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Centre for Business Research (CBR) news from 2006

What helps business absorb knowledge and does this capacity vary across the regions of the UK?

1 December 2006

New research findings will be presented by Michael Kitson, Research Associate of the Centre for Business Research and University Lecturer in International Macroeconomics at Cambridge Judge Business School; Vadim Grinevich, CBR; Maria Abreu, CMI; and Maria Savona, CMI, at a DTI Conference which will be held at the British Academy on 1 December.

The work provides new empirical evidence on the role of firms’ absorptive capacity and regional differences in innovation performance in UK. The work is based on an in-depth analysis of two different databases ­ the Fourth Community Innovation Survey (CIS4) and the 2004 Survey of Small and Medium-Sized Enterprises from the Centre for Business Research (CBR) at the University of Cambridge.

The results indicate that there are important spatial differences in innovation levels, and many of these differences can be explained by spatial variations in firms’ absorptive capacity. The research indicates that differences in managerial practices such as job rotation have a significant effect on product but not on service innovation and employee training practices have a significant impact on service and process but not on product innovation

Much of the recent focus on clusters has emphasised the importance of local networks and collaboration. According to Michael Porter clusters are ‘geographic concentrations of interconnected companies, specialised suppliers, service providers, firms in related industries, and associated institutions (for example universities, standards agencies, and trade associations) in particular fields that compete but also co-operate.’

Unfortunately, this notion is not supported by the empirical evidence for the UK. Although networks are very important for innovating firms, the geography of collaboration is complex and collaboration with national, and to a limited extent international partners, driven by technology and consumer related considerations, tend to be more important than local partnerships.

The geography of collaboration has important implications for networking building and policy. If building such networks facilitates the development of more geographically extensive networks then they may aid regional competitiveness. But if they prevent or displace the creation of wider networks their impact may be to hinder regional innovation and growth.

The global production networks of British, German and American clothing firms

17 November 2006

On 17 November Professor Christel Lane and Jocelyn Probert participated in a Think Tank day for the EMEA (European, Middle East & Africa) region of YKK, the privately-owened Japanese firm that holds a major global market share for zips, snaps and fasteners. They gave a presentation on the clothing industry to about 40 higher international managers of the company.

Professor Lane said:

It was a very interesting and worthwhile experience and good to have these managers – who know the clothing industry first-hand – endorse our account of it.

Professor Lane and Dr Probert are planning another round of interviews visting clothing and textile firms in Romania in December as further research for the book they are writing on the clothing industry.

Find out more

Visit the Centre for Business Research (CBR) website to learn more about the project “The Globalising Behaviour of UK Firms in a Comparative Context”
Visit the Oxford University Press website to order the book National Capitalisms, Global Production Networks: Fashioning the Value Chain in the UK, USA, and Germany

US hi-tech start ups receive up to ten times as much government financial support as UK firms, finds Centre for Business Research study

30 July 2006

A new report, from the University of Cambridge’s Centre for Business Research entitled “Secrets” of the World’s Largest Seed Capital Fund, argues that the UK should urgently introduce a US scheme that has successfully converted billions of dollars of taxpayer-funded research into highly valuable products and helped build hundreds of successful companies.

The report provides detailed insights into the way the United States government uses its Small Business Innovation Research (SBIR) programme and procurement budgets to build successful science and technology industries by supporting small, high-technology firms. Report author David Connell said: “Through such mechanisms early stage US businesses get access to government funding for R&D which is at a level significantly larger per company than UK firms receive, probably by an order of magnitude.” Unlike UK government grant schemes and R&D tax credits the SBIR programme provides 100% funding right from the very start of a business’s life, and is therefore much more effective at getting new businesses under way.

Founded in 1982, the SBIR programme provides over 4,000 research and development contracts and awards, worth over $2 billion every year to small US companies, including start-ups and university spin-outs. SBIR has also helped thousands of these businesses onto the first rung of the lucrative US government procurement ladder. It is just one of a panoply of policies designed to favour small US firms. Other US “set-aside” legislation steers a hefty 40 per cent of US government procurement budgets, both directly and indirectly, towards US small companies.

Report author David Connell said:

The SBIR programme probably plays a more important role in the US than venture capital in the funding of early stage science and technology companies. And the lack of a similar programme in the UK puts our hi-tech firms at a significant competitive disadvantage.

David Connell is a businessman, former venture capitalist, and now a Senior Research Associate of the Centre for Business Research. He is leading the campaign to bring such an initiative to the UK, working with Kitty Ussher MP on a Private Members’ Bill that is scheduled to receive its second reading this autumn. They believe it could play a major role in filling the funding gap for early stage UK companies throughout the UK, irrespective of whether they are located in areas with good access to local venture capital funds.

“Despite government efforts, we still do not have effective policies in the UK to ensure that public sector procurement plays its full role in the innovation economy we need to build to remain competitive,” argues David Connell. “The SBIR programme is one of the most successful and best regarded of such policies and it comes from the nation that is probably the most successful of all in building science and technology industries. We would do well to study and imitate it.”

The report aims to show the UK policy, business and academic communities exactly how the US scheme works, and why it is so successful. It examines how the SBIR programme is operated by a range of different US government agencies, including the Department of Defense, National Institutes of Health and National Science Foundation. It also examines the evidence on the scheme’s economic impact and makes detailed proposals on how a similar programme could be introduced in the UK.

Case studies and entrepreneurs’ comments

The report includes case studies of a number of SBIR award recipients that have used the funding to help get new products to market and build successful companies, including one Cambridge research scientist who has started a firm in the US to access SBIR funding:

  • Cor Drost was a researcher at Cornell University’s College of Veterinary Medicine when he invented a new meter for measuring blood flow. Twenty years ago he set up a company called Transonic Systems Inc which has used many SBIR awards to develop its technology. It now sells and distributes products around the world that are used to monitor patients during surgery, and kidney patients during dialysis. Dr Drost says: “The SBIR program supports potential 800-pound gorillas like Microsoft and Dell when they are still in the diaper stage: it is seed money for half of a country’s GNP, 30 years from now.”
  • Photobit Technology Corporation was founded in the 1990s by serial entrepreneur Dr Eric Fossum. Using SBIR funding, it developed image sensor technology initially for use by the US Army. But as costs fell the same technology became used for cameras in mobile phones. Other developments have led to a camera that can be swallowed like a pill, enabling non-invasive imaging of the gastrointestinal system. Dr Fossum says, “SBIR awards help companies that wouldn’t otherwise attract venture capital funding because they have a slow growth profile or niche market appeal. But they are also helpful to the government, seeding businesses that are developing technologies useful to government agencies – and, often, to us all.
  • Embrex Inc is a profitable company manufacturing equipment for use in the poultry industry. Twenty years ago, at the very start of its life, it received $229,000 of SBIR funding to develop a patented technology for vaccinating chicks against diseases while they are still in the egg. Don Seaquist, VP for Finance and Administration at Embrex, says: “Obviously, the US government needs to accept a fair degree of risk in funding small, high-tech firms but in our case, they and the US tax payer got a very good deal. Between 1993 and 2002, we paid royalties back to the US government of $3.5 million.”
  • Entrepreneurial academic Dr Helen Lee set up the Diagnostic Development Unit at Cambridge University’s Department of Haematology with the aim of developing innovative, simple, rapid and inexpensive diagnostic tests, particularly for use in developing countries. But she and her colleagues established the company that is now developing this technology, Diagnostics for the Real World Ltd, in the US. So far it has received $5.5 million of SBIR funding from the National Institutes of Health. She says: “We would all have preferred to establish the company in Cambridge, rather than California, because Cambridge is where the research and development has taken place. But the funding gap for start-up biotech companies in the UK is such that we did not have a choice.”

Find out more

Download the report “Secrets” of the World’s Largest Seed Capital Fund

UK plc: just how innovative are we?

16 February 2006

Companies in the United States find running a business just as challenging – if not even more so – than their counterparts in the UK, according to new CBR research. Despite the well-known discontent of British firms over ‘red tape’, it turns out that American firms are even more concerned about taxation, legislation and regulation as a constraint on their ability to innovate; and surprisingly, they are also more worried about a lack of skilled labour and getting access to finance than British firms.

These were just a couple of the more unexpected issues that emerged last Wednesday when the CBI and the Cambridge-MIT Institute (CMI) co-hosted a conference entitled “UK Plc: Just How Innovative Are We?” – to unveil the results from the CMI-funded ‘International Innovation Benchmarking’ study.

This is a new survey that has been quizzing 3,600 companies on both sides of the Atlantic about what they do to make themselves innovative and how they perform as a result. The research has been carried out by the Centre for Business Research and the Industrial Performance Center at MIT, and last week three speakers from the Centre for Business Research talked about what they had discovered to a 100-strong audience drawn from government, industry and academia.

The “International Innovation Benchmarking” project is providing for the first time a like-for-like comparison of the innovative behaviour of US and US firms, and the research included work on:

  • The role of universities in the innovation system. It seems that universities and businesses in the UK are doing more to link up with each other, not least because of some policy stimulus to do so, but they aren’t as enthusiastic about its importance to innovation as in the US. Professor Alan Hughes, Director of the Centre for Business Research and one of the principal investigators, told delegates: “In America, for example, firms both use internships as a link with universities more frequently and rate them more highly than UK firms; this is a key people-based link between industry and the science base which is neglected in the UK.” Also, the findings reveal, despite the policy importance being placed on university-industry links in this country, universities are not regarded by UK or US businesses as the key players in terms of collaboration, sources of knowledge used by businesses, or technology acquisition.
  • Competition: US companies face more competition than UK firms, but UK firms have more overseas competitors and are likely to have to deal with the complexities of overseas trade sooner in their lifespan than US firms.
  • Barriers to innovation: Surprisingly, given the perceived superiority of the US environment for business, it turns out that US companies are more worried than their British counterparts about particular constraints, including ‘red tape’ (legislation, taxation, regulation), getting access to finance, and getting skilled labour.
  • Public support: A higher proportion of UK companies get government support – this is particularly marked amongst the largest UK businesses, with 1,000 or more staff. But the amount received per company is much higher in the US both in terms of the absolute amount they get, and the percentage of sales that it represents.
  • Comparative innovation: On the whole, US companies are much more likely to have introduced novel innovations (those new not just to the company but also the industry) than their UK peers – except in the high-tech services sector, where British businesses (eg in telecoms, computer software and R&D consultancy) are ahead.

Several of the findings particularly intrigued delegates, including the responses from US companies that challenged the accepted wisdom that the environment for businesses is easier in the US than it is in the UK. In his remarks at the conference Ian McCafferty, the CBI’s Chief Economic Advisor, said: “I was surprised by the data from this survey on ‘innovation inputs’ that suggested that firms in the US find life just as challenging, and in many cases harder than those in the UK, particularly in areas such as workforce skills, access to finance, regulation, and even technology-related factors. Clearly the popular impression of the US – that it offers a much better climate for innovation than the UK – does not fully stack up.”

In discussion, delegates also returned several times to the discovery that while more UK than US businesses (two-thirds UK compared to one-third US) use universities as a source of knowledge for innovation, strangely they value such relationships less highly than US businesses. Project leader Dr Andy Cosh told delegates:

There is lots of noise (about university-industry links) in the UK, but less action than there is in the United States: UK companies are more likely to get involved in some form of university-collaboration, but the US companies that collaborate with universities are more likely to rate this as important, and they devote more of their innovation expenditure to such collaborations.

The CBI has taken an interest in this work because of its own recent research into innovation, and its current Innovation Campaign to heighten awareness of innovation issues. In his talk at the event, Ian McCafferty told delegates: “The overall impression from this work is that, based on levels of business innovation activity and return on government investment, the differences between US and UK firms are not as great as you might expect. In spite of the greater resources devoted, and the greater ‘novelty’ shown in the US, the UK holds its own. Maybe this has something to do with our necessarily earlier and greater exposure to international competition – it makes life tougher for companies early on, but those that can cope are likely to end up more competitive as a result.”

He added: “But the conclusion does not only mean that we need to do better, but that we should look at improvement not just as a ‘catch up’ exercise from a position of inferiority, but as a way of creating further competitive advantage.”

Find out more

Visit the Centre for Business Research (CBR) website to learn more about the project “International Innovation Benchmarking & the Determinants of Business Success”