Creating ICT Clusters of Innovative Small Businesses August 30, 2004 Keio University Shonan - Fujisawa Prof.Daniel Rouach

Creating ICT Clusters Success Factors

Creating Clusters Regional Strategies to Create Technology Clusters Prof Daniel Rouach, ESCP-EAP Paris European School of Management

Create Clusters Strategies to Create Clusters 3. Grenoble France 2. Type of Clusters & Key Ingredients 1. Forces Behind Cluster Formation

Creating Regional Wealth in the Innovation Economy Jeff Saperstein and Daniel Rouach and

Models, Perspectives, and Best Practices Building Regional Centers of Entrepreneurship – and Sustaining them. Financial Times – Prentice Hall Pearson Education

Regions Selected « Gold Medalists » Sophia Antipolis Grenoble Taiwan Ireland, Israel, India Silicon Valley Munich Cambridge

Create Clusters Strategies to Create Clusters 1. Forces Behind Cluster Formation

Five Forces behind Cluster Formation Clusters 2. Leading Companies 5. Competitive Intelligence & Networking 1. Universities 3. Venture Capital 3. Entrepreneurs Spirit 4. Active Government Support

Cluster Formation Definition Michael Porter Cluster Formation Definition Michael Porter “Clusters are Concentrations of Highly Specialized Skills and Knowledge, Institutions, Rivals, Related Businesses, and Sophisticated Customers in a Particular Nation or Region.”

Proximity,Special relationships Michael Porter “ Proximity in Geographic, Cultural and Institutional Terms allows Special Access, Special Relationships, Better Information, Powerful Incentives, and other Advantages in Productivity and Productivity Growth that are difficult to tap from a distance.” As a result in a Cluster, the Whole is Greater than the Sum of the Parts is Greater than the Sum of the Parts

Elements of Clusters Elements of Clusters Why do clusters work? Better access to employees. Better access to suppliers. Better access to specialized information. Access to public goods (universities). Location is self-reinforcing – increasing returns.

Elements of Clusters Elements of Clusters Distance matters! Collaboration over distance is hard… particularly for innovative activities Distance slows work Distance leads to breakdowns Distance keeps you far from the customer

Elements of Clusters Elements of Clusters Why do clusters work? Workers cultivate social & professional affiliations within the cluster– friends and acquaintances – human linkages. Clusters have most sophisticated buyers, so firms have best view on the market. Site location – outside firms set up next to like firms. “The buzz.” Peer pressure

Elements of Cluster Geographical Proximity Critical Mass of firms Complementary firms Replacement of Vertical Integration by Specialized Suppliers

“Clusters are a Driving Force in increasing exports and are Magnets for attracting Foreign Investment” Michael Porter. Feb 2000 Economic development Quartely Vol 14 p.15 Clusters are Magnets

Where is the RIGHT place to BE ? Intellectual Capital of Regions.

Create Clusters Strategies to Create Clusters 2. Type of Clusters & Key Ingredients

Source: “Venture Capitals” Wired Magazine July 2000 Wired’s 1st Tier Clusters Cambridge, England Seattle StockholmHelsinki, Finland London Dublin, Ireland Israel Bangalore, India Taipei, Taiwan Boston, MA New York City Montreal Austin TX Albuquerque San Francisco Silicon Valley

Wired’s 2nd Tier Clusters Source: “Venture Capitals” Wired Magazine July 2000 Los Angeles Sao Paulo Raleigh- Durham, NC Virginia Chicago Tokyo Hsinchu, Taiwan Hong Kong Queensland Melbourne Oulu, Finland Thames Valley, England Kyoto, Japan Baden- Württemberg, Germany Malmo, Sweden Paris Flanders, Belgium Bavaria, Germany

Wired’s 3rd Tier Clusters Source: “Venture Capitals” Wired Magazine July 2000 Salt Lake City, UT Glasgow- Edinburgh, Scotland Gauteng, South Africa Campinas, Brazil Santa Fe, NM Kuala Lumpur, Malaysia Singapore Inchon, South Korea Saxony, Germany Sophia Antipolis, France El Gazala, Tunisia Trondheim, Norway

Wired’s Clusters Source: “Venture Capitals” Wired Magazine July 2000 Cambridge, England Seattle Stockholm Helsinki, Finland London Dublin, Ireland Israel Bangalore, India Taipei, Taiwan Boston, MA New York City Montreal Austin TX Albuquerque San Francisco Silicon Valley Los Angeles Sao Paulo Raleigh- Durham, NC Virginia Chicago Tokyo Hsinchu, Taiwan Hong Kong Queensland Oulu, Finland Thames Valley, England Kyoto, Japan Baden- Württemberg, Germany Malmo, Sweden Paris Flanders, Belgium Bavaria, Germany Melbourne Glasgow- Edinburgh, Scotland Gauteng, South Africa Campinas, Brazil Santa Fe, NM Kuala Lumpur, Malaysia Singapore Saxony, Germany Sophia Antipolis, France El Gazala, Tunisia Trondheim, Norway Salt Lake City, UT Red = First Tier Orange = Second Tier White = Third Tier

Type of Clusters Silicon Valley or Death Valley Baby Cluster : Atlas valley Babel Cluster : Sophia Antipolis Island Cluster : Wadi Valley (Israël) Magnet Cluster : Silicon Valley Network Cluster : Bangalore

Success Factors Success Factors Creating or Destroying Value ? Ingredients For Success # 1 Cross Fertilisation # 2 Cooperation /Competition # 3 A Leader # 4 Leading Firm + Start-ups # 5 Incubation Spirit

Success factors Success factors Ingredients for Success # 6. Networking Culture # 7. Magic Atmosphere # 8. No Not Invented Here Syndrome # 9. Knowledge Transfer # 10. Diasporas Culture

Success factors Success factors Ingredients for Success # 11. Education Investment # 12. Risk & Chutzpah ! # 13. Branding # 14. Competitive Intelligence # 15. Venture Capital

The Magnet Cluster The Magnet Cluster Silicon Valley Ethos "Can do" Attitude with Contagious Enthusiasm for Collaborative Projects Emphasis on Teamwork, Openness and Egalitarianism Encouragement for Risk-Taking, Innovation, and Tolerance for Failure that is based on Learning so Best Practices can be Discovered and Applied in Future Projects A focus on Productivity and Practical Goal Setting The ability to be Intellectually Agile, while working on projects that have tight, ambitious timetables for completion

The Magnet Cluster The Magnet Cluster Silicon Valley Ecocluster Regional Network-Based Industrial System : Proximity of All Professions and Skills needed for technology based businesses. Social Networks and Open Labor Markets that encourage Experimentation and Entrepreneurs Informal Communication and Collaborative Practices Abundant Venture Capital

The Magnet Cluster The Magnet Cluster Silicon Valley Ecocluster Educational Institutions and Technology Parks as Incubator Hubs and a Skilled Workforce Generator Government at Federal, State and Local Level facilitating the Speed for Investment and Quick Problem-Solving

The Magnet Cluster The Magnet Cluster Silicon Valley Ethos Individual Freedom and Self-Discipline are Integrated People are Respected for their Knowledge and Contribution to the Team, not their Job Title Knowledge must be translated into Action with a potentially positive outcome

Create Clusters Strategies to Create Clusters 3. Grenoble France

Example Grenoble - France A high-tech hub: Digital, IT, micro & nanotechnologies Mission: No 1 in Europe for micro & nanotechnologies Influence by local environment and tradition Entrepreneurial spirit: spin-offs, self-sufficiency

Grenoble History of hydroelectric power & atomic energy Isolated environment but market exists A pioneering and self-sufficient spirit. 4 renowned universities including the INPG “Communication exchange” between Universities, Research Laboratories & Industry 20 years history of spin-offs, entrepreneurship Centre d’ Energie Atomique (CEA): key player Local hero: Louis NEEL Technology Transfer between research and industry “Micro & Nano-Technology House” Aim: no. 1 in Europe for Micro & Nano Technology Informal network Local Culture Spin-off creation Future Strategy

Challenges and problems for Grenoble “to stay competitive and to attract multinationals ” Regional Infrastructure factors: no TGV from Lyon, isolation. Competition: Lyon & Sophia-Antipolis are in the same region. National Brittany, Lorraine, Paris and Sophia-Antipolis are national competitors for high-tech development. International Grenoble is not a major European city. In competition with Munich, Dublin, Barcelona and Stockholm.

Role of Government in Grenoble Regional and local governments Intellectual capital s 1970s2000+ Research and atomic energy Microelectronics and high-tech Micro & Nano technology Hydro-electric power National Government Science parks CEA Decentral- ization 1982 Spin-offsIncubators

Government Isolation pioneering spirit self-sufficiency Physical Environment Alps, Italy, Germany, Switzerland Regional organisations AEPI, CCIG Traditional Industry 1950s Hydro & atomic energy Local Hero: Louis NEEL INPG 9 engineering schools 4 Universities 2 business schools ZIRST Spin-offs 20 yrs State-funded research labs CEA Leti INRIA « Informal Network » Industry: dynamic companies

Grenoble « spin-off slopes » Intellectual capital ideas Technological know-how entrepreurship Inspiration Informal business network creativity Pioneering spirit

ooperation pportunity echnology Transfer nnovation ntelligence etworking

Competitive intelligence locating collectingprocessingstoringCompetitive intelligence is the art of locating, collecting, processing and storing information to be made available to people at all levels of the firm with a view to shaping its future, but also protecting its present against competitive threat. It is legal and it respects a code of ethics. In other words, business intelligence is the transfer of knowledge from the environment to the organisation with respect to established rules. Competitive Intelligence

“Skills and knowledge have become the only source of sustainable long-term competitive advantage” Competitive Intelligence - CEA DTA Competitive Intelligence

STEP 1: Build the Foundation STEP 2: Analyze the Data STEP 3: Drive Decisions The Intelligence System : Security Analysis : the Art and the Discipline Sources : Laying the Foundations... Guidelines and Checklists The intelligence pyramid Competitive Intelligence

Active Passive Technical intelligence Technical watch Marketing intelligence Marketing watch Financial intelligence Financial watch Production intelligence Production watch Sales intelligence Sales watch R&DMarketingFinanceProductionSales The value chain of information The key information sources of Competitive Intelligence

Classifying according to information types The key information sources of Competitive Intelligence COLD INFORMATION 20 % HOTSECRET 80 % White Information Grey Information Black Information Industrial espionage Grey Information Black Information Competitive Intelligence

The key information sources of Competitive Intelligence Sources Fortuitous sources Train, plane, « the street » Stagiaires... Partner groups Subconctractors Suppliers Clients Competitors Professional Groups Financial partners New Networks Internet Compuserve Personal Networks Clubs Colleagues Confrères Information providers Press Booksellers Libraries Internet servers, brokers Data bases Information Centers Events Colloquium Fairs Business trips Consultants and experts Ingineering Schools Universities Experts Technical Centers Consultants Institutions Administrations International organisations Associations Research Centers Institutes and foundations Universities

Conclusion : Why do clusters work? Network effects! –Direct effects: firm-to-firm learning –Indirect effects: When key inputs are in abundant supply

Conclusion : Cluster results Each firm is more productive Each firm is more innovative Formation of new businesses is higher