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Presented by: Kevan Patrick O’Connor, Weijiun (Gene)
Chieh, Cristian Rene Cardenas
Cayman Islands: Considering a Cluster
Presentation Outline
1. Economic Clusters and Project Deliverables
2. Cluster Analysis
4 Domestic Clusters
5 International...
1. Economic Clusters and Project
Deliverables
What is an Economic Cluster?
“The new economics of competition” – Michael Porter
As defined by Porter:
“Critical masses – ...
Why do economic clusters matter?
Clusters provide competitive advantage
Cluster advantages
Access to supply side inputs
Ac...
Project Deliverables
What are we doing?
Examine the core factors that catalyze
the formation of technology and
biotechnolo...
Factors1
Los
Angeles
Silicon
Valley
Boston
San
Diego
Dubai Singapore
Costa
Rica
Scotland Ireland
Strong Science Base
Entre...
Porter’s Diamond is the standard for understanding cluster dynamics
Firm Strategy,
Structure,
& Rivalry
Demand
Conditions
...
2. Cluster Analysis
Boston
Biotechnology
Highly interconnected network that
spurred from academia
Institutions, mainly MIT, spill information,...
Los Angeles: Manager Connections
Los Angeles
Biotechnology
1) Casper, S. (2009). The marketplace for ideas: Can Los Angele...
Silicon Valley
Information Technology
Historical Government Spending
WWII technology spending sparked initial
labor pool
S...
San Diego (La Jolla)
Biotechnology and Pharmaceuticals, Biomedical
Historical government defense spending
Military contrac...
Singapore
Biotechnology
Government spending
Investment in STEM education to build
skilled labor force
Investment in R&D an...
1) Gvaramadze, S. (2012). Regionomics: Dubai as a Logistics Cluster.
2) Zumbach, K.U. (2010).The Role of Cluster Theory fo...
Ireland
Biotechnology
Government created ‘supply-side’ inputs
Government telecom enterprise became
leader during telecommu...
Scotland (Dundee)
Digital Media and Creative Industries
Historical heavy manufacturing industry
Historical heavy engineeri...
Costa Rica
Information and Communications Technology
State electric enterprise led to local labor pool
Need for skilled la...
Primary and Secondary Drivers of a Successful Cluster
Government investment in knowledge and infrastructure developments a...
Los Angeles
Firms created colonies due to a poor network
opportunity
Lack of effective tech transfers from universities
Su...
3. Cayman Islands: Cluster
Recommendation
Established Startup
Biotechnology
Least Feasible
Equipment intensive
Labor deficit
Minimal benefits, unless HQ is
moved he...
Offshore > Local
VC or Banks
Incubator Shareholders &
Incubator Start-ups
Local Autonomous
VC firms
1) New Business Friend...
Recommendations for New Cluster Development in the
Cayman Islands
Recommendation:
Create a VC funded incubator to segue fr...
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ALS359 Cayman Islands Cluster Project - Presentation

  1. 1. Presented by: Kevan Patrick O’Connor, Weijiun (Gene) Chieh, Cristian Rene Cardenas Cayman Islands: Considering a Cluster
  2. 2. Presentation Outline 1. Economic Clusters and Project Deliverables 2. Cluster Analysis 4 Domestic Clusters 5 International Clusters 3. Cayman Islands: Cluster Recommendation
  3. 3. 1. Economic Clusters and Project Deliverables
  4. 4. What is an Economic Cluster? “The new economics of competition” – Michael Porter As defined by Porter: “Critical masses – in one place – of unusual competitive success in particular fields.” Factors that define a cluster Geographic proximity of interrelated firms and institutions Operational synergies Productive social and information networks Skilled local labor pool 1) Porter, M.E . (1998). Clusters and the new economics of competition. Harv. Bus. Rev. 76, 77–90. Figure adapted from Porter, 1998 A cluster is a geographical area of unusually high competitive advantage Grapes Harvesting Equipment Irrigation technology Agriculture Cluster Agriculture Cluster Agriculture Cluster State Government Growers & Vineyards Wineries Educational, research, and trade organization Wine- making equipment Bottles Barrels Caps and Corks Labels PR & Advertising Agriculture Cluster Agriculture Cluster Food & Dinning Cluster Agriculture Cluster Agriculture Cluster Tourism Cluster Anatomy of the California Wine Cluster Fertilizer 4
  5. 5. Why do economic clusters matter? Clusters provide competitive advantage Cluster advantages Access to supply side inputs Access to specialized workers Access to information Access to institutions Access to distribution channels Cluster effects on business Increased productivity of firms Increased capacity for innovation Increased growth Fertile environment for new business 1) Porter, M.E . (1998). Clusters and competition: new agendas for companies, government, and institutions. Compet. 197–288. 2) Porter, M.E . (1998). Clusters and the new economics of competition. Harv . Bus. Rev. 76, 77–90. “A cluster allows each member to benefit as if it had greater scale or as if it had joined with others without sacrificing its flexibility” – Michael Porter “Paradoxically, the enduring competitive advantages in a global economy lie increasingly in local things - knowledge, relationships, and motivation that distant rivals cannot match.” – Michael Porter 5
  6. 6. Project Deliverables What are we doing? Examine the core factors that catalyze the formation of technology and biotechnology clusters Examine why clusters fail Why are we doing it? Apply the success factors to establish an enduring technology cluster in Cayman Islands Analysis framework Clusters Factor Comparison Porter’s Diamond What is the feasibility of initiating cluster development in the Cayman Islands? Scientific Policy Private Investment Knowledge Development Infrastructure Development 1) Brown, R. (2000). Cluster dynamics in theory and practice with application to Scotland (University of Strathclyde, European Policies Research Centre). 6
  7. 7. Factors1 Los Angeles Silicon Valley Boston San Diego Dubai Singapore Costa Rica Scotland Ireland Strong Science Base Entrepreneurial Culture Growing Company Base Ability to Attract Key staff Infrastructure Availability of Finance Business support Services Skilled Work Force Effective Network Supportive Policy Environment Many factors affect a cluster’s success. Some are more important than others 1) Brown, R. (2000). Cluster dynamics in theory and practice with application to Scotland (University of Strathclyde, European Policies Research Centre). 7 Good Fair Poor Key: Analysis Framework Cluster Factor Comparison
  8. 8. Porter’s Diamond is the standard for understanding cluster dynamics Firm Strategy, Structure, & Rivalry Demand Conditions Related & Supporting Industries Factor (Input) Conditions 8 Analysis Framework Porter’s Diamond
  9. 9. 2. Cluster Analysis
  10. 10. Boston Biotechnology Highly interconnected network that spurred from academia Institutions, mainly MIT, spill information, knowledge, and talent into surrounding area Spin-offs from institutions result in cluster firms A strong culture of financiers promotes new business development Historical finance hub provides fertile landscape for capital intensive innovation Capitalizes the spin-offs forming the cluster A successful cluster needs local knowledge and financing sources to promote new business formation Status: Success 1) Casper, S. (2008). Creating successful biotechnology clusters. In Presentation for “The Shape of Things to Come”, Conference, Stanford University,. 2) Feldman, M.P., and Romanelli, E. (1976). Organizational legacy and the internal dynamics of clusters: The US human bio-therapeutics industry. Figure Adapted from Casper, 2008 Boston: Inventor Networks 1995 10
  11. 11. Los Angeles: Manager Connections Los Angeles Biotechnology 1) Casper, S. (2009). The marketplace for ideas: Can Los Angeles build a successful biotechnology cluster. Rep. John Randolph Haynes Found. Keck Grad. Inst. Appl. Life Sci. 2) Cooper, C., Sedgwick, S., and Poghosyan, M. (2013). Industry Clusters of Sothern California in 2011. Figure Adapted from Casper, 2009 A fully matured cluster requires a productive network and a strong mechanism for tech transfer Status: Emerging 2004 11 Poor industry network Lack of productive network creates colonies rather than a single web City layout is not conducive to interpersonal information trade Possible cultural barriers may hinder cluster formation. Low promotion of academic tech transfer Lack of strong tech transfer offices in local universities San Francisco and San Diego siphon many of the best ideas away from the area
  12. 12. Silicon Valley Information Technology Historical Government Spending WWII technology spending sparked initial labor pool Successive waves of innovation localized firms around the Valley’s labor pool Growing VC Culture VCs flocked to area during each wave VCs financed risky innovation Provided vital professional management to young firms 1) Henton, Doug. (2000). The Silicon Valley edge: a habitat for innovation and entrepreneurship (Stanford, Calif.: Stanford University Press), P. 46. 2) Hellman, Thomas F. (2000). The Silicon Valley edge: a habitat for innovation and entrepreneurship (Stanford, Calif.: Stanford University Press), P. 276. Historical events can create a geographical concentration of an industry that attracts venture capital Status: Success •Hewlett- Packard •Varian •Fairchild •Intel •Apple •Netscape •Cisco 1950 1965 1980 1995 2010 Defense Spending Integrated Circuits Personal Computers Internet 0 500 1000 1500 2000 $0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 1975 1980 1985 1990 1995 2000 2005 Firms VCFunding($Mil) New VC Funding VC Financed Firms 12
  13. 13. San Diego (La Jolla) Biotechnology and Pharmaceuticals, Biomedical Historical government defense spending Military contracting during WWII provided financial support for R&D that created a skilled labor pool Highly interdisciplinary and entrepreneurial research institutions Strong science base within UCSD Success in securing large federal R&D grants Success of Hybritech, an early venture in the1980’s, spawned a cadre of serial entrepreneurs that created other successful companies 1) Walshok, M. et al. (2010). Biotechnology Cluster Project – San Diego Analysis (Report prepared for the US Studies Centre by Global Connect Figure adapted from Casper. S (2008), Creating Successful Biotechnology Clusters Clusters have experienced success by capitalizing on historical labor pools through careful allocation of funds Status: Success Hybritech Forward Ventures Genesys Somafix Gyphen Triangle Cyphergen GenQuest First Dental Health Combi- Chem Applied Genetics Coxixa Columbia HCA Kingsbury Partners Chomagen DigiRad Novatrix Biowest Amylin Biosite Cytel Pyxis Medmetric Vical Gen-probe Ligand Birndorf Biotech Nanogen Kimmel Cancer Inst. Urogen Gensia Cypros 11 Other non-prolific firms 13
  14. 14. Singapore Biotechnology Government spending Investment in STEM education to build skilled labor force Investment in R&D and translational science to develop new domestic enterprise Recognized scientific advisory council World renowned scientists guide domestic research efforts Market differentiation to address regional Southeast Asia medical need Government directed initiatives can guide a cluster’s scientific direction and competitiveness Status: Emerging Attract pharma multi-nationals to establish manufacturing operations Develop clinical research Stimulate supporting services Promote translational research & tech transfer Promote spin-offs and start- ups Establish public research institutions Encourage shift to R&D and clinical trials Attract VC Expand R&D and education at local university Biopolis 1) Wong, P.-K., and Singh, A. (2011). OECD Review of Innovation in Southeast Asia: Country Profile of Singapore (Research report commissioned by OECD. 306 Poh-Kam Wong, Yuen-Ping Ho, and Annette Singh). Figure adapted from Wong, 2011 14
  15. 15. 1) Gvaramadze, S. (2012). Regionomics: Dubai as a Logistics Cluster. 2) Zumbach, K.U. (2010).The Role of Cluster Theory for Economic Development: Does Porter’s Competitive Diamond Fail to Explain Dubais Financial Cluster? Bowling Green State University. 3) "Dubai Science Park: Business Partners." Http://dsp.ae/. Dubai Science Park, 2015. Web. 10 Dec. 2015. 4) Bhatti, S., Fung, J., Gavage, J., and Yoo, J. (2006). Dubai financial services cluster: Oasis or mirage (Microeconomics of Competitiveness (Spring)). Dubai Realty/Logistics/Tourism/Bioscience Healthy public and private capital Visible success through government and private investment in infrastructure Carefully planned spending Oil-related wealth Growing company base and enterprise zones Over 300 businesses represented Branding themselves as the hub of the Middle East Clusters by design are possible, but require focus for near-term success Status: Emerging Factor (Input) Conditions + Government Policy Support + Foreign Human Capital + State of the Art Infrastructure + Proximity to Suppliers/Buyers + Political Stability - Low Skilled Domestic Labor - Minimal Academic Presence - Bureaucratic Red Tape Related & Supporting Industries + Local Supplier Quality + Existence of Trade port, Tourism, Real Estate, Finance, Insurance, and Construction Industry + Dynamic Local Capital - Environmental Limitations - Local Supplier Quantity Firm Strategy, Structure, & Rivalry + Arabian Hub of Capital + Rapid Development + Open Market + Logistics Capability - Regional Terrorism Risk Demand Conditions + Buyer Sophistication & Wealth + Local Capital for Investment - Demanding Regulatory Standards 15
  16. 16. Ireland Biotechnology Government created ‘supply-side’ inputs Government telecom enterprise became leader during telecommunication boom of 1980’s Recognized for international call services and charges Establishment of Regional Technical Colleges created a skilled labor pool Favorable Tax Policy Low 12.5% Corporate tax rate2 Variety of industry specific tax incentives 25% R&D tax credit3 “Fortune favors the well prepared,” even in the case of governments and clusters Status: Success Leader in Telecom Favorable Tax Policy Skilled Labor Pool Attractive landscape for foreign investment and cluster development Gov’t Funded Higher Education Gov’t Telecom Funding Irish Free State 1922 1) Burnham, J.B. (2003). Why Ireland Boomed. Inst. Public Aff. Rev. 55, 4–7. 2) Corporate tax. Revenue. http://www.revenue.ie/en/tax/ct/index.html 3) Research & Development. Revenue. http://www.revenue.ie/en/tax/ct/research-development.html 16
  17. 17. Scotland (Dundee) Digital Media and Creative Industries Historical heavy manufacturing industry Historical heavy engineering created skilled labor pool that allowed for expansion into technology and digital media Formation of the Scottish Screen company A result of the failure to secure majority of filming of “Braveheart” Development of a creative cluster – multimedia, digital technologies, animation, on-line videos and film – to support the film industry Emphasis on cultural enterprise 1) Turok, I. (2003). Cities, clusters and creative industries: the case of film and television in Scotland. European Planning Studies 11, 549–565. 2) Ontario Ministry of Tourism, Culture and Sport. Introduction: Ontario’s Creative Cluster. Retrieved from http://www.mtc.gov.on.ca/en/creative_cluster/cluster_report_intro.shtml Figure Adapted from mtc.gov Creative media firms benefit from a cluster that provides a flexible and liquid skilled labor pool Status: Emerging Supporting Creative Content Core Core Arts and Cultural Workers Actors Writers and Authors Visual & Performing Artists Cultural Institutions Content Production Cluster Newspaper Publishing Broadcasting (Radio and TV) Video Production Music Recording and Publishing Commercial Theatre Interactive Digital Media Print Publishing Wider Creative Industries Design (Industrial, Graphic, Fashion, etc.) Advertising Supporting Industries Consumer Electronics IT Software Development Printing Recording Materials Broadcast Distribution Wireless Carriers Specialized Finance Specialized Education CreativeIndustries Cultural Industries 17
  18. 18. Costa Rica Information and Communications Technology State electric enterprise led to local labor pool Need for skilled labor in electric enterprise led to technical education programs Program graduates founded about 20 local firms Network failure prevents typical cluster synergies Network failure creates information failure Lack of value-added through information spill-over Results in failure to transition from ‘colony’ to cluster 1) Ciravegna, L. (2012). Promoting Silicon Valleys in Latin America Lessons from Costa Rica. (Hoboken: Taylor & Francis). Complete cluster evolution requires the formation of social and information networks Status: Emerging Local Labor Pool Government Specialized Education Programs State Electric Enterprise Intel Manufacturing Presence Other Cluster Firms Indicates influence of one entity on another Indicates direct transfer/use of talent 18
  19. 19. Primary and Secondary Drivers of a Successful Cluster Government investment in knowledge and infrastructure developments are crucial to attract private capital Industry Infrastructure Federal R&D Grant University Private Investments Government Spending VC Mobility Innovation Trade Group Entrepre- neurship Network Policy 19
  20. 20. Los Angeles Firms created colonies due to a poor network opportunity Lack of effective tech transfers from universities Supporting Industries were matured too far beyond a supporting role Dubai Supporting industries are still being established Lack of a single industry focus These factors can be seen in many successful clusters, a break down of one interrelationship can be detrimental Firm Strategy, Structure, & Rivalry Demand Conditions Related & Supporting Industries Factor (Input) Conditions 20 Porter’s Diamond Explaining Cluster Failure and Success
  21. 21. 3. Cayman Islands: Cluster Recommendation
  22. 22. Established Startup Biotechnology Least Feasible Equipment intensive Labor deficit Minimal benefits, unless HQ is moved here Moderate Feasibility Equipment intensive Flexible of startup team Zero capital gains tax New Media Moderate Feasibility Minimal benefits, unless HQ is moved here Relative abundance of labor from firms in house labor pool Most Feasible Requires basic facilities Flexibility of startup teams Relative abundance of labor through body shopping Zero capital gains tax Given the resource constraints of the islands, new media start-ups are the most feasible new venture IncreasingFeasibility Increasing Feasibility Comparison of New Venture Prospects Cayman Islands 22
  23. 23. Offshore > Local VC or Banks Incubator Shareholders & Incubator Start-ups Local Autonomous VC firms 1) New Business Friendly 2) Favorable Tax Policy Government VC Fund Education Programs Local Senior Management/Leadership & Talent Included in Incubator Firms 1) Mature labor pool 2) Local Professional Management Basic Facilities 1) Housing Facilitates 2) Operating Facilities Sales, Equity, & Capital Gains Industry Specific Configuration Sales & Capital Gains Equity in Local Firms & Capital Gains Industry KOL Global Connection Local Presence 1) Influence in Local firms 2) Reputation as a Local Expert Minimal 1) Small & Productive but Closed 2) Consisting of incubator firms Colony Incubator Cluster InputsOutputs Talent Policy Financing Infrastructure Position Advantage Network Wealth Generated Factors 1) Skilled labor 2) Remote or Local Management Industry Supporting Education Programs & Network Forming Trade Groups Cayman Islands Cluster Sandbox “A potential framework for investor driven cluster formation” An incubator in the Cayman Islands may provide the stepping stone required for complete cluster formation
  24. 24. Recommendations for New Cluster Development in the Cayman Islands Recommendation: Create a VC funded incubator to segue from individual firm to cluster dynamics A VC funded incubator would allow an investment group to establish a series of related companies under a single network with incubator managers at the center Incubator managers would maintain influence over incubator progeny as cluster develops Incubator shareholders would gain additional equity in new businesses as compensation for incubator services Zero capital gains tax maximizes profits from eventual sale of equity Incubator managers would become local experts Provides influence on policy making and attracts more start up firms to the incubator Incubator managers could develop supporting services for incubator progeny for profit Most relevant near-term requirements Local skilled and available labor Productive social and information networks Local education/training programs Most relevant long-term requirements Operational synergy among cluster firms Local autonomous VC Development of supporting services 24

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