Innovation in Global Industries U.S. Firms Competing in a New World (Collected Studies) (2008) / Chapter Skim
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7 Biotechnology
7 Biotechnology
Pages 231-272
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From page 231... ...
This chapter provides an overview of the drivers, patterns, and consequences of the globalization of biotechnology and offers a preliminary assessment of historical and contemporary patterns of the geographic dispersion of biotechnology innovation. Our analysis of the distinctive nature of the globaliza 231
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However, the number of active clusters in biotechnology is increasing over time. An increasing number of distinct locations in the United States are home to a significant level of biotechnology activity, and an increasing number of countries around the world support modest to significant activity within the biotechnology industry.
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Second, the analysis highlights the small absolute size of the biotechnology industry. Using a relatively inclusive definition, total biotechnology employment in the United States accounts for less than 200,000 full-time employees, which itself accounts for well over 50 percent of global employment (van Beuzekom and Arundel, 2006)
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. In adapting that framework to the biotechnology industry, we highlight the potential for catch-up by lagging regions, the potential for disagglomeration as the industry or segments of it mature, and the potential for a leading region to establish itself as a global "hub" for biotechnology research and innovation going forward.
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Indeed, Herbert Boyer himself was one of the founders of one of the first and among the most successful biotechnology companies, Genentech. While the discoveries of the 1970s represented fundamental scientific breakthroughs and offered isolated commercial applications, such as the development of synthetic insulin and human growth hormone (McKelvey, 1996; Stern, 1995)
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More generally, although the commercialization of health-oriented biotechnology innovation has largely involved cooperation with more established firms (many of which are pharmaceutical firms located outside of the regional clusters) , health-oriented biotechnology has been closely associated with academic entrepreneurship, whereby leading university research faculty are associated with the creation of new biotechnology firms.
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In the remainder of this section, we emphasize some of the distinctive features of the industry, each of which will influence the ultimate geographic dispersion of activity within the industry. The Nature of Biotechnology Research One of the most distinctive and pervasive characteristics of innovation in biotechnology is duality.
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. The Biotechnology Value Proposition and the Structure of the Value Chain While the size of the biotechnology industry is still quite modest -- relative to, say, employment or revenue in the automobile industry -- the potential
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, agricultural and industrial biotechnology innovation also Demographic projections estimate world population gains from 6.5 billion in 2005 to 7.9 billion in 2025 (United Nations, 2004)
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At the same time, while proximity to scientific and commercial knowledge led to the rise of concentrated geographic clusters for biotechnology innovations, the jobs created by the products of these innovations are far more dispersed. In each of the three areas of biotechnology, the value chain is highly fragmented and requires significant capital expenditures, meaning that an entrepreneurial innovator can rarely afford or find it worthwhile to commercialize an innovation independently all the way to market.
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In other words, although large established companies such as Monsanto and DuPont are ultimately responsible for the commercialization of agricultural biotechnology innovations, the origins of those innovations are divided among university research projects, startup innovators, and internal development (PierreBenoit, 1999)
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The dynamism of the biotechnology industry is based on its foundations in rapidly emerging scientific disciplines; its potential to address important social needs while creating significant commercial value in health, agriculture, and industry; and its orientation in terms of the commercial application of knowledge that is simultaneously of independent scientific interest. THE DRIVERS OF LOCATION AND CLUSTERING OF BIOTECHNOLOGY INNOVATION As mentioned earlier, the drivers of the geography of biotechnology industry and innovation are complex and changing over time.
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. A rich and nuanced literature has developed emphasizing some of the key patterns and dynamics associated with biotechnology clusters in the United States and abroad, with an emphasis on the importance of collaboration and networks among universities, startup innovators, and established firms (Koput et al., 1996; Powell et al., 2005)
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The four elements of the diamond framework highlight the key resources and dynamics associated with the emergence and sustainability of leading clusters in all segments of the biotechnology industry. First, as mentioned earlier, the development of biotechnology innovation requires access to specialized inputs, including researchers, risk capital, biological materials, and even intellectual property.
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For example, the pressures on the Massachusetts biotechnology cluster arise as much from the presence of demanding clinicians in the leading hospitals as from that of specialized genetics researchers. Similarly, the medical device cluster in Minneapolis is pushed by demanding consumers at the Mayo Clinic and related institutions, and industrial biotechnology innovation in Scandanavia depends in part on demanding customers in the chemical industry (Hermans et al., 2006)
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From page 246... ...
For example, in recent years the diffusion of agricultural biotechnology products has had the consequence that the industrial activities of agricultural biotechnology are more geographically dispersed than the industry was at an earlier stage. While the development of new products continues to be centered in a small number of locations, investments in improvements in how to use the new seed traits and how to adapt farming practices to incorporate the new products are much more geographically dispersed.
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As described earlier, the industry grew out of a series of fundamental scientific breakthroughs in the 1970s and was initially concentrated among a small number of entrepreneurial firms, mostly in the Bay Area in California and around Cambridge, Massachusetts. Despite interest in the future of biotechnology, relatively little attention has been paid to the current state of the biotechnology industry in terms of regional patterns of employment, investment, and firm creation.
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From page 248... ...
, the most striking fact about these statistics is the small absolute size of the biotechnology industry. Using statistics collected in 2006, the global biotechnology industry directly employs less than 500,000 workers in the private sector. While the industry may also support employment in related industries (e.g., pharmaceuticals, agriculture, or industrial engineering)
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SOURCE: OECD Biotechnology Statistics (Van Beuzekom and Arundel, 2006)
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Along with the earlier employment statistics, this suggests that individual EU biotechnology companies have fewer employees (on average) than their U.S.
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17 Poland (2004) 13 10 100 1,000 10,000 Biotech Workforce FIGURE 6 Number of biotechnology companies in distinct geographic areas (Van Beuzekom and Arundel, 2006; OECD Biotechnology Statistics)
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. This skewed pattern of global biotechnology investment is reinforced in Figure 8, which reports the distribution within the OECD of venture capital investments.
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84 Iceland 67 Norway 29 Poland (2004) 5 1 10 100 1,000 10,000 100,000 $ Million PPP, 2003 FIGURE 7 Total expenditures for biotechnology R&D by biotechnology-active firms, biotech-7.eps OECD biotechnology statistics (Van Beuzekom and Arundel, 2006)
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2001-2003 Iceland 2 Portugal 1 1 10 100 1,000 10,000 Biotech Workforce FIGURE 8 Total venture capital investments in biotechnology, 2001 to 2003 combined, OECD biotechnology statistics (Van Beuzekom and Arundel, 2006)
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Global Biotechnology Patenting We use several different measures reflecting the number of international biotechnology patents. In particular, we focus on the number of patents granted In addition to patent counts, there are some alternative measures to illustrate the distribution of biotechnology innovations.
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We attempt to address the home-bias problem by moving toward triadic patent family counts to perform more strict comparisons among biotechnology patents filed in the USPTO, the EPO, and the JPO.10 Triadic patent families provide a more valid proxy for the economic value of patents. Patent application processes differ by country; most companies or individuals will undertake the costly process of filing a patent abroad only if the invention or process in question has significant earnings prospects.
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Perhaps more important, these patterns provide some interesting insights into the evolution of the global biotechnology industry over the past decade or so. In particular, despite the fact that countries outside the United States started from a very low level of activity (and may benefit from the "convergence effect")
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Number of Patents per 1 mill Inhabitants 7.00 USA 6.00 Japan 5.00 EU-25 4.00 3.00 2.00 1.00 0.00 1994 1995 1996 1997 1998 1999 2000 2001 2002 Year FIGURE 10 Triadic biotechnology patent counts and per capita measures by inventor's country of origin. SOURCE: OECD and authors' calculations.
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Global Biotechnology Patenting by Application Segments We now provide a more detailed analysis of innovative output as measured by patent counts based on inventor location, which are divided into 12 patent subcategories by the same regions considered earlier. Our analysis utilizes Derwent biotechnology abstracts, the most widely utilized classification system for biotechnology patent analyses (Dalpé, 2003)
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Finally, while the bulk of U.S. patents are in classes related to red biotechnology, the United States also exhibits advantage on a relative basis in green biotechnology (the agriculture sector)
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As mentioned earlier, this may reflect the earlier stage of development of many European biotechnology firms or the fact that European firms are more specialized in areas such as industrial applications, which may be associated with a lower level of sales for a given level of innovative investment (and patenting output)
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E Fermentation Engineering Analysis Pharmaceuticals Agriculture WPO/IB 7,979 213 139 6,488 1 USA 7,125 196 124 5,564 1,249 Canada 111 6 90 36 Mexico 4 3 2 Cuba 1 1 Argentina 5 Brazil 1 EPO 797 44 24 587 110 UK 653 21 16 520 93 Ireland 3 1 3 1 Germany 712 73 27 496 104 France 258 16 6 192 46 Netherlands 21 2 1 13 7 Belgium 4 3 1 Switzerland 10 7 Austria 17 3 1 14 4 Denmark 86 2 46 4 Sweden 44 2 46 4 Finland 19 1 9 5 Norway 10 5 Italy 31 4 28 7 Spain 21 19 5 Portugal 4 1 Greece 1 1 Hungary 4 3 1 Czech Republic 2 1 1 Slovakia 1 1 1 Poland Serbia and 1 Montenegro Republic of 1 Macedonia Russia 33 1 28 1 Turkey 1 Israel 51 2 2 39 9 Japan 1,655 103 55 1,110 236 Republic of Korea 67 2 1 52 10 China 465 2 1 416 37 Taiwan 1 1 India 6 4 4 Singapore 6 2 4 Malaysia Australia 146 8 2 111 42 New Zealand 23 14 South Africa 8 7 4 Total 12,138 479 245 9,250 2,010 SOURCE: Derwent Biotechnology Resource (2006)
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BIOTECHNOLOGY 263 G Fuels, M
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For example, although Belgium has an advanced economy, it is a clear laggard in biotechnology innovation. Finally, as the biotechnology industry begins to spread from its origins in the life sciences sector, it will be increasingly important to distinguish the geography of innovation by individual applications; while the United States exhibits leadership in life sciences and agriculture, Denmark and Japan seem to have established leadership positions within industrial biotechnology applications.
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In other words, the data, though clearly inadequate to provide a complete picture, suggest that the number of biotechnology clusters that achieved "minimum scale" has increased, which is reflected in an increased dispersion in terms of employment, measures of biotechnology entrepreneurship, and measures of the geographic origins of biotechnology innovation. This central insight -- an increase in the number of regional innovation clusters, rather than a simple dispersion of biotechnology activity -- holds several important implications for (1)
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The simple fact is that, if the biotechnology industry remains at roughly the same scale that it has achieved over the past decade or so, it is unlikely to be a major driver of employment patterns and overall job growth, either in the United States or abroad. Policy Conclusions The analysis holds a number of important policy implications.
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Significant restrictions on the ability of researchers living abroad to travel and collaborate with researchers in the United States in both public and private sectors or significant restrictions on the free flow of capital investments undermines the likelihood of translating current U.S. cluster leadership into a position of durable centrality as a global biotechnology innovation hub.
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. Biotechnology clusters as regional, sectoral innovation systems.
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American Economic Review 91(5)
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American Economic Review 91(1)
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biotechnology enterprises. American Economic Review 88(1)
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