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Living up to the Expectations Set by ICT? The Case of Biotechnology Commercialisation in Finland

2007; Taylor & Francis; Volume: 19; Issue: 3 Linguagem: Inglês

10.1080/09537320701281565

1465-3990

Terttu Luukkonen, Christopher Palmberg,

Private Equity and Venture Capital

Abstract Abstract This paper examines the dynamics and bottlenecks in the commercialisation of biotechnology in Finland by using the Information and Communications Technology (ICT) industry as a benchmark. The paper considers both ICT and biotechnology within the dynamic life-cycle model of technological revolutions by Perez. For an empirical comparison, it applies the concept of a 'competence bloc' as an interpretive and focusing device. A competence bloc may be defined as a set of actors, functional competences, and institutions that are necessary for large-scale commercialisation and industrialisation of new emerging technologies. In spite of the many differences between the ICT and biotechnology industries, the comparison serves as a heuristic device for pinpointing important features in the framework conditions of commercialisation in biotechnology. The paper shows that a major bottleneck in the development of the biotechnology industry in Finland is the scarcity of industrialists to transform innovations into large-scale production. Acknowledgements This paper was presented at ELSIS: Evolution of the Life Science Industry Sectors, Edinburgh, 23–25 February 2005. The paper has greatly benefited from collaboration and studies carried out within the PRIME NoE Venture Fund project. We gratefully acknowledge useful comments on earlier versions of the paper by Yuval Marcus and Morris Teubal, and the valuable comments by three anonymous referees. Notes 1. Public funds for R&D and the building of science parks in the 1990s and early 2000s totalled nearly € 400 million. If the investments of a public venture fund, Sitra, are taken into account, the sums amount to nearly a €1 billion. As a comparison, gross domestic R&D expenditure in Finland was €5.5 billion in 2004. See T. Luukkonen & C. Palmberg, Suomen teollisuuden seuraava läpimurto? Uuden biotekniikan vertailu tietotekniikka-alaan, in: T. Luukkonen (Ed.) Biotekniikka—tietoon perustuvaa liiketoimintaa (Helsinki, Taloustieto, 2004). 2. C. Perez, Technological Revolutions and Financial Capital (Cheltenham, UK, Edward Elgar, 2002). 3. A. Arundel, Agricultural biotechnology in the European Union: alternative technologies and economic outcomes, Technology Analysis & Strategic Management, 13(2), 2001, pp. 265–278; P. Nightingale & P. Martin, The myth of the biotech revolution, Trends in Biotechnology, 22(11), 2004, pp. 564–569; G. P. Pisano, Can science be a business?, Harvard Business Review, 84(10), 2006, pp. 115–125. 4. G. Eliasson & Å. Eliasson, The biotechnological competence bloc, Revue d'Economie Industrielle, 78(4), 1996, pp. 7–26. 5. Perez, op. cit., Ref. 2. 6. Ibid. 7. Ibid., p. 8. 8. Ibid., p. 11. 9. Ibid. 10. Pisano, op. cit., Ref. 3. 11. Technological opportunities are commonly considered to reflect the productivity of research and development (R&D), and hence to precondition the rate and nature of technological change and inno-vation across sectors, one of the aspects of technological regimes. See A. Klevorick, R. Levin, R. Nelson & S. Winter, On the sources and interindustry differences in technological opportunities, Research Policy, 24, 1995, pp. 185–205. 12. S. Breschi, F. Malerba & L. Orsenigo, Technological regimes and Schumpeterian patterns of innovation, The Economic Journal, 110, 2000, pp. 388–410; Luukkonen & Palmberg, op. cit., Ref. 1. 13. M. McKelvey, Evolutionary Innovations: The Business of Biotechnology (Oxford, Oxford University Press, 2000). 14. C. Palmberg, The sources of innovations—looking beyond technological opportunities, Economics of Innovation and New Technology, 13(2), 2004, pp. 183–197. 15. H. Koski & C. Sierimo, Entry and exit in the ICT sector—new markets, new industrial dynamics? ETLA Discussion Papers No. 847, The Research Institute of the Finnish Economy, Helsinki, 2003. 16. Perez, op. cit., Ref. 2; Nightingale & Martin, op. cit., Ref. 3. 17. C. Edquist (Ed.), Systems of Innovations—Technologies, Institutions and Organisations (London, Pinter, 1997). 18. Eliasson and Eliasson's concept can be traced back to the Swedish so-called Dahménian school on industrial dynamics. For a further discussion, see D. Johansson & N. Karlsson (Eds) Den svenska tillväxtskolan—om den ekonomiska utvecklingens kreativa förstörelse (Uddevalla, Mediaprint AB, 2000). 19. Perez, op. cit., Ref. 2. 20. G. Eliasson, The venture capitalist as a competent outsider, in: K. Alho, J. Lassila & P. Ylä-Anttila (Eds) Talouden tutkimus ja päätöksenteko—Kirjoituksia rakennemuutoksesta, kasvusta ja talouspolitiikasta (Taloustieto Oy, Helsinki, 2003); T. Hellmann & M. Puri, The interaction between product market and financing strategy: the role of venture capital, The Review of Financial Studies, 13, 2000, pp. 959–984; T. Hellmann & M. Puri, Venture capital and the professionalization of start-up firms: empirical evidence, The Journal of Finance, 57(1), 2002, pp. 169–197. 21. B. Carlsson & G. Eliasson, Industrial dynamics and endogenous growth, Paper presented at the DRUID Nelson & Winter Conference, 12–15 June 2001, Aalborg, Denmark. 22. R. Hermans & T. Luukkonen, Findings of the ETLA survey on Finnish biotechnology firms, ETLA Discussion Papers No. 819, The Research Institute of the Finnish Economy, Helsinki, 2002; T. Luukkonen & M. Maunula, Riskirahoituksen merkitys biotekniikka-alalla—pääomasijoittajien vertailu yritysten näkökulmasta, ETLA Discussion Papers No. 1057, The Research Institute of the Finnish Economy, Helsinki, 2006. 23. T. Luukkonen, Biotekniikkayritykset vähenevät, Suhdanne 1/2005, ETLA, Helsinki, 2005. 24. Source: Statistics Finland. If contents provision is included, the number of firms is over 20,000. 25. L. Paija (Ed.), Finnish ICT Cluster in the Digital Economy (Helsinki: Taloustieto Oy, 2001). 26. J. Schumpeter, The Theory of Economic Development, Engl. trans. 1968 (Cambridge, MA, Harvard University Press, 1911/1968). 27. A. Jaffe & M. Trajtenberg (Eds), Patents, Citations & Innovations—A Window on the Knowledge Economy (Cambridge, MA, The MIT Press, 2002). 28. J. Ali-Yrkkö & R. Hermans, Nokia in the Finnish Innovation System (Helsinki, Yliopistopaino, 2002). According to recent estimates from 2002, Nokia's R&D accounts for some 35% of the total R&D expenditures in Finland, and 21% of all exports originate from this firm, see P. Rouvinen & P. Ylä-Anttila, Case study: little Finland's transformation to a wireless giant, in: B. Dutta, B. Lanvin & F. Paua (Eds) The Global Information Technology Report 2003–2004 (New York, Oxford University Press for the World Economic Forum, 2003), pp. 87–108. 29. Communication from Tekes (Finnish Funding Agency for Technology and Innovation). 30. T. Luukkonen, Patentointi biotekniikka-alalla, ETLA Discussion Papers No. 938, The Research Institute of the Finnish Economy, Helsinki, 2004. 31. Cf. A. Carree & A. Thurik, Self-employment in the OECD countries, Labour Economics, 7(5), 2000, pp. 471–505. 32. J. Ali-Yrkkö, Nokia's Network—Gaining Competitiveness from Co-operation (Helsinki, Taloustieto Oy, 2001). 33. H. Koski, P. Rouvinen & P. Ylä-Anttila, Tieto & Talous—Mitä "Uudesta Taloudesta" Jäi? (Helsinki: Edita, 2002). 34. M. Fransman, Telecoms in the Internet Age—From Boom to Bust \ldots ? (New York, Oxford University Press, 2002). 35. T. Luukkonen, Venture capital industry in Finland—country report for the Venture Fund project, ETLA Discussion Papers No. 1003, The Research Institute of the Finnish Economy, Helsinki, 2006. 36. A. Rantala, Onko Suomessa riittävästi yritysdynamiikkaa? PTT-katsaus 4, 2004, pp. 41–47. 37. Eliasson, op. cit., Ref. 20. 38. Perez, op. cit., Ref. 2, p. 73. 39. Ibid. 40. Eliasson, op. cit., Ref. 20. 41. Ibid. 42. See, e.g. M. Kenney & R. Florida, Venture capital in Silicon Valley: fueling new firm formation, in: K. Martin (Ed.) Understanding Silicon Valley: The Anatomy of an Entrepreneurial Region (Stanford, CA, Stanford University Press, 2000), pp. 98–123; R. J. Gilson, Engineering a venture capital market: lessons from the American experience, Stanford Law Review, 55(4), 2003, pp. 1067–1103. 43. A. Hyytinen & M. Pajarinen, Financial systems and venture capital in Nordic countries: a comparative study, in A. Hyytinen & M. Pajarinen (Eds) Financial Systems and Firm Performance (Helsinki, Taloustieto Oy, 2003). 44. Finnish Venture Capital Association (FVCA), Pääomasijoittaminen Suomessa 2002 (Helsinki, FVCA, 2003). 45. Cf. Eliasson, op. cit., Ref. 20. 46. The Finnish Venture Capital Association (FVCA), Yearbook 2004 (Helsinki, FVCA, 2004). 47. V. Antila, Bioalan riskiraha niukaksi—Julkista rahoitusta tarvitaan aiempaa enemmän, Kemia-Kemi, 30, 2003, pp. 31–32. 48. Luukkonen & Maunula, op. cit., Ref 22. 49. Hermans & Luukkonen, op. cit., Ref 22. 50. J. Ali-Yrkkö, A. Hyytinen & J. Liukkonen, Exiting venture capital investments: lessons from Finland, in: A. Hyytinen & M. Pajarinen (Eds) Financial Systems and Firm Performance (Helsinki, Taloustieto Oy, 2003). 51. Hyytinen & Pajarinen, op. cit., Ref. 43. 52. Ali-Yrkkö et al., op. cit., Ref. 50. 53. Luukkonen, op. cit., Ref. 58. 54. P. Rönkkö, Growth and internationalization of technology-based new companies: case study of 8 Finnish companies, in: L. Paija (Ed.) Finnish ICT Cluster in the Digital Economy (Helsinki, Taloustieto Oy, 2001). 55. Ibid. 56. Eliasson & Eliasson, op. cit., Ref. 4. 57. D. J. Teece, Profiting from technological innovation: implications for integration, collaboration, licensing and public policy, Research Policy, 15, 1986, pp. 285–305. 58. T. Luukkonen, Variability in organisational forms of biotechnology firms, Research Policy, 34, 2005, pp. 555–570. 59. Luukkonen, op. cit., Ref. 58. 60. Then Telecom Finland, later Sonera; currently TeliaSonera. 61. C. Palmberg, Technological systems and competent procurers—the transformation of Nokia and the Finnish telecom industry revisited, Telecommunications Policy, 26, 2002, pp. 129–148. 62. Ali-Yrkkö, op. cit., Ref. 32; C. Palmberg & O. Martikainen, Overcoming a technological discontinuity—the case of the Finnish Telecom industry and the GSM, ETLA Discussion Papers No. 855, The Research Institute of the Finnish Economy, Helsinki, 2003. 63. A comparison of Finnish biotechnology patents in USPTO compared with those with a Swedish origin shows that they are approximately on a par in spite of the larger science base of Sweden (see Figure A1 in Appendix). 64. Teece, op. cit., Ref. 57. 65. Ibid., p. 304. 66. G. Avnimelech, M. Kenney & M. Teubal, Building venture capital industries: understanding the U.S. and Israeli experiences, BRIE Working Paper 160, 2 March 2004. 67. Pisano, op. cit., Ref. 3.