Building the Oslo Life Sciences Cluster:

A New Agenda for Norwegian

Innovation-Driven Entrepreneurship

Scott Stern

MIT and NBER

1

Norway has emerged as among the most prosperous nations in the world

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60

80

100

120

140

160

180

200

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

GDP PPP Per Capita Source: OECD Statistics

Denmark

Finland

Germany

Netherlands

Norway

Sweden

United Kingdom

Beyond leveraging abundant natural resources,

Norway has established a strong foundational

level of competitiveness

3

Measure Rank

Social Infrastructure and Political Institutions 4

Macroeconomic Policy 1

Microeconomic Competitiveness 11

National Business Conditions 11

Company Strategy 7

Foundational Competitiveness 4 Based on 2013 HBS ISC Competitiveness Rankings

Drawn from MIT-Harvard Observabory of Economic Complexity

But declining oil prices have placed the need to invest in an innovation-driven Norway going forward….

Historically, Norwegian prosperity has not been matched by overall leadership in measured innovation

5

0,00E+00

5,00E-05

1,00E-04

1,50E-04

2,00E-04

2,50E-04

3,00E-04

3,50E-04

4,00E-04

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

WIPO Patents per Capita Source: OECD Statistics

Denmark

Finland

Germany

Netherlands

Norway

Sweden

United Kingdom

Norway has realized leadership in certain areas such as climate change technology

6

0,00E+00

5,00E-07

1,00E-06

1,50E-06

2,00E-06

2,50E-06

3,00E-06

3,50E-06

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

PCT Patent Applications Per Capita by Applicant Country of Residence Class: Technologies Specific to Climate Change Mitigation

Source: OECD Statistics

Canada

Denmark

Finland

Germany

Netherlands

Norway

Sweden

United Kingdom

United States

Russia

Amid questions about business dynamism, rate of entrepreneurship has varied widely over the past decade….

7

0

2

4

6

8

10

12

14

2004 2005 2006 2007 2008 2009 2010 2011 2012

New Business Density Source: World Bank Entrepreneurship Statistics

Australia

Denmark

Finland

France

Germany

Netherlands

Norway

Sweden

United Kingdom

The oil shock has only reinforced the need for a new “Beyong Oil” Norwegian Competitiveness Agenda

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“Life sciences increase our understanding of the nature of life…. but life sciences have an even greater potential. They represent a platform for new industry in Norway and transition to a greener economy with new jobs, products and services for the benefit of society, particularly in the health sector,” Ole Petter Ottersen Rector, University of Oslo

The Oslo Life Science Cluster Challenge

• Norway has made enormous progress in transforming itself into an emerging innovation-driven economy

• In the face of declining resource prices, an urgent agenda to leverage latent strengths and areas of potential comparative advantage

• By investing in innovation that leverages and extends cluster strength, Oslo can chart a new path for economic development

• The Oslo Life Sciences Initiative must leverage existing strengths, integrate researchers, knowledge, students, new infrastructure, and convene the entire range of the Oslo ecosystem

• But what kind of life sciences cluster should Oslo build?

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Building the Oslo Life Sciences Cluster:

A New Innovation Agenda for Norway

• Clusters and Innovation-Driven Entrepreneurial Ecosystems

• IDE Ecosystems and Regional Economic Strategy

• The Oslo Life Sciences Cluster: Towards an IDE-Driven Economic Strategy for Norway

Lessons from the MIT Regional

Entrepreneurship Acceleration

Program (reap.mit.edu)

Mens et Manus:

• Not simply an “ivory tower” perspective although the work is based on a systematic framework and nearly 20 years of empirical research

• Not simply “learning by doing” although we do develop & run ecosystem programs

=> Interplay between thinking & doing

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MIT REAP Framework

System

Stakeholder Strategy

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MIT REAP Framework: System

E-Cap I-Cap

Economic Impact Social Progress

Cluster Based Comparative Advantage

IDE Ecosystem Potential

Foundational Institutions

14 #MITREAP

15

E-Capacity

Ability to start and build new to

the world businesses from

inception to maturity.

Strong I-Cap:

Universities, Central R&D,

Network of researchers,

Medical Centers

Strong E-Cap:

Entrepreneurs, Mentors,

Founding Teams

Investors at all stages

I-Capacity

Ability to develop new to the

world innovations from inception

through to the market.

Innovative Capacity & Entrepreneurial

Capacity Are Distinct Regional Assets

Japan

Israel Finland Korea, Rep. Switzerland

Sweden Germany

Canada

Singapore Iceland Netherlands Denmark

Australia Austria United Kingdom France Luxembourg Belgium Hong Kong SAR

Ireland New Zealand Italy

Slovenia Spain Hungary Malaysia

Malta

Czech Republic Lithuania

Croatia Bulgaria Greece

0

50

100

150

200

250

300

0 2 4 6 8 10 12 14 16 18 20

Pat

en

t p

er

mill

ion

pe

op

le '0

8

New Firm Registration/1,000 working people '08

Patent Rate (I-Capacity) vs. Business Formation Rate (E-Capacity)

Innovation and Entrepreneurship are

Related but Different

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Innovative Capacity and Entrepreneurial Capacity

Reflect Distinct Investments, Policy and Norms

I-Capacity

PERFORMANCE

PEOPLE

FUNDING

INFRASTRUCTURE

POLICY

CULTURE &

COMMUNITY

DEMAND

Entrepreneurship output (new firms & growth)

Pool of entrepreneurs

Quality of entrepreneurial education

Accessibility of entrepreneurial capital

(government, private, equity, debt, grants)

Physical infrastructure (space, transportation)

Availability of key services (internet, training)

Clear rules on new business creation

Clear rules on business operations and growth

Culture of entrepreneurialism and failure

Societal support, ties and recognition

Government, corporate and consumer demand for

new products and services

Innovation output (patents and papers)

Pool of innovators

Education in tech and ommercialization

Funding for research

Government programs

Physical infrastructure

Example: hi speed internet

Clear rules around patents

Clear support for STEM education

Celebration of invention and innovation

-Rewards to innovation – tenure process

Nature of established companies in region

E-Capacity

18

Assessing Norwegian Innovative Capacity

I-Capacity

Not simply a matter of low patenting…

19

0,00E+00

5,00E-05

1,00E-04

1,50E-04

2,00E-04

2,50E-04

3,00E-04

3,50E-04

4,00E-04

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

WIPO Patents per Capita Source: OECD Statistics

Denmark

Finland

Germany

Netherlands

Norway

Sweden

United Kingdom

Norway’s R&D expenditures have historically been low relative to peers

20

0

0,5

1

1,5

2

2,5

3

3,5

4

4,5

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

R&D Expenditures as Percent of GDP Source: OECD Statistics

Denmark

Finland

Germany

Netherlands

Norway

Sweden

United Kingdom

And its innovation workforce is in the “middle of the pack”….

21

0,00%

0,10%

0,20%

0,30%

0,40%

0,50%

0,60%

0,70%

0,80%

0,90%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Reseachers (FTE) per capita Source: OECD Statistics

Denmark

Finland

Germany

Netherlands

Norway

Sweden

United Kingdom

Relative to peers, Norwegian R&D depends disproportionately on government…

22

15

20

25

30

35

40

45

50

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Percentage R&D Expenditures Financed by Government Source: OECD Statistics

Denmark

Finland

Germany

Netherlands

Norway

Sweden

United Kingdom

But a relatively low fraction of research has historically been conducted by the university sector

23

0,2

0,3

0,4

0,5

0,6

0,7

0,8

0,9

1

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Higher Education R&D Expenditures as Percent of GDP Source: OECD Statistics

Denmark

Finland

Germany

Netherlands

Norway

Sweden

United Kingdom

The Norwegian IDE Ecosystem

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E-Cap I-Cap Linkages

IDE Framework

Atop a strong foundation of competitiveness and social progress, Norway still needs to achieve a first-tier position in innovative capacity

25

Assessing Norwegian Entrepreneurial Capacity

E-Capacity

Norwegian entrepreneurship is more variable than many peer countries…

26

0

2

4

6

8

10

12

14

2004 2005 2006 2007 2008 2009 2010 2011 2012

New Business Density Source: World Bank Entrepreneurship Statistics

Australia

Denmark

Finland

France

Germany

Netherlands

Norway

Sweden

United Kingdom

Norway is a better place for doing business than for starting businesses

27

Economy Ease of Doing Business Rank

Singapore 1

New Zealand 2

Hong Kong SAR, China 3

Denmark 4

Korea, Rep. 5

Norway 6 United States 7

United Kingdom 8

Finland 9

Australia 10

Economy Starting a

Business Rank New Zealand 1

Canada 2

Macedonia, FYR 3

Armenia 4

Georgia 5

Singapore 6

Australia 7

Hong Kong SAR, China 8

… …

Norway 22

Drawn from World Bank Doing Business Indicators

Mapping Silicon Valley: Population-level predictive Analytics

Oslo seems to be at the cusp of embracing

the start-up energy that has emerged across

many IDE ecosystems…

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What would the map for Oslo look like? Is the ecosystem producing a consistent stream of science-driven start-ups with the potential for global scalability…

The Norwegian IDE Ecosystem

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E-Cap I-Cap Linkages

IDE Framework

Atop a strong foundation of competitiveness and social progress, Norway has yet to achieve a first-tier position in innovative capacity

A favorable business environment for established firms still has too many obstacles for global growth start-ups

The third pillar of the IDE Ecosystem is the role of

clusters that enhance opportunities for innovation

and entrepreneurship and define the

entrepreneurial comparative advantage of regions

E-Cap I-Cap

32

Clusters Are Everywhere

A cluster is a regional concentration of

related industries connected through

various types of linkages and spillovers

and supporting institutions

33

Motion Pictures – LA Semiconductors - Taiwan

Fashion & Textiles -

Milan

Do Clusters Matter for IDE Ecosystems?

Do Clusters Matter?

• Cluster theory suggests agglomeration arises across related economic units (Porter, 1990, 1998, 2003)

• Our Approach: If clusters matter, then the growth of an industry in a region will be increasing in the strength of the regional cluster within which that industry operates

• Cluster-driven agglomeration could arise in

different channels: – Across related industries Within a Cluster, – Across Related Clusters – Across the Same Cluster in Neighboring Regions

35

Note: Average Region-Industry Annualized Employment Growth over 1990-2005. Region (EA) and Industry (4-digit SIC).

N=55083. Cluster specialization variable is measured by Location Quotient. High means above the median of the variables.

INDUSTRY SPECIALIZATION

Low High

CLUSTER

SPECIALIZATION

Strength of Regional

Clusters (presence of

related industries)

Low

+13%

0%

High

+20%

+1%

36

Clusters and Jobs

• Industries within stronger clusters are associated with higher levels of job growth from the early 1990s to the mid-2000s

• We test the role of clusters by estimating region-industry employment growth over 1990-2005 as a function of the initial Industry Specialization and Cluster Specialization (outside the industry) in a region, and a set of region and industry fixed effects

Clusters and the IDE Ecosystem

– Industries that are part of a strong cluster environment register

• higher level, growth and sustainability of start-up activity

• higher level and impact of innovation

Level, Growth,

and Surivability of Start-ups

Level and Impact of Innovation

Source: Delgado/Porter/Stern, Clusters and Entrepreneurship, Journal of Economic Geography, 2010

CLUSTER

ENVIRONMENT

Within a Cluster

Related Clusters

Neighboring Clusters

37

Clusters and Regional Identity

38

Norway boasts extraordinary cluster strength,

supported by engaged cluster organizations

39

Importantly, Norwegian science and innovation

leadership is closely connected to cluster strength

40

0,00E+00

1,00E-06

2,00E-06

3,00E-06

4,00E-06

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

PCT Patent Applications Per Capita by Applicant Country of Residence

Class: Technologies Specific to Climate Change Mitigation

Source: OECD Statistics

Canada

Denmark

Finland

Germany

Netherlands

Norway

Scientific Articles on "Fuel Technology"

Articles per million citizens

Norway 37.66 Denmark 33.26

Finland 17.37

Netherlands 11.88

United Kingdom 11.29

United States 9.87 Germany 6.94

Russia 6.34

While Oslo is current a small but vibrant health life sciences cluster, stronger global leadership in Norway in Ocean Industries….

The Norwegian IDE Ecosystem

42

E-Cap I-Cap Linkages

IDE Framework

Atop a strong foundation of competitiveness and social progress, Norway has yet to achieve a first-tier position in innovative capacity

A favorable business environment for established firms still has too many obstacles for global growth start-ups

A strong and engaged cluster environment reinforces Norwegian foundational competitiveness, allowing Norway to escape the

“resource curse” and achieve a high and stable level of prosperity

Building the Oslo Life Sciences Cluster:

A New Innovation Agenda for Norway

• Clusters and Innovation-Driven Entrepreneurial Ecosystems

• IDE Ecosystems and Regional Economic Strategy

• The Oslo Life Sciences Cluster: Towards an IDE-Driven Economic Strategy for Norway

How does our understanding of the IDE Ecosystem impact

regional strategy and stakeholder engagement?

Regional Value Proposition

What is the distinctive competitive position of a

geographic area given its location, legacy, existing and

potential strengths?

Develop Unique Strengths

What do we do that is different or that

provides sustainable competitiveness in

international markets?

Achieve and Maintain Parity with Peers

What weaknesses must be addressed to

remove key constraints and achieve parity

with peer locations?

A Move Towards Regional Economic Strategy

Policy Improvement

• Implementing best practice in each policy area

• A huge number of policy areas matter

• No region should try to make progress in all areas simultaneously

• Often divorced from private sector concerns

A Regional Economic Strategy is Not Just

“Good Policy”

Regional Economic

Strategy

• A prioritized agenda to create a

unique position, based on its

particular circumstances

• Collaborative effort of across

stakeholders

• Leveraging regional strengths

through innovation and

entrepreneurship

This means making hard choices…

About what to do and what NOT

to do!

An IDE Ecosystem Strategy is…

Investing in Your Entrepreneurial Comparative Advantage

What does this mean for the Oslo Life Sciences Cluster?

The Norwegian IDE Ecosystem

50

E-Cap I-Cap Linkages

IDE Framework

Atop a strong foundation of competitiveness and social progress, Norway has yet to achieve a first-tier position in innovative capacity

A favorable business environment for established firms still has too many obstacles for global growth start-ups

A strong and engaged cluster environment reinforces Norwegian foundational competitiveness, allowing Norway to escape the

“resource curse” and achieve a high and stable level of prosperity

The Oslo Life Science Value Proposition

What is the distinctive value of the Norwegian a

geographic area given its location, legacy, existing and

potential strengths?

Develop Unique Strengths

Establishing unique linkages and

competencies in areas such as marine

technology, environment, energy, and

ocean industries. A unique approach to

life sciences innovation

Achieve and Maintain Parity with Peers

Investing in traditional biosciences and

drug development targets. Establishing a

leading biocluster by the standard of

traditional metrics

An Oslo Life Sciences Cluster Strategy

IDE Ecosystem Strategy Must be Shaped and Realized through Stakeholder Engagement

52

The Oslo Life Sciences Agenda Going Forward…

• Public and Private Cooperation to Nurture and Build Innovative and Entrepreneurial Capacity

• Distinguish between policies and initiatives focusing on SMEs versus IBEs

• Balancing Traditional Life Science Innovation with Areas of Unique Norwgian Strength (Ocean, Energy)

• Investing to Create a Unique and Distinct Oslo Life Sciences Cluster

• Do not try to be a leader in all areas. Instead, focus on areas of latent comparative advantage and areas that leverage prior strengths

• De-emphasize top-down policies. The Oslo Life Sciences Cluster will succeed by engaging all IDE Stakeholders

• Be patient. Establishing global cluster leadership as the basis for a true knowledge-based economy is a long process.

Priority Items Warnings!

Choosing the Future of the Oslo Life Sciences Cluster:

What is the Must-Win Battle?

54 #MITREAP

Thank you!! Takk!!

55 #MITREAP

sstern@mit.edu www.scott-stern.com