Strong growth in weakly-developed networks: Producer–user interaction and knowledge brokers in the Greater Shanghai chemical industry

This paper investigates the developing spatial and social division of labor in the Greater Shanghai chemical industry. This industry experienced strong growth after the Asian financial crisis, when policy support was extended beyond “new economy” industries to include traditional manufacturing sectors. Based on a conceptualization that emphasizes the role of producer–user networks and interactive learning as a basis for ongoing innovation and business success, an explorative study was designed to investigate the supplier and customer linkages in different locations of the Greater Shanghai region. The results suggest that inter-firm networks are not extensive and often involve limited producer–user interaction. Important chemical firms in the region concentrate on business with their established international customer basis, use state-controlled distribution channels or rely on intermediaries that act as knowledge brokers. Neither of these practices of market interaction includes intensive information exchange and feedback on products, customer experience and demand changes. As such, these practices do not provide a sound basis for self-sustained growth or innovation in the future. The paper concludes that regional policy needs to support the establishment of combined “bonding” and “bridging” relations between chemical producers and their user industries.

► Foreign chemical firms in China in part depend on networks with pre-existing customers.
► JV firms rely on state-controlled distribution networks organized through Chinese partners.
► Networks with intermediaries or traders do not involve direct user contact or regular feedback.
►  Producer–user interaction provides few incentives for interactive learning and innovation.
► A mix of “bonding” and “bridging”, as well as local and trans-local, producer–user linkages is lacking.