A panacea no more

However, in recent years they have in many cases reached the limit of competitive advantage, becoming almost passé, and are now just another tool in the bag for business success.

Their ultimate worth lies in efficient management, particularly in dealing with customs regulations, low labour costs and efficient logistics links.

Says Paul Bingham of CDM Smith: “In theory, having Export Processing Zones/FTZs is clearly a differentiator that helps ports compete for hinterland business, at least for the subset of shippers that can profitably use those facilities to shift timing of financial burdens of inventories or shelter economic activity from the costs of dealing with Customs.

“This can be the difference for a shipper in choosing a port, for at least a proportion of the cargo handled through a port. The advantages can be quite substantial for individual companies and that may influence their choice of port selection, but the use of the zones is now not enough to stand out as the key competitive differentiator, especially because there are so many zones now established in the country already. This means larger international ports are almost expected to have an FTZ and that hinterland competition is decided on other competitive factors.”

Developing countries are particularly fond of them, largely because of the huge potential for job creation. However, human rights groups accuse many of setting up sweatshops and using child labour to keep costs down. Consequently, financing institutions such as the Asian Development Bank, take a critical look at project proposals.

The other danger is that their success can make them self-defeating, with politicians seizing on them as a panacea – so many are set up that they compete against each other. Such has happened in Vietnam, where development has become haphazard and piecemeal. So much so that the government is putting a temporary ban on new development. Problems that have emerged have included low technology levels, difficulties in land clearance, infrastructure development and severe environmental degradation.

According to Vietnam government figures, there are more than 200 zones, or similar business parks. They account for 40% of foreign direct investment in the country, with a capital of $60bn, generating more than one-third of industrial output.

This has not stopped other developing nations in Asia from going gung-ho. The Philippines says Japanese companies are flocking in to its new EPZs, particularly electronics, ship building and steel businesses.

Industrial countries are tending to use them for specific industries, particularly hi-tech. In the US, the biggest inland zone is the 17,000 acre AllianceTexas Global Logistics Hub in Fort Worth. Electronics companies made up a big proportion of the 260 businesses. An essential feature, perhaps even more so than the EPZ status, is that both national railway systems service the park.