This document discusses fostering innovation-led clusters through government support. It defines clusters as groups of co-located businesses and institutions in specific fields. Successful clusters are self-reinforcing and attract more businesses through collaboration between members. The keys to success include a combination of top-down government support and bottom-up collaboration, with a focus on developing talent, culture, policy/finance support, and infrastructure. Case studies highlight how Singapore, South Korea, Chile, and Russia's Skolkovo region have developed innovation clusters through long-term investments in education, skills training, business support programs, and legal/regulatory frameworks.

1. Fostering innovation-led clusters Sponsored by

2. Developing clusters Clusters are not a new idea – they’ve been around for years, across all industries, from furniture to finance Definition: a group of co-located businesses and institutions in a particular field The most famous examples include Hollywood, Bordeaux and the financial sector in New York A successful cluster is a magnet for businesses and individuals: it’s self-reinforcing This report focuses specifically on innovation-led clusters, which include R&D at their core

3. Keys to success Both top-down and bottom-up approaches can work Most successful clusters such as Silicon Valley have had government support Focus on a niche: identify and support existing activities Co-location is not enough: collaboration is an essential feature of successful clusters This report focuses on 4 elements of clusters: talent; culture and quality of life; policy and finance; infrastructure and local market

4. Silicon Valley – the world’s most famous cluster

5. Case study: Singapore The small city-state is now a thriving R&D hub, through a government-led approach One of the core drivers has been its long-term focus in education and skills Investment sustained over decades, to bolster supply of high quality talent Supports all aspects of the R&D ecosystem “ If there’s one thing that is important in all this, it is talent, talent and talent”: Lim Chuan Poh, chairman, Agency for Science, Technology and Research

6. Talent: the central linchpin “ People are the critical ingredient” – Charles Cotton, the Cambridge Phenomenon Specialist skills are key: quality more important than quantity Universities help provide a supply of skills Attracting prominent researchers or industry names speeds development

7. Case study: Start-Up Chile Seeks to attract early-stage hi-tech businesses from around the world Offers US$40,000 funding, a free place to work, a one-year visa and mentoring Nearly 1000 start-ups have applied for around 200 positions so far Participants are expected to share knowledge and network “ We want to achieve an economic change through cultural change”: Start-Up Chile executive director Jean Boudeguer

8. Getting the culture right A supportive culture enables innovation to flourish Recognise local champions Remove the stigma and penalties of failure Tolerate different views and perspectives Support quality of life: good schools, personal freedom, a thriving cultural scene

9. Case study: South Korea Asian crisis in late 1990s was a catalyst for action, when 11 of its 30 largest chaebol collapsed Government decided to incentivise entrepreneurship, as an alternative career choice Reformed tax code and bankruptcy rules Gave a higher profile to entrepreneurs More recently, specific initiatives set up, such as Seoul’s “Youth 1,000 project”

10. Easing barriers to innovation: policy and finance Offer tax incentives & bring corporate stock structures in line with international norms Remove red tape and ensure a competitive marketplace Make immigration easier Ensure IP protections Match any government investments with private sector funds to ensure rigour

11. Skolkovo – Russia’s Silicon Valley?

12. Case study: Skolkovo hi-tech cluster tears up the rulebook Russia is home to many skilled scientists and mathematicians, thanks to its educational legacy But bureaucracy and corruption stifle innovation A new Skolkovo cluster has US$5bn government funding Partnership with MIT to ensure top quality talent Unique operating environment set up to facilitate greater freedom: its own police force, Skolkovo-specific laws, IP courts “ We’re creating a protective ecosystem that is necessary in Russia to nurture these very early stage companies”: Steven Geiger, COO, Skolkovo Foundation

13. The right location Clusters are people projects, not building projects Governments should focus on supporting infrastructure – such as schools, transport, hospitals A large local market can help, but is not essential Israel and Singapore have secured large global markets, despite relatively tiny local demand The sophistication of demand can be more important than the quantity of demand

14. Pitfalls: why some clusters fail Investing in white elephants without ensuring demand – e.g. Malaysia’s BioValley biotechnology cluster Neglecting market fundamentals – investing in inappropriate areas or technologies Trying to pick winners – e.g. Michigan’s US$1.6m investment in a hybrid vehicle startup, which failed despite strong state backing

15. Conclusion 1 2 3 4 Take a long term approach Success is measured in decades, not years Silicon Valley, Cambridge and Singapore … all took a long time to establish themselves

16. Conclusion 1 2 3 4 Skills and education are the linchpin Excellent universities (e.g. Cambridge, Stanford) A steady supply of local talent – good schools and colleges The ability to draw in talent from elsewhere A focus on bringing locals back – reversing the brain drain

17. Conclusion 1 2 3 4 Fragile global economy creates opportunities for Middle East A historically underdeveloped market A youthful demographic A well-educated population Fewer restrictions on immigration

18. Conclusion 1 2 3 4 The Middle East is developing the right fundamentals Huge increase in the number of universities Substantial government investment in R&D A focus on a handful of key sectors Improving local amenities and infrastructure

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