CHAPTER 3.12 What Does It Take to Build a Local Biotechnology Cluster in a Small Country? The Case of Turku, Finland kIMMO VILJAMAA, Research Affiliate, University of Tampere, and Consultant, Advansis Ltd., Finland ABSTRACT Biotechnology, one of the most prominent There seem to be new biotechnology initiatives spring- new industrial sectors, is typically a very spatially ing up in almost every country and every region, no mat- clustered industry. Biotechnology companies are ter how big or small. This is the case for both developed countries and many developing countries. At the same often located close to major universities, hospi- time, many studies seem to suggest that the industrial dy- tals, and research centers, and are sometimes as- namics of the biotechnology sector strongly favor only a sociated with supportive bigger companies inter- few globally important locations. These are characterized acting with small- to medium-sized enterprises. by well-established relations between small R&D compa- nies and the presence of venture capitalists, big multina- Moreover, the biotechnology sector usually makes tional corporations, and service providers. The tendency extensive use of external services in R&D—test- of biotechnology clusters to form in certain locations ing, financing, and marketing—which also tend raises some questions. Can all these new initiatives be to be located close by. successful? Can biotechnology research clusters develop Biotechnology activities also tend to con- and prosper on a smaller scale? The aim of this chapter is to discuss ideas for building successful biotechnology centrate strongly in specific areas of the globe. clusters in less-developed places. Using the example of A few local concentrations (such as Cambridge, Turku, Finland, the chapter analyzes how public policy Massachusetts, and San Francisco/San Jose, and local activity can “fill the gaps” in the innovation California, both in the U.S.A.) are globally domi- system, thereby facilitating the emergence of a biotech- 1 nology industry. Although this case study is from a de- nant. In the past, biotechnology has been very veloped country, many developing countries face similar much dominated by the United States and, to a challenges to those Turku has faced. lesser extent, by the United Kingdom.2 But the past decade has seen a huge increase in biotech- nology-related development in many other places. 1. Introduction Countries, regions, and cities all over the world The economic literature of the past decade has of- have realized that biotechnology is the next big ten argued that innovation is the most important thing following the success of information and source of competitiveness, especially for high- communication technologies (ICT). tech industries working within global markets. At Previous studies have shown that the indus- the same time, it is widely known that particular trial dynamics of the biotechnology sector, espe- industries tend to cluster in certain areas and that cially in biopharmaceuticals, strongly favor only a the clustering of knowledge is an important rea- few globally important clusters characterized by son for this phenomenon. well-established relations between small R&D Viljamaa K. 2007. What Does It Take to Build a Local Biotechnology Cluster in a Small Country? The Case of Turku, Finland. In Intellectual Property Management in Health and Agricultural Innovation: A Handbook of Best Practices (eds. A Krattiger, RT Mahoney, L Nelsen, et al.). MIHR: Oxford, U.K., and PIPRA: Davis, U.S.A. Available online at www.ipHandbook.org. © 2007. K Viljamaa. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncom- mercial purposes is permitted and encouraged. HANDBOOK OF BEST PRACTICES | 295 VIlJAMAA companies, venture capitalists, big multination- The recent rise of biotechnology in Turku is al corporations, and service providers. It would largely due to the fact that it has drawn on de- seem to be at least difficult, and perhaps entirely cades-old capabilities across a variety of sectors in impossible, to develop an industry when some or food processing, pharmaceuticals, and materials most of these factors are missing. Nevertheless, sciences. Furthermore, local development activi- the biotechnology industry is growing in many ties and a national science and technology inno- places that may at first seem unfavorable: in de- vation program have encouraged development. veloped countries like Finland, but also in many It remains to be seen whether or not biotech- developing countries such as India, China, Brazil, nology will continue to prosper in Turku. However, and South Africa.3 this study finds that active policy measures can al- This chapter analyzes how public policy and low smaller, more peripheral places to attract the local activity can “fill the gaps” in the innovation interest of biotechnology entrepreneurs. system so that it is possible for a biotechnology industry to emerge and grow in seemingly unfa- vorable places. The basic questions I will answer 2. The biotechnology industry are: What policies and institutions best support In this chapter, “biotechnology” refers to a broad the knowledge generation and dissemination range of life sciences (biosciences) and their uti- processes of high-tech industries in smaller, more lization in medicine, primary production,5 in- peripheral, or less developed regions? In other dustry, and services. Biotechnology is a set of words, what are alternative ways of developing powerful tools that employs living organisms a favorable environment for the emergence and (or parts of organisms) to make or modify prod- development of a local biotechnology concentra- ucts, improve plants or animals, or develop mi- tion? What sorts of relationships between local croorganisms for specific uses. The Organisation actors encourage the development process? for Economic Co-operation and Development My argument is that it is possible, at least (OECD) defines biotechnology as “the applica- to some extent, to compensate for vital resourc- tion of science and technology to living organisms as es that may be missing in small economies and well as parts, products, and models thereof, to alter clusters. However, there seem to be several basic living or nonliving materials for the production of conditions for success. First, there has to be a sub- knowledge, goods and services.” stantial local knowledge base (often a university). The development of biotechnology can be Second, the national or regional innovation sys- divided into three phases. Early first-phase bio- tem must compensate for any missing resources technology includes traditional animal and plant (public venture capital, R&D funding, services, breeding techniques, as well as the use of yeast in and so on). Third, a network of capable local ac- making bread, beer, wine, and cheese. The second tors (public or private) must develop and strategi- phase started in the 1940s when biotechnology cally direct a local innovation system. was introduced into modern industry. Modern, To support the argument that it is possible to or third-phase, biotechnology includes the indus- compensate for missing vital resources, the chap- trial use of recombinant DNA, cell fusion, novel ter analyzes the recent development of the bio- bioprocessing techniques, and bioremediation. technology industry in Turku, Finland. The de- This phase started in the 1970s, when new tools velopment of the biotechnology sector in Finland for modifying the genetic structure of living or- during the past fifteen years has been largely due ganisms were introduced.6 to active national innovation policies. In terms of Interestingly, new advances in the biosciences numbers of biotech firms, Finland ranks tenth in have blurred the boundaries between historically Europe.4 The biotechnology industry in Turku has separate disciplines. Biology has begun to overlap grown thanks to local activity, and Turku itself is with other fields, such as medicine, chemistry, home to the second-largest concentration of bio- informatics, and physics, thereby increasing the technology-related activities in Finland. need for interdisciplinary research and bringing 296 | HANDBOOK OF BEST PRACTICES CHAPTER .12 different industries closer to each other. Many and Maskell13 there are at least three factors that new technologies developed for molecular biology traditionally encourage spatial clustering: research, such as high-throughput DNA sequenc- 1. Reduced costs of producing and maintain- ing, protein structure determination, and gene ex- ing a dedicated infrastructure and other pression analysis on “DNA chips,” are also used in collective resources ecology, agriculture, forestry, and the biotechnol- 2. Well-functioning markets for specialized ogy and pharmaceutical industries.7 skills The nature of an industry greatly influ- 3. Reduced interaction costs for co-located ences how it develops in any given location. trading partners Biotechnology is very demanding in terms of In the last few decades, researchers have tried R&D. Bioscientific research is also time-consum- to explain the relationship between the spa- ing and requires methods and instrumentation tial clustering of firms and the innovation that are rapidly evolving and expensive.8 Because process. Several different approaches have the cost of R&D is so high, funding becomes es- been developed, including innovative mi- pecially crucial for both universities and industry. lieu, new industrial spaces, spatial clusters