1. Innovation Systems Research Network Regional Clusters in a Global Industry: ICT Clusters in Canada David A. Wolfe Matthew Lucas Anita Sands Program on Globalization and Regional Innovation Systems Centre for International Studies University of Toronto Presentation to the ONRIS/MRI/MEDT Fall Workshop Queen’s Park, Toronto November 4, 2005

2. Innovation Systems Research Network Key Issues Two stages of cluster development –Cluster evolution –Cluster growth Key Factors –Talent –Knowledge base –Anchor organizations –Partnerships and linkages Policy implications –The role of senior levels of government

3. Innovation Systems Research Network ISRN’s Cluster Life Cycle

4. Innovation Systems Research Network ISRN’s ICT Case Studies Ottawa Telecom and Photonics Waterloo ICT and Software Calgary Wireless Vancouver Wireless Quebec Photonics New Brunswick ICT Cape Breton ICT

5. Innovation Systems Research Network Path Dependence and Cluster Formation Initial conditions and trigger events –Entrepreneurial intervention –Role of lead or anchor firm –Spin-offs and technological spillovers –Key role of public sector institutions –Institutional and cultural dynamics Random acts of entrepreneurialism not fully explained by local circumstance: –“Chance, however, often has local antecedents, making its role less than it first appears” (Porter) –Cluster emergence inextricably intertwined with local institutions

6. Innovation Systems Research Network Cases in Cluster Formation Local antecedents –Ottawa ICT – federal labs –Waterloo ICT – founding of university –Calgary Wireless – public infrastructure –Quebec Photonics – public research institutions –NB ICT – lead anchor firms –Cape Breton – industrial restructuring Chance occurrences and trigger events –Ottawa ICT – US consent decree – Bell Northern Research –Waterloo ICT – Waterloo Maple and early spin-offs –Calgary Wireless – NovAtel –Quebec Photonics – Exfo and ABB Bomem – early spinoffs –NB ICT – provincial government and NBTel –Cape Breton – government directed

7. Innovation Systems Research Network Talent and Cluster Formation Development of ‘thick’ labour market supports cluster formation –Ottawa and Waterloo blessed with strong research infrastructure that fed growth of talent base –Quebec – specialized research infrastructure that focused on niche markets –Calgary and Vancouver – critical role of lead anchor firms contributed to concentration of talent in the local economy –NB – lower skilled labour force, but exploited cost advantage to attract firms –Cape Breton – government driven, limited education base – limited success Inflow of firms attracted to talent base –But also stimulates growth of the talent base Challenge of finding management talent to support cluster growth

8. Innovation Systems Research Network The Knowledge Base for Cluster Formation Analytic knowledge base draws upon research infrastructure of the regional economy –interaction between research institutes and entrepreneurial drive of emergent firms Combinations of complementary knowledge –Alberta Telephones and Nova Corp As cluster grow – firms expand source of the knowledge base –RIM partners –Nortel global research activities Differentiate between R&D – “Big D, little R” For regions with both weak public research infrastructure and private R&D activity –Challenge of expanding knowledge base is considerably greater

9. Innovation Systems Research Network The RIM Partner Model CRM ERP/SCM Business Intelligence Network & Systems Management Messaging & Collaboration Document Management Platforms Content Providers Corporate Access Corporate IT Environments

10. Innovation Systems Research Network The Role of Anchor Organizations Anchor organizations pivotal in the emergence of six out of seven case studies –Divided between large private firms Ottawa, Vancouver Internal capital and market linkages – crucial assets –Public utilities Calgary, New Brunswick –Public research institutions Waterloo, Quebec Provided stable employment and helped build thick labour market –Source of spin-off firms and new firm formation

11. Innovation Systems Research Network Partnerships and Linkages Crucial role of public research facilities in partnering with private industry Public leadership can also drive cluster development –Case of NB ICT Relatively weak local linkages –Lack of intensive local firm interaction –Inapplicability of the Porterian model –Relatively small size of Canadian market and export orientation of firms Problems of international branding

12. Innovation Systems Research Network Emerging Role of Civic Associations Networking Institutions for Collaboration –Promote cluster awareness –Engage in dialogue of cluster’s competitive position –Monitor and communicate market and technology trends –Develop training and management programs –Develop mentoring programs for new firms/business people –Participate with government in recruitment efforts –Expand cluster to include all constituents –Link common assets across clusters Emergence of local civic associations is critical step in the formation of cluster identity –OCRI – Ottawa –Communitech – Waterloo –Calgary Technologies Inc – Calgary –WINBC - Vancouver

13. Innovation Systems Research Network Drivers of Cluster Initiative Success Setting –Strong business environment –Trust in government –Strong regional government –Cluster strength Objectives –Broad range of objectives –Objectives selected based on cluster’s specific needs –No significant effect of special objectives Process –CI Facilitator with cluster insight –CI has office and significant budget –CI has clear strategy and measurable goals –No negative effect of government financing –Negative effect of limiting participation Source: TCI Greenbook, 2003

14. Innovation Systems Research Network The Role of Finance: the Missing Dimension Few ICT clusters conform to SV model Key sources of finance –Large anchor firms incubate new spin-offs –Firms startup as service firms – obtain initial finance from local firms or angel investors –Successful entrepreneurs become angel investors or VC’s –Cluster growth attracts foreign VC’s –Expansion of LSVCC’s created new pools of funds Critical gap at medium stag –Lack of deep capital markets poses critical challenge for growth of firms – Newbridge, MD and others

15. Innovation Systems Research Network Policy Implications Linkages between elements of the system –Especially research infrastructure and clusters –Not just a ‘supply-push’ phenomenon Importance of demand side of innovation system –Absorptive capacity – at both firm and regional level –Knowledge is not a ‘free good’ Growing role of networks and clusters –Talent as a key attractor – ‘Competing on Creativity’ –Combination of educational resources and quality of life factors Importance of social factors and institution building Gaps in capital markets at key stages of cluster evolution Critical role of strategic planning and regional foresight at the local and community level –Coordinate federal agencies at local level

16. Innovation Systems Research Network Magic Bullets ? Business led –sustain leadership –Identify champions Clustering is a process not a goal Promote networking and interaction –Build common vision Focus on achievable steps –Revise, refocus Align institutions and resources –Across three levels of government –Clusters focus federal/provincial initiatives –Clusters lead workforce development –Educational institutions target critical areas