Constructing Regional Advantage:Professor Phil Cooke, Director, Centre for AdvancedStudies, Cardiff University

What Is Constructed Advantage?

Constructed Advantage – Although Porter talks of innovation > productivity >growth, it is not proven.The ‘new competitive advantage’ (Best, 2001)includespublic goods support, the dynamics of constructed advantage. This knowledge-based construction requires interfacing developments in various directions: Economy – regionalization of economic development; ‘open systems’ inter-

firm interactions; integration of knowledge generation andcommercialization; smart infrastructures; strong local and global businessnetworks.

Governance – multi-level governance of associational and stakeholderinterests; strong policy-support for innovators; enhanced budgets forresearch; vision-led policy leadership; global positioning of local assets.

Knowledge Infrastructure – universities, public sector research,intermediary agencies, professional consultancy, etc. have to be activelyinvolved as structural puzzle-solving capacities.

Community and culture – cosmopolitanism; sustainability; talented humancapital; creative cultural environments; social tolerance. This public factorprovides an exemplary background for constructed advantage dynamics ina nexus of university-industry-government relations

Interacting, these engender Constructed Advantage to regions.

Knowledge Economy Poses New Problems:the early model

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RIS Characteristics Grassroots Integrated Dirigiste

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Initiation Local Multi-level Central

Funding Diffused Guided Determined

Research Applied Mixed Basic

Coordination Low High High

Specialisation Weak Flexible Strong

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The Classic Regional InnovationSystem

R e g io n a l s o cio e co n o m ic a n d c u ltu ra l s e ttin g

K n o w e ld g e , re s o u r c e s a n d h u m a n

c a p ita l flo w s a n d in te r a c tio n s

K n o w le d g e a p p lica tio n & e xp lo ita tio n s u b s y s te m

K n o w le d g e g e n e r a tio n & d iffu sio n su b s y s te m

fir m s

c o lla b o r a to r s

c u s to m e r s

C o m p e tito r s

c o n tr a c to r s

T e c h n o lo g y

m e d ia tin g

o rg a n is a tio n s

w o rk fo rc e

m e d ia tin g

o rg a n is a tio n s

P u b l ic R e s e a rc h

o rg a n is a tio n s

E d u c a tio n a l

o rg a n is a tio n s

F ig 1 . T h e R e g io n a l In n o v a t io n S y st e m : A sc h e m a t ic i l lu s t r a t io n

Knowledge Economy Problem Tendencies: Co-ordinatedmarkets to Liberal-markets

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Institutional RIS (IRIS) Entrepreneurial RIS (ERIS)

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Research & Development Driven Venture Capital Driven

User -Producer Relations Serial Start -ups

Technology -Focused Market -Focused

Incremental Innovation Incremental & Disruptive

Bank Borrowing Initial Public Offerings

External Supply -Chain Networks Internal EcoNets *

Science Park Incubators

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Rather Like Closed versus OpenInnovation

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Closed innovation Open innovation

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Strategic R&D – core business strategy Firms select desired technologies

Firms perform R&D in -house Technology acquisition

Firms put technologies in products Firms market products

Product revenues fund additional R&D R&D Outsourcing

Global isation (1) adjusts Globalisation (2) taps

products to markets global talent pool s

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Tendency Towards Networking G R A S S R O O T S N E T W O R K D I R I G I S T E

L

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( N L )

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G O V E R N A N C E O F E N T E R P R I S E

I N N O V A T I O N S U P P O R T

High Creative Class 1991 Associated withPopulation Growth 5-10 Years Later

R2 = 0.1165

y = 5.631x - 3 .52

-10

-5

0

5

10

15

0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60

Creative LQ '91

po

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6-0

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High Creative Class in 1991 Has Modestly PositiveAssociation with Employment Growth 96-03

R2 = 0.0316

y = 7.1723x - 0.5994

-20

-10

0

10

20

30

40

50

0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60

Creative LQ '91

Em

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3

Cardiff

US Industrial R&D Outsourcing 1981-2001

Company Size 1981 1989 1999 2000 2001

<1,000 employees 4.4 9.2 22.5 22.1 24.7

1,000-4,999 6.1 7.6 13.6 15.2 13.6 5,000-9,999 5.8 5.5 9.0 8.3 8.9 10,000-24,999 13.1 10.0 13.6 14.0 13.0

25,000 + 70.7 67.7 41.3 39.5 39.0

Table 1: Percentage of US Industrial R&D By Size of Enterprise

Source: NSF (2003-5). Research & Development in Industry, 2001.

Smaller Firms Grow R&D Fast

Size of firm 1997 1998 1999 2000* 2001* Change

Fewer than 25 2,536 3,804 5,579 6,176 4,346 71%

25 to 49 2,455 2,525 3,824 4,507 3,375 37%

50 to 99 3,415 5,155 5,779 6,533 7,382 116%

100 to 249 5,907 6,622 5,707 8,118 11,634 114%

250 to 499 5,229 5,522 6,463 6,731 7,832 50%

Total 19,542 23,627 27,352 32,065 34,569 77%

Table 2. R&D Expenditures by Small US Companies

(Millions of constant $1992/ *$1996 )

Source: NSF (2003-5). Research & Development in Industry, 2001.

Tendencies in R&D Outsourcing Highlight changing RISsupport needs for ‘Knowledge Entrepreneurship’

FDI redirects to Asia, especially China &India

SME subcontracting/outsourcing lessprominent in manufacturing

But demand for research-based knowledge Universities and knowledgeable research

firms Incubation, entrepreneurship, finance gaps

Asymmetric Innovation Sub-systems

Knowledge exploration & exploitationsub-systems

UK biotechnology strong in laboratoryand DBF exploration

UK Biotechnology exploitationcapabilities less strong

Biotechs & VCs disappointed at slowpace of commercialisation

Vertical Platform Policy Asymmetry

Decapitation Model

Company US HQ Details

Solexa Hayward, CA Retains R&D in Cambridge, U K

Merger with Lynx Therapeutics Domantis Waltham, MA Retains R&D in Cambridge , UK

Lorantis Bloomsbury, NJ Retains R&D in Cambridge, UK

Acquired by Celldex Therapeutics

BioVex Cambridge, MA Retains R&D in Oxford, UK

Zeneus Frazer, PA Retains R&D in Oxford, UK

Acquired by Cephalon

Cyclacel Short Hills, NJ Retains R&D in Dundee, UK

Reverse merger into Xcyte Therapeutics, Seattle, WA

Microscience Gaithersburg, MD Retains R&D in Wokingham, UK

Acquired by Emergent BioSolutions

Table 3: R&D Decapitations of UK Biotechnology Businesses, 2005

Source: BioCentury (W ard, 2005)

Proximity Platforms: Symmetric Sub-systems Harmonious interaction between

entrepreneurship and the innovationsystem

Entrepreneurs proximate to innovationsystem hub

System hub has interactive policyinstruments

Innovation Policy Platforms based on‘Related Variety’

Micro-elektronicaNanotechnologie

TelematicaCommunicatie

E-security

Mechatronica

Feed – food- health

Lifesciences

L-SEC

DSP-ValleyLeuven.Inc

Lateral Cluster Platform Policy

Innovation Platform Thinking in Berzelius Medical SciencePark, Linköping

Saab Military Technology Downsizing – fails tocompete with GE & Siemens in MedicalTechnology

Local ‘stakeholder platform’ replaces Saab asa new managerial regime “governing” themedical cluster

Provides resources for new science parkinnovation platform (central governmentsupport)

(J. Feldman, EPS, forthcoming)

Industry, Stakeholder & Policy Platforms forConstructed Regional Advantage

Industry Platform

ICT Biotech Finance

(Related Variety)

Policy Platform

Creatives Talent Infrastructure

(Vertical & Lateral)

Stakeholder Platform

University Inustry Governance

(Triple Helix)

REGIONAL

CONSTRUCTED

ADVANTAGE

Constructed Advantage Links PlatformPolicies

Decapitation is a growing danger in a SmithianGlobalisation of Knowledge Capabilities –offshore platforms

Proximity Platforms – strength from ‘relatedvariety’ and ‘absorptive capacity’ towardsinnovation by entrepreneurs

Policy Platform – Triangular Interaction of:1) Stakeholders,2) Technologies,3) Support Instruments.