Academic journal article Annals of Business Administrative Science

Industrial Cluster Formation and Development: Software Development Outsourcing Industry in Dalian

Academic journal article Annals of Business Administrative Science

Industrial Cluster Formation and Development: Software Development Outsourcing Industry in Dalian

Article excerpt

1. Introduction

This paper discusses the formation process of the industrial agglomeration in Dalian, China for the software development outsourcing from Japanese companies. Let us first understand the basic figures of Dalian's software and IT service industry.

Dalian's software and outsourcing industry revenues have continued to grow since the founding of the software park there in 1998. The software industry comprises approximately 8% of the city's GDP. Dalian's population is 5.88 million, and the workforce is 4.37 million. The software industry accounts for 2.7% of the workforce of the city, and there are about 1,200 companies in the industry. According to Dairenshi Joho Sangyokyoku 8s Dairenshi Sofutouea Kyokai (2012), Dalian has 31 universities, including vocational schools, with 290,000 students. Students with software-related majors make up 27% of these students. A total of 120,000 people work in the software industry, and about half that, or 69,000, work in outsourcing. Core companies that claim to work in Japanese software development outsourcing as their main business have built their own software parks in recent years, and this industry is evolving from the initial sole software park with multiple companies to a concentration of multiple software parks. Of interest here is the fact that more than one-third of the revenues in this industry come from outsourcing, and that 70% of that one-third comes from Japan-related business. The work with Japanese companies is characteristic of the Dalian software industry, and the city has nine universities that develop students with the multiple skill sets of software and Japanese, providing a supply base for the industry. From the perspective of supplying specialized personnel, related companies, and composition of revenue, Japanese-business-centered software development outsourcing industry in Dalian is well established (Zhang & Kawabata, 2012).

Little by little, research on the Dalian software industry agglomeration has grown due to the area's deep relationship with Japanese companies. Among the existing research are studies that argue that the formation of the software industrial agglomeration toward Japanese business occurred because of the pool of Japanese-speaking human resources in Dalian (Ando, 2014). Additionally, there are studies that say that the existence of founders of the core companies who had the experience as foreign exchange students in the U.S. or Japan, in addition to the Japanese-speaking resources, contributed to the formation of the local software industry (Zhang & Kawabata, 2012). All studies highlight the formation of the high-tech industry agglomeration in Dalian, though the explanations of the logic behind the agglomeration are lacking. The ability to speak Japanese and develop software are unrelated, and these studies do not identify how the agglomeration formed and where the skilled workforce trained in software development originated. Accordingly, this paper supplements the pitfall in existing research by focusing on the heretofore-ignored process of the creation of a skilled workforce.

One new finding in this study is that the Dalian industrial agglomeration has formed through the following phases: ( 1) Japanese companies played a major role in creating a skilled workforce in the early stages of the local Japanese-speaking software development outsourcing industry agglomeration; (2) core local companies that had grown through doing business with Japanese companies led the efforts to develop Japanese-speaking resources on their own as a means to attract Japanese companies; and (3) there is currently a labor market for skilled labors as they were spun off of local core companies and foreign-owned firms.

This paper's composition is as follows. Section 2 discusses research design, Section 3 describes the process of human resource creation using specific case studies, and Section 4 discusses the academic contribution of this paper. …

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