How Do You Turn Innovation Into Jobs Driving

How Do You Turn Innovation Into Jobs? Driving U. S. Competitiveness through Regional Clusters Council on Foreign Relations November 28, 2006 Karen G. Mills kmills@mmpgroupinc. com

How does innovation translate into jobs? Basic Research Invention Commercialization Innovation • R&D • Marketing/Product Innovation Job Creation & Economic Growth • Small and Midsize Business • Clusters 2

Current competitiveness strategy focuses on the inputs Macroeconomic Levers Inputs R & D Spending Science & Math Education Tax Incentives Economic Ecosystems Immigration Policy Trade Policy IP Protection Exchange Rates Fix Healthcare Fix Patent System Infrastructure fixes and relies on the market environment to transform the economic ecosystem 3

The U. S. is a job machine Millions Source: Bureau of Labor Statistics, U. S. Department of Labor It creates and loses over 7 million jobs each quarter 4

Small and medium-sized firms create most new jobs Source: Michael Porter, Competitiveness Index 2006 and Office of Advocacy, U. S. Small Business Administration 5

Larger enterprises have been losing share of employment Source: 2003 County Business Patterns 6

The emerging innovation led firms will be the smaller traded companies U. S. Employment by Firm Size and Type of Cluster Illustrative Traded 30% Type of Cluster Local 70% Small 51% Source: Michael Porter Large 49% Size of Firm 7

Small and medium sized firms are the key to growth and don’t receive enough focus Large Firms • About half total employment • Need to act globally Small and Medium sized firms • About half total employment – Growing share – Operate in low cost • Need critical mass to attract the resources environment – Be present where the markets are growing needed to grow • Hard to help one by one New Enterprises • Over 500, 000 new firms annually • Account for 20% of job creation • A high percentage fail • Only about 3, 000 venture backed each year 8

Cluster strength is correlated with prosperity GDP per Capita 2002 (€) Clusters in E-10 New Member Countries Number of stars per region 2000 Source: Ketels, Clusters in the E-10 new Member Countries, Page 36 9

Cluster example—composite technology and Maine’s boat building industry The North Star Alliance 10

Maine Built Boats 11

North Star Alliance: The four pillars Research And Development Market Development • University of Maine • Branding Maine Built Boats Maine Composite Technology Center Capital and Business Support • Maine Technology Institute • Venture Capital Access Workforce Development • Community College • Apprenticeship Programs • Connection to workforce boards 12

Clusters Example: The California Wine Cluster Grapestock State Government Agencies (e. g. , Select Committee on Wine Production and Economy) Fertilizer, Pesticides, Herbicides Barrels Bottles Caps and Corks Grape Harvesting Equipment Growers/Vineyards Irrigation Technology Winemaking Equipment Wineries/ Processing Facilities Labels Public Relations and Advertising Specialized Publications (e. g. , Wine Spectator, Trade Journal) California Agricultural Cluster Educational, Research, & Trade Organizations (e. g. Wine Institute, UC Davis, Culinary Institutes) 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. Tourism Cluster Food Cluster 13

The Houston Oil and Gas Cluster Upstream Downstream Upstream Oil & Natural Gas Exploration & Development Downstream Oil & Natural Gas Completion & Production Oil Transportation Oil Trading Gas Gathering Gas Processing Oil Refining Oil Distribution Oil Wholesale Marketing Oil Retail Marketin g Gas Trading Gas Transmission Gas Distribution Gas Marketing Oilfield Services/Engineering & Contracting Firms Equipment Suppliers (e. g. Oil Field Chemicals, Drilling Rigs, Drill Tools) Specialized Technology Services Subcontractors (e. g. Drilling Consultants, Reservoir Services, Laboratory Analysis) (e. g. Surveying, Mud Logging, Maintenance Services) Business Services (e. g. MIS Services, Technology Licenses, Risk Management) Specialized Institutions (e. g. Academic Institutions, Training Centers, Industry Associations) Source: Michael Porter 14

Clusters in Developing Countries The Ecuadorian Shrimp Farming Cluster Banking & Finance Hatcheries Insurance Energy (electric util, fuel) Fertilizers Farms Security Food Processing Equipment Construction Processing Technical Assistance Transportation & Shipping Packaging Freezer Containers Export Fishing Cluster Source: Michael Porter 15

The Norwegian Maritime Cluster Fisheries and Fishing Equipment Ship owners Shipyards Ship brokers and agents Boat builders Banking and Finance Maritime Services Shipping Maritime Equipment Suppliers Ship equipment Maritime lawyers Underwriters and maritime insurance Maritime authorities Offshore Exploration and Oil Production Maritime R&D Classification societies Maritime consultants Fixed platforms Pipelines Processing equipment Maritime education 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 Source: Michael Porter, Sven Ullring, presented to M. I. T.

Evolution of Clusters The Role of Anchor Companies in San Diego Biotech Hybritech San Diego Gen-Probe 1983 Gensia 1986 Viagene 1987 IDEC 1985 Pac Rim Bioscience 1985 Clonetics 1985 Immune Response 1986 Cortex 1986 Lipotech 1987 Biovest 1986 Ligand 1987 Corvas 1987 Amylin 1987 Cytel 1987 Pyxis 1987 Vical 1987 Biosite 1988 Medmetric 1989 Kimmel Cancer Inst. 1990 Dura 1990 Columbia HCA 1990 Birndorf Biotechnology 1990 Forward Ventures 1990 Genesys 1990 Sequana 1992 Somafix 1992 Nanogen 1991 Cypros 1992 Urogen 1996 Novadex 1992 Kingsbury Partners 1993 Chomagen 1994 Digi. Rad 1994 Gyphen 1993 Novatrix 1994 Source: Michael Porter, CONNECT, University of California, San Diego Combi-Chem 1994 Coxixa 1994 Applied Genetics 1994 Triangle Pharmaceuticals 1995 Cyphergen 1993 First Dental Health 1995 Gen. Quest 1995 17

Innovation hubs attract new and growing companies Scientific Stars and New Biotechnology Enterprises 1990 Example 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 18

Policy Recommendations Initiatives Authority • Cluster Development Funds State Governments • Wired Grants Department of Labor • Alternative Energy R&D and Cluster Funding Department of Energy • National Entrepreneurship Department / Assistant Secretary Commerce / SBA • Innovation Hub Funding NSA; Commerce, USDA; White House 19

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 Mc. Kinsey & Co. and product management at General Foods. 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. 20