Genome Valley - Location factors in Biotechnology

Seminar Paper, 2001

17 Pages

Free online reading

table of content




Items and definitions
Computing as a prototype of biotechnology - determinants
Internal stimuli
External stimuli
Biotechnology vs. computing - structural differences
Attracting effects
Costs & Benefits
Costs of clusters

Cluster Location
Comparison of Seattle and Boston
Research Centres
Trade Associations
State grants and initiatives

International Biotechnology Locations Future Outlook



In march 2000 the world saw the announcement of a significant advance in the science of cloning animals. Until then, the commercial possibilities of such cloning have been limited and controversial. Dolly the sheep has proved difficult to replicate. And Genetic Savings and Clone (GSC), a Californian firm that plans to offer a cloning service to distraught dog-owners whose pooches have snuffed it, is not exactly aiming for the mass market: it plans to charge $250,000 a shot. GSC has, however, got one thing right. It is in retailing clones that the big money is likely to be made. Which is where GeneDupe, a firm based in San Melito, California, comes in. GeneDupe thinks it has identified a retail market for cloned animals that will be lucrative, simple to service, and unlikely to stir up too much moral outrage: pet fish.1 But these famous stories are only the peak of the iceberg. The field of biotechnology is much more diverse than just cloning animals. It seems to be leading a sudden new biological revolution. It has brought us to the brink of a world of "engineered" products that are based in the natural world rather than on chemical and industrial processes.


The term "biotechnology" was introduced in 1919 by Karl Ereky, an Hungarian engineer. At that time, the term meant all the lines of work by which products are produced from raw materials with the aid of living organisms. Biotechnology at the beginning of the twentieth century began to bring industry and agriculture together. Work in the 1930s was geared toward using surplus agricultural products to supply industry instead of imports or petrochemicals. The advent of World War II brought the manufacture of penicillin. The bio technical focus moved to pharmaceuticals. The "cold war" years were dominated by work with microorganisms in preparation for biological warfare, as well as antibiotics and fermentation processes.2

Biotechnology is currently used in many areas like agriculture, bioremediation, food processing, and energy production. DNA fingerprinting is nowadays a common practice in forensics. Production of insulin and other medicines is accomplished through cloning of vectors that now carry the chosen gene.3 In agriculture, genetic engineering is being used to produce plants that are resistant to insects, weeds, and plant diseases.

New biotechnological techniques have permitted scientists to manipulate desired traits. Prior to the advancement of the methods of recombinant DNA, scientists were limited to the techniques of their time.

Today's biotechnology has its "roots" in chemistry, physics, and biology . The explosion in techniques has resulted in three major branches of biotechnology: genetic engineering, diagnostic techniques, and cell/tissue techniques.


The industry originated from a series of scientific discoveries, starting in 1953 with Watson and Crick's discovery of the double helix structure of DNA. The two most prominent scientific events occurred in 1973, with the development of the recombinant DNA technique by Cohen and Boyer at Stanford, and in 1975 with Kohler and Milstein's production of monoclonalantibodies in Cambridge, U.K. The earliest companies in the 1970s, such as Cetus (CA), Genentech (CA), Biogen (MA), Hybritech (CA), were based near important research centres on the west and east coasts and were started by prominent academic scientists from those universities.

The area around San Francisco became the focus for the early industry in the main for its collection of important research bases at University of California at San Francisco (UCSF), Stanford, City of Hope and CalTech.


Clusters are particularly important in knowledge based sectors, despite the trend towards globalization arising from rapid advances in transport and communication and accessible global markets. This is because the type of knowledge that creates competitive advantage.

Clusters can raise innovation and productivity in a number of ways. Companies benefit from sharing knowledge about best practice and reduce costs by jointly sourcing services and suppliers. Frequent interactions facilitate formal and informal knowledge transfer and encourage the formation and efficiency of collaboration between institutions with complementary assets and skills4.

Items and definitions

There is a natural need to explain the meaning of such items like Cluster, Clustering. Namely, clusters are defined as groups of firms within one industry based in one geographical area.5

Porter (1990) considers clusters as "geographic concentrations of interconnected companies, specialized suppliers, service providers, firms in related industries, and associated institutions (for example, universities, standards agencies, and trade associations) in particular fields that compete but also co-operate."6

Silicon Valley in the United States is perhaps the best known example of a cluster, but there are many other examples in different regions and sectors.

The size of cluster depends partly on perceptions of closeness. In the US we found clusters tend to be thought of as locations that can be visited within a single business day, and from this perspective the UK might be viewed as a single cluster. In contrast, in the UK the prevailing view is a much shorter journey. The size of a cluster is also determined by labour market mobility.

Accordingly, Clustering includes both the phenomenon of a critical mass of one sector of an industry developing in one place such that other firms in that sector are attracted to that location, and the force of attraction that a core sector of an industry has on auxiliary sectors of that same industry to that location.

In case of Hotelling firms within one sector gain market share from locating close to other established firms.

Computing as a prototype of biotechnology - determinants

Biotechnology has been developing in the 1980s and early 1990s but is still in its infancy compared with computing. Nevertheless the expression computing as a prototype of analysed industry branch seems to be wholly justified.

There are several factors determining clustering within biotechnology, which appear to be principally similar to these influencing clusters within computing. However, it should be decently emphasize that significance of these factors is not the same. Furthermore we are able to distinguish between internal and external triggers.

Internal stimuli

Firstly, the presence of the computing industry itself and experienced venture capital providers, as well as Stanford, its Research Institute and Industrial Park, were important internal stimuli for biotechnology, as were the communications networks and high job mobility in the area. Information and ideas were transferred rapidly, with the computing industry serving as a sort of prototype for the biotechnology industry.

Nonetheless there were differences in focus in the founding of the two industries. In computing communication flows were particularly important between engineers in different sectors of the industry; in biotechnology links between companies and the science base were fundamental in the setting up of the early companies and have continued to be important in sustaining innovation in the industry.

External stimuli

Doubtlessly, scientific discoveries incited the founding of the industry, acting as an external stimulus as the wars and military demands had done for computing. As already mentioned above there were important discoveries of the structure of the double helix in the 1950s, and the development of recombinant DNA techniques in 1973 by Cohen and Boyer. The science base has continued to be important in various ways to the biotechnology industry: as a major source of innovations in research and for providing specialised labour to the industry at all levels, including founders of companies, scientific advisers and postdoctoral scientists for research in the companies. By way of contrast the computing industry where interactions between different parts of the industry were more important than those between the industry and the science base.

One notorious aspect in the creation of the biotechnology industry has been the role of the stock market, with relatively young companies making IPO-s and managing to raise substantial sums of money. Right away Genentech should be instanced, with its memorable public offering in 1980. This dispersed the information about the achievements of the industry throughout the US, made it easier for other firms to follow suit, and helped to establish California as the main cultural centre of biotechnology in the world.

Doubtlessly, the role of the stock market has been more prominent in biotechnology than for the early computing companies.

The role of the large companies in the origins of the industry has been different for biotechnology as well. They helped finance the companies and formed alliances with them over large distances, without being located nearby. The biotechnology industry therefore developed more widespread and diffuse linkages with the large established companies from its earliest days, with clusters of small companies developing near research centres rather than close to the established companies in industries where the new technologies were being applied.

Biotechnology vs. computing - structural differences

Existing differences in the structures of these two industries result in different kinds of interdependencies between their constituents.

In computing, sectors of the industry divide most naturally into the different technologies within the industry: components, hardware, software, peripherals, systems etc. Each sector describes a particular set of technologies which are interdependent in the creation of the end product.

The structure of biotechnology is entirely different, with notable similarity especially in the early days of the industry between the particular technologies used across sectors. Companies have tried to specialise according to applications to a particular industry: for instance therapeutics within the pharmaceutical industry; agricultural and chemical firms - agro- chemical market; new enzymes or food ingredients address the food industry. The line dividing biotechnology into existing sectors of industry is rather diffuse. The research tools and equipment sectors for instance supply both industry and research establishments, and environmental applications create a principally new sector with a certain development potential in the future. But generally this structure applies, with biotechnology start-ups dependent significantly on existing companies in their own sector for their market and for help in jointly developing technologies. Links are therefore vertically forward to particular user industries for each sector rather than between sectors where there is relatively little technological interdependence. That's why information transfer between the sectors is more limited than in the case of the computing industry (see Fig. 2.1.).

Fig. 2.1. Inter-sectoral feedback in computing and biotechnology.

Abbildung in dieser Leseprobe nicht enthalten

The whole range of surveys were launched on the area of attracting effects while entering biotechnology industry by companies. Results of the above mentioned trials are also described in the scripture written by Martha Prevezer7. She highlights the direction of attraction (attractor -> attracted) and its intensity.

We can distinguish between two main types of attraction: links between industrial sectors; and links between the science base and industrial sectors.

Attraction towards a cluster of research centres is evidence of attraction towards specialized labour whereas attraction towards particular sectors of the industry may be an indication of attraction towards the specialized inputs that that industrial structure offers. In general, the attracting links between sectors seem to be weaker than between science base and industrial sectors. There is only one strong sector linkage, which is the therapeutics sector attracting diagnostics companies. In both directions between therapeutics and equipment and between therapeutics and agriculture we perceive weaker attracting effects. Accordingly, the sectors can be divided into two groups: closely interrelated group consisting of diagnostics, equipment and agriculture, and the second - group of loosely linked sectors i.e. chemicals, food, waste, and agriculture.

Figure 2.2. Sector entry attractors in U.S. biotechnology.

Abbildung in dieser Leseprobe nicht enthalten

The science base - in particular the biological and medical research centres - exerted the strongest influence to the creation of companies. This attraction may have worked in two ways. First, leading edge research at scientific institutions has been the source of the commercial potential of this industry, especially in its start-up phase. The second form of attraction recognises research centres as a market for specialized research equipment. It is mainly diagnostic and equipment companies which have been attracted into this market in research tools and diagnostic kits for research in the science base.

In distinguishing between demand attractors and supply side attractors, this second type illustrates the strength of demand that the research bases have exerted in the formation of new companies to provide for their needs. The first type of attraction is supply side driven, the supply side spillovers from research do in fact seem slightly weaker than those on the demand side.

The results also suggest that research in the biological and medical areas are transferable to a variety of sectors and that the most obvious linkages - between medical research and therapeutics companies for instance or agricultural research and the agricultural sector - may not be the strongest.

Companies have been more attracted by closeness to centres of research than to other companies. Activity in one's own sector consistently acts as a mild deterring factor to new firm entry. In other words the extent of a cluster in therapeutics discourage further therapeutics firms from entering, a cluster in diagnostics deters new diagnostics firms etc.

This effect is only mildly negative. Nevertheless it is a repelling one rather than an attracting one.

Figure 2.3. Science base entry attractors in U.S. biotechnology.

Abbildung in dieser Leseprobe nicht enthalten

There is in fact notable overlap in terms of the use of various new monoclonal antibody diagnostic tests, DNA probes and new types of biosensors, which may be classified in either the diagnostics sector or equipment sector but are used for similar purposes. Competition between these two sectors might be vitally important for new firms. An explanation for the lack of entry in the other four sectors, food processing, chemicals, waste and energy, is a much slower take-up of the new technologies.

One possible explanation for the absence of symbiosis between large and small companies in food processing and chemicals may be a perception of competence destruction of large company skills.

However, there has been relatively little entry of small companies into the chemicals and food sectors themselves.

Costs & Benefits

Talking about location in clusters all pros and cons should be considered. We may distinguish between benefits on both the supply side, in making the supply of particular products easier, and on the demand side, through access to customer specification and to markets.


Supply side benefits

Starting with benefits there are four principal factors on the supply side to be mentioned related to clustering:

- specialized labour,
- specialized intermediate inputs,
- spillovers of knowledge,8
- infrastructure benefits and informational externalities.

Specialized labour has several aspects.

Labour is specialized in particular technical or scientific skills. For biotechnology this means:

- scientific expertise in a range of disciplines: microbiology, biochemical engineering, biochemistry, genetics;
- expertise necessary to start companies: venture capital, management skills, sales and marketing skills.

Labour is also specialized within a cluster in being part of a network and possessing knowledge about people and their work.

Employees' networks are a chief mechanism of information exchange. Specialized labour within a cluster may also be an advantage in particular job markets. A noticeable feature of the Silicon Valley job market has been very high turnover of jobs9. This has both advantages and disadvantages to employers. Training is more costly but employers benefit from access to a ready supply of new specialized labour, from other firms or from the research centres and universities.

Specialized inputs means any inputs of equipment, research tools, related technologies that need to be tailored and developed for a specific new market. Locating near a pool of those inputs provide some advantages to a new firm. For biotech start-ups, reagents as chemical precursors, biosensors, separation and purification equipment, testing devices, plus a range of bio-processing equipment for scale-up and manufacture, constitute specialized inputs for companies commercialising research. Perhaps part of these companies have been attracted by the presence of equipment firms.

The third one is particularly important for hi-tech industries. Knowledge spillovers are harder to pursue. Supposedly they are coupled with particular locations.10 Knowledge available in patents is allegedly more frequently used by firms within the same locality. Some of the findings say that knowledge spillovers are localised, that the effects are large and that they fade only slowly with time.

In case of clusters there must be information exchange that is easier to accomplish within the same location. This exchange may be of a technical nature, of inferred information, which is not encoded, or of a business or social nature resulting from local networks of people. Alliances and collaboration are an example of local networks and there have been many different types of alliance and collaboration in this industry, between research centres and companies and between companies themselves.

Demand side benefits

Demand side benefits may be divided into:

- benefits to the industry from locating near end-users11,
- benefits from sectoral (inter-industry) demand,
- benefits pertaining phenomenon of Hotelling, and
- information externalities12.

In the case of biotech industry, location near end-users would refer to close contact with hospitals for therapeutic or diagnostic firms. Or it might regard the benefits to equipment and research tool makers or diagnostic companies of being situated close to a ready market in other sectors of the industry and in research establishments.

Other demand side benefits include those along the lines of Hotelling, here firms within one sector gain market share from locating close to other established firms. There are also agglomeration economies which are due to lower search costs for users from locating in a cluster.

Costs of clusters

Costs on the supply side include:

- congestion costs,
- competition in input markets which drive up the prices of labour and land,
- towering real estate prices,
- high wages,
- shortages of housing,
- length of commuting times, to certain degree deterring companies from locating there13.

On the demand side there are following facets to be mentioned:

- saturation costs
- costs from competition in output markets.

In biotechnology markets there is sometimes a race to produce the same product between firms. Facing the problem of scarce research resources at a particular location, competition may be more acute in certain clusters up to congestion. Congestion effects are less likely in new industry branches like biotechnology.

Nevertheless, as several of the biotechnology clusters overlap with previous clusters in earlier technologies such as computing in California, saturation from those earlier technologies may decently affect the location decisions of new biotech firms.

Cluster Location

The main biotechnology clusters in the US are San Francisco, Maryland, San Diego, Boston, Seattle and North Carolina. In the following section we want to have a closer look on Seattle and compare it to Boston.

Comparison of Seattle and Boston

Seattle is of particular interest as an emerging cluster. Since 1990 it has experienced a rapid rate of company formation to consistently rank in the top five US biotechnology centres in terms of number of companies. There are 115 companies in the Seattle biotechnology and medical technology cluster employing 12,400 people, with nearly one-third of the companies

(36) formed in the last five years.

In contrast, Boston, Massachusetts is one of the leading and most established clusters in the US, second only to the San Francisco Bay Area, which has all the key elements of a mature, successful, cluster. There are some 245 biotechnology companies in Massachusetts employing around 17,000 people, with leading companies including Biogen and Genzyme. It is one of the most mature of the US clusters with 79 companies founded in the 1980s, though it is still growing rapidly with 112 new companies since 1996.

Research Centres

In both cases, biotechnology clusters have formed around centres of research excellence: the University of Washington, Washington State University and the Fred Hutchinson Cancer Research Center, which are an important source of start ups and collaborations in Seattle. In Boston the clusters developed around the Massachusetts Institute of Technology (MIT), the Whitehead Institute for Biomedical Research, and Harvard and Boston universities.

World class researchers have acted as a role model for other scientists and related entrepreneurial activity. A good example is Leroy Hood, who was attracted back to Seattle by the opportunity to set up a new, purpose built, research centre for bioinformatics and genomics. In addition, Dr. Hood recruited a number of leading scientific researchers, and has been involved the founding of several Seattle area biotechnology companies, along with the establishment of the Institute of Quantitative Studies in Biology, a new non-profit research institution. At MIT, the role of Professor Robert Langer in creating a succession of successful biotechnology start-ups has had a hugely positive effect on the already strong entrepreneurial climate in Boston and has bolstered MIT's outstanding reputation. The MIT Entrepreneurship Center plays an important role in teaching entrepreneurship to MIT engineers (with courses covering the basics of business plans, starting and building a high-tech company and new product and venture development). The $50k Entrepreneurship Competition run by MIT since 1990 is of particular interest when it comes to creating new innovations. The "MIT $50k" provides support to student entrepreneurs who submit business plans for real, rather than imaginary, new ventures showing significant business potential. Since its foundation the competition has supported the creation of over 35 companies with an aggregate value of over $500 million.


In the absence of an established venture capital industry, a valued source of finance in Seattle is that of business angels. The Alliance of Angels (AoA) is a group of individual investors and representatives of investment corporations. This group uses an online, members-only resource to view business plans submitted by new technology companies. Selected early-stage companies then have the opportunity to present their business plans at AoA monthly membership meeting. Through this process, the AoA acts as a matchmaker for young technology companies and interested investors.

Microsoft Corporation, founded by Bill Gates and Paul Allen in 1975, and headquartered in Redmond, Washington, has had a significant impact on the Seattle and Washington State economy as well. The state's biotechnology industry, in particular, has been a major beneficiary of Gates, Allen and other Microsoft employee investments. An example was the already mentioned recruitment of Leroy Hood from Caltech to the University of Washington. In October 1991, Dr. Hood, best known for his work developing automatic gene sequencing machines, was appointed Chair of the newly created Department of Molecular Biotechnology. Notably, the recruitment of Hood would not have been possible without a $12 million gift to the University of Washington from Bill Gates used to create the new department within their medical school.

In Boston you can find a large venture capital community (over 150 firms) and further funding is available through the Massachusetts Technology Development Corporation and several other financing agencies.

Trade Associations

Biotechnology trade associations operating at a state level are also an important part of the cluster landscape.

The Washington Biotechnology and Biomedical Association (WBBA) has been important during the early phases of the Seattle cluster, pressing for tax changes and other infrastructure elements.

In Massachusetts, the Massachusetts Biotechnology Council (MBC) has been running for 15 years as a non-taxable lobbying organisation. Its achievements include managing to persuade the US Food and Drug Administration to open an office in Boston, the introduction of tax credits, organisation of common purchasing and the development of an extensive education and training programme in biotechnology.

State grants and initiatives

States have their own economic development initiatives to support the growth and development of the biotechnology industry. These include tax incentives, as well as specific programmes and initiatives which impact on cluster development. In Washington State high tech firms receive a credit against their business and occupancy taxes for R&D expenditures.

Massachusetts offers a number of tax incentives, including a 10-15% tax credit on research with a 15 year carry forward, and a 3% investment tax credit on fixed assets with a three year carry forward.


One further advantage if you compare it to different international locations is the so-called "can-do" mentality which has contributed so much to the US economic success. In addition there's also a positive attitude to failure and without doubt the fear of failure is lower in the US, where entrepreneurs typically use failure as a means of learning from their mistakes. This environment is also very attractive for foreign scientists.

International Biotechnology Locations

The US as the cradle of the modern biotechnology is still the most important location but we also want to have a look on the other international locations. You can find a detailed comparison of different international regions in the appendix.

The south-east UK comes out top in the European section, scoring well on biotech-oriented universities, international airports, track record in attracting biotech and availability of venture capital. But while the UK has long dominated the European scene other countries have been fighting back.

Germany is at the forefront with its BioRegio programme. In 1995, science minister Juergen Ruettgers introduced government funding to regions that promoted biotech. Almost overnight, the sector became respectable.

France, initially ahead of Germany has also started to incentivise biotech investment. Although it has not taken the German route of offering generous subsidies, the French government is changing tax and other laws to make it easier for early-stage companies to flourish.

In Asia, Japan dominates the ranking. Almost all the top 10 companies are Japanese. Like the UK, Japan scores on biotech R&D spending, track record in attracting biotech and availability of venture capital. Only Australia is putting up a serious fight.

Future Outlook

In 1998, for the first time in the last three years, the larger companies outperformed the smaller companies. The top 20 US biotech companies now account for some two-thirds of the entire industry's capitalisation. With increased market capitalization, new opportunities for internal reinvestment as well as industry-operated angel networks will become more important and thereby reduce the importance of Venture Capital as a crucial location factor.

And big continues to be the way forward. Experts predict a massive interest in the US by European biotech companies. Mergers and acquisitions of larger pharmaceuticals is driving a global perspective. The science is very excursive and it goes wherever the best brains and ideas are today regardless of borders.

In addition we can also observe an trend towards convergence of towards bioinformatics where biotech and information technology are becoming melted. This convergence of technologies will require skill sets and competencies but nevertheless the creative minds will always be the crucial input factor for this industry.


Genetic engineering- A fishy tale, The Economist, Mar 30th 2000

Jacoby, C.: Biotech companies battle for the brains, Corporate Location, Milton Keynes, 1999

Krugman P. (1998) "What's New about the New Economic Geography?"Oxford Review of Economic Polic y, Vol. 14, No 2.

Milestones in Biotechnology & Medical Technology History; Washington Biotechnology & Medical Technology Online (

Murphy, A., Perrella, J., Woodrow Wilson Foundation Biology Institute, "A Further Look at Biotechnology." Princeton, NJ, 1993

Networks of Innovation: Regions collaborating to compete in the global market, National gathering of biotech/life science innovation regions, March 2000

Porter (1990) The Competitive Advantage of Nation s

Prevezer, M.: "The Dynamics of Industrial Clustering in Biotechnology", Small Business Economics 9/ 1997.

Swan, P., Prevezer, M.: "A comparison of the dynamics of industrial clustering in computing and biotechnology", Research Policy 25, 1996, p. 1139.


[1] Genetic engineering- A fishy tale, The Economist, Mar 30th 2000

[2] Murphy, A., Perrella, J., Woodrow Wilson Foundation Biology Institute, "A Further Look at Biotechnology." Princeton, NJ, 1993

[3] Murphy, A., Perrella, J., Woodrow Wilson Foundation Biology Institute, "A Further Look at Biotechnology." Princeton, NJ, 1993

[4] Krugman P. (1998) "What's New about the New Economic Geography?"Oxford Review of Economic Polic y, Vol. 14, No 2.

[5] P. Swan, M. Prevezer, "A comparison of the dynamics of industrial clustering in computing and biotechnology", Research Policy 25, 1996, p. 1139.

[6] Porter (1990) The Competitive Advantage of Nation s.

[7] M. Prevezer, "The Dynamics of Industrial Clustering in Biotechnology", Small Business Economics 9/ 1997.

[8] Krugman (1991) and Marshall (1920) highlight three factors that attract firms to a particular location

[9] Larsen and Rogers, 1984.

[10] Evidence provided by the work of Jaffe el at. (1993).

[11] See: von Hippel, 1988.

[12] Entrants can assess the market more easily from detecting successful firms within a cluster.

[13] See: Larsen and Rogers, 1984.

17 of 17 pages


Genome Valley - Location factors in Biotechnology
Business Location Decisions
Catalog Number
File size
463 KB
Genome, Valley, Location, Biotechnology, Business, Location, Decisions
Quote paper
Stefan Kraft (Author)Robert Wyszynski (Author), 2001, Genome Valley - Location factors in Biotechnology, Munich, GRIN Verlag,


  • No comments yet.
Read the ebook
Title: Genome Valley - Location factors in Biotechnology

Upload papers

Your term paper / thesis:

- Publication as eBook and book
- High royalties for the sales
- Completely free - with ISBN
- It only takes five minutes
- Every paper finds readers

Publish now - it's free