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Abstract – Many regions in the world, in developed and
developing countries are striving for advanced technological
and economic development. In this paper, based on a study
of university related start-up companies some of the main
barriers for growth are described. The findings are then
discussed in a wider context of economic growth and
whether it is possible to advance at an accelerated pace. It is
concluded that many of the developed countries started their
economic growth patterns centuries ago which enabled them
to develop critical mass in important areas for economic and
technological development. Building up a critical mass takes
time and it seems unlikely that underdeveloped regions will
be able to find short-cuts to enhance their economic and
technological status.
Keywords - Innovation, economic development,
technological development
I. INTRODUCTION
Developing countries such as India and China
frequently have economic development plans covering
several periods of 5 years. These plans typically address
specific industries as target industries. For example
Indonesia targeted the aerospace and shipbuilding
industries as important industries for technological and
economic development [1]. China is also targeting the
aerospace industry [2]. Considering the limited
commercial success of for example Indonesia’s aircraft
industry [3] it is questionable how effective the
technological and economic development plans are. In the
specific situation of Indonesia’s aircraft industry
development the lack of management has been viewed as
a major hurdle [3]. This relates to the overall state of the
nation and the availability of education or job training.
Both can not be seen in isolation but instead, a more
developed environment generally offers more education
and training opportunities which enhance industrial
capabilities etc.
It is not only developing nations that have economic
and technological development plans. Even in advanced
countries such as the USA, there are many regions with
their own economic and/or technological development
plan. Examples are Austin [4] and Albuquerque [5]. In
many instances the technology based economic
development plans involve substantial investments such
as the more than $1 billion plan for Ohio [6]. Similar to
the national plans of developing nations, these regional
plans for technology based economic development also
may include specific targeted industries [7]. In many
instances there are also specific roles for universities since
they are often viewed as an important resource for the
knowledge economy. This is despite mixed findings with
regard to the relationship of the existence of universities
in a region and the economic wealth of that region [8-11].
Regardless of these investments and plans, regions in the
USA have difficulty replicating the success of other
regions such as Silicon Valley, Route 128 and the
Research Triangle Park.
In this paper start-up companies will be examined to
determine the barriers to growth of these companies. This
may provide valuable insight with regard to what type of
economic and technological development plans are
feasible.
II. METHODOLOGY
Since start-up companies provide a lot of potential for
financial and job growth and are therefore frequently
targeted in regional economic development plans, this
study investigates start-up companies. The findings
represented in this paper are part of a bigger study that is
focused on university related start-up companies. With
regard to growth potential and local environment barriers
to growth, these are not considered different from non-
university start-up companies. The start-up companies
were selected in a region in the USA which is not known
for being advan ced but which has plans for developing an
innovation oriented regional economy [12].
In the first phase of the research each of the regional
universities were contacted with a questionnaire related to
the number of patents, start-up companies etc. that were
produced [13]. In the second phase of the research, which
is currently on-going, several of the university related
start-up companies were contacted. For each company
one of the founders of the company, typically the person
who developed the innovation on which the company was
based, was interviewed to determine the regional
economic impact of the company and to determine how
the company was initiated and what helped or hindered
the companies development.
The interviews contained information on three sets of
variables. The first group of variables related to the
founding of the company and the type of company that
was founded. This included for example, year of
founding, number of founders, whether founders are still
in parent organization, type of start-up (planned or
Innovation and Technology Based Economic Development:
Are There Short-cuts?
Harm-Jan Steenhuis1, Erik J. de Bruijn2
1Department of Management, Eastern Washington University, Spokane, USA
2School of Management and Governance, University of Twente, Enschede, The Netherlands
spontaneous [14]), whether technology and/or people
were part of the spin-off (based on [15]), and industry.
The second group of variables related to the current
situation of the company. This included for example, the
main mode of operating (based on [16]), employee level,
sales level, outward orientation (based on [17]), and
funding mechanism.
This paper focuses on the third set of questions.
These were related to the perception of the interviewee on
two issues. First, what type of environment helps or
hinders the formation of a start-up company. Second,
once a start-up company is formed, what type of
environment helps or hinders the growth of the start-up
company? This led to four questions that were addressed
in the interviews:
1. What factors facilitate the establishment of a start-up
company?
2. What factors inhibit the establishment of a start-up
company?
3. What factors facilitate growth of the start-up company?
4. What factors inhibit growth of the start-up company?
III. FINDINGS
Below, the findings are provided for six start-up
companies. Table 1 provides some general characteristics.
Table 2 provides a summary of the responses for each
of the companies for the first two research questions.
Table 3 provides a summary of the responses for each
of the companies for the last two research questions.
IV. DISCUSSION
When looking at the results, the first thing that is
striking is that although the companies involved were
mainly start-up companies that were spin-offs from
universities, barely any comments were made about
university policies on patenting and how these helped or
hindered. This is surprising considering the wealth of
literature on the Bayh-Dole act and also the literature on
university policies to encourage patent development and
start-up companies, see for example [18-22]. This
includes for example allowing spin-off companies access
to university research laboratories and facilities [23].
With regard to the market, table 1 shows that most of
the companies had customers outside of the region.
TABLE I
CHARACTERISTICS OF START-UP COMP ANIES
Company Character istics
Founded Regi onal orientation
1 1996 Almost n o regional customer s
2 2003 Mostly regional
3 1987 Almost no regional customers
4 2002 Almost no regional customers
5 1985 International customers
6 1993 Local suppliers, international customers
TABLE 2
FORMAT ION OF START-UP COMPANI ES
Company Character istics
Facilitates formation Hinders formation
1 Economic development
organizations
Not enough local expertise
to help start-ups, lack of
funding
2 Good worker s Lack of capital
3 Skilled workforce
Not enough personnel
available, lack of capital,
lack of investment culture
4 Availability of technical
consultants who can help
with start-up issues
Insufficient high quality
local engineers, scientists,
venture capital firms, no
local markets
5 Cost of operations,
tran sport/road s, tax stru ctu re
6 Access to research funding
Lack of financial
infrastructur e, lack of
exampl es
TABLE 3
GROWTH OF START-UP COMPANIES
Company Character istics
Facilitates growth Hinders growth
1
Availability of
management help, limited
local patent la wyers have
limited experience, limited
availability of capital or
limited risk taking behavior
of capital providers
2 Local market s Lack o f investment cultu re
3 Stable workforce
Lack of local customer s,
lack of qualified
sales/marketing people.
4 Cost of living Lack of services, lack of
attraction to worl d-class
engineers and scientists
5 Continuous R&D to keep up Mana gement skill s
6 Many local vendors Poor infrastructure (roads)
However, table 3 shows that this was an important factor
for growth (if they exist) or not (if they don’t exist).
Table 2 shows that having local expertise, i.e.
development organizations and technical consultants, aids
the formation of start-up companies as well as (maybe
obviously) employee availability with appropriate skills.
Local infrastructure and R&D funds also facilitate start-
up formation. The latter is maybe more specific in this
research because the start-up companies are all R&D
oriented (university related).
Table 3 illustrates that some of these factors also help
or hinder the growth of companies. For example local
consultants, technical expertise, patent lawyers,
workforce. Local customers (already mentioned for table
1), local vendors and infrastructure play a role as well.
What is important for growth of companies but not
necessarily for starting a company are three additional
factors: cost of living, continuous R&D and management
skills. The first is important to attract skilled employees
into the region. The second factor played a role in the
formation of the company but obviously R&D needs to
continue for many of these technology oriented
companies to remain competitive. Lastly, once the
company is started it becomes necessary to focus more on
the management skills.
In further analysis it is noticeable that many of the
factors that are considered facilitators or barriers for
starting-up a company as well as for the subsequent
growth of the company are related to the local
environment. Examples of these factors are the local
availability of a skilled workforce, the experience level of
local patent lawyers, the local investment climate, etc.
However, each of these factors can be considered
dependent upon the number of local start-up companies
and/or technology based companies. For example, the
local availability of high quality scientists and engineers
is likely to be dependent upon the overall local demand
for high quality scientists and engineers. Silicon Valley is
an example of an area where there is a high demand for
high quality scientists and engineers and consequently
many high quality scientists and engineers are willing to
move to that area because there are many job
opportunities. The experience of local lawyers with
patents is likely to be dependent upon how often they
have to deal with patents. The availability of capital and
the local investment climate is likely to be dependent
upon the number of start-ups that occur, that is, the more
start-ups and the more successful they are, the more likely
that it will increase the availability of capital as well as
have more sophisticated investors.
This indicates a pattern of mutual dependence which
indicates that economic and technological development is
a process that takes time to develop and where short-cuts
are unlikely. An example that illustrates this is the
development of the Research Triangle Park in North
Carolina. This deliberately planned area [24] was
launched in the 1950s but progress was slow for twenty
years [25]. This raises two issues. First, what is required
for a region so that economic and technological
development can take place? Second, once this
development takes place, is it possible to catch-up with
other already developed regions in the world?
A. Critical Mass
Varga [26] provides an example of what is required in
a metropolitan area before university technology transfer
have a significant impact on the region. Varga examined a
sample of metropolitan statistical areas (MSAs) and
distinguished four different “tiers” based upon their
innovation elasticity ranges. This elasticity represents the
percentage change in innovations associated with a one
percentage change in university research expenditures in
the MSA. Although a one percent change in university
research results in a 0.22 percent change in innovations in
a typical first tier MSA, this value is only 0.009 percent in
the fourth tier [26]. An average first tier MSA produces
116 innovations, a last category location can only obtain
two of them [26]. Furthermore, a top category MSA
employs 8,900 scientists and engineers in its research
laboratories, 153,000 workers in its high technology
production facilities and 76,000 employees in its business
services organizations. The respective values in a typical
fourth tier city are 220 scientists and engineers, 4,000
workers in high technology production facilities and
2,000 employees in business services organizations. In
looking at these numbers it is obvious that even with
substantial investments, for example from state
governments, it will take time to develop the critical mass
and short-cuts are not obvious.
B. Catch-up
Whether catch-up is possible depends on two things.
First, how fast is the growth of the follower? And, second,
what growth is the leader experiencing during the catch-
up of the follower?
For the technological development in the aerospace
industry it has been hypothesized that catch-up for
developing nations has been particularly difficult because
the developed nations are still experiencing high growth
[27]. This relates to the concept of the technology S-
curves. If the leader in the technology is still below the
mid-point on the technology S-curve then catch-up will be
difficult because the leader still has high growth which
only increases the distance between the leader and the
follower on the technology S-curve.
In a similar manner, Danielmeyer [28] and
Danielmeyer an d Airaghi [29] have looked at economic
development of nations. They argue that the growth of
nations, as measured by GDP per capita, follows
exponential growth. For all nations together, there is a
resulting envelope, which is the upper bound of all growth
curves. This is nearly a pure exponential with a growth
rate of only 1.3% per annum. This is the net result of all
innovations, from the steam engine to the mobile phone
[28]. Note that the first significant economic growth
occurred between 1500 and 1700 at an average growth
rate of 0.52% (much lower than today’s growth rate) [30].
This confirms the exponential curve found by
Danielmeyer and it also illustrates that economic
development in the currently considered developed
nations has been a long process.
Danielmeyer [28] argues that higher growth rates, for
example for developing nations, are possible based upon
the fact that their current GDP per capita is lower than the
upper-bound of economic growth. These countries can
copy things from other countries (technology transfer)
although, as pointed out previously, this isn’t necessarily
always successful [27].
Overall, it appears therefore that technological and
economic development of countries or regions, for
example through encouraging technology based economic
development is a complicated process. First, any region or
country that wants to use this strategy should realize that
in order for innovations to get commercialized through
start-up companies requires a certain environment, similar
to what Varga stated as critical mass for university
inventions. This critical mass is not something that can be
easily build but requires time to develop. Second, even if
a critical mass exists and economic and technological
growth are possible, whether this really leads to a catch-
up with the current economic leaders remains
questionable. This is among other things dependent upon
where the leaders are and whether they are for example
still experiencing high growth themselves. As an
example, the 2005 GDP per capita for the USA was
$41,399. That for China was $7,204 [31]. A growth rate
of 5% for the USA and triple that for China (15%) means
that it would still take Chine roughly 20 years to have the
same GDP per capita as the USA.
V. CONCLUSION
This paper star ted out by describin g how many
developing nations have economic and technological
development strategies. Similarly many regions in
developed nations have similar strategies. This was
followed by a description of research which pointed out
that many of the factors that help or hinder the
establishment of technology based companies are related
to the overall environment. Finally, additional literature
was presented which illustrates that technological and
economic development strategies, in particular related to
catching-up with leading nations or regions, have to be
based upon the local circumstances. Furthermore, to
develop the required economic and technological
environment is a long process. It is therefore unlikely that
follower regions or nations are able to catch-up with the
leading regions or nations unless the leading regions or
nations enter the high portion of the S-curve, i.e. their
economic growth slows down.
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