Determination of Critical Success Factors for the Development of Biotechnology Clusters

Introduction

In this paper I am going to discuss factors that initiate and drive the clustering of biotechnology companies. In a first step I will address the question of defining a cluster as such. I then turn to a discussion of believed beneficial outcomes by referring to the works of Porter who claims that among others clusters attract the formation of new businesses and also result in growth of the respective cluster^[1]. In the light of ten case studies I will then assess the relevance and impact of critical factors on the creation and development of biotechnology clusters. The findings of the case studies suggest relevant key factors and prerequisites for biotechnological clusters to emerge and to develop. Special emphasis will be placed on the question whether or not the beneficial outcomes of clustering as described by Porter can be confirmed by the case studies and the implications that follow as far as the beneficial outcomes are not being confirmed. The paper will conclude with a theoretical framework that is aimed at capturing the virtuous cycle of biotechnology clusters.

Porter´s Position

Porter states that despite continuous technological progress that has resulted in improved communication allowing companies to better coordinate their activities worldwide, companies tend to cluster geographically since clusters are “critical masses – in one place – of unusual competitive success in one field”^[2]. Hence companies can participate in the competitive success of a cluster by joining it and making it more innovative through new products and services or simply by capitalizing on the new business opportunities created by the cluster. Porter raises the question of defining clusters and suggests the following: “Clusters are geographic concentrations of interconnected companies and institutions in a particular field”^[3]. This definition has several implications. First, it remains unclear what constitutes a cluster and what distinguishes a cluster from not (yet) being a cluster. In other words, what exactly is the critical mass that is required for the constitution of a cluster in the first place? Secondly, how exactly is this critical mass dependend upon the industry? For instance, does a shoe manufacturing cluster in Italy require a different critical mass then a high-tech cluster in California?

For the purpose of this paper the definition suggested by Porter serves as the basis for discussion of the ten case studies as the clusters described in these studies match the suggested definition in terms of geographical concentration and the fact that they all specialize in one field namely biotechnology. These case studies therefore allow to assess the suggested beneficial outcomes of clusters which are increase in productivity, new business formation and a higher rate of innovation.

In the course of the lecture “Innovation, entrepreneurship and cluster development” at Handelshochschule Leipzig a team of seven business students discussed the findings of ten case studies on biotechnology clusters. We came to the conclusion that in order to verify the anticipated positive outcomes of clusters as suggested by Porter an important intermediary aspect had to be considered. To illustrate this point I am referring to the following example. New Business formation will only occur, if potential entrepreneurs anticipate market opportunities that allow their business to prosper. Simply the fact that there is an agglomeration of companies alone is not sufficient to generate business creations. It might be the case that there is not sufficient market demand that would make entry to business an attractive choice. Furthermore, as in the case of biotechnology, lack of research conducted by Universities or by large firms hinders the formation of new businesses as potential businesses are in need of research findings that they can capitalize on. “Moreover, in the absence of a vibrant research activity by large firms, new prospective start-ups lacked an essential source of survival and growth, through the establishment of collaborative agreements”^[4].

This introductory examples clarifies that biotechnology cluster will only prosper if certain prerequisites are fulfilled. For the purpose of this paper I will refer to these prerequisites as key success factors.

Derived from the examined case studies I will discuss five key success factors that are listed below. All of these factors will be discussed in the light of their contribution to the development of biotechnology cluster. Special emphasize will be placed on those factors that were found to be most significant in terms of their impact on the development of biotechnology cluster.

The critical success factors discussed in this paper include the strength of the local scientific base, industry-university relations and cooperations, access to market capital, protection of intellectual property rights, and labour market pooling.

Strength of the Local Scientific Base

A couple of case studies suggest that a strong scientific base is a major cause for the emergence or development of biotechnological cluster that will be illustrated in the following section. For instance, the existence of university research centres in Oxford, Cambridge and Scotland is acknowledged for its positive influence on the creation of Biotechnology clusters in the UK. Cambridge and Oxford were appraised for their local linkage to the science base and spin-out activity centred on university based technology-licensing^[5].

Furthermore, the strength of the local scientific base can be distinguished between research conducted by large established companies and research that is conducted by universities. Our research suggests that the latter one is most fundamental for the emergence and development of biotechnology cluster as suggested by the following quote: “The reason for this is that the core knowledge was and has remained produced in university and other public research laboratories more than in the R&D labs of big pharma itself”^[6].

In addition public R&D investments can facilitate the development of biotechnology cluster as illustrated by the Munich Pharmaceutical cluster which arose from “Public sector investment”. This was supported by many institutions and universities that gave crucial assistance in the development phase of this cluster. Institutions included the Max-Planck-Institutes for Biochemistry and Neurobiology and publicly-funded research organizations like University of Munich, the University of Applied Sciences Weihenstephan, the Bavarian Institute for Soil and Plant Production, and the Fraunhofer Institute for Process Engineering and Packaging^[7].

[...]

^[1] See also Porter, M (1998), S. 84

^[2] Porter, M (1998), S. 78

^[3] Porter, M (1998), S. 78

^[4] Orsenigo, L. (2001), S. 86

^[5] See also Cooke, P. (2001) p. 49

^[6] Cooke, P. (2001) p. 49

^[7] See also Kaiser, R. (2003) p. 844