and
particular
panies
field (Porter,1990, 1998), each clustervaries
1. Introduction
suchas geographic
ofkeyfeatures
interms
greatly
factthatJapanhoststhe
and patternsof
It is a well established
locations,products,functions,
medium-sized
and
fromeachother
smallof
differ
number
Clusters
inter-firm
largest
linkages.
counindustrialized
in
historical
differences
of
because
circumstances,
(SMEs)
among
enterprises
and
tries.WhenSMEs are broadlydefinedas those
demandconditions,supporting
industries,
less
or
evolutheir
underlie
than
300
that
with
fewer
conditions
employees
enterprises
competitive
thanYen 100 millionin capital,morethan99
tion.Some clustersarisefrompeculiarhistorical
the
in Japanesemanufac- conditions,
percentof all enterprises
yetothersmaydevelopthrough
The
wereclassifiedas SMEs in 1994.Further, confluence
of variouseconomicconditions.
turing
thatshapeda cluster,
67 percentof totalemployeesin manufacturing initialeconomicconditions
workedforSMEs in 1994.1
however,do not necessarilyremainconstant
ofJapan'sindusfeature
An equallyimportant
beyondcertainperiods.Rather,economiccondiis thatJapan'sSMEs oftenform tionssurrounding
clustersmaychangeovertime
trialorganization
clusters.Accordingto the 1996 surveyof the
becauseof changesin domesticandinternational
conditions.
SmallandMediumEnterprise
Agency,a totalof
competitive
toexistthroughout
arereported
537clusters
On thebasis of information
Japan.
providedin the
on
manufacturing
Japan's
surveys
previous
The Peter F. DruckerGraduate School of Management
clusters(People's Finance Corporation,1987,
ClaremontGraduate University
1995; MITI, 1996; SMEA, 1997; Ito and Urata,
1021 NorthDartmouthAvenue
1997,1998),thispaperexaminesa sampleof 14
Claremont,CA 91711
clustersin Japan
cases of manufacturing
major
U.S.A.
toexport.After
thathaveshownhighpropensities
E-mail: h.yamawaki@cgu.edu
ABSTRACT. This paper focuses on two aspects of the

evolution and structureof clusters in Japan, namely, what
gives rise to clustersand whatbenefitsare acquired by small
of clusfirmsfromparticipating
in clusters.The determinants
teringare discussed by way of a review of the historyof 14
industrialclusterswhichcover a wide rangeof industriesand
factorsdominate
locations in Japan.It is noted thatdifferent
in differentcases. Among the more importantones are the
existenceof leading large firms,the availabilityof a pooled
labor market,and thepresenceof public researchand testing
facilities. The four most importantbenefits from clusters
reportedby small firmsare : (i) specialization; (ii) ease of
procurement;(iii) diffusionof technology,and (iv) public
policy support.Access to skilled workersis not reportedto
benefit.This maybe explainedby thefactthat
be a significant
the dominantsource of skills acquisition among Japanese
workersis on-the-jobtrainingand such skillsmaybe too firmspecificto be useful to others,even withina geographically
concentratedcluster.
mm
rT
Small Business Economics 18: 121-140, 2002.

2002 KluwerAcademic Publishers. Printedin the Netherlands.
122
HidekiYamawaki
providinga briefdescriptionon the historical

thepaper
of each of theseclusters,
development
extracts
keydrivingforcesfortheevolutionof a
a
cluster.The 14 clustersstudiedmanufacture
and
widerangeofproducts
silk,cotton,
including
fabrics;apparel;ceramicgoods;general
synthetic
automobileparts;binoculars;silvermachinery;
handtools;andeyeglassframes.
wareandcutlery;
of thispaperis organizedas
The remainder
follows.In thenextsection,evolutionary
patterns
of this sampleof 14 clustersare qualitatively
examinedto derivea certainset of factorsthat
to thebirthof clusters.This analysis
contributed
identifies
historical
circumstances,
priorexistence
in theregion,priorexistence
ofrelatedindustries
of relatedclustersin neighboring
regions,techfromotherclustersand foreign
nologytransfers
andregionalgovernment
countries,
policyas most
driversof the birthand growthof
important
clusters.
Section3 describesstructural
features
of
theseclustersand examinesvarioussourcesof
thattheycreate.The analysisfindsthat
advantage
the existenceof small and mediumenterprises
withspecializedskillsin an industry
in a geoin
graphicspaceis likelyto createagglomeration
Japaneseclusters.Section4 examinesthedevelopmentof technologicaland humanassets in
Japaneseclusters.Section5 shedssomelighton
theissuesofclusterperformance.
Finally,Section
6 summarizes
thekeyfindings
andconcludesthe
paper.
eachoftheseclusters
is briefly
described
focusing
forbirth,
on itshistory,
andinterkeyconditions
firmlinkages.
Briefhistories
ofJapan'sclusters2
2. Evolutionofindustrialclustersin Japan
Kiryu(Gumma)
is anold
KiryuCity,locatedinGummaprefecture,
townthatspecializesin silkand man-madesilk
Itsrootscanbe traced
andothersynthetic
fabrics.
backto theEdo period(the1600s)whenthecity
becamefamousas a primeproduction
locationof
silk
and
high-quality (habutae)
specialtysilk
Thecluster's
weavessuchas kinrandonsu.
modern
in
when
starts
1878
the
history
cityimported
Jacquardlooms to produce silk fabricswith
weaves.Afterjust fouryearssince
sophisticated
its introduction
of thisnew technology,
Kiryu's
firmsstartedto exportsilk fabricsto the U.S.
market.Its majorproductshiftedfromsilk to
man-madesilk fabricsduringthe 1920s and
further
to syntheticfabrics(e.g., acetate and
Whiletheclusterhostsmorethan600
polyester).
weaverswith2,000 employees,themajority
of
themare verysmall (90 percentof firmswith
fewerthanfiveworkers)and operateas subcontractors
whoreceivefeesonconsigned
production.
theseweaversare smallfirmsthat
Surrounding
havehighlyspecializedyetcomplementary
skills
in different
such
as
production
stages
threading,
The cluster
design, dyeing,and embroidery.
morethan35 percent
of salesto foreign
exported
markets
the
1980s.3
through
A sampleof 14clusters
inJapanwas selectedfrom
the clusterspreviouslystudiedby the People's
FinanceCorporation
(1987, 1995),MITI (1996),
SMEA (1997), and Ito and Urata(1997, 1998).
The 14clusters
werechosenrather
subjectively
by
the
criteria:
using following
(1) Theclusteris distinctivein thatinterconnected
firmsare located
ina geographically
concentrated
areaandproduce
a particular
class of products;(2) theclusterhas
beenimportant
in termsof thesize of economic
the
clusterhas been competitive
in
activity;(3)
international
marketswith significantly
high
of the
exportshare;and (4) theevolutionpattern
clusteris unique.The locationsof theseclusters
are not concentrated
in one particulararea but
across
dispersedwidely
Japan.In whatfollows,
Fukuiand Ishikawa
Fukuiand Ishikawaprefectures,
twoneighboring
prefectures
facingtheSea ofJapan,forma large
clusterof textilemanufacturers.
The clusterin
Fukuiarosein theearly1900swhentheprefectureimported
thesilk weavingtechnology
from
as
KiryuinGunma.Later,thecluster
grewrapidly
manynew firmsfollowedto entertheindustry.
The prefecture
the
government
helpednurture
new
region'srayontextileindustry
byintroducing
technologythroughthe government-managed
technical
centers
the1910-30period.After
during
WWII, newmaterials
suchas nylonandpolyester
were introduced
in thisregionthrough
private
betweenJapaneseand U.S.
licensingagreements
firms.Fukui is the largestclusterof synthetic
Industrial
ClustersinJapan
fabricin Japanin termsof shipment,and exports

morethan70 percentof productsabroad.
The synthetic
fabricindustryin Ishikawa grew
rapidly during the mid-1960s to fill the large
demandincrease in polyesterfabric.The prefecture governmentprovided assistance for local
firmsduringthisperiodas a policy to develop the
region's economy.The cluster's export share is
very high rangingbetween 70 and 85 percent
duringthe 1980s. The two clusters' weavers are
typicallycharacterizedas small- and mediumsized firmsand operate,on average, with fewer
than50 looms.4The distinctivefeatureof interin thisclusteris thatthemajority
firmrelationship
of weaving firmsfunctionas subcontractorsfor
chemical firms(or major textile firms),trading
companies,and local wholesalers.Local weavers
receivefees and marginsbased on thequantityof
productsconsignedby chemicalfirmsand trading
companies that in turn supply yarns. Subcontractorsengage in differentactivities such as
threading,weaving,and dyeingin theproduction
processaccordingto theirskillsand competencies.
Komatsu(Ishikawa)
KomatsuCityis an old cityin Ishikawaprefecture
location
thatevolved froma majormanufacturing
of silk weaves to theindustrialsupplybase forthe
world's second largest constructionmachinery
producer,Komatsu Ltd. The originof the city's
textileindustry
goes back to the17thcenturywhen
a local lord promotedproductionof silk and tea.
While Komatsu's textileindustrydeclineddrastically during the late 1970s and 1980s, its
prosperedas theconstruction
machineryindustry
firmgrew.Komatsu startedits operationin 1912
and developed a networkof suppliersand related
industriesin thecity.
Nishiwaki(Hyogo)
NishiwakiCityspecializes in cottonfabricwoven
with dyed yarns. Its products account for 60
percentof domesticmarketsharein thisspecialty
niche. The industry'sroots are traced to 1793
whenthecityimporteda weavingtechnologyfrom
Nishijinin Kyoto. It expandedgreatlyduringthe
1920s withthesuccess in exportsof cottonfabrics
for shirt and bed linen in South East Asian
markets.AfterWW II, the city's industrygrew
again with exportsof specialty fabrics such as
123
gingham. The organizational structureof the

clusteris similarto those of Fukui and Ishikawa
and builton a networkof smallfirmswithspecific
and complementary
capabilities(dyeing,preparations,and weaving).The majorityof suchweaving
firmsagain functionas subcontractors
workingfor
firms
and receive
tradingcompanies and apparel
fees on consignedproduction.
Gifu(Gifu)
Gifu City is rankedamong the largestthreemanufacturinglocations of apparels. Its origin is
relativelynew and tracedto theperiodrightafter
WW II. The clusterarose froma peculiarhistorical circumstancethat the people who returned
from China after the war started selling used
clothesin frontof thetrainstationof Gifu.Later,
new entrantsstartedto manufactureapparel with
fabrics procured fromthe neighboringclusters
specialized in fabrics (Hashima in Gifu and
Ichinomiyain Aichi). More than 70 percentof
Gifu's apparel makers specialize in women's
900 apparelfirms
clothes.Gifuhas approximately
of
with a total
11,000 employees whose major
in
activitiesare productdesign, sales, and distribution,and a large numberof small sewingfirms
witha totalof 10,000 employees.5Apparel firms
place ordersforsewingfirms,and sewingfirmsin
turnconsign part of the work to a pool of area
households.A large portionof sewingoperations
are thuscarriedoutmainlyby femaleworkerswho
work for sewing firms (approximately23,000
workersin the entireGifu prefecture)and those
who work at home as part-timers(another
20,000-30,000 workers).
Seto (Aichi)
Seto City, located adjacent to Nagoya, is well
knownforits ceramicsgoods. The cluster'sroots
can be tracedto theHeian period(the 1100s) when
the city startedproducing ceramic wares. The
location factorwas crucial for the development
of thisclusteras the area was well endowed with
deposits of a certaintype of earthindispensable
forhighqualityceramics.While the area's major
ceramicwares such as
productswere traditionally
tea cups and pots (setomono),the industrydiversifiedintonew productscalled noveltygoods such
as ceramic toys,dolls, and ornamentsduringthe
WW I as the productionof these goods declined
124
HidekiYamawaki
in Germany and the U.K. Approximately400

firms(160 verticallyintegratedfirmsand 250
existed in the clusterwitha total
subcontractors)
of 4,000 employeesthroughthe 1980s. The small
firmspossess specialized skills in
subcontracting
the several stages of the production process
(cast designs,casting,baking,and painting).Their
primarytargetis the U.S. marketof mid-quality
products.6
Morodomi(Saga)
is currently
a partof
Morodomiin Saga prefecture
the furniturecluster in the region. The cluster
arose ratherrecentlyafter1955 whena toll bridge
overChikugoRiverwas builtconnectingthecities
of Ohkawa in Fukuokaand Morodomi.Ohkawa at
thatpointhad alreadydeveloped as a major proand was in searchof
ductionlocationof furniture
base.
new locations to expand its manufacturing
The neighboringtown,Morodomi,was located in
themiddleof typicalagriculturalarea and was not
linkedconvenientlywithOhkawa because of the
Chikugo River. The new bridge significantly
reduced transportationcosts required to travel
between these two cities and thus expanded the
size of themarketand viable economicarea. With
thenew bridgebuilt,furniture
makersin Ohkawa
moved into Morodomi and invested in new
capacity.In 1966 the toll of the bridgewas eliminated. The number of firms in Morodomi
increasedfromsix in 1956 to 41 in 1971.7
Ota (Gumma)
The roots of the automobilepartsclusterin Ota
City are traced back to the establishmentof
Nakajima Aircraftin 1918. While Nakajima as a
manufacturerof militaryaircraftgrew rapidly
duringthe 1930s and throughtheearly 1940s, the
companywas divestedafterWWII. A partof the
divestedcompanybecame Fuji Heavy Industries
thatmanufactureautomobiles (Subaru cars) and
aircraft.Some of the old Nakajima employees
started new business to supply parts and
machineryto Fuji Heavy Industries.These spinoffs of Nakajima and other new entrantsgrew
significantlyduring the 1950s and 1960s and
formedan importantnetworkof auto parts suppliers in the city. The clusteris presentlystructured hierarchicallywith more than 70 firms
second-tier,and third-tier
operatingas first-tier,
suppliersforFuji Heavy Industries.Averagesizes

in employmentof these threeclasses of suppliers
in the region are estimated258 forthe firsttier,
24 forthe second tier,and six forthe thirdtier.
While Fuji Heavy Industriesis the cluster'score
also do
assembler,Ota's auto partsmanufacturers
business with other auto assemblers such as
Nissan Diesel in Ota City,Daihatsu and Hino in
and Nissan, Honda, and Isuzu
Gummaprefecture,
in the neighboringregions.8
Itabashi (Tokyo)
During the 1960s, approximately95 percentof
binocularssold in theworldmarketwereproduced
in Itabashi in Tokyo. At the heightof its growth
in this period, the Itabashi area had around220
assemblersand 600 relatedbusinesses in various
stages in the preparationand productionof comlenses,and prisms.While
ponentssuch as mirrors,
the number of assemblers was reduced to 60
because of the emergingnew competitionfrom
South Korea, Taiwan, and Hong Kong and the
declining demand throughthe 1980s, the area
remainsthe dominantproductionlocation in the
world with a world marketshare of 75 percent.9
The cluster's roots are tracedto the early 1900s
when Japanintroducedthe optical technologyof
Zeiss fromGermany.A clusterof optical equipmentmanufacturers
arose in Itabashi duringthis
movedinto
period.Later,binocularmanufacturers
thisarea to use skillsand capabilitiesaccumulated
in the existingnetworkof supportingand related
industries, exploiting their agglomeration
economies.
Tsubame(Niigata)
Like thesilkclusterin Kiryudescribedearlier,the
silverware and kitchen utensils clusters in
Tsubame City arose during the Edo period
(1600-1865) as a major productionsite of traditionalJapanese-style
nails. The riseof Tsubameas
a productionsite of nails is oftenexplainedby its
location near copper mines.10 The industry's
modernhistorybegan in 1911 when Tsubame's
businesses startedmanufacturingWestern-style
silverwareto fillthegap in worlddemandcaused
by the sharp decline of silverwareexportsfrom
Europe and the United States. At that point,
Tsubame's firmshad already accumulatedtechnical skills and competencies in metal working
Industrial
ClustersinJapan
and processing that was required to produce

silverware.AfterWW II, Tsubame's businesses
leaped to the rankof major exportindustriesin
Japan as sales to the U.S. marketgrew rapidly.
Floods of exportsto the U.S. market,however,
induceda U.S. sanctionof importsof silverware
of exports
in 1959. To circumventthe restriction
of silverware,some of the firmsdiversifiedinto
houseware and kitchen utensils, sparking new
businessesin thisnew field.11
The structure
of inter-firm
relationshipsis best
relacharacterizedby hierarchicalsubcontracting
tionships among differenttypes of firmswith
complementaryskills. Manufacturersthat take
ordersfromtradingcompanies and wholesalers
subcontractout several stages in the production
process to first-tiersuppliers who have metal
working and processing capabilities. First-tier
suppliersto polish
suppliersin turnask second-tier
final productsbefore shippingto the manufacturers.12
Sanjyo (Niigata)
Sanjo Cityis a neighborcityof TsubameCityand
a major manufacturingsite of hand tools. The
clusterarose afterWW II and developed gradually duringthe 1970s and 1980s as exportsgrew
The prior existence of supporting
significantly.
and relatedindustriesin Tsubamecertainlyplayed
an importantrole to provide seed forthis newer
cluster.The clusterin Sanjyo is organizedwitha
structuresimilarto the one in Tsubame. A large
numberof subcontractors
(approximately400 in
1985) exist with complementaryskills in metal
workingand processingand work for a smaller
numberof manufacturers.
Thus,it is characterized
as a subcontractingsystemstructuredvertically
stages of theproductionprocess.
along different
Seki (Gifu)
Seki City, located in Gifu Prefecture,is an old
townthatprosperedas early as in the Kamakura
Period (1185-1333) because of its geographic
location.The city was located at the intersection
of two majorcorridors:the routeconnectingtwo
ancientcapital cities, Kyoto and Kamakura,and
the routeconnectingtwo strategicregionsat that
time, Mino and Hida. Because of its strategic
importanceand heavytrafficof warriors,thecity
soon became well knownforswordforging.It is
125
300 sword
believedthata clusterof approximately
mastersworkedin thecityduringtheMuromachi
13
period (1 333-1568). While the city remained
prosperousthroughthe Edo period (1600-1865),
it faced a major threat when the new Meji
governmentbanned the makingand carryingof
swords. It was quite natural that Seki's sword
manufacturersquickly repositioned to cutlery
and took advantage of its sword
manufacturing
forgingskills and the existing supportingand
relatedindustries.A clusterof cutlerymanufacturersthus arose in the Seki city. Their market
share in the Japanesemarketis particularlyhigh
(more than50 percent)in knives,Japanese-style
kitchenknives,and cutleryforbarbers.Because
theproductionprocess of cutleryinvolvesseveral
layers of differenttypes of activities, cutlery
makers (approximately200 firmsin 1991) subcontractout most of these activitiesto smaller
skills and capabiliwithdifferent
subcontractors
ties. The large majority(70 percent) of these
with
subcontractors
operateas tinyestablishments
workers.
three
fewerthan
Sabae (Fukui)
Sabae City in Fukui prefecturespecializes in the
of eyeglass frames.The cluster's
manufacturing
roots are traced to the late 1900s and the early
1910s when the prefecturegovernmenthelped
skillsof eyeglassframes
manufacturing
transplant
the
to
witha goal develop
region'sweak economy.
fromTokyoand Osaka
technicians
skilled
Highly
the
had
been
that
largest clusters of eyeglass
frameswere sentto Sabae and helpeddiffusetheir
skillsand technology.
By the 1930s, Sabae's frame
productionsurpassedthose of Tokyo and Osaka,
makingit as thelargestclusterof eyeglass frames
in Japan.The clustercontinuedto growafterWW
II and became dominantin the Japanese market
90 percentof themarket
controlling
approximately
are approximately
There
of
1980s.14
end
the
by
firms in this
medium-sized
and
small1,000
The
cluster.
frame
majorityof thesefirms
eyeglass
are very small, and their average size is 7.9
workers.The productionprocess of an eyeglass
frame is divided into approximately150-250
stages and requires relatively labor-intensive
skills
skills. Several typesof firmswithdifferent
a
cluster
constitute
and
coexist
and competencies
of relatedindustriesin the city.
HidekiYamawaki
126
Key driversof clusterformation

Whatis thekey drivingfactorthatunderliesthese
driversare
14 clustersin Japan?Several important
likely to emerge from the descriptionsof the
clustersgiven above, which are listed in column
4 of Table I.
Historical conditions
The roots of some clusters go back to the Edo
period in the 17th and 18th centuries(Kiryuu,
Komatsu,Tsubame,and Nishiwaki),yetotherscan
be traced to the periods as early as the 12th
century (Seto and Seki). These clusters had

alreadybeen knownfortheirproductsby thetime
when they transformedtheir manufacturing
systemsto themodernsystems.Throughtheirlong
histories,these clusters accumulated the skills
required to manufacturehigh-qualityspecialty
products.One factorthatmade thesecitiesimporlocationsmaybe the
tanthistoricalmanufacturing
availabilityof raw materialsand key ingredients
nearby(Seto and Tsubame). Anotherfactormay
be historicalcircumstancessuch as the existence
of an extensive networkof routes connecting
major cities (Seki). Clustersmay also arise from
as observed
historicalaccidentsand discontinuities
TABLE I
clustersin Japan
of 14 manufacturing
Characteristics
Products
Location
(Prefecture)
Startup
period
Keyinitialconditions
in industrial
Keyfeatures
organization
Kiryuu
(Gunma)
Silk,man-made 1600s
silk,and
(Edo)
fabrics
synthetic
andweaves
Historical
cluster(silk);
Foreigntechnology
import
Loom)
(Jacquard
Extensivesubcontracting;
Coexistence
offirmswith
skillsand
complementary
capabilities
Ishikawa
fabrics mid-1960s
Synthetic
for
Highdemandgrowth
after1966;
polyester
Regionalgovernment
policyto
thesynthetic
textile
promote
industry
Coexistence
offirmswith
skillsand
complementary
capabilities
Fukui
fabric
Synthetic
transfer
fromother
Technology
clusterin Japan(Kiryuu);
Prefecture
government
helped
nurture
theindustry
its
through
oftechnology
center
operation
between1910-30
Coexistence
offirmswith
skillsand
complementary
capabilities
Komatsu
Silk
1640
(Ishikawa) Generalmachinery1921
forconstruction
machinery
Historical
cluster(silk);
Existenceof a largeassembler
Network
of supporting
andrelated
industries;
structured
Vertically
fora large
subcontracting
system
assembler
(Komatsu)
Nishiwaki
(Hyogo)
Cottonfabric
1793
Historical
cluster(cotton
fabrics)
transfer
from
Technology
otherclusterin Japan
Extensivesubcontracting
Coexistence
offirmswith
skillsand
complementary
capabilities
Gifu
(Gifu)
Apparel
late 1940s
Historical
circumstances;
Priorexistenceofrelated
industries
nearby;
oflargepoolsof
Availability
femaleworkers
in theregion
Extensiveuse offemalepart-time
workers
early1900s
(Meiji)
Industrial
ClustersinJapan
127
TABLE I (Continued)
Location
Products
(Prefecture)
Startup
period
Keyinitialconditions
in industrial
Keyfeatures
organization
Coexistence
offirmswith
skillsand
complementary
capabilities
Seto
(Aichi)
Ceramicnovelty 1100s
(Heian)
goods
Historical
cluster(ceramics);
Accessto high-quality
raw
materials
Morodomi
(Saga)
Furniture
Construction
of a newbridge
Subcontracting
connected
twoneighboring
cities;
Reduction
in transportation
costs
Expansionofviableeconomicarea
Ota
(Gunma)
Automobile
parts 1918
Existenceoflargeassemblers
(Nakajimain pre-War
period)and
(in the
Fuji HeavyIndustries
Warperiod);
postPriorexistenceof supporting
industries
inherited
byFuji
HeavyIndustries
structured
Hierarchically
assembler-supplier
relationship;
A largeclusterformed
withother
assemblers
(NissanDiesel in Ota;
DaihatsuandHinoin Gunma;
Nissan,Honda,andIsuzuin
regions)
neighboring
Itabashi
(Tokyo)
Binoculars
from
Foreigntechnology
import
Zeiss,Germany;
demandduring
Largemilitary
theKoreanwar;
Priorexistenceofrelated
industries
(opticalequipment)
Existenceof severalintegrated
makers;
Coexistence
offirmswith
skillsand
complementary
capabilities
Tsubame
(Niigata)
1600s
Silverware,
and (Edo)
kitchenware,
metalhousehold
ware
Historical
cluster(Japanesestyle
nails);
duringthe
Importsubstitution
WW I;
into
bydiversifying
Repositioned
householdwaresduringthe1960s
VERs in theU.S.
to circumvent
market
structured
Hierarchically
subcontracting
system;
offirmswith
Coexistence
skillsand
compelementary
capabilities
Sanjo
(Niigata)
Handtools
late 1940s
to other
Geographic
proximity
cluster(Tsubame);
Priorexistenceofrelatedand
in the
industries
supporting
cluster
neighboring
offirmswith
Coexistence
skillsand
complementary
capabilities
Seki
(Gifu)
Cutlery
1100s
(Kamakura)
Historical
cluster(swordforging); Extensivesubcontracting
offirmswith
location Coexistence
of geographic
Importance
skillsand
as a hubconnecting
majorcities; complementary
intocutlery
produc- competencies
Repositioned
tionaftertheMeiji government
bannedthemakingof swords
Sabae
(Fukui)
Eyeglassframes 1910s(Meiji)
1955
early1900s
(Meiji)
transfer
fromother
Technology
clustersin Japan(Tokyoand
Osaka);
Regionalgovernment
policyto
developtheregion'seconomy
offirmswith
Coexistence
skillsand
complementary
capabilities
Source:People'sFinanceCorporation
(1987, 1995),MITI (1996),SMEA (1997),andIto andUrata(1997, 1998).
128
HidekiYamawaki
in the emergence of the silverware cluster in

Tsubme duringWW I and the apparel clusterin
Gifu,whichcan be tracedto the developmentof
used-clothesmarketin frontof the trainstation
afterWW II.
Existenceof large assemblers
The second factorthat is to some extentdeterminedby historicalcircumstancesis theexistence
of one or a few large firmsthat manufacture
products based on assembly-type operations.
Examples fromKomatsu and Ota illustratethis
point.The machineryclusterin Komatsu had its
beginningsin theestablishmentof a construction
machinerycompany,Komatsu. The automotive
parts cluster is another classic example where
Nakajima Aircraftand laterFuji Heavy Industries
startedtheiroperationsin Ota. The existenceof
these large assemblers stimulatedthe entryand
growthof otherfirmsthatsupplypartsand related
productsto them.15
Prior existenceof supportingand related
industriesin the region
The automotivepartsclusterin Ota illustratesthe
indusimportanceof priorexistenceof supporting
triesin the region.A networkof supportingand
related industries was nurturedby Nakajima
Aircraftduringthe pre-warperiod,whichwas in
turninheritedby Fuji Heavy Industriesafterthe
war.Nakajima's employeesspun offafterthewar
to create new parts firmsto supply Fuji Heavy
Industries.The clustercreateda networkof automotivepartsindustrieswiththeskillsaccumulated
throughNakajima's aircraft
manufacturing
history.
Another example is the case of binocular
clustersof Itabashiin Tokyo.Thatclusteremerged
building upon the existing network of optical
manufacturers
equipmentand precisioninstrument
in theregion.A numberof binocularsmakersand
suppliersfortheirparts were stimulatedto enter
the region because of the existence of related
industries.
Prior existenceof supportingand related
industriesin theneighboringregion
As prior existence of supporting and related
industriesin the same regionplays an important
roleto fostera new clusterin a different

field,their
prior existence in the neighboringregions also
stimulatesthe growthof otherclusters.The case
of the hand tools clusterin Sanjo illustratesthis
point. Sanjo is located closely to Tsubame's
silverwareclusterthathas itsbeginningsin a much
earlier period. Tsubame's cluster had already
created a networkof small- and medium-sized
subcontractingfirmswith the special skills in
metalworking,forging,processing,and polishing
when the cluster in Sanjo emerged (Figure 1).
Anotherexample is the case of Gifu's apparel
cluster.That cluster took advantage of its geographicproximityto the textilefabricclustersin
neighboring
regions.The clusterin Gifuprimarily
procuredtherequisitefabricsfromtheneighboring
clusters.
Pooled labor marketfor part-timeworkers
Some of Japan'sclustersgained advantagesfrom
the fact that they got access to pooled labor
marketsof part-time
workersin theirregions.The
apparelclusterin Gifu resortedto a largepool of
part-timefemale workerswho offeredthe requisite skills while alleviatingdisadvantagescaused
by cyclical demand fluctuations.By the same
token,the textileclustersin Ishikawa and Fukui
also tookadvantageof theexistenceof largepools
of part-time
workersfromtheregions'agricultural
sectors.
It is important
to note,however,thattheseparttimersnormallyworkas subcontractors
forfirsttierand/orsecond-tiersuppliersin several stages
of the productionprocess thatrequire the most
labor-intensive
work.Their skill levels are generally muchlower thanthoseof regularworkers.It
is notclear fromthecase analysiswhetherJapan's
localized industries supported pooled labor
marketsfor skilled workersand engineers.This
issue of skill formationand labor marketwill be
discussed laterin Section 4 of thispaper.
Reductionin transportation
costs
A significantreduction of transportation
costs
expandseconomicallyviable geographicspace and
increasesthe size of relevantmarket.The expansion of an economicallyviable geographicspace
will in turnattractnew businesses. The furniture
Industrial
ClustersinJapan
129
Supporting
Industries
[Forging
Wholesaler
Association
TradeAssociation
.
1
[Metalpressing 1
1
;
|Metalwelding |
[Engraving
Manufacturers
Silverware
1
|Metalmolding |
Local
Wholesalers
Manufacturers
Houseware
i i
[Plasticmolding |
^_____^
Polishing
Tsubame'scluster
I TradeAssociation I
'
'
TechnicalCenter
Prefecture
Sanjo's cluster
I Supporting
Industries
Steel
>s
Manufacturers
Hand tools
Wholesaler
Association
Trade
Association
Metalgalvanizing
Metalheattreatment
S
Local Wholesalers
r
1k
'
'
1
;
|
and
Metalworking
processing
[Forging
|
Polishing
of theTsubame-Sanjo
Cluster.
Figure1. Structure
130
HidekiYamawaki
cluster in Morodomi illustratesthis point.

furniture
clusteremerged
Morodomi's
onlyaftera
newbridgewas constructed
andlinkedtwocities
dividedbya river.Furniture
makersin
previously
the neighboringcity investedin Morodomi,
in transportation
to a greatreduction
responding
thegrowthof manynew
costs,whichstimulated
businessesin thenewlycreatedeconomiczone.
transfer
Technology
A factorcloselyrelatedto government
policyis
theimport
of technology
fromotherlocations.A
can be imported
fromotherdomestic
technology
inJapanandforeign
clusters
countries.
Thetextile
clustersin Fukuiand Nishiwakiimported
technologiesfromothertextileclustersin Japan.The
same appliesto Sabae's eyeglassframecluster,
whichimportedthe requisitetechnologiesand
Regionalgovernment
policy
skillsfromotherrelatedclustersin Tokyoand
Osaka.
On theotherhand,Kiryu'stextilecluster
The regionalgovernments
oftenplayedimportant
theJacquardtechnology
fromabroad,
procured
rolesin providing
seed fornewclusters.Typical
in
and
the
binoculars
Itabshi
werebuilt
produced
government
policy are
examplesof prefecture
on
the
from
technology
imported
Germany.
givenbythecases of IshikawaandFukuiprefecnew
of
and their
Imports
foreign
technologies
turesthattookinitiatives
tonurture
andmodernize
diffusions
seed
for
the
formation
of
provided
theirtextileindustries
withthegoal in developing
clusters.
theregions'ailingeconomies.Fukui's prefecture
The eightfactorsgivenare notmeantto subalso designedthe startupof the
government
stitute
oneforanother.
Instead,severalofthemare
eyeglassframesclustersin Sabae withthesame
often
and
eachother
present
together
complement
theregionaleconomy.
goal in developing
when
a
in
cluster
a
This
emerges
particular
region.
One ofthepolicytoolsJapan'sprefecture
govlist
of
forces
is
no
means
exhauskey
driving
by
ernments
used was the establishment
of public
butitis considered
forthe14major
important
testingand researchcenters,and technology tive,
in
clusters
in
studied
this
Whilethese
Japan
paper.
centersto guideand fostertechnological
develare
derived
from
the
toJapan,
experience
specific
of
opments particularproducts.The firsttechare
similar
to
and
thus
consistent
withthe
they
center
was
establishedin 1894 in the
nology
lists
of
forces
for
industrial
localprevious
driving
wheretextilespinning
was the
Hyogoprefecture
ization
derived
from
the
U.S.
and
mainly
European
strategically
important
industry.
Duringtheperiod
experiences.Porter(1990, 1998), drawingon
between1894 and 1926, a total of 41 public
ofU.S. andEuropeanclusters,
identifies
and
research
centers
and technology histories
testing
historical
(1)
circumstances;
unusual,
(2)
sophiscenterswereestablishedin different
prefectures
or
existence
of
ticated,
demand;
(3)
stringent
prior
to
develthroughout
Japan promote
technological
related
or
entire
industries,
industries,
supplier
in
chemiceramics,agriculture,
opments textiles,
relatedclusters;(4) existenceof one or two
centersfor
cals, andfood.The publictechnology
innovative
companies;and(5) chanceevents.The
textilesin Fukuiand Ishikawamentioned
above
workofKrugman
for
(1991) suggestskeyfactors
were among these firsttechnologycentersin
the
formation
of
an
localized
histor(1)
industry:
Japan.
(2) labormarket
A largenumberof publictestingand research icalaccidents,
pooling,(3) supply
of specialized inputs,and (4) technological
centers
andtechnology
centers
wereestablished
in
In
thesubsequent
periods,opening46 centers
during spillovers. addition,Krugman(1991) argues
the1927-45periodandanother
57 centersduring thatindustriallocalizationis promotedby the
confluence
of economiesof scale,transportation
the 1946-64 period.16
The majorfunctions
that
costs,anddemand.
these centersare expectedto provideare (1)
technological
guidanceandconsulting,
(2) testing
and inspection,
(3) R&D, (4) seminars,and (5)
Evolutionofclusters
dissemination
of information
on latesttechnoloThe initialconditions
gies andproducts.
thatshapedtheemergence
ofa clustermaynotremainunchanged
inthelong
run.Rather,theymaychangebecauseof histor-
Industrial
ClustersinJapan
and unexical events,technological

innovations,
pectedshiftsin demand.Some of the clusters
that
studied
inthispaperfacedsuchdiscontinuities
forcedtheclustersto reconthesediscontinuities
theprocess
sidertheir
businessstrategies.
Through
are
a cluster'soriginalproducts
of repositioning,
oftenphasedoutand replacedby newproducts.
Someclustersdeclineeventually.
Historicalevent
eventsmayforcefirmsin
historical
Unexpected
intonewfields.Thehouseware
todiversify
cluster
clusterin Tsubameemergedwhilesome of the
fromsilverware
repositioned
city'smanufacturers
the VERs
to this new businessto circumvent
imposedon Japanesesilverwareexportsin the
cluster
the1960s.Thecutlery
U.S. market
during
banned
after
theMejigovernment
inSekiemerged
themakingof swords.In bothcases, themanuinto
facturers
strategies
adopteddiversification
new but relatedbusinessesthat rely on the
in
Theskillsrequired
clusters'corecompetencies.
in the
thenew fieldswerealreadyaccumulated
of priorbusiness
theirhistories
clustersthrough
fields.
change
Technological
processesand
Developmentof new production
oftenchangeclusters'
ofnewproducts
emergence
of productlines.Ourexamplesof
configurations
thispoint.All thesilk
textileclustersillustrate
clusterswere forcedto shifttheirproductsto
silkduringthe1920sandto synthetic
man-made
fabricsin thepost-war
exampleis
years.Another
handtoolsused
a clusterspecializedintraditional
wooden
of Japanese-style
forthe construction
Thatcluster
houses(Miki in Hygoprefecture).17
ofnew
hasbeenshrinking
owingtotheemergence
thatdo notrequiremuchuse
methods
construction
tools at house construction
of such traditional
sites.
131
The demandgrowth
ofTsubame'scluster.
growth
forpolyester
duringthe1960shelpedtherepositioningof the textileclustersin Fukui and
Ishikawa. The large militarydemandcreated
duringtheKoreanWarforbinocularsplayedan
oftheclusterin
rolefortheemergence
important
of
Itabashi.And, the expansion Japan's auto
ofOta's
certainly
helpedthedevelopment
industry
clusterof autoparts.
International
competition
Clustersoftenlose theirinternational
competithat
anddeclineovertime.Whena cluster
tiveness
its
cause
markets
reliesheavilyonexport
declines,
is oftentracedto at leastthreemainfactors:(1)
(2) emerging
aggregateeconomicfluctuations,
new industriesabroad, (3) shiftsin foreign
demand.Fluctuationsof Japaneseyen against
of the
arethemostsignificant
currencies
foreign
dramatican
because
they
aggregateconditions
cally affectclusters'cost conditionsrelativeto
in foreigncountries.The
their counterparts
that
clusters
specializein morelabor-intensive
productionprocessesface major threatsfrom
becauseJapanese
countries
newlyindustrialized
workers'relativelyhighwages offsetclusters'
and specialbased on subcontracting
advantages
14
clusters
the
All
ized skills.
except Ota's
been
have
clusters
automobile
facingmajor
parts
rivalsin
threatsfrominternational
competitive
recentyears.
3. Structureofindustrialclustersin Japan
linkage
Inter-firm
Ourexamplesofclustersindicatethatthereareat
in Japan'sclusters
features
leastthreedistinctive
in termsof inter-firm
linkages(column5 in
TableI): (1) theextensiveuse of subcontracting
and suppliers;(2) the
betweenmanufacturers
between
structured
relationships
hierarchically
second-tier
and
first-tier
manufacturers,
suppliers,
and (3) the coexistenceof a large
suppliers;
Demandcondition
butcomplementary
withdifferent
offirms
number
in
the
cluster.
skills
often
Unexpecteddemandgrowthand decline
arenotnecessarily
twocharacteristics
Thefirst
changethegrowthpathof a cluster.The unexbuttheyare the
to
features
the
specific clusters,
pectedincreasein demandin the international
to
features
the
system
of silverware
market
specific Japan'smanufacturing
duringWW I triggered
132
HidekiYamawaki
in general (e.g., Uekusa, 1987; Asanuma and

Kikutani,1992).
On the contrary,concentrationof numerous
firmswithcomplementary
skillsin a businessfield
withina certaingeographicarea is consideredthe
distinctivefeatureof clusters.Figure 1 shows a
schematic picture of this featurein Tsubame's
silverwareand housewareclustersand thenearby
hand tools clusterin Sanjo. In both clusters,the
firmsin various supportingindustriescreate a
horizontalnetworkamong themselvesbased on
theircomplementarycapabilities.18These firms
supply for manufacturersthroughvertical subrelationships.In additionto manufaccontracting
turers,suppliers,and wholesalers,thereare several
local institutionsthatcoordinatememberfirms'
activities,facilitatethe communicationsbetween
them,and disseminatetechnologicaland product
information.They are local trade associations,
wholesalers associations, local chambers of
commerce,and prefecturetechnicalcenters.
While Tsubame's silverware and houseware
clustersconsist of 148 silverwaremanufacturers
and 127 houseware manufacturers
in 1991,19the
numbersof manufacturersin some clusters are
muchsmaller.Clustersin whichone or few large
manufacturersform hierarchically structured
withsmallersuppliers
subcontracting
relationships
are often observed in the machineryand automobile industries.Our examples of the auto parts
cluster in Ota and the machinery cluster in
Komatsuillustratethistypeof assembler-supplier
cluster.20
Size
To see thegeneralpatternof firmand clustersizes
in Japan, Table II shows several descriptive
statisticsforthe537 clustersin Japansurveyedby
theSmall and MediumEnterprise
Agencyin 1996.
A clusterin this surveyis definedas a group of
firmsin a business field in a geographicspace.
The surveyincludes clusterswithvalues of productionover Yen 500 millionin 1996. The range
of products in this survey varies widely from
indigenousfoods forpurelydomesticmarketsto
machineryforexportmarkets.Of the537 clusters,
36 percentof themexistedbeforetheMeiji period
(before1868), 28 percentof theclustersemerged
during the Meiji period (1868-1912), and 21
percentof the clustersstartedafter1945. Among
the537 clusters,126 clustersare foundin textiles
and constitutethe largestnumberof clustersin
Japanese manufacturing,accounting for 23.5
percentof the total.
The numberof firmsper clustervaries across
industries,rangingfrom241 in textilesto 82 in
foodprocessing.Averagesize of clustermeasured
in termsof employmentper clustervaries again
widely among industries.An average clusterin
textilesis likely to employ approximately5,000
workers and likely to be the largest when
comparedwithclustersin otherindustries.On the
otherhand,a typicalclusterin wood productsand
furniture
employs823 workersand is likelyto be
the smallest. On average, in 1996, a cluster in
Japanemploysapproximately1,500 workers.
A typical firmin a clothingcluster in Japan
employs 24 workers,while a typical firmin a
TABLE II
Numberofclusters,
averageclustersize,andaveragefirmsize,byindustry
(1996)
Industry
Numberofclusters
Food processing
83 (15.5%)
Textiles
126 (23.5%)
34 (6.3%)
Clothing
Woodproducts
andfurniture 78 (14.5%)
Clay,stone,andglassproducts 62 (11.5%)
56 (10.4%)
Machinery
Miscellaneous
98 (18.2%)
Total
537 (100.0%)
Numberoffirms/clusterEmployment/cluster
Employment/firm
82
241
208
102
125
128
111
1,260
1,518
4,986
823
920
1,986
1,175
15.37
6.30
23.97
8.07
7.36
15.52
10.59
145
1,496
10.32
Source: SMEA (1997).
Industrial
ClustersinJapan
textileclusteremploysonly six workers.Average

firmsize in food processingand machineryis in
betweenthesetwopolarcases, employingapproximately^ workers.On average,again in 1996, a
clusterin Japan
typicalfirmin a manufacturing
employsapproximately10 workers.21
withlarge
Some clustersare highlyfragmented
numbersof smallfirms.A typicalexampleof such
a case is textileclusters.Accordingto Table II, a
typical textile cluster in Japan consists of 240
firms with fewer than seven employees. On
average,145 firmsexistin a clusterin Japan,each
employingapproximately10 workers.
Sources of advantage in Japan's clusters
theseminalworkof Marshall(1920),
Interpreting
Krugman(1991) pointedout thattheadvantageof
concentratedproductionis generated by three
distinctivesources:labormarketpooling,specialized inputs,and technologicalspillovers.In this
section,we will firstlay out these threecauses
with additionalconsiderationand then examine
which one of them is most importantfor the
clustersin Japanby reviewingthe SMEA survey
result.
Labor marketpooling
a numberof firmsin an industry
By concentrating
in thesame location,a localized industry
gains an
advantage from offeringa pooled market for
workerswithspecializedskills.Bothworkerswith
and firms
specialized skillswho seek employment
thatseek such workersare betteroffif theyget
access to the pooled labor marketin the same
location(Marshall, 1920; Krugman,1991).
Whetherthis factoris relevantand important
forJapaneseclustersdependspresumablyon the
mobilityof skilledworkersbetweenfirmswithin
a clusterand betweengeographicareas. Because
Japanese workerstend to stay in the same firm
until retirement,the benefit of agglomeration
arising from labor marketpooling for skilled
workersmay be relativelysmall in a Japanese
cluster.On the otherhand,thisadvantagemay be
more importantin labor marketsfor part-time
workers.As in the cases of apparel and textile
clusters, part-timeworkers are often female
workerswho are local residentsand workat home.
133
much
Theirwages are undernormalcircumstances
lower thanregularemployees.
Availabilityoffirmswithspecialized skills and
competencies
Agglomerationis createdin a localized industry
because it can supportsupplierswithspecialized
skills and capabilities. Capacity utilization of
specialized machinerycan be increasedand maintained at a high level in a localized industrythat
producesthe same kind of products.This in turn
makes the localized industry more efficient
(Marshall, 1920; Krugman,1991).
If the minimumefficientscale of production
varies across a range of products and through
differentstages of the productionprocess, then
can choose an optimalcombination
manufacturers
of operationsby workingclosely witha number
can benefit
of specializedsuppliers.Manufacturers
such
of
fromthe availability
suppliers as they
in
choose a righttechnology responseto the scale
of productionat each stageof theprocessthrough
a subcontracting-based
system.
manufacturing
The availabilityof the numberof firmswith
to
skillsalso allows manufacturers
complementary
If
of
a
produce large variety product. varietyis
produced througha wide range of materialsand
componentsthatare handled efficientlyby specialists as well as throughstages of specialized
will benefitfrom
operations,thenmanufacturers
with
such
with
capabilities.
suppliers
working
While such divisionof labor can be contracted
betweenfirmsin the different
geographicspaces,
and easily organizedbetween
it is moreefficiently
nearby firms. An example of the mechanical
pencil industryin Japanshows thatthemanufacturermay sufferfrom working with suppliers
scatteredgeographicallyin different
stages of the
production system (Mishina, 1993). The long
travel distance of work in process impairedthe
timelinessof deliveryand thereforereducedproductionefficiencyin thiscase.
Technologyspillovers
Because firmsin a localized industryare proximate, informationflows easily among them.
Localization, therefore,generates knowledge
spilloversbetweennearbyfirms(Marshall,1920).
134
HidekiYamawaki
suchknowledgespilloversare confined
Whether
within
a particular
geographic
spaceorgo beyond
has been disputedin the
a geographic
boundary
existingliterature
(Krugman,1991; Audretsch,
1999). The empiricalworkthataddressesthese
seemstoshowthat,
issuesofknowledge
spillovers
atleastintheUnitedStates,knowledge
spillovers
boundedwithin
thegeotendtobe geographically
graphicarea where the new knowledgewas
created(e.g., Jaffeet al., 1993; Audretschand
Feldman,1996).
work as
A varietyof regionalinstitutions
vehicles that facilitatethe transmissionof
knowledgeacrossfirmswithinthesame cluster
in Japan (Figure 1). Public technicalcenters
offer
managedby the prefecture
governments
technicalconsultingservicesand seminarsand
information
on new technology
and
disseminate
product.Local chambersof commerce,trade
coordiassociations,and businessorganizations
natebusinessactivities
within
clusters
andprovide
marketand technicalinformation.
Local wholesalersandgeneraltrading
companiesdisseminate
information
on emerging
newmarkets,
products,
andtechnologies.
Table III summarizes
theresultof the questionnaire
surveyconducted
bytheSMEA in 1996,
whichwasdescribed
intheprevioussectionofthis
paper.Out of the 537 clustersstudiedin this
survey,a totalof 471 clustersrespondedto the

Of the471 respondents,
138 are
questionnaire.
intextiles
andapparel;73 areinwooden
classified
54 are in stone,clay,and
andfurniture;
products
andmetalproducts.
glass;and50 areinmachinery
ofrespondents
TableIII presents
thenumber
who
considera specificsourceofadvantage
important
as a percentage
ofthetotalnumber
ofrespondents
in theindustry
in thesurvey.
The respondents
are
notrestricted
to chooseonlyone itemamongthe
listedin thequestionnaire.
advantages
Lookingat column2 in Table III, thelargest
number
of clusters(42.6 percentof471 clusters)
and divisionof laboras an
foundspecialization
importantadvantagethat clusterscreate. An
advantageis theease of proequallyimportant
clusters
curement
within
Thisresult
(42.3percent).
occursin a cluster
suggeststhatagglomeration
because it can supportsuppliersthatpossess
specializedskills.Such capabilitiesare completo each other,whichallow divisionsof
mentary
laboramongthem.Manufacturers
benefit
from
the
existence
ofspecializedsuppliers
becausetheycan
chooseoptimalcombinations
of technologies
for
a widerangeofproducts.
The secondsourceofadvantage
fora localized
thatJapanesefirms
considerimportant
is
industry
likelyto arise fromthe factthatit facilitates
diffusion
of technology
and technological
coop-
TABLE III
Sourcesof advantage
in Japan'sclusters,
byindustry
(responseratein percentage)
All industries Textileand
clothing
Advantages
Ease ofprocurement
42.3
Accessto labormarket
6.8
of skilledworkers
Availability
andengineers
10.0
of labor
42.6
Specialization/division
Accessto supplier/subcontractor 24.2
Accessto customer
base
10.8
environment
19.5
Competitive
Diffusion
oftechnology
and
31.2
technological
cooperation
forbusinessalliance
11.9
Opportunity
Accessto market
information
24.8
27.4
Regionalpolicy
No advantage
2.8
No. ofclustersin sample
471
Woodproducts Stone,clay,
andfurniture andglass
Metalproducts
andmachinery
23.9
5.1
50.7
5.5
59.3
3.7
50.0
8.0
9.4
53.6
30.4
11.6
16.7
13.7
47.9
23.3
12.3
20.5
5.6
31.5
13.0
13.0
25.9
8.0
64.0
38.0
6.0
14.0
37.6
8.0
29.0
26.8
2.9
138
26.0
13.7
16.4
23.3
1.4
73
46.4
14.8
16.7
20.4
1.9
54
16.0
10.0
24.0
28.0
0.0
50
Source: SMEA (1997),Table 17.
Industrial
ClustersinJapan
eration.This resultseems to suggestthatnew

technological
knowledge
spillsovereasilyamong
the firmswithinthe same cluster.Of the 471
of
31.2 percent
ofthemchoosediffusion
clusters,
ofclustering.
as animportant
technology
advantage
and
On thecontrary,
access to a labormarket
areconsidered
less
ofskilledworkers
availability
inJapan'sclusters.
sourcesofadvantage
important
Only6.8 percentof the clustersin the sample
as an important
choosetheaccessto labormarket
advantage,and 10 percentof themconsiderthe
of skilledworkers
important.
availability
This resultobtainedfromthe full sample
indusfordifferent
remainsbasicallyunchanged
tries,althoughthereare some industry-specific
TableIII showsthesurveyresultsfor
differences.
industries.
fourdifferent
Amongthe industrythe most notable is the
specificdifferences,
anddivisionoflabor.
ofspecialization
importance
themostsignificant
is considered
Thisadvantage
withthehighest
andmachinery
in metalproducts
Ease ofprocurement
responserateof 64 percent.
(with50 percentresponserate) and access to
(with38 percent
response
suppliers/subcontractors
inthis
thatareimportant
rate)areotheradvantages
withthe
This resultis quiteconsistent
industry.
used
manufacturing
processcommonly
underlying
thatconsistsof severalstagesof
in thisindustry
production.
highlyspecializedcomponents
4. Developmentoffirmcapabilitiesin
Japaneseclusters
Skillformation
Theanalysisin theprevioussectionfindsthatthe
existenceof supplierswithspecialized,compleskillsis themostlikelysourceofagglommentary
erationin a Japanesecluster.On theotherhand,
the SMEA surveydoes not seem to provide
thatthe
evidencethatsupportsthe hypothesis
creationof a pooled labor marketfor skilled
offersan advanin a localizedindustry
workers
tageto bothlocal firmsandworkers.22
Why is a pooled labor marketfor skilled
sourceof advantagein
workersnot important
Japanesecluster?The way in whichskills are
andthe
createdanddevelopedin Japanesefirms,
way in whichsuch humanskills are allocated
amongfirmsmayprovidean answer.As is well
135
is themostcommonly
known,on-the-job
training
in Japanesecorpoused methodto trainworkers
rations(Koike,1988).The prevalenceof on-thethat
inJapanis basedonthepremises
job-training
mostskillsare learnedonlyby doing,and that
someoftheseskillsare specificto thefirmor to
theplant.
nature
ofhumanskillsinturn
Thisfirm-specific
to moveto another
theworker
tendto discourage
willlose someoftheskills
firmsincetheworker
acquiredin thefirmif theworkermovesto the
firm.The firmwillnotbe able to replace
another
a shortperiodwitha new
theworker
easilywithin
Thisin turn
without
recruit
efficiency.
impairing
use
a mechandfirmsto
bothworkers
motivates
rather
thana mechto firms
anismthatis internal
markets
to allocatehuman
anismthatuse external
resources(Odagiri,1992).
Table IV showsthe SMEA surveyresulton
skill formationand procurementof skilled
As is expected,it is quiteevidentfrom
workers.
thistablethatmorethan80 percentof Japan's
as the
clustersuse on-the-job-training
industrial
their
skills.
anddevelop
methodto trainworkers
different
across
This patternholdsconsistently
industries.While firmsin Japan's industrial
as the
arelikelytouse on-the-job-training
clusters
human
to
method develop
mostimportant
skills,
theyare less likelyto procurethemfromother
firms
firmsin thesame cluster.Askedwhether
in
the
firms
other
from
workers
recruitskilled
of
clusters
20
samecluster,
approximately percent
respondedpositivelyto thisquestion.This relativelylow responseratefortheuse of external
marketsto sourceskilledworkersby Japanese
withthehighresponserate
contrasts
firms
starkly
whichsuggest
of
fortheuse on-the-job-training,
to
mechanism
internal
for
an
theirpreference
resources.
human
allocate
In sum,the analysisin thissectionand the
previoussectionsuggeststhatthe firmsin an
industrialclusterin Japanare more likelyto
ofsuppliers
fromsupporting
benefit
largenumbers
withspecializedskills.Someof thehumanskills
and developed
in thesefirmsare firm-specific
firms
the
within
throughon-the-jobinternally
Since suchskillsare onlyinfrequently
training.
acquiredfromotherfirmsin thesamecluster,a
inJapanis lesslikelytosupport
localizedindustry
forskilledworkers.
a pooledlabormarket
136
HidekiYamawaki
TABLE IV
andprocurement
of skilledworkers,
Skillformation
byindustry
Foods
On-the-job
training
Inter-firm
cooperation
in skillformation
Recruitoutsidethecluster
Recruitfromotherfirms
in thecluster
Numberofclustersin
sample
Textile Clothing WoodproductsStone,clay, Machinery Others Total

84.7
79.1
15.3
9.7
16.5
5.2
16.7
27.0
72
100
115
86.5
80.7
90.6
81.9
84.2
14.8
14.8
17.6
6.8
17.5
8.8
17.0
11.3
15.7
9.6
16.4
8.5
25.9
17.6
12.3
22.6
18.1
20.2
27
74
57
53
83
481
Source: SMEA (1997),Table23.
Developmentof technologicalassets
While the access to a pooled labor for skilled
workersin an industrialclusterin Japanis unlikely
to be an importantsource of agglomeration,
technologyspillovers are more likely to be an
advantageof clustering.How does a clusterfacilitate the diffusionof new technologyand other
knowledge?As was discussedearlierin thispaper,
knowledge spillovers among firmsin the same
clustercan occurthroughvariousinstitutions
such
as tradeassociations,public testingand research
centers, public technical centers, wholesalers
associations,and local chambersof commerce.In
addition to such institutions,various forms of
inter-firmcooperation and contacts within a
cluster are also likely to facilitate knowledge
spillovers.
Table V summarizesthe SMEA surveyresult

on thepatternof inter-firm
cooperationin Japan's
industrialclusters. Out of the 123 clustersthat
respondedto the questionof whattypesof interfirmcooperation theyparticipatein, 64 percent
of thempointed out joint R&D as a vehicle for
collaboration,and 26 percentof themsaw their
firmsparticipatein technologicalalliance. This
general patternremainsvirtuallyunchangedfor
different
industriesexceptin woodenproductsand
furniturewhere technological alliance is not
important.It is also worthnoting that the frequency with which Japanese firmsin a cluster
and referenceeach
exchangebusinessinformation
otherthroughinformalchannelsis not trivial.
Another interestingpatternthat emerges in
Table V is thatthetypesof partnership
thatinclude
equityownershipand therefore
ownershipcontrol
TABLE V
Inter-firm
within
cluster,
cooperation
byindustry
JointR&D
alliance
Technology
Joint
production
Production
contract
contract
Marketing
Informal
exchangeofbusiness
information
andreference
Capitalparticipation
JointVenture
Numberofclustersin sample
Foods
Textileand Woodproducts Stone,clay, Machinery Others Total

clothing
80.0
20.0
6.7
6.7
6.7
65.6
31.3
3.1
15.6
6.3
66.7
5.6
16.7
11.1
0.0
57.1
28.6
14.3
14.3
4.8
61.1
38.9
5.6
11.1
11.1
57.9
26.3
10.5
21.1
5.3
64.2
26.0
8.9
13.8
5.7
0.0
6.7
6.7
15
31.3
6.3
0.0
32
27.8
0.0
0.0
18
9.5
4.8
0.0
21
27.8
0.0
0.0
18
15.8
0.0
5.3
19
20.3
3.3
2.4
123
Source: SMEA (1997), Table54.
137
Industrial
ClustersinJapan
arenotcommonin a Japanese
cluster.
Amongthe
123clusters,
ofthemreport
only3.3 percent
partand a
thatinvolvecapitalparticipation,
nerships
as
mere2.4 percent
ofthemreport
jointventures
a commonformof alliance.
theSMEA surveyresult
TableVI summarizes
Thequestionnaire
askedwho
onalliancepartners.
arethemostlikelypartners
ofalliance.Amongthe
127 clusterswheretheirfirmsformedalliance,
allianceswithpublic
ofthemformed
60.6 percent
centers.
centers
andtechnical
research
andtesting
The responserateis thehighestformachinery
wheremorethan80 percentof clustersinvolve
On the
withsuchpublicinstitutions.
partnerships
witha university
a partnership
forming
contrary,
rareforthefirmin a cluster.
is relatively
Only11
areinvolvedinpartnerships
oftheclusters
percent
Whena firmin a clusterform
withuniversities.
are likely
itspartners
allianceswithotherfirms,
than
firmsrather
to be small-and medium-sized
ofclustersare
Indeed,inthemajority
largefirms.
formedamongSMEs, but only 5
partnerships
of theminvolvelargefirmsas partners.
percent
In sum,theevidencesuggeststhatpublicinstitutionssuch as prefecture
testingand research
centersand technicalcentersplay an important
between
inter-firm
roleinfacilitating
cooperation
JointR&D efforts
firmsin a localizedindustry.
and technologicalalliances serve as the most
usedvehiclesforaccess to newtechcommonly
nology and other assets in Japan's clusters.
assetsand
oraugmenting
technological
Acquiring
andjoint
otherassetsthrough
capitalparticipation
in Japanesecluster.
venture
is unlikely
5. Clusterperformance
Theanalysishasthusfarfocusedon thestructural
Thissectionattempts
ofJapan'sclusters.
features
to shedsomelighton someissuesofclusterperformance.
Firmexitin cluster
Do all the firmsin Japan'sclustersperform
In other
equallywellandsurviveintheirmarkets?
do firmsin clustersexit?
words,how frequently
havebeenused
Entryintoandexitfromindustry
of
literature
in
the
previousempirical
extensively
comof
the
extent
infer
to
industrial
organization
Do firmsin
of industry.
petitiveperformance
clustersface morevolatileor morestableenvironment?While there is no publisheddata
availableto answerthisquestionforJapan,the
thatcanbe
SMEA surveyprovidessomestatistics
usedto shedsomepreliminary
lighton thisissue.
that
ofexitsoffirms
showsthenumber
Thesurvey
of
the
clusters
to
period
three-year
during
belong
on their
1994-96 withoutmakinganyreference
entrydates.By usingthesedataand an estimate
of firmsin clusterspresented
of averagenumber
in Table II of thispaper,Table VII presentsan
estimateof exit rate for seven manufacturing
in Japan.
industries
The firstcolumn of Table VII shows the
The most
ofexitsperclusterbyindustry.
number
thatemergesfromthisis that
distinctive
pattern
ofexitsintextile
thenumbers
(15.37)andclothing
ofexits
Thenumbers
(8.22) areamongthehighest.
aremorecomparable
forotherindustries
ranging
between1.79 and2.75.
TABLE VI
within
Alliancepartner
cluster,
byindustry
and
Numberofclusters Publicresearch
institution
in sample
testing
Foods
Textileandclothing
andfurniture
Woodenproduct
Stone,clay,andglass
Machinery
Miscellaneous
Total
University
Smalland
Largefirm
mediumfirm
16
35
18
21
18
19
75.0
60.0
44.4
57.1
83.3
47.4
18.8
5.7
11.1
9.5
16.7
10.5
31.3
60.0
55.6
47.6
44.4
52.6
0.0
5.7
0.0
9.5
11.1
0.0
127
60.6
11.0
50.4
4.7
Source: SMEA (1997),Table54.
HidekiYamawaki
138
TABLE VII
Numberofexitsandexitrate,byindustry
(1994-96)
Industry
Exits/cluster
Firms/cluster
Exits/firms
in cluster
Foodprocessing
Textile
Clothing
Woodproduct
andfurniture
Clay,stone,andglassproduct
Machinery
Miscellaneous
1.79
15.37
8.22
2.48
2.75
2.68
2.67
82
241
208
102
125
128
111
0.022
0.064
0.040
0.024
0.022
0.021
0.024
7.00
145
0.048
Total
basedon Table 12 in SMEA (1997).

Source: The author'sestimate
Since thenumberof exitspresentedin thefirst

column is not adjusted for the total numberof
firmsin clusters,the thirdcolumn shows the exit
rate, defined as the numberof exits divided by
the numberof firmsin a typicalcluster(column
2). The patternof exit rate is virtuallythe same
as that of the unadjusted number of exits in
column 1. The exit rate fortextileis the highest
with6.4 percentfollowedby thatforclothingwith
4.0 percent. The exit rates for the rest of the
sample are again comparablerangingbetween2.1
percentand 2.4 percent.
The relativelyhighexit rateforthe textileand
clothingindustriesis presumablyexplainedby the
recent increase in internationalcompetitionin
these markets. Significant recent increases in
importsof textileand clothingin Japanfromher
neighboringAsian countriesinjectedcompetitive
pressureand restraineddomesticprices forthese
goods (Yamawaki, 1992). Facing suchcompetitive
pressure, some of the Japanese firmsin these
marketswere forcedto exit fromtheirmarkets.
this paper is unable to answer
Unfortunately,
thequestionof whetherJapanesefirmsin clusters
are more likely to survive than those outside
clustersbecause of the unavailabilityof exit rates
comparablebetweenthese two samples of firms.
betweeninsidersand
Comparisonof performance
outsidersis needed in futureresearch.In recent
years,an increasingnumberof empiricalstudies
in industrialorganizationhave examined patters
of gross entryand exit for many industrialized
countriesand theirlink to firmand industryperformances.SimilarempiricalresearchforJapanis
indeed needed urgently.
The findingin Table VII, however,impliesthat

not all thefirmsin a clusterperformequally well
and survivewhen faced withinternationalcompetition.While clusters may provide firmsthat
and
belong to themwithcommoncluster-specific
region-specificadvantages,such advantagesmay
be offsetby firm-specific
disadvantages.As the
estimate of exit rate for textile and clothing
suggests, some inefficientfirmsin the cluster,
albeit small, are forcedto exit. Thus, clustering
does not necessarilyguaranteethatall the firms
benefit equally from it, but each firm's firmspecificresourceand capabilityinsteadmay play
a more importantrole in shapingthe firm'sviabilityin the industry.
Agglomerationand regionaleconomicgrowth
Does the presenceof clusterin a regionincrease
its economic growth? Does agglomerationof
economicactivitiesin a regioncreateexternalities
and improveproductivity?
Despite theimportance
of these questions, empirical research that
provides evidence to answer these questions is
quite scarce at least in Japan. An exception is
the statistical study by Morikawa (1997) that
examined the relationships between various
measuresof regionaleconomic performanceand
agglomerationduringthe period of 1975-91 in
Japan.By using data sample at the level of prefecture, Morikawa estimated equations that
explainregionaleconomicgrowthby theextentof
agglomerationof general economic activity,the
presence of general machineryindustryin the
Industrial
ClustersinJapan
of theregion,
region,initialeconomiccondition
andpolicyvariables.
His regressionresult shows that regional
is positively
relatedto a proxy
shipment
growth
foragglomeration
measuredby manufacturing
he
area.On thecontrary,
shipment
pergeographic
findsthatreal laborproductivity
growthin the
relatedtotheproxiesfor
regionis notstatistically
measuredby populationdensity
agglomeration
and regionalGDP per geographicarea. On the
he concludesthatagglomerbasisofthisfinding,
is morelikely
ationofgeneraleconomicactivity
but
to helpexpandthesize ofregionaleconomy,
itis less likelytohelpincreaselaborproductivity
growth.
his workfindsthatthe
More interestingly,
in
industry
strong
presenceofgeneralmachinery
theregion'sproincreases
theregionsignificantly
with
is consistent
This finding
ductivity
growth.
thatthe presenceof machinery
the hypothesis
and
in the regioncreatesexternalities
industry
ofotherindusgrowth
helpsaugment
productivity
triesin theregion.This resultfurther
provides
statisticalevidencethatis consistentwiththe
evidenceinSection3 ofthispaper,conanecdotal
firmingthat the existenceof supportingand
relatedindustriesare likelyto createclusterspecificadvantage.
6. Conclusions
Thispaperhas providedan overviewof theevoinJapan.
clusters
ofindustrial
lutionandstructure
The emergenceof Japan'sclustersis relatedto
severalfactors:historicalcircumstances,
prior
existenceof largemanufacturers,
priorexistence
ofrelated
ofsupporting
industries,
priorexistence
inneighboring
industries
areas,reducgeographic
tionin transportation
costs,regionalgovernment
transfer.
Japan'sindustrial
policy,andtechnology
clustersgenerateadvantages
large
by supporting
withspecializedcapabilities
ofsuppliers
numbers
and by organizing market structuresthat
linkagesand facilitatethe
encourageinter-firm
ofknowledge
transmission
amongfirms.
of industry
Thislistof driversandadvantages
withlistsderived
localizationis quiteconsistent
fromthe experiencesin the UnitedStatesand
inhistorical
cirthedifference
Europe.Asidefrom
element
lies
thedistinctively
cumstances,
Japanese
139
firms
inthewaysinwhichJapanese
organizetheir
businessactivitiesand the local governments
The extensive
use of sublocal clusters.
promote
between
thehierarchical
relationship
contracting;
the
andmultiple
manufacturers
layersofsuppliers;
ofon-thetheimportance
smallsize of suppliers;
of
thelow degreeof labormobility
job-training;
for
thepreference
betweenfirms;
skilledworkers
internal
labormarketsto externallabormarkets
of
theestablishment
to allocatehumanresources;
and
technical
variouspublic testing,research,
theexistence
centersby thelocal governments;
as
trade
such
of variousinstitutions
associations,
businessassociations,and wholesalersassociations;andtherolessuchinstitutions
playin facilfirmsin a
between
itatingthe communication
ofJapan's
characteristics
areall important
cluster,
that
industrialorganization distinguish
Japan's
clustersfromthosein othercountries
industrial
suchas in theUnitedStates.
in thepaper,
identified
Amongtheadvantages
of
thatcreatedby theexistence specializedsupis consideredthe
pliersin a localized industry
in
element
mostimportant
agglomeration
creating
economies.A supplier'sskills and capabilities
othersuppliers'skillsand capabilicomplement
manufacturers'
in
turncomplement
which
ties,
a network,
such
skillsand capabilities.Through
firmsdeveloptheskillsspecificto a cluster.The
case analysisofthispaperfindsthatfirms
develop
and accumulatesuch skillsovertime,whichin
assetsthatoftendetermine
turnbecomeimportant
evolution
cluster's
the
path.
Acknowledgements
For helpfulcommentsand suggestionsI am
Bee YanAw,Shujiro
toDavid Audretsch,
grateful
of
Urataandotherparticipants theprojecton The
Role of Small and Medium Enterprisesin
Development,organizedby the World Bank
Institute.
Notes
1 Thenumber
is 816,881in 1994,
ofSMEs inmanufacturing
andtotalemployment
by SMEs is 8,878,531in 1994.Total
whichaccounts
is 6,469,167,
ofSMEs intheeconomy
number
Totaleconomy-wide
ofall enterprises.
for99 percent
employmentby SMEs is 41,415,237in 1994.
140
Hideki Yamawaki
2 The
description below draws heavily from People's
Financial Corporation(1987, 1995), MITI (1996), and Ito and
Urata (1997, 1998).
3
People's Finance Corporation(1987, 1995).
4 Ito and
Urata,Table 10 (1997).
People s Finance Corporation(1995).
6
7 Peorie's Finance Corooration(1995).
8 Ito and Urata
(1997) and MITI (1996).
9
People's Finance Corporation(1987).
10 Ito and Urata
(1997).
11
12 Ito and Urata
(1997).
13
13 Similar
examples are the cases of Hitachi in the city of
Hitachi and Yamaha in Hamamatsu (MITI, 1996).
16 As of
1991, 171 public testingand researchcentersand
technologycentersexist in Japan(JICA, 1992).
17 Not included in the
sample of 14 clusters.
18 Firms
specialized in polishingoftenwork as second-tier
subcontractors.See Ito and Urata (1997, 1998).
19 The numbersof subcontractors
are 182 in silverwareand
265 in houseware.In addition,thereare morethan 1,000 subcontractorsspecializing in polishing (Ito and Urata, 1997,
Table 8).
20 This
tendencythat Japanese automobile manufacturers
formclusterswith suppliersis observed fortheirU.S. -based
companies as well. See Head, Ries, and Swenson (1995).
The SMEA survey does not include in the sample the
clusterin whichone or fewlargemanassembler-suppliertype
ufacturersoperateas a core.
22 This result
complementsthe paper's earlier findingthat
some clustersin Japanbenefitedfromtheexistenceof pooled
marketsforpart-time
workersin labor-intensive
but
industries,
not necessarily from pooled labor markets from skilled
workers.
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Evolution of Structure

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The Evolution and Structure of Industrial Clusters in Japan

Author(s): Hideki Yamawaki

The Evolutionand Structure

ABSTRACT. This paper focuses on two aspects of the

Small Business Economics 18: 121-140, 2002.

providinga briefdescriptionon the historical

fabricin Japanin termsof shipment,and exports

gingham. The organizational structureof the

in Germany and the U.K. Approximately400

suppliersforFuji Heavy Industries.Averagesizes

and processing that was required to produce

Key driversof clusterformation

century (Seto and Seki). These clusters had

in the emergence of the silverware cluster in

roleto fostera new clusterin a different

cluster in Morodomi illustratesthis point.

and unexical events,technological

in general (e.g., Uekusa, 1987; Asanuma and

Source: SMEA (1997).

textileclusteremploysonly six workers.Average

survey,a totalof 471 clustersrespondedto the

Source: SMEA (1997),Table 17.

eration.This resultseems to suggestthatnew

Textile Clothing WoodproductsStone,clay, Machinery Others Total

Source: SMEA (1997),Table23.

Table V summarizesthe SMEA surveyresult

Textileand Woodproducts Stone,clay, Machinery Others Total

Source: SMEA (1997), Table54.

Source: SMEA (1997),Table54.

basedon Table 12 in SMEA (1997).

Since thenumberof exitspresentedin thefirst

The findingin Table VII, however,impliesthat

Medium Enterprises and Policy Toward Them)',

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