Description
Data related to exploiting cluster economics to benefit corporate and public communities.
0
991102CG3_ZXC_251.V3
1
991102CG3_ZXC_251.V3
2
991102CG3_ZXC_251.V3
Exploiting Cluster Economics
to Benefit Corporate and
Public Communities
TCI - Conference
Varese, November 1999
3
991102CG3_ZXC_251.V3
EMERGING CLUSTERS – AGENDA
Source: McKinsey
Hypothesis 2
Regional growth is only
sustainable if built on
innovative activity
Aspiring corporations have
the capacity and the incen-
tive to act as catalysers of
cluster growth
Cluster potential is widely
underexploited due to
deficiencies in public-private
coordination
Hypothesis 1
Hypothesis 3
Surfacing the latent innovation
potential of a region
The challenge
Developing a compelling and
workable logic for incumbent
corporations to foster local
cluster growth
Exploit the private-public win-
win and build lasting structures
of cluster promotion
4
991102CG3_ZXC_251.V3
EMERGING CLUSTERS – AGENDA
Source: McKinsey
Hypothesis 2
Regional growth is only
sustainable if built on
innovative activity
Aspiring corporations have
the capacity and the incen-
tive to act as catalysers of
cluster growth
Cluster potential is widely
underexploited due to
deficiencies in public-private
coordination
Hypothesis 1
Hypothesis 3
Surfacing the latent innovation
potential of a region
The challenge
Developing a compelling and
workable logic for incumbent
corporations to foster local
cluster growth
Exploit the private-public win-
win and build lasting structures
of cluster promotion
5
991102CG3_ZXC_251.V3
* US or UK companies with more than US$500 million in revenue
Source: Sharebender-Database
in USD
1 USD invested 6 years
prior to turnaround
0
1
2
3
4
5
6
7
-6 -4 -2 0 2 4 6
Turnaround strategy:
Cost reduction
Median from 57 companies*
CAGR 5,1%
0
1
2
3
4
5
6
7
-6 -4 -2 0 2 4 6
Turnaround strategy:
Revitalizing innovation
Median from 23 companies*
CAGR 14,4%
0
1
2
3
4
5
6
7
-6 -4 -2 0 2 4 6
Turnaround strategy:
Innovation
Median from 7 companies*
CAGR 16,3%
SHAREHOLDER-RETURN OF SUCCESSFUL TURNAROUNDS: WHAT IS
DRIVING GROWTH?
6
991102CG3_ZXC_251.V3
CORPORATE INNOVATION PROCESSES VS. MARKETS
• Strategic plan to
develop new
businesses
• First market reactions
cause new businesses
to appear on radar
screen
• Task force evaluates
strategic moves
• Information on new
business opportunities
rarely noticed and
assessed
• “Wait and see” attitude
until winners emerge
Market
mechanisms
(e.g. Silicon
Valley)
Market exploitation Business opportunities Business development
Large
corporations
Large corporations usually
enter new markets with a
delay of 3 - 4 years
Source: McKinsey
7
991102CG3_ZXC_251.V3
EFFICIENCY OF INNOVATION PROCESSES - THE CASE OF LASERHEADS
* Including group internal supplier and open market
** Burroughs, CD, OEC, Fujitsu, Hitachi, NEC
Source: Disk/Trend Report, Peripheral Research Corporation, Christensen
500
300
150
Other critically integrated
enterprises**
IBM
Independent start-ups
R&D - Expenditure
USD million
38
8
54
Market share
in percent of unit produced*
8
991102CG3_ZXC_251.V3
START-UP ACTIVITIES AND IMPACT ON NET JOB CREATION –
EXAMPLES OF REGIONS 1992 - 1996
Source: Cognetics
…direct investment by
“outside” companies
Boston /
Route 128
Charlotte
Minneapolis
Columbus
Pittsburgh
118,530
48,855
75,613
76,734
31,092
… growth in existing
companies
18,530
23,761
67,274
27,104
12,304
4,729
3,725
1,375
2,767
428
New job creation due to:
… start-up activity
9
991102CG3_ZXC_251.V3
Value of cluster
economies
Time
CLUSTERS – IMPORTANT, THOUGH NOW FOR DIFFERENT REASONS
Cluster economies
strengthened by new role of
• Specialized knowledge
• Specialized people
• Specialized inputs/services
Agglomeration pull diminished
through
• Free trade
• Transaction cost degression
• Comparable infrastructures
• New markets
Source: McKinsey
A
s
a
s
i
t
e
o
f
i
n
n
o
v
a
t
i
o
n
Stockholm,
Telecom
Bangalore, IT
Munich,
Biotech
Hollywood,
Media
Silicon Valley,
IT
A
s
a
s
i
t
e
o
f
o
p
e
r
a
t
i
o
n
Geneva, Watches
Pittsburgh, Steel
Bavaria,
Ceramics
industry
Ruhr area,
Steel industry
Lancaster, Mills
Intangible
resources
Tangible
resources
10
991102CG3_ZXC_251.V3
Source: McKinsey
INNOVATION THROUGH NETWORKING AND MUTUAL LEARNING
• Horizontal networks
constituted by new and
established firms
• Challenging and
coaching
• Collaboration and
competition
• Recombination of
resources
• Service infrastructure
• Experience
• Ability to learn
• Horizontal
mobility
Ideas
Capital
Network/
community
Entrepreneurs
• Newness
• Business potential
• Patents
• Availability/quantity
• Venture capitalist
experience
• Exit channels for
investors
Fascinate Stimulate
Attract Establish
trust
11
991102CG3_ZXC_251.V3
STEPS OF A BUSINESS PLAN COMPETITION -
THE COLOGNE CASE
Not
marketable
Revision
required
Start-up
potential
Number
of ideas
Result
•500 new jobs
(after one year)
•28 Start-ups
• 56 additional
ones pending
Support
instru-
ments
• Coaching
• Feedback
• VC-Contacts
• Consulting
Cash prizes
for Winners
Business idea
256
Step 1
24
N
u
m
b
e
rs
o
f te
a
m
s
Business plan
Step 3
89
49
Draft
business plan
Step 2
129
35
12
991102CG3_ZXC_251.V3
BROAD NETWORK FOR THE BUSINESS PLAN COMPETITION
Universities
TU München
LMU München
FH München
Project
management
GSF DLR
FHWeihenstephan
Fraunhofer
institutes
Max Planck
institutes
Univ. der Bundeswehr
(military university)
Bavarian
Government
City of Munich
BMW
Allianz AG
FAZ
Microsoft
Deutsche Bank
Other
universities
and research
institutes
Central/ local
government
Corporate
sponsors
WJD
Headhunters
Wellington Finanz
Experts in
business
start-ups
IHK VDI/VDE
Entrepreneurs/FNT
MTZ BJU
TEG
Tax consultants
Market
research
Employment
office
Chamber of
commerce
Patent attorneys
Service
providers
Sources
of finance
Atlas Venture Technologie-
holding
Bayern
Kapital
Star
Ventures
DGIB
TBG TVM
Apax
MUNICH
13
991102CG3_ZXC_251.V3
WALL STREET JOURNAL – MARCH 13, 1999
Capital I dea
European Networks
Link Venture Funds
To Tech Start-Ups
By MATTHEW ROSE
And KIMBERLEY A. STRASSEL
Staff Reporters
This rags-to-potential-riches story happens every
day in Silicon Valley. But this is Europe, where tech
companies are scattered over several countries and
venture capital is hard to find. A growing band of
visionaries – like McKinsey – are building their own
networks from scratch. They are introducing
entrepreneurs to the Continent's growing pool of
venture funds, handing out advice for the
inexperienced, and encouraging Europe's shy
capitalists to step up to the plate.
Of all the networks up and running – the number is
hard to quantify – this one is the most sophisticated.
Modeled on a similar competition run by the
Massachusetts Institute of Technology, it requires
entrepreneurs to put together a comprehensive business
planing three grueling stages over six months.
Of the 300 participants since the first competition
in 1996, 40 established companies have raised more
than 100 million marks in venture capital. McKinsey
thinks the number of funded companies could yet rise to
60, which would be a 20% success rate, significantly
higher than the 1% to 2% a venture capitalist expects.
The competition has galvanized Munich's
technology scene. The local venture capital club, which
once struggled to attract more than 20 people, now
packs in over 100.
Review of 10 businessplan
competition rounds so far
• Capital invested
• Startups
• Jobs (today)
• Jobs (over 5 years)
~ USD1/2 bn
285
~2,500
~27,000
14
991102CG3_ZXC_251.V3
BROAD ROLL-OUT OF REGIONAL BUSINESS PLAN COMPETITIONS
Gothenburg
Berlin
Amsterdam
Aachen/
Cologne
Frankfurt
Munich
Zurich
Brussels
London/
Cambridge
Ireland/
Dublin
Stockholm
Dallas
Hong Kong
Johannesburg
Wolfsburg
Nuremberg
Corporate BPCs
• Hoechst (external)
• Volkswagen (external)
• Major electronic equipment
manufacturer (internal)
• European railway operator
(internal)
• Steel manufacturer (internal)
India
15
991102CG3_ZXC_251.V3
EMERGING CLUSTERS – AGENDA
Source: McKinsey
Hypothesis 2
Regional growth is only
sustainable if built on
innovative activity
Aspiring corporations have
the capacity and the incen-
tive to act as catalysers of
cluster growth
Cluster potential is widely
underexploited due to
deficiencies in public-private
coordination
Hypothesis 1
Hypothesis 3
Surfacing the latent innovation
potential of a region
The challenge
Developing a compelling and
workable logic for incumbent
corporations to foster local
cluster growth
Exploit the private-public win-
win and build lasting structures
of cluster promotion
16
991102CG3_ZXC_251.V3
17.0
12.0
37.0
11.0
40.0
HP
Fairchild
Intel
Apple
Sun
-2.8
-2.5
Market valuation '85 - '98
CAGR, percent
DEC
Wang
Sybolis
Data General
Bankrupcy 1992
Delisted 1993
"CORPORATE EXTRAVERSION" AS A SUCCESSFUL
STRATEGY TO MEET FUTURE CHALLENGES
Source: McKinsey
"Corporate extrovert"
Corporate venture
Spin off
M&A
Long-term
contract
"Corporate introvert"
17
991102CG3_ZXC_251.V3
AUTOVISION – THE VOLKSWAGEN INITIATIVE IN WOLFSBURG …
Source: McKinsey, Volkswagen
Rewards so far
• Wide-spread public attention
• Union collaboration (e.g., on
contingency workers)
• New platform for public-
private cooperation
• Successful business plan
competitions
– ~35 new start-ups
(announced)
– ~5 with high growth
potential
• International innovation
workshops with attendance of
key academics
• 350 supplier engineers moved
in
• 40 suppliers attracted
• Master plan for a new
"Wolfsburg" future park
• 800 jobs in the first year
Initiative
• Three-horizon vitalization
program
– Regional initiatives
(3 - 5 years)
• Supplier integration
• Innovation campus
(annual business plan
competitions, incubation)
• Urban science/technology
theme park
• Employment agency
– Public-private partnership
("The Wolfsburg AG") to
supervise implementation
• Add new elements
– Auto university
– Mobility industries
• Linking elements to
form the European
"Autocluster"
Cutting
unemployment in
Wolfsburg by half
Situation at kick-off
• Wolfsburg headquarter of VW
group
• Biggest car plant on earth
(50,000 employees, 600,000
units p.a.)
• Highly integrated production
• Few local suppliers
• Subdued start-up dynamics
• Low ratings for urban
attractivity
• Above average
unemployment (17,2% vs.
average 10%)
• Initiative to cut unemploy-
ment by half in 5 years,
launched in 1997 by
Volkswagen
18
991102CG3_ZXC_251.V3
Source for
specialized labor
Source of
technology
and ideas
Source
for inter-
mediate goods
and services
AUTOVISION WOLFSBURG- THE INITIATIVE
Quelle: McKinsey
Wolfsburg
future park
Supplier
attraction
Innovation
campus
Employment
agency
• In-process are location
• SE-center
• Supplier park
• One-stop-shopping agency
• Training
• Contingency
work
• Outplacement
• Urban renewal
"Techfarming"
• Focused
incubation
• Focused venturing
(regional &
corporate)
• Focused business
plan competition
Mobility
Wolfsburg
Wolfsburg
Corporate
location
Wolfsburg
19
991102CG3_ZXC_251.V3
GROWTH HORIZONS OF THE "AUTOVISION"
Time
Year
Employment
Horizon 1
5
Concept
implementation
Josn 10.000
Z.B. Auto University
Horizon 2
8
Expansion on
measures
>15.000
Self-contained cluster
growth
12
Offen
Horizon 3
20
991102CG3_ZXC_251.V3
Rewards
• 80 - 100 business plans
• 250 high tech jobs
• Public attention
• 25 start-ups announced
from1999 round
• Two VC fundings
Initiative
• Vision for Frankfurt as life
science hot spot
• Public private partnership
(50 : 50)
– Business plan compe-
tition (Science4life)
– VC fund DM 125 million
with professional VC
board
HOECHST AND THE LIFE SCIENCE OFFENSIVE FOR THE
STATE OF HESSE
Source: McKinsey
Situation at kick-off
• 1997 poor R&D
environment in Frankfurt
for life science
• Lay-offs inevitable
• Little start-up dynamic in
Frankfurt and Hesse
• Public pressure on
company and state of to
commit to Frankfurt
Implanting the
nucleus for a biotech
region Frankfurt
21
991102CG3_ZXC_251.V3
Rewards so far
• Worldwide recognition as
"centre of expertise of
speech & language
technology"
• 33 high tech ventures
• ~100 expected to join
(till 2000)
• Lernout & Hauspie shares
up 350% since 1995
• 500 new high tech jobs
(2,000 expected in 2002)
FLANDERS LANGUAGE VALLEY: THE LERNOUT & HAUSPIE – INITIATIVE
IN BELGIUM
Source: FLV, press, Lernout & Hauspie
Initiative
• FLV fund: Fond specialized in
speechsoftware
– USD 33 m invested
– USD 60 m funds available
(incl. USD 3 mfrom
Microsoft)
– IPO July 1998 on EASDAQ
• FLV Foundation with USD 20
m endowment (non-profit)
– Business support
– Incubation services
– Top engineering education
– Brainpower matching
– International business
development support
– Business park infrastructure
– Telecom& internet
test bed
Situation at kick-off
• Lernout & Hauspie software
successful Flanders growth
company (1,300 employees)
• Intense US/Israeli competition
for market leadership
• Growth limits at original
Flanders location
– no link to IT-industry,
research community
– no trained multi-lingual
engineers
"Building a world
class community
for speech software
in Ieper"
22
991102CG3_ZXC_251.V3
LERNOUT & HAUSPIE – EARNING TRIPLE REWARDS
LHIC fund
FLV fund
• Flamish government
• Town of Yepers
FLV
Foundation
(Incubator)
Lernout &
Hauspie
(Speechsoftware)
+
Sustainable
employment
New companies
• Start-ups
• Movers
+
• Enhanced
deal flow
• Fewer drop-
outs
+
Sustainable
employment
+
Return
on equity
3
• Knowledge
• Suppliers
• People
• Customers
+
2
+
Co-usage
• Business support
• International platforms
• Infrastructure
• HR
1
• HR pooling, training
• business
support
• International platforms
• Infrastructure
+
23
991102CG3_ZXC_251.V3
EMERGING CLUSTERS – AGENDA
Source: McKinsey
Hypothesis 2
Regional growth is only
sustainable if built on
innovative activity
Aspiring corporations have
the capacity and the incen-
tive to act as catalysers of
cluster growth
Cluster potential is widely
underexploited due to
deficiencies in public-private
coordination
Hypothesis 1
Hypothesis 3
Surfacing the latent innovation
potential of a region
Developing a compelling and
workable logic for incumbent
corporations to foster local
cluster growth
Exploit the private-public win-
win and build lasting structures
of cluster promotion
The challenge
24
991102CG3_ZXC_251.V3
11
15
15
23
39
46
57
Subsidy/transfer per job
'000 USD per year
11
15
15
AUTOVISION AS AN ECONOMICALLY FEASIBLE MEASURE OF JOB
CREATION
* Percentage of jobs that would have been created anyway
** Example: AMD plant Saxony
Source: Department of statistics, National labor agency, FLV, Wolfsburg AG
20
10
Free rider rate
Percent
20
0
0
40
20
87
0
Conventional
technology parks***
Subsidised coal industry
Unemployment benefits
Community work
Fiscal wage discounts
Subsidised agriculture
Investment incentive
Public
AutoVision Wolfsburg
Flanders Language Valley
Average cost per
unemployed
Private-public
For
comparison
2
22
3
1 - 2
*** Average life time of job: 5years
**** Number used by German labor agency
Gross economic value-added
per job
'000 USD per year
72
14
72
0
25
23
72
72
20 - 30
25
991102CG3_ZXC_251.V3
BUILDING A PLATFORM FOR INTEREST ALIGNMENT
City interests VW interests
City
Wolfsburg
VW
Wolfsburg AG
BU
Innovation
Campus
BU
Suppliers
BU
Future park
BU
Employment
agency
• Top management
crew
• High powered
incentives
26
991102CG3_ZXC_251.V3
FINDING NEW FORMS OF GOVERNANCE
* Initially a public initiative
Source: McKinsey
Graz AutoCluster
Styria GmbH
x* • Member-
ship fees
Frankfurt Science4life x x
ü
Pittsburgh Urban Redeve-
lopment Council
x x ü
Econa Econa AG
(e-commerce
incubator)
x ü
Wolfsburg Wolfsburg AG x x ü • Service
• Rents
• Labour
brokerage
Flanders Flanders
Language Valley
Foundation
x ü • (Service)
• (Rents)
(x)
Organization
Public
communityLeadfirm
Corporate
community
Funding of
cluster incubator
Non-equity Equity
Strength of
economic
rationale to
private
sponsor Model
27
991102CG3_ZXC_251.V3
Exploiting Cluster Economics
to Benefit Corporate and
Public Communities
TCI - Conference
Varese, November 1999
doc_318692001.pdf
Data related to exploiting cluster economics to benefit corporate and public communities.
0
991102CG3_ZXC_251.V3
1
991102CG3_ZXC_251.V3
2
991102CG3_ZXC_251.V3
Exploiting Cluster Economics
to Benefit Corporate and
Public Communities
TCI - Conference
Varese, November 1999
3
991102CG3_ZXC_251.V3
EMERGING CLUSTERS – AGENDA
Source: McKinsey
Hypothesis 2
Regional growth is only
sustainable if built on
innovative activity
Aspiring corporations have
the capacity and the incen-
tive to act as catalysers of
cluster growth
Cluster potential is widely
underexploited due to
deficiencies in public-private
coordination
Hypothesis 1
Hypothesis 3
Surfacing the latent innovation
potential of a region
The challenge
Developing a compelling and
workable logic for incumbent
corporations to foster local
cluster growth
Exploit the private-public win-
win and build lasting structures
of cluster promotion
4
991102CG3_ZXC_251.V3
EMERGING CLUSTERS – AGENDA
Source: McKinsey
Hypothesis 2
Regional growth is only
sustainable if built on
innovative activity
Aspiring corporations have
the capacity and the incen-
tive to act as catalysers of
cluster growth
Cluster potential is widely
underexploited due to
deficiencies in public-private
coordination
Hypothesis 1
Hypothesis 3
Surfacing the latent innovation
potential of a region
The challenge
Developing a compelling and
workable logic for incumbent
corporations to foster local
cluster growth
Exploit the private-public win-
win and build lasting structures
of cluster promotion
5
991102CG3_ZXC_251.V3
* US or UK companies with more than US$500 million in revenue
Source: Sharebender-Database
in USD
1 USD invested 6 years
prior to turnaround
0
1
2
3
4
5
6
7
-6 -4 -2 0 2 4 6
Turnaround strategy:
Cost reduction
Median from 57 companies*
CAGR 5,1%
0
1
2
3
4
5
6
7
-6 -4 -2 0 2 4 6
Turnaround strategy:
Revitalizing innovation
Median from 23 companies*
CAGR 14,4%
0
1
2
3
4
5
6
7
-6 -4 -2 0 2 4 6
Turnaround strategy:
Innovation
Median from 7 companies*
CAGR 16,3%
SHAREHOLDER-RETURN OF SUCCESSFUL TURNAROUNDS: WHAT IS
DRIVING GROWTH?
6
991102CG3_ZXC_251.V3
CORPORATE INNOVATION PROCESSES VS. MARKETS
• Strategic plan to
develop new
businesses
• First market reactions
cause new businesses
to appear on radar
screen
• Task force evaluates
strategic moves
• Information on new
business opportunities
rarely noticed and
assessed
• “Wait and see” attitude
until winners emerge
Market
mechanisms
(e.g. Silicon
Valley)
Market exploitation Business opportunities Business development
Large
corporations
Large corporations usually
enter new markets with a
delay of 3 - 4 years
Source: McKinsey
7
991102CG3_ZXC_251.V3
EFFICIENCY OF INNOVATION PROCESSES - THE CASE OF LASERHEADS
* Including group internal supplier and open market
** Burroughs, CD, OEC, Fujitsu, Hitachi, NEC
Source: Disk/Trend Report, Peripheral Research Corporation, Christensen
500
300
150
Other critically integrated
enterprises**
IBM
Independent start-ups
R&D - Expenditure
USD million
38
8
54
Market share
in percent of unit produced*
8
991102CG3_ZXC_251.V3
START-UP ACTIVITIES AND IMPACT ON NET JOB CREATION –
EXAMPLES OF REGIONS 1992 - 1996
Source: Cognetics
…direct investment by
“outside” companies
Boston /
Route 128
Charlotte
Minneapolis
Columbus
Pittsburgh
118,530
48,855
75,613
76,734
31,092
… growth in existing
companies
18,530
23,761
67,274
27,104
12,304
4,729
3,725
1,375
2,767
428
New job creation due to:
… start-up activity
9
991102CG3_ZXC_251.V3
Value of cluster
economies
Time
CLUSTERS – IMPORTANT, THOUGH NOW FOR DIFFERENT REASONS
Cluster economies
strengthened by new role of
• Specialized knowledge
• Specialized people
• Specialized inputs/services
Agglomeration pull diminished
through
• Free trade
• Transaction cost degression
• Comparable infrastructures
• New markets
Source: McKinsey
A
s
a
s
i
t
e
o
f
i
n
n
o
v
a
t
i
o
n
Stockholm,
Telecom
Bangalore, IT
Munich,
Biotech
Hollywood,
Media
Silicon Valley,
IT
A
s
a
s
i
t
e
o
f
o
p
e
r
a
t
i
o
n
Geneva, Watches
Pittsburgh, Steel
Bavaria,
Ceramics
industry
Ruhr area,
Steel industry
Lancaster, Mills
Intangible
resources
Tangible
resources
10
991102CG3_ZXC_251.V3
Source: McKinsey
INNOVATION THROUGH NETWORKING AND MUTUAL LEARNING
• Horizontal networks
constituted by new and
established firms
• Challenging and
coaching
• Collaboration and
competition
• Recombination of
resources
• Service infrastructure
• Experience
• Ability to learn
• Horizontal
mobility
Ideas
Capital
Network/
community
Entrepreneurs
• Newness
• Business potential
• Patents
• Availability/quantity
• Venture capitalist
experience
• Exit channels for
investors
Fascinate Stimulate
Attract Establish
trust
11
991102CG3_ZXC_251.V3
STEPS OF A BUSINESS PLAN COMPETITION -
THE COLOGNE CASE
Not
marketable
Revision
required
Start-up
potential
Number
of ideas
Result
•500 new jobs
(after one year)
•28 Start-ups
• 56 additional
ones pending
Support
instru-
ments
• Coaching
• Feedback
• VC-Contacts
• Consulting
Cash prizes
for Winners
Business idea
256
Step 1
24
N
u
m
b
e
rs
o
f te
a
m
s
Business plan
Step 3
89
49
Draft
business plan
Step 2
129
35
12
991102CG3_ZXC_251.V3
BROAD NETWORK FOR THE BUSINESS PLAN COMPETITION
Universities
TU München
LMU München
FH München
Project
management
GSF DLR
FHWeihenstephan
Fraunhofer
institutes
Max Planck
institutes
Univ. der Bundeswehr
(military university)
Bavarian
Government
City of Munich
BMW
Allianz AG
FAZ
Microsoft
Deutsche Bank
Other
universities
and research
institutes
Central/ local
government
Corporate
sponsors
WJD
Headhunters
Wellington Finanz
Experts in
business
start-ups
IHK VDI/VDE
Entrepreneurs/FNT
MTZ BJU
TEG
Tax consultants
Market
research
Employment
office
Chamber of
commerce
Patent attorneys
Service
providers
Sources
of finance
Atlas Venture Technologie-
holding
Bayern
Kapital
Star
Ventures
DGIB
TBG TVM
Apax
MUNICH
13
991102CG3_ZXC_251.V3
WALL STREET JOURNAL – MARCH 13, 1999
Capital I dea
European Networks
Link Venture Funds
To Tech Start-Ups
By MATTHEW ROSE
And KIMBERLEY A. STRASSEL
Staff Reporters
This rags-to-potential-riches story happens every
day in Silicon Valley. But this is Europe, where tech
companies are scattered over several countries and
venture capital is hard to find. A growing band of
visionaries – like McKinsey – are building their own
networks from scratch. They are introducing
entrepreneurs to the Continent's growing pool of
venture funds, handing out advice for the
inexperienced, and encouraging Europe's shy
capitalists to step up to the plate.
Of all the networks up and running – the number is
hard to quantify – this one is the most sophisticated.
Modeled on a similar competition run by the
Massachusetts Institute of Technology, it requires
entrepreneurs to put together a comprehensive business
planing three grueling stages over six months.
Of the 300 participants since the first competition
in 1996, 40 established companies have raised more
than 100 million marks in venture capital. McKinsey
thinks the number of funded companies could yet rise to
60, which would be a 20% success rate, significantly
higher than the 1% to 2% a venture capitalist expects.
The competition has galvanized Munich's
technology scene. The local venture capital club, which
once struggled to attract more than 20 people, now
packs in over 100.
Review of 10 businessplan
competition rounds so far
• Capital invested
• Startups
• Jobs (today)
• Jobs (over 5 years)
~ USD1/2 bn
285
~2,500
~27,000
14
991102CG3_ZXC_251.V3
BROAD ROLL-OUT OF REGIONAL BUSINESS PLAN COMPETITIONS
Gothenburg
Berlin
Amsterdam
Aachen/
Cologne
Frankfurt
Munich
Zurich
Brussels
London/
Cambridge
Ireland/
Dublin
Stockholm
Dallas
Hong Kong
Johannesburg
Wolfsburg
Nuremberg
Corporate BPCs
• Hoechst (external)
• Volkswagen (external)
• Major electronic equipment
manufacturer (internal)
• European railway operator
(internal)
• Steel manufacturer (internal)
India
15
991102CG3_ZXC_251.V3
EMERGING CLUSTERS – AGENDA
Source: McKinsey
Hypothesis 2
Regional growth is only
sustainable if built on
innovative activity
Aspiring corporations have
the capacity and the incen-
tive to act as catalysers of
cluster growth
Cluster potential is widely
underexploited due to
deficiencies in public-private
coordination
Hypothesis 1
Hypothesis 3
Surfacing the latent innovation
potential of a region
The challenge
Developing a compelling and
workable logic for incumbent
corporations to foster local
cluster growth
Exploit the private-public win-
win and build lasting structures
of cluster promotion
16
991102CG3_ZXC_251.V3
17.0
12.0
37.0
11.0
40.0
HP
Fairchild
Intel
Apple
Sun
-2.8
-2.5
Market valuation '85 - '98
CAGR, percent
DEC
Wang
Sybolis
Data General
Bankrupcy 1992
Delisted 1993
"CORPORATE EXTRAVERSION" AS A SUCCESSFUL
STRATEGY TO MEET FUTURE CHALLENGES
Source: McKinsey
"Corporate extrovert"
Corporate venture
Spin off
M&A
Long-term
contract
"Corporate introvert"
17
991102CG3_ZXC_251.V3
AUTOVISION – THE VOLKSWAGEN INITIATIVE IN WOLFSBURG …
Source: McKinsey, Volkswagen
Rewards so far
• Wide-spread public attention
• Union collaboration (e.g., on
contingency workers)
• New platform for public-
private cooperation
• Successful business plan
competitions
– ~35 new start-ups
(announced)
– ~5 with high growth
potential
• International innovation
workshops with attendance of
key academics
• 350 supplier engineers moved
in
• 40 suppliers attracted
• Master plan for a new
"Wolfsburg" future park
• 800 jobs in the first year
Initiative
• Three-horizon vitalization
program
– Regional initiatives
(3 - 5 years)
• Supplier integration
• Innovation campus
(annual business plan
competitions, incubation)
• Urban science/technology
theme park
• Employment agency
– Public-private partnership
("The Wolfsburg AG") to
supervise implementation
• Add new elements
– Auto university
– Mobility industries
• Linking elements to
form the European
"Autocluster"
Cutting
unemployment in
Wolfsburg by half
Situation at kick-off
• Wolfsburg headquarter of VW
group
• Biggest car plant on earth
(50,000 employees, 600,000
units p.a.)
• Highly integrated production
• Few local suppliers
• Subdued start-up dynamics
• Low ratings for urban
attractivity
• Above average
unemployment (17,2% vs.
average 10%)
• Initiative to cut unemploy-
ment by half in 5 years,
launched in 1997 by
Volkswagen
18
991102CG3_ZXC_251.V3
Source for
specialized labor
Source of
technology
and ideas
Source
for inter-
mediate goods
and services
AUTOVISION WOLFSBURG- THE INITIATIVE
Quelle: McKinsey
Wolfsburg
future park
Supplier
attraction
Innovation
campus
Employment
agency
• In-process are location
• SE-center
• Supplier park
• One-stop-shopping agency
• Training
• Contingency
work
• Outplacement
• Urban renewal
"Techfarming"
• Focused
incubation
• Focused venturing
(regional &
corporate)
• Focused business
plan competition
Mobility
Wolfsburg
Wolfsburg
Corporate
location
Wolfsburg
19
991102CG3_ZXC_251.V3
GROWTH HORIZONS OF THE "AUTOVISION"
Time
Year
Employment
Horizon 1
5
Concept
implementation
Josn 10.000
Z.B. Auto University
Horizon 2
8
Expansion on
measures
>15.000
Self-contained cluster
growth
12
Offen
Horizon 3
20
991102CG3_ZXC_251.V3
Rewards
• 80 - 100 business plans
• 250 high tech jobs
• Public attention
• 25 start-ups announced
from1999 round
• Two VC fundings
Initiative
• Vision for Frankfurt as life
science hot spot
• Public private partnership
(50 : 50)
– Business plan compe-
tition (Science4life)
– VC fund DM 125 million
with professional VC
board
HOECHST AND THE LIFE SCIENCE OFFENSIVE FOR THE
STATE OF HESSE
Source: McKinsey
Situation at kick-off
• 1997 poor R&D
environment in Frankfurt
for life science
• Lay-offs inevitable
• Little start-up dynamic in
Frankfurt and Hesse
• Public pressure on
company and state of to
commit to Frankfurt
Implanting the
nucleus for a biotech
region Frankfurt
21
991102CG3_ZXC_251.V3
Rewards so far
• Worldwide recognition as
"centre of expertise of
speech & language
technology"
• 33 high tech ventures
• ~100 expected to join
(till 2000)
• Lernout & Hauspie shares
up 350% since 1995
• 500 new high tech jobs
(2,000 expected in 2002)
FLANDERS LANGUAGE VALLEY: THE LERNOUT & HAUSPIE – INITIATIVE
IN BELGIUM
Source: FLV, press, Lernout & Hauspie
Initiative
• FLV fund: Fond specialized in
speechsoftware
– USD 33 m invested
– USD 60 m funds available
(incl. USD 3 mfrom
Microsoft)
– IPO July 1998 on EASDAQ
• FLV Foundation with USD 20
m endowment (non-profit)
– Business support
– Incubation services
– Top engineering education
– Brainpower matching
– International business
development support
– Business park infrastructure
– Telecom& internet
test bed
Situation at kick-off
• Lernout & Hauspie software
successful Flanders growth
company (1,300 employees)
• Intense US/Israeli competition
for market leadership
• Growth limits at original
Flanders location
– no link to IT-industry,
research community
– no trained multi-lingual
engineers
"Building a world
class community
for speech software
in Ieper"
22
991102CG3_ZXC_251.V3
LERNOUT & HAUSPIE – EARNING TRIPLE REWARDS
LHIC fund
FLV fund
• Flamish government
• Town of Yepers
FLV
Foundation
(Incubator)
Lernout &
Hauspie
(Speechsoftware)
+
Sustainable
employment
New companies
• Start-ups
• Movers
+
• Enhanced
deal flow
• Fewer drop-
outs
+
Sustainable
employment
+
Return
on equity
3
• Knowledge
• Suppliers
• People
• Customers
+
2
+
Co-usage
• Business support
• International platforms
• Infrastructure
• HR
1
• HR pooling, training
• business
support
• International platforms
• Infrastructure
+
23
991102CG3_ZXC_251.V3
EMERGING CLUSTERS – AGENDA
Source: McKinsey
Hypothesis 2
Regional growth is only
sustainable if built on
innovative activity
Aspiring corporations have
the capacity and the incen-
tive to act as catalysers of
cluster growth
Cluster potential is widely
underexploited due to
deficiencies in public-private
coordination
Hypothesis 1
Hypothesis 3
Surfacing the latent innovation
potential of a region
Developing a compelling and
workable logic for incumbent
corporations to foster local
cluster growth
Exploit the private-public win-
win and build lasting structures
of cluster promotion
The challenge
24
991102CG3_ZXC_251.V3
11
15
15
23
39
46
57
Subsidy/transfer per job
'000 USD per year
11
15
15
AUTOVISION AS AN ECONOMICALLY FEASIBLE MEASURE OF JOB
CREATION
* Percentage of jobs that would have been created anyway
** Example: AMD plant Saxony
Source: Department of statistics, National labor agency, FLV, Wolfsburg AG
20
10
Free rider rate
Percent
20
0
0
40
20
87
0
Conventional
technology parks***
Subsidised coal industry
Unemployment benefits
Community work
Fiscal wage discounts
Subsidised agriculture
Investment incentive
Public
AutoVision Wolfsburg
Flanders Language Valley
Average cost per
unemployed
Private-public
For
comparison
2
22
3
1 - 2
*** Average life time of job: 5years
**** Number used by German labor agency
Gross economic value-added
per job
'000 USD per year
72
14
72
0
25
23
72
72
20 - 30
25
991102CG3_ZXC_251.V3
BUILDING A PLATFORM FOR INTEREST ALIGNMENT
City interests VW interests
City
Wolfsburg
VW
Wolfsburg AG
BU
Innovation
Campus
BU
Suppliers
BU
Future park
BU
Employment
agency
• Top management
crew
• High powered
incentives
26
991102CG3_ZXC_251.V3
FINDING NEW FORMS OF GOVERNANCE
* Initially a public initiative
Source: McKinsey
Graz AutoCluster
Styria GmbH
x* • Member-
ship fees
Frankfurt Science4life x x
ü
Pittsburgh Urban Redeve-
lopment Council
x x ü
Econa Econa AG
(e-commerce
incubator)
x ü
Wolfsburg Wolfsburg AG x x ü • Service
• Rents
• Labour
brokerage
Flanders Flanders
Language Valley
Foundation
x ü • (Service)
• (Rents)
(x)
Organization
Public
communityLeadfirm
Corporate
community
Funding of
cluster incubator
Non-equity Equity
Strength of
economic
rationale to
private
sponsor Model
27
991102CG3_ZXC_251.V3
Exploiting Cluster Economics
to Benefit Corporate and
Public Communities
TCI - Conference
Varese, November 1999
doc_318692001.pdf