Exporting the German model: The establishment of a new automobile industry cluster in Shanghai

Recent work has provided evidence that the establishment of new industry clusters cannot be jump-started through policy initiatives alone. This evidence does not imply, however, that the genesis of a new cluster cannot be planned at all. Especially in the context of a developing economy, it seems useful to reinvestigate the relation among economic development, the strategies of multinational firms, and state intervention in this respect. Drawing from the case of the automobile industry and its supplier system in Shanghai in which German firms play an important role, we provide empirical evidence of the evolution of a new cluster that is supported by the state in various forms and characterized by a focal, hierarchically structured production system. We use a multidimensional approach to clusters, which leads to a more nuanced understanding of the evolution and growth of a cluster than that provided by earlier accounts. This approach allows us to distinguish the development of the Shanghai automobile industry cluster along its vertical, horizontal, external, institutional, and power dimensions. We provide evidence that another dimension-"culture"-plays an important role, especially in its relation to issues of power and institutions. The role of this dimension is demonstrated in the case of German firms, which tap into the Chinese innovation system. This system is characterized by particular business relations, institutions, norms, and various social practices that are new to German firms. We demonstrate how this difference creates problems in establishing local production and supplier relations and how these problems can be overcome.