Study On Firms’ Non-cooperative Behavior Mechanism Of Industrial Clusters Driven By Foreign Investments

Firms to cluster within some region have been observed for quite along time, there are industrial clusters all over the world. From Marshall to contemporary economists, Small and Medium Enterprises (SMEs) has been the most prominent subject in the industrial clusters research. However, with the process of globalization, multinational companies have been involved more and more in clusters. They control the process of global production and find the best investment location globally. Multinational companies transfer the low-value production to the developing countries in the form of FDI. Therefore a lot of industrial clusters are driven by foreign investments, especially in China. It’s a new perspective to consider multinational companies in the research of industrial clusters in recent years, and there are some progresses in the research. Nevertheless, the prevous researches have focused more on the advantage of multinational companies; its risk has been not mentioned. Number of such do not develop well and are decaying, the main reason causes clusters to decay is firms’non-cooperative behavior, in addition to the lost of low cost advantage and the shortage of labours. Therefore, it is meaningful in theory to inveatigate the firms’non-cooperative behavior of industrial clusters driven by foreign investments.Based on the related literatures on cluster theory, especially on the clusters research based on the perspective of multinational companies and firms’ non-cooperative behaviors, knowledge flow and industry network are proposed to be the main factors.There are six main research contents in this dissertation:(1)Summarizing the evolution mechanisms of industrial clusters driven by foreign investments and analyzing its systerm dynamics characteristics. According to Marshall’s three pillars for the existence of positive agglomeration externalities, dynamic models are eatablished to investigate the mechanism of decaying by interactive relationship loops of manpower flows, knowledge flows and supply flows. Only all the influencing factors are coordinated and operated in a sound mechanism, the positive feedback contributes to the cluster, while the positive feedback is destroyed and negative feedback happens in some factors, the clusters’development would been impeded and decayed finally.(2)Analyzing the firms’non-cooperative behavior of industrial clusters driven by foreign investments from the perspective of knowledge flows. A three-stage game model is established to analyze the motivation of multinational company’s knowledge transfer and the vertical technology transfer effects within industrial clusters driven by foreign investments. The results show that there are two cases in the present of knowledge spillover in intermediate products market, In the case of blocked entry of downstream market, the incumbent multinational company is still a monopolist. In this scenario, the second local supporting firm must also hire the incumbent multinational company. The competition in the upstream market reduces the price of intermedim product. The incumbent multinational company benefit from the knowledge spillover of upstream market. The alternative case is where heightened potential entrant in downstream market lowers the intermediate product price sufficiently to lead downstream market entry. The key parameters determing the earning or loss of incumbent upsteram firm and incumbent multinational company from technoledge tranfer are the marginal cost of the second local supporting firm and the potential entrant.(3) Analyzing the firms’non-cooperative behavior of industrial clusters driven by foreign investments from the perspective of industrial networks. A basic model of vertical squeeze in the clusters based on the model of double marginalization is established to research the problem of vertical squeeze in industrial clusters driven by foreign investments by the buyer power. The findings indicate the buyer power of multinational companies and the inequality between market powers of upstream and downstream are the main reason to vertical squeeze in industrial clusters driven by foreign investment. With the increase of local supporting firms in upstream, the cluster effect enhances; the cost of firms lower due to the geographical proximity and knowledge spillcwers. However, the output of each firm lowers owing to competition, and the price of intermediary product lowers as well, therefore the profit of each local supporting firm decrease. The local supporting firms take the advantages of the industrial cluster effects, but their profits are decreased. While muitinational companies benefits from comptition among the upstream firms and earn more profits due to their monopoly power.(4) Investigating the issue of excessive competition among local supporting firms. In terms of the performance of local supporting firms’excessive competition, the formation mechanism is explored from there sides:including high exit barriers, low product homogeneity and enterprises’short-term behavior. The findings indicate:first, the greater sunk costs, the higher industry exit barriers, firms more prone to form excessive competition; second, the higher the product homogeneity and the lower the subsitituability, the close the price of intermediary product to the marginal cost, the more the tendency to excessive competition; third, firms with the objective of profit maximum are inclined to depart from the connon price and lower prices to earn market share. The greater the number of local supporting firms, the greater the discount factor, and the more difficult for enterprises to cooperate. If the discount factor of future earnings is smaller, cooperation between enterprises can not be formed. Then it is inevitable for local supporting firms to compete excessively.(5) Researching on risks and strategies of industrial clusters driven by foreign investments. Suzhou IT manufacturing industrial cluster is adopted to analyze the problems and reasons to firms’non-cooperative behaviors. Suggestions are recommended from three sides:Enhancing the local embeddedness of multinational firms by establishing soft and professional network, lowering the vertical squeeze through increase the market power of local firms, and improving the capability of local supporting firms to interact with multinational firms.In conclusion, based on the phenomenon of industrial clusters driven by foreign investment and its existing problem, this dissertation adopts knowledge flow and industry network among firms in industrial clusters as the main factors in research framework, by analyzing clusters between multinational companies and local supporting firms, and local supporting firms themselves, the dissertation are investigated. The above-mentioned work contributes to improve the capability of local supporting firms to make use of multinational firms’ technology, funds and management experience as well as the local economic growth.