Biotechnology Megacentres: Montreal and Toronto Regional Systems of Innovation
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European Planning Studies, Vol. 11, No. 7, October 2003 Biotechnology Megacentres: Montreal and Toronto Regional Systems of Innovation JORGE NIOSI and TOMAS G. BAS [Paper first received, May 2002; in final form, August 2002] ABSTRACT Canada hosts two major diversified biotechnology regional systems of innovation in its two largest cities. Similar in many respects, they display some particular characteristics. We review here the main theories on regional innovation systems and innovative clusters and proceed to analyse these two regional systems before concluding on the usefulness of several theories to study biotechnology regional innovation systems. 1. Theory: From Clusters to Regional Innovation Systems The well-documented agglomeration of high-technology companies in a few geographical regions of each industrialized nation has received several competing explanations. Many authors, based on Alfred Marshall (1890) pioneering work in the late nineteenth century, argued that high-tech firms agglomerate around major pools of skilled labour; sometimes, these pools were initiated by the arrival of large foreign- or locally-owned multinational corporations in the region, such as Galway in Ireland, or Ottawa in Canada (OECD, 2001; Niosi, 2000). In other cases, regional higher education institutions were responsible for the development of such a labour pool. Another European tradition, based on the work of Franc¸ois Perroux (1982), underlined that many regional poles were created by the development of ‘engine industries’ such as large aerospace or aircraft assemblers, operating as a magnet for hundreds of suppliers of parts and components (Scott, 1991; Beaudry 2001). This concept of regional poles oriented much industrial policies in Western Europe in the 1960s and 1970s (Meardon, 2001) More recently, Michael Porter argued that both productive and innovative clusters were the outcome of the agglomeration, within a given region, of many competing small and medium-sized enterprises using the same suppliers, and catering to the same consumers within the local area (Porter, 1998, 2001). Based on the national system of innovation perspective developed in the late 1980s and early 1990s, yet other authors proposed the regional system of innovation (RSIs) approach (Cooke et al., 1998; de la Mothe & Paquet, 1998; Niosi, 2001). For one, regional imbalances Q1 are as marked as national ones. They also suggested that the regional agglomeration of Jorge Niosi and Tomas G. Bas, Department of Management and Technology, University of Que´bec, Montre´al, Canada. E-mail: [email protected] ISSN 0965-4313 print/ISSN 1469-5944 online/03/070000–00 2003 Taylor & Francis Ltd DOI: 10.1080/0965431032000121346 790 Jorge Niosi and Tomas G. Bas high-technology firms obeys to different determinants and is characterized by different patterns than purely productive ones. Second, companies in high-technology industries are knowledge- and R&D-intensive. In such an environment, most of these companies gather knowledge from external organizations such as research universities, government laboratories, other R&D-intensive corporations, venture capital firms and the like. Third, in all market economies, both private and public organizations will underinvest in R&D if governments do not design the proper incentives. Institutions are required for such regional (but also national) systems of innovation to exist. Thus, regional systems of innovation (RSIs) are not simply agglomerations of private innovative firms, but they also include other organizations and institutions, the nature of which varies from one industry or technology to another. The RSI approach differs from the more traditional clusters and industrial poles in the sense that it includes other knowledge-producing organizations, as well as institutions (particularly policy incentives for innovation), and it does not imply any particular industrial structure. 1.1 Regional Systems of Innovation in Biotechnology Biotechnology is the latest generic technology developed in the post-war period. Biotechnol- ogy is not an industry but a set of specific activities and technologies such as biomaterials, combinatorial chemistry, DNA markers, genetic engineering, monoclonal antibodies, recom- binant DNA, etc. (Statistics Canada, 2002). These technologies produce either new products (i.e. artificial blood and human tissue), new processes for existing products (i.e. new methods for producing some specific protein) as well as new organisms for environmental cleaning or human consumption purposes. Their applications encompass such different industries as pharmaceuticals, food and beverages, chemical, environmental, and mining to name a few. However, most specialized biotechnology firms (SBFs) as well as most applications outside SBFs are now in the area of drugs for human health. The pharmaceutical industry is the main user of the new biotechnology. Modern biotechnology regional innovation systems display a basic set of organizations and institutions. Prominent among them are research universities, the fountains from which SBFs and their knowledge basically emerge. Most major biotechnology firms are spin-offs from research universities, or from other firms previously spun-off from academic institutions (Swan et al., 1998; Yarkin, 2000). The second key organization in biotechnology innovation systems are venture capital firms, providing the new SBFs with seed money, management competen- cies and credibility with regard to large pharmaceutical and chemical firms (Kenney, 1986, 2000). In countries and regions with a well-developed set of biotechnology firms, institutions provide SBFs with appropriate incentives (such as patent protection, tax credits for R&D and research grants) and common infrastructures, including government laboratories and publicly subsidized buildings with shared facilities such as fermentation units where the new SBFs can conduct experiments at a reduced cost. On the basis of this set of organizations and institutions, other theoretical approaches were developed and applied to biotechnology innovative clusters. Some authors argued that localized knowledge spillovers occur within these regions among the earlier mentioned organizations (Feldman, 1999). Spillovers or externalities are unintended benefits (or losses) that some organizations impose on others and that do not pass through the market mecha- nisms. Knowledge externalities are flows from knowledge-producing organizations that reduce the cost of producing new technology in firms receiving these flows. Thus, SBFs would freely benefit from knowledge created in universities and public laboratories. Other authors disagree with this perspective. They show that university researchers having created most SBFs are able to capture much of the benefits arising from their academic research. Biotechnology regions are thus characterized not so much by technology spillovers Biotechnology Megacentres 791 than by technology markets that occur within the region (Zucker et al., 1998a, 1998b). Others argued that these spillovers are far from being precisely understood and mapped to represent a solid foundation to explain regional agglomeration of firms (Breschi & Lissoni, 2001). Several authors made the case that networks are key within biotechnology regions (Powell, 1998). Networks provide knowledge (scientific and technological as well as financial and managerial) and other resources (such as access to capital) to the new SBFs. Among firms in the same region, networks provide trust and prevent free-riding behaviour as the possibility of repeated games creates reputation and retaliation effects. This approach has emphasized the importance of intraregional networks, while other authors (Rallet & Torre, 1998) have insisted on the fact that functional closeness is at lest as important as geographical proximity. In other words, important networks are not necessary among organizations located in the same area. More recently, Cooke (2002a, 2002b) has made a distinction between two types of regional Q2 innovation systems in the health sciences. The largest and more complex of them are called ‘megacentres’. They include all the important organizations in the value chain, such as large numbers of SBFs, large pharmaceutical corporations, clinical research organizations (CROs), research universities, research hospitals and venture capital firms. Some four European and four US centres qualify for this status of megacentres. The superiority of these megacentres as opposed to more specialized biotechnology clusters, lies on the fact that R&D, particular in the health sciences, has moved from a narrow disciplinary focus to a more wide, trans-disciplinary one where the new molecular biology, combinatorial chemistry, and more traditional pharmacology combine in the development of new drugs. RSIs with this kind of competencies are more likely to grow than more specialized ones. 2. The Rise of Canadian Biotechnology New biotechnology activities started in Canada a few years after they had emerged in the US and the UK. By 1980 there were only a handful of specialized biotechnology firms in the main cities of Montreal, Toronto and Vancouver. Today, Canada competes with the UK for second place in the world after the US, in terms of new firms, patents, publication or venture capital dedicated to biotechnology. This remarkable growth has several explanations. Early in the 1980s, the federal government handpicked biotechnology as one of the most promising new technologies and launched a Canadian Biotechnology Strategy,