Innovation Clusters: Understanding Life Cycles

A BRIEFING PAPER FROM THE ECONOMIST INTELLIGENCE UNIT Innovation Clusters: Understanding Life Cycles Commisioned by: BRIEFING PAPER ABOUT THIS REPORT Innovation clusters: Understanding life cycles was written by The Economist Intelli- gence Unit. It examines the life cycles of five innovation clusters and the factors that determine success. The report is based on desk research and ten expert interviews. The case studies have been selected to cover both established and emerging markets, and to explore a range of cluster success factors such as demographics and talent; infrastructure; quality of life; policy; and geography. The report was written by Michael Martins. The editor was Adam Green. The study was commissioned by Dubai Tourism. The Economist Intelligence Unit would like to thank the following individuals (listed alphabetically) for sharing their insights and expertise during the research for this paper. Professor Erkko Autio - Chair in Technology Venturing and Entrepreneurship, and Director of the Doctoral Programme at Imperial College London Business School Dr Cristina Chaminade - Professor in Innovation Studies at Lund University Dr Andrew Corbett - Professor of Entrepreneurship and Faculty Director for the John E. & Alice L. Butler Venture Accelerator, Babson College Dr Riccardo Crescenzi - Associate Professor of Economic Geography at the London School of Economics Dr Luisa Gagliardi - Fellow in the London School of Economics Department of Geography and Environment, and Research Affiliate at Bocconi University Clif Harald - Executive Director at Boulder Economic Council Charlotte Holloway - Director of Policy, techUK Professor Florian Täube - Emile Bernheim Chair of Entrepreneurship in a Global Context at Université Libre de Bruxelles Professor Tony Venables - BP Professor of Economics, Oxford University Professor Poh Kam Wong - Director of National University of Singapore’s Entrepreneurship Centre © The Economist Intelligence Unit Limited 2015 Innovation Clusters: Understanding Life Cycles 2 Innovation clusters: Understanding life cycles Innovation clusters are like the companies they host: they can grow rapidly at inception, peak, and eventually – if they do not adapt – they stagnate or die. There are thousands of clusters around the world, but many struggle to achieve sustainability or scalability. Sometimes, the very factors that made them successful, cause them to fail later on. What allows clusters to combine the innovative spirit of start-ups with the resilience of established conglomerates, to extend their life cycle? Through case study evidence across five countries, and an expert interview program, the Economist Intelligence Unit explores ‘cluster life cycles’ in Silicon Roundabout (UK), Bangalore (India), Boulder (United States), Singapore, and Estonia and draws out key lessons from their experiences. Chapter One: Innovation clusters: Why companies are better together Chapter Two: Silicon Roundabout, London Chapter Three: Bangalore: Emerging market-makers? Chapter Four: From zero to hero, with a little help from government: Estonia and Singapore Chapter Five: Boulder, Colorado: Delivering on Quality of Life Conclusion: Innovation clusters: The ‘big 6’ success factors © The Economist Intelligence Unit Limited 2015 Innovation Clusters: Understanding Life Cycles 3 Chapter 1: Innovation clusters: Why companies are better together Innovation is often associated with triumphant lone inventors. The likes of Thomas Edison, Louis Pasteur or Bill Gates are the central characters in this narrative. But all innovators spring out of a specific context. The environments that foster their individual and collective success are very often ‘innovation clusters’: ecosystems that appear to have a magical ability to nurture the best ideas and attract the brightest talents. Clusters emerge when a network of companies co-exists within a geographic location, allowing each of them to collaborate – and compete – in a way which delivers greater productivity gains than they would achieve in isolation. Silicon Valley is the most famous, but there are countless others, from Russia to Chile. Clusters attract innovative people. They network, leading to the cross-pollination of ideas. Companies benefit from each other’s success: What one invents, rivals can access – think of a productivity-boosting tool like Dropbox. And what one firm invents, others can build on. Think of the ‘sharing economy’, led by trailblazers Uber and Airbnb, in turn giving rise to an army of start-ups taking the same idea to new applications. Yet for all their benefits, innovation clusters are not straightforward to build – and many do not last. To prosper, clusters need six key success factors: skills and talent, accommodating policy frameworks, infrastructure, low costs (especially in the early stages), a good lifestyle offering to draw talent, and finally - good luck, whether geography (proximity to key markets), historical accidents or even serendipity. These six factors are necessary conditions, although they are not sufficient. Many places in the world lay claim to these six, but never give rise to a successful cluster. These factors are best seen as the necessary conditions for clusters, but not – on their own – sufficient. Cluster success depends both on individual factors, but also the interplay between them. Good universities are little use if there is no connectivity with industry. A high standard of living is not helpful if immigration policies prevent global talent from moving to the cluster. This paper explores the six success factors, and assesses how they change over the life cycle of a cluster. © The Economist Intelligence Unit Limited 2015 Innovation Clusters: Understanding Life Cycles 4 Chapter 2: ‘Silicon Roundabout’, London London’s Silicon Roundabout is located between ‘the City’, a centre of global finance, and Hackney, one of the poorest areas of London. In its early stages, it ben- efitted from several favourable conditions. The area is accessible to central London via public transport, allowing companies to travel around the city easily. Rents were low, and many entrepreneurs from Hackney could access the area via bicycle. There were already artists, media professionals and technology entrepreneurs in the area. Many specialised in financial services, and had linkages with the UK’s national broadcaster, the BBC. This fluid exchange of knowledge and ideas between technology, finance and media communities was stimulated by the UK’s open immigration policy in the late-2000s. The area attracted a large community of Americans who studied at London universities and started working in the city thereafter. Others came directly to Silicon Roundabout from San Francisco and Silicon Valley. These factors came together to create a knowledge-sharing ecosystem. Success soon fol- lowed. Live.fm and TweetDeck were early start-ups, bought by CBS for $280 million in 2007 and Twitter for $40 million in 2011, respectively. However, as Silicon Roundabout’s star ascended, two factors that helped drive success – low rent and the UK’s open immigration policies – both changed. Rents doubled in 5 years, pushing smaller firms and start-ups out. Developers acquired properties, and enforced larger security deposits and more stringent credit checks that prevented entry for smaller firms. They gradually moved on and out, to other areas of London like Whitechapel and Aldgate. The second shift was the tightening of immigration policy: non-EU worker visas are now capped at 21,700 and recent non-EU graduates of UK universities are required to find a job within 3 months of graduating, sponsored by their employer (at a cost of £1,476), earning a minimum of £20,800. Some firms can absorb these costs. Oth- ers, especially fragile and cash-poor start-ups, cannot. Figure 1: Silicon Roundabout Enabling starting conditions Growth challenges Rising rent with stringent Low rents leasing controls Larger scale commercial Excellent location developers Restrictive visas and Open immigration policy immigration controls © The Economist Intelligence Unit Limited 2015 Innovation Clusters: Understanding Life Cycles 5 Figure 2: Silicon Roundabout Timeline 2010-2015: The price of a flat in Old 2012: Google opens Old Street Street increased by 29.6% between Roundabout office to host speaker 2010 and 2015, according the British series, hackathons, training work- 2011-2015: The price property website Zoopla shops and product demonstrations of property per square foot increased from £15 in 2011 to £40 in 2013 to £55 in 2015, according to the FT and CityAM/ Colliers International 2007: Live.fm, a Silicon Roundabout start-up, is bought by CBS for $280 million 2010: Prime Minister David 2014: Just under 1500 tech Cameron announces plans firms located in the area to accelerate growth of according to Tech City Map the cluster 2008: 15 Tech firms located 2011: TweetDeck, a Silicon in Silicon roundabout Roundabout start-up, is bought by Twitter for $40 million in 2011 The second shift was the tightening of immigration policy: non-EU worker visas are now capped at 21,700 and recent non-EU graduates of UK universities are required to find a job within 3 months of graduating, sponsored by their employer (at a cost of £1,476), earning a minimum of £20,800. Some firms can absorb these costs. Oth- ers, especially fragile and cash-poor start-ups, cannot. “If high growth firms cannot meet their talent needs through domestic or local talent, they need to be looking globally,” says Charlotte Holloway,

Load more