104.  The concept of 'clusters' and their contribution to economic growth has been most closely associated with the Harvard academic Michael Porter and his work has evidently found resonance within the DTI.[84] In 1999 the Minister for Science published a report, Biotechnology Clusters, which set out the benefits of clusters in promoting the UK's biotechnology sector.[85]

105.  A cluster can broadly be characterised as a geographical concentration of companies, service providers, suppliers and, at least in the case of a high technology industry such as biotechnology, research (in practice a university or research institute) in a particular industry. Under the cluster concept, these all compete with each other but also provide a mutually beneficial climate in which to develop, which in turn stimulates further company formation, the provision of services or research activity.

106.  Biotechnology Clusters identified ten critical factors for cluster development —

i)  Strong science base
ii)  Entrepreneurial culture
iii)  Growing company base
iv)  Ability to attract key staff
v)  Availability of finance
vi)  Premises and infrastructure
vii)  Business support services and large companies in related industries
viii)  Skilled workforce
ix)  Effective networks
x)  Supportive policy environment[86]

107.  These factors are both the result of a critical mass of biotechnology in a given location but also stimuli to further activity and thus, it is argued, a virtuous circle is established where the benefits of a concentration of biotechnology activity gives rise to further activity.[87]

108.  We wanted to find about the benefits of clusters from those with first hand experience of them so we undertook visits to Edinburgh and Cambridge in the UK, Munich and Berlin in Germany, and Boston and Raleigh-Durham in North Carolina in the USA. The transcripts of the meetings we had in Edinburgh and Cambridge are appended to this report.[88] Our witnesses reiterated the importance of many of the factors listed in the DTI's report, but also that the importance can be overstated and that there can be negative aspects of being located in a cluster.

109.  Many of the companies based in a cluster may have been spun out of one of the universities or research institutions at the core. They may have started life in a university-owned incubator facility and then perhaps, as they grew, graduated to a nearby science park. The proximity of the parent department allows some continuing collaboration between faculty and the company researchers, potential employment opportunities for the department's post-doctoral researchers and a more general interaction between industry and academia.

110.  But successful clusters will not comprise local spin-outs alone. Whilst a high degree of company formation is a key characteristic of a successful cluster, companies are located there which have no particular links to the area or the research institutions in it. They are attracted to the cluster by the resources it provides but also perhaps by the 'buzz' of being situated in a location with so much biotechnology activity occurring, and even by a desire to reap the reputational benefits of the cluster's brand name.[89]

111.  As well as technology transfer from the research institutions in the centre of the cluster in the form of licensing or spin out activity, knowledge transfer can also occur on a more informal basis through face-to-face contact between those working for the various companies and research centres.[90] With the regular face-to-face interaction that clusters make possible, this more informal knowledge transfer can take place on a regular basis in a way that would not be possible to the same degree over larger geographical areas.

112.  A particular appeal of clusters, we found, was that, with the concentration of biotechnology in a relatively confined location, there is a burgeoning specialist labour market. Companies based in clusters can normally recruit people with the necessary scientific skills with relative ease. The universities, around which the clusters tend to develop, can provide a steady stream of doctoral and post-doctoral researchers to work in the companies. From the perspective of the individual scientist, the appeal of being based in a cluster is also clear. Given the volatile nature of the biotechnology sector and the high attrition rates amongst companies, scientists located in areas with substantial biotechnology activity know that, in the event of such a company failing, a new opportunity will not be far away.[91] Larger, more established clusters may also have a large pharmaceutical company presence — we saw this in Cambridge, Boston, Raleigh-Durham and Munich, for instance. Whilst, according to our sources, there was limited interaction between the large pharmaceutical and the smaller biotechnology firms, again the large pharmaceutical companies provide a source of recruitment for scientists and also for management.[92]

113.  Given the concentration of biotechnology firms, specialist premises are likely to be available in clusters. Fitting out premises to make them suitable for biotechnology work can be costly — specialist drainage and ventilation systems are required, for instance. Given this cost, developers are unlikely to be willing to provide specialist accommodation unless they see a continuing demand for it. With the high concentration of firms in clusters and long term demand guaranteed by the high levels of new company formation, a developer is more likely to be willing to provide the sort of suitably furnished premises required. (However, even in the well-known biotechnology centres like Cambridge and Munich, some public sector involvement in the provision of such premises is normal: in the case of Cambridge the lead has been taken by colleges such as St John's and Trinity; in Munich it has been the land government).

114.  One of the key factors that makes a cluster more than just a concentration of firms is the presence of an associated service sector. As a biotechnology firm, being located in a substantial cluster means being close to a variety of specialist services that can be drawn upon. For instance, clusters may also be home to venture capital firms and, though less often in Europe, to a number of business angels. As investors it makes commercial sense to locate in an area with a steady stream of investment opportunities. As we have already noted, venture capital investing seems parochial by inclination so the presence of a significant venture capital community is a considerable asset. As well as venture capitalists and angels, the concentration of biotechnology ensures a supply of other services such as lawyers with particular expertise in intellectual property and regulatory matters as well as a range of consultants that can offer help to growing companies.[93]

115.  The concentration of biotechnology-related activity in an area can increase awareness of the sector's special difficulties among local policy makers, and thereby contribute to a more sympathetic policy climate. With the economic importance of the biotechnology cluster and the scope for a formal organisation to represent it, the lobbying power of those involved in the sector is increased. As an example, we heard how effective this had been in improving the policy climate for biotechnology in the Boston area.

116.  But locating a company in a thriving biotechnology cluster is evidently not without its negative aspects. A frequent complaint that we heard in relation to places like Cambridge in the UK and Boston in the US was the relative shortage, and consequently the very high cost, of accommodation. Whilst there is more likely to be a stock of specialist premises in areas such as these, demand for them will be very high. We were told of a shortage of science park space that was confining companies to incubators for longer than necessary. This in turn was creating a logjam in incubator space.

117.  Clearly, a supportive planning regime can help ease some of the pressure by making new build or the conversion of existing premises easier. However, in the most successful clusters, space will always be at a premium and command a high price. This has led to clusters spreading outwards. The Boston cluster spreads out some miles beyond the city; whilst the Scots biotechnology cluster is focussed in Edinburgh, it spreads across the central belt to Glasgow and north to Dundee; and the Cambridge cluster has spilled over into neighbouring counties. However the size of a cluster seems to be a matter of perception. In the USA cluster boundaries were effectively defined by flying or driving times and whether a meeting could be attended or a visit made without the need for an overnight stay. In the UK it seems that the boundaries are defined by commuting distances so the pressure on accommodation here is likely to continue.

118.  Whilst the burgeoning labour market for scientists may well be an appealing aspect of locating in a cluster, it could be viewed as a mixed blessing. Whilst recruitment in clusters may be much easier, it is likely that staff retention will be much harder as there will be regular opportunities to move on. Some of the companies we spoke to in Scotland felt that an advantage of being based away from the Cambridge region was the greater ease of retaining staff.[94]

119.  The main benefits of clustering lie in knowledge transfer, support services and labour supply. It was pointed out to us that these benefits are felt most strongly by small, young companies. Once a company has reached a certain stage in its development, it will not necessarily gain as much from a cluster location as it once did. Of course there may be little point in moving. However, such companies are not tied to a particular location:"I do not think it matters where you are located because there are no borders in the biotech industry".[95]

120.  Numerous regions in a number of countries seem to be trying to develop biotechnology clusters, but the most successful ones in places like Cambridge, Boston or San Francisco have developed as a result of a coincidence of factors rather than as the result of deliberate design and public policy. It is clear that clusters can be hindered by policy — obstructive regulatory or planning regimes, for example. But the extent to which they can be created through design is less clear. The cluster concept provides a good description of the factors involved in the success of biotechnology in certain regions. It does not, however, necessarily provide a blueprint for establishing biotechnology elsewhere.

121.  With this in mind we are concerned that too many areas have targeted biotechnology as an industry to cultivate. Not only may considerable sums of public money be wasted in trying to force into existence local biotechnology companies, but also rivalry between regions may adversely affect those with existing strengths in the sector thus undermining the success of biotechnology in the UK as a whole.

85   Biotechnology Clusters, DTI (August 1999) Back

86   Ibid.; App 2 Back

87   Eg Q 43 (BVCA) Back

88   Qq 165-383 and 385-509 Back

89   Q 315 (Strakan) Back

90   Biotechnology Clusters, DTI (August 1999), Para 1.4 Back

91   Q 288 (Pantherix) Back

92   Q 490 (Acambis) Back

93   Q 489 (Acambis) Back

94   Q 315 (Strakan) Back

95   Q 313 (Cyclacel) Back