Economic Clusters: Universities as a Catalyst for Development
Lauren Millier
IN THE QUEST FOR EFFECTIVE local and regional economic planning, economic development professionals increasingly adopt the industry cluster concept in their strategies to attract new investment. Industry clusters, can generally be defined as agglomerations of interrelated industries that foster wealth creation within a region, principally through the export of goods and services beyond the region. (Milken Institute: Blueprint For A High Tech Cluster, 2000)
Among the relationships that tie these industries together are buyer-supplier relationships, common labour pools and common technologies.
The concept of industrial clustering has been well documented and is firmly anchored in the study of economic geography. Benefits can accrue to an area from the activities of firms located in that area. These benefits typically arise from the fact that a firm cannot capture all the economic benefits from its innovation process.
The spill-over from a firm can benefit the community at large if there are suitable structures and receptors in place to take advantage of them.
For example, people with expertise leave firms to work for other firms nearby, or to set up their own firms.
Capturing the spill-over leads to the establishment of new capabilities and more economic growth in a community.
ESSENTIAL ELEMENTS
There are number of essential elements that make for a successful cluster economy. They are:
- the recognition of the potential of knowledge-based industries by regional/local leaders;
- the identification and support of regional strengths and assets;
- access to a trained/educated workforce;
- the catalytic influence of local champions;
- the need to have an entrepreneurial drive and sound business practices;
- the availability of various sources of investment capital;
- the cohesion provided by both informal and formal information networks;
- the need to have staying power over the long term; and
- the need for educational and research institutions involved in cutting edge work.
It is this last element the need for educational and research institutions that is often overlooked in an assessment of the success or viability of an economic cluster.
THE IMPACT OF A UNIVERSITY
PricewaterhouseCoopers recently completed Regional Economic Benefits Study on behalf of the University of Waterloo (UW) clearly demonstrates the value-added impact or benefits afforded a local and regional economy as result of the presence and activities of a University.
Since it was established, the UW has sought to forge relationships with industry and communities in the region. These ties have facilitated a large number of partnerships, spin-off companies, technology transfers and co-op and graduate student placements.
The result is a substantial transfer of technological and intellectual resources between the UW and the business community.
Many executives of UW spin-off companies serve in advisory roles to the university, and these companies are often members of the same research collaborations at the UW. While there is competition among firms, there is also cooperation and relationships due to their similar backgrounds.
Even before the emerging high-tech companies and start-ups garnered significant media attention, high-tech was a part of the local and regional economies of Waterloo, Kitchener and Cambridge.
Before the proliferation of software development companies, local companies were involved with manufacturing applied robotics and electronics technology. Despite the recent slowdowns, demand for technology will continue to increase locally and abroad.
Waterloo, Kitchener and Cambridge, more commonly referred to as Canada’s Technology Triangle (CTT), is in an enviable position because its companies are at the forefront in technology products and software development.
Specifically documenting and quantifying the economic impact of the University on the regions economy included a review of university spending on capital projects, operations and maintenance and research, student and visitor off campus spending, as well as spin-off businesses spending on operations and capital projects.
While the process of estimating the economic impact associated with knowledge and innovation emerging from universities represents one of the most difficult aspects of trying to capture the real return on investing in higher education, it also provides a more complete picture as to the full nature and magnitude of the economic benefits attributed to the university.
KEY ECONOMIC BENEFITS
The following summarizes some of the key findings as relates to this study:
As the region’s economy evolves from one based on traditional manufacturing to one increasingly focused on information/communication technologies and advanced manufacturing, UW has played an increasingly important role. Business people and economic development representatives commonly credit UW as being the impetus for the development and growth of the regions technology cluster.
In 1999, the University accounted for more than $1.1 billion of economic activity in the region and $1.6 billion province-wide. As well UW directly and indirectly was responsible for sustaining more than 23,000 full-time jobs.
An analysis of the 1999 operating and capital expenditures of 30 UW spin off companies suggests that more than $910 million in economic activity was generated in the Province including more than $660 million in Waterloo Region.
There is strong indication that UW’s intellectual property ownership policy, which gives the researcher/creator ownership of innovations or intellectual property, has served to stimulate commercialization opportunities.
Extrapolation of these results to a broader database of spin-off companies, suggests that provincial impacts could increase by as much as $630 million while regional impacts could increase by a further $460 million.
Based on the transfer of technological resources, over 100 spin-off companies were attributed to the University in 1994. By broadening the definition to include the transfer of intellectual resources, PricewaterhouseCoopers was able to identify over 250 spin-off companies with some level of attribution to the University.
A 1999 Statistics Canada report on Intellectual Property Commercialization identified 454 spin-offs from 84 universities (292 from the 12 largest). With over 100 spin-offs, UW is the leader in Canada by generating over 22% of all technology transfer-based spin- offs.
A broader, more profound social impact attributed to the creation of intellectual capital is also in evidence. For example, CTT has recently benefited from an unparalleled donation of $120 million from three executives from the UW spin-off Research In Motion (RIM) to establish the Perimeter Institute of Theoretical Physics in Waterloo.
Province-wide economic activity stimulated by UW operating expenditures generated a total of $188 million of Federal tax revenue, $108 million for the Province and $26 million for governments in Waterloo Region.
Expenditures by students from outside the Region results in an economic impact of nearly $89 million on the local economy. Province wide value added economic impacts totaled almost $43 million.
For the Academic year 1999/2000, the estimated total number of UW-related visitors from outside the region was approximately 358,681 persons. The economic impacts resulting from various events and visits to students, faculty and staff contribute over $35 million to the provincial economy including $21 million accruing to the regional economy.
Research and development and the presence of a skilled labour force trained through quality educational institutions are repeatedly cited as essential elements in the development and marketing of competitive industry clusters.
As a result economic development professionals must appreciate and understand the impact and role that universities and colleges can play in furthering a municipalities efforts at investment attraction.
Based on our analysis of UW, the ability of CTT firms to compete effectively in the global technology market can be directly attributable to the continued availability of high quality talent provided by the University.
It is in this role that the University makes its greatest contribution to positioning the region for continued growth and prosperity.
ABOUT THE AUTHOR
LAUREN E. MILLIER, MCIP, is a Vice President in PricewaterhouseCoopers Real Estate Advisory Services practice and holds a Bachelor of Environmental Studies, Honours, Urban and Regional Planning from the University of Waterloo. She has worked extensively in the field of economic development and investment attraction on behalf of all levels of government, and has assisted a variety of corporate clients with their site selection initiatives.