Policies for Cluster Creation: Lessons from the ISRN Research Initiative

1. David A. Wolfe, Ph.D. Program on Globalization and Regional Innovation Systems Centre for International Studies University of Toronto Presentation to the Breakfast on the Hill Seminar Series Centre Block, Parliament Hill February 17, 2005 Policies for Cluster Creation:Lessons from the ISRN Research Initiative

2. Context • Innovation Systems Research Network (ISRN) • Established in 1998 to support interaction among researchers and their partners • To promote the diffusion of findings to public and private sector partners • Instrumental role of Statistics Canada Workshop March 1997 • Strong network of international collaborators • Research Advisory Committee

3. Objectives • Encourage the creation of linkages and the exchange of ideas and information among the academic community, private sector firms and associations and government policy makers; • Develop agendas for research on the relationship among innovation, the new knowledge-based economy, and regional economic clusters; • Foster a multidisciplinary approach to research that includes a variety of disciplines such as business, economics, urban planning, public administration and science and technology management; • Encourage the development of graduate students with the interests and skills necessary to contribute to future research in this area and/or to practice as managers of science-based innovation; and • Improve innovation systems, thereby influencing public policy and corporate strategy.

4. Design Features • Nodal Structure • Five subnetworks • Multidisciplinary membership • Structure mirrors regions being studied • Research methodologies tailored to regions being studied • Research dissemination • Regional workshops • National meetings • Web sites and electronic newsletters • Annual publication • Links with extensive network of government partners • Policy advice tailored to the regions

5. Research Dissemination • Web Site: www.utoronto.ca/isrn • Subnetworks • Bibliography • Annual Volume – Queen’s School of Policy Studies • Electronic Newsletters • Rin – Le Bulletin Innov • Thecis Newsletter • ONRIS – OREDI Newsletter “For anyone interested in cultivating the widest possible understanding of the tech-based economic development, one of the best possible web sites is Ontario’s OREDI Newsletter. Every issue of the newsletter is packed with links to quality articles, academic research papers, reports, proceedings and events. The content selection is a good balance between Canadian, US and other international perspectives on this field.” SSTI Bulletin, Feb. 22, 2002

6. The Innovation Systems Approach • network of institutions that interact to initiate, import and diffuse new technologies • government policy • corporate R&D • education and training system • structure of industry • patterns of interaction between firms as collective learning process in acquisition and use of new knowledge • internal organization of firms • network of interfirm relationships • role of public sector • degree of R&D intensity • nature of R&D organization

7. National System of Innovation

8. From the National to the Regional • Focus shifts from the national to the regional level: • Recognition that spatial proximity facilitates the sharing of tacit knowledge and capacity for localized learning; • Firms clustered in a region share a common regional culture that facilitates learning; • Localized learning is facilitated by a common set of regional institutions • Regional Innovation System: • “The set of economic, political and institutional relationships occurring in a given geographic area which generates a collective learning process leading to the rapid diffusion of knowledge and best practice” (Nauwelaers and Reid)

9. Spatial (nested) Scales • National • Corporate organization and governance • Legal/regulatory framework • Fiscal (taxation) and macroeconomic environment • Framework of industrial relations and labour training • Financial system • Government policy • State/Provincial • Regional industrial structure • Research infrastructure – higher education sector • Specialized training institutions • Government policy/support • Industrial attraction and retention • Local /Cluster • Civic governance • Physical /communications infrastructure • K-12 education system

10. Sources of Competitive Advantage in Regional Economies • ‘Untraded interdependencies’ - technological spillovers • knowledge and practices transferred between firms • not always codified or explicit - ie. tacit dimension • transferred through networks • technological competence bundled in ensembles of related capabilities • Networking - based on trust • shared intelligence of group of firms • grounded in a regional economy • Social capital - shared norms and trust • facilitates cooperation among firms and sectors • shared institutional frameworks • region’s ‘institutional architecture’

11. ISRN: Core Research Questions • To what extent — and in what ways — do local, extra–firm relationships and interaction enable firms to become more innovative and successful? • What is the relative importance of local, national and global relationships and knowledge flows in spurring the development of regional clusters over time?

12. Cluster Case Studies • Size and composition of the cluster • History of the cluster’s evolution, including key events (intentional and accidental) • Relationships between firms • Relationships between firms, research infrastructure, other institutions/organizations • Geographical structure of these relationships • Role of finance capital (especially angel investors and venture capitalists) • Role of local social capital and ‘civic entrepreneurs’

13. ISRN: Work in Progress (2001-2005) • Biotech/Biomed: Montreal, Toronto, Vancouver, Ottawa, Saskatoon, Halifax • ICT/Photonics/Wireless/e-Commerce: Vancouver, Calgary, Waterloo, Ottawa (Telecom and Photonics), Quebec City, New Brunswick, Cape Breton) • Mechanical Engineering: Aerospace (Montreal); Steel (S. Ontario), Auto Parts (Windsor, Waterloo) • Multimedia: Montreal, Toronto, Vancouver • Food and Wine: Specialty Foods (Toronto); Wine (Niagara, Okanogan) • Resource Industries: Wood Products (BC); Mining Supply/Services (Sudbury)

14. Emerging Findings: 5L’s • Location • Dynamic, innovative concentrations of firms rely equally on strong local and global linkages • Research infrastructure and/or local labour pool are critical • (Saskatoon Biotech, Ottawa Telecom and Wireless, Montreal Aerospace, NB e-commerce)

15. Emerging Findings • Learning • Old and new industries • In-house and inter-firm • Local and non-local • Local memory, experience key – esp. amongst VC, angels, managers, • Specialized professionals

16. Emerging Findings • Labour • The single most important input • Many places can produce ‘talent’ • But their ability to retain and attract talent depends on: • Thickness, opportunities, depth of local labour market • Quality of place: creativity, diversity, tolerance

17. Emerging Findings • Leadership: @ 2 scales • Firm: • Managerial talent, entrepreneurial ability differentiates one firm from another (e.g. Montreal Aerospace, S Ont Steel) • Established large firms with global reach act as visible, symbolic role models to encourage new entrants • Community: • ‘Civic entrepreneurs’ play a key role in creating the conditions conducive to cluster formation and growth • + Waterloo, Ottawa, Montreal • – Toronto?

18. Emerging Findings • Legislation/Labs: Public sector role • Institutions, regulations shape ‘rules of the game’ • e.g. IP rights, barriers to entry/exit, time horizons, labour market stability/mobility, immigration • May be set by nation, province or individual organization • Role of local universities/research institutions is not consistent across all cases • some clusters are clearly university-led • in other cases, universities are followers, not leaders, but are still important… • Policy inadvertence – unintended consequences

19. Policy Implications • Importance of social factors and institution building • Linkages between elements of the system • Especially research infrastructure and clusters • Institutional alignment • Importance of demand side of innovation system • Absorptive capacity • Knowledge is not a ‘free good’ • National policies impact at the local level • Growing role of networks and clusters • Talent as a key attractor • Combination of educational resources and quality of life factors

20. Policy Implications II • Broad mix of policies • Support for upgrading innovative capacity of firms • Infrastructure to promote rapid diffusion of technologies • Support growth of SME’s through networking and interaction • Role of financial system • Stimulate both supply of and demand for new knowledge • Critical role of strategic planning and regional foresight and the local and community level • Coordinate federal agencies at local level

21. Strategic Planning at the Community Level • Innovation-based strategic planning • Promotes innovative ideas in all aspects of regional economy • Facilitate relationship-building • Strategic assessment of local/regional assets • Workforce skills • Knowledge assets and R&D • Creative elements • Physical and Communications Infrastructure • Quality of place • Collaborative institutions • Entrepreneurial networks and clusters • Key Role of Civic Leadership • Brings civic interests together to collaborate • Creates broad buy-in across all sectors of community