Module 7 - Location Strategy and Engaging with the Innovation Ecosystems

Question 1

What is an industry cluster?

Answer 1

A cluster is a geographical concentration of related industries and firms connected through various types of linkages and spillovers and supporting institutions

Question 2

How is the US Geographical Biotech Distribution in 1983 vs 1995?

Answer 2

We see that the big clusters have just gotten bigger

Question 3

Why do firms within the same industry tend to cluster in particular geographical locations?

Answer 3

Marshall, 1890
* Supplier-Buyer linkages (specialized inputs)
* Labor market pooling
* Knowledge spillovers

Question 4

What are the two factors in the new economic geography?

Answer 4

1) Centripetal forces (pushing in):
- Market size effects supplier buyers linkages (specialized inputs)
– Thick labor markets (labor market pooling)
– Pure external economies (knowledge spillovers)

2) Centrifugal forces (pushing out/away):
- Immobile factors
- Land rents
- Pure external diseconomies (Diseconomies of scale happen when a company or business grows so large that the costs per unit increase)

Question 5

How is transportation costs related to density of firms?

Answer 5

Increasing returns from density of related firms can be better exploited if transportation costs decline.
–> Then regions can specialize and sell to other regions.

Question 6

What makes a good cluster?

Answer 6

1) Relatedness: A set of related industries versus specialization in one narrow
industry
2) Industry links: Industries and firms related by various types of links like:
*Input-Output
* Labor occupations and skills
* Knowledge/technology
3) Diversity of companies: Many clustered firms that compete and cooperate:
* Startup and Incumbent
* Small and Large
* Domestic and Foreign
4) Support Institutions
* Finance, Universities, Chamber of Commerce, Industry
Organizations, and
* Innovation Spaces (co working, industrial parks, accelerators, labs)

Question 7

Mention some biopharma clusters

Answer 7

• Boston
• Cambridge
• Medicon Valley
• Basel

Question 8

What major study shows the clusters in the us? What is the map name?

Answer 8

U S Benchmark Cluster Definitions (BCD)
- Based on novel clustering algorithm funded by the US Economic Development Administration

Map name: U S Cluster Mapping Project Portal

Question 9

Is the US BCD and clustering algorithm used other places?

Answer 9

Yes! In:
- EU
- Mexico
- Canada
- Ongoing in India and China

Question 10

What type of industries are geographically concentrated?

Answer 10

Traded industries (like surgical and medical equipment) are much more concentrated than local industry (like hospitals, bakers etc.)

Question 11

Is location important for traded industries?

Answer 11

Location choices are particularly important for firms in traded industries because they scale up and their buyers and suppliers are often geographically concentrated

Question 12

How important is the traded economy? (in the U.S)

Answer 12

In the traded economy, wages patenting, and STEM (Technology, Engineering and Math) jobs are much higher than in the local economy.

STEM and Patents are 90% ish of national economy, 51% of income and 36% of employment is traded industry in the US

Question 13

How do you define clusters?

Answer 13

We use cluster analysis:
- A numerical methods to classify similar objects industries into groups Everitt et al 2011

Question 14

How do you make a cluster?

Answer 14

Create groups (clusters) in such a way that objects (industries) in the same group are more similar among themselves than to those in other groups

Question 15

The Clustering Algorithm works how?

Answer 15

1) Group traded industries using multiple measures of inter-industry relatedness:
Region-industry measures:
- Co-location of industry employment
- Co-location of industry establishments

National industry measures:
- Input-output links
- Labor occupation links

2) Generate cluster configurations, c, using clustering analysis

3) Choose a C that captures the broadest range of inter-industry linkages

4) This results in the U S Benchmark Cluster Definitions which groups 778 traded industries into 51 clusters

Question 16

Are all clusters equal in competitive advantage?

Answer 16

No.

Regions Have Comparative Advantages Manifested in Clusters
- Cluster composition of Boston that is the core of the iEcosystem

Question 17

How can relative connections in traded clusters be visualized?

Answer 17

Through heatmaps or connection cluster mapping (circles and lines)

Question 18

Does clusters matter for entrepreneurship and innovation?

Answer 18

Yes!

Industries that are part of a strong cluster environment register:
1) Higher growth in jobs
2) Higher startup activity
3) Higher innovation
4) Higher resilience to economic shocks.

Question 19

Do organisations/governments try to create clusters?

Answer 19

Yes! With the thought of multi-stakeholder model to support industry clusters and innovation ecosystems. (Circle of stakeholders connected by a star)

Institutions for Collaborations to Strengthen Clusters & iEcosystems (innovation ecosystems) in denmark are:
1) Cluster Organization: A collective effort by firms, public entities, and other institutions to improve the competitiveness of a specific regional cluster. (Like Medicon Valley Alliance/Health Tech Hub)
2) Regional Organizations (across clusters)
3) Innovation spaces: Like BII, NNF, DTU Science Park etc

Question 20

Does clusters affect entrepreneurship?

Answer 20

Yes! Location Matters for E-ship Choices.

Innovation-driven enterprises (IDE) - are better suited to start in clusters.

And geographical locations can be better of worse suited for a startup (think gut/microbiome, maybe Denmark is a good location then)

Question 21

Is the birth of startups random? Yes/no and why?

Answer 21

No birth place is not random! In Delgado’s work birth is the 1st employee

Startups are more likely to be born in industry clusters because access to key resources to scale up suppliers, customers, specialized skills, support institutions are nearby

Question 22

Why is the birth of startups mostly within clusters?

Answer 22

1) Entrepreneurs (of high tech companies) find it difficult to develop the social ties necessary to mobilize essential resources when they reside far from those resources (Sorenson/ Stuart, 2003)
2) Therefore, opportunities for high tech entrepreneurship mirror the distribution of critical resources .

Question 23

Does enablement of startups via the clusters also gurantee performance?

Answer 23

No. The same factors that enable high tech entrepreneurship forming start-ups, do not necessarily promote firm performance

Question 24

What kind of resources are needed for launching a technology based startup? Why does this have an effect on where they are founded?

Answer 24

• A new idea or technology (local density of experts in a particular field of
  technology)
• Capital (given the risks associated with capital intensive high tech firms, this frequently comes in the form of venture capital, VC).
• Employees with highly specialized human capital

Geographical distance from people with technical expertise, sources of specialized labor, and suppliers of VC greatly hampers organization building

Question 25

What are some predictions regarding startup performance and clustering?

Answer 25

Startup Performance (Survival/IPO):
* Spatial proximity to scientific experts who work in the domain of high technology startups improves new venture performance
* Spatial proximity to competing firms detracts from new venture performance.

Question 26

What are some predictions regarding the rate of high-tech startups founding?

Answer 26

The rate of High-tech Startup Founding:
* Increases in areas geographically proximate to the developers of the underlying/related technologies
* Increases in areas geographically proximate to established firms in a focal industry
* Is greatest in areas proximate to VC firms
* The effect of being near to these resources on the rate of founding of startups declines as the focal industry matures.

Question 27

What is the local concentration of biotechnology, VCs and universities in the US associated with? Why does this effect become weaker over time?

Answer 27

1) are associated with more startups within each zip code.

2) The result regarding density of biotechnology firms and university
becomes weaker with the age of the local industry since some knowledge gets codified and diffuses to other locations.

Question 28

What is the local concentration of biotechnology, VCs and universities in the US associated with looking at firm performance?

Answer 28

Startup Performance (Survival/IPO)
* Proximity to biotechnology inventors positively affects performance
* Being close to many competing firms reduces the chances of IPO

Question 29

Industries that are part of strong cluster environments show what?

Answer 29

Regional Industries that are part of a strong cluster environment register:
* higher level and growth in startup activity (startup employment and
count of startups)
* higher level of employment in surviving (up to 5 year olds) startups

Question 30

Is there always a fit between location and strategy?

Answer 30

No. Good idea in the wrong place = Move!

Location shapes the strategy and business model (value creation, capture and delivery)

Question 31

What Makes a Good Startup Location? IMPORTANT

Answer 31

The fit between internal (firm attributes) and external (location attributes) factors.

Like:
External: Suppliers, customers, similar firms, policies and regulations, amenities, specialized skills and talent
Firm attributes: Goal/values/culture of founders, product/service attributes, desired exit (ipo, acquisition), customers (beachhead market?), inputs: Design the value chain

Question 32

What is the global issue with female inventors?

Answer 32

1) Only 11% of alle inventors
2) 19% of all new inventors were women in 2020
3) 9% of patents in the US by women

Not simply a STEM skills problem

Question 33

Is the female inventor problem big everywhere? What does it suggest?

Answer 33

Globally yes. But clusters differ in this issue. New York is inclusive in this issue.

Pharma and medical have a “high” female inventor rate of 27,4% between 2016-2020 compared to the nationwide ~10% in the same period.

This suggests that firms & industry clusters affect inclusivity

Question 34

Are tech-clusters also responsible for patents?

Answer 34

Yes!
- Top 10 EAs in Pharma+Med account for 62% of patents in that field
- Overall, all top 10 regional technology clusters account for +50% of patents (based on over 100 USPTO tech classes)
- A few regions and clusters could be catalysts for inclusion in innovation

Question 35

Does location still matter after COVD-19?

Answer 35

Location Matters differently across industries and organizations

1) Internet Startup: Fintech Services
* Not much changed, continue to grow the team globally …

2) Med Tech - new Ways of Working
* New customer acquisition: Doctors
* Engaging with the community offering eye PPP for doctors (social capital)
* Virtual connections: Access to some employees abroad
* Challenge: developing trust for new e-connections

3) Biopharma firm:
- Prioritize COVID 19 vaccine, stop non essential agricultural products
* Stopped experiments … people went home crying
* Many collaborations with Boston organizations committed to solve COVID 19 vaccine problem

4) Universities: MIT
* Facilitate that startups have access to the resources to take ideas into action (university developed science, tech, skills, VC, buyers, ….)
* Help startups to connect virtually
* Easier access to university technology related to COVID19 solutions

Question 36

How did the Boston Kendall Square cluster evolve?

Answer 36

Massachusetts General Hospital is the oldest in the U.S
1970: Harvard-MIT - Health Sciences & Tech Program
1974: MIT center for Cancer research
1982: Whitehead Institute + Biogen
1987: Genzyme
2003: Novartis
2004: Broad Institute

Question 37

Why did the Boston cluster (Kendall square) develop?

Answer 37

1) Long history with medical research: Massachusetts General Hospital is the oldest in the U.S and connection to local university.
- Biopharma needs skilled workers from uni and idea from uni to outlicence (requires F2F negotiations)
2) Special considerations were made to ease the public: “recombinant DNA ordinance” = building code for life sciences
3) Extreme talent in the late 1980s drew people in. Dr. Boger founded Vertex in 1989 (first to use rational drug design - Boger was a pioneer in the use of structure-based rational drug design as the basis for drug discovery programs)
4) Extreme knowledge sharing made easy
5) People put down roots and can diversify skills at the same time

Question 38

What are some pitfalls or remote work?

Answer 38

1) Worse for new workers (missing company culture, intangibles)
2) New teams work worse together in an chat overload where message increase but information sharing plummets.
3) Less sharing off ideas due to casual interactions
4) Less new ideas: virtual teams cannot brainstorm as well as in-person teams

It’s harder for new workers, new groups, and new ideas to get revved up.

Question 39

What is the solution? And how?

Answer 39

Hybrid workers that can utilize their local network and online pressence.

Synchronizers (role in company) is the answer. Responsible for solving the new-worker, new-group, and new-idea problems.:
1) Ensure managers and coworkers are present during onboarding and plan one-on-one meetings to get personal between coworkers.
2) Coordinate new group formations
3) Plan frequent retreats and reunions to encourage and understand new ideas and knowledge sharing.

Question 40

Do clusters have comparative more economic growth?

Answer 40

Yes