BIOTECHNOLOGY COMPANIES AND CLUSTERING IN NOVA SCOTIA 1

Transcription

1 1 BIOTECHNOLOGY COMPANIES AND CLUSTERING IN NOVA SCOTIA 1 Philip Rosson and Carolan McLarney INTRODUCTION This chapter focuses on an area of recent economic development, and one where there are high expectations for the future. The field of biotechnology has attracted increasing attention from scientists, business people and government officials, because breakthrough discoveries offer the prospect of improved social and economic conditions, greater wealth creation, and enhanced employment levels. Accordingly, many biotechnology start-ups and spin-offs have been established to apply science in areas including human health, food processing, agriculture and the environment. Nova Scotia has witnessed considerable biotechnology activity: by 2003 there were about 28 companies operating in this field. Although small in absolute terms, the number is significant in a relatively small province. This chapter provides a preliminary examination of biotechnology activity in Nova Scotia. Like others in this volume, it draws from research being carried out under the SSHRC Major Collaborative Research Initiative project entitled Innovation Systems and Economic Development: The Role of Local and Regional Clusters in Canada. 2 The research reported here is still in process and so the chapter should be read in that light. A number of research interviews have yet to be completed and there is an extensive data set that still has to be analyzed. However, we believe that there is value in presenting and discussing initial findings from the research.. The structure of the chapter is as follows. First, a brief literature review is provided to frame the present study. Second, some contextual material on biotechnology is presented, including information on activity in Canada. The study is described in the third section, followed in the fourth section by preliminary findings. The latter contains baseline data on the companies that have been interviewed to date. Attention then turns to the issue of whether the companies in Nova Scotia presently constitute a biotechnology cluster. Clustering is examined from the standpoint of the companies interviewed, supplemented with information from organizations that

2 2 support biotechnology development in various ways. In the final fifth section, the findings are discussed and assessed. THEORETICAL LITERATURE No firm is an island. Although few if any firms have ever operated in isolation, there is an increasing dependence on others for business survival and growth. Whether the purpose is achieving economies through a supply chain, or speeding innovation through joint research, inter-organizational collaboration is assuming greater importance (Lorenzoni and Lipparini 1999). Consequently, researchers increasingly examine the linkages that exist between companies in dyadic relationships or more broadly in networks, such as the industry clusters that are of central interest in the research reported here. The origin of clusters can be traced back to the first part of the twentieth century when the concept of agglomeration economies was developed. Weber, Marshall and Schumpeter suggested that firms locate together to reduce transaction costs, to increase flexibility and to achieve maximum information flow (Hart n.d., p. 6). Interest in clusters mushroomed in the last 20 years as scholars, consultants and economic developers attributed the economic growth of areas in the US, Italy, Germany (Saxenian 1994, Piore and Sabel 1984, Cooke and Morgan 1990) as well as elsewhere to the emergence of specific industries in which the co-location of companies and support organizations had created a critical mass and dynamism. The recent interest in clusters also results from Porter s work on the competitive advantage of countries, regions and cities that has influenced many governments (Porter 1990, 1998a, 1998b). Many definitions of clusters exist. One simple view is that clusters are groups of firms within one industry based in one geographical area (Swann and Prevezer 1996, p. 139). This definition is extended by Porter when he states that clusters are 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 cooperate (Porter 1998a, p. 197). It is widely regarded that clusters produce gains for member companies. Rosenfeld (2003) states that the interaction between companies as well as support organizations - leads to collective efficiencies. Malmberg and Maskell (2002) expand on this idea, stating that the

3 3 main benefits of clusters are shared costs for infrastructure, the development of a skilled work force, transaction efficiency, and knowledge spillovers that produce learning and innovation. 3 Proximity is critical to the realization of these benefits, particularly those that depend on face-toface contacts and the transmission of tacit (as opposed to codified) knowledge. This is held to be an important consideration in advanced technology settings. The present body of knowledge on industrial clusters is substantial, consisting of work conducted in different economic periods and geographic regions, and carried out by researchers from various traditions, using contrasting methods. The resulting literature is rich but, at the same time, widely dispersed. The literature has benefited from review and synthesis efforts. Such contributions always provoke questions and those focusing on industrial clusters are no exception. We touch on three of these contributions to provide a sense of the issues that have been raised. Martin and Sunley (2003) have identified important questions about cluster definitions. Their assessment is that many key cluster elements are imprecisely defined. Examples here include the lack of clarity with regard to geographic and industrial boundaries, linkage strength, and proximity measures. A second issue concerns cluster types. Rather than one, field studies have found a variety of configurations, prompting the development of several cluster typologies. The best-known typology is that of Markusen (1996), but others have also been proposed (Camagni 1991, Gordon and McCann 2000, Hart n.d.), leading one to wonder whether alternative configurations also exist. Questions have also been asked about the performance of clusters. Staber (2001) finds that much of the research on clusters is anecdotal and descriptive. Martin and Sunley (2003) are of the view that studies do not demonstrate superior performance by firms in clusters. More extensive research is thus required, particularly studies that compare similar firms inside and outside clusters. These examples give a sense of the challenges facing cluster researchers. Some of these scholars feel that that the rush to employ cluster ideas has run ahead of many fundamental conceptual, theoretical and empirical questions (Martin and Sunley 2003, p. 5). We now turn our attention to innovation. Firms increasingly view networks to be an important source of, and vehicle for, innovation (Lundgren 1993). Studies show, for example, that the number of R&D linkages between companies is growing sharply (Hotz-Hart 2000), and that firms that co-operate intensely are more innovative than those that do not (Smith 1995). While collaboration is important for firms of all sizes (Lorenzoni and Baden-Fuller 1995), it is

4 4 particularly so for the resource constrained, smaller companies that account for a disproportionate share of new, breakthrough technology. Clusters potentially have much to offer such firms, including a pool of skilled workers, the transfer of tacit knowledge, input from key customers and/or suppliers, and access to venture capital funds. In fact, research shows that new and small firms frequently capitalize on spillover knowledge from third-party firms and research institutions, such as universities, especially during early stages in the industry life cycle (Audretsch 2003). Smaller firms contribute to the innovative ability of clusters in several ways. Their size permits them to move quickly and flexibly combine, break-up and recombine resources in different ways. (Cook and Pandit 2002, p. 230). In addition, the high failure rate of small businesses often enhances learning and knowledge diffusion in clusters, when released employees move from one local company to another (Longhi 1999). Although research has argued and in some cases shown - that clustering does foster improved innovation, Martin and Sunley s review (2003) finds that the empirical evidence is not consistent. The industrial and geographic setting of the present study are described in the next sections. BIOTECHNOLOGY Biotechnology is not a single industry but rather a scientific knowledge base that is changing sectors such as pharmaceuticals, medical devices, agriculture and the environment. Based on the application of recombinant DNA and its related technologies, biotechnology dates back to the 1983 patent applications of Cohen and Boyer, scientists at Stanford University and the University of California at San Francisco respectively. These scientists discovered a way to move genes between organisms and, in so doing, turned the science of molecular biology into commercially useful knowledge. Because biotechnology involves radically new technologies that often involve long discovery and development lead times as well as an uncertain regulatory approvals process, the financial demands are significant. Large expenditures are required to get to the point where a discovery can be patented, and even greater resources are needed to bring the resulting product to market. These conditions are problematic for the small and mediumsized companies that tend to innovate in this area. It is thus not unusual for innovating companies to enter into alliances with or be acquired by larger, established industry players.

5 5 Biotechnology discoveries have transformed a variety of industries: biotechnology is estimated to produce global revenues of $500 billion annually and growth rates of 20% per year (Government of Nova Scotia 2000). Consequently, many countries view biotechnology as a way to drive economic growth and governments are investing in science and technology in the hope of achieving significant returns. Such investment takes many forms, including funding research institutions and programs, establishing strategies to support local company growth, encouraging inward investment, and seeding the development of industry clusters. Biotechnology activity is concentrated in space, as demonstrated in recent US and European studies (Cooke 2003, Cortright and Mayer 2002, Yarkin 2000). Although large cities such as Boston and Cambridge are dominant forces in biotechnology, biotechnology clusters are also found in smaller metropolitan centres and in locations beyond major industrial areas. For example, although the Paris region dominates French biotechnology (accounting for one-half of companies), five other regions have established vibrant biotechnology clusters on the periphery of the country 4 (Mytelka 2001). The same holds in Canada, where the cities of Toronto, Montreal and Vancouver are home to most biotechnology firms. At the same time, smaller agglomerations are found in cities such as Saskatoon and Edmonton (Niosi and Bas 1999). THE CANADIAN CONTEXT Biotechnology in Canada The biotechnology sector in Canada is substantial and growing. Canada is home to the second largest number of biotechnology companies in the world (after the US) and ranks third in revenues generated (after the US and UK). Metrics such as market capitalization and R&D spending - as well as number of firms and revenues - show strong growth over the last five years (Ernst & Young 2002). There were 358 biotechnology innovator 5 firms in Canada in The human health sector (199) accounted for more than half (53%), with agriculture (67), food processing (46), and environment (31) also prominent. The companies were concentrated in three Canadian provinces: Quebec (130 or 35%), Ontario (101 or 27%), and British Columbia (69 or 18%). Most were small in size: 267 (or 71%) had 50 or fewer employees, 62 had employees, and 46 companies had 151 employees or more. Revenues grew by 343% between

6 and 2001 (to $3.5 billion), reflecting greater levels of commercialization of R&D. However, the industry is young and many companies have still to generate any revenues from their biotechnology research (Statistics Canada, 2003). The case of Nova Scotia Because biotechnology is not an industry with its own set of SIC codes, it is difficult to be precise about the number of biotechnology companies that exist in any given jurisdiction. Statistics Canada (2003) identified 12 biotechnology innovator firms in Nova Scotia in 2001 (or 3% of the Canadian total). Through a variety of methods (see below), we identified a total of 28 companies that were involved in biotechnology at the end of Whether the number of companies is 12 or 28, Nova Scotia is clearly a minor biotechnology player in national terms. However, biotechnology contributes substantially to the economy of Nova Scotia and it is believed that potential exists for further development. It was estimated that in 2000, biotechnology research in the Halifax Regional Municipality 6 accounted for (1) spending of over $86 million annually, (2) employment of 2,340 professional researchers and technicians, (3) annual salaries of $124 million, and (4) provincial government tax revenues of $25 million (Life Sciences Development Association 2002). Much of the research activity is centred on Dalhousie University, whose medical school has identified neuroscience, infectious diseases, cardiovascular and cancer research as core areas of competence. A second significant research organization is the Institute of Marine Biosciences (IMB) at the National Research Council, which has research expertise in the fields of microbial genomics and marine biosciences. The IMB is located adjacent to the Dalhousie University campus. These organizations have produced spin-off companies and collaborate closely with local companies. Two other public research institutes are located within the Halifax Metropolitan area. The Bedford Institute of Oceanography is part of the federal department of Fisheries and Oceans. Its 300 researchers conduct research on ocean science. InNOVAcorp is a provincial crown corporation that conducts research in several fields as well as running incubator facilities. These house about 10 biotechnology companies. A number of other organizations play an important role. Governments at the federal and provincial levels have identified biotechnology as a priority sector (in Nova Scotia and more

7 7 particularly Halifax) and one that should therefore be supported through a variety of programs. Biotechnology is one of three sectors emphasized by the Greater Halifax Partnership, which is a private sector-led economic development organization. Two industry associations are also present. BioNova was founded in 1993 and provides leadership, advocacy, information and education services to about 40 members. It is located in a life sciences incubator (one of those run by innovacorp). The Life Sciences Development Association (LSDA) was established in Its principal goal is one of bringing state-of-the-art research facilities to Halifax. The LSDA is located within one city block of Dalhousie s medical school. Aside from various forms of business funding provided by the federal and provincial governments, competitive grants are provided by Genome Atlantic, a national not-for-profit organization established in 1999 with federal government money. Two venture capital companies are located in Halifax. MedInnova Partners was set up by the Canadian Medical Discoveries Fund to help develop early-stage technologies. It exists to bridge the funding gap between research grants and the marketplace and has made several local investments. ACF Equity is the second venture capitalist. To date it has made no investments in biotechnology companies. THE STUDY Fieldwork A database of biotechnology companies and support organizations in Nova Scotia was constructed using lists from government and industry associations, and entries in business directories (e.g., Canadian Biotechnology, Industry & Suppliers Guide 2002). The database was expanded as a result of suggestions made as the interviews proceeded. Our interest is in biotechnology activity within 100 kilometres of Halifax and so contact was restricted to those lying within this boundary. 7 Initial contact was made by mail with a phone call follow-up shortly thereafter. Of 28 companies that were identified, 14 have been interviewed, six remain to be interviewed, five did not reply or refused to participate, two companies ceased operations or moved back into a university laboratory, and one moved to Ontario. 8 Interviews have been conducted in 19 support organizations, including research institutes, government agencies, industry associations and venture capitalists. None of the support organizations declined to participate in the study and these interviews are essentially completed.

8 8 The interviews followed a semi-structured approach. An interview guide was used to collect the desired information but wherever it seemed important, additional questions were asked or probing took place. Five types of interview guide were employed (company, research institute, government agency, industry association, and venture capitalist) which included some common and other more particular questions. 9 Interviews were usually conducted on-site although in a few cases, upon request, the meeting was held at the University. Interviews ranged in duration from one hour to two hours, were recorded and later transcribed. This paper is based on information collected through interviews with 33 biotechnology companies and support organizations between December 2002 and September Nova Scotia biotechnology companies: Baseline data Table 1 presents a snapshot of biotechnology companies in Nova Scotia in 2003 that will be expanded as the study is completed. The names of the companies in question have been witheld for confidentiality reasons. Several comments can be made about the data presented. First, of the 14 companies listed, three were established in the 1980s, eight in the 1990s, and three since Second, a range of scientific approaches are evident but 11 of the companies are focused on human health applications. Third, for the most part, these are fledgling companies. With workforces of 150 or more, two of the companies (I and K 10 ) might regarded as medium-sized. The majority, however, are very small; eight have 10 or less employees. The small scale of the companies is also reflected by their revenues and R&D expenditures. Eight report having revenue streams, five currently have zero revenues, and another company (M) would not provide data. The greatest annual sales were achieved the three longest established companies ($13 million, $10 million and $5 million). Four companies are spending in excess of $1 million annually on R&D activities. In terms of development stage, eight of the companies have commercial products that generate cashflows. 11 Three others (B, L and N) are at the clinical trials stage, while three (A, G and H) are at an earlier stage of development. Reflecting their development stage, five companies have annual R&D expenditures that presently exceed revenues. Finally, 12 of the 14 companies are privately owned.

9 9 The picture that emerges is one of a group of companies that exhibit similarities as well as differences. The similarities are that these are small biotechnology enterprises that have predominantly targeted human health applications and are funded privately. The differences chiefly relate to the stage of business development and the precise focus of their products/research efforts. A number of companies have stood the test of time, with products, revenue streams and an operational base. Others have yet to achieve sustainability. Some have modest operations that help to finance continuing research efforts, while the remainder are exclusively focused on research in the laboratory, consuming rather than producing cash at the present time. The human health interests of many of the firms are diverse in terms of scientific method and application. A biotechnology cluster? [Table 1 about here] In this section, we provide a partial analysis of the data collected to date. As noted above, our interest is to examine the Nova Scotia biotechnology companies from a cluster standpoint. We do this by posing five questions. They are: (1) How important are local connections to biotechnology companies? (2) Which factors have contributed most to local growth in biotechnology? (3) Which factors have impeded local growth? (4) Are there service providers in Halifax that cater to biotechnology companies? (5) Does a biotechnology cluster exist in Halifax? How important are local connections to biotechnology companies? Four connection measures were selected for analysis and are shown in Table 2. These were local customers, local suppliers, local knowledge relationships, and local financing. As noted above, local is defined as being located within 100 kilometres of Halifax. Only three companies (C, D and K) relied to any degree (30%, 10% and 5% respectively) on proximate markets. Six companies (E, F, I and J) reported that their customers were not local, but located in other parts of Canada, the US, or in international markets. Four companies (A, G, H and L) do not currently have commercial products available for sale and thus do not have customers at present. Finally, Company F is presently a captive supplier to its US parent but expects to broaden its customer base with the development of a new product in the near future.

10 10 When we examine connectedness to suppliers, a range of arrangements is evident. At one extreme, four companies (A, G, H and M) source nothing locally, whereas company C relies on local suppliers for 80% of its inputs. Others (B and K) split their buying equally between local and non-local suppliers, while two more (L and N) depend somewhat less on the local market for supplies. Local suppliers account for 30% or less of the inputs for the remainder (D, E, F, I and J). Knowledge relationships include a variety of modes through which companies develop their know-how and expertise. They include collaborative research projects, personnel exchanges and secondments, research consortia participation, public research invention licensing/patenting, and new technology development or adoption. Eleven of the 14 companies reported that to some degree they are involved locally in knowledge relationships. In three cases (L, M and N), these were substantial, accounting for 90% of the firm s knowledge relationships. Two more companies (I and J) are also involved locally in a major way. In four more cases (C, G, H and K), half or more of the companies knowledge relationships were local. Finally, two companies (B and F) had quite modest relationships (20%) and three (A, D and E) had no local knowledge relationships at all. The final measure of local connectedness is the extent to which companies accessed local financing. This is a major issue for companies and is raised again below. Seven of the companies (A, C, G, I, J, K and M) indicated that 100% of their financing was from local sources, including local venture capital firms, angel investors, and government. Two other companies (H and L) receive two-thirds or more of their funding locally, whereas for firms D and E the figure is 20%. Company F is a subsidiary of a US corporation, which fully funds its operations. Firms B and N are also financed totally from afar. These data show that local connections vary by company and by the specific measure used. Company C reports the greatest degree of connectedness across all four measures whereas companies E and F appear to be least embedded in the local area. Three other companies (I, J and K) show relatively high levels of local knowledge relationship and financing links as well as some supply connections. However, their local customer connections are of minor concern. Regarding the four measures of connection, companies appear to depend most on the local area for financing, followed by knowledge relationships. Supply linkages operate at a considerably

11 11 lower level and customer connections are by some margin the least important benefit provided by the local area to Nova Scotia biotechnology companies. [Table 2 about here] Which factors have contributed most to local growth in biotechnology? Companies were asked to comment on eight factors as potential contributors to the growth of the local biotechnology industry. Table 3 shows that in total, six of the factors were endorsed. Specialized research institutes and universities was most frequently regarded as important (11 companies). This is not surprising given that Dalhousie University researchers were prominent in the founding and development of several of the firms. The medical school was particularly prominent, but some of the companies had their origins in biology and oceanography departments. Acadia University and the Nova Scotia Agricultural College were instrumenatl in the development of the science that is the basis for other companies. Nine firms selected supply of workers with particular skills as a growth factor. In general, companies reported satisfaction with the supply of technicians from university and college programs. This was regarded as of continuing importance as more companies move towards manufacturing operations. Government policies and programs were also felt to be beneficial by a majority of biotechnology firms. Physical, transportation or communications infrastructures (seven companies), co-location with other firms in the same industry (five companies) and specialized training or educational institutions (four companies) received the balance of support. In no case did a company endorse availability of financing or presence of key suppliers and/or customers as a factor in biotechnology growth in Nova Scotia. [Table 3 about here] Which factors have impeded local growth in biotechnology? The same eight factors were presented to companies as potentially having inhibited biotechnology growth in Nova Scotia. Table 4 summarizes the responses of the 14 companies. All but two companies chose availability of financing as a growth inhibitor. Most firms complained that there is insufficient venture capital available and many have turned to angel investors for their funding. Financing is seen as an area in need of pressing attention if biotechnology is to develop a more significant presence in Nova Scotia. Supply of workers was identified by seven companies and is the only

12 12 other factor to be noted by more than a few firms. This seems paradoxical in that companies cited the same factor as a reason for growth. The explanation here is that companies have been able to find skilled technicians for their operations but have experienced problems in recruiting senior managers with 10 years of relevant experience. Ideally the experience would be in biotechnology but, as a minimum, should be with a science- or technology-based firm. Local companies have filled the resulting management gap through retired executives who have resettled to Nova Scotia. Co-location and infrastructures (three each), government policies (two) and research institutions (one) were also endorsed as inhibitors to growth by a small number of companies. These were also cited as growth factors and so some commentary is needed. The explanation for co-location is that although the fact that there are related firms in the local area is seen as positive, their differing foci and operations there are few, if any, tangible benefits. Other factors simply reflect the fact that some companies are more demanding than others and/or have had varying experiences. Finally, one company (L) was more general in its comments, viewing Nova Scotia as too small and lacking the resources and sophistication to be attractive as a biotechnology venue at the present time. [Table 4 about here] Are there service providers in Halifax that cater to biotechnology companies? One indicator of the development of an industry is the presence of specialized service providers that cater to its members. Local accountants and lawyers are used by almost all the 14 companies and are able to deal with most business matters in a satisfactory manner. When an issue cannot be resolved locally, it is usually referred to another branch of the accounting or law firm or, failing that, to an associated company. One issue, however, is problematic - the matter of patent law. While local patent agents/ investigators exist in Halifax and companies report using their services, the same is not true for biotechnology patent expertise. At present, companies depend on patent lawyers in Ottawa, New York and San Diego. Does a biotechnology cluster exist in Halifax? The previous four questions provide indirect evidence about the presence of a biotechnology cluster in Halifax. The final question dealt with the matter directly. Contrasting opinions emerged when companies were asked, Do you consider your company to be part of a network of related firms in your region/locality, i.e., a cluster. Five companies answered, yes, while nine said no. A few companies spoke about

13 13 feeling connected to institutions such as Dalhousie University and the National Research Council rather than to other firms. Most respondents regarded the industry in Nova Scotia at present as being at an early stage in its development and, as a result, to consist of a collection of biotechnology companies rather than comprising a cluster. Biotechnology support organizations were also sceptical that a cluster exits at this time. Repeated mention was made of the fact that although a group of companies exists in biotechnology, their small size and recent establishment meant that most were preoccupied with research and commercialization. Consequently, most firms are inward focused at this time and have little time for interaction with others in the proximate area. Their diverse interests also rule out much chance for synergies. In addition, some companies and support organizations expressed the view that an anchor firm was needed to provide the necessary focus and leadership for cluster development. At present, however, there is no semblance of a core set of technologies or interests in the area that might attract the attention of an anchor firm. DISCUSSION In this final section, the findings reported above are discussed in relation to widely held views about clusters. These findings are then linked to recent research on clusters and their development. Preliminary findings The helpful presence (and sometimes demanding requirements) of upstream and downstream actors is stressed in writings on clusters. However analysis of the preliminary interview data, suggests that biotechnology companies in Nova Scotia depend relatively little on the local area as a source of inputs, and even less as an outlet for their products. Knowledge relationships with local research institutes and universities are evident but, given other researchers findings on biotechnology growth (e.g., Niosi and Bas 1999), closer ties might have been expected. Nonetheless, local institutes do provide a secure home for some of the company scientists and have provided streams of capable technicians and scientists to Nova Scotia firms. The local area does play a more significant role in the financing of Halifax companies. This is perhaps to be

14 14 expected given the rule of thumb that venture capitalists prefer to be within an hour of their clients. Halifax is about two hours by air from Toronto, Ottawa and Montreal, and about the same from Boston and New York. Thus, local sources of finance, from private investors and venture capitalists, are important. Companies commented on eight factors that are widely regarded as affecting location decisions (and clustering). 12 The factors cited most often as having facilitated biotechnology growth were research institutes, government programs, and supply of workers (technical). The factors that have inhibited growth most were stated to be availability of financing, and supply of workers (managerial). Some companies viewed infrastructures and co-location as having helped growth, whereas others expressed the opposite view. These responses suggest that Nova Scotia has both strengths and weaknesses as a location for biotechnology firms in general, and for a cluster in particular. Related to this point, the company responses show that at the present time, the biotechnology industry is too recent and small to support specialized service providers - particularly patent lawyers. Finally, a majority of firms and support organizations do not view Halifax as currently having a true biotechnology cluster. In summary, although there seems to be a sizeable number of companies and organizations, these do not presently constitute a cluster - at least as described in the mainstream literature, where an industry cluster is seen to be richly endowed and characterized by intense exchanges that take place between firms and support organizations. A broader context The above results suggest that Nova Scotia does not presently have a biotechnology cluster. It is worth examining this question a little further by viewing the present findings in a broader context. We first raise the question of local versus non-local connections before moving on to consider the cluster development process. The relative lack of local connections has led us to question whether Nova Scotia biotechnology firms constitute a cluster. Recent studies present a rather more complex picture of interactions in clusters than was true in the past. A good example is provided by Bathelt, Malmberg and Maskell (2002), who argue that the connections of cluster members can be simultaneously close to home and extending around the world (thus producing local buzz and tapping into global pipelines ). Other researchers also conclude that cluster members need

15 15 extra-local links if they are to learn and remain competitive in a global business environment (Simmie 2002). This is particularly the case in biotechnology, where there is a widely distributed knowledge base (Cooke 2001). Canadian (Gertler and Levitte 2003) and Swedish researchers (Coenen et al. 2003, Dahlander and McKelvey 2003) demonstrate the importance of global as well as local interactions to support biotechnology innovation. 13 Taken together, these research findings suggest that the cluster may have been overemphasized as a knowledge source in earlier research. This somewhat different viewpoint might explain the Nova Scotia findings, which reveal that non-local customers and suppliers, and to a lesser extent knowledge sources, are important to biotechnology firms. The Nova Scotia findings should also be interpreted with respect to time. According to traditional views, it seems that Nova Scotia does not presently have a biotechnology cluster. But perhaps it is unreasonable to expect that it might. While the major research institutions were established many years ago and some biotechnology activity dates back to the 1980s, the majority of firms got their start in the 1990s. As several studies attest, time is an important factor in the development of a cluster. Building a technology cluster is the work of decades. To the outside world in the mid-1990s, Ottawa looked like an overnight success story. But the groundwork had actually been laid 20, 30, 40 and even 50 years earlier You have to build a nucleus around something deep-rooted (Mallett 2002, p. 12). These comments about a Canadian information technology cluster are echoed elsewhere. Waluszewski (2003) finds that the biotechnology cluster in Uppsala developed over many years and not, as some believe, as a direct consequence of the 1996 restructuring of a major pharmaceutical company. These studies reinforce the importance of evolutionary processes that occur over decades and as a result of interaction between many actors. Consequently, the more relevant question might be Is there potential for a biotechnology cluster in Nova Scotia? rather than Does a biotechnology cluster exist at present? The answer to this question must wait until the final interviews have taken place and more extensive data analysis is completed. In the meantime, because Nova Scotia lies outside the industrial heartland of Canada, it is worth noting work that has examined innovation and cluster development in such regions. Rosenfeld identifies the barriers that exist in such regions as well as actions that can be taken. 14 The barriers include a weak infrastructure; lack of access to technology, innovation and capital; regional insularity and isolation; low educational levels and

16 16 low skilled work force; absence of talent; and an overly mature or hierarchical industry structure (2002, p. 9). The company responses reported above indicate that some of these barriers are present in Nova Scotia. Others are not, however, suggesting that there is an opportunity for innovation and cluster development. Developments in other jurisdictions are informative. For example, Feldman (2002) discusses the development of dynamic clusters in biotechnology and information technology in the Capital region of the US, an area that was not known for entrepreneurship or high technology. This example provides evidence that patient and adaptive cluster development initiatives can produce results. This is an important area for further research because business development in less industrialized regions faces considerable challenges. Yet these account for the majority of locations. As Dicken and Malmberg comment Not all spatial agglomerations of similar or related industrial activity are Hollywoods or Silicon Valleys (2001, p. 13).

17 17 REFERENCES Audretsch, D Innovation and Spatial Externalities, International Regional Science Review 26(2): Bathelt, H., Malmberg, A. and P. Maskell Clusters and Knowledge: Local Buzz, Global Pipelines and the Process of Knowledge Creation, DRUID Working Paper No , Copenhagen Business School. At < Camagni, R Local Milieu, Uncertainty and Innovation Networks: Towards a New Dynamic Theory of Economic Space. In Innovation Networks: Spatial Perspectives, ed. R. Camagni, London: Belhaven, pp Canadian Biotechnology, Industry & Suppliers Guide Georgetown, ON: Contact Canada. Coenen, L., Moodysson, J., Asheim, B. and O. Jonsson The Role of Proximities for Knowledge Dynamics in a Cross-Border Region: Biotechnology in Øresund, Paper presented at the DRUID Summer Conference 2003, Copenhagen. At < Cook, G. and N. Pandit Innovation, Small Firms and Clustering: Insights from the British Broadcasting Industry, In New Technology-based Firms in the New Millenium, eds. R. Oakey, W. During and S. Kauser, Kidlington: Pergamon, pp Cooke, P and K. Morgan Learning Through Networking: Regional Innovation and the Lessons of Baden-Wurttemberg, Regional Industrial Research Report 5, University of Wales, Cardiff. Cooke, P New Economy Innovation Systems: Biotechnology in Europe and the USA, Industry and Innovation 8(3): Cooke, P Regional Science Policy? The Rationale from Biosciences, In Clusters Old and New, ed. D. Wolfe. Montreal and Kingston: McGill-Queen s University Press, pp Cortright, J. and H. Meyer Signs of Life: The Growth of Biotechnology Centres in the US. Washington, DC: The Brookings Institution, Center on Urban and Metropolitan Policy. Dahlander, L. and M. McKelvey Revisiting Frequency and Spatial Distribution: Innovation Collaboration in Biotech Firms, Paper presented at the DRUID Summer Conference 2003, Copenhagen. At << Dicken, P. and A. Malmberg Firms in Territories: A Relational Perspective, Economic Geography, 77(4): Ernst & Young Beyond Borders: The Canadian Biotechnology Report 2002, Toronto.

18 18 Feldman, M The Entrepreneurial Event Revisited: An Examination of New Firm Formation in the Regional Context, Industrial and Corporate Change, 10: Fontes, M Distant Networking: The Knowledge Acquisition Strategies of Out-Cluster Biotechnology Firms, Paper presented at the DRUID Summer Conference 2003, Copenhagen. At < Gertler, M. and Y. Levitte Local Nodes in Global Networks: The Geography of Knowledge Flows in Biotechnology Innovation, Paper presented at the DRUID Summer Conference 2003, Copenhagen. At < Gordon, I. and P. McCann Industrial Clusters: Complexes, Agglomeration and/or Social Networks, Urban Studies 37(3): Government of Nova Scotia Opportunities for Prosperity: A New Economic Growth Strategy for Nova Scotians, Halifax, NS, October. Hart, D. n.d. Innovation Clusters: Key Concepts, Unpublished paper, University of Reading. At < Hotz-Hart, B Innovation Networks, Regions, and Globalization, In The Oxford Handbook of Economic Geography, eds., G. Clark, M. Feldman and M. Gertler, Oxford: Oxford University Press, pp Life Sciences Development Association Strategy for the Commercialization of Life Sciences Research, Halifax, NS. Longhi, C Networks, Collective Learning and Technology Development in Innovative High Technology Regions: The Case of Sophia-Antopolis, Regional Studies 33: Lorenzoni, G. and A. Lipparini The Leveraging of Interfirm Relationships as a Distinctive Organizational Capability: A Longitudinal Study, Strategic Management Journal, 20: Lorenzoni, G. and C. Baden-Fuller Creating a Strategic Center to Manage a Web of Partners, California Management Review 37(3): Lundgren, A Technological Innovation and the Emergence and Evolution of Industrial Networks: The Case of Digital Image Technology in Sweden, Advances in Marketing, 5: Mallett, J Silicon Valley North: The Formation of the Ottawa Innovation Cluster, Information Technology Association of Canada, Ottawa (October). Malmberg, A. and P. Maskell The Elusive Concept of Localization Economies - Towards a Knowledge-based Theory of Spatial Clustering, Environment and Planning, 34:

19 19 Markusen, A Sticky Places in Slippery Space. A Typology of Industrial Districts, Economic Geography 72: Martin, R. and P. Sunley Deconstructing Clusters: Chaotic Concept or Policy Panacea? Journal of Economic Geography, 3: Mytelka, L Clustering, Long Distance Partnerships and the SME: A Study of the French Biotechnology Sector, At < Mytelka_Clustering%20Long%20Distance.pdf>. Niosi, J. and T. Bas The Competencies of Regions: Canada s Clusters in Biotechnology, Small Business Economics, 17(1): Piore, M. and C. Sabel The Second Industrial Divide. New York: Free Press. Porter, M The Competitive Advantage of Nations. London: Macmillan. 1998a. On Competition. Boston: Harvard Business School Press. 1998b. Clusters and the New Economics of Competitiveness, Harvard Business Review, December: Rosenfeld, S Backing into Clusters: Retrofitting Public Policies, Paper presented at Symposium on Integration Pressures: Lessons from Around the World, Cambridge, Harvard University, March At < Creating Smart Systems: A Guide to Cluster Strategies in Less Favoured Regions. April. At < Saxenian, A Regional Advantage: Culture and Competition in Silicon Valley and Route 12. Cambridge, MA: Harvard University Press. Simmie, J Knowledge Spillovers and the Reasons for the Concentration of Innovative SMEs, Urban Studies 39(5 6): Smith, K Interactions in Knowledge Systems: Foundations, Policy Implications and Empirical Methods, STI Review 16: Swann, G. and M. Prevezer A Comparison of the Dynamics of Industrial Clustering in Computing and Biotechnology, In The Dynamics of Industrial Clustering: International Comparisons in Computing and Biotechnology, eds., G. Swann, M. Prevezer and D. Stout, Oxford: Oxford University Press, pp Staber, U The Structure of Networks in Industrial Districts, International Journal of Urban and Regional Research, 25(3):

20 20 Statistics Canada Distribution of Biotechnology Innovator Firms in Canada 2001, and Coming of Age Biotech Revenues Are on the Rise, Innovation Analysis Bulletin, 5(1): Waluszewski, A What s Behind a Prospering Biotech Valley? A Competing or Cooperating Cluster or Seven Decades of Combinatory Resources? Unpublished paper, Department of Business Studies, Uppsala University, July 7. Yarkin, C Assessing the Role of the University of California in the State s Biotechnology Economy, In The Economic and Social Dynamics of Biotechnology, eds. J. de la Mothe and J. Niosi, Boston: Kluwer Academic Publishers, pp

21 21 TABLE 1 Profile of Nova Scotia Biotechnology Companies Interviewed Company Startup Ownership Employ -ees Revenues ($m) R&D ($m) Stage of development Focus A 2000 Private Drug & vaccine delivery system B 1995 Public 37 < Rapid diagnostic testing C 1999 Private 3 <0.50 < Medical device D 2001 Private 8 <0.50 < Biomedicinals to health care professionals & consumers E 1998 Private 2 <0.50 < Oceanographic instruments F 1993 Public / 2 Active pharma ingredients G 1999 Private Gene research for neurological conditions H 2000 Private Vaccines for human & veterinary applications I 1987 Private Marine-based nutraceuticals J 1983 Private Frozen human plasmas K 1981 Private Products derived from seaweeds L 1993 Private Applications from chitosan M 1997 Private Tele-health applications N 1997 Private 5 < Gene mapping for animal reproductivity longevity O 1993 Private M Tele-Health P 2002 Private Medical Device for IBS Q 1996 Private Plant breeding techniques/applications Notes: (1) Financial data are for most recent year. (2) Stage of development: 1 = development, 2 = preclinical. 3.1 = initial clinical trials, 3.2 = animal trials, 3.3 = human trials. 4 = commercialization. not provided

22 22 TABLE 2 Importance of Local Connections for Nova Scotia Biotechnology Companies* Company Local customers Local suppliers Local knowledge relationships Local financing A n.a. 0% 0% 100% B 0% C D E F G n.a H n.a I minimal 30 major 100 J minimal 20 major 100 K L n.a M N O n.a n.a n.a n.a P n.a Q n.a Note: *Read as follows: 30% of the customers of C are located within 100 kilometres of the company; n.a. = not applicable

23 23 TABLE 3 Factors Contributing to Nova Scotia Biotechnology Growth Company Co-location Supply of workers Infrastructures Research institutions Training institutions Government policies A x x B x x x x C x x D x x x x x E x x x x x F x x x x G x x H x x x x I x x x x x J x x x K x x x L x x x M x x N O x x P x x x Q x x Total x

24 24 TABLE 4 Factors Inhibiting Nova Scotia Biotechnology Growth Company Co-location Supply of workers Infrastructures Research institutions Availability of financing A x x B C D x x x E F G x x x H x x x I J x x x K L x x x x x x Government policies M x x x N x x x x x O x x P x x x Q x x x x Total

25 25 1 The continuing research assistance of Bobby Brar is recognized. 2 Some 25 or more case studies are being conducted in a variety of industry sectors across Canada. Details about the research program may be found at 3 A number of writers extend the analysis further, listing factors that lead to cluster growth and decline (Cook and Pandit 2002, p. 223). 4 Technopoles play an important role, bringing together academic institutions, government laboratories, companies and financial service firms in each location. 5 An innovative biotechnology firm is one that uses biotechnology for developing new products or processes and is engaged in biotechnology related R&D activities. 6 Halifax is the capital of Nova Scotia and home to 40% of its people. With a population of 360,000 in 2001, Halifax is Canada s thirteenth largest metropolitan area. 7 Following the lead of others, the SSHRC-funded studies all use 100 kms to define the limits of a local area. Almost all biotechnology activity in Nova Scotia takes place within 100 kms of Halifax. 8 The move to Mississauga was required under a venture capital funding arrangement. 9 These same interview guides are being used in all of the case studies that make up the research project. 10 Company K is shown as having employees. The larger number reflects seasonal employment required for harvesting seaweed. 11 Company F manufactures a commercial product for its parent and is in the process of developing a new formulation. 12 Another location question was put to the companies. When asked Why is your company located in this region/locality? the overwhelming response was that it was due to personal circumstance or preference. The founder, owner, and/or principals lived in the community in question and were unable or unwilling to move. In two cases, employment was also mentioned. Specifically, the business owners were also employed as university scientists and presently juggled both responsibilities. A few other firms mentioned secondary location factors such as the presence of research and training institutions, and government support programs. 13 The need for frequent and intense exchanges with other cluster members is also challenged by Fontes (2003) research, which describes how Portugese biotechnology companies are able to access required knowledge without belonging to a cluster. 14 Rosenfeld (2002) identifies three types of less developed region: (1) older industrialized regions that have lost their cost advantage to other nations, (2) semi-industrialized regions with small, craft-based firms with low levels of technology, and (3) peripheral or less populated regions where productivity and