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Oct 1, 2009 (Vol. 29, No. 17)

Economic Realities of Clusters

Communities Must Understand Opportunities and Drawbacks

  • Knowledge-intensive industries such as biotechnology, are increasingly important sources of job growth and revenue to communities—particularly in California, Massachusetts, and New York—seeking to develop their economies. Indeed, a 2002 survey of 77 local and 36 state economic development agencies reported that 83% listed biotechnology as one of their top two targets for industrial development.

    While biotechnology clusters are coveted as potential drivers of economic development, the realities of the industry—including both opportunities and limitations—must be understood so that communities can reap the greatest reward from their investments.

    What is routinely referred to as the biotechnology industry is not really a distinct industry at all, but rather a collection of techniques. While biotechnology is most often associated with the biopharmaceutical sector, from which 95% of revenues have been derived, these techniques may be applied to a broad array of industries including agriculture, manufacturing, and, increasingly, cleantech.

    It is here that the real opportunity for local economic development lies if communities endeavor not to replicate what has been done elsewhere, but rather to find their own niche by using biotechnology to leverage and enhance the local industrial competencies with which they are endowed.

    Successful biotechnology clusters such as those in Boston, San Diego, and San Francisco have several characteristics. Biotechnology firms tend to cluster around universities. This is because the technology typically has a long research phase before marketable products are produced. The federal R&D expenditures and basic science base in the university milieu are also a magnet for biotechnology entrepreneurs. This basic science output, which has an economic value of its own, tends to attract the venture capitalists and intellectual property lawyers who play a key role in commercializing the innovations of university researchers.

    Moreover, many founders of biotechnology firms are university professors for whom the maintenance of academic relationships is important. In particular, access to top university graduates is paramount as this scarce human capital serves as the source of many nascent biotechnology firms’ employees.

    The networking and social capital that is fostered by proximity to major institutions of higher learning is critical to biotechnology organizations because they tend to thrive when they are a part of a localized ecosystem that comprises customers, talent pools, thought leaders, research centers, and academia.

    Biotech entrepreneurs benefit as a result of intellectual, technological, and social “spillovers” from network interactions with other entrepreneurs, other scientists, financiers, and people with comparable entrepreneurial mindsets. Organizing in clusters around universities is regarded as a superior model because of the opportunities for trustful tacit-knowledge exchange made possible by the absence of bureaucratic watchdogs.

    Moreover, the more collaborative atmosphere also makes “coopetition” through new business formation from start-ups and spin-offs more common than in other settings because new business opportunities and market niches can be spotted early. All of this means that biotechnology is a uniquely urban form of economic development as research universities and hospitals, a concentration of talent, and opportunities for networking among a dynamic corps of highly trained professionals—all intrinsic to attractive urban milieus—are critical success drivers for the industry.


Readers' Comments

Posted 10/20/2009 by Biomanufacturing

I wonder if relatively low-waged jobs really are possible in biomanufacturing.

A conventional drug company making tablets, capsules, etc. can easily train someone fast for scale-up or full-scale production. However, biotech products are proteins or peptides that can be very susceptible to adverse manufacturing conditions. They're made in solution or lyothilized, usually for injection. Even biotech manufacturing personnel have to be very talented people.

The small size of most biotech companies suggests few job opportunities for low-wage employees.

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