Universities and Knowledge Clusters:

Necessary but not Sufficient

Henry S. Rowen

Stanford Program on Regions of Innovation and EntrepreneurshipProfessor emeritusStanford University

Cesaer Seminar| Norwegian University of Science and Technology | Trondheim | October 15, 2010

Five Major Developments that have Profoundly Affected the Location of Knowledge-Intensive

Activities

1. Moving information => cost nearly zero2. Cost of moving goods => much reduced3. Talent in Asia => better educated4. Opening of Asian economies5. Increased cross-border links

Knowledge-Intensive?

• Not only breakthrough knowledge creation• Also, advances within paradigms• Process knowledge: Toyota Just-in-Time • Importance of domain knowledge; e.g. health

services, legal services • Software has been driving hardware

Why Clusters?

• Alfred Marshall’s agglomeration economics:- thick labor market- specialized input producers (with increasing returns) - localized knowledge spillovers

• Most form via market; some initiated by government

(not always successfully)

Knowledge Clusters

Top-down versus Bottom-up• Top-down: All those in Asia except India• Bottom-up: US, UK, India• Success = value-added• High value-added: Indian software and

Taiwanese hardware; low in China’s manufacturing (iPod: $150 vs $4) -- but good enough

Taiwan’s Hsinchu Science-based Industrial Park

• Arguably, best government-sponsored cluster– Two major universities, then ITRI, then Park– Develop and spin out technologies/firms: (chip foundries

UMC, TSMC) or hand to existing firms.– Politics favored smaller firms (Korea, the opposite)– Core knowledge (making chips, flat screens, batteries,

computers) went from manufacturing, to design, to brand names (Acer, HTC)

• Strong links with US (education and companies), and to China (manufacturing and, increasingly, market)

China

• Regions in “Torch” program: notably, Zhongguancun Science Park (ZGC) in Beijing, also in Shanghai, Shenzhen, Chengdu, Xian, Hangzhou, etc

• Huge talent pool, foreign investment, universities expanding and improving, foreign ties, Valley VCs, state-owned & private firms.

• Universities close to commerce (too close); science parks, e,g, Tsinghua Holdings Company, an arm of Tsinghua University.

• ZGC: Seven parks, 12,000 high-tech firms, some major homegrown (e.g. Lenovo), multinationals, 0.5 million tech people. Being in the capitol helps with politics but not creativity.

• China’s quest for “Independent Innovation.” Dispute over top-down vs bottom-up); a question of the mix.

• No breakthrough technology yet; catching-up rapidly in existing ones

Dubious Experiences with Science Parks

• Importance of what is inside them– Need science + ecosystem– Tsukuba Science City: not entrepreneurial– Daejon, “Korea’s Silicon Valley” (not exactly) – North Carolina’s Research Triangle Park: ~ 70

companies with 42,000 professional workers; three good/decent universities; a moderate success

• Wallsten: no correlation in US between science parks and employment or venture capital

The Dubious Experience with Science Parks (cont.)

• Russia. President Medvedev: a new “Silicon Valley in Russia,” saying:

– Bureaucracy and corruption as large obstacles – A new region (Skolkovo) with special rules:

• Exempt from major taxes• Focus on energy, information technologies, communications, biomedical

research and nuclear technologies. • Two Nobel Prize winners. A Russian: "I think that if in the final analysis there

are not two, three, four Nobel Prize laureates working in this city, it would mean we did not achieve our goal.”

• Good to have great scientists but some very successful ones, such as Hsinchu, Bangalore, Seoul, have few

• University?

Why India’s Bottom-up Success?

• Cost of moving bits of information nearly to zero• Smart people with good (mostly BS) education and low

wages• Foreign linkages, initially the US, then widely.• During the “Permit Raj,” bureaucrats blocked the

imports of goods, including computers, but had trouble blocking bits of information.

• Domain knowledge (back-office operations, health systems, tax systems) was acquired.

Israel

• Successes• Immigrants• Linkages; widely, including the Valley; from 2003,

foreign funds; 55%-70% for startups• Unique role of army in preparing elite; high-tech

military• Government: At first startup unfriendly, then

supplied venture capital, then system became more market-determined

• Excellent universities

Silicon Valley Ecosystem

• 100 years old (counting radio and vacuum tubes) • “Silicon” from Bell Labs in the 1950s => a cascade of

semiconductor companies => computer ones => software => supporting soft infrastructure;

• Biotech, clean tech • Eco-system: Universities, risk capital, lawyers, accountants,

expert consultants.– Risk capital: angels, VCs, non-traditional banks– Immigrants: ~ 50% of Valley patents 1985-2005 foreign born names– Increasing foreign links

Copyright © 2009, Tensilica, Inc.\ - \\Copyright © 2009, Tensilica, Inc.

The early team at Tensilica: 1997-1998>80% through personal networks

Bold green italicsthe first 15 key advisors

Stanford

Synopsys

MIPS/SGI

Intel

John Hennessy

Andy Bechtolsheim

Ricardo Gonzalez

Monica Lam

Bob Wilson

Dror Maydan

John Ruttenberg

Woody Lichtenstein Earl Killian

Harvey JonesAlbert Wang

Bernie Rosenthal

Kurt Keutzer

Richard Newton

Masumi Takahashi

Ashish Dixit

Beatrice Fu

Steve Tjiang

Keith Van Sickle

Dhanendra Jani

Kaushik Sheth

Jorge del CalvoRanga Srinivasan

Bandel CananoJames Wei

Marines Souza

NupurBhattacharyya

Verly Flores

Gulbin Ezer Pavlos Konas

Pete MacLeish

Dave Greenberg

Peter Nuth

Berkeley

Steve Roddy

John Seely Brown on Knowledge in the Valley

Brown: “…there is a high level of knowledge in firms in the Valley… and also a very high level of knowledge about the firms…..Inevitably, much of this is also evident from outside the Valley. What seems to be less evident from outside is any idea of what's missing or what's coming: where the new opportunities, the "next new thing," is likely to come from..”

Still More on Silicon Valley• Entrepreneur Jerry Kaplan, on handheld devices:

– PenPoint computer of his Go Corporation in 1980s (failed)– Apple’s handheld device, the Newton (failed)– Palm’s Palm Pilot (succeeded)– Microsoft’s tablet (failed)– Apple again tried with the iPad (a big hit).

• One can fail and be funded again (depending); Kaplan has another startup.– Proverbs, 1611: “for a just man falleth seven times, and riseth

up again.”• Maybe Valley VCs wouldn’t fund someone with six failures,

but one or two are not necessarily fatal.

Some Silicon Valley Negatives

• High land prices, often mentioned, come from success (and climate)

• More serious is poor public schools• Dreadful condition of California government

(which eventually might hurt the Valley)

Universities And Knowledge Clusters

On their Insufficiency:• US examples: high quality ones in the Mid-West: e.g.

Michigan, Wisconsin, Minnesota, Illinois without high tech clusters. Carnegie-Mellon has an excellent computer science department but Pittsburgh has few computer companies

• Minneapolis versus Palo Alto winters.• Regions lacking specialized services, venture capitalists and

lawyers, accountants, consultants. • A favorable, perhaps accidental, event starts a process with

positive feedbacks. Once developed, other places find it difficult to compete.

• But new technologies can have different properties

Universities And Knowledge Clusters

On Their Necessity:• US major regions have excellent universities –

that encourage entrepreneurship: the Valley, Boston, San Diego, Austin.

• San Diego. UC campus in 1960; within 25 years, a major biotech region and a computer one. UCSD played a key role in fostering companies and local government helped.

• Timing and location were perfect.

Asian Universities And Clusters (1)

Japanese: Too remote from commerce• R&D is mostly done in the companies - with

hierarchical structures, little worker movement, and few new firms

• Many excellent universities but little technology or companies come out. Faculty consulting

• Until 2004, Japanese faculty in the national universities (about 100) were civil servants. Habits change slowly.

Asian Universities And Clusters (2)Chinese: Too close to commerce• Earlier, research in Academy of Sciences without teaching

mission nor links to commerce. “40,000 products with none reaching the market”

• Universities destroyed in the Cultural Revolution; then low pay

• Pressures for results in a system without a high regard for intellectual property protection

• Conditions improving: excellent students and increasing research support for faculty

• More world-class science; there will be great universities; and knowledge clusters will become stronger – but not tomorrow

Asian Universities And Clusters (3)

India: The marginal case for the necessity of universities

• Earlier, the IITs and the IIS produced talent and the talent produced companies, largely in the same cities

• Most research had been done in national laboratories

• Now, IITs are doing research, potentially with commercial use

Industries vary in distance from science, hence from universities

• Most of it is remote from scientific origins (semiconductors, Internet, reduced instruction set software, etc.)

• In contrast, biotechnology firms remain close to scientific roots

• Personal linkages. Zucker, Darby and Armstrong: “collaborations between academic stars and firm scientists ….. [provide] direct evidence of a large, significant impact of academic research on local industrial development.” The scientists stay at their universities while working with their companies

• VCs want companies close by but often scientists win. So biotech is more widely distributed than IT

• Clean technologies. Some, such as wind, are remote from science; but photo-voltaics need scientific advances

Universities: Don’t Count on Making Money from Research

• Not a mission. Anyway, few universities succeed. • In 2008, the total income in U.S. from licensing was $3.4

billion; only six got over half. • 198 licenses generated >$1 million in income out of 15,498

licenses with income. For 84 percent of academic institutions (in 2006), technology transfer was a net cost.

• University TLOs -- rightly-- say they have a social mission to transfer technology to society.

• Academic standards first; then, entrepreneurship among faculty and students

Engineering Education: Stanford

• Stanford’s Dean of Engineering– “T”–shaped people– Deep education + creativity, entrepreneurship, many-

discipline problems– Learn to work in teams– Need to keep learning

• "Breadth” got School in trouble with accreditors – but it survived

• The Dalai Lama’s values

Scientific articles and co-authorship, 1998 and 2008

Bubble size= # of scientificthickness of links=intensity of collaboration, i.e. co-authorship.

Source: MEASURING INNOVATION: A NEW PERSPECTIVE © OECD 2010

Scientific articles and co-authorship, 1998 and 2008

Bubble size= # of scientificthickness of links=intensity of collaboration, i.e. co-authorship.

Source: MEASURING INNOVATION: A NEW PERSPECTIVE © OECD 2010

Trajectories

• New ideas are always needed. Clean tech and synthetic biology are the latest hot ones; something else might come along.

• China and India. They know how universities should work and need to adopt them in practice.

• Returnees help

• Cross-region linkages will get only more important

Venture Capital Investments by Industry/Q2 2010

Data from MoneyTree Report

% of total deals

19.89 139

19.68 61

15.88 229

11.59 95

6.35 71

4.93 91

3.77 31

3.16 31

2.69 23

2.63 17

2.34 27

2.17 21

2.04 16

1.44 30

0.70 7

0.58 10

0.17 7

Venture Capital Investments by Region/Q2 2010

Data from MoneyTree Report

% of total deals

44.74% 276

10.54% 67

8.93% 95

5.85% 93

4.75% 51

4.53% 69

3.80% 44

3.46% 47

2.90% 39

2.62% 24

2.26% 16

2.00% 20

1.72% 25

0.78% 15

0.66% 8

0.21% 5

0.13% 2

0.10% 9

0.03% 1

Source: MEASURING INNOVATION: A NEW PERSPECTIVE © OECD 2010

Patents per million inhabitants, Europe, average 2005-07

The Mobility of People and the Importance of Immigrants

• Foreign born people have been essential • Students from China and India mostly stay; those

returning carry valuable know-how. Win-win.• About one-half of first-named people on Valley patents

from 1985 to 2005 were born abroad• Mobility high in US, low in Japan and Korea• 2001: 120,000 software workers in India on US

projects