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Driven by the overseas Chinese investment from Hong Kong and Taiwan, the Pearl River Delta (PRD) has evolved into the worlds factory embedding into the global production network (Chen 2007; Enright et al. 2005). The relocation of Hong Kong firms in the 1980s and 1990s also contributed to the formation of industrial districts in the PRD, conceptualized as the PRD model (Eng 1997; Sit and Yang 1997). The early concerns about the relocation in the late 1980s and the early 1990s can be traced back to the literature on the cross border development in the region of the PRD and Hong Kong. For instance, Chan (1998) reviewed the regional development of South China and identified the lack of theoretical discourse on the cross-border development. While the recent location of Hong Kong manufacturing firms have been discussed in the mass media and attracted considerable attention from the policy makers, few empirical studies have timely and comprehensively examine the driving forces, origins, destinations as well as the effects of this round of relocation in relation to the restructuring of the PRD model. Recent years have witnessed dramatic changes of the local business environment in the PRD including labor shortage, stricter environmental regulation and the socalled relocation policies designed by Guangdong government. Against this backdrop, Hong Kong manufacturing firms have to adopt new spatial and transformation strategies (Yang 2006, 2007), giving rise to the emerging industrial relocation of Hong Kong manufacturing firms and the spatial restructuring of industrial districts in the PRD. This paper thus aims to investigate what are the driving forces underlying the new round of relocation? How Hong Kong firms adopted different relocation strategies compared with the 1980s and 1990s trajectories?Economic geographers have increasingly realized that the literature on the restructuring of industrial districts has paid little attention to the relocation of firms and delocalized groups (Wei et al. 2007: p. 422). More importantly, the existing theories regarding industrial relocation also tend to focus on the relocation of Multinational Enterprises (MNEs) at the global scale (Wei et al. 2007), especially the flying geese model of the 1990s (Hart-Landsberg and Burkett 1998; Tsuru 1993). Through the case study of the relocation of Hong Kong manufacturing firms at the regional scale within countries, this paper thus adds to the literature on the relocation of firms. The paper also demonstrates that the relocation of Hong Kong manufacturing firms, although geographically resembles the relocation of MNEs at the global scale (flying geese model), has different dynamics and effects. Specifically, in contrast to the literature on industrial districts deemphasizing the role of the state, the Guangdong government, has played a proactive role behind the new round of the relocation of Hong Kong manufacturing firms. As the focus of the paper is the industrial relocation of Hong Kong manufacturing firms in the PRD, the paper further compares the current relocation process of Hong Kong manufacturing firms against the 1980s and 1990s trajectories. It is argued that based on the relocation of Hong Kong manufacturing firms, the industrial space or industrial districts shaped by Hong Kong investment have been expanded that not only make use of the local advantages of Hong Kong and the PRD as what they did in the late 20th century (Meyer 2008). In response to the new policies in Guangdong, the changing business environment in the PRD and the fragmented environmental regulations in China, Hong Kong manufacturing firms have adapted to incorporate the inter-region coordination strategies on the mainland side. They also develop different spatial patterns of relocation according to various characteristics in different sectors. Methodologically, the empirical data in this paper is mainly collected from surveys conducted by the largest business chambers from Hong Kong including the Federation of Hong Kong Industries (FHKI), and Chinese Manufacturers Association of Hong Kong (CMA).1 In addition to their survey reports, some 20 firm level interviews are also conducted in Foshan, Dongguan, Shenzhen and Huizhou from September 2006 through December 2008. Senior managers from the China Chamber of General Commerce (CGCC) (largest business organization in Hong Kong),2 are interviewed in Hong Kong to discuss the ongoing situation of Hong Kong manufacturing firms in the PRD. The Hong Kong Trade Development Council (HKTDC) was also contacted to provide information concerning the updated development of Hong Kong manufacturing firms. In addition, four in-depth case studies were employed to elaborate the different strategies adopted by Hong Kong manufacturing firms. The rest of the paper is organized in the follow sections. In the second part, we discuss the relocation of firms in relation to the restructuring of industrial districts or industrial space, which is to identify the gaps in the exiting literature on the industrial relocation and its relevance to the relocation of Hong Kong manufacturing firms. This is followed by a discussion on the general characteristics of Hong Kong manufacturers in the PRD with a particular focus on their unsuccessful upgrading over the past decade. The paper further illustrates the new business environment being faced by Hong Kong manufacturing firms especially the most recent policies designed by the Guangdong provincial government and the rigid environmental regulation in the PRD. In section Industrial relocation policies of Guangdong provincial government, different relocation strategies adopted by Hong Kong manufacturing firms are analyzed through four case studies. The concluding remarks emphasize on the long-term viability and sustainability of Hong Kong manufacturing firms in the PRD region.Industrial districts characterized by flexible specialization and agglomeration have generated considerable scholarly debate since the 1980s (Piore and Sabel 1984; Scott 1988). Despite the globalization and the hollowing out of the nation state, it is argued that the global production is still localized in specific regions (Cox 1997). The emergence of the new industrial spaces or industrial districts can be viewed as the spatial manifestations of the transformation from Fordist production to flexible production (Scott 1988). Therefore, the industrial districts can further be regarded as the nodes embedded in the global production and served as motors for regional economic development. Compared with the concerns of a few areas in developed countries, scholars are also increasingly interested in the emerging industrial districts in developing countries and the varied forms of industrial space or industrial districts under globalization particularly those driven by the foreign investment (Schmitz and Nadvi 1999; Scott 2002).In China, the industrialization and economic transformation over the past three decades have also generated some distinctive industrial districts including the Sunan model (Wei 2002), Wenzhou model (Wei et al. 2007) and PRD model (Sit and Yang1997). The PRD model is a classical case, in which exogenous forces especially the influx of Hong Kong investment, played a dominant role in the industrialization of the region (Eng 1997; Lin 1997; Sit and Yang 1997). However, recent years have witnessed the transformation of the original PRD model. Yang and Hsia (2005) found that the PRD has shifted from an enclave serving the global market to a bridgehead to exploiting the domestic market in China. The foreign invested firms in the PRD, especially Hong Kong manufacturing firms, have also transformed in terms of entry mode, market orientation and interaction with local governments, leading to the new development model in the PRD (Yang 2006). The paper aims to continue the research on the restructuring of the industrial districts or the PRD model in the region with a particular focus on the relocation of Hong Kong manufacturing firms that is still vaguely understood in the existing literature. Scholars have endeavored in the exploration of the restructuring of the traditional industrial districts such as the industrial districts in Italy (Cainelli et al. 2006; Dunford 2006). However, the existing literature on the restructuring of industrial districts have centered on the technological innovation and industrial upgrading (Martin and Sunley 2006), little attention is paid to the relocation. Based on the case study of the footwear-production district in Germany, Schamp (2005) identified firms in the old industrial districts adopted two dominant types of strategic response to the industrial decline: firms either stay in the industry but left the region (relocation) or stayed in the region but left the industry (diversification).The industrial districts in China are also facing problems of restructuring or more specifically, spatial restructuring. However, in the existing literature, little has been written to explore the spatial restructuring of industrial districts in relation to the relocation of firms. The most representative one is the relocation of the local firms in Wenzhou, in which the relocation is essential to the restructuring of the Wenzhou model (Wei et al. 2007). Based on the case of the PRD, the paper also demonstrates that due to the slow upgrading of Hong Kong manufacturing firms over the past two decades, the restructuring of industrial districts in the PRD is also mostly involving a new round of relocation, leading to the so-called expansion of the industrial space beyond the PRD. A second stream of literature has mainly dealt with the relocation of firms. Brouwer et al. (2004) investigated the origins, destinations, driving forces and effects during the relocation of firms and distinguished the complete or total relocation and partial relocation. Interestingly, the literature on relocation firms can also mostly be searched in the research on MNEs, when they move at the global scale. Scholars conceptualize the relocation of MNEs on the global scale especially the Japan MNEs and the benefits derived from the relocation into the model of flying geese, strongly showing that the dominant role of MNEs during the relocation of firms and their contribution to the economic growth and technological upgrading in the host countries (Hayter and Edgington 2004). In contrast to the existing research on the relocation led by MNEs on the global scale, the case of the PRD in this paper thus adds the literature by the case of the relocation of Hong Kong MNEs within countries, which may exhibit more diversified patterns and different dynamics.Thirdly, the literature on district and the relocation of firms also deemphasize the role of the state. Hayter(1997) and Pellenbarg et al. (2002) highlight there location of firms have involved main driving forces including the expansion and the need for more suitable premise, cost saving and policy incentives. In contrast to the neoclassical theories emphasizing the cost saving and the firm behavior theories highlighting the decision making process, the institutional theories place emphasis on the policies and the institutional environment in the process of relocation (Brouwer et al. 2004; Hayter 1997). In the context of China, the role of state does have huge impact on the location of firms. Sit and Liu (2000) studied the geography of Chinas auto industry. Their findings mainly presented a clear industrial space in association with the states regulation concerning the joint venture. This paper will also show that regarding the relocation of Hong Kong manufacturing firms in the PRD, the Guangdong provincial government has actively intervened the relocation by implementing the policies

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