induStrial parkS in ruSSia : conceptual developMent of projectS

In this article a theoretical framework is presented addressing the questions of efficiency of industrial parks. Industrial parks are seen as an element of economic policy, targeted at enhanced economic development of regions and municipalities. The article describes the historical background for the application of such tools in modern Russian economics. It also provides rationale for thorough conceptual development of an industrial park project by revealing the connection between the need for solid preparation and the project’s implementability and potential economic efficiency. The main methodology provisions for project development are described as well as the interconnections between the specific conceptual blocks. The article also includes the authors’ ideas about the content of the proposed industrial park concepts.

The structural nature of economic growth determines the irregular character of economic development.This trend is particularly obvious on the macrolevel when comparing growth rates of specific countries and groups of countries whose accelerated growth was to a great extent determined by historical factors.A perfect example could be Eastern Asian countries with growth rates exceeding the worldwide average in the second half of the XXth century (Fig. 1).However, such situation is observed not only on the macrolevel, but also on the regional and municipal levels.A good example of economic activity concentration is Japan.In 1990 Japan accounted for 72 % of the GDP and 67 % of industrial production of Eastern Asia, occupying only 3.5 % of the whole territory with 7.9 % of the total population.However, inside Japan itself most economic activity fell on the following five prefectures: Tokyo and Kanagawa, Aichi, Osaka and Hyogo.Although their territory makes up only 5.2 % of the whole territory of Japan with 33 % of the population, these prefectures produce 40 % of the Japanese GDP.Thus, these regions, constituting only 0.18 % of the whole area of Eastern Asia, accounted for 29 % of the regional GDP in 1990.[1] The reasons for such disproportional economic development; the factors involved; and the external effects caused by such disproportions are studied by regional economics and in particular by agglomeration theory.
The key reason for high concentration of economic activity in specific areas lies in the positive external effects, which foster industrial efficiency in these regions.There are two main types of external effects: the localization effect, which reflects the positive effects revealed by the growth of economic activity in a particular industry in a particular area; and the urbanization effect, which reflects the benefits companies get from the increase in the concentration of the economic activity.The impact of these two factors is described by numerous empirical studies (for example, by Henderson [2]) and there are different viewpoints on the question of which is the most important.For instance, according to Jacobs [3], external urbanization effects are more significant, while Porter [4] sees the localization effect as the key to the success of modern industrial clusters.At the same time the impact of these effects varies for different industries [1].
The positive impact of these external effects provides a theoretical rationale for the economic policy targeted at enhancing accelerated economic development of specific regions and municipalities.
Identification of such top-priority areas is particularly important for large countries, like the Russian Federation.The significance of such approach in Russia can be illustrated by the history of accelerated growth areas.
Transition to market economy was approved by the Decree of the Supreme Soviet of the USSR 'On the Concept of Transition to a Regulated Market Economy in the USSR' of June 1990.As a part of this process, in October 1990 the Supreme Soviet of the Russian Soviet Federated Socialist Republic sanctioned the creation of the first free economic zone 'Nakhodka', followed by some others in 1990-1991.
Although the government took an active part in the creation of such zones, their efficiency was not high.The obvious constraint was the difficult social and economic situation which the country found itself in and which the FEZs also had to cope with.However, another crucial factor was a lack of methodological preparation for the creation and operation of the FEZs and a lack of regulatory support and appropriate marketing strategies.In particular, there was little preparatory work done to estimate the effectiveness of the FEZs' location.
The beginning of the next key stage in the implementation of this policy was marked by the adoption of the Federal Law of 22.07.2005№ 116-ФЗ 'On Special Economic Zones in the Russian Federation', which provided the regulatory framework for creation and development of special economic zones.The following types of FEZs were pointed out: technological and innovative and those specializing on industrial production.Later two more types were added: tourist and recreational (2006) and ports.
At the moment, according to the estimates of the Ministry of Economic Development of the Russian Federation, there are 23 FEZs on the territory of the country.Projects for creation and development of FEZs are characterized by better prepared documentation, and by the availability of tax, customs, financial and administrative incentives on the regional and federal levels.It should be noted that, in accordance with the established procedure, the decision to create a special economic zone on the territory of a Russian region is to be taken by the Government of the Russian Federation (Par. 1 Art.6 Chapter 2 of the Federal Law № 116).
Such top-level decision-making encourages development of more solid FEZ concepts.However, such projects cannot become mass-scale, which inevitably limits the potential of the most active regions in stimulating their development.Furthermore, FEZs turned out to be unapproachable for some municipalities because in most cases their projects are not large enough to attract attention of the federal authorities.
A suitable tool for accelerated growth of such regions and municipalities was provided by industrial parks, which were introduced almost at the same time as open economic zones.The first industrial park project appeared in 2006.
The first industrial parks immediately drew researchers' attention, largely because of the need for economic renovation and investment attraction, but also because of the lack of appropriate tools.The industrial park was considered as an important element to solve the problem of economic development.The variety of industrial park types has made them a flexible tool to meet a wide range of specific targets (Table 2). 2ndustrial park projects were not widely spread in Russia for a long time because of the lack of funding, necessary legal regulation and the information general vacuum.Eventually a number of regions gradually got interested in this tool.
One of the key stages in proliferation of industrial parks in Russia was the decree of the Ministry for Economic Development № 59 of 16 February 2010, which adopted a similar concept of a 'manufacturing park' meaning 'a complex of real property units (administrative, manufacturing, warehouses and other facilities necessary for the functioning of a manufacturing park), controlled by one operator, with the land area not less than 10 ha and the infrastructure which will provide all the conditions for placement and effective work of small and medium-sized enterprises' [9].
If in 2009 such projects were realized in 15 Russian regions, in 2011 the number of such regions reached 29, and in 2013 it was 41.In 2014 the total number of industrial parks allocated by the Association of Industrial Parks reached 560.
The regions most actively implementing this economic tool are Tatarstan, Kaluga, Leningrad and Ulyanovsk regions.Success of the projects in these regions led to similar industrial park projects starting to be realized in other Russian regions.
According to an "Ernst & Young's" survey, in 2011 there were about 200 industrial parks in Russia, only 60 of which were ready to receive residents or were building the infrastructure.
Such low percentage of active industrial parks can be explained by the following factors: -realization of the project was not supported by the regional (municipal) authorities; -there was no available funding to invest in the park infrastructure, necessary to attract residents; -the initial preparation of the concept case was insufficient to create and develop the industrial park.
Although the lack of political will and funding are significant impediments to the development of an industrial park, the key reason for the failure of many projects is insufficient initial preparation of the concept.The importance of this factor is linked to its complexity.
If the concept is insufficiently elaborated, it leads to inaccurate conclusions about the project's economic efficiency, which will diminish the chances of acquiring political and organizational support on regional and municipal levels as well as receiving public funding.It is also possible to attract funds for the project by resorting to the federal program of support of industrial parks or to the special support programs realized by 'Sberbank'.However, these funding sources are not available for the projects with a low quality of documentation preparation.Besides, inadequate elaboration of the park concept may negatively effect the economic efficiency of the project.
The low quality of the projects can be explained by the lack of resources (financial, analytical), which are indispensable for preparing a concept of an industrial park.Another reason could be the lack of understanding of the structural features related to different conditions the project was developed for.These factors mainly affect the projects developed at municipal level since municipalities are particularly sensitive to constraints of any kind.
The concept of an industrial park comprises the following conceptual blocks: -residents; Attraction of a private investor to the industrial park project by creating a joint management company.The ownership of the land can be transferred to the management company as an equity payment The type of site

Greenfield
The land for the park is undeveloped, so the necessary engineering infrastructure needs to be built

Brownfiled
The park is located in a built-up area and uses the existing infrastructure and/or buildings

Mixed type
In practice there are projects the first stages of which are realized on the alreadydeveloped area (Brownfield) with further extension into the undeveloped area (Greenfield) The internal logic and structure as well as connections between conceptual blocks are differentiated depending on the features crucial for the realization of the specific project.
Conceptual Block 'Residents'.Development of this block can be conducted in several areas and within several frameworks depending on which positioning option was chosen.
In accordance with the classification, the industrial park may either have a specialization or be universal.Both alternatives are characterized by their own pecialirities.
A specialized park, all other conditions being equal, is more attractive for an investor from this industry than a universal one.Concentration of enterprises in one industry can create positive external effects and generate synergistic effect for companies and the area: 1. the quality of the existing workforce is improved; working at enterprises of one industry allows workers to accumulate appropriate experience; 2. the educational system is adapted to meet the requirements of the specific industry.The curricula of local educational institutions may be supplemented with new disciplines reflecting the park's specialization.The created enterprises might also introduce programs for training industryspecific cadres.Sverdlovsk region provides some good examples of this process: there is corporate Technical University of the Ural Mining and Metallurgical Company (UMMC) and the programme "The Future of White Metallurgy" realized by Chelyabinsk Tube Rolling Plant in cooperation with Pervouralsk Metallurgical College.
3. stimulating the scientific and engineering environment in the region.Heightened significance of a specific industry in the economy of the region or the city stimulates advancement of the research base, which could become a source of research and technological development for industrial enterprises.Thus, resident companies would be able to gain competitive edge, and it would also enhance innovative development of the region.
4. establishment of horizontal connections between resident companies, which would encourage clustering.They also stimulate competition between the participants along with mutual cooperation and formation of the companies' internal competencies.
5. manufacturers being concentrated on one industry and in one place will inevitably shift the demand towards the region.A wide choice of products will attract the attention of potential customers.
Specialized parks can have one of the two main structures: in the first type there is no large dominant company and there are no direct technological connections between the residents.In the second type there is a large company and numerous small enterprises producing components for the main enterprise, which has a positive effect on the development of small and medium-sized enterprises in the region.A classic example of the second structure is car manufacturing parks.
The first type is more difficult to realize, since it requires a large number of enterprises, while for the second type it is enough to gain the agreement of only one company, the main enterprise.However, the latter option also has some negative effects.Such structure means that economic success of the industrial park totally relies on the economic success of one company.If the town where such industrial park is located does not have any other significant enterprises, this town will be similar to monotowns, which are unstable towards market changes.If there are several large or medium-sized enterprises operating in one industry, it makes the economy of the municipality dependent on the certain market, but to a lesser extent, since the deterioration of the market situation may happen in an uneven, irregular way, so some enterprises might turn out to be better prepared than others.However, the greatest advantage of the first structure is that it is possible to establish horizontal cluster connections enhancing competitiveness of the participant companies.
For all their advantages, specialized industrial parks have a number of substantial weaknesses to be considered.
The first downside, which has already been mentioned, is greater dependence of the industrial park's economic success on the market situation in a small number of markets.
The second downside is the risk of not being able to fill the park with the sufficient number of residents.The scheme of attracting one major anchor tenant with manufacturers of components is particularly risky.To create such park, it is best to find the anchor tenant at the stage of pre-project preparation.In this case, firstly, the risks of not finding investors are reduced; and secondly, the park will be designed in compliance with the anchor investor's requirements.
Organization of a specialized park with a large number of companies can prove to be equally complicated since it means attracting many companies from one industry-specific selection.The optimum alternative could be an industrial park for local companies or an industrial park characterized by unique benefits which might attract residents from a specific industry.Both of these options depend on the current situation and there is just a limited range of measures which could be taken by the regional and local authorities to stimulate such parks.
In spite of all the advantages of specialized industrial parks, many projects are aimed at creating more universal parks.Universal parks can be divided into two main types, depending on whether they prioritize or do not prioritize specific industries.
Although in general the external effects of specialized parks are not the same as those of universal parks, the latter can also create positive external effects for the resident companies and for the areas they are located in.
Such effects are related to the general level of concentration of economic activity on the territory: -the labour market is developed by attracting migrants from other regions and municipalities; -the load of maintaining the infrastructure is distributed among many companies; -new investors are attracted to the territory.
It should be noted that the universal character of such parks does not mean that it would be suitable for any kind of production.There are two main constraints limiting the range of industries which can be located on the park territory: firstly, economic reasons associated with accessibility of potential market outlets and availability of the necessary original resources to organize the process; secondly, health and safety regulations.Many areas have restrictions on the proximity of hazardous facilities of the 1-3 hazard classes (for instance, close to residential districts).Facilities of different hazard classes placed on the same territory could prove to be infeasible since the sanitary protection zone would occupy a considerable area of the park.
As a result, the lack of prioritizing may prevent efficient use of the territory.Yet there are opportunities for creating an economically efficient park without prioritizing specific industry branches.Such option implies creation of standardized manufacturing workshops, which can be rented or bought.Nevertheless, due to the challenges posed by this park type, the majority of universal industrial parks do have industry priorities.
There are two basic principles of industry prioritizing in an industrial park.The first principle is that the choice of industries should be guided by the potential residents' interests.The region or municipality should have a list of companies interested in locating their production on the projected territory.This list should be compiled before the work on the concept starts or this process should take place together with elaborating of the project concept.In this case an industrial park can be formed in accordance with the requirements of industry-specific companies, which, on the one hand, will allow to allocate the existing investors, and on the other hand, to attract more residents from these industries.
The second principle of prioritizing is analytical.Such approach means using the available results of the regional studies regarding the potentially effective markets or conducting such marketing research as a part of the project preparation work.
According to this principle, there are no investors participating in the concept preparation stage, but the search for investors will be carried out simultaneously with the construction of the industrial park.
In this case concept development should include clear identification of the priority industries of potential residents in order to build a system of resident attraction (as a part of the administrative organizational block).Thus, all the efforts will be focused on the industries with the highest possible chances of attracting residents, which will increase the cost efficiency.
Moreover, a well-developed marketing strategy is itself a tool for resident attraction.A marketing strategy is centred around attracting residents from various industries.The most important success factors here are creating opportunities for organizing production and for making it profitable.Firstly, this involves providing the necessary infrastructure, workforce and other resources; and secondly, it means accessibility of market outlets for the manufactured products and of markets with the low level of competition.Information obtained through such marketing research may lay the basis for organizing negotiations with residents and provide persuasive arguments in favour of this industrial park.
The two principles described above are complementary: the park concept being adjusted to the interests of the already existing investors reduces the risks, while the marketing research can become a point of departure for attracting new investors.
One of the key blocks of any industrial park concept is selection of the appropriate park type: the concept of a highly specialized or universal park with or without priorities affects the infrastructure requirements and the park's organizational policy.Identification of potential residents shapes the profiles of the enterprises they create, which, in their turn, determine the economic features of the industrial park and the financial model (Fig. 2).
In addition, a thoroughly developed resident allocation scheme is an important factor not only for the project's economic efficiency, but also for its sustainability.[11] Performance improvement is achieved through recycling and recirculation.The Tianjin Economic-Technological Development Area in China is a good illustration of such industrial park scheme, connecting the residents with each other.To maximize the effect of mutual symbiosis between the companies it is necessary to conduct a lot of preliminary work, such as identification of residents and their allocation on the park territory (Fig. 2) [12].
Conceptual Block 'Park Infrastructure'.The second conceptual block is infrastructure, which plays a crucial role in establishing an industrial park.
The infrastructure capacity is primarily dependent on whether the industrial park is going to be 'greenfield' or 'brownfield'.
'Brownfield'.industrial parks mean that the residents are using the already existing infrastructure.In this case additional infrastructure might be necessary in the following two scenarios: -the existing infrastructure needs replacement since it is worn-out and outdated; -the existing infrastructure does not meet the requirements of the residents.Nevertheless, even for these two scenarios the scope of the required supplementary infrastructure is comparatively small.However, the existing infrastructure might well prove to be a constraint when designing a park.
The 'greenfield' type implies that a considerable part of the infrastructure will have to be built, which substantially increases the amount of the required investment.At the same time the design of 'greenfield' parks is more flexible, which can become an additional stimulus for potential residents.This can be particularly important for large residents, who are more exacting in terms of the engineering infrastructure.
Building the necessary infrastructure of a 'greenfield' park requires substantial amount of investment, especially if the park covers a large area.In the latter case the best solution would be to pursue a staged approach to the development of the area, which will reduce the amount of initial investment in the infrastructure.
Infrastructure requirements determine all the other conceptual blocks.The existing infrastructural restrictions may be off-putting for potential residents with higher demands (for instance, if access to the railway is needed).Substantial investment necessary to build the infrastructure also has an impact on the financial model of the project.Allocation of infrastructural objects depends on the accessibility of the existing utility networks, which also directly influences the allocation of the park's functional zones.Furthermore, the choice of this or that alternative of providing the park with the necessary resources determines the tariff setting policy (Fig. 4).
'Administrative and Organizational' Conceptual Block.This block includes a wide range of questions related to the organization and further development of industrial parks.Solid preparation of all organizational aspects is not only the key to the success of an industrial park but also a crucial factor for its realization.
For effective management of an industrial park it is necessary to develop management policy, including establishment of a management company.The ownership structure of the management company should meet the interests of all investors.For state parks the ownership structure should preferably include both regional and local budget in order to make the authorities of all levels interested.In case of public and private partnership it is important to accommodate the interests of private investors, providing the required investment profitability.By contrast with the regional and local authorities, which are not interested in the profitability of the management company and which acquire benefits from the growing tax revenues, a private investor's profits depend exclusively on the performance of the management company.
The management company should be able to attract residents and ensure income from its business operations, which must be highlighted in its service portfolio and in the events organized to attract residents.
Another essential target to be met within this conceptual block is to assess the opportunities of granting benefits to the potential residents.Tax policy towards the residents is usually formed on the regional level: reduction of the regional income tax rates (to the minimum of 13.5 %), property tax (to 0 %), transport tax (to 0 %), land tax (to 0 %).
The tariff setting policy towards residents directly affects their competitiveness and, therefore, the attractiveness of the park for potential investors.It is also worth considering different options of providing the park with the necessary resources and the facilities for their recycling.
The density of resident allocation on the park territory is another factor of the project's economic efficiency.Randomness in the allocation of residents may lead to the loss of considerable area intended for sanitary protection zones.Therefore, it is vital to develop the park's functional layout thoroughly.
Conceptual Block 'Funding'.This block is an essential stage in the development of an industrial park concept.
The first target of this block is identification of funding sources for building the required infrastructure, attraction of investors, and launch of the industrial park.
The range of funding sources includes the following: The first source is the municipal budget.If the park project is initiated by the municipality, this source of funding will require minimum negotiations.However, municipal budgets are not large enough to be in the least bit significant for medium or large-scale projects, especially of the 'greenfield' type.
Such projects can also involve funds from the regional budget.Many regional budgets are able to finance creation of an industrial park.However, the project should be large enough to make the regional authorities interested, that is, the realization of the project must affect the economic development not only of one municipality but of the whole region as well.Current popularity of industrial parks sometimes leads to several park projects being simultaneously elaborated within one region.Therefore, to gain regional support the park concept should have certain advantages in comparison to its rivals: higher quality and better preparation, high efficiency of public funding, considerable external effects for the regional economy.However, even in this case the regional budget cannot be considered as the ultimate source of funding.
Federal funding is another important source if the local and regional budget funding is scarce.In 2014 to systematize federal support of industrial parks, the state program 'Industrial Development and Competitive Growth' was supplemented by a separate subprogram on industrial parks, which includes provisions on federal support and subsidies.This subprogram also provides for a competitive selection of industrial park projects.
Limited budget funding turns attraction of extrabudgetary funds into an important prerequisite for the success of the majority of park projects.
There are several ways to attract such investments.Attraction of borrowed funds through standard bank loans is generally not economically efficient because of high interest rates and the need for long-term funding.A more suitable tool is a special program for industrial parks realized by 'Sberbank'.The loans offered by 'Sberbank', on the one hand, have lower interest rates, and on the other hand, a longer credit payment period, which meets the criterion of a long payback horizon for the industrial park infrastructure.
Apart from borrowed funds, the park project should also include such option as private investments, which can be done in two ways.What an industrial park needs is not just the engineering infrastructure, but also the social and servicing infrastructure: gas stations, shops, objects of social service.To accomplish this, the project may involve private companies in relevant sectors.
Finally, private investments can be attracted by letting private investors acquire a share in the capital of the management company.It can be done through the mechanisms of public and private partnership or by creating a private management company which would be in charge of the park development and creation of the necessary infrastructure.In this case it will be necessary to work out mechanisms of achieving the desired level of profitability, which must also be reflected in the organizational block of the concept.
Apart from the funding sources, it is essential to outline the economic effect of the project realization.Therefore, the financial conceptual block must also include description of the financial model with all the main parameters of the industrial park and its impact on the federal, regional and local budgets and the budget of the management company.The financial model must comprise all annual figures reflecting the residents' efficiency, such as their revenues, amount of investment, the total scope of accumulated funds, amount of profit, staff number and the level of their salary.All these data are necessary to calculate the tax revenues received by the budgets on different levels.Apart from analyzing tax revenues in their connection to the residents' economic effectiveness, it is also vital to take into account the tax benefits which ought to be provided for by the policy of the management company.To evaluate the economic performance of the management company the financial model should also include forecasts concerning consumption of the management company's services; purchase and lease of land; the tariff setting policy as described in the concept.
A robust financial model is a key factor to attract budget and extrabudget funds.Therefore, a well-prepared concept is a crucial stage in any project targeted at creation and development of an industrial park.Inadequate level of preparation of the strategic documentation may become a serious impediment reducing not only the economic effectiveness of the project but also the chances of its successful realization.
Introduction into the Russian economy of such valuable tool as industrial parks means new opportunities to accelerate growth rates in the economy of those regions and areas which are actively searching for new growth drivers.However, to apply this tool effectively it is necessary to establish an information support system for such projects.In the last two years on the federal level there has been a lot of work carried out to formalize realization of park projects.Currently creation of special regional economic zones, including the ones based on industrial parks, is being actively discussed.However, apart from the development of the appropriate regulatory framework, it is essential to improve the methodological support to ensure high-quality preparation of the projects to be designed and realized.

Fig. 1 .
Fig. 1.Comparison of Eastern Asian annual growth rates with the world economy

Fig. 2 .Fig. 3 .
Fig. 2. Impact of the 'residents' block on other parts of the concept

Fig. 4 .
Fig. 4. Influence of the block 'Park Infrastructure' on the other parts of the concept

Table 1 List of free economic zones (FEZ), created on the territory of the Russian Federation in 1990-1999
Tourism cluster in North Caucasian Federal District, Krasnodar Kray and the Republic of Adygea.