06Appendix — How other countries have supported clusters
When considering how the UK can support clusters it is useful to keep in mind what other countries have done to support successful clusters in their countries.
(a) The Hsinchu Science Park – Taiwan
In 1962, Taiwan’s GDP per capita was US$172, less than that of Ghana. Today, Taiwan is a prosperous country with its companies producing the majority of the world’s notebook computers, motherboards, monitors, optical scanners, power supplies, and a range of other electronics related products. In addition, the island’s semiconductor foundries account for two-thirds of the global foundry output.
So how did this small, and initially very poor island of 24 million people come to overtake other Asian economies in global technology competition? At the start, Taiwan’s political leaders made substantial investments in technical education. The capabilities of Taiwan’s public research institutions were also upgraded. Taiwan’s Ministry of Economic Affairs established the Industrial Technology Research Institute (ITRI) in 1973 to provide joint research, technical services and advice to Taiwan’s small- and medium-sized enterprises.
A major opportunity for ITRI based in part on advice from oversea Chinese experts in the United States, was the semiconductor industry, and in 1974 ITRI officials created the Electronics Research and Service Organization (ERSO), a subsidiary devoted to research in semiconductor manufacturing and commercialisation. By 1987, ERSO had a staff of over 1,700 and a budget of about US$100 million.
Then, in 1980, based on visits to Silicon Valley in the 1960s and 1970s, and advice from the region’s community of US-educated Taiwanese engineers, the National Science Council sponsored the Hsinchu Science Park in order to attract foreign and overseas Chinese investments in research-oriented companies. The park was located near to two leading technical universities, National Chiao Tung and Tsinghua, and ERSO’s labs were moved to the area. In the early 1980s the Ministry of Finance also created the institutional framework for a Taiwanese venture-capital industry in order to provide funding for the research-intensive production it wanted to attract to the science park, as well as to stimulate the development of a public capital market.
As a result of these initiatives, the 1980s saw the emergence of an indigenous IT industry. There were two separate clusters of entrepreneurship: a large number of small firms and start-ups in the Taipei area began cloning PCs and components, while at the same time a small number of integrated circuit manufacturing and design start-ups were spun out of ERSO.
It was not until the 1990s, however, that local firms began to differentiate themselves on the basis of innovation and skills, rather than low-cost labour. This was due to the impact of government policies and the ‘reversal’ of the brain drain, as thousands of Chinese engineers who had been educated and worked in the United States were encouraged to return.
The results have been impressive. In 1983, the park had 37 firms. By 2016, there were 487 companies with combined sales equal to about 6 per cent of the entire Taiwanese economy. Employment at the park is 2.3 percent of national employment, yet the park is estimated to contribute to 15 per cent of GDP. Patents in the park in 2010 accounted for more than two-fifths of total patents for the nation of Taiwan.
The clear leader of the pack is the semiconductor industry, which accounts for roughly 75 per cent of sales made by companies in the park, and which has powered Taiwan as an export-led economy. With annual sales exceeding US$70 billion last year, the semiconductor industry accounts for about 40 per cent of exports. Taiwan officials argue that semiconductors will keep Taiwan’s estimated US$131 billion high-tech industry strong despite competition from China and elsewhere.
An important point to note about the success of the park is the link from R&D to production. When it was first conceived, it was intended as a high-tech park focused on R&D work, but much of the success of the park has stemmed from bringing research and production together. R&D and technology development account for 40 per cent of employment in the park, with production, manufacturing, advertising, and other employment accounting for the other 60 per cent.
(b) Innovation Superclusters – Canada
The Innovation Superclusters Initiative, launched in 2017 is a unique Canadian initiative. The Government of Canada is working with industry in new ways – through a business-led partnership model – to align the efforts of diverse industries, researchers and intermediary institutions, and build deep, ecosystem-level advantages in regions across Canada. The Innovation Supercluster Initiative is strengthening clusters of existing commercial strength, pulling in a range of highly innovative industries, small- and medium-sized enterprises as well as industry-relevant research talent, to create the conditions required to develop superclusters that reflect Canadian excellence and world-class leadership.
Investments are intended to accelerate commercialisation, strengthen capacity in strategic platform technologies, help tackle challenges of importance to industry and take advantage of new opportunities to boost the productivity and competitiveness of Canada’s sectors of economic strength.
The investment of up to C$950 million, which will be matched dollar for dollar by the private sector, is expected to create more than 50,000 jobs over 10 years and grow Canada’s GDP. Innovation superclusters were selected following a two-phase application process. Five Innovation Superclusters have been awarded a total of C$950 million (£538 million) over five years. Together, they involved 60 academic institutions and more than 450 businesses. The five superclusters include Digital Technologies, Protein Industries, Advanced Manufacturing, AI-Powered Supply Chains, and Ocean.
The approach had to leverage strengths, address gaps, and incentivise innovation ecosystem players to work together more strategically around five themes of activity for the collective benefit of the cluster:
- Technology leadership (mandatory) – collaborative projects that directly enhance the productivity, performance and competitiveness of member firms.
- Partnerships for scale – activities serving a target group of cluster firms to enable their growth, including by increasing domestic demand for cluster products and services or by facilitating expansion.
- Diverse and skilled talent pools – activities enhancing regional labour force skills and capabilities or initiatives addressing industry needs for talent.
- Access to innovation – investing in and providing access to assets, services or resources that benefit a range of cluster firms over a period of time.
- Global advantage – activities and initiatives that position the cluster and its strengths as world-leading, enable firms to seize market opportunities, and attract international investments and partnerships.
(c) Biopolis – Singapore
It was only in 1997/98 when the Asian financial crisis resulted in a large and sudden drop-off in the number of foreign patients who traditionally went for treatment to Singapore’s private hospitals, that the hospital industry decided that medical research was critical to its survival. The importance of this was confirmed by the response of Singapore to the severe acute respiratory syndrome (SARS) epidemic in 2003. The virology laboratory at Singapore General Hospital worked on tissue sampling and preliminary analysis, while the Genome Institute of Singapore began to sequence the SARS genome in 2003. By the end of the epidemic no one in Singapore could doubt the relevance of cutting-edge medical research.
The timing was critical because it coincided with the early stages of Biopolis, Singapore’s medical technology research park. The park was conceived as a hub to encourage collaboration between major biotechnology companies and public research institutions. Phase 1 of Biopolis consisted of a S$500 million (equivalent to US$364 million) 185,000 square metre, seven-building complex, and additional phases have almost doubled that size.
Biopolis now consists of five research institutes under the Government’s Biomedical Research Council, focusing on bioinformatics, bioprocessing technology, genomics, bioengineering and nanotechnology, and molecular and cell biology. The centre houses some seven thousand PhD graduates in the life sciences, including some of the world’s most distinguished biomedical researchers. To put this in context the total number of life sciences PhDs in the United States is about 10,000.
The park is the epicentre of the growth of the biomedical sciences (BMS) industry, which has become a major contributor to the country’s economy. BMS manufacturing output increased by nearly five-fold from S$6 billion (US$4.4 billion) in 2000 to S$29.4 (US$21.4 billion) in 2012. During the same period, employment grew by more than twofold from 6,000 to 15,700. The industry now contributes approximately 20 per cent of the total value added to the overall manufacturing sector of Singapore.
Singapore plans to pursue this strategy further. In early 2016, Prime Minister Lee Hsien Loong, Chairman of the Research, Innovation, and Enterprise Council, announced an 18 per cent increase in the nation’s 2016 to 2020 research budget over the previous five-year budget, to 1 per cent of the country’s gross domestic product, a percentage on a par with that of other industrialised countries. In addition, the National University of Singapore opened a S$25 million (US$18 million) synthetic biology centre in September, 2015.
It is initiatives like these that explain how, in terms of GDP per capita in international dollars, Singapore in 2017 (according to World Bank figures) ranked fourth in the world behind only Qatar, Macau and Luxembourg – with a GDP per capita figure of 94,000 Int $. On the same basis, the United States came 11th, with a GDP per capita of 60,000 Int $, and the United Kingdom came 24th, with a GDP per capital of 44,000 Int $.21
(d) Chinese Science Parks
While the definition of a research park is not the same everywhere, China is currently estimated to have 54 ‘science and technology industrial parks’, totalling 60,000 companies with eight million employees. These parks contributed 7 per cent of China’s GDP and close to 50 per cent of all China’s R&D spending, and China’s national R&D strategy is structured around these parks.
The research park strategy was started in Zhongguancun in Beijing and was the brainchild of Chunxian Chen, a former scientist in the Chinese Academy of Sciences who soon after economic reform began in 1978, along with 10 fellow CAS researchers, took academic tours of the United States. These included visits to Silicon Valley and Route 128.
The park got off to a slow start, but an early success emerged when Chen’s fellow researchers at the Chinese Academy of Sciences started a computer business, Lenovo, in 1984. CAS provided them with the initial capital of US$24,000 and the business was started in Zhongguancun. Today, the company employs 55,000 people with revenues of US$43 billion.
By 1986 there were one hundred start-ups in Zhongguancun, and the Government approved the establishment of Zhongguancun as an experimental zone for the development of high and new technology, and the growth thereafter was exponential. Today the park covers more than 100 square kilometres and is estimated to house 20,000 companies with 250,000 employees.
Close to some of China’s most prestigious universities and research institutes, Zhongguancun enjoys great advantages in access to talent. The Haidian Park of Zhongguancun is home to more than 40 universities, including the world-class Peking and Tsinghuan Universities, as well as more than 200 research institutes and national-level laboratories.
The success of Zhongguancun led to the development of the national Torch Project of the State Science and Technology Commission in 1988. Its purpose was to construct the science-and-technology industry parks to incubate new start-ups in Zhongguancan and China in general. It was hoped that by building science parks, the R&D institutes, universities, and start-ups could work closely together to commercialise the innovation that rolled out of national science and technology projects. This project has resulted in the 54 research parks now found throughout China.