Biotechnology industry in metropolitan region of Prague: a cluster within a fragmented innovation system?
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- Bertram Wilkins
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1 Biotechnology industry in metropolitan region of Prague: a cluster within a fragmented innovation system? Pavla Žížalová, Jiří Blažek Department of Social Geography and Regional Development, Faculty of Science, Charles University in Prague, Albertov 6, PRAHA 2, Czech Republic, pavla.zizalova@yahoo.co.uk 1
2 Abstract Previous research on regional innovation system has shown that Prague is a prime example of a fragmented metropolitan regional innovation system. Fragmented innovation systems are characterised by a strong endowment with knowledge and innovation infrastructure elements (i.e. universities, research institutes, innovating companies, support infrastructure etc.), but they suffer from a lack of local networking, co-operation and knowledge transmission. The aim of this paper is to investigate the nature and geography of innovation and knowledge sourcing and collaboration in the biotechnology industry in the metropolitan region of Prague. The key question to be dealt with is whether this general feature of Prague`s innovation system (i.e. fragmented structure of the system and the lack of local networking) can also be found in knowledge intensive sector such as biotechnology. Key words: biotechnology, regional innovation systems, networks, Prague, Czech Republic 2
3 Introduction Since the seminal work of Freeman, Lundvall, Nelson or Edquist (Freeman, 1987, Lundvall, 1992, Nelson, 1993, Edquist 1997) the innovation system (IS) approach has been largely adopted by scholars, practitioners and also policy makers. The extensive literature on systems of innovation has largely emphasized that innovations are the result of the continuous interaction of firms with each other and with other knowledge-generating organizations in the system. Therefore, the main focus of the IS approach is the operation of the system and the complex interactions that take place among the different organizations and institutions in the system. And this is also the focus of our paper, more specifically, the paper focuses on the operation of and interactions within a specific regional and sectoral innovation system, namely that of biotechnology in the capital city of Prague. Biotechnology is still rather an emerging sector, particularly in the new EU member states, yet since its emergence it has been an attractive object of study. The reasons lie in its specific characteristics. Biotechnology represents one of the most research-intensive activities in contemporary economy with relatively generic character as advances in this field bring new applications in variety of industries such as human and veterinary health, agriculture, industrial processing and other (OECD, 2006). According to Ebers, Powell (2007) there have been three main strands in the studies of the biotechnology sector of which to two of them this papers aims to contribute. They are related first to how biotechnology firms create knowledge and generate innovations and second to how the structure and the relations of the sector are organized (Ebers, Powell, 2007, p. 433) 1. The latter theme might be associated mainly with the now widely accepted and documented importance of interactions and networking in the context of technological innovation (see for the biotechnology sector e.g. Pisano, 1991, Powell, 1998, Haanaes, 1999, Oliver, 2004, Orsenigo et al, 2001, Waluszewski, 2004, Roijakkers and Hagedoorn, 2006, Gilsing and Nooteboom, 2006). As biotechnology is a sector which is often considered as a representative of analytical knowledge base (Asheim, Gertler, 2005) that draws heavily particularly on university science, relationships between firms and various research-performing organizations are of particular importance as compared to more traditional industries. According to Powell at al. (1996), all the relevant skills are rarely found under a single roof, the participants are frequently linked through a lattice-like network of inter-organizational agreements. Additionally, biotechnology is characterized by specific collaboration between large firms (e.g. in pharmaceuticals) and small, research-based start-ups (often university spin-offs). Another notable feature of the biotechnology industry, which is related particularly to biopharmaceutical industry, is that these activities and its actors tend to cluster in space. According to Cooke (2006) vast majority of biotechnology activities is located in close proximity to world-leading universities (such as Boston, San Francisco, San Diego or New York). 1 The last strand of literature is concerned with how the biotechnology industry developed, yet this is not subject to our analysis. 3
4 Long it has been believed in the literature that particularly collaboration among regional actors (firms and others) is of crucial importance for stimulation of innovation and economic growth (see, e.g., Asheim and Isaksen, 2002, Gertler, 2004). This is claimed to be true in particular for science-based and knowledge-intensive industries, such as biotechnology and information and communication technology (see, e.g., Powell, 1998, McKelvey, 2004). Yet, given the spatial concentration of the biotechnology industry we might assume that the local ties need to be complemented with interactions with their counterparts in regions across the globe. This pattern of interactions has been described as local nodes in global networks (Gertler, Levitte, 2005) or local buzz and global pipelines (Bathelt et al., 2004). At the same time, it is assumed local and global interconnections differ with regard to their form and content as well as with regard to the mode of knowledge creation. The aim of this paper is to analyse the spatial organization of interaction among Prague biotechnology firms to question whether it is true that biotech firms are dependent on both regional and global knowledge networks. The point of departure is observation that Prague is a prime example of a fragmented metropolitan regional innovation system (Blažek, Uhlíř, 2007). Fragmented innovation systems are characterised by a strong endowment with knowledge and innovation infrastructure elements (i.e. universities, research institutes, innovating companies, support infrastructure etc.), but they suffer from a lack of local networking, co-operation and knowledge transmission. The aim of our analysis is thus to find out whether this general feature of Prague s innovation system (i.e. fragmented structure of the system and the lack of local networking) can also be found in a knowledge intensive sector such as biotechnology. The findings are intended to shed light on the geography of innovation in biotechnology as well as to contribute to the research on innovation and innovation systems. The paper is structured in the following way. In section 2 key theoretical concepts and previous studies related to the paper theme are reviewed as a starting point to develop a conceptual framework for our analysis. Next, to provide context for the empirical research, in section 3 we describe shortly the biotechnology sector in the Czech Republic and in Prague particularly. In section 4, details of the methodology of our analysis are presented. Section 5 presents findings on collaborative patterns of the interviewed firms. Finally, in section 6, we conclude the paper by discussing our main findings and linking back to the research questions. In addition, several implications for design of support programmes will be provided. Theoretical concepts The point of departure for our study can be traced back to the writings of Marshall (1920, 1927) and the concepts which to a large extent followed his ideas. These include works on the Italian industrial districts (e.g. Beccatini 1990, Asheim 2000), regional clusters (e.g. Porter 1990, 1998) and learning regions (e.g. Morgan 1997). The central idea of these concepts is the emphasis on the beneficial effects of the territorial concentration of various activities and actors that are larger than those each actor could generate in isolation (Asheim, 2000). The spatial concentration brings not only direct economic effects but also so called untraded 4
5 interdependencies which together promote generation and transfer of skills and knowledge and hence promote innovation creation. Even though numerous studies examining these ideas have brought rather ambiguous results (for a critical review of learning regions and related concepts see Hassink, 2005), it is still argued that particularly in industries such as biotechnology the co-location is still highly beneficial when numerous new companies emerge as university start-ups (Casper, 2007). However, as Simmie (2006) points out, much debate on the contribution of clusters to productivity and competitiveness has been on the basis of presumption or belief rather than founded on empirical evidence. Various authors therefore came with the notion that it is necessary to attain knowledge by investing in building channels of communication to selected providers located outside the local milieu (e.g. Bathelt et al., 2004). Maskell, Malmberg (2007) argue in a similar way. According to them, clusters (agglomeration of firms with complementary and similar competencies) are the result of myopic behaviour which at the same time leads to lack of variety as it is based on selection of temporarily best practices. Therefore, the authors argue that to overcome the long-term consequences of a lock-in situation, at least some of the co-located firms have to build absorptive capacities and pipelines to external knowledge pools with dissimilar routines or institutional patterns (Maskell, Malmberg, 2007, for analysis of other possible barriers for acquiring of knowledge see e.g. Jungwiertová, 2008). Owen-Smith, Powell (2002) have shown in the case of the Boston biotechnology industry that access to new knowledge does not result only from regional interaction but is often acquired through networks of international reach. Hence, Bathelt et al. (2004) argue that both local and global linkages offer particular, though different, advantages for firms engaged in innovation and knowledge creation referring to a local buzz-global pipeline model of cluster competitiveness. Role of these networks depend, inter alia, on characteristics of the specific knowledge which the collaboration involves. A first distinction in knowledge characteristics is the one between tacit and codified knowledge introduced by Polanyi (1967). Another way to approach these questions is the distinction made by Asheim, Gertler (2005) between analytical and synthetic knowledge base. The knowledge bases are suggested to include different mixes of tacit and codified knowledge and also different possibility for codification, hence different sensitivity to geographical distance. Even though the knowledge bases concept attempts to transcend the simple tacit-codified dichotomy referring also to distant knowledge creation, it represents its key dimension. Asheim et al. (2007) and Moodysson et al. (2008) argue that industries that rely mainly on analytical knowledge base might be characterized as less sensitive to distance benefiting from global knowledge networks as well as local collaboration because both knowledge inputs and outputs are often codified. On the other hand, for synthetic knowledge base industries tacit knowledge seems to be more important as knowledge often results from experience gained in the workplace, and through learning by doing, using, and interacting (Lundval et al. 2002). Biotechnology is often characterized as drawing particularly on analytical knowledge base. The reason is that the mode of knowledge creation differs significantly from most of 5
6 (traditional) industries. It is less dependent on learning by doing and trial and error procedures (see e.g. Gilsing, Nooteboom, 2006). The biotechnology projects are also much more formalized and drawing more often on formal scientific knowledge. Taking into account the spatial pattern of leading biotechnology centres described in Cooke (2003) we might come to the conclusion that global networks transferring particularly codified knowledge are prominent for the biotechnology industry. Nevertheless, mutual interdependence of big pharmaceutical companies and small Dedicated Biotechnology Firms (DBFs) led to the tendency of small firms to occasionally agglomerate close to large biotech firms (Feldman, 2005). Another tendency observed in the literature is the tendency to locate in the proximity to leading universities (Cooke, 2003). Therefore, various authors argued that collaboration within the biotech industry is best handled at short geographical distance (Coenen at al., 2004). Hence, biotech industry is now considered as a prime example of the local nodes and global networks configuration as outlined for instance by Cooke (2003, 2004) or by Gertler, Levitte (2005) for the Canadian biotech sector. Nevertheless, Cooke (2006) and Orsenigo et al. (2001) argue that even within biotechnology distinctive specificities have developed. This might be attributed to the specific nature of technology used in different strands of biotechnology activities as well as to distant learning processes which shape the organization form of R&D, division of labour, geography of cooperation and industrial dynamics. So, according to these authors agro-food biotechnology locales differ from those specializing in pharmaceuticals or genomics or environment/energy biotechnology 2. Beside, describing the spatial patterns of knowledge flows within the biotechnology sector, our paper focus on the study of specific regional economy, that of the capital city of Prague. A general framework of this paper is, hence, the innovation system concept, particularly the regional variant (Braczyk et al., 1998). The definition of a system of innovation stresses as necessary components the presence of two interacting subsystems of actors systematically engaged in interactive learning (Cooke et al., 1998): The regional supportive infrastructure or knowledge generation subsystem which consists of public and private research laboratories, universities and colleges, technology transfer agencies, vocational training organisations, etc. The regional production structure or knowledge exploitation subsystem which consists only of firms, especially where these display clustering tendencies. Hence, successful (regional) innovation systems have organizations that conduct research generating new knowledge and crucially, other appropriate organizations, principally firms 2 Agro-food is dominated by a few multinational corporations conducting much leasing edge research in-house although they are also found in juxtaposition to national research institutes, themselves often located historically in agricultural zones. Biopharmaceuticals is unlike this. Universities and centres of research expertise lead the field in bioscientific research and the exploitation for commercial purposes of biotechnology and corporate pharma is a supplicant to these leading edge research centres (Cooke, 2006). 6
7 that commercialize this knowledge as innovations (Cooke, 2007). Cooke et al. (1998) stressed it is vital that these two structures are systematically engaged in interactive learning. Lack of or inappropriate links between the different actors and organisations involved in the innovation process belongs to one of several types of failure that can arise blocking the system s functioning (Töddling, Trippl, 2005, Lundvall, 2002; Lundvall, Borrás, 1999). Töddling, Trippl (2005) labelled these innovation systems as fragmented and associated this deficiency particularly with metropolitan regions. Metropolitan regions are in general regarded as centres of innovation, benefiting from high concentration of leading research organisations and universities, business services, as well as headquarters of international firms and high-tech companies. However, some of the regions are lacking the dynamic interactions vital for successful innovation systems. Recently, Prague has been identified as a prime example of such a fragmented metropolitan system (see Blažek, Uhlíř, 2007). The City of Prague is the most economically developed region not only of the Czech Republic but is the economically strongest region in Central and Eastern Europe. Prague has a highly skilled workforce and concentrates high proportion of the Czech R&D capacities there are approx. 40 institutes of the Academy of Sciences of the Czech Republic and 50 other research institutes together with 9 public and 23 private universities with more than 120 thousand students (approx. 40 % of all university students in the Czech Republic) (Žížalová, 2009). These characteristics are in line with metropolitan regions general position, yet according to these authors Prague lacks another important criteria and that is strong connectivity among the relevant actors. This feature might be partly attributed to past development of the Czech Republic as a whole. The previous strict separation of basic and applied research brought a strong suspicion and mistrust still hindering stronger collaboration between R&D institutions and business sector. The links are missing not only between R&D and industry, but also within the business sector itself, particularly between foreign companies that started to set up their R&D centres in Prague and domestic companies. Despite the recent interest and numerous studies on the biotechnology industry, there is still no consensus on the nature and geography of the innovation process in this industry, partly because the analyses on the biotech innovations have tended to downplay important factors such as internal characteristics of the firms and more detailed characteristics of knowledge being exchanged and transferred. Therefore, we depart from the firm level enabling us to take into account various internal characteristic which might influence the geography of innovation of the organizations. The aim of this paper is to contribute to our understanding of the innovation process within biotechnology industry and shed light on the balance between global and local interactions. Beside, we will examine how the specific features of the Prague innovation system influence the nature and the geography of innovation within this industry. In our analysis, we will focus on three main questions (i) what is the nature of innovation activities in Prague biotechnology system, (ii) what are the key knowledge sources and innovation partners of Prague biotech companies with special attention to the geographical distribution and (iii) how has been the fragmented character of Prague innovation system reflected in this specific industry. Stress is 7
8 put on the analysis of networks which echoes the claim by Powell et al. (1996) that networks are a more useful concept for analyzing innovation in biotechnology than firms. The importance of network perspective was also shown by Haanaes (1999) on the analysis of a Norwegian biotech firm. He showed that its evolution was mainly based on its ability to mobilize external resources which it neither owned nor controlled. Nevertheless, we depart from the firm level in order not to loose any important information that may influence the network pattern. Data and methodology Biotechnology industry cannot be easily detected through the traditional industry classification. Biotechnology as such is not even an industry, but refers to a set of technologies that profoundly affect existing industries such as agriculture, food-processing and human health (Gilsing, Nooteboom, 2006). Therefore our main source about the Czech biotech firms is relatively recently published Czech Biotech Report (2008) together with Czech Biotech Database which forms part of the international Biotech Gate Company Database. Czech Biotech Report 2008 provides an overview of the Czech biotech sector and a comprehensive directory of Czech biotech companies and research entities. The classification used in the Czech Biotech Report is compatible with the international OECD classification. The biotechnology organizations listed in the Czech Biotech Report can be divided in two main categories: industrial companies and research bodies. The empirical analysis of this paper draws on 18 in-depth interviews on knowledge and innovation networks in identified biotechnological companies in Prague in January and February 2009 from the total number of 21 dedicated biotech firms identified in the Prague region. The interviews were based on a standardized questionnaire consisting of three major parts: general company features (innovation activities and performance), company s contacts for exchanging market and technological knowledge and their evaluation of policy initiatives supporting innovation. In this paper we will focus on the results of the first two parts of the questionnaire. The methods applied include simple descriptive statistics for general information and social network analysis for the collaboration pattern. Emergence and current distribution of biotechnology firms The development of a biotechnology industry is a recent phenomenon in the Czech Republic. However, biotechnology research has a longer tradition here and now the Czech Republic has a well-established network of in total 308 research departments, based mainly in Prague (47 %) and in the South Moravian region (22 %). The majority of research institutes belong either to Academy of Science of the Czech Republic (AS CR), to universities or to the Ministry of Health. By the beginning of 2009 there were 39 dedicated biotechnology companies (with research or production in the Czech Republic) and 308 biotechnology research bodies in the Czech Republic registered in the Czech Biotech Report. Another approximately 40 biotech 8
9 companies might be found in the Czech Biotech Database. In total we identified 78 biotechnology companies in the Czech Republic. The detail of information available differs according to in which database the company is registered; therefore the following description of the Czech biotech sector does not always include all the companies. First it is interesting to compare the size structure of the Czech biotechnology companies. As the biotechnology sector is characterised by relatively dual structure (see table 1) and biotechnology in the Czech Republic is only emerging, we expect rather small companies will prevail, complemented only with few larger traditional companies or subsidiaries of foreign (multinational) companies. This is confirmed in the table 1 which presents the size structure of the identified Czech biotech companies. Most of the biotech companies located In the Czech Republic has less than 50 employees and there are only 6 large firms. During the last five years the average yearly growth rate ranged between 12 to 16 % which exceeds the average growth of the Czech economy. On the other hand, despite its above-average performance biotech still plays a minor role in the economy as a whole and it will change only slowly. The Czech government has started to recognize the need to support more knowledge intensive activities such as biotechnology and advanced biotechnology and molecular biology has become part of strategic long-term research orientations and currently there are new funding schemes available from the EU Structural Funds. The progress in biotechnology and biomedical research are, however, deliberate, long-distance run. Table 1 around here As for the geographical distribution of the biotech sector, most companies are located in the metropolitan regions of the two Czech largest cities Prague and Brno (see Figure 1). Almost two thirds of the biotech companies are located in these two regions and thus the distribution of the biotech sector copies the distribution of the research capacities in the Czech Republic. Prague region concentrates approximately 40 % of the Czech research capacities and its share on the biotech sector is almost similar (43 % of the biotech companies are located here). The same applies for the Brno region. The location of the companies corresponds to the pattern of highly knowledge-demanding activities and it seems that the basic spatial pattern of the Czech biotech sector resembles foreign experience majority of biotechnology activities is located in close proximity to research institutes and universities. The main question is whether this co-location and high concentration of the biotech companies is a result of intensive local and regional co-operation and linkages or whether it results from proximate favourable environment covering legal, financial and other business-related services, presence of skilled workforce, development agencies and government bodies with grant-giving capacity (e.g. Cooke, 2006). Figure 1 around here Developmental path of the Prague biotech industry In spite of relatively strong and positive development in the past years the Czech biotech sector is still lagging behind world leading companies as a result of very limited and still rather non-competitive biotech research and almost non-existent biotech intellectual property. 9
10 This results from isolation of the Czech research under communism which in many ways had to start from scratch after 1989 even though it used to be extremely strong in traditional biotechnology (e.g. crop and animal breeding, fermentation industry, brewery, wine, ethanol, baker s yeast production, fodder yeast etc.). According to one of the leading researchers of the Czech biotech research, we are still 10 to 15 years behind the advanced world biotech but the situation is improving quite swiftly. As a result, the Czech biotech sector has rather a dual structure. On one hand there are several leading biotech firms present in Prague already, in most cases only through foreign trade representations or relatively simple manufacturing activities. On the other hand there are several, mainly domestic biotech companies which deal with more advanced activities including their own research or development activities. From all the companies identified in the databases, only 43 can be placed into the second group, of which 21 companies are located in the metropolitan region of Prague. Nevertheless, there are only 4 real biotech companies which can be compared to the western standards according to one of the interviewees. Therefore in our analysis we have concentrated on the 21 advanced (dedicated) biotech firms (DBFs) of the Prague metropolitan region of which 18 were interviewed. The emergence of the biotech sector in Prague, as well as in the Czech Republic as a whole, was launched after 1990, yet, at the beginning only few companies were established. Higher growth was started after 1999 when every year at least one DBF was established (see Figure 2). During the interviews we have identified two key paths of development of the DBFs. On one hand, there are older companies, established mostly during 1990s (with an exception of a spin off company established already in 1990). These companies were established principally by previous researchers or workers from the fields related to biotechnology who sought to use their experience in the rising business and entrepreneurial activity, in some cases because the previously state-owned research capacities or state-owned companies collapsed when facing stronger competition. The gap between Czech and world biotech research was tremendous at the beginning of transformation. The entrepreneurs or researchers did not possess any unique know-how attractive for foreign investors or customers. The main sources of their competitive advantage were therefore their qualification, skills, experience form research, lower costs and knowledge of the local market. As biotechnology requires relatively high investments since the very beginning, these firms therefore started their business with standardized tailored production for foreign subjects or with distribution and sale of other firms biotechnology products or instruments. These activities have enabled them to grow gradually and become commercially successful and thanks to it also start their own biotech production, development or even research. The second developmental path is related more closely to research organizations, both public research institutes and universities. Most of the younger, small DBFs were established by current researchers who aimed to commercialize results and experience of their previous work. The researchers-entrepreneurs still stay in close contact with the academia; in most cases they maintain their previous job. However, only few of the companies were established as real spin off firms mainly because of lack of experience in this field in the Czech Republic, 10
11 lack of legal framework and also still rather negative view on such a close connection between business and research by part of academic officials. Additionally, there are two firms with longer history they are followers of a previous state company and a research institute, yet as independently operating bodies they were established in the 1990s. Figure 2 around here The following table 2 presents shortly the main activities and sources of competitiveness of the interviewed firms. The answers confirm our previous description that most of the Prague biotech companies currently carry out their own research and/or development activities but at the same time they provide production and manufacturing of tailor made products. Virtually all the firms agreed on that research and development though it does not always concerns high-end R&D provides them specific know-how, knowledge and competences which enables them offer competitive products and services. This is also reflected in the structure of the firms turnover only one third of the turnover is attributed to new or dramatically improved products and services introduced in the last 3 years and at the same time almost 30 % of the turnover is attributed to unaltered products and services. Besides, only 8 of the 18 firms interviewed have applied for patent application while the majority states that the do not possess such a specific knowledge which could be patented. Table 2 around here Sources of knowledge and workforce The previous chapter provided basic description of the development and the character of the Czech and specifically Prague biotech sector. This is an important starting point for our core analysis which is the first study of competitiveness of biotech sector in Prague. Thus it provides us with important context for the analysis of the interactions and linkages within this specific Prague innovation system. One option how to gain new knowledge is through people through hiring new employees who bring general knowledge as well as specific know how, experience and often also specific contacts and social network. Biotechnology as one of the most knowledge intensive activity demands high professional quality of workforce. This has been confirmed in our survey on average 55 % of the employees have education level higher than bachelor s degree and there are even 7 firms where all employees have obtained higher education degree than this level. Another essential characteristic of the biotechnology firms is relatively high ratio of fresh graduates in newly recruited workforce. In the survey, the share of such people is approximately 50 % of all R&D employees. On the other hand, remaining half of the workforce is made up by the employees that entered the companies with some years of practice. Most of them came from public institutions, like research institutes, universities or hospitals. At the same time, many of them work only as part-time workers, keeping their previous jobs. This continuing connection with academia allows them to involve their 11
12 students already during their studies (sometimes even as early as their second year of university study) and to identify the talented individuals for further cooperation. Even in cases when the company representatives are not any more active in academia and dedicate full-time to their company, they have a wide range of colleagues and friends from research institutions or universities where they used to work. These personal contacts and acquaintances together with direct co-operation with students are key channels for recruiting new workforce. Very often students are hired for shorter periods, for instance when there is a need to increase workforce capacities for a certain research project, avoiding long and inflexible process of hiring and tutoring new employees. As the personal links are key sources for finding new employees, it does not surprise that the spatial structure of recruitment of new, highly skilled employees is aimed at local (regional) level. Prague regional universities are the most important source of new employees for 13 companies. The second most important source for new, highly skilled workforce are other Czech universities or research institutes which are more important for larger firms, particularly for the largest one in our sample which has several branches also in other Czech regions. Table 3 around here In addition, most of the entrepreneurs and managers of the companies have also graduated from one of the universities in Prague and they have been living here for important part of their lives. These personal reasons or factors, according to the interviewees, also play significant role. To sum up, both personal and professional links and acquaintance together with a need for highly skilled workforce motivate the entrepreneurs and firms to locate in the same region, i.e. in the capital city of Prague which concentrates approximately 40 % of all university students. To the contrary, international sources of new workforce are not important none of the interviewed firms has recruited workers from abroad yet. Nature of co-operation of the Prague s DBF s For each business subject, the creation of a profit is the primary motive of its existence, and in biotech companies profit is generated by commercial utilization of scientific knowledge. Creation of such a company can be therefore considered to be a type of knowledge transfer, whose source is commercialized knowledge. It does not matter whether it is a spin-off from an academic institution, or a subject created in other ways and operating relatively independently. All the interviewed companies naturally consider their own research and development activities to be of prime importance, in particular these that are crucial for the quality of their products and services. However, a great part of R&D is carried out in co-operation with other subjects (universities, research institutes and/or other companies) and these sources can be considered in many cases vital. The co-operation in the sphere of R&D takes various forms. The most frequent and most important one is a joint R&D conducted under governmental or European grant projects cofinanced by the companies. The companies also participate in the custom-made research where they serve as a research submitter (e.g. they ask the university for a clinical validation of their diagnostic sets) or a contractor of such co-operation (e.g. testing new antibodies). The co- 12
13 operation with academia is also realized in forms of lectures delivered by companies staff or via co-operation on students essays and theses. Some of the companies are or plan to be involved in joint research centres established together with research institutes. From the interviews with the company managers it became apparent that projects financed from the state budget are the key revenue source. This is more so in case of small and micro companies which are virtually on being or not being awarded a (research) grant. The companies therefore adapt their "survival strategies" - if they do not receive a grant, they focus on their non-research activities (e.g. standardized or tailor made production and services) and wait for another round of grant projects calls. On the contrary, receiving a grant secures the support of R&D for several years, and the companies can afford to hire new employees for that time. Table 4 around here The above described pattern of knowledge co-operation and sources is very similar for all the interviewed firms. Nevertheless, there are some differences which might be attributed to the distinct developmental path discussed previously, in particular if one compares the intensity of cooperation as well as its spatial pattern. The firms which were established without direct connection to research and academia count much more on their own, inner knowledge activities and sources. At the beginning of their business they did not conducted almost any R&D and therefore started to build their network slowly during the formation their own business activities in this field. As they had been separated for a certain time from research and academia, they have lost part of previous contacts. At the same time, they gained new contacts, intentionally in this case, during the formation and development of their business. Most of these were new contacts which were originated with very specific goals, e.g. gain access to new customers, suppliers, markets or to scientific and technological knowledge missing within the company. On the other hand, mostly younger, spin-off firms or firms established by researchers themselves while still keeping their previous jobs show much higher intensity of contacts, even for very young firms. These links are to a great extent based on previous personal biography of the firms managers and thus majority of their networks are similar to the professional networks of their (top)-managers. Many of these interviewed firms also co-operate with each other as their representatives are current or previous colleagues or as they have been previously or still are involved in joint research projects through their academic positions. Table 5 around here Table 5 summarizes the co-operation patterns of the interviewed firms according to the partners type and geographical location. The companies were asked about their co-operation in the sphere of scientific and technological knowledge and research, development and innovation activities. The highest number of partners is located within the metropolitan region of Prague and they include research institutes, particularly research institutes of the Czech Academy of Science, Prague s universities and other biotech companies. Only one fifth of the partners are located abroad in other European countries or elsewhere. Thus, it seems that the co-operation pattern of Prague biotech firms does not correspond with the generalized pattern combining local collaboration with international network. The Prague biotechnology firms are located in the vicinity of centres of knowledge production universities 13
14 and research institutes located in the capital city of Prague and these centres play an effective position in their knowledge networking strategies. Many of the companies are to some extent still in the formation period and their competitive advantage is based largely on offer of highquality services and production, highly qualified and skilled personnel combined with lower costs rather than cutting-edge know-how possession. Therefore, they regard local knowledge centres as more relevant for their activity and they have more intense relationships with them. As a result, most of these firms have mobilised their network to gain access to knowledge sources that are geographically close and they have less incentive to mobilise relationships with more distant knowledge sources. At the same time, almost all the interviewees stressed that they need to be in contact with distant, global knowledge which in many cases determines the future development of the industry. To gain access to these distant sources of knowledge, most of the firms tend to mobilise the geographically distant elements of their local (regional) networks but very often it does not include a direct co-operation. Namely, particularly in case of the biotech firms with close relationship with academia (i.e. the first group of the companies described above), the entrepreneurs use their involvement in research to develop contact with distant knowledge sources, for instance through international research projects born by a local research institute or university. As these are not direct links of the interviewed companies, managers did not mention them among the most important partners for their innovation activities. The second group of companies, characterized as firms with longer history starting with standardized production and service, does not have this opportunity to use external links to global knowledge. Therefore, they have to mobilize new links to gain access to distant sources of technological and scientific knowledge which afterwards appear in their knowledge networks. Current literature suggests that geographic proximity (either permanent or temporary) favours the development of relationships characterised by other types of proximity (social, cognitive and/or organisational see e.g. Boschma, 2005) that facilitate transmission of scientific and technological knowledge. While geographic proximity favours the sustainability and strengthening of the networks formed and also facilitates interaction and collaboration among its members, the functions these networks often play in knowledge access are not necessarily geographically bounded. It may be easier and sometimes more effective to choose network members that are located in the vicinity, but frequently it is necessary to use distant links which can play an essential role when it comes to gain access to knowledge that is not available in close organisations. In Prague biotech sectors, it seems it is rather likewise social proximity (personal biography and trajectory of the individual entrepreneurs) supports co-location of the companies and their partners and their use as key sources of not only local but also distant sources of knowledge. Yet, it does not apply for the biotech sector as a whole as already stressed previously, the Prague biotech so far has developed relatively dual structure. As presented in Figure 3, these two collaboration patterns differ when it comes to their spatial dimension. In the first case, the companies needs for scientific and technological knowledge are satisfied to a large extent through existing social network. The academic and professional trajectory of the entrepreneurs is a key element in the 14
15 formation of the new firms social network. In fact, the entrepreneurs career trajectory not only contributes to configure their competence base but it also shapes the structure of their personal networks in terms of actors and their potential contributions (Burton et al, 2002). The intensive regional network and less incentive to establish new ties with distant partners is also influenced by the nature of the scientific and technological infrastructure present in the metropolitan region of Prague where the knowledge sources are numerous, diversified and of high quality. Another reason why the international links are not yet more developed is that the companies are not attractive partners for actors from abroad mostly they do not posses specific know-how or advanced biotech intellectual property. Figure 3 around here In the second group, the firms have less intensive but more spatially distributed networks. These companies started their business more independently from the research sphere and at the beginning they did not even engage in research or development activities. As they slowly started their own research or developmental activities, they felt the need to look for external partners who would help to enhance their knowledge and competitiveness. Already during their pre-research phase of development, most of these firms engaged in contact with partners from abroad the reason being largely commercial most of their first customers were international biotech companies as the local biotech market (which in case of market for biotech products equals for most of the companies to the national market) virtually did not exist at the beginning of the 1990s. More precisely, there were customers for biotech products but not their producers. The international links are perceived by the interviewers as very crucial and during the previous development phase these links have also gained certain level of trust. On the other hand, local sources are not always able to provide the required knowledge and in that case entrepreneurs are likely to try to option for distant partners. To find them, the entrepreneurs mobilise existing ties whose origin was often a temporary co-location in some point of their trajectory (e.g. scientific conference, research fellowship, joint project etc.). Thus, these networks involve individuals geographically distant from the place where the firm is located. These firms look for distant partners even though the regional environment offers variety and quality of knowledge sources, but according to the interviewees it cannot provide knowledge that is more specialised and/or more novel and is only available in some particular locations. The need for novelty and quality and specific know-how is considered essential and thus Prague s biotech firms give preferences to potential advantages of co-operation with a co-located partner. Our results hence support the idea that even firms from such a narrowly defined sector as biotech may have knowledge networks with different spatial structures, in which close and distant relationships can have different weights or be balanced. Such differences in spatial structure can be related to the nature of the knowledge being searched and its relevance to the firm as suggested by the literature, yet as our analysis shows they are as well related to the nature (and the origin) of the relationships and the firms themselves. Personal biography or trajectory has turned up to be a key factor influencing the current pattern of knowledge networks of the Prague biotech firms. The set of personal ties established by the entrepreneurs before they had engaged with biotechnology business can be regarded as a latent social capital which has been mobilised during the process of their firms formation, thus becoming part of the new firm s social network. 15
16 To sum up, Prague biotechnology sector is still relatively new, emerging sector which significantly lags behind the world leading clusters. As a result, it has not attracted much attention from important global actors investing into R&D activities or even contributing to creation of new biotech companies. Prague biotech sector has, therefore, so far developed mainly through endogenous process using mainly local knowledge assets. Although lagging behind in cuttingedge biological research, the research and development activities and access to new scientific and technological knowledge are crucial sources of the competitiveness of the firms. R&D in biotechnology is nevertheless highly financially and also timely demanding activity which brings commercializable and profitable results usually only in a long-term perspective. Therefore, most of the interviewed companies need to establish intensive links with research organizations. These have also proved to be the most important partners and sources of external knowledge. Additionally, similarly to main biotechnology centres in the world, the Prague biotech companies are located in the vicinity of the key knowledge sources creating a regional biotechnology cluster (see Figure 4). Figure 4 around here The biotechnology cluster therefore differs significantly from the overall character of the Prague innovation system. Its fragmented character has not influenced the nature of the knowledge cooperation in this specific sector which is characterised by very intensive co-operation between close actors. The intensive co-operation among actors within the metropolitan region of Prague is facilitated particularly by existing, previously established social and professional ties and community-like character of still small biotech sector in Prague. Most of the key actors know each other because they studied together, worked together or met at specific events related to the biotechnology activities. Hence, a substantial proportion of the local (regional) ties result from the entrepreneurs trajectory and personal biography. However, there are exceptions. A small group of firms do not use local sources so intensively and, in their search for alternative ones, they tend to resort to international sources more than to the regional ones. These firms were established virtually independently on the existing research organizations in Prague contrary to the firms with intensive local co-operation and as a result their trajectory has been different, less tied to local actors related to biotechnology activities. As a result, it seems that the trajectory and personal biography representing social proximity between the actors is the key factor influencing the firms network character. As the entrepreneurs previous trajectory has been related particularly to local actors, the new firms networks are also focused locally. On the other hand, unlike to experience from other countries a specific character of the emerging Prague biotechnology sector has so far resulted in very limited number of international links. We have found that firms that are more embedded in local and regional knowledge sources have lower tendency to mobilise distant sources. This is true particularly for the group of firms closely connected to local research organisations and universities (from which some of them have spinned off) which appears to provide them with a substantial part of the knowledge required at this stage. These firms display only few international ties. On the contrary, the group of firms that do not use local sources are more likely to mobilise international ties. These firms tend to combine ties deriving from the entrepreneurs trajectory (e.g. entrepreneurs pre-existing ties can be used as 16
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