Innovation Clusters: Understanding Life Cycles A BRIEFING PAPER FROM THE ECONOMIST INTELLIGENCE UNIT Policy Commercial Infrastructure Set-up & Operating Costs Research Access to Growth Markets Regulatory Framework Collaboration Connective Infrastructure Sharing Attractive Cost Structure 6 Education Skilled Workforce Global Workforce Public Amenities Education Geography Society BRIEFING PAPER Serendipity Liveabillity The BIG 6 Success Factors Social Infrastructure Cosmopolitan Communities ABOUTTHI SREPORT I nnov at i onc l us t er s : Under s t andi ngl i f ec y c l eswaswr i t t enbyTheEc onomi s tI nt el l i genc eUni t . I t exami nest hel i f ec y c l esoffiv ei nnov at i onc l us t er sandt hef ac t or st hatdet er mi nes uc c es s . Ther epor t i sbas edondes kr es ear c handt enexper ti nt er v i ews . Thec as es t udi eshav ebeens el ec t edt oc ov er bot hes t abl i s hedandemer gi ngmar ket s , andt oexpl or ear angeofc l us t ers uc c es sf ac t or ss uc has demogr aphi c sandt al ent ; i nf r as t r uc t ur e; qual i t yofl i f e, pol i c yandgeogr aphy . Ther epor twaswr i t t en byMi c hael Mar t i ns . Theedi t orwasAdam Gr een. Thes t udywasc ommi s s i onedbyDubai Tour i s m. onomi s tI nt el l i genc eUni twoul dl i ket ot hankt hef ol l owi ngi ndi v i dual s( l i s t edal phabet i c al l y )f or TheEc s har i ngt hei ri ns i ght sandexper t i s edur i ngt her es ear c hf ort hi spaper . Pr of es s orEr kkoAut i o-Chai ri nTec hnol ogyVent ur i ngandEnt r epr eneur s hi p, andDi r ec t oroft he Doc t or al Pr ogr ammeatI mper i al Col l egeLondonBus i nes sSc hool DrCr i s t i naChami nade-Pr of es s ori nI nnov at i onSt udi esatLundUni v er s i t y DrAndr ew Cor bet t-Pr of es s orofEnt r epr eneur s hi pandFac ul t yDi r ec t orf ort heJ ohnE. &Al i c eL. But l erVent ur eAc c el er at or , Babs onCol l ege DrRi ccar doCr es cenz i-As s oc i at ePr of es s orofEc onomi cGeogr aphyatt heLondonSc hool of Ec onomi c s DrLui s aGagl i ar di-Fel l owi nt heLondonSc hool ofEc onomi c sDepar t mentofGeogr aphyand Env i r onment , andRes ear c hAfl i at eatBoc c oni Uni v er s i t y Cl i fHar al d-Exec ut i v eDi r ec t oratBoul derEc onomi cCounc i l Char l ot t eHol l oway-Di r ec t orofPol i c y , t ec hUK Pr of es s orFl or i anTaube-Emi l eBer nhei m Chai rofEnt r epr eneur s hi pi naGl obal Cont extat Uni v er s i t eLi br edeBr uxel l es Pr of es s orTonyVenabl es-BPPr of es s orofEc onomi c s , Oxf or dUni v er s i t yPr of es s orPohKam WongDi r ec t orofNat i onal Uni v er s i t yofSi ngapor e’ sEnt r epr eneur s hi pCent r e ©T heE c onomi s tI nt e l l i g e nc eUni tL i mi t e d2016 I nnov at i onCl us t e r s :Unde r s t andi ngL i f eCy c l e s2 I nnovat i oncl us t er s :Under s t andi ngl i f ecycl es I nnov at i onc l us t er sar el i ket hec ompani est heyhos t : t heyc angr owr api dl yati nc ept i on, peak, and ev ent ual l y–i ft heydonotadapt –t heys t agnat eordi e. Ther ear et hous andsofc l us t er sar oundt he wor l d, butmanys t r uggl et oac hi ev es us t ai nabi l i t yors c al abi l i t y . Somet i mes , t hev er yf ac t or st hatmade t hem s uc c es s f ul , c aus et hem t of ai l l at eron. Whatal l owsc l us t er st oc ombi net hei nnov at i v es pi r i tofs t ar t upswi t ht her es i l i enc eofes t abl i s hed c ongl omer at es , t oext endt hei rl i f ec y c l e?Thr oughc as es t udyev i denc eac r os sfiv ec ount r i es , andan exper ti nt er v i ewpr ogr am, t heEc onomi s tI nt el l i genc eUni texpl or es‘ c l us t erl i f ec y c l es ’ i nSi l i c on Roundabout( UK) , Bangal or e( I ndi a) , Boul der( Uni t edSt at es ) , Si ngapor e, andEs t oni aanddr awsoutkey l es s onsf r om t hei rexper i enc es . Par t1:I nnovat i onCl us t er s :Whycompani esar ebet t ert oget her Par t2:London’ snexti ncar nat i on t3:Si ngapor e:Bui l tf r om s cr at ch Par Par t4:Pl uckyEs t oni a:Eas t er nEur ope’ ss t ar t up Par t5:At al entmagnet :TheBeaut yofBoul der Par t6:TEcos ys t em:Bangal or e’ sgr owi ngpai ns Par t7:Concl us i on:I nnovat i oncl us t er s :TheSucces sReci pe ©T heE c onomi s tI nt e l l i g e nc eUni tL i mi t e d2016 I nnov at i onCl us t e r s :Unde r s t andi ngL i f eCy c l e s3 Par t1: I nnovat i onCl us t er s :Whycompani es ar ebet t ert oget her BRI EFI NGPAPER WRI TTEN BYTHEECONOMI STI NTELLI GENCEUNI T I nnovat i onc l us t er sr equi r es i xkeyi ngr edi ent s :s ki l l s ,ac c ommodat i ng pol i c yf r amewor k,i nf r as t r uc t ur e,l ow c os ts t r uc t ur es( i near l ys t ages ) ,a goodl i f es t yl eoffer i ngands er endi pi t y. Cl us t er sar el i ket hec ompani est heyhos t :t heyc hangeovert i me,andt hei r l ongt er ms uc c es sdependsonhow wel lt heyadaptt ot hec hal l engesof s uc c es s ,l i kec onges t i onandi nc r eas edr ent s us t er sar es t r ongl yr el i antonanopeni mmi gr at i onpol i c yatt henat i onal Cl l evel–t i ght eni ngbor der sr educ esac l us t er ’ sac c es st ogl obalt al ent I nnov at i oni sof t enas s oc i at edwi t ht r i umphantl onei nv ent or s . Thel i kesofThomas Edi s on, Loui s Pas t eurorBi l l Gat esar et hec ent r al c har ac t er si nt hi snar r at i v e. Butal l i nnov at or ss pr i ngoutofa s pec i ficc ont ext . Theenv i r onment st hatf os t ert hei r i ndi v i dual andc ol l ec t i v es uc c es sar ev er yof t en ‘ i nnov at i onc l us t er s ’ : ec os y s t emst hat s t i mul at eandnur t ur et hebes ti deasandat t r ac tt hebr i ght es t t al ent s . Cl us t er semer gewhenanet wor kofc ompani esc oexi s t swi t hi nageogr aphi c l oc at i on, al l owi ngeac hof t hem t oc ol l abor at e–andc ompet e–i nawaywhi c h del i v er sgr eat erpr oduc t i v i t ygai nst hant hey woul dac hi ev ei ni s ol at i on. Si l i c onVal l ey i st hemos tf amous , butt her ear ec ount l es sot her sac r os s ev er yc ont i nent . Cl us t er sat t r ac ti nnov at i v epeopl e. Theynet wor k, l eadi ngt ot hec r os s pol l i nat i onof i deas . Compani es benefitf r om eac hot her ’ ss uc c es s : Whatonei nv ent s , r i v al sc an ac c es s–t hi nkofa pr oduc t i v i t y boos t i ngt ool l i keDr opbox. Andwhatonefir m i nv ent s , ot her sc anbui l don. Thi nkoft he ‘ s har i ngec onomy ’ , l edbyt r ai l bl az er sUber andAi r bnb, i nt ur ngi v i ngr i s et oanar myofs t ar t upst aki ng t hes amei deat onew appl i c at i ons . Thes har i ngofknowl edge, t hes pi l l ov ereffec t sofi nnov at i onand t he net wor ki ngt hatdens el ypopul at eds pac esenabl ear eal l keyi ngr edi ent sf ors t ar t up s uc c es s . ©T heE c onomi s tI nt e l l i g e nc eUni tL i mi t e d2016 I nnov at i onCl us t er s :Under s t andi ngL i f eCy c l es4 Yetf oral l t hei rbenefit s , i nnov at i onc l us t er sar enots t r ai ght f or war dt obui l d–and manydonotl as t , ev enwi t ht he‘ magi ci ngr edi ent s ’ s eemi ngl yt her e. Topr os per , c l us t er sneeds i xkeys uc c es sf ac t or s : s ki l l sandt al ent , ac c ommodat i ngpol i c y f r amewor ks , i nf r as t r uc t ur e, l owc os t s( es pec i al l yi nt heear l y s t ages ) , agoodl i f es t y l e offer i ngt odr awt al ent , andfinal l ygoodl uc k, whet hergeogr aphy( pr oxi mi t yt o key mar ket s ) , hi s t or i c al ac c i dent sorev engoodf or t une. The‘ bi g6’ s uc c es sf ac t or s Thes es i xf ac t or sar enec es s ar yc ondi t i ons , al t hought heyar enotal way ss uffic i ent . Manypl ac esi nt he wor l dl ayc l ai mt ot hes es i x, butnev ergi v er i s et oas uc c es s f ul c l us t er . Thes ef ac t or sar ebes ts eenas t henec es s ar yc ondi t i onsf orc l us t er s , butnot–ont hei rown–t hes i l v erbul l et . Cl us t ers uc c es s dependsbot honi ndi v i dual f ac t or s , butal s ot hei nt er pl aybet weent hem. Gooduni v er s i t i esar el i t t l e us ei ft her ei sno c onnec t i v i t ywi t hi ndus t r y . Ahi ghs t andar dofl i v i ngi snothel pf ul i fi mmi gr at i on pol i c i espr ev entgl obal t al entf r om mov i ngt ot hec l us t er . ©T heE c onomi s tI nt e l l i g e nc eUni tL i mi t e d2016 I nnov at i onCl us t e r s :Unde r s t andi ngL i f eCy c l e s5 Par t2: London’ snexti ncar nat i on BRI EFI NGPAPER WRI TTEN BYTHEECONOMI STI NTELLI GENCEUNI T Londoni sagl obalmet r opol i st hatr ei nvent edi t s el fwi t hSi l i c on Roundabout ’ .Butr i s i ngr ent s ar epus hi ngt henextgener at i onofs t ar t ups out . Londoni safinanc i al power hous e, ac ent r al nodei ni nt er nat i onal financ i al mar ket s . Butov er t hel as t dec ade, t hec i t ys howedi t spower sofr ei nv ent i onbyhos t i ng‘ Si l i c onRoundabout ’ , a di gi t al t ec hc l us t er t hanbr oughtt hewor l dnewgadget sandappsl i keTweet dec kandLi v ef m. Si l i c onRoundabouti sl oc at edbet ween‘ t heCi t y ’ , t hefinanc i al hear t l andofLondon, and Hac kney , one oft hepoor es tar easofLondon. I ni t sear l ys t ages , i tbenefit t edf r om s ev er al f av our abl ec ondi t i ons . Thear eai sac c es s i bl et oc ent r al Londonv i apubl i ct r ans por t , al l owi ng c ompani est ot r av el ar oundt he c i t yeas i l y . Rent swer el ow, andmanyent r epr eneur sf r om Hac kneyc oul dac c es st hear eav i abi c y c l e. Ther ewer eal r eadyar t i s t s , medi apr of es s i onal s andt ec hnol ogyent r epr eneur si nt hear ea. Many s pec i al i s edi nfinanc i al s er v i c es , andhad l i nkageswi t ht heUK’ snat i onal br oadc as t er , t heBBC. Thi s flui dexc hangeofknowl edgeand i deasbet weent ec hnol ogy , financ eandmedi ac ommuni t i eswas s t i mul at edbyt heUK’ sopen i mmi gr at i onpol i c yi nt hel at e2000s . Thear eaat t r ac t edal ar gec ommuni t yofAmer i c answhos t udi edatLondonuni v er s i t i esand s t ar t ed wor ki ngi nt hec i t yt her eaf t er . Ot her sc amedi r ec t l yt oSi l i c onRoundaboutf r om San Fr anc i s c oand Si l i c onVal l ey . Thes ef ac t or sc amet oget hert oc r eat eaknowl edges har i ng ec os y s t em. Suc c es ss oon f ol l owed. Li v e. f m andTweet Dec kwer eear l ys t ar t ups , boughtby CBSf or$280mi l l i oni n2007and Twi t t erf or$40mi l l i oni n2011, r es pec t i v el y . Howev er , asSi l i c onRoundabout ’ ss t aras c ended, t wof ac t or st hathel pedt odr i v es uc c es s– l owr ent andt heUK’ sopeni mmi gr at i onpol i c i es–bot hc hanged. Rent sdoubl edi n5y ear s , pus hi ngs mal l er fir msands t ar t upsout . Dev el oper sac qui r edpr oper t i es , andenf or c edl ar ger s ec ur i t ydepos i t sand mor es t r i ngentc r edi tc hec kst hatpr ev ent edent r yf ors mal l erfir ms . Theygr adual l ymov edonandout , t oot herar easofLondonl i keWhi t ec hapel andAl dgat e. ec onds hi f twast het i ght eni ngofi mmi gr at i onpol i c y : nonEUwor kerv i s asar enow c appedat Thes 21, 700andr ec entnonEUgr aduat esofUKuni v er s i t i esar er equi r edt ofindaj ob wi t hi n3mont hsof gr aduat i ng, s pons or edbyt hei rempl oy er( atac os tof£1, 476) , ear ni nga mi ni mum of£20, 800. Some fir msc anabs or bt hes ec os t s . Ot her s , es pec i al l yf r agi l eand c as hpoors t ar t ups , c annot . ©T heE c onomi s tI nt e l l i g e nc eUni tL i mi t e d2016 I nnov at i onCl us t e r s :Unde r s t andi ngL i f eCy c l e s6 “ I fhi ghgr owt hfir msc annotmeett hei rt al entneedst hr ough domes t i corl oc al t al ent , t heyneedt obe l ooki nggl obal l y , ”s ay sChar l ot t eHol l oway , Headof Pol i c yatt ec hUK, at ec hnol ogyi ndus t r yas s oc i at i on. “ Tobeagl obal hubf ort ec hnol ogy , we r eal l yneedt obeagl obal hubf ort al entandt hati nv ol v es get t i ngt hebes ti nt oourc l us t er , ” s hes ay s . Thenewi mmi gr at i onpol i c i es , andot herpr opos al s c ur r ent l yi npl ay , ar e c onc er ni ng. “ Thei ndus t r yhasc er t ai nl yf el tac hangeoft onei nr ec entt i mes , ”s ay s Ms Hol l oway . I npar t i c ul ar , s hewar nsagai ns tv i s ar ul esmaki ngi thar derf orgr aduat est os t ay oni n t hec ount r y . “ Ouruni v er s i t i esar ef undament al dr i v er sofgr owt handweneedt hat t al entt obe r et ai ned. ” ©T heE c onomi s tI nt e l l i g e nc eUni tL i mi t e d2016 I nnov at i onCl us t e r s :Unde r s t andi ngL i f eCy c l e s7 Par t3: Si ngapor e:Bui l tf r om s cr at ch BRI EFI NGPAPER WRI TTEN BYTHEECONOMI STI NTELLI GENCEUNI T Si ngapor et r ans f or medi t s el ff r om anagr ar i ans oc i et yt oani nnovat i on wor l dl eaderi nhi ght ec hs ec t or sl i keel ec t r oni c sandl i f es c i enc es .Hi gh qual i t yeduc at i on,publ i ci nves t mentandf ar r eac hi ngbus i nes sc l i mat e r ef or mswer ec r i t i c alengi nes .Buti st hec i t ys t at enow get t i ngt oo c r owded? WhenSi ngapor ebec amei ndependenti n1965, i twasat r opi c al i s l andwi t hf ewnat ur al r es our c es , l i t t l e f r es hwat er , r api dpopul at i ongr owt handdomes t i cet hni candr el i gi ous c onfli c t . I tal s of ac edhos t i l i t i es i nt hebr oaderr egi on: har dl yanaus pi c i ouss t ar tf oranew c ount r y . Si nc et hen, Si ngapor ehasf oc us edwi t hl as er l i kepr ec i s i ononbec omi ngasec onomi c al l y power f ul as pos s i bl e, asf as taspos s i bl e. Si ngapor ees t abl i s hedi t s el ffir s tasac ent r ef or l owc os tmanuf ac t ur i ng andl at eronel ec t r oni c sand, mor er ec ent l y , l i f es c i enc es . I t s i nnov at i onc r edent i al shav es t r engt hened s i nc et heear l y2000s , andi ti snowawor l d l eadi ngc ent r ei nar eass uc hasbi ot ec hnol ogy . I t sper f or manc ei sl ar gel ydownt ot hr eef ac t or s : t al ent , s uppor t i v egov er nmentpol i c y , and di r ec t publ i ci nv es t ment . Thefir s ti st her es ul tofas us t ai nedpubl i cc ommi t mentt o educ at i on. Fr om av er y l owbas e, Si ngapor enowr anksc ons i s t ent l yatorneart het opof mos tmaj orwor l deduc at i onr anki ng s y s t emsov ert hel as tdec adeac c or di ngt ot heOECD. t r at egys t ar t edwi t ht he‘ bui l di ng’ s t ageof19591978, whi c hs awt her api dc ons t r uc t i on of Thes s c hool s , mas st eac herr ec r ui t mentanduni fic at i onofas i ngl eSi ngapor eaneduc at i on s y s t em whi c h wasf ol l owedi n1979t o1996byi mpr ov i ngeduc at i onqual i t yt hr ought oi t s final phas e, f r om 1997t o t hepr es entday , whi c hwasf oc us s edonr efinement . Duet oi t ss mal l popul at i on, Si ngapor eal s ol ookedt oat t r ac ts t udent sf r om near byc ount r i es t hr ough t heASEANs c hol ar s hi p, whi c hc ov er sf eesandt ui t i onf orqual i fieds t udent s , andt he Tui t i onGr ant Sc heme( TGS)f ori nt er nat i onal s t udent s , whi c hc ov er supt ot ens emes t er sof t er t i ar yeduc at i on. Bot h s c hemesr equi r et hatgr aduat esr emai ni nSi ngapor ef orupt o6 y ear sandf or3y ear s , r es pec t i v el y . Suc ht ac t i c s , aswel l asal i ber al i mmi gr at i onpol i c y , hav e ai dedgl obal i nflowsofhi ghl ys ki l l edl abour , l eadi ngt ot ec hnol ogyands ki l l st r ans f erbet ween l ar gemul t i nat i onal sanddomes t i cc ompani es . ©T heE c onomi s tI nt e l l i g e nc eUni tL i mi t e d2016 I nnov at i onCl us t e r s :Unde r s t andi ngL i f eCy c l e s8 Suppor t i v egov er nmentpol i c yal s opl ay edar ol e–t hr ougheffor t st oc r eat eaneffic i entand eas y bus i nes senv i r onment , anddi r ec ti nv es t ment s . Ast heec onomys hi f t edt oknowl edge bas eds ec t or s andt hes ki l l sbas ei mpr ov ed, t hegov er nments oughtt oat t r ac tmul t i nat i onal c ompani esbyoffer i ng t axi nc ent i v es , el i mi nat i ngpol i t i c al c or r upt i on, andbol s t er i ngI P pr ot ec t i on. Al ongwi t heas eofbus i nes sr ef or ms , t her ear eal s ogr ant st oenc our agebus i nes sf or mat i on and s t ar t ups , s uc hast heACESt ar t upGr ant , dedi c at edt onewl yf or med, l oc al maj or i t y owned c ompani esdev el opi ngadi ffer ent i at edbus i nes sc onc ept . Thegov er nmenthasbeen adi r ec tac t i v e i nv es t ori nbr oaderi nnov at i oni nf r as t r uc t ur est oo, s pendi ngar ound$6bi l l i on bet ween2000and 2005i nbi omedi c al s c i enc esi nc l udi ngt hef or mat i onofBi opol i s , a bi omedi c al r es ear c hand dev el opmenthub. Thi si sper hapsSi ngapor e’ smos tpr omi s i ng c l us t er . Si ngapor ebeganl ooki ngt obi ot ec hnol ogyi nt he2000st odi v er s i f yi t sec onomi cbas e, and ut i l i s eda c ombi nat i onoft axhol i day sandi nc ent i v es–s uc haspay i ngupt o30% ofbui l di ng c os t sofc ompani es under t aki ngbas i cdr ugr es ear c handdev el opment . I t sabi l i t yt oat t r ac t s t em c el l i nv es t mentwasal s o hel pedbyar educ t i oni nf undi ngi nt heUSduet oet hi c al obj ec t i onsf r om t heBus hadmi ni s t r at i on. Si ngapor ei sal egal l ymor el i ber al r es ear c h env i r onment , al l owi nganumberofr es ear c hpr ac t i c es , s uc hasus eoft heear l ys t agehuman embr y osf ort her apeut i cr es ear c h, whi c hi sbannedi not her c ount r i es . Asar es ul t , t op bi ot ec hnol ogyexper t sf r om l eadi nges t abl i s hment ss uc hast he Mas s ac hus et t sI ns t i t ut esof Tec hnol ogy , t heNat i onal Canc erI ns t i t ut ei nMar y l andandt heUni v er s i t y ofCal i f or ni ahav e c omet oSi ngapor eov ert hel as tdec ade, c i t i nggr eat erf undi ng, mor eor gani s at i onal f r eedom, amor el i ber al r es ear c hpol i c y , andagr eat erappr ec i at i onoft hebenefit sofl ong t er m R&D. ©T heE c onomi s tI nt e l l i g e nc eUni tL i mi t e d2016 I nnov at i onCl us t e r s :Unde r s t andi ngL i f eCy c l e s9 Abus yi s l and Sof ar , Si ngapor ehass uc c es s f ul l yadapt edi t smodel t hr ougheac hs uc c es s i v es t age– mov i ngf r om l ow c os tmanuf ac t ur i ngt oel ec t r oni c st oamor edi v er s i fiedec onomy , pos i t i oni ngi t s el fasahubf or mul t i nat i onal swi s hi ngt obui l dt hei rAs i anbus i nes s es . Nes t l e, Abbot tLabor at or i esandGoogl ear e amongt hec ompani eswhohav eev ens etupr es ear c h i ns t i t ut esi nSi ngapor e. Butaswi t hal l c l us t er sandhi ghl ypr oduc t i v eec onomi cgeogr aphi es , i tf ac esemer gi ng c hal l enges– es pec i al l ywi t hr egar dst ot hewor kf or c e. Whi l ei mmi gr at i onbr i ngsnewwor ker s andi deast ot hehos t c ount r y , i ti snotwi t houtr i s ks . Si ngapor ei sas mal l i s l and, r oughl yhal f t hes i z eofLondon, and t wot hi r dst hes i z eofHongKong, andi shomet o5, 469, 700peopl e. Thepopul at i onhasi nc r eas edby 3% annual l yf r om 2005t o2013, ac c or di ngt ot heWor l d Bank, andpopul at i ondens i t y , meas ur edas t henumberofpeopl epers quar eki l omet er , has i nc r eas ed27. 7% bet ween2000and2013, ac c or di ng t oSi ngs t at , t heSi ngapor eans t at i s t i c al agenc y . hepopul at i onhasi nc r eas ed, s ohast henumberofi mmi gr ant s , mor et handoubl i ng bet ween Ast 2000and2014. Thes t r ai nonpubl i cs er v i c es , andc ompet i t i onf ors pac e, has c ombi nedwi t h ev er gr owi ngdemandf orhous i ng, i nc r eas i ngpr oper t ypr i c esandpr ompt i ng domes t i cdi s s ent , ac c or di ngt oDrPohKanWong, Di r ec t orofNat i onal Uni v er s i t yof Si ngapor e’ sEnt r epr eneur s hi p Cent r e. DrWongar guest hatf or ei gni mmi gr at i onhasper hapsr eac hedac r i t i c al mas swher e enc l av esof f or ei gner sar es t ar t i ngt of or m, r educ i ngas s i mi l at i onandi nt egr at i on, i nt ur n under mi ni ngt hei deaof a’ Si ngapor eani dent i t y ’ . Att hes amet i me, pol i c ymaker sknowt hat t heyar ei nar ac ef orgl obal t al ent andmus tr emai nopent ohi ghl ys ki l l edl abour . Asar es ul t , t hegov er ni ngpar t yhass t ar t edf oc us i ngon fil t er i ngi mmi gr at i on, at t r ac t i nghi ghl ys ki l l ed i mmi gr ant st hatc anc ont r i but et oSi ngapor eont he gl obal v al uec hai nt hr oughknowl edge andt ec hnol ogyt r ans f er , whi l emaki ngi tmor edi ffic ul tf orl ower s ki l l edi mmi gr ant st os et t l e. Aswi t hal l c l us t er s , Si ngapor e’ ss uc c es sc r eat edi t sownnewpr obl ems , whi c ht hec i t ys t at e hast oadaptt o. ©T heE c onomi s tI nt e l l i g e nc eUni tL i mi t e d2016 I nnov at i onCl us t e r s :Unde r s t andi ngL i f eCy c l e s10 Par t4: Pl uckyEs t oni a:Eas t er nEur ope’ s s t ar t up BRI EFI NGPAPER WRI TTEN BYTHEECONOMI STI NTELLI GENCEUNI T Fr om modes tbegi nni ngs ,t hi ss mal lEas tEur opeanec onomyhast ur ned c hal l engesi nt ooppor t uni t i es ,evenl ever agi ngc ybert hr eat st ogr ow i t s t el ec omsi ndus t r y.Des pi t ebei ngas mal lc ount r yofj us t1. 3mi l l i onpeopl e, Es t oni ahaspr oduc edoneoft hemos tdr amat i ct ec hdi s r upt er soft he moder ner a:Skype.Hi ghqual i t ys ki l l sandadi gi t al s avvypopul at i onput t hi sonc ebar r enec onomyont het ec hnol ogymap. Keyt akeaways– Es t oni a’ st ec hs ec t ori st hepr oduc tofauni quehi s t or y , i nc l udi ngan engi neer i ngf oc us ededuc at i ons y s t em i nt heUSSRer a Gov er nmenthasac t i v el yr ol l edoutdi gi t al t ec hnol ogi esi nav ar i et yofc i t i z en s er v i c es , boos t i ngt hedi gi t al s ki l l sl ev el soft hec ount r y ’ sc i v i l i ans . TheEs t oni an gov er nmenthasal s oi nv es t edi nR&D, t r i pl i ngR&Ds pendi ng, f r om 0. 6% ofGDP i n2000t o1. 7% i n2013 t oni ahast ur nedc hal l engesi nt ooppor t uni t i es . Thec ount r y ’ shi ghI CT Es penet r at i onr at el ef ti texpos edt oc y ber c r i me, l eadi ngent r epr eneur st oexpl or e newway sofboos t i ngs ec ur i t y . Sky peandKaz aawer eamongt her es ul t i ng i nnov at i ons . WhenEs t oni agai nedi ndependenc ef r om t heSov i etUni oni n1991, i twasas mal l c ount r ywi t hl i t t l e i nf r as t r uc t ur e. Yetoneoft hebenefit sofi t sSov i etpas twasegal i t ar i anac c es st ohi ghereduc at i onas wel l asEs t oni a’ ss t r at egi ci mpor t anc et ot heUSSRdur i ngt heCol dWar , whi c hc r eat edanat i v e popul at i onwi t hhi ghl ev el sofeduc at i oni nfiel dsr el ev antt oemer gi ngt ec hnol ogys ec t or s . ©T heE c onomi s tI nt e l l i g e nc eUni tL i mi t e d2016 I nnov at i onCl us t e r s :Unde r s t andi ngL i f eCy c l e s11 Sov i et er aeduc at i onf oc us edheav i l yons c i enc e, engi neer i ngandmat hemat i c s . Thepos t 1991 gov er nmental s oi nv es t edheav i l yi nt heknowl edgeec os y s t em. I n2015, 30. 7% of5564y earol dswer e educ at edt ot er t i ar ydegr eel ev el , t hehi ghes ti nEur opeandt hes i xt hhi ghes ti nt heOECD. The Es t oni angov er nmental mos tt r i pl edR&Ds pendi ng, f r om 0. 6% ofGDPi n2000t o1. 7% i n2013, andi n 2011and2012Es t oni as pentabov et heEUav er agebef or el ower i ngs pendi ngi n2013. TheEs t oni angov er nmentdi dnotj us tdev el ops ki l l s–i tal s oi nv es t edi ndi gi t al t ec hnol ogyf orpubl i c s er v i c es , c r eat i ngapopul at i onof‘ di gi t al nat i v es ’ . Wheni tgai nedi ndependenc e, r oughl yhal foft he popul at i onhadac c es st oal andl i nephone, butbyMay2013, 4Gs er v i c esenc ompas s edov er95per c entoft hec ount r y . By1997, 97% ofs c hool shadi nt er netac c es sand, begi nni ngi n2001, publ i cwi fi bec amemor eorl es subi qui t ous . 1 EUmember s hi phasal s ohel pedai di ngEs t oni at os hi f tf r om al owwage, l owv al uedaddedec onomy t hatf oc us edonmanuf ac t ur i ngandagr i c ul t ur al expor t st ot heUSSRt oas er v i c es ec t oror i ent ed 26 ec onomyt hatexpor t shi ghv al ueaddedt ec hnol ogygl obal l y . 4% ofEs t oni ansnowwor ki nt he s er v i c es ec t orc ompar edt o20% i nmanuf ac t ur i ngand4% i nagr i c ul t ur e, ands t andar dsofl i v i nghav e i nc r eas eddr amat i c al l y : GDPperc api t ai nc r eas edf r om 55% oft heEUav er agei n2004t o73% i n2014 3 ( t heear l i es ty ear sf orwhi c hEur os t atpr ov i desc ompar abl edat a) . 1.TheEur opeanBankf orRec ons t r uc t i onandDev el opment , “ Tr ans i t i onRepor t2014:Chapt er5, Pol i c i esSuppor t i ngI nnov at i on“ 2.I n1997, t heear l i es ty earf orwhi c ht heOECDpr ov i desdat a, uni tl abourc os t swer e40% oft he2010l ev elandi nc r eas edbyr oughl y5. 87% annual l yf r om 1997t o2012 3.Eur os t at , “ GDPperc api t ai nPP“ ©T heE c onomi s tI nt e l l i g e nc eUni tL i mi t e d2016 I nnov at i onCl us t e r s :Unde r s t andi ngL i f eCy c l e s12 EUmember s hi pal s obr oughtac c es st oEUs t r uc t ur al f undsandt heSi ngl eMar ket . Ther el at i v el ys mal l s i z eoft heEs t oni anec onomyal ongwi t hdomes t i cpol i t i c al oppos i t i ont ot hegov er nmentr unni nga budgetdefic i t , c anmakei tdi ffic ul tf ort hegov er nmentt oi nv es ti nl ar ges c al epr oj ec t sl i ker oadsand hos pi t al s . Dur i ng2007–2013, EUSt r uc t ur al Fundspr ov i ded3. 4bi l l i oneur of orR&Dandhos pi t al i nv es t ment s , t hef or mert os uppor tt heEs t oni anI CTs ec t orandt hel at t ert of os t eri nnov at i onst o 4 Es t oni a’ spr es s i ngdemogr aphi cpr obl ems . Si ngl eMar ketac c es si nc r eas edgai nsf r om t r adeandt ec hnol ogyandknowl edget r ans f er . Bec aus e Es t oni ahasar el at i v el ys mal l domes t i cmar ket , manyofi t sfir mshav et ol ookt oexpandext er nal l yas s oonaspos s i bl e, andhav ei nt hepr oc es si nc r eas edr egi onal t r adedr amat i c al l y . Ei ghtofEs t oni a’ st op t ent r adi ngpar t ner sar eEUmember sandi n2013, bet weent het opfiv eEur opeanUni ont r adi ng par t ner s , bi l at er al t r adeequal l ed7. 78bi l l i oneur oi ni mpor t sand7. 365i nexpor t sc ompar edt o1995 whent r adeequal l ed1. 495bi l l i oni ni mpor t sand1. 141bi l l i oni nexpor t s . 5Hi s t or i c al l i nkageswi t h Sc andi nav i anandNor di cc ount r i esal s omeant hatmanyEs t oni anss peakEngl i s h. 55% ofEs t oni ans s peakEngl i s hf orwor k, doubl et heEUav er age, and67% hav el ear nedaf or ei gnl anguagef orwor k, 6% 6 hi ghert hant heEUav er age. EUmember s hi p, howev er , hasexac er bat edpr obl emsas s oc i at edwi t hEs t oni a’ sdec l i ni ngandagei ng popul at i on. Wi t hhal fofEs t oni ansfluenti nEngl i s h, emi gr at i onf r om Es t oni ai nc r eas edbyr oughl y50% i n2005, t hey earaf t eri t sas c ens i ont ot heEU. Thi swases pec i al l yt hec as eamongt hey oung, 33% of whom s peakEngl i s hasas ec ondl anguage, andwhof ac edanav er ageunempl oy mentr at eof14. 3% f r om 2001t o2014and17. 1% f r om 2009t o 7 2014. Al t houghanagei ngpopul at i onandy out hemi gr at i onhaspl ac edagr eat ers t r ai nonpubl i cs er v i c esl i ke heal t hc ar eandpens i ons , i nnov at i onshav eal s oemer ged. I n2011, t woEs t oni ansl i v i ngi nLondon, UK, oneofwhom wasor i gi nal l yaSky peempl oy ee, wer ef r us t r at edwi t hhav i ngt opayhi ghf eest ot r ans f er moneybet weent het woc ount r i esands oes t abl i s hedanowgl obal l yr ec ogni z edmoneyt r ans f er s er v i c e, Tr ans f er Wi s e, i nor dert os endr emi t t anc eshomef r om abr oad. 4.KPMG, “ EUFundsi nCent r alandEas t er nEur ope“ 5. TheGov er nmentofEs t oni a, “ Es t oni anec onomyi nnumber s “ 6.TheEur opeanCommi s s i on, “ Eur opeansandt hei rl anguages ”J ul y2012. 7.LanguageKnowl edgei nt heEur opeanUni on, “ Es t oni a”ac c es s ed27Nov ember2015 ©T heE c onomi s tI nt e l l i g e nc eUni tL i mi t e d2016 I nnov at i onCl us t e r s :Unde r s t andi ngL i f eCy c l e s13 I nanat t emptt obr i ngEs t oni anent r epr eneur sbac khome, t hegov er nmenti sat t empt i ngt o i nc r eas e r epat r i at i onandi mmi gr at i on, f os t er i ng‘ br ai nc i r c ul at i on’ r at hert han‘ br ai ndr ai n’ . I t hasi mpl ement ed t wokeypr ogr ams : t heI nt egr at i onandMi gr at i onFoundat i onandeRes i denc y . TheFoundat i on pr ov i desfinanc i al s uppor tf oret hni cEs t oni answhohav e emi gr at edi nt hepas tt eny ear sandwi s ht o r epat r i at e. Ov ert hec our s eof2000–2012, i t hass uppor t edt her et ur nofov er1100peopl e. 8T he eRes i denc ypr ogr am hasbeenmor e s uc c es s f ul . Wi t ht heai m ofc ompet i ngf ori nt er nat i onal bus i nes s wi t hot herEUl oc at i onsl i ke Dubl i n, I r el and, mai nt ai nl i nkageswi t hEs t oni a’ sr el at i v el yl ar gedi as por a, oi nc r eas et he l i kel i hoodt hatbus i nes sowner swi l l mov et oEs t oni a, t hepr ogr am makesopeni ng andt and r unni ngabus i nes seas y . I ndi v i dual sar eal l owedt oes t abl i s honl i nefir msi nEs t oni a, s i gn c ont r ac t s r emot el y , andpayt axeswhi l er unni ngt hei rbus i nes sr emot el y . 9S i nc ei t sl aunc hi n Dec ember2014, 10 7000peopl ef r om 119c ount r i eshav eappl i ed, and6600hav ebeen gr ant eder es i denc y . Es t oni as t andsoutasanexc el l entexampl eofhowgov er nmenti nv es t menti nt hebr oaderi nnov at i on ec os y s t em –s panni ngeduc at i on, di gi t al s er v i c edel i v er y , R&Ds pendi ng, gl obal mar ket i ngand f os t er i ngs t r at egi ct r adepar t ner s hi ps–c anc at al y s ec l us t er s . I tal s ohel pst hat , ac c or di ngt oDor i s Põl d, t heEs t oni anI CTCl us t er ’ sCl us t erPr oj ec tManager , at r adebodyf orEs t oni anI CTfir ms , ‘ t he gov er nmentar et het r uebel i ev er s . Theyal way ss peakaboutEs t oni aandt heI CTs ec t orwhent heygo onoffic i al v i s i t s . Theyar et hebes tmar ket i ngpeopl e. ’ 8. TheI nt egr at i onandMi gr at i onFoundat i on, “ Mi gr at i ons t at i s t i c s ” 9.eEs t oni a, “ Es t oni aneRes i denc y ” 10.Gov er nmentoft heRepubl i cofEs t oni a, “ Es t oni aneRes i denc ySt at i s t i c s “ ©T heE c onomi s tI nt e l l i g e nc eUni tL i mi t e d2016 I nnov at i onCl us t e r s :Unde r s t andi ngL i f eCy c l e s14 Par t5: At al entmagnet :TheBeaut yof Boul der BRI EFI NGPAPER WRI TTEN BYTHEECONOMI STI NTELLI GENCEUNI T Boul der ,i nCol or ado,hasoneoft hehi ghes ti nnovat i onr at esi nt heUSas meas ur edby pat entappl i c at i ons .I t squal i t yofl i f ehasbeenes s ent i alt o at t r ac t i ngAmer i c a’ sbes tand br i ght es t . Smar tpeopl ear enotj us ti nt er es t edi nwor k: t heyal s oc ar eaboutt hei rs ur r oundi ngs , t he qual i t yof s c hool sandhos pi t al s , l ei s ur eandent er t ai nmentandal l mannerofl i f es t y l ef ac t or s . Young, t al ent ed, pr of es s i onal wor ker sc anr el oc at emor eeas i l yt hant hos ewi t hl ar ger f ami l i esandmor e r es pons i bi l i t i es . Ther ear ehi gh‘ oppor t uni t yc os t s ’ ofl oc at i on, s ot hey hav edemandedv i br ant nei ghbour hoodst hatofferat t r ac t i v eameni t i es , s uc hasac c es st o c ul t ur al r es our c esandhi ghr anki ng publ i cs c hool s . Wi t houts uc hi ngr edi ent s , c l us t er sc anf ai l bef or et heyev enbegi n. I nHongKong, t he gov er nmentbui l t ‘ Cy ber por t ’ , al ar gec ampuswher eent r epr eneur sc oul dr entc heapoffic e s pac eandc ol l abor at e. The c l us t erf ai l edduet oi t sdi s t anc ef r om t hec i t yc ent r e, wher e peopl ewant edt ol i v eandwor k. I n c ont r as t , t het ownofBoul deri nCol or adohasat t r ac t ed t al entf r om ar oundt heUSt hankst oi t s des i r abi l i t yasapl ac et ol i v e. deri sat ownofar ound100, 000peopl et hatpunc hesabov ei t swei ghtasani nnov at i on hub. I t Boul hast hemos thi ghl yeduc at edpopul at i onofanyAmer i c anc i t y . Fr om 2009t o2013, t her ewer e10 pat ent sper1, 000r es i dent s , t hefif t hhi ghes ti nt heUS, af t erSanJ os e, Cal i f or ni a, andabov eSan Fr anc i s c o. I ti shomet oc l us t er sofaer os pac ec ompani esl i keBal l Aer os pac eandTec hnol ogi es Cor por at i on, oneoft het op100def enc ec ont r ac t or si nt he wor l d, andbi os c i enc esc ompani esl i ke Cov i di en. ©T heE c onomi s tI nt e l l i g e nc eUni tL i mi t e d2016 I nnov at i onCl us t e r s :Unde r s t andi ngL i f eCy c l e s15 Par tofBoul der ’ sc l us t ers t at usi s“ t hankst ol ar gec or por at i ons , auni v er s i t y , andpubl i c l y f unded t ec hni c al r es ear c hor gani s at i onsl oc at i ngi nBoul deri nt hepas t , whi c hl edt oal ar ge numberoffir m s pi noffs , ”ac c or di ngt oDrAndr ewCor bet t , Pr of es s orofEnt r epr eneur s hi pat Babs onCol l egei n Mas s ac hus et t s . ©T heE c onomi s tI nt e l l i g e nc eUni tL i mi t e d2016 I nnov at i onCl us t e r s :Unde r s t andi ngL i f eCy c l e s16 I n1965I BM es t abl i s hedanoffic e, andf oury ear sl at eragr oupoft ec hni c i ansl ef tt of ound St or ageTek. Ov ert i mebot hc ompani esdowns i z ed, l eav i ngmanyhi ghl ys ki l l edpeopl ewi t h r oot si nt hel oc al ar ea. Theyf oundedc ompani est hatei t hers t i l l exi s tors er v edast he i nc ubat or sf orl at erfir ms . Muc hoft hi s t al entpool hadaffil i at i onsandl i nkageswi t h gov er nmentr es ear c hor gani s at i onsi nt hear ea. Buti naddi t i ont ohi s t or i c al happens t anc e, Boul der ’ ss uc c es si sal s ol i nkedt oi t shi gh per f or manc eon l i v eabi l i t ymet r i c s . Boul der ’ spr oxi mi t yt ot heRoc kyMount ai ns , i t spar ksand out doorac t i v i t i es , and c ul t ur al andpubl i cameni t i esl i kear tgal l er i esandgoodpubl i c s c hool s , makef oragoodqual i t yofl i f e f orr es i dent s . Bot ht hegov er nmentofBoul derand Boul der ’ spr i v at es ec t orpl ac eemphas i sons ki l l s at t r ac t i onandr et ent i onbec aus e“ i ti st he s ki l l s , t het al ent , andt heexper t i s et hati sat t r ac t i ngt he wor l dc l as ss c i ent i s t s , engi neer s , ent r epr eneur s , t hec ompani esandi nv es t mentt hatar ef uel l i ng Boul der ’ sec onomy , ” ac c or di ngt oCl i fHar al d, Exec ut i v eDi r ec t orofBoul derEc onomi cCounc i l . Opens pac esar epar toft heoffer i ng. I n1967, Boul deri nc r eas edt hefinanc i ngofl and ac qui s i t i onsi n i t shi nt er l and. Ac c or di ngt oCl i fHar al d, t hes eopens pac esnowac c ountf or t hr eequar t er soft ot al s quar emi l eagei nBoul der , andwer epur c has edt opr es er v et he env i r onmentandqual i t yofl i f et hat l oc al s ’ t r eas ur e, andbl oc kur bans pr awl . Tomai nt ai nt he c i t y ’ sdev el opment , Boul deres t abl i s heda bui l di nghei ghtl i mi t at i oni n1971t opr es er v et he v i ewoft heRoc ki es . Boul der ’ sappr oac ht opr es er v i ngt heenv i r onmenthas , howev er , s ownt hes eedsofanew c hal l enge: l i mi t edhous i ngs t oc k, pus hi ngupr ent s . Publ i cupr oaragai ns tr ez oni ngofl andt o f ac i l i t at e c ommer c i al pr oper t ydev el opmenthashadnegat i v ei mpl i c at i onsf ort hear ea’ s i nnov at i on. Li mi t ed c ommer c i al andr es i dent i al pr oper t ydr i v esuppr i c es , r ai s i ngbar r i er sf or s mal l erfir ms . Rent al c os t s ar enow20% hi gherr el at i v et oCol or adoand26% hi ghert hant he USav er age, f ori ns t anc e. Hi gh pr oper t yc os t sc anpus hpeopl et ol ar gerc i t i esi nt hes t at e, l i keDenv er , orar easwi t hgr eat er oppor t uni t i est os c al eupandac c es snat i onal andgl obal mar ket s , l i keSanFr anc i s c o. ©T heE c onomi s tI nt e l l i g e nc eUni tL i mi t e d2016 I nnov at i onCl us t e r s :Unde r s t andi ngL i f eCy c l e s17 Par t6: TEcos ys t em:Bangal or e’ sgr owi ng pai ns BRI EFI NGPAPER WRI TTEN BYTHEECONOMI STI NTELLI GENCEUNI T Bangal or ebec ameoneoft hef as t es tgr owi ngi nnovat i onc l us t er sout s i de oft heUSi nt he1990s .Butc r eaki ngi nf r as t r uc t ur e,l oos ei nt el l ec t ual pr oper t yr ul esandc ut t hr oatc ompet i t i onhavet akent hei rt ol l . I nnov at i onc l us t er sar ec ommonl yas s oc i at edwi t hweal t hyc ount r i es , butr i c hc ount r i esnol onger enj oyanunques t i onedmonopol yoni nnov at i on. Emer gi ngmar ket shav et hei rc hal l enges–f r om c r eakyi nf r as t r uc t ur et obur eauc r at i cl egi s l at i on–butt heyal s ohav euni queadv ant agess uc hasl ower c os t sand, i ns omec as es , r eadyav ai l abi l i t yofaneduc at edandgl obal l yc ompet i t i v ewor kf or c e. Bangal or e’ sI CTc l us t er , i ns out her nI ndi a, i st hemos ts t r i ki ngexampl eofanec os y s t em t hatl ev er aged i t shomec ount r y ’ shumanc api t al adv ant ageeffec t i v el y . Bangal or eemer gedasoneoft hel ar ges tandf as t es tgr owi ngi nnov at i onc l us t er sout s i deoft heUSi n t he1990s , andi st odayt heengi neer i ng, r es ear c handdev el opmentc ent r eofI ndi a. I n2008, i twas homet o65% oft hewor l d’ sI Ts er v i c esoffs hor i ngbus i nes s , andi n2013ac c ount edf ornear l y40% of t hec ount r y ’ st ec hnol ogyands of t war edev el opmenti ndus t r y . Mi c r os of t , I BM, Adobe, andI nt el al l hav e r oot si nBangal or e, al ongs i demor et han800domes t i cfir msoffer i ngbac kandmi ddl eoffic et as ks , andawi der angeofanal y t i c ss er v i c est ot hegl obal mar ket . Educ at i oni sakeys uc c es sf ac t or . Bangal or ei shomet os omeofI ndi a’ sandt hewor l d’ st opr anked educ at i onal i ns t i t ut i onsf orgr aduat eandpos t gr aduat es t udi es , c r eat i ngas t r ongpool ofhi ghl ys ki l l ed wor ker satr el at i v el yl owc os t sf orgl obal c or por at i ons . Bangal or eal s ol ev er agedi t s9. 5t o12. 5hour t i medi ffer enc et ot heUS. I tc oul dpr ov i debac kendt ec hnol ogi c al s uppor tt hatdi dnotneedt obe c ol oc at edwi t hf r ont l i nebus i nes sandc oul dbec ar r i edoutona24/ 7r ot at i ngs hi f tbas i s . ©T heE c onomi s tI nt e l l i g e nc eUni tL i mi t e d2016 I nnov at i onCl us t e r s :Unde r s t andi ngL i f eCy c l e s18 Ac c or di ngt oPr of es s orFl or i anTäube, Emi l eBer hei m Chai rofEnt r epr eneur s hi patt heUni v er s i t éLi br e deBr uxel l es , Bangal or eal s ohasa“ pl eas antc l i mat e, s i mi l art oNor t her nCal i f or ni a. I ti sdr ywi t h moder at eamount sofr ai n, whi c hpr ov edagoodl oc at i onf orhar dwar ebas edt ec hnol ogyfir msand l abst hatneededamoder at ec l i mat et odor es ear c h, bec aus eoft hepot ent i al l ydamagi ngeffec t sof heat , moi s t ur eandhumi di t yonc omponent s , el ec t r i c al par t sandI Tequi pment . Cool erc l i mat esar e al s ohel pf ul bec aus es i gni fic antI Tas s et semi theatwhi c hc anmor eeas i l ybemanagedi ft hegener al c l i mat ei sc ool er . Peopl eal s owant edt ol i v et her e, asi twasmor et emper at et hanot herpar t sofI ndi a, ” andt hi s“ ac t edl i keamagnetf ori ndi v i dual swi t hhi ghl ev el sofhumanc api t al i nt her egi on. ” Di r ec tpol i c yal s opl ay edar ol ei nBangal or e’ sev ol ut i on. I n1990, t heDepar t mentofEl ec t r oni c s i nt r oduc edt heSof t war eTec hnol ogyPar kss c heme–s i mi l art oChi na’ ss pec i al ec onomi cz ones , f or Bangal or e. Sof t war efir mswer egi v ent axc ut sf orfiv ey ear sandguar ant eedac c es st ohi ghs peed s at el l i t el i nksandr el i abl eel ec t r i c i t y . ©T heE c onomi s tI nt e l l i g e nc eUni tL i mi t e d2016 I nnov at i onCl us t e r s :Unde r s t andi ngL i f eCy c l e s19 USbas edt ec hnol ogyfir msbeganoffs hor i ngt oBangal or e, i nc ent i v i s i ngl oc al SMEst os pec i al i s ei n s er v i c esl i kec odi ng. I ni t i al l y , t hi sof t enmeanti mpor t i ngI ndi anpr ogr ammer st ot heUSt opr ov i de mai nt enanc e. Howev er , i n1993, t heUSmadei tmor edi ffic ul tt oobt ai nnoni mmi gr antv i s as . Thi sl ed USfir mst oout s our c ewor kbac kt oBangal or e. I ndi anfir msqui c kl yadapt edt ot her equi r ement sof USfir ms , f orexampl epunc t ual del i v er yandpr oduc tqual i t y . SomeI ndi anfir msdev el opedr eput at i ons asr el i abl es uppl i er si nt heUSmar ket , s uc hasI nf os y s . Ov ert i me, t heUSI ndi ar el at i ons hi pev ol v edy et f ur t her . Onc eUSfir mss awt hequal i t yoft opt i erI ndi anc ompani es , t heybegant oout s our c ei nt er nal R&Dt as ks . Howev er , Bangal or enowf ac esi t sownpr obl ems . I t sabi l i t yt oc l i mbt hev al uec hai nhasbeeni nhi bi t ed byI ndi a’ sl oos es t anc eoni nt el l ec t ual pr oper t ypr ot ec t i on–f or ei gnfir msar ei nc r eas i ngl yr el uc t antt o out s our c eR&D. ManyofBangal or e’ sc ompani ess t i l l pr ov i des t andar di s eds er v i c esand, bec aus et her e ar enows omanyfir ms , mul t i nat i onal shav el i t t l ei nc ent i v et oc r eat eal ongt er mr el at i ons hi pwi t hany s i ngl es uppl i er . Themus hr oomi ngofc ompani eshasl edt oapr obl em of‘ ov er c ompet i t i on’ . Asoft oday , t het op20 I ndi ans of t war eexpor t er sac c ountf orov er50% oft ot al expor t s , l eav i ngov er800fir mswi t ht her es t oft hemar ket . Compet i t i oni sfier c eamongt hebot t om 800, l eadi ngt oal ac kofc ol l abor at i on. Bec aus ec ompet i t i oni ss oaggr es s i v e, fir msi ns t i l i nt hei rempl oy eesac ul t ur eof“ geti tr i ghtt hefir s t t i me. ”Thi smeansl owl ev el sofexper i ment at i onandr i s kt aki ng. Asar es ul t , Bangal or ei sfindi ngi t di ffic ul tt oc l i mbt hev al uec hai n. Bangal or e’ ss uc c es shasal s oc r eat edc os ti nflat i onduet or i s i ngwages , andc onges t i onhasi nc r eas ed. I nf r as t r uc t ur epr oj ec t shav ebeendi ffic ul tt oi mpl ementr el at i v et oChi na, oneofI ndi a’ smai ngl obal c ompet i t or s . Ev enBangal or e’ snewai r por t , bui l ti n2008, c annotr el i ev et het r affict hatmakest het wo mai nt ec hnol ogypar ksi nac c es s i bl edur i ngt heday , ac c or di ngt oCr i s t i naChami nade, pr of es s orof i nnov at i ons t udi esatLundUni v er s i t y . Takent oget her , c os ti nc r eas es , l owR&Dout s our c i ngand c onges t i onal l s howt heneedf orBangal or et oev ol v ei fi twant st os t ayahead. ©T heE c onomi s tI nt e l l i g e nc eUni tL i mi t e d2016 I nnov at i onCl us t e r s :Unde r s t andi ngL i f eCy c l e s20 Par t7: Concl us i on:I nnovat i oncl us t er s : TheSucces sReci pe BRI EFI NGPAPER WRI TTEN BYTHEECONOMI STI NTELLI GENCEUNI T TheEc onomi s tI nt el l i genc eUni texpl or est he‘ bi gs i x’ f ac t or sdr i vi ng s uc c es s f uli nnovat i on c l us t er s . I nnov at i onc l us t er sar ec r uc i al l abor at or i esi nwhi c hnov el t ool s , t ec hnol ogi esandt ec hni ques ar e c r eat edandappl i ed. Butt heyar enotj us tt he‘ bac kgr ound’ t oi nnov at i on; t heyar el i v i ng or gani s ms i nt egr al t oev er y t hi ngt hathappenswi t hi nt hei rwal l s . Not woc l us t er sar et he s ame–andt her ec anbe nohar dandf as t‘ f or mul a’ f orwhatmakesc l us t er swor k. Butt her e ar epr i nc i pl esnec es s ar yf orl ay i ng t hegr oundwor kf ors uc c es s As ki l l edwor kf or ce Al l s uc c es s f ul c l us t er shav eanedgewheni tc omest ohumanc api t al , ei t herl oc al or i mpor t ed. Thi s hi ghl ys ki l l edwor kf or c ehasemer gedandmani f es t edi ns ev er al way s . A dens enet wor koft opt i er hi ghereduc at i ones t abl i s hment shasbeenc r i t i c al t ot hes uc c es sofSi l i c onRoundabout i nLondon, Boul deri nCol or adoandBangal or e. Es t oni al ac kedt hi ski nd ofuni v er s i t ynet wor k, butc ompens at ed byhav i ngahi ghl yeduc at edpopul at i ont hankst ot he c ount r y ’ sf ai r l yegal i t ar i anac c es st oeduc at i on hi s t or i c al l y , but t r es s edbyt hegov er nment ’ s eager nes st opr omot edi gi t al s ki l l si nt hepopul at i on. ngapor e, wi t has mal l popul at i on, l ev er agedi t snat i onal ac ademi ci ns t i t ut i onsal ongwi t ha t al ent Si at t r ac t i ons t r at egyandas ol i dbus i nes senv i r onment–bot hofwhi c hhav egi v eni ta s t r ongnat i onal wor kf or c ewhet heri ndi genousorexpat r i at e. Whi l enat ur al r es our c eshav e s uppor t edt heemer genc e ofs omec l us t er si nhi s t or y , t heyar eknowl edgei nt ens i v e phenomena. Ski l l senhanc ement , c ombi ned wi t hadi v er s i fiedgl obal wor kf or c e, hav ebeen keyi ngr edi ent s . Accommodat i ngpol i cyf r amewor ks Gov er nment shav ear ol et opl ayi npr omot i ngc l us t er s , butt hei ri nt er v ent i onsj us tasof t en pr ev ent s uc c es sasc ul t i v at ei t . Thebes ti nt er v ent i onsar enotnec es s ar i l yfis c al andt axat i on pol i c i esr el at ed s pec i fic al l yt oac l us t er , butr at heri nt er v ent i onswhi c hs uppor tt hebr oader i nput st hatc l us t er s dependon, s uc haseduc at i on, i nf r as t r uc t ur eandc onnec t i v i t y . ©T heE c onomi s tI nt e l l i g e nc eUni tL i mi t e d2016 I nnov at i onCl us t e r s :Unde r s t andi ngL i f eCy c l e s21 Mor ei mpor t ant l y , gov er nment smus tc ar ef ul l ywei ght hei mpac tofot herpol i c yc hanges , s uc has mi gr at i onc apsorv i s ar es t r i c t i ons , ont hei rnat i onal c l us t er s ’ ac c es st ot al ent . The bes tpr ac t i c e pr i nc i pl ei sf orgov er nmentt oi nv es ti nt hef undament al sandc ont i nuous l y ev ol v et henat ur eofi t s i nt er v ent i onbas edont heneedsoft hegr owi ngc l us t er , andl eav et he s pec i fic soft hei nnov at i on c l us t erpr oc es st ot hec ompani esandi nnov at or st hems el v es . Thei nf r as t r uct ur ei mper at i ve Oneoft hekeyc har ac t er i s t i c sofs uc c es s f ul c l us t er si st henet wor ki ngt hatt heyenabl eas fir ms c ol l abor at e, ands ki l l edpeopl ei nt er mi ngl et os har ei deas . Fi r msneedt oc ol l abor at e wi t honeanot her andwor ker sneedf r eedom t omov e, f ormeet i ngs uppl i er s , c l i ent s , financ i er sands oon. Thi sr equi r es effic i enti nf r as t r uc t ur est hatc anal l owwor ker st omov e ar oundqui c kl yandc heapl y . Expens i v epubl i c t r ans por t , orgr owi ngc onges t i ons uc has f ac edbyBangal or e, bot hr educ et heeffic i enc yofc l us t er s wher ei tmat t er smos t : t he i nt er mi ngl i ngofpeopl eandi deas . I ti swor t hl ooki ngt ohi s t or yf orpr oof : ac c or di ngt ot he ec onomi s tJ os ephSc humpet er , muc hoft hei nnov at i ont hatemer geddur i ngt he ear l yhi gh gr owt hy ear soft heUSc ameaboutasadi r ec tr es ul toft hebur geoni ngr ai l r oads y s t em. Chanceandgoodf or t une Sadl yf orpl anner s , c hanc eandgoodf or t unepl ayar ol ei ndet er mi ni ngt hes uc c es sof c l us t er s . By c hanc e, wer ef ert oal l oft hos edy nami c swhi c hc oul dnothav ebeenbr ought aboutwi t hf or es i ghtor pur pos e, butwhi c h–hav i ngexi s t ed–c amet oc at al y s ei nnov at i on. Hi s t or i c al c i r c ums t anc ei soneexampl e. Es t oni a’ s pas tr el at i ons hi pt ot heUSSRhadt wo i mpac t soni t s l at ert ec hnol ogi c al s uc c es s : hi ghl ev el sofeduc at i on, es pec i al l yi nmat hsand engi neer i ng, duet oan egal i t ar i aneduc at i ons y s t em i nt heUSSRer a, andac y ber s ec ur i t y t hr eati nmor er ec enty ear st hat i mpel l edi nnov at i on. Boul derbui l tont hedec i s i onofl ar ge t ec hnol ogyc ompani est ol oc at et her ei nt he di s t antpas tt hats etupapr oc es soft al ent c i r c ul at i onl eadi ngt os pi noffswhobec amei nnov at or s mor er ec ent l y . aphyi sal s oa‘ goodf or t une’ f ac t or , es pec i al l yi npos i t i oni ngac l us t erc l os et okey mar ket s . Cos t a Geogr Ri c ai sagoodexampl eofac ount r ywhos el i f es c i enc esc l us t erhas benefit edf r om i t spr oxi mi t yt oUS mar ket s . Butc r uc i al l y , c hanc eandgoodf or t unedoesnotmeant her ei snor ol ef orhumandec i s i ons . Compani esandgov er nment smus tc ons c i ous l yr ec ogni s et hebenefit st hats uc h happens t anc e oc c ur r enc espr ov i de, andbui l dont hem. Ther ear epl ent yofc ount r i est hat wer ef or mer l ypar toft he USSR, andar es t i l l c l os el yl oc at edt oRus s i a, t hatdi dnotbui l don t hatasEs t oni ahas . Si mi l ar l y , t her e ar emanyc ount r i esi nCent r al Amer i c awi t hpr oxi mi t yt o t heUS, butwhohav enotc ar v edoutal i f e s c i enc esc l us t ers uc hasCos t aRi c a. Low cos ts t r uct ur e at i ngc os t s , es pec i al l yr ent sonc ommer c i al pr oper t y , hav ebeenes s ent i al dr i v er sof c l us t er Lowoper s uc c es si nt heear l ys t ar tupphas es . Thi sappl i est or ent al ofoffic es pac ebutal s o t her es i dent i al needs oft hewor ker s . Ot herl owc os t sc anal s ohel p, s uc hast axbr eakson i nnov at i onr el at edac t i v i t i es . ©T heE c onomi s tI nt e l l i g e nc eUni tL i mi t e d2016 I nnov at i onCl us t e r s :Unde r s t andi ngL i f eCy c l e s22 Ov ert i me, l owr ent al c os t sar et hefir s tadv ant aget odi s appear–t hi si sasneart oahar d l awasone c anfindi nt hefiel dofc l us t eranal y s i s . Themor es uc c es s f ul ac l us t er , t hemor e c ompani eswantt o l oc at et her e, pus hi ngupdemandont hehous i ngs t oc k. Thi sdy nami ci s har dt oer adi c at e, butc anat l eas tbeoffs etbypol i c ymaker si ft heywi s ht oenabl ef ur t her bui l di ngt hr oughpl anni ngr ef or ms , or ev eni mpos i ngr ent al c aps , al t hought hes ear e pol i t i c al l ydi ffic ul tt oexec ut ei npr ac t i c e. Li veabi l i t y I nnov at i onc l us t er sar ehi ghper f or mer si nt er msofl i v eabi l i t y , atl eas tr el at i v et oot herc i t i es wi t hi n t hei rc ount r i eswher et al ent edwor ker smi ghtot her wi s ec hoos et ogo. Li v eabi l i t yi snot as pec i fic met r i candnot woc i t i esoffert hes ameadv ant ages . Buti tc anc ov ers uc hc r i t i c al i s s uesaspubl i c s af et yandpol i t i c al s t abi l i t y , goodpubl i cameni t i es , c ul t ur eand ent er t ai nment , andgoods c hool sand hos pi t al s . Thes ear eal l f ac t or swhi c hpol i c ymaker sor publ i ci ns t i t ut i onsc ani nfluenc ei ft heywantt o nur t ur ec l us t ers uc c es s , i nor dert oens ur e t hei rc l us t erappeal st ot hos et opt i ers ki l l edwor ker swho, i nt hemoder ner amor et hanev er bef or e, hav es omanyc hoi c esaboutwher et ol oc at et hems el v es . ©T heE c onomi s tI nt e l l i g e nc eUni tL i mi t e d2016 I nnov at i onCl us t e r s :Unde r s t andi ngL i f eCy c l e s23 Whi l eev er yeffor thasbeent akent ov er i f yt heac c ur ac yoft hi si nf or mat i on, TheEc onomi s t I nt el l i genc eUni tLt d. c annotac c eptanyr es pons i bi l i t yorl i abi l i t yf orr el i anc ebyanyper s onont hi s r epor toranyoft hei nf or mat i on, opi ni onsorc onc l us i onss etouti nt hi sr epor t . Economi s tI nt el l i genceUni t onomi s tI nt el l i genc eUni t( EI U)i st hewor l d’ sl eadi ngr es our c ef orec onomi candbus i nes s TheEc r es ear c h, f or ec as t i ng, andanal y s i s . I tpr ov i desac c ur at eandi mpar t i al i nt el l i genc et oc ompani es , gov er nmentagenc i es ,financ i al i ns t i t ut i onsandac ademi cor gani z at i onsar oundt hegl obe, i ns pi r i ng bus i nes sl eader st oac twi t hc onfidenc es i nc e1946. Copyr i ght © 2016TheEc onomi s tI nt el l i genc eUni tLi mi t ed. Al l r i ght sr es er v ed. Nei t hert hi spubl i c at i onnorany par tofi tmayber epr oduc ed, s t or edi nar et r i ev al s y s t em, ort r ans mi t t edi nanyf or m orbyany means , el ec t r oni c , mec hani c al , phot oc opy i ng, r ec or di ngorot her wi s e, wi t houtpr i orper mi s s i onoft he Ec onomi s tGr oup. Whi l s tev er yeffor thasbeent akent ov er i f yt heac c ur ac yofi nf or mat i onpr es ent ed i nt hi sdoc ument , nei t herTheEc onomi s tGr oupnori t saffli at esc anac c eptanyr es pons i bi l i t yorl i abi l i t y f orr el i anc ebyanyper s onont hi si nf or mat i on. LONDON 20CabotSquar eLondon E144QW Uni t edKi ngdom Tel :( 44. 20)75768000Fax:( 44. 20)75768500Emai l :l ondon@ei u. com NEW YORK 750Thi r dAvenue5t hFl oor New Yor k,NY10017,USTel :( 1. 212)5540600Fax:( 1. 212)5860248 Emai l :newyor k@ei u. com HONG KONG 6001,Cent r alPl aza 18Har bourRoad Wanchai HongKong Tel :( 852)25853888 Fax:( 852)28027638 Emai l :hongkong@ei u. com GENEVA Ruedel ’ At henee321206GenevaSwi t zer l andTel :( 41)225662470 Fax:( 41)223469347 Emai l :geneva@ei u. com ©T heE c onomi s tI nt e l l i g e nc eUni tL i mi t e d2016 I nnov at i onCl us t e r s :Unde r s t andi ngL i f eCy c l e s24
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