View from Cambridge

The Cambridge area, sometimes known as Silicon Fen for its combination of low-lying geography and a Silicon Valley-like culture, has become one of the world's best known innovation clusters. But what makes Cambridge in particular, and clusters in general, work?

by Professor Arnoud De Meyer, professor of management studies at Cambridge University and director of the Judge Business School

Before joining Judge Business School, Professor De Meyer was associated with INSEAD as a professor and as Dean for the MBA programme, Executive Education and the Euro Asia Centre. He was also the founding Dean of INSEAD's Asia Campus in Singapore. Professor De Meyer has been a part-time professor at the University of Antwerp and Ghent in Belgium, and was a visiting professor at the University of Kiel, Waseda University in Tokyo, Keio University in Tokyo, and the Birla Institute of Technology in India. He is also an external director of two high-technology companies. He has written for us before, on Singapore's efforts to become an innovation led economy

I've studied technology clusters around the world, including those in Northern Israel, Sofia-Antipolis in France, and Singapore, to try and understand what makes some thrive and other fail. No cluster is ideal, but successful clusters need a sufficient amount of each of six key factors in order to prosper.

The first is a very good technical infrastructure, with good internet connections, good telephone connections, high mobility, good roads and other transport links. Second, successful clusters need a very good educational infrastructure. Universities play a role here, but good schools are also important to create skilled workers.

The third element of a successful cluster is the local availability of good financial engineering skills. You need people nearby who can finance risky projects and understand the different forms of financing that are relevant to a developing high-technology company. Financial engineering is more than having enough money at the right time – you need access to sophisticated specialists who can find appropriate financing.

The fourth element necessary for a successful cluster is a society that places a high value on creativity, imagination and entrepreneurship, and provides lots of role models - people who are successful, or who tried, failed but tried again.

The fifth thing a successful cluster needs is a good legal infrastructure in which you can enforce contracts and protect intellectual property, and where there is stability about tax laws. People and companies will pay their taxes, but they don't want to work with a constantly changing tax landscape – it makes it impossible to plan. The sixth element is a strong network to access markets.

If those are the criteria for a successful cluster, how does Cambridge's report card look?

I'd say that Cambridge has a reasonably good technical infrastructure, a good university and a good educational system. Over the last 10 to 15 years it has also developed a culture that appreciates imagination, creativity, risk-taking, and entrepreneurship, in part due to the influx of foreigners who brought some of those attitudes with them when the came.

The UK's legal infrastructure is OK. There is always a risk that with changes of government, ministers will want to implement new rules. What's important is that although the rules governing business can be tough and challenging, they are predictable.

Cambridge's weakness is its access to sophisticated markets. The UK is a fairly small market, so a lot of companies, if they want to succeed, must project themselves immediately on a global scale. That's a very demanding managerial task.

I see lots of Cambridge companies that easily reach 50 employees and make their first sales, but then get sold to larger organisations. I'm convinced this is because many Cambridge companies lack the managerial experience to cope with running organisations of more than 50 people, or to tackle world markets.

There are two solutions to this problem. The first is to recruit more talented and experienced business people, especially from abroad, who will bring different outlooks as well as their international networks. The second solution is to ask regional agencies to help with the internationalisation process.

One of Silicon Valley's advantages is that big companies thrive there alongside the start-ups – think of Hewlett Packard, Intel, Apple and so on. These companies have an international market, so a small company can sell to them and indirectly access that market. Cambridge lacks such big companies, so our small companies have to go out and look for large firms to help them conquer the world market.

It's worth Cambridge companies, and others in similar positions in other clusters, considering large European companies as internationalisation partners, rather than imagining that the answer always lies in the US. There are plenty of large organisations in Europe that can help small companies reach international markets. Conversely, there are plenty of large European organisations that could be taking advantage of the expertise found in clusters to develop new products, process or services, while at the same time learning a little of the entrepreneurial spirit.

Professor Arnoud De Meyer

Professor of management studies at Cambridge University and director of the Judge Business School

a.demeyer@jbs.cam.ac.uk

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Issue 13 Spring 08

View from Cambridge