Strategic coupling and institutional innovation in times of upheavals: the industrial chain chief model in Zhejiang, China
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Cambridge Journal of Regions, Economy and Society 2022, 15, 279–303
https://doi.org/10.1093/cjres/rsac011
Advance Access publication 13 May 2022
Strategic coupling and institutional innovation in
times of upheavals: the industrial chain chief model in
Zhejiang, China
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Huiwen Gonga,b,c, Robert Hassinkd, and Cassandra C. Wange
a
Environmental Social Science Department, Eawag, 8600 Duebendorf, Switzerland
b
Institute of Geography & CRED, University of Bern, CH-3012 Bern, Switzerland
c
CIRCLE, Lund University, 22362 Lund, Sweden, huiwen.gong@eawag.ch
d
Department of Geography, 24098 Kiel University, Germany, hassink@geographie.uni-kiel.de
e
School of Earth Sciences, Zhejiang University, 38 Zheda Road, Hangzhou, 310027 China,
chencwang@zju.edu.cn
Received on August 12, 2021; editorial decision on March 30, 2022; accepted on April 21, 2022
For regions that are deeply integrated into the global economy, the question of how to re-
main competitive and resilient in times of uncertainty is a key concern. While strategic coup-
ling is a useful concept for understanding local-global economic dynamics, the idea that a
region can simultaneously couple into multiple production networks organised at different
spatial scales and that regional actors can increase their autonomy by creatively combining
different coupling scenarios has been little explored. This paper explores how regional insti-
tutional innovations can facilitate such multiple couplings. We focus on the industrial chain
chief model in China’s Zhejiang province, which emerged against the backdrop of the U.S.-
China trade war and the COVID-19 pandemic. We argue that this institutional innovation
offers a different way of thinking for regions that have long been exposed to the influence of
globalisation, and that it increases the agency of local actors in global production networks.
Keywords: strategic coupling, industrial chain, China, globalisation, institutional innovation
JEL classification: O18, R11
Introduction global shifts have opened up opportunities for
many regions of the world, they also pose signifi-
Regions today are facing two fundamental chal-
cant challenges for other regions suffering from
lenges. First, accelerated globalisation has meant
increased production costs, weakened innov-
that regions are increasingly exposed to the in-
ation capacity, and depleted natural resources
fluence of extra-regional economic dynamics.
(Coe and Hess, 2011). Second, partly related
And the global division of labour, which occurs
to increasing globalisation, regions are now in-
for reasons of cost reduction, has led to various
creasingly exposed to crises of all kinds, ranging
shifts in global production/innovation patterns
from natural disasters, terrorism, wars, financial
over the last decades (Dicken, 2015). While such
© The Author(s) 2022. Published by Oxford University Press on behalf of the Cambridge Political Economy Society.
This is an Open Access article distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivs
licence (https://creativecommons.org/licenses/by-nc-nd/4.0/), which permits non-commercial reproduction and distribution of
the work, in any medium, provided the original work is not altered or transformed in any way, and that the work is properly
cited. For commercial re-use, please contact journals.permissions@oup.comGong, Hassink and Wang
crises to pandemics and other public emergen- In the remainder of the paper, we will show
cies. Due to increasing globalisation and acceler- how institutional innovations can enable mul-
ating mobility of goods and human capital, such tiple coupling possibilities of a region that has
crises appear to be increasingly contagious, with long been integrated into the global economy.
their effects quickly felt by actors in other parts Specifically, we will examine the Industrial
of the world. The question of how regions can Chain Chief Model (ICCM) proposed by
respond and adapt quickly in the context of such Zhejiang Province against the backdrop of the
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dual challenges to remain resilient and robust is U.S.-China trade war and the COVID-19 pan-
obviously a thorny one, for which clear solutions demic, and its implementation in two Economic
have not yet been provided. Development Zones (EDZs) characterised by
Rooted in the global production networks different levels of GPN integration.
(GPN) literature, strategic coupling highlights The paper proceeds as follows. ‘Regional de-
that regions and clusters may gain develop- velopment in times of uncertainty’ reviews the
mental opportunities and realise value creation, current state of research on strategic coupling
enhancement and capture, by providing re- and institutional innovations in times of un-
gional assets needed by global lead firms (Coe certainty. ‘Regional development and provin-
et al., 2004; Hassink, 2021; MacKinnon, 2012; cial guidelines in ICCM in Zhejiang’ presents
Yeung, 2009a). While this perspective is in- the background of the cases studied and intro-
deed helpful to explain economic dynamics in duces the ICCM working mechanism at the
certain sectors (e.g., apparel, electronics, com- provincial level. ‘Research design and methods’
puter, automotive, etc.) and different regions clarifies the research design and methods.
or countries (e.g., Asian Tigers), relatively little ‘Industrial Chain Chief Model in Zhejiang: two
has been said about the impact of fundamental examples’ elaborates the implementation of
disruptions and crises on GPN reconfiguration ICCM in two pilot programs in Wenzhou and
and strategic coupling (Bryson and Vanchan, Taizhou. ‘Theorising ICCM from an economic-
2020; Yeung, 2021a). Moreover, conventional geographic perspective’ then theorises the
conceptualisation of strategic coupling, in which ICCM from an economic-geographic perspec-
a region, based on its assets and institutions, is tive. The last section concludes.
suggested to couple with a global leading firm
based in the North, is problematic (for a similar
argument see Fu and Lim, 2022), because it
Regional development in times of
limits the scope of agency to local actors. uncertainty
Against this background, this paper argues Regions today are increasingly integrating into
that shocks and crises may provide regions with production networks and value chains organ-
windows of opportunity to change their coup- ised by multinational corporations (Henderson
ling modes with the global lead firms, and they et al., 2002). Such involvement in globalisation
may also enable multiple couplings of a region has brought enormous benefits to regions, espe-
to various production networks organised at cially in emerging economies, by allowing them
different scales (i.e., regional, national, supra- to participate in the global division of labour
national and global production networks), if le- and thus to extract value from serving global
veraged properly. However, in order to facilitate markets (Coe et al., 2004). However, such
such multiple couplings in a region, institutional deep integration into the global economy has
innovations and/or adaptations at the regional its downsides as well. Regions are now much
level are needed, as regional institutions are a more vulnerable to the occurrence of shocks
crucial factor influencing the couplings between and crises in other parts of the world, as the
a region and lead firms (Coe et al., 2004). intertwined and interdependent relationships
280Strategic coupling and institutional innovation
between different parts of the global economy couple to GPNs in multiple ways, depending
and the increasing interconnectedness of the on the intentions of global lead firms, as well
world have made crises more contagious and as the local conditions of the host regions
have far-reaching effects (He et al., 2021). This (Nilsen, 2017). In terms of understanding key
section carefully examines strategic coupling as actors that are important for strategic coupling,
a key concept for understanding regional de- in addition to the prominent role of the global
velopment under the influence of globalisation, lead firms, local actors, especially the state and
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as well as the relevance of regional institutional local firms also have major roles in the strategic
innovation in times of uncertainty. coupling processes (Gao et al., 2017; Kleibert,
2014; Liu and Yang, 2013; Zhu and He, 2016).
In the context of emerging economies, Zhu and
Regional development in times of He (2016) argue that it is especially important
globalisation: strategic coupling as a to take into account the role of local govern-
heuristic? ments, as they often get involved in shaping the
Over the past two decades, the global produc- regional economy, as planners, developers and
tion network (GPN) perspective, alongside the policy-makers.
parallel perspective of the global value chain Second, inspired by the evolutionary turn
(GVC) or global commodity chain (GCC), in economic geography, authors have sought
has emerged as an influential approach to to demonstrate how strategic coupling is a dy-
understanding how regional development is namic and evolutionary process, including not
influenced by the global economy and its dy- just strategic coupling, but also decoupling and
namics (Coe et al., 2004; Coe and Yeung, 2015; recoupling (MacKinnon, 2012; Yeung, 2015).
Henderson et al., 2002; Hess and Yeung, 2006). These studies examined the relationship be-
One of the key contributions of the GPN re- tween strategic coupling and different types of
search has been to (re)conceptualise regional regions. MacKinnon (2012), for example, con-
development as a process of strategic coup- nects coupling, decoupling and recoupling pro-
ling between regional assets and the strategic cesses to dynamic regional hotspots in North
needs of lead firms in GPNs (Coe et al., 2004; America and Western Europe, old industrial re-
Coe and Yeung, 2015). Yeung (2009b, p.213) gions, and East Asian growth regions, respect-
defines strategic coupling as ‘the dynamic pro- ively. In a similar vein, in the GPN 2.0 theorising,
cesses through which actors in cities and/or Coe and Yeung (2015) differentiated between
regions coordinate, mediate, and arbitrage stra- indigenous coupling, functional coupling and
tegic interests between local actors and their structural coupling for core, emerging and per-
counterparts in the global economy.’ According ipheral regions, respectively. Empirically, many
to this conception, regional assets in the form of the studies are (still) focusing on coupling
of specific kinds of technology/knowledge, or- creation between a region and a global lead
ganisation, and territory-specific elements such firm (e.g., Dawley et al., 2019; Gao et al., 2017;
as natural resources, provide an important re- Kleibert, 2014; Yang, 2009; Yeung, 2009a),
source for regional development when used by highlighting the agency of local actors (espe-
regional institutions to complement the stra- cially the role of local state and institutions)
tegic needs of a global lead firm situated within in making such strategic coupling happen.
a GPN. However, there has been growing empirical
Recent thinking on strategic coupling has evidence that decoupling and recoupling also
evolved in several ways (Coe and Yeung, 2019; occur in regions. Horner (2014), for example,
Van Grunsven and Hutchinson, 2016). First, helpfully distinguishes between structural and
it is increasingly recognised that regions can strategic modes of decoupling. In examining the
281Gong, Hassink and Wang
transformation of the cross-border production Another problem we see with the strategic
networks of the computer industry driven by coupling literature is that it is primarily con-
Hong Kong and Taiwan-based TNCs in China, cerned with GPN configurations and strategic
Yang (2013) suggests that regional path devel- coupling in normal times. Therefore, relatively
opments of the computer industry in China little has been said on the impact of funda-
have been reshaped by TNCs’ decoupling from mental disruptions and crises and related glo-
source regions in coastal China and recoupling balisation in reverse on GPN reconfigurations
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with inland provinces. Recently, more efforts and strategic coupling, and the role of both firms
have been made to connect strategic coupling and non-firm actors therein (Yeung, 2021b)1. As
with other key notions in evolutionary eco- pointed out by Wei (2010, 2011), GPN scholars’
nomic geography, to better understand regional efforts to account for regional development
economic development and to make GPNs from a strategic coupling perspective often en-
more dynamic. Boschma (2022), for instance, counter problems of situatedness and specifi-
examines what the evolutionary approach may city, especially in times of uncertainty. Bryson
offer to the overarching GVC/GPN literature. and Vanchan (2020), also criticise the GPN
Van Grunsven and Hutchinson (2016) explore work for being unable to analyse the new kinds
the evolutionary concepts of adaptiveness, of value and risk as revealed by the COVID-19
adaptation and resilience in profiling the stra- pandemic.
tegic coupling of southern Malaysia with the More prominently, until recently, very little
global electronics industry, while Yeung (2021a) attention has been paid to regional institutional
and MacKinnon et al (2019) connect strategic responses or innovations to abrupt changes in
coupling to the regional diversification and places where there is a long history of GPN in-
path development discussion, respectively. tegration (Nagy et al., 2021; Urso et al., 2021).
While the aforementioned development in This is an important gap as place-specific insti-
the strategic coupling literature has provided tutions are important factors in making stra-
extensive insights into understanding regional tegic coupling happening (Coe et al., 2004).
development in the global economy, a key Therefore, when a crisis hits, whether or not re-
problem we see with the strategic coupling con- gional institutions can respond and adapt them-
cept is its emphasis on the coupling between selves quickly to counterbalance the negative
a host region and a single lead firm. While the impacts of the crises on the coupling between
phenomenon of a region integrating itself into a region and a GPN, is key to account for the
the production network dominated by a single resilience of the focal region (Evenhuis, 2016;
lead firm is not rare, in reality it is more often Urso et al., 2021). In the next subsection, the
the case that a region is embedded in several literature on regional institutional reactions to
production networks organised at different abrupt changes will be examined.
spatial levels, ranging from the global to the
local. Such multiple couplings between a region
and various production networks, however, Regional institutional responses and
has received little attention in the GPN litera- innovations in times of uncertainty
ture. Closely related to this, the evolutionary Institutional stability and changes are im-
thinking of strategic coupling tends to regard portant factors to consider when analysing
coupling, decoupling and recoupling as sequen- regional economic performance (Bathelt and
tial (MacKinnon, 2012) which largely overlooks Glückler, 2014; Evenhuis, 2017a; Rodríguez-
the fact that those dynamics might happen sim- Pose and Storper, 2006). Especially in times of
ultaneously, given that a region is often em- uncertainty, institutional reactions and innov-
bedded in multiple production networks. ations play fundamental roles in determining
282Strategic coupling and institutional innovation
the outcome of crises in different contexts individual) (Cabana et al., 2021), and they may
(Bristow and Healy, 2014; Cabana et al., 2021; produce both short-term and long-term, as well
Hu and Yang, 2019). An institution-focused as intended and unintended, consequences
analysis enables scholars to identify local agents (Glückler and Lenz, 2016; Grillitsch et al.,
that are active in coping with the crisis, and to 2021).
get a deeper understanding of crisis-related It is also important to differentiate between
processes beyond the realm of market relations ‘mechanisms’ and ‘patterns’ of institutional
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(Christophers, 2015; Evenhuis, 2017a, 2017b; change in times of uncertainty (Evenhuis, 2017a).
Nagy et al., 2021). In regions where there is a According to Evenhuis (2016), mechanisms refer
long history of GPN integration, institutional to the processes through which actors drive in-
responses to crises to enable the focal region stitutional change, while patterns are the dif-
to adapt and switch swiftly between production ferent configurations that institutional change
networks organised at different scales (regional, may come to exhibit. With regard to mechanisms,
national, supranational and global production the author distinguishes between three broad
networks), for example, multiple couplings types including: 1) institutional change through
between a region and various production net- reinterpretation and subversion from below
works, are extremely important for the overall (bottom-up); 2) institutional change by decree
regional economic development. In this regard, (top-down); and 3) institutional change through
potential institutional innovations may involve mutual consent between actors. Such mechanisms
disrupting the old regulative systems that do may give rise to various patterns of institutional
not work, adjusting and maintaining the re- change including layering, conversion, drift, dis-
gional support systems to better meet the needs placement, exhaustion, recombination, churning,
of the local firms, and/or creating new institu- etc. (Evenhuis, 2016; Streeck and Thelen, 2005).
tions to enable different coupling possibilities All in all, it is clear that strategic coupling is a
both in the short- and long-run (Bathelt and useful heuristic to understand regional economic
Glückler, 2014; van Grunsven and Hutchinson, dynamics in times of globalisation. However, so
2016). Specific policy measures or new ‘ways of far only limited attention has been paid to ex-
doing’ to mitigate the negative region-nation- ploring how regions that have long been inserted
globe economic and social dynamics, or the into the GPNs develop institutional innovations
formation of new institutions to facilitate re- in order to facilitate their multiple couplings with
gional economic actors’ ability to reconfigure different production networks during and after
the economic activities in their region are often crisis. Against this background, in the remainder
observed in times of crises (Cabana et al., 2021; of the paper, we will show an institutional in-
Urso et al., 2021). One important aspect related novation/reaction—the ICCM, which takes into
to this is that such institutional responses and account the multiple strategic coupling possibil-
innovations usually require the joint effort of ities in the context of China’s Zhejiang Province
different interest groups (Cabana et al., 2021; in light of the U.S.-China trade war and the cur-
Nagy et al., 2021). The institutional entrepre- rent COVID-19 pandemic.
neurs that are active in creating, maintaining
and disrupting certain institutional forms may Regional development and provincial
come from industry, government or other so- guidelines of ICCM in Zhejiang
cial groups (Grillitsch and Sotarauta, 2020).
Furthermore, such institutional responses and Regional development in Zhejiang:
innovation often requires a mix of competen- contexts and backgrounds
cies (e.g., political, operational and analytical) Zhejiang is a coastal province in China (Figure 1)
and resources (systemic, organisational and that has experienced rapid economic growth since
283Gong, Hassink and Wang
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Figure 1. Location and administrative divisions of Zhejiang province, China.
reform and is known for its private enterprise- the formation of three clusters: the emerging
based Wenzhou model (Bellandi and coastal Wenzhou-Taizhou cluster, the central
Lombardi, 2012; Wu et al., 2015). It often ranks Zhejiang cluster and the traditional Hangzhou-
first among the provinces in various indicators Shaoxing-Ningbo cluster (Wei and Ye, 2004).
of the overall strength of the private sector in In terms of state-business relations, because
China (Wu et al., 2015). In terms of the impact of the tradition of private capitalism and the
of GPN, regions and industries vary greatly in strong influence of business, the Zhejiang gov-
the extent to which they are exposed to the ef- ernments tended to take a benevolent attitude
fects of globalisation. Some clusters (e.g., eye- toward private enterprises. Local governments
wear, apparel, socks and hardware) have long have been very active in facilitating domestic
inserted themselves as suppliers or original and global networks, promoting urbanisation
equipment manufacturers into the GPNs of and economies of scale. In recent decades, there
brand-name companies based in Western coun- has been a shift in the perception of the role
tries and are therefore more sensitive to global of governments, i.e., from ‘non-interventionist
market dynamics and international disruptions. governance’ (Wenzhou model) in the 1980s to
In contrast, other clusters and industries (e.g., ‘moderately active governance’ (Yiwu model)
the pharmaceutical clusters) are less subject to in the 1990s to more recent ‘active effective
the influences of TNCs, both in terms of pro- governance’ (Hangzhou model) (Hu, 2018).
duction and innovation. Despite tremendous growth, companies in
In the last forty years, the booming of the Wenzhou-Taizhou region are currently
Zhejiang’s economy was accompanied by struggling to improve their ability to move
284Strategic coupling and institutional innovation
up the value chain. In labour-intensive in- has helped to create the awareness of chain-like
dustries such as textiles and apparel, global thinking in the coordination and integration of
buyers tend to look for alternative suppliers co-located enterprises. In early 2020, the out-
and cheaper production sites to reduce costs break of the Covid-19 pandemic led to severe
(Zhu and He, 2016). A lack of innovation cap- fragmentations of many of the GVCs. EDZs in
ability in knowledge-intensive industries is Zhejiang have been subject to different degrees
also hindering the further development of of influence, depending on their dependence on
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the regional economy. The need to improve export markets and foreign investments. In this
innovation capability has been increasingly context, the DoC issued a second document on
emphasised by industry players in order to sur- ‘Notice on Further Implementing the Industry
vive cutthroat competition (Wu et al., 2018). Chain Chief Model to Promote the Resumption
In particular, the recent U.S.-China trade war of Production’ (hereafter Document 2), in order
and the ongoing COVID-19 pandemic have to support the resumption work in the EDZs
exposed the problems of many industrial clus- during and after the pandemic. Although the
ters in Zhejiang, such as low value-added, weak ICCM was proposed against the backdrop of
innovation capability, heavy reliance on pol- the U.S.-China trade war and the pandemic, the
luting production, etc. In this regard, the efforts DoC also aims to make it a relevant working
of enterprises and non-economic actors (gov- mechanism for regional industrial/cluster up-
ernments) to improve the value chain seem to grading in the long run. As one key officer from
be extremely important. The emergence of the the DoC claimed,
ICCM in Zhejiang can be seen as one of the ef- ‘…we do not want our approach to be short-
forts of local actors to find better development lived only during the crisis period... rather, we
opportunities in times of uncertainty. hope to turn it into a long-term effective mech-
anism that can also guide our work on industry
upgrading in Economic Development Zones.’
Provincial-level guidelines of ICCM in (Government 2)
Zhejiang According to Documents 1 and 2, the main
The ICCM is an institutional innovation that guidelines of the ICCM can be summarised as
was proposed to address the challenges of re- follows:
gional industrial chain adaptation in times of
uncertainty. Based on the expectation that • Each EDZ in Zhejiang was required to iden-
the intensified global political tensions, as ex- tify an industrial chain with ‘strong charac-
emplified by the U.S.-China trade war, would teristics, high international competitiveness
most likely lead to increased disintegration and and a comprehensive innovation support
decoupling of global value chains, the Zhejiang system’.
Department of Commerce (DoC) issued a con- • In order to take advantage of the social
crete guideline on ‘Suggestions on The Pilot capital of key officers in the specific regions,
Work in Implementing Industrial Chain Chief it was recommended that the main leaders
Model in Economic Development Zones’ of the territory where the EDZ is located,
(hereafter, Document 1) in August 2019, with would play the role of ‘chain chiefs’, who ag-
the aim of strengthening, integrating and re- gregate and connect previously unconnected
plenishing the local industrial chains in order resources to serve the needs of the identified
to secure key products supply and achieve local industry. Key regional enterprises are
self-sufficiency. Since its publication, this guide supposed to be allocated the role of ‘chain
has been implemented in many Economic owners’, who are supposed to be the main
Development Zones (EDZs) in Zhejiang, and actors implementing value chain adjustment
285Gong, Hassink and Wang
and reconfiguration. Furthermore, directors scale and its chain is mostly coordinated by
of intermediaries, such as industry associ- powerful producers. The eyewear industry in
ations, are expected to play the role of ‘chain Wenzhou is characterised by strong integration
mentors’, who coordinate and interact dir- into the GVC dominated by Western brand
ectly with different enterprises along the names, operating in the most labour-intensive
identified industrial chain. stages of the production process. In contrast,
• Chiefs, owners and mentors should work the pharmaceutical industry in Taizhou has
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together based on a set of shared goals and been characterised by basic chemicals and
working mechanisms to increase the resili- intermediate suppliers to the global lead firms,
ence of the local industry in highly uncertain with weak innovation collaborations and spill-
times. overs. Due to such different industry charac-
• The ICCM should be problem-oriented, teristics, we expect the focus of value chain
aiming to solve challenges such as value reconfiguration to differ between the two in-
chain ruptures, lack of directionality, low- dustries in times of uncertainty. While a buyer-
value capture, low innovation capacities, and driven industry may focus more on new market
untargeted business-attraction strategies. exploration and expansion during/after a crisis,
a producer-driven industry can focus more on
Under the guidance of the DoC’s ICCM value creation by improving the R&D capabil-
Documents, many of the EDZs in Zhejiang spe- ities of the relevant firms. Furthermore, the two
cified their Pilot Programs in 2020. Two of them selected industries are the most typical example
(the ICCM in the eyewear industry in Wenzhou of industries threatened by global trade uncer-
and pharmaceutical industry in Taizhou) will be tainty and under strong pressure to modernise
examined in greater detail after we introduce in China’s coastal regions. Geographically, both
our research design and methods. selected industries are located in the emerging
Wenzhou-Taizhou region, the representatives
of the Wenzhou model. In that model, the pro-
Research design and methods duction environment was organised based on
This study applies a comparative case study ap- the division of labour among independent pro-
proach (Eisenhardt, 1989, 2021; Yin, 2018). The ducers specialised in one phase or one compo-
selected cases include the eyewear industry in nent of the final product, resulting in the ‘one
Ouhai, Wenzhou and the pharmaceutical in- township, one product’ feature observed in
dustry in Xianju, Taizhou, representing the these towns (Bellandi and Lombardi, 2012).
‘buyer-driven’ and the ‘producer-driven’ value This study is based on a mixed-method of
chain (Gereffi, 1994), respectively. The former in-depth interviews, analysis of media articles,
is characterised by low entry barriers (Gereffi, and participation in conferences and forum dis-
2001), powerful retailers or brand name owners cussions. First, 21 interviews were conducted
dominating the high-value added segments of in Zhejiang between August 2020 and January
the value chain by controlling the distribution, 2021 (see Table 1). We first approached a key
marketing and sales activities, while the most official at the Zhejiang DoC to express our re-
labour-intensive stages of the production pro- search interest, and with the introduction of this
cess are relocated to regions with the most gatekeeper, we were able to access different
abundant and productive low-cost labour. In actor groups both at the provincial and the
contrast, the latter has high entry barriers as county/district-level. We then conducted field
its products require capital- and technology- trips to the two selected EDZs in Ouhai dis-
intensive inputs supported by economies of trict (Wenzhou) and Xianju county (Taizhou)
286Strategic coupling and institutional innovation
Table 1. Basic information of the interviewees
Interviewees Functions
Provincial level governmental departments
Department of Commerce of Zhejiang Province (Government 1) Division of Economic Develop-
ment Zones, director
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Department of Commerce of Zhejiang Province (Government 2) Division of Economic Develop-
ment Zones, sector member 1
Department of Commerce of Zhejiang Province (Government 3) Division of Economic Develop-
ment Zones, sector member 2
Department of Commerce of Zhejiang Province (Government 4) Division of Foreign Exchange,
sector member
Glasses value chain, Ouhai, Wenzhou
Ouhai Economic Development Zone Management Committee (Ouhai 1) Director of Business Attraction
Ouhai Glasses Industry Association (Ouhai 2) Deputy director
Hengda Optics (Ouhai 3) Marketing director
Kaadas (Ouhai 4) PR manager
ZonZen (Ouhai 5) Senior manager
Tongda (Ouhai 6) Senior engineer
Pharmaceutical value chain, Xianju, Jinhua
Xianju Economic Development Zone Management Committee (Xianju 1) Director
Xianju Economic Development Zone Management Committee (Xianju 2) Deputy Director
Xianju pharmaceutical Industry Association (Xianju 3) Director
Zhejiang Xianju Pharmaceutical (Xianju 4) Marketing manager
Starry Pharmaceutical (Xianju 5) PR member
Zhejiang XinNong Chemical (Xianju 6) Engineer
Experts
Zhejiang Gongshang University (Expert 1) Professor in Management
Zhejiang University (Expert 2) Professor in Regional Economics
Zhejiang Planning Institute (Expert 3) Senior planner
Zhejiang Business Research Association (Expert 4) Executive Chairman
respectively. We used snowball sampling to program were provided to us by the two focal
further recruit interviewees who could poten- EDZs. In these application documents, de-
tially contribute to our study by asking the key tailed information about the EDZs, the key
persons in the two EDZs for referrals. In add- companies and their positions in the GPNs/
ition to these site visits, interviews were also GVCs, and the proposed working mechanism
conducted with provincial government officials and operationalisation of ICCM were out-
and scholars and experts from various organisa- lined by the management committee of the
tions. The interviews mainly focused on 1) the respective EDZs. In addition, the first author
influence of the trade war and COVID-19 on attended the ‘2020 China Development Zone
local industrial activities, 2) the challenges and Industry Chain Roadshow’ and ‘Industrial
problems in industrial upgrading and 3) the in- Chain Chief Model Forum’ organised by the
terpretation of the rationale for ICCM by dif- Zhejiang DoC in December 2020. Data col-
ferent levels of policy makers, implementers lected from these different sources were tri-
and relevant enterprises. angulated, compared, intensively interpreted
In addition to this first-hand data collec- and discussed by the authors to produce ro-
tion, application materials for the ICCM pilot bust results.
287Gong, Hassink and Wang
The data analysis started with the coding trade. Around 90% of the glasses produced in
process. A three-level coding process was ap- Ouhai are sold to the European Union, South
plied to the interview transcripts (Gioia et al., America and the United States. Leading local
2013). In the first stage, open coding was con- enterprises include oKo, Tongda, Topsight
ducted in order to group together relevant and Squacy Smart, specialising in multiple
themes from the interview transcripts. Then, types of glasses.
the first-order primary codes were determined
Analysis of the Value Chain
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by comparing the results from open coding. In
the second stage, the primary codes were com- Value chain disentangling
pared and merged into axial codes (e.g., value
The value chain of the eyeglasses industry
chain disentangling, GVC diagnosis and value
consists of upstream raw material produc-
capture evaluation). After that, we merged the
tion, midstream lens and frame production
axial codes into theoretical accounts (i.e., the-
and downstream distribution and services
oretical codes, e.g., analysis of the value chain).
(Figure 2). There are also closely related
The emerging narratives of the relevant value
industries such as case packaging, testing
chain analysis and ICCM in both cases were
equipment, etc. The upstream chemical and
then triangulated with secondary data and grey
raw material producers for the eyeglasses in-
literature. This overarching scheme also serves
dustry are general chemical plants (providing
as the structure to empirically organise the
parts such as screws, hinges, temples, rims,
storylines of the two selected cases, as we show
bridges, nose pads, pad arms, etc.) (Ouhai 4).
in ‘Industrial Chain Chief Model in Zhejiang:
The midstream lens and frame design
two examples’.
and production is the most profitable seg-
ment of the value chain. As an important
Industrial Chain Chief Model in part of eyeglasses, frames play a major role
Zhejiang: two examples in supporting lenses and aesthetics, and
frames in different shades, styles and mater-
The ICCM in the eyewear industry,
ials have gradually transformed eyeglasses
Ouhai, Wenzhou
products from instrumental necessities to
fashion goods. The ideal lens should not only
Development zone introduction have perfect optical properties, but also be
Ouhai EDZ was founded in October 1992 and UV-absorbing, impact-resistant and thin and
approved as a provincial-level economic de- light (Ouhai 1).
velopment zone by the People’s Government In terms of the downstream consumption
of Zhejiang Province in August 1994. There segment, eyeglasses are semi-medical and ex-
are more than 500 eyeglasses enterprises in periential goods (Ouhai 4), consumers have
the zone (all are privately owned), employing a strong demand for experience before pla-
more than 60,000 people. From 2016 to 2019, cing an order, so offline retail stores are the
Ouhai EDZ has added 36 innovative R&D main sales channels, including large supermar-
institutions, including five eyeglass-related kets, brand stores, hospitals, vision correction
R&D centres and 1 technology centre. There centres, etc. (Ouhai 5). With the development
are 59 above-scale industrial enterprises, of the e-commerce, the online-to-offline (O2O)
among which seven had an industrial output model has gradually emerged in the eyeglasses
value of over 100 mn yuan in 2019. Within the market in recent years, and the new retail model
EDZ, there are 15 foreign enterprises, and of ‘online + offline’ comprehensive services has
150 of the local firms are focused on foreign taken shape lately (Ouhai 2).
288Strategic coupling and institutional innovation
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Figure 2. The eyeglasses value chain.
GVC diagnosis and value capture ‘…problems such as the decline in foreign
evaluation trade orders, delivery delays, hampered inter-
In terms of its position in the GVC, ‘most of national distribution logistics, etc. have severe
the Ouhai-based enterprises mainly produce consequences for the business of many com-
low-cost, low-price and low value-added eye- panies here.’ (Ouhai, 2).
glasses’ (Ouhai 1). The main enterprises in the
region, such as oKo, Tongda, Tornado, all serve In addition, the shift from export markets
as Original Equipment Manufacturers (OEMs) (which were shrinking) to domestic markets
for western brand firms, relying heavily on or- (which were growing stably) was not easy
ders from foreign markets, although in recent during the pandemic period, as it was extremely
years, some efforts have also been made in cul- difficult for OEMs to establish their reputation
tivating own brands in the region. The local as brand names in an already highly competi-
glasses industry exhibits problems such as weak tive market (Ouhai 3).
capacities in brand building, relatively weak
R&D and design capabilities and a shortage of ICCM in Ouhai
talent and designers (Ouhai 2, 3, 4). In order to increase the resilience of the local
Increasingly, rising material prices and labour industry to the potentially threatening effects of
costs in Ouhai have caused the local advantages the crises and to facilitate industrial upgrading
of eyewear production as a labour-intensive in- to create and achieve higher value in the post-
dustry to dwindle (Ouhai 1). In addition, many crisis period, the Ouhai EDZ has defined its
of the local enterprises are heavily dependent ICCM for the eyewear industry. It contains a
on export markets, making the local industry clear division of labour between enterprises
more vulnerable to global market disruptions. and the government, the main objectives to be
Since the international financial crisis in 2008, achieved, and the specific strategies and actions
the general downturn in the eyewear sales to be taken by relevant stakeholders.
market in Europe and the United States, espe-
cially in the luxury eyewear market, has been Main goals and division of labour
clearly felt by local enterprises (Ouhai 2). In
addition, the trade war between the United ‘The overall goal of ICCM in Ouhai is to
States and China, as well as the impact of the strengthen the long-term resilience of the local
global COVID-19 pandemic, have posed sig- industry in order to reinforce the Ouhai eye-
nificant challenges to the local industry over wear cluster as the “capital of China’s eyewear
the past year and a half (Ouhai 1, 3). industry”’ (Ouhai 1).
289Gong, Hassink and Wang
Based on this goal, the project focuses on three Value enhancement and capture
main objectives: Replenishment, strength- In order to increase and capture value, com-
ening and optimisation of the industrial chain panies (i.e., chain owners) strive to cultivate
to realise industrial upgrading and transform- indigenous innovation capabilities, train and
ation. With the construction of the Zhejiang attract talents, build a common technological
Eyeglasses Industry Innovation Service innovation platform, and increase the level of
Complex, local stakeholders aim to further im- digitalisation of their own companies (Ouhai 3
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prove the innovation ability, intellectual pro- 5 and 5). In addition, local authorities and of-
duction capabilities and clustering level of the ficials (e.g., chain chiefs) provide services and
co-located eyeglasses enterprises, ultimately promote regional innovation in areas such as
promoting famous brands and well-known en- talent attraction (providing better living and
terprise groups in the EDZ. working conditions, establishing an eyeglass
As for the division of labour, several chain academy and business incubator, organising
chiefs with influential positions in the govern- professional skills competitions and start-up
ment are appointed to provide the resources competitions) and providing funding during
needed for industrial upgrading and trans- the crisis (offering interest-free loans, subsidies,
formation. Ouhai County Party Committee rent waivers, etc.) (Ouhai 1). Furthermore, the
Secretary, Wang Zhenyong, and county gov- industry association is expected to strengthen
ernor, Zeng Ruihua, have been appointed its role as a coordinator to encourage enter-
general chain chief and chain chief respectively prises in the industry to strengthen cooperation
to supervise and guide the industrial chain up- and joint ventures, and explore the mode of
grading and modernisation. The secretary of ‘multi-factory alliance’ to strengthen networks
the Ouhai EDZ Party Committee, Xu Jianyu, is among co-located firms (Ouhai 2). Through
the deputy chain chief in charge of the specific the association platform, the industry aims to
affairs. In addition, various government depart- achieve the exchange of information and re-
ments within the county have been assigned sources, change the traditional resource alloca-
different tasks. As for the value chain owners, tion model to enable the sharing of machinery
the leading regional enterprises such as Tongda, and equipment, booths and production lines,
oKo, Topsight, Tornado, Squacy Smart, BD, and the construction of common technology
Zhengda, Hengda, CARA, etc. are expected to platforms, etc. (Ouhai 1, 2). The local govern-
actively adjust and transform their supply re- ment is also encouraging local enterprises to
lationships to improve the overall resilience of acquire global tier-one brand names in the
their production networks. The director of the form of government-enterprises-association
Management Committee of EDZ Ouhai, Chen cooperation to localise the global brand names
Hanyan, has been appointed as the mentor of and leverage the value created by these leading
the chain, to deal with local enterprises on a enterprises in the region.
daily basis and fully comprehend the problems
and challenges of the industry. ‘Ouhai-based enterprises are now gradually
moving to project-based cooperation with
international brands, while vigorously cul-
State and firm strategies and actions
tivating their own brands and constantly
Targeted measures and strategies are required improving complementary industrial chains’
to achieve the above objectives. Specifically, (Ouhai 3).
such measures target three key aspects,
including value enhancement and capture, The local government is also actively soliciting
value chain adaptation and market formation. relatively mature enterprises from Shenzhen,
290Strategic coupling and institutional innovation
Hong Kong and Taiwan to locate in Ouhai. just-in-case logic in the long run (i.e., more re-
Finally, the three relevant parties are focusing dundancy, more substitute suppliers, etc.), as
on advancing the local industry by introducing this implies higher costs for local firms, thus
smart glasses manufacturing. Here, high hopes weakening their competitiveness in the market
are pinned on 5G technologies to fully promote (Ouhai 6). In addition,
digitalisation and intelligence (Ouhai Pilot
Program, 2020). ‘…some small companies in Ouhai that used
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to be OEMs for global companies have be-
Value chain adaptation come OEMs for domestic companies based
Value chain adaptation is another area where in Guangdong, Jiangsu, and other places in
different stakeholders can work together. In the China, as shrinking demand in the Western
context of ICCM, such value chain adjustment market during the pandemic has greatly re-
has both short-term and long-term dimensions. duced orders from abroad.’ (Ouhai 1).
‘During the COVID-19 crisis, local production
was significantly disrupted, first by the Chinese Again, only time will tell if such decoupling is
government’s lockdown measures and later in a short-term phenomenon or if it will become
other parts of the world’ (Ouhai 3). As a result, something permanent.
local authorities and associations had to make
efforts to help enterprises to coordinate the Market formation
supply of raw materials and key parts at dif- In terms of market formation, as mentioned
ferent spatial levels. As an example, a company above, the local industry has suffered from
in the region manufactures mid- to high-end declining demand in the more mature markets
optical eyewear, and its supplier for frames and in the global North since the financial crisis
lenses is located in Japan. Due to international of 2008. In order to cope with the shrinking
logistics disruptions, the company’s supply market in the global North and strengthen
chain was severely disrupted. After finding out its competitiveness in the emerging and
about the problems, local officials and the as- developing markets in the South, local players
sociation turned to another industrial park in have adopted various strategies and measures.
Guangdong to ask for temporary supply of crit- First of all, the development of e-commerce
ical parts (Ouhai 2). platforms (both at home and abroad) has led to
fundamental changes in the marketing mode of
‘This type of temporary replacement of the traditional manufacturing industry (Ouhai
global suppliers with domestic ones was not 2). Ouhai-based eyewear companies are now
uncommon in many industries in Zhejiang using various marketing channels such as net-
during the pandemic.’ (Expert 3). worked retail ‘offline + online’, ‘internet celeb-
rity marketing’ or ‘live streaming commerce’
Moreover, such supply chain restructuring also (Ouhai 2, 4, 6). In addition, many domestic
occurred at the local level, as inter-provincial companies have used the ‘Belt and Road
transportation was also disrupted for a period Initiative’ to reach markets in the less devel-
of time (Government 3). Such short-term oped countries in Southeast Asia and Africa,
supply chain restructuring also showed the vul- where demand for sunglasses and fashion-
nerability of the just-in-time logic prevalent able optical products is expected to increase
in the modern GVC configuration (Expert 2). (Expert 2). Many companies are also using
However, it is less clear to what extent firms the pandemic to specialise in high value-added
in Ouhai’s eyewear industry will resort to the niche markets and cultivate their own brands at
291Gong, Hassink and Wang
home and abroad (Ouhai 3). In addition, some on the stock market, and more than 5,000 em-
companies also see product diversification (e.g., ployees have been hired in the whole industry
from traditional glasses to Augmented Reality chain (Xianju ICCM Pilot Program, 2020). In
(AR)/Virtual Reality (VR) glasses) as a po- terms of innovation capacity, R&D expend-
tential growth opportunity (e.g., the Artificial iture of steroid pharmaceutical enterprises in
Intelligence (AI)+AR smart glasses used in the the development zone reached 350 mn yuan in
COVID-19 pandemic for remote assistance, ac- 2019, with an average annual growth of 13.7%
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curate recognition, and touchless interaction). over the past four years. There are 12 national
During the pandemic, efforts have been made high-tech enterprises in the EDZ, and local
on the part of the government to organise on- leading enterprises include Zhejiang Xianju
line events to expand marketing channels for Pharmaceutical, Starry Pharmaceutical and
local companies. Junye Pharmaceutical (Xianju ICCM Pilot
Program, 2020).
ICCM in the pharmaceutical industry,
Xianju, Taizhou Analysis of the value chain
Development zone introduction Value chain disentangling
The pharmaceutical industry is one of the most The pharmaceutical value chain comprises sev-
research-intensive industries in the world. eral segments (Figure 3). The first is the pro-
After more than six decades of development, duction of basic chemicals such as diosgenin,
Xianju has specialised in the production of ster- phytosterol and other chemicals. These basic
oidal drugs and intermediates, and has become chemicals are then synthesised into extracts and
the largest steroidal pharma manufacturing intermediates that are used in active pharma-
base in China. In 2019, the region’s steroidal ceutical ingredients (APIs). APIs are the main
drug industry reached a production value of components of a drug that produce an effect.
7.377 bn yuan, an increase of 21.88% from After that, substances known as excipients are
2016. In addition, the export value of the ster- combined with the APIs to transform a drug
oidal medicine industry in the EDZ was 2.158 into a final pharmaceutical product (FPP) that
bn yuan, with an average annual growth rate is in a consumable form. Depending on their
of 17.9% over the past four years, accounting added value, APIs and FPPs can be classified
for about 40% of the export volume of similar into different types. For example, APIs can be
products in China (Xianju Pilot Program, divided into bulk APIs, specialty APIs and pa-
2020). Four local enterprises have been listed tented API, with patented APIs generating the
Figure 3. The pharmaceutical value chain.
292Strategic coupling and institutional innovation
greatest profit and bulk the least. In the case of 6). Respondents indicate that local companies’
FPPs, a distinction could also be made between supply chains have remained largely stable during
innovator drugs and generics. While the former the pandemic. On the one hand, upstream raw
refers to newly manufactured drugs that enjoy material suppliers are primarily large domestic
patent protection (up to 20 years) and substan- manufacturers of basic chemical products, and
tial profit margins, the latter refers to drugs there is not much risk of supply disruption as the
manufactured from the same active ingredi- pandemic in China was well controlled shortly
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ents when the patent expires. Generic drugs are after its outbreak in Wuhan (Xianju 1). On the
cheaper because their manufacturers do not other hand, major local companies have estab-
have to prove their efficacy and safety through lished extensive cooperative relationships with
clinical trials, as these are also conducted by well-known downstream pharmaceutical com-
innovators. panies at home and abroad, such as MSD, Merck,
Hengrui Pharmaceutical, etc., hence the sales
GVC diagnosis and value capture market was not severely influenced. Although
evaluation some companies’ export market has been affected
Due to relatively weak R&D capabilities, much to some extent due to transportation disruptions,
of the pharmaceutical production in Xianju is this has not led to a comprehensive adjustment
in the form of raw materials and intermedi- of the supply chain as the pandemic situation im-
ates used by downstream pharmaceutical proves (Xianju 4, 5). However, from a value chain
companies. perspective, it is very difficult to break the existing
value capture patterns, which are dominated by
‘The pharmaceutical industry in Xianju has the world’s leading companies (Xianju 1, 3, 5).
long been limited to low- to medium-value- Most local companies are small and therefore
added activities, such as the provision of basic have little ability to compete directly with their
medicals and ingredients for international and global or domestic competitors in terms of R&D
domestic lead firms, without much knowledge spending and capabilities.
transfer from those key buyers.’ (Xianju 3).
ICCM in Xianju
Although there are some important local com- In order to facilitate the upgrading of local
panies specialising in APIs, most of their prod- industry and free local enterprises from low
ucts are bulk APIs, while there are few specialty value-added activities in the post-crisis period,
APIs (Xianju 2). Therefore, the overall value Xianju EDZ has developed its ICCM in the
added is limited, and competition in the market pharmaceutical industry.
is fierce. In addition, in the field of FPP pro-
duction, there are only two local companies—
Main goals and division of labour
Xianju and Starry—which have managed to
produce some generic drugs (Xianju 1). The The development goal of Xianju medicine in-
overall weak innovation capacity of local com- dustry is to build competencies in the whole
panies remains one of the main bottlenecks to a value chain of ‘key intermediates—speciality
breakthrough in FPP manufacturing. APIs—high-value FPP’ (Xianju Pilot Program,
When asked about the impact of the COVID- 2020). The focus is on strengthening the existing
19 pandemic, respondents said that despite the intermediates and API production, scaling up
short-term challenges the COVID-19 pandemic the production of high-value FPP and building
posed to the overall healthcare sector (Xianju a new value chain for innovative drugs, such as
3, 4), ‘demand for innovative and effective ther- high value-added biopharmaceuticals. In terms
apies continues to drive long-term growth’ (Xianju of strengthening existing intermediates and
293Gong, Hassink and Wang
API production, efforts have been made to fur- Industry Association has been appointed as the
ther improve the controllability of core tech- chain mentor of the ICCM, and an expert ad-
nology and supply chain stability of key medical visory committee, composed of well-known do-
intermediates, increase the proportion of green mestic and foreign scholars, technical experts,
products in bulk APIs and achieve significant well-known entrepreneurs, think tanks and
breakthroughs in higher value-added specialty other institutions, has been established to pro-
APIs. In scaling up high-value FPPs, the focus vide suggestions to local players.
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is on realizing ‘APIs+FPPs’ upgrading by sup-
porting large-scale mergers and acquisitions State and firm strategies and actions
of leading local companies on the one hand, Value enhancement and capture
and launching and developing generics whose
The occurrence of the ‘patent cliff,’ i.e., the
patent protection has recently expired on the
potential sharp decline in revenue following
other. Finally, in building new value chains for
the expiration of a company’s patent for one
emerging biopharmaceuticals, it is acknow-
or more leading products, has created op-
ledged that the site does not have all the pre-
portunities and impetus for continued rapid
requisites needed to create such a new pathway
growth in the generics market (Xianju 3).
due to the high-tech, high-investment and
For Xianju-based pharmaceutical companies,
high-risk characteristics of biopharmaceutical
this represents a potential opportunity for
products. Therefore, a dual innovation strategy
value enhancement. To realise value enhance-
of ‘innovation in central cities and production in
ment and capture, equal attention has been
Xianju’ has been promoted. Specifically, Xianju
paid to improving indigenous capabilities and
has established innovation enclaves (i.e., R&D
introducing exogenous anchor tenants. On
centres) in Shanghai and Hangzhou, the two
the one hand, Xianju enterprises (i.e., chain
central cities of pharmaceutical development
owners) invest more in improving their own
in China, to benefit from knowledge spillover
innovation capabilities, training and attracting
there (Xianju 2). Efforts have also been made
talents, etc. (Xianju 4, 5, 6). It is argued that
at the local level to attract promising projects
with high market demand, good development
prospects and urgent clinical needs. ‘...continuously enriching and expanding product
The ICCM in the Xianju pharmaceutical in- lines and expanding market size is the only way
dustry is under the direct management of the to stay competitive in the market’ (Xianju 5).
county governor, Lin Hong, who acts as the
chief of the chain and pools all kinds of re- On the other hand, high hopes are set on ex-
sources required for local industrial upgrading. ogenous linkages and connections to improve
The Xianju EDZ, together with many other local value creation. Emphasis is placed on
county-level departments, is the main body for the introduction of downstream high-end drug
the execution and implementation of the ICCM and FPP manufacturers making targeted in-
pilot program. Chain owners, i.e., leading local vestments, as well as attracting a number of
enterprises such as Xianju and Starry, are ex- well-known domestic and foreign pharmaceut-
pected to strengthen their R&D capabilities ical companies and overseas returnees to en-
and move up the value chain for higher profit. able local innovation breakthroughs (Xianju
They are also expected to further integrate their 2, 3). Following the two innovation enclaves
production networks in Xianju to increase the in Shanghai and Hangzhou, the Xianju gov-
knowledge spillover and innovation perform- ernment also plans to organise ten joint R&D
ance of the local industry as a whole. Finally, demonstration projects each year. Emphasis is
the President of the Xianju Pharmaceutical also placed on technologies such as Big Data
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