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Karen G. [email protected]
Council on Foreign Relations
November 28, 2006
How Do You Turn Innovation Into Jobs?
Driving U.S. Competitiveness through Regional Clusters
2
How does innovation translate into jobs?
Basic Research
Invention
InnovationCommercialization
Job Creation & Economic Growth
• R & D
• Marketing/Product Innovation
•Small and Midsize Business
•Clusters
3
Current competitiveness strategy focuses on the inputs
R & D Spending
Science & Math Education
Immigration Policy
Tax Incentives
Trade PolicyIP Protection
Exchange Rates
Inputs Macroeconomic Levers
Economic Ecosystem
s
Fix Healthcar
e
Fix Patent System
Infrastructure fixes
and relies on the market environment to transform the economic ecosystem
4
It creates and loses over 7 million jobs each quarter
Private Sector Gross Job Gains and Losses 1993-2003
6
7
8
9
1019
93
1995
1997
1999
2001
2003
Job Gains
Job Losses
The U.S. is a job machine
Source: Bureau of Labor Statistics, U.S. Department of Labor
Millions
5
Small and medium-sized firms create most new jobs
Source: Michael Porter, Competitiveness Index 2006 and Office of Advocacy, U. S. Small Business Administration
6
Larger enterprises have been losing share of employment
Source: 2003 County Business Patterns
Percent Employment in Enterprises with 500+ Employees
46.5
47.0
47.5
48.0
48.5
49.0
49.5
50.0
50.5
1991 1993 1995 1997 1999 2001 2003 2005
7
The emerging innovation led firms will be the smaller traded companies
U.S. Employment by Firm Size and Type of Cluster
Local 70%
Small 51%
Large 49%
Size of Firm
Type of Cluster
Source: Michael Porter
Traded 30%
Illustrative
8
Small and medium sized firms are the key to growth and don’t receive
enough focus
Large FirmsSmall and
Medium sized firms
New Enterprises
• About half total employment
• Need to act globally
– Operate in low cost environment
– Be present where the markets are growing
• About half total employment
– Growing share
• Need critical mass to attract the resources needed to grow
• Hard to help one by one
• Over 500,000 new firms annually
• Account for 20% of job creation
• A high percentage fail
• Only about 3,000 venture backed each year
9
Cluster strength is correlated with prosperity
Source: Ketels, Clusters in the E-10 new Member Countries, Page 36
GDP per Capita 2002 (€)
Number of stars per region 2000
Clusters in E-10 New Member Countries
10
Cluster example—composite technology and Maine’s boat building
industryThe North Star
Alliance
11
Maine Built Boats
12
North Star Alliance: The four pillars
ResearchAnd
Development
MarketDevelopment
Capital andBusiness Support
Workforce Developme
nt
• University of Maine Maine Composite Technology Center
• Branding Maine Built Boats
• Maine Technology Institute
• Venture Capital Access
• Community College
• Apprenticeship Programs
• Connection to workforce boards
13
Educational, Research, & Trade Organizations (e.g. Wine Institute,
UC Davis, Culinary Institutes)
Educational, Research, & Trade Organizations (e.g. Wine Institute,
UC Davis, Culinary Institutes)
Growers/VineyardsGrowers/Vineyards
Sources: Michael Porter, California Wine Institute, Internet search, California State Legislature. Based on research by MBA 1997 students R. Alexander, R. Arney, N. Black, E. Frost, and A. Shivananda.
Wineries/ProcessingFacilities
Wineries/ProcessingFacilities
GrapestockGrapestock
Fertilizer, Pesticides, Herbicides
Fertilizer, Pesticides, Herbicides
Grape Harvesting Equipment
Grape Harvesting Equipment
Irrigation TechnologyIrrigation Technology
Winemaking Equipment
Winemaking Equipment
BarrelsBarrels
LabelsLabels
BottlesBottles
Caps and CorksCaps and Corks
Public Relations and Advertising
Public Relations and Advertising
Specialized Publications (e.g., Wine Spectator,
Trade Journal)
Specialized Publications (e.g., Wine Spectator,
Trade Journal)
Food ClusterFood Cluster
Tourism ClusterTourism ClusterCalifornia Agricultural
Cluster
California Agricultural
Cluster
State Government Agencies(e.g., Select Committee on Wine
Production and Economy)
Clusters Example:The California Wine Cluster
14
Specialized Institutions (e.g. Academic Institutions, Training Centers, Industry Associations)
Equipment Suppliers
(e.g. Oil Field Chemicals,
Drilling Rigs, Drill Tools)
SpecializedTechnology
Services
(e.g. Drilling Consultants,
Reservoir Services, Laboratory Analysis)
Subcontractors
(e.g. Surveying,Mud Logging,
Maintenance Services)
BusinessServices
(e.g. MIS Services,Technology Licenses,
Risk Management)
OilTrans-
portation
OilTrading
OilRefining
Oil Retail
Marketing
OilWholesaleMarketing
OilDistribution
GasGathering
GasProcessing
GasTrading
GasTransmis-
sion
GasDistribution
GasMarketing
Oil & Natural GasExploration & Development
Oil & Natural Gas Completion &
Production
Upstream Downstream
Oilfield Services/Engineering & Contracting Firms
The Houston Oil and Gas Cluster
Upstream Downstream
Source: Michael Porter
15
FarmsFarms
Energy(electric util, fuel)
Energy(electric util, fuel)
Banking & Finance
Banking & Finance
InsuranceInsurance
ConstructionConstruction
SecuritySecurity
TechnicalAssistanceTechnical
Assistance
Transportation &Shipping
Transportation &Shipping
HatcheriesHatcheries
ProcessingProcessing
ExportExport
Fishing ClusterFishing Cluster
FertilizersFertilizers
PackagingPackaging
Food Processing Equipment
Food Processing Equipment
Freezer ContainersFreezer Containers
Clusters in Developing Countries
The Ecuadorian Shrimp Farming
Cluster
Source: Michael Porter
Norway has 0.1% of the world’s population, represents 1.0% of the world’s economy, yet accounts for 10% of world seaborne transportation
MaritimeEquipmentSuppliers
MaritimeEquipmentSuppliers
ShippingShippingMaritimeServicesMaritimeServices
OffshoreExploration
and OilProduction
OffshoreExploration
and OilProduction
ShipyardsShipyards
Boat buildersBoat builders
Ship equipmentShip equipment
Fixed platformsFixed platforms PipelinesPipelines Processingequipment
Processingequipment
Fisheries and
FishingEquipment
Fisheries and
FishingEquipment
Ship brokers and agents
Ship brokers and agents
Banking andFinance
Banking andFinance
Maritime educationMaritime
education
Underwriters and maritime insurance
Underwriters and maritime insurance
Maritime lawyersMaritime lawyers
Classificationsocieties
Classificationsocieties
MaritimeR&D
MaritimeR&D
MaritimeconsultantsMaritime
consultants
Ship ownersShip owners
MaritimeauthoritiesMaritime
authorities
Source: Michael Porter, Sven Ullring, presented to M.I.T.
The Norwegian Maritime Cluster
17
Viagene1987
Columbia HCA1990
Kingsbury Partners
1993
DigiRad1994
Chomagen1994
Novatrix1994
Gensia1986
Cypros1992
Lipotech1987
Novadex1992
Dura1990
Immune Response
1986
Cortex1986
Gen-Probe 1983
Ligand1987
Birndorf Biotech-
nology 1990
Nanogen 1991
IDEC1985
Corvas1987
Amylin1987
Vical1987
Sequana1992
Applied Genetics
1994
Somafix1992
Gyphen1993
Cyphergen1993
Coxixa1994
Combi-Chem1994
Genesys 1990
Forward Ventures
1990
First Dental Health1995
Pac Rim Bioscience
1985Biovest1986
Clonetics1985
Biosite1988
Medmetric1989
Cytel1987
Pyxis1987
Triangle Phar-maceuticals
1995
Kimmel Cancer Inst.
1990
Urogen1996
HybritechSan Diego
Source: Michael Porter, CONNECT, University of California, San Diego
GenQuest1995
Evolution of ClustersThe Role of Anchor Companies in San Diego Biotech
18
Innovation hubs attract new and growing companies
Source: Zuckeretal Human Capital and Biotechnology Enterprises; Page 295 Also, Salter / Martin, The Economic benefits of publicly funded basic research, Jaffe, Real Estate Effects of Academic Research
Scientific Stars and New Biotechnology Enterprises 1990
Example
19
Policy Recommendations
Initiatives Authority
• Cluster Development Funds
• Wired Grants
• Alternative Energy R&D and Cluster Funding
• National Entrepreneurship Department / Assistant Secretary
• Innovation Hub Funding
State Governments
Department of Labor
Department of Energy
Commerce / SBA
NSA; Commerce, USDA; White House
20
Karen Gordon Mills
Karen Gordon Mills is a Founder and Managing Director of Solera Capital, a private equity fund based in New York City. She has been in the industry since 1983 and is an expert in investing and growing companies in traditional U.S. based industries such as food, textiles, media and industrial components. Some of these companies and brands include Telex Communications, Mrs. Fields Cookies, Bruce Hardwood Floors and Annie’s Macaroni and Cheese. Her background also includes consulting for McKinsey & Co. and product management at General Foods.
Ms. Mills received her A.B. from Harvard University in Economics in 1975 and her MBA from Harvard Business School in 1977, where she was a Baker Scholar. She currently serves on the Boards of the Scotts Company and Arrow Electronics.