Description
In this particular detailed outline regarding key findings and implications life science new ventures in scotland.
KEY FINDINGS & IMPLICATIONS
Life Science New Ventures in Scotland:
How International are They?
Marian V Jones, Colin Wheeler, George Vlachos, and
Amaia Ibanez De Opacua
Key Findings & Implications
Life Science New Ventures in Scotland:
How International are They?
Marian V J ones
Colin Wheeler
George Vlachos
Amaia Ibanez De Opacua
Marian V. J ones, Colin Wheeler, George Vlachos, Amaia Ibanez De Opacua 2008
All rights reserved. No part of this report may be reproduced, stored in a retrieval
system or transmitted in any form or by any means, electronic, mechanical or
photocopying, recording or otherwise without the prior permission of the publisher.
Published by
Centre for Internationalisation and Enterprise Research (CIER)
University of Glasgow
Gilbert Scott Building
University Avenue,
Glasgow G12 8QQ
Scotland
UK
ISBN. 978-0-85261-833-2
A full summary report of the findings is available from CIER.
Contents
Contents _________________________________________________________ iii
Acknowledgements ________________________________________________ iv
Executive Summary ________________________________________________v
1. Introduction_____________________________________________________1
The Life Sciences Sector ___________________________________________1
Competitive Challenge and Policy Perspectives__________________________1
Life Sciences in Scotland___________________________________________2
Background to the Study____________________________________________3
Aim of the Study and Key Research Questions __________________________4
2. Key Findings ____________________________________________________5
Firm Age and Internationalisation Profile at Interview ____________________5
Foundation Conditions and Processes _________________________________6
Funding and Motivation__________________________________________6
Intellectual Property _____________________________________________6
Entrepreneurial Profile and Education, Experience and Networks _________7
Critical Events and Milestones_______________________________________7
Competitive Awareness ____________________________________________8
Performance and Future Planning_____________________________________9
3. Conclusions and Implications _____________________________________10
How international are Scottish life science new ventures?_________________10
To what extent and how quickly have they internationalised over their life span
to date? ________________________________________________________12
What gaps in their early resources, competencies and capabilities may inhibit
their ability to compete internationally early? __________________________13
What managerial and policy implications emerge regarding the international
competitiveness and sustained international growth and development of life
science new ventures?_____________________________________________14
References _______________________________________________________16
Invitation to Participate ____________________________________________17
Expression of Interest ______________________________________________17
iii
Acknowledgements
Support from the funders of this project is gratefully acknowledged. The fieldwork
was funded through “Synergy”, the joint initiative of the Universities of Glasgow and
Strathclyde that provides pump-priming funds for research-based collaborative
projects.
Data preparation and processing was funded by the British Academy through its
Small Grants Scheme. CIER (Centre for Internationalization and Enterprise
Research), University of Glasgow, and Portsmouth Business School, University of
Portsmouth, supported the analysis and dissemination of the results.
The entrepreneurs and managers of Scottish Life Sciences firms who participated in
the project and provided valuable information and insights into their business
activities are gratefully acknowledged. For reasons of confidentiality their identities
are withheld throughout the report.
iv
Executive Summary
Life Sciences and the biotechnology sector in particular, is achieving rapid growth
within a dynamic and global industry. The market for life sciences firms, and
especially biotechnology firms, is for the most part global and the industry highly
reliant on knowledge and expertise located in geographically dispersed clusters of
excellence. The long term survival of SMEs, and the local economies in which they
reside, relies on the ability of new venture life science firms to internationalise early,
establish international partnerships and secure contracts with major international life
science companies. From the perspective of small new ventures in life sciences
sectors the challenges are often threefold, and encompass: 1) establishing and growing
a new venture, including its knowledge and resource base, and a sustainable income
stream, 2) developing and commercialising new technology, and 3)
internationalisation.
This report is from the first stage of a longitudinal study that will trace life science
new ventures over time and examine the effect of early international decisions such as
for example, the choice of international partner on growth trajectories and sustainable
development. Research questions explored here are: how international are Scottish life
science new ventures, to what extent and how quickly have they internationalised over
their life span to date, what gaps in their early resources, competencies and
capabilities may inhibit their ability to compete internationally early, and what
managerial and policy implications emerge regarding the international
competitiveness and sustained international growth and development of life science
new ventures?
Findings indicate that internationalisation commences early, usually within 2 years of
foundation and life science new ventures can expect that their first customers will be
based overseas. Despite an early start, the preparedness of most life science new
ventures for rapid and sustainable international growth is generally weak.
International education, experience, language ability and the presence of foreign
nationals in the founding team was patchy across the firms indicating that some may
be ill prepared for international growth. International networking activity was pursued
by most firms and significant events and milestones reported were often international
in nature. Most were aware of direct competition from local and international sources
but the youngest firms tended to define their competitive advantage as vested in the
technology rather than its market applications or firm specific competencies. Firms
widely reported a view that the competitive advantage they have locally, would also
be their advantage in international markets.
Implications for policy are to continue to integrate programmes designed to support
the early stages of development of firms in new and emerging technologies and in
particular, life sciences, across entrepreneurship, innovation and internationalisation
processes. Key amongst managerial implications are that founders of science based
new ventures need to make explicit preparations for internationalisation from the
outset. Particularly pertinent for future research, is questions relating to the impact of
early international contracts on: technological and growth trajectories of firms, and
their ability to develop capabilities and competencies to ensure sustainable
competitive advantage in dynamic global industries.
v
1
1. Introduction
The Life Sciences Sector
Life Sciences and the biotechnology sector in particular, is achieving rapid growth
within a dynamic and global industry (Madhok and Osegowitch 2000), to the extent
that Ernst and Young acknowledge it as one of the leading industries in the future
global economy. The global life sciences market has tended to be dominated by
pharmaceuticals and in particular by prescription drugs to the extent of 80-85% of the
global market
1
, delivered in the main by “big pharma” i.e. the world’s largest
pharmaceutical companies. The domination of the largest players to some extent
detracts from the diversity of the life sciences sector as a whole, and the increasingly
important role of small and medium sized enterprises across a range of knowledge
intensive and highly specialised roles from drug discovery through clinical trials and
other research related services, and the development and provision of complementary
products and services.
The Life Sciences sector is a complex amalgamation of interconnected industries
comprising a diverse range of knowledge intensive and often highly specialised firms.
It includes companies in the fields of biotechnology, pharmaceuticals, biomedical
technologies, life systems technologies, nutraceuticals, food processing,
environmental, biomedical devices, and organizations that are involved in the various
stages of research, development, technology transfer and commercialization
2
.
Competitive Challenge and Policy Perspectives
In common with other high-technology industries competition is fierce, risks of
failure high, and costs of supporting R&D are increasing as is the complexity of
technology and acceleration of technological change (George, Zahra and Wood 2002).
In biotechnology in particular, product development paths are long (10-15 years)
increasing the challenges and uncertainties that exist in product commercialization
(Brännback et al., 2005). Because the market is for the most part global and the
industry highly reliant on knowledge and expertise located in geographically
dispersed clusters of excellence, long term survival of SMEs, and the local economies
in which they reside, relies on the ability of new venture life science firms to
internationalise early, establish international partnerships and secure contracts with
major international life science companies. At international policy level, EU strategy
for biotechnology is to maintain and develop existing international dialogues
regarding international collaboration to harmonise guidelines regarding biotechnology
products. Thus while the industry is highly regulated as regards standards and ethical
concerns surrounding the science, EU strategy aims to support and encourage
technological innovation through initiatives that foster international collaboration
amongst science based organisations, and support or advance technology transfer.
These are set out in the EU’s Life science and Biotechnology Strategy 2002
3
Key
1
http://www.ycf.co.uk/content/fx.ycf/resources/specialpublications/YCFLifeSciencesReport2004.pdf,
p15, accessed on 21/05/2007
2
http://www.infoport.ca/life/bins/content_page.asp?cid=4364 accessed on 09/03/2007
3
http://ec.europa.eu/biotechnology/pdf/com2002-27_en.pdf accessed on 02/08/2007
challenges identified in the strategy document are to meet the needs of global markets
by improving links between the science base and industry and to promote the
international diffusion of technology. Small and medium sized firms (SMEs) are
identified as key players in the process. Life science SMEs are capital intensive and
face long product lead times resulting in bottlenecks between science and its global
markets. To address these and other challenges the strategy document establishes
three courses of action relating to: the resource base, networks, and a proactive role
for public authorities. Interest for this study relates to the second of these action points
– networks and specifically, the need for research cooperation and technology transfer
amongst regions, networking and linking-up to overcome fragmentation.
Fragmentation and the small size of Europe’s life science firms is amongst reasons
given for Europe lagging behind the US as regards performance in the life science
sector. For example, the EuropaBio Report (2006)
4
notes that there were more biotech
firms in Europe than in the US in 2004 (2150 in Europe compared to 1991 in the US),
more companies were formed in Europe in that year (119) than in the US (78),
however, the US sector employs roughly twice as many employees, spends 3 times as
much on R&D, earns twice as much in revenue and raised more than double that of
the European sector in venture capital and equity.
Life Sciences in Scotland
Scotland has developed key strengths in a number of areas including; drug discovery,
biomanufacturing, bioinformatics, genomics and proteomics, medical devices,
regenerative medicine, biomedical (cardio-vascular/ cancer/ diabetes/ neuroscience/
reproductive), contract research organisations (CROs), and diagnostics.
5
Life
Sciences is one of the fastest growing industries today and in Scotland the sector
shows growth rates of 7-8% (Gross Value Add) compared to the average Scottish
GDP growth rate of 1.7%.
6
The Scottish Life Sciences sector is growing and the YCF
Special report (2007) claims that there are over 590 organisations in Scotland,
employing almost 30,000 people. There are over 100 medical devices companies, and
50 academic institutions and 80 companies are involved in drug discovery. A network
of 40 clinical trials and contract research organisations supports the sector. Over 70%
of the core life science organisations in Scotland currently, are involved in human
healthcare. Policy initiatives in Scotland are also aimed at networking and
connectivity. The Proof of Concept Programme established in 1999 supports leading-
edge technologies from Scotland’s universities by providing funding to take the
technology from initial scientific discovery to proof of concept and has supported 33
spin-out companies and 32 licensing deals since inception. In 2003 the Intermediary
Technology Institutes (ITIs) were established to identify and commercialise
intellectual property across three global market sectors including life sciences, digital
media and communications, and energy. The vision of the 2005 national Strategy for
Scottish Life Sciences for 2020 is:
4
http://www.europabio.be/documents/Brochure Annual Report 2006_FINAL.pdf, accessed
02/08/2007.
5
http://www.ycf.co.uk/content/fx.ycf/resources/specialpublications/YCFLifeSciencesReport2004.pdf,
p4, accessed on 21/05/2007
6
http://www.ycf.co.uk/content/fx.ycf/resources/specialpublications/YCFLifeSciencesReport2007.pdf,
p6, accessed on 21/05/2007
2
“A globally focused, sustainable life sciences sector built on a truly
connected national strategy that exploits strengths in scientific
excellence, financial services and innovative business models and that
develops, retains and builds on Scotland’s talents.”
7
One of the aims of these initiatives is, through rigorous selection processes, to support
and highlight excellence in science and technology that potentially can meet the needs
of the global market, and attract investors to Scotland. Ultimately, Scottish firms may
merge with international companies, or launch on international stock markets through
an early IPO. Whether or not Scottish Life Sciences new ventures gain support from
the various policy initiatives and support packages, the life sciences industry is global
and firms need to prepare themselves for early internationalisation, be willing and
able to exchange knowledge and do business with international partners, and have an
open and anticipatory mindset towards internationalisation. The main purpose of this
exploratory study is to explore the extent to which life science new ventures in
Scotland are international.
Background to the Study
Following the “knowledge spillover” theory of entrepreneurship, which suggests that
entrepreneurial activity will be high where investment in knowledge is high
(Audretsch and Keilbach, 2006), it is of some importance to local economies that
there is a spillover effect from the science base, that stimulates the start-up of new
firms which in turn grow and bring return on that investment. As markets for life
sciences products and services tend to be global, returns are potentially high but the
challenges facing new ventures, many of which are established by “academic
entrepreneurs”, often scientists rather than business-minded entrepreneurs in the
traditional sense (Shane, 2004), are significant. Temporal issues are particularly
problematic since paradoxically, while product development times are long,
technology is changing rapidly, windows of opportunity open and close only briefly,
competition amongst those driving technological change is intense, and immediate
entry to international and even global markets is becoming a pre-requisite to success.
New ventures need to be anticipative and ready to survive and compete in an industry
that is increasingly internationally defined.
From the perspective of small new ventures in life sciences sectors the challenges are
often threefold: and encompass:
• Establishing and growing a new venture, including its knowledge and
resource base, and the establishment of a sustainable income stream.
• Developing and commercialising a new technology, for which there may be
no clearly defined market at the outset.
• Internationalisation, which to some extent may be inevitable and embedded
in other processes, but which needs to be acknowledged and accommodated
by firms as an integral part of growth and development.
Internationalisation traditionally was defined as the outward and usually gradual
expansion of a firm’s activities, typically commencing with exporting. The so-called
7
http://www.ycf.co.uk/content/fx.ycf/resources/specialpublications/YCFLifeSciencesReport2004.pdf,
p4, accessed on 21/05/2007
3
“born-global phenomenon” acknowledges that many small firms, especially those in
high technology sectors may begin internationalising immediately and this process
could involve a range of activities such as importing and exporting, licensing in and
out of technology, and various investments in knowledge, capital and so on, all of
which create cross-national flows of knowledge, resource, payments, liabilities and
benefits. The “international new venture” is a “business organization that, from
inception, seeks to derive significant competitive advantage from the use of resources
and sale of outputs in multiple countries” (Oviatt and McDougall, 1994: 49).
Internationalisation is no longer confined to the outward expansion of a firm’s
activities and consists of a process of increasing exposure, anticipation of and
adjustment to knowledge, stimuli and triggers from an increasingly international
environment. The internationalisation process for many firms is inevitable and may be
implicitly embedded in other developmental processes rather than an explicit strategy
in its own right. It is however an important process inter alia, as a means of;
augmenting the firm’s resource base, or that of its local networks, identifying and
accessing strategic partners and potential customers, and may help overcoming the
limitations of the “local stickiness” of knowledge within locally defined clusters and
centres of excellence. Exposure to international experiences, cultures and different
business and innovation systems may potentially increase the firm’s absorptive
capacity and growth potential. Temporal challenges however may introduce
diseconomies in which firms have difficulties in building organisational resource, or
stocks of assets (Dierickx & Cool, 1989) that would support sustainable international
growth due to the increasingly short periods of time available to prepare for global
competition. In short, while international new ventures may be “born global”, they
may also die young!
Aim of the Study and Key Research Questions
This study is the first stage of what is intended to be a longitudinal study that will
trace life science new ventures over time and examine the effect of early international
decisions such as for example, the choice of international partner on growth
trajectories and sustainable development. The aim of this stage is to determine the
extent to which a sample of innovative small life sciences firms in Scotland are
international, or prepared to be international. Taking an international new venture
perspective of internationalisation that views the process as potentially encompassing
all aspects of the firms activities and not just exporting (J ones, 1999), the primary
interest for this study is to explore early influences on the internationalisation process
of life science new ventures. This involves an examination of factors that may be
indicative of readiness to internationalise and likeliness of success, and to examine the
extent to which internationalisation may be embedded in other processes such as the
foundation process of the firm, and the process of innovation. Research on
international new ventures has suggested that such firms have global vision, previous
international experience, management commitment, knowledge assets, unique
products based on leading-edge technology, technological innovativeness, proactive
international strategies (Sapienza et al., 2004). Social competencies such as
international experience through education, work or social contacts, language abilities
and established global networks are increasingly noted as important (Madsen and
Servais, 1997). The international success of international new ventures is attributed to
combinations of internal and environmental factors such as new market conditions,
technological developments, and the capabilities of people (Madsen and Servais,
4
1997), and international entrepreneurial orientation, strategic competence, technology
acquisition and international preparations (Knight and Cavusgil, 2004). The purpose
of this study is to explore the extent to which Scottish life science young firms are, or
potentially may be international new ventures. The key research questions are:
• How international are Scottish life science new ventures?
• To what extent and how quickly have they internationalised over their life
span to date?
• What gaps in their early resources, competencies and capabilities may inhibit
their ability to compete internationally early?
• What managerial and policy implications emerge regarding the international
competitiveness and sustained international growth and development of life
science new ventures?
•
Twenty Scottish life science firms participated in the study. All were founded on the
basis of a major scientific or technological innovation. Ten of the firms were new
ventures and under 5 years old at the time of the study, 6 firms had survived to 10
years old and 4 firms had survived for longer than 10 years with the oldest being 26
years old at the time of interview. The youngest category ranged in size from 2 to 9
employees (including working directors). The group of firms from 5 to 10 years old
ranged from 3 to 30 employees, and one larger firm of 100 which had recently made 2
overseas acquisitions had expanded to 300 employees. The oldest group ranged from
16 to 200 employees, with the largest firm having an additional 60 employees in their
overseas subsidiary.
2. Key Findings
Firm Age and Internationalisation Profile at Interview
• Firms may not develop any revenue stream whatsoever in the first year or two
following foundation.
• During the first five years of life, firms tend to rely on research grants,
development grants and other, often personal sources of income.
• Typically firms commence earning revenue from sales within 3 years from
foundation and during the period between 5 and 10 years into their lives, are
able to rely on sales of products or services rather than other sources as their
main income stream
• Firms seek research income again later in their lives as indicated by the firms
that are over 10 years old, and do so in response to patent expiry, increased
competition and the need to introduce new products and/or to diversify.
• Internationalisation as indicated by the source of revenue commences early,
usually within 2 years of foundation and life science new ventures can expect
that their first customers will be based in overseas markets.
5
• Although most firms did report having a product or service that could be sold
to earn revenue, for some firms, development times were long and demanded
significant resource and management commitment. This meant that time,
resources and attention had to be deflected from the core technology towards
other means of revenue generation. For one firm this led to closure after 6
years, before commercialisation of their core technology and without having
earned any revenue. Respondents across the sample indicated that this
example typifies the problems faced in simultaneously trying to establish a
business, and commercialise new technology.
Foundation Conditions and Processes
Funding and Motivation
• More than half of the firms were university spin-offs or founded on the basis of
university technology through links between the founders and one or more
universities. Despite these connections, only one firm reported receiving any
financing from a university.
• Combinations of research grants, development grants, and personal sources
of capital were most commonly reported as the means by which firms were
financed at foundation. Venture capital is a source most likely to be sought at
a later stage.
• Motivations for founding firms tended to be mixed and complex including; the
desire to make a lot of money, to develop the technology further, to exploit
technology that had not been commercialised by a university or previous
employer, the desire to set-up a company and dissatisfaction with a previous
employer or career path. Interestingly, few founders reported establishing
their firm as a result of recognising a market opportunity, and only one
identified a global niche.
Intellectual Property
• The source of the firms’ first innovation was universally local. No innovations
were sourced from overseas; half were explicitly from Scotland and the rest
from the UK in general. Although some firms mentioned international
academic networks, no explicit mention of overseas input into R&D or pre-
commercialisation stages of product development was made.
• Intellectual property protection was seen as important by most firms and
applications tended to be made for several countries or regions. Approval by
regulatory bodies and medical councils was also of some importance and
application to the US Food and Drug Administration (FDA) was recognised
as important as an international benchmark standard as well as an entry
requirement for the US market.
6
• While firms were positive about gaining international recognition and
protection for intellectual property, the local sourcing of knowledge inputs, or
at least absence of international influence on innovation is of some concern.
Entrepreneurial Profile and Education, Experience and Networks
• All founders had a high education level, often to PhD and usually in science,
medicine or engineering. There was a marked absence of business
qualifications, entrepreneurial experience or family histories of
entrepreneurship. However, some founders had previous corporate experience
although some had only academic backgrounds.
• Half of the firms had no human capital in the form of international
experiential knowledge, overseas education and foreign language abilities that
would prepare them for internationalisation. The lack of relevant international
human capital is of concern in that it provides the means through which
international networks and network resources may be accessed and
developed.
• Although most firms expressed an open and eager attitude towards
internationalisation, the general lack of international experience and
qualifications suggests that the business outlook amongst founders may be
more parochial than they are aware.
• Networks were important for all firms at foundation and an extensive range of
network types including interpersonal/ social, academic, hospital based,
industry based, local, and international were mentioned across the sample.
Problems emerged where networks were narrow, in the wrong field, industry
or were of the wrong type and significant effort was made by most founders to
extend networks or enter new ones. Networking activity was noted as
particularly important in the period immediately before and after foundation
of the firm.
Critical Events and Milestones
• The establishment, or results, of networking activity in the form of key contacts
were noted as critical events by most firms as regards growth and
development.
• A major change in management, for example the appointment of a marketing
or business director was noted as a critical event by some firms and appears
to mark a new stage of development in the commercial capability and growth
potential of the firms.
• The achievement of funding is noted as an important milestone by younger
firms but not those in the oldest group. Achievement of a licensing, R&D or
sales contract was noted as a major milestone especially by younger firms in
that it marks the establishment of a revenue stream.
7
• International sales contracts were noted as critical events by firms in all age
groups but most prolifically amongst the longest established firms.
• Respondents tended not to distinguish international from domestic critical
events and milestones indicating the embeddedness of internationalisation in
other development processes of the firm and associated with opportunities and
goals that enabled further development of the firm.
• Amongst international events and milestones, networking and sales are
important to the youngest group, but international licensing is important to
firms between 5 and 10 years old reflecting the need for early revenue
generation to support the development of key technology that is later licensed.
• Foreign investment is noted as a critical event only amongst the longest
established group however, as these firms are still less than 26 years old, this
emphasises the rapid international growth that is achievable by life science
firms
• Significantly, government assistance in internationalisation was not mentioned
as a milestone in development by any firms.
Competitive Awareness
• Firms with leading edge technologies tended to see industry potential as a
niche with international or global potential. These firms tended to rely on the
future promise of their technological developments and some had no other
portfolio of products or products with regular sustainable sales. As the
number of products in a firm’s portfolio or pipeline is associated with success,
early development of a product portfolio is important for survival and
sustainable growth. While some firms with leading edge technologies had
started to build a product portfolio, others had not.
• Overall, answers to questions on the competitiveness of their major
products/services and industry/market potential, tended to represent a
complex interplay between the respondents’ actual knowledge of their
technology and markets, projections made on that understanding, and hopes
and aspirations as to what might be achieved. Younger firms tended to give
answers that were optimistic but naive whilst older firms answered on the
basis of informed knowledge on market conditions.
• Responses to questions on local, international and global applicability seemed
to be influenced by their awareness of absolute market potential on the one
hand, and awareness of issues that might impede their ability to exploit those
opportunities on the other.
• Most firms were well informed about direct competition however, respondents
in the youngest firms and those with leading edge technology tended to define
competition in relation to the specifications and/or uniqueness of the
technology rather than its application in the marketplace. This may inhibit
8
ability to assess indirect competition from potentially substitutable products
and services.
• Firms varied by age on perceptions of their source of competitive advantage.
In general younger firms tended to identify advantage as lying in product or
service based attributes whereas older firms tended to source it in firm
specific advantages such as organisational routines and combinations of
resources and human capital and membership of local communities and
networks.
• Almost all firms in the sample faced competition from foreign firms, but
tended to see their source of competitive advantage in overseas markets as the
same as in the domestic market.
Performance and Future Planning
• While life sciences new ventures may take some time to establish a revenue
stream, they can expect that their first sales are will be international. A
quarter of the firms interviewed noted that international sales amounted to
over 80% of their total revenue. As this may be achieved from only one or two
foreign customers questions emerge as to sustainability of income from
overseas, and the long term value and opportunity cost of those first
customers. While most firms in this sample could be described as rapidly
internationalising, or even born-global, longitudinal studies of their
development are needed to determine the long-term effects of early
internationalisation on survival and growth.
• Less than half of the firms reported having been profitable since foundation,
only six reported having made any profits in year one. In general, life science
new ventures are unlikely to make profits before the 3
rd
year in business due to
lead times for development and high R&D costs.
• Respondents were asked to assess the successfulness of their ventures. Success
tended to be determined by respondents on the basis of goals and milestones
achieved rather than by financial, productivity or other traditional
performance measures. In general success was attributed to what firms had
set out to achieve and various goals, milestones and benchmarks attained in
that process. Typically, attaining proof of concept funding, achieving
recognition, industry standards, attracting capital and key contacts were
identified as important indicators of success. These findings reflect the events
and milestones identified by firms as critical events in the development of the
firms.
• Firms without exception reported having a written strategic plan however
most noted that the plan was a requirement for various stakeholders. Some
firms, typically the younger ones tended to express frustration with the plans
in that they tended to restrict entrepreneurial opportunity. Others, particularly
those subject to strict regulatory requirements such as clinical trials took the
plans seriously and were formally working towards pre-determined targets.
9
• More than three quarters of the firms indicated that their formal plans
included plans for entry into new foreign markets or adaptation to foreign
markets.
3. Conclusions and Implications
How international are Scottish life science new ventures?
To determine how international the sample life science firms are, the following
aspects were examined; initial funding and motivation for founding the firm, human
resource in the form of the human and social capital of founding members at the
inception of the firm, knowledge resource in the form of innovation activity and
intellectual property at founding in order to determine the relative preparedness of
new ventures for internationalisation from the outset. The respondents’ perceptions of
their firm’s current source of competitive advantage, in local and international
markets, the industry potential of their technology, and their awareness of competition
locally and internationally was explored.
Funding from foundation was provided through various combinations of sources
including grants, loans, personal sources and venture capital although the latter was
usually sought at a later stage. No explicit mention of funding from international
sources was made, and only one firm mentioned receiving funding from a university.
The absence of international investment at the foundation stage of the firms requires
deeper investigation in future research.
Motivations for founding firms tended to be mixed and complex including; the desire
to make a lot of money, to develop the technology further, to exploit technology that
had not been commercialised by a university or previous employer, the desire to set-
up a company and dissatisfaction with a previous employer or career path.
Interestingly, few founders established a firm because they recognised a market
opportunity, and only one identified a global niche. In terms of the founders initial
motivations none made any reference to any international aspirations or goals for
example founding an international firm, becoming a world leader in a specific field,
establishing international collaborations and so on. This absence of initial
international motivations contrasts strongly with the generally accepted view in the
literature, that international new ventures have founders, from the outset, with a global
mindset. Respondents (most of whom were one of the original founders) did express
an open and eager attitude towards internationalisation at the interview suggesting that
while internationalisation is not in itself a motivating factor for establishing a firm, it
is recognised as an interesting process but not necessarily a goal in its own right.
There was a great deal of variability across the sample regarding the international
education, working experience and language capability amongst founders, and few
had founders of a foreign nationality. These factors are important in contributing to an
open attitude towards internationalisation and also because experience and confidence
in communicating across cultures enables the formation of social networks that extend
across national borders and provide a foundation for international business activity.
International social and business networks may also be pre-established by individuals
with international education and life experience. While some firms did have a range
10
of international experience, language and networks amongst founding members,
others did not. Further research into the effect of international human and social
capital on early stage development and growth of life science new ventures is worthy
of further research especially as regards the type and international span of networks
that founding members bring to a new venture. This preliminary investigation
suggests that some networks may be very specific to a narrow field of
science/technology, or to local healthcare bases and further research into bridging
mechanisms between networks could add to understanding on how to foster
connectivity in a global, but fragmented market such as life sciences. Comments from
respondents indicate that the networks they had at founding were important to the
development of the firm but sometimes these proved to be the wrong networks, or in
the wrong places.
The source of firms’ first innovations was universally local. No innovations were
sourced overseas; half were explicitly from Scotland and the rest from the UK in
general. Although some firms mentioned international academic networks, no explicit
mention of overseas input into R&D or pre-commercialisation stages of product
development was made. This should be investigated further as it was not explicitly
examined through the preliminary interviews, which were more concerned with
commercialisation factors than knowledge inputs into the R&D process. Intellectual
property protection was seen as important by most firms and applications tended to be
made for several countries or regions. Approval by regulatory bodies and medical
councils was also of some importance and applications to the US Food and Drug
Administration (FDA) recognised as important as an international benchmark
standard as well as an entry requirement for the US market. While firms were positive
about gaining international recognition and protection for intellectual property, the
local sourcing of knowledge inputs, or at least absence of international influence on
innovation is of some concern.
Applications for regulatory approval and intellectual property rights overseas, is to
some extent indicative of firms’ awareness of the international potential of the science
and technology. Further insight into their awareness and preparedness for competing
on an international basis was gained through respondents’ perceptions of the
competition they face, their source of competitive advantage and what their advantage
might be in international markets. Firms with leading edge technologies tended to see
industry potential as a niche with international or global potential. These firms tended
to rely on the future promise of their technological developments and some had no
other portfolio of products or products with regular sustainable sales. As the number
of products in a firm’s portfolio or pipeline is associated with success, early
development of a product portfolio is important for survival and sustainable growth.
While some firms with leading edge technologies had started to build a product
portfolio, others had not. The concern is that the promise of global markets may
obscure the firms’ view of the need for immediate sales and coupled with a limited
knowledge or understanding of movements in the global industry or market may lead
to early failure. Taking this further, responses to questions on local, international and
global applicability seemed to be influenced by their awareness of absolute market
potential on the one hand, and awareness of issues that might impede their ability to
exploit those opportunities on the other. Most firms were well informed about direct
competition however, respondents in the youngest firms and those with leading edge
technology tended to define competition in relation to the specifications and/or
11
uniqueness of the technology rather than its application in the marketplace, or the long
term competitiveness of the firm over and above the advantage conveyed from their
core technology. This may inhibit ability to assess indirect competition from
potentially substitutable products and services, or to develop advantage in for example
organisational routines to sustain the competitive edge sourced in the technology.
Almost all firms in the sample faced competition from foreign firms, but tended to see
their source of competitive advantage in overseas markets as the same as in the
domestic market. This failure to appreciate differences in the competitive structure
and conditions of overseas markets is of some concern.
To what extent and how quickly have they internationalised over their life span
to date?
Life science new ventures internationalise early as indicated by international revenue
earned within the first one or two years of life. All firms with the exception of 4 were
earning revenue from overseas at the time they were interviewed and the minimum
percentage of sales from overseas to total sales was 20%. Almost half of the firms
reported earning income from overseas in their first year of operation and more than
half earned income from overseas by the end of the second year. While international
to total sales ratios were in general high (from 20 to 100% of total sales), in some
cases respondents reported having only one or two customers and that these customers
were based overseas. Sales contracts in some cases were relatively large in terms of
value but were one-off contracts. In a few cases, while firms reported high
international ratios in the first year, because of the dependency on a large overseas
customer, the international ratio fell in future years as domestic business developed.
These issues raise questions about the sustainability of sales in general and of sales to
foreign markets.
For firms serving global niche markets internationalisation may be a process of
building a customer base customer-by-customer over a diverse geographic area, rather
than country by country in the traditional and more gradual manner. The resource
implications of such a growth pattern, particularly the need for rapid accumulation of
country specific knowledge may put considerable pressure on new venture firms.
Respondents in general reported that the first sales or licensing deal was a major
achievement, however, it was not clear whether longer term relationships with
customers would develop, whether the initial contracts made were the best available
for longer term growth or indeed whether early sales contracts could or would be
repeated. In conclusion, whilst life science new ventures in Scotland can be described
as “born-global”, that initial internationalisation position may be fragile and tenuous.
The nature of early international sales and how they influence decisions regarding the
long-term development of the firm’s technology needs further investigation. The need
for research into the impact of early internationalisation is particularly pressing with
regard to new ventures with potentially platform technologies that have applications
across a number of industries. An abundance of development and market
opportunities coupled with a very limited resource base could render firms vulnerable
to ostensibly attractive international investors and customers with immediate answers
to short-term financial problems but limited prospects for long term growth.
Exploiting the wrong opportunities could ultimately limit new venture growth
potential to a less than optimal technological and growth trajectory. The worst case
scenario is that the benefits of scientific discovery and technological development
12
may be lost to short term returns, and the potential for significant value add moved
out of the Scottish economy.
While international sales commenced early for most firms, the profitability of their
international operations is less clear and less than half of the firms attributed profits to
international business. However, as most firms interviewed were under 10 years old
and lead times in this industry are long, profits will take longer to materialise and
further examination of their development over time is needed to ascertain the effect of
international sales on overall profitability.
While firms make their first international sales almost from inception, they are also,
from the outset involved in international activities such as networking at trade fairs,
seminars and conferences at which they reported seeking recognition, legitimacy,
investors, industry links and customers and suppliers. Important early events include
making contact with the right people in the right networks, achieving industry
recognition or intellectual property rights, making contact with potential customers
and other business links. More concrete milestones such as the achievement of sales
and licensing contracts, and international investment decisions occurred later although
even in the case of investment overseas, this tended to occur relatively early in the
firm’s life given that the oldest firms interviewed were 22 and 26 years old
respectively. From key international events and milestones reported, the typical
internationalisation pattern appears to follow the traditional route of export sales
followed by licensing and then by direct investment overseas, however, this should be
interpreted with some caution as early sales in some cases were of products and
services sold to support development of the main technology. Other early critical
events reported relate to the appointment of new management, usually a commercially
aware and experienced manager. To some extent this may reflect the difficulties faced
by scientific entrepreneurs in accumulating knowledge about international and global
markets in very compressed periods of time Further research on the compression of
time over which internationalisation occurs for firms entering global, dynamic
industries and the extent to which firms experiencing this process are able to
accumulate knowledge assets, capabilities and competencies under temporal pressures
is under-researched to date.
What gaps in their early resources, competencies and capabilities may inhibit
their ability to compete internationally early?
Next to the funding gap, the most significant issues that are likely to affect the growth
and survival of life science new ventures are lack of business experience and business
related knowledge, the absence or slow development of a portfolio of products and
services on which to build competitive advantage and sustainable growth. Firms at
the leading edge of technology, with long development times are more likely to
struggle with the simultaneous processes of developing a technology and building a
business which detracts attention from the technology with the risk of loosing out to
competitors for first patent rights. Whilst this gap tends to be identified by
respondents as a funding gap, essentially what is missing is the human resource i.e.
founders or managers with relevant business experience, networks and contacts who
are sufficiently knowledgeable about the technology to be able to work alongside the
scientists. For some firms the appointment of such a person marked a critical juncture
in the development of the firm.
13
Scientific entrepreneurs do not tend to have a family history of entrepreneurship so
establishing a business may be a new and somewhat experimental process.
Collaborations, even of an informal nature may help to fill the experience gap and
provide important bridging mechanisms into relevant networks domestically and
internationally.
Gaps relating specifically to internationalisation potential include; the absence of
language ability, overseas education and working experience, and foreign national
founders in the entrepreneurial team. People with international experience or
backgrounds provide international perspectives to the growing business and have been
identified in the new venture literature as contributory to rapid internationalisation.
Amongst the longest surviving firms interviewed, factors that appear to lead to
success are; previous working experience of the founders in a relevant industry, with a
multinational firm or internationalising firm coupled with the ability to bring to the
business a team of like-minded colleagues; networks of contacts, a relevant business
model, clear goals for an early revenue stream and for controlled growth. Thus the
truly born-global firm is likely to be one that is ready-made, can hit the ground
running, and is able to meet international competition from a stock of capabilities and
competencies assembled from the individual and corporate background and history of
the founders. The absence of this or similar assembles of experiential knowledge and
resources in some new ventures may render them particularly vulnerable entrants to
global markets. Internationalisation for such firms may be rapid because of the
advantage vested in their technology but unsustainable because the capabilities and
competencies (asset stock accumulation) required to face competition in dynamic and
global industries such as life sciences may only be attainable over a longer period of
time than available given the rapidly changing competitive landscape. There is a need
for research into time compression effects on the internationalisation process and the
impact of that process on the long term survival and growth of life science new
ventures, and small firms in general.
What managerial and policy implications emerge regarding the international
competitiveness and sustained international growth and development of life
science new ventures?
Implications for policy are to continue to integrate programmes designed to support
the early stages of development of firms in new and emerging technologies and in
particular, life sciences, across entrepreneurship, innovation and internationalisation
processes. The paradox for life science new ventures lies in the very specialised and
knowledge intensive nature of the science and the breadth of business, industry and
market knowledge required to commercialise the technology and to compete
successfully in a global market. Significant connectivity is required with
complementary technologies, and a range of partners as the technology moves along
the value chain towards the market. Usefully, partnership between the Life Sciences
Division and the Growing Global Companies programme of Scottish Enterprise might
provide a more seamless transition for new venture firms between the launch of the
venture, and its development towards becoming a successful global company.
Similarly, closer cooperation between medical and other science faculties with
business schools might help to bridge the gap between science and commercialisation
14
through more integrated programmes of study. What is required are scientists with
commercial awareness, and management students with some understanding of the
ways in which science become s innovation.
Key amongst managerial implications are that founders of science based new ventures
need to make explicit preparations for internationalisation from the outset. An early
audit of tacit and internationally relevant knowledge and skills amongst founding
members would alert managers to the resource needs of internationalisation
particularly where the firm will need to bridge different industry, geographically and
culturally dispersed networks. Founders need to ensure that they are fully informed
about the markets and industries for which they intend to commercialise their
technologies, identify and prepare for local differences between countries even within
the global market, and most importantly, anticipate and plan to develop competitive
advantages beyond those vested in the technology itself.
A number of research implications emerge from this exploratory study, key amongst
which is that the impact of early and rapid internationalisation on new ventures and
the local economies in which they reside is not well understood. Further examination
through longitudinal research designs tracking the growth trajectories of firms from
inception, and surveys to determine the generalisability of some of the findings of this
study, are indicated. Particularly pertinent for future research are questions relating to
the early international contracts on both technological and growth trajectories of life
science firms, the impact of rapid internationalisation on the firms’ ability to develop
capabilities and competencies in addition to their core technologies to ensure
sustainable competitive advantage in dynamic global industries. From the perspective
of the local economy, the short and long-run gains to the economy of early rapid
internationalisation need to be better understood as regards the mode of international
business through which technology is transferred, and the stage of development at
which it is transferred.
15
References
Audretsch, D. B. & M. Keilbach. 2006. "Entrepreneurship, Growth and
Restructuring," Casson, Mark, Yeung, Bernard, Basu, Anuradha, and
Wadeson, Nigel. The Oxford Handbook of Entrepreneurship no. 11: 281-310.
Oxford, NY, Oxford University Press.
Brännback, M., M. J alkanen, K. Kurkela, & E. Soppi. 2005. "Pharma Development in
Finland Today and 2015," Technology Review 179. Helsinki, TEKES.
Dierickx, I. & K. Cool. 1989. "Asset Stock Accumulation and Sustainability of
Competitive Advantage," Management Science 35, no. 12: 1504-1511.
George, G., S. A. Zahra, & D. R. Wood. 2002. "The Effects of Business University
Alliances on Innovative Output Performance: A Study of Publicly Traded
Biotechnology Companies," Journal of Business Venturing 17, 577-609.
Knight, G. & S. T. Cavusgil. 2004. "Innovation, Organization Capabilities, and the
Born-Global Firm," Journal of International Business Studies 35(2): 124-141.
Madhok, A. & T. Osegowitsch. 2000. "The International Biotechnology Industry: A
Dynamic Capabilities Perspective," Journal of International Business Studies
31(2): 325-335.
Madsen, T. K. & P. Servais. 1997. "The Internationalization of Born Globals: an
Evolutionary Process?," International Business Review 6 (6): 561-583.
Miles, M. B. & A. M. Huberman. 1994. "Qualitative Data Analysis: An Expanded
Sourcebook," 2nd. London, Sage.
Oviatt, B. M. & P. P. McDougall. 1994. "Toward a Theory of International New
Ventures," Journal of International Business Studies 25 (1): 45-64.
Rennie, M. W. 1993. "Born Global," McKinsey Quarterly, 4: 45-52.
Sapienza, H. J ., A. Parhankangas, & E. Autio. 2004. "Knowledge Relatedness and
Post Spin-Off-Growth," Journal of Business Venturing 19(2): 809-829.
Shane, S. 2004. "Academic Entrepreneurship, University Spin-Offs and Wealth
Creation," Cheltenham, Edward Elgar.
16
17
Invitation to Participate
This report and seminar were intended to bring together academics, entrepreneurs and
managers, and policy makers in an open dialogue about the international
competitiveness of small firms in the increasingly global life sciences industry.
The results of the study represent the views and experiences of senior executives from
20 Scottish firms, who willingly spent some valuable time with us, and shared their
even more valuable experience to further our understanding of this growing business
sector.
The purpose of the research is to identify implications and advice, from empirical
study, that will direct and support firms, and the sector as a whole towards survival
and sustained competitive advantage in international and global markets
If you are an owner, manager, or entrepreneur of a life science or medical products
firm and would be willing to participate in our research project, though interviews
(once annually), and occasional short telephone or e-mail conversations, Please fill in
the form below, or e-mail Professor Marian J ones at:
[email protected]
All research conducted by University of Glasgow staff and research students is
subject to ethical approval from the relevant Faculty Ethics Committee.
Expression of Interest
I am interested in participating in on-going research into the growth and development
of life science firms.
Name:
Position:
Contact details:
e-mail:
Telephone:
Other:
Name of Firm:
Main Business:
Date of Foundation
Address of Firm:
Please return the form to: Professor Marian V J ones, Centre for Internationalisation
and Enterprise Research (CIER), Department of Management, University of Glasgow,
Gilbert Scott Building, University Avenue, Glasgow G12 8QQ, Scotland, UK.
Centre for Internationalisation and Enterprise Research
University of Glasgow
West Quadrangle
Gilbert Scott Building
Glasgow G12 8QQ
Scotland, UK
Tel: +44 (0)141 330 3993
Fax: +44 (0)141 330 4939
Email: [email protected]
Web: www.gla.ac.uk/cier
ISBN: 978-0-85261-833-2
photography: lilies courtesy Diana Stewart; all other photography courtesy the University of Glasgow
doc_254867419.pdf
In this particular detailed outline regarding key findings and implications life science new ventures in scotland.
KEY FINDINGS & IMPLICATIONS
Life Science New Ventures in Scotland:
How International are They?
Marian V Jones, Colin Wheeler, George Vlachos, and
Amaia Ibanez De Opacua
Key Findings & Implications
Life Science New Ventures in Scotland:
How International are They?
Marian V J ones
Colin Wheeler
George Vlachos
Amaia Ibanez De Opacua
Marian V. J ones, Colin Wheeler, George Vlachos, Amaia Ibanez De Opacua 2008
All rights reserved. No part of this report may be reproduced, stored in a retrieval
system or transmitted in any form or by any means, electronic, mechanical or
photocopying, recording or otherwise without the prior permission of the publisher.
Published by
Centre for Internationalisation and Enterprise Research (CIER)
University of Glasgow
Gilbert Scott Building
University Avenue,
Glasgow G12 8QQ
Scotland
UK
ISBN. 978-0-85261-833-2
A full summary report of the findings is available from CIER.
Contents
Contents _________________________________________________________ iii
Acknowledgements ________________________________________________ iv
Executive Summary ________________________________________________v
1. Introduction_____________________________________________________1
The Life Sciences Sector ___________________________________________1
Competitive Challenge and Policy Perspectives__________________________1
Life Sciences in Scotland___________________________________________2
Background to the Study____________________________________________3
Aim of the Study and Key Research Questions __________________________4
2. Key Findings ____________________________________________________5
Firm Age and Internationalisation Profile at Interview ____________________5
Foundation Conditions and Processes _________________________________6
Funding and Motivation__________________________________________6
Intellectual Property _____________________________________________6
Entrepreneurial Profile and Education, Experience and Networks _________7
Critical Events and Milestones_______________________________________7
Competitive Awareness ____________________________________________8
Performance and Future Planning_____________________________________9
3. Conclusions and Implications _____________________________________10
How international are Scottish life science new ventures?_________________10
To what extent and how quickly have they internationalised over their life span
to date? ________________________________________________________12
What gaps in their early resources, competencies and capabilities may inhibit
their ability to compete internationally early? __________________________13
What managerial and policy implications emerge regarding the international
competitiveness and sustained international growth and development of life
science new ventures?_____________________________________________14
References _______________________________________________________16
Invitation to Participate ____________________________________________17
Expression of Interest ______________________________________________17
iii
Acknowledgements
Support from the funders of this project is gratefully acknowledged. The fieldwork
was funded through “Synergy”, the joint initiative of the Universities of Glasgow and
Strathclyde that provides pump-priming funds for research-based collaborative
projects.
Data preparation and processing was funded by the British Academy through its
Small Grants Scheme. CIER (Centre for Internationalization and Enterprise
Research), University of Glasgow, and Portsmouth Business School, University of
Portsmouth, supported the analysis and dissemination of the results.
The entrepreneurs and managers of Scottish Life Sciences firms who participated in
the project and provided valuable information and insights into their business
activities are gratefully acknowledged. For reasons of confidentiality their identities
are withheld throughout the report.
iv
Executive Summary
Life Sciences and the biotechnology sector in particular, is achieving rapid growth
within a dynamic and global industry. The market for life sciences firms, and
especially biotechnology firms, is for the most part global and the industry highly
reliant on knowledge and expertise located in geographically dispersed clusters of
excellence. The long term survival of SMEs, and the local economies in which they
reside, relies on the ability of new venture life science firms to internationalise early,
establish international partnerships and secure contracts with major international life
science companies. From the perspective of small new ventures in life sciences
sectors the challenges are often threefold, and encompass: 1) establishing and growing
a new venture, including its knowledge and resource base, and a sustainable income
stream, 2) developing and commercialising new technology, and 3)
internationalisation.
This report is from the first stage of a longitudinal study that will trace life science
new ventures over time and examine the effect of early international decisions such as
for example, the choice of international partner on growth trajectories and sustainable
development. Research questions explored here are: how international are Scottish life
science new ventures, to what extent and how quickly have they internationalised over
their life span to date, what gaps in their early resources, competencies and
capabilities may inhibit their ability to compete internationally early, and what
managerial and policy implications emerge regarding the international
competitiveness and sustained international growth and development of life science
new ventures?
Findings indicate that internationalisation commences early, usually within 2 years of
foundation and life science new ventures can expect that their first customers will be
based overseas. Despite an early start, the preparedness of most life science new
ventures for rapid and sustainable international growth is generally weak.
International education, experience, language ability and the presence of foreign
nationals in the founding team was patchy across the firms indicating that some may
be ill prepared for international growth. International networking activity was pursued
by most firms and significant events and milestones reported were often international
in nature. Most were aware of direct competition from local and international sources
but the youngest firms tended to define their competitive advantage as vested in the
technology rather than its market applications or firm specific competencies. Firms
widely reported a view that the competitive advantage they have locally, would also
be their advantage in international markets.
Implications for policy are to continue to integrate programmes designed to support
the early stages of development of firms in new and emerging technologies and in
particular, life sciences, across entrepreneurship, innovation and internationalisation
processes. Key amongst managerial implications are that founders of science based
new ventures need to make explicit preparations for internationalisation from the
outset. Particularly pertinent for future research, is questions relating to the impact of
early international contracts on: technological and growth trajectories of firms, and
their ability to develop capabilities and competencies to ensure sustainable
competitive advantage in dynamic global industries.
v
1
1. Introduction
The Life Sciences Sector
Life Sciences and the biotechnology sector in particular, is achieving rapid growth
within a dynamic and global industry (Madhok and Osegowitch 2000), to the extent
that Ernst and Young acknowledge it as one of the leading industries in the future
global economy. The global life sciences market has tended to be dominated by
pharmaceuticals and in particular by prescription drugs to the extent of 80-85% of the
global market
1
, delivered in the main by “big pharma” i.e. the world’s largest
pharmaceutical companies. The domination of the largest players to some extent
detracts from the diversity of the life sciences sector as a whole, and the increasingly
important role of small and medium sized enterprises across a range of knowledge
intensive and highly specialised roles from drug discovery through clinical trials and
other research related services, and the development and provision of complementary
products and services.
The Life Sciences sector is a complex amalgamation of interconnected industries
comprising a diverse range of knowledge intensive and often highly specialised firms.
It includes companies in the fields of biotechnology, pharmaceuticals, biomedical
technologies, life systems technologies, nutraceuticals, food processing,
environmental, biomedical devices, and organizations that are involved in the various
stages of research, development, technology transfer and commercialization
2
.
Competitive Challenge and Policy Perspectives
In common with other high-technology industries competition is fierce, risks of
failure high, and costs of supporting R&D are increasing as is the complexity of
technology and acceleration of technological change (George, Zahra and Wood 2002).
In biotechnology in particular, product development paths are long (10-15 years)
increasing the challenges and uncertainties that exist in product commercialization
(Brännback et al., 2005). Because the market is for the most part global and the
industry highly reliant on knowledge and expertise located in geographically
dispersed clusters of excellence, long term survival of SMEs, and the local economies
in which they reside, relies on the ability of new venture life science firms to
internationalise early, establish international partnerships and secure contracts with
major international life science companies. At international policy level, EU strategy
for biotechnology is to maintain and develop existing international dialogues
regarding international collaboration to harmonise guidelines regarding biotechnology
products. Thus while the industry is highly regulated as regards standards and ethical
concerns surrounding the science, EU strategy aims to support and encourage
technological innovation through initiatives that foster international collaboration
amongst science based organisations, and support or advance technology transfer.
These are set out in the EU’s Life science and Biotechnology Strategy 2002
3
Key
1
http://www.ycf.co.uk/content/fx.ycf/resources/specialpublications/YCFLifeSciencesReport2004.pdf,
p15, accessed on 21/05/2007
2
http://www.infoport.ca/life/bins/content_page.asp?cid=4364 accessed on 09/03/2007
3
http://ec.europa.eu/biotechnology/pdf/com2002-27_en.pdf accessed on 02/08/2007
challenges identified in the strategy document are to meet the needs of global markets
by improving links between the science base and industry and to promote the
international diffusion of technology. Small and medium sized firms (SMEs) are
identified as key players in the process. Life science SMEs are capital intensive and
face long product lead times resulting in bottlenecks between science and its global
markets. To address these and other challenges the strategy document establishes
three courses of action relating to: the resource base, networks, and a proactive role
for public authorities. Interest for this study relates to the second of these action points
– networks and specifically, the need for research cooperation and technology transfer
amongst regions, networking and linking-up to overcome fragmentation.
Fragmentation and the small size of Europe’s life science firms is amongst reasons
given for Europe lagging behind the US as regards performance in the life science
sector. For example, the EuropaBio Report (2006)
4
notes that there were more biotech
firms in Europe than in the US in 2004 (2150 in Europe compared to 1991 in the US),
more companies were formed in Europe in that year (119) than in the US (78),
however, the US sector employs roughly twice as many employees, spends 3 times as
much on R&D, earns twice as much in revenue and raised more than double that of
the European sector in venture capital and equity.
Life Sciences in Scotland
Scotland has developed key strengths in a number of areas including; drug discovery,
biomanufacturing, bioinformatics, genomics and proteomics, medical devices,
regenerative medicine, biomedical (cardio-vascular/ cancer/ diabetes/ neuroscience/
reproductive), contract research organisations (CROs), and diagnostics.
5
Life
Sciences is one of the fastest growing industries today and in Scotland the sector
shows growth rates of 7-8% (Gross Value Add) compared to the average Scottish
GDP growth rate of 1.7%.
6
The Scottish Life Sciences sector is growing and the YCF
Special report (2007) claims that there are over 590 organisations in Scotland,
employing almost 30,000 people. There are over 100 medical devices companies, and
50 academic institutions and 80 companies are involved in drug discovery. A network
of 40 clinical trials and contract research organisations supports the sector. Over 70%
of the core life science organisations in Scotland currently, are involved in human
healthcare. Policy initiatives in Scotland are also aimed at networking and
connectivity. The Proof of Concept Programme established in 1999 supports leading-
edge technologies from Scotland’s universities by providing funding to take the
technology from initial scientific discovery to proof of concept and has supported 33
spin-out companies and 32 licensing deals since inception. In 2003 the Intermediary
Technology Institutes (ITIs) were established to identify and commercialise
intellectual property across three global market sectors including life sciences, digital
media and communications, and energy. The vision of the 2005 national Strategy for
Scottish Life Sciences for 2020 is:
4
http://www.europabio.be/documents/Brochure Annual Report 2006_FINAL.pdf, accessed
02/08/2007.
5
http://www.ycf.co.uk/content/fx.ycf/resources/specialpublications/YCFLifeSciencesReport2004.pdf,
p4, accessed on 21/05/2007
6
http://www.ycf.co.uk/content/fx.ycf/resources/specialpublications/YCFLifeSciencesReport2007.pdf,
p6, accessed on 21/05/2007
2
“A globally focused, sustainable life sciences sector built on a truly
connected national strategy that exploits strengths in scientific
excellence, financial services and innovative business models and that
develops, retains and builds on Scotland’s talents.”
7
One of the aims of these initiatives is, through rigorous selection processes, to support
and highlight excellence in science and technology that potentially can meet the needs
of the global market, and attract investors to Scotland. Ultimately, Scottish firms may
merge with international companies, or launch on international stock markets through
an early IPO. Whether or not Scottish Life Sciences new ventures gain support from
the various policy initiatives and support packages, the life sciences industry is global
and firms need to prepare themselves for early internationalisation, be willing and
able to exchange knowledge and do business with international partners, and have an
open and anticipatory mindset towards internationalisation. The main purpose of this
exploratory study is to explore the extent to which life science new ventures in
Scotland are international.
Background to the Study
Following the “knowledge spillover” theory of entrepreneurship, which suggests that
entrepreneurial activity will be high where investment in knowledge is high
(Audretsch and Keilbach, 2006), it is of some importance to local economies that
there is a spillover effect from the science base, that stimulates the start-up of new
firms which in turn grow and bring return on that investment. As markets for life
sciences products and services tend to be global, returns are potentially high but the
challenges facing new ventures, many of which are established by “academic
entrepreneurs”, often scientists rather than business-minded entrepreneurs in the
traditional sense (Shane, 2004), are significant. Temporal issues are particularly
problematic since paradoxically, while product development times are long,
technology is changing rapidly, windows of opportunity open and close only briefly,
competition amongst those driving technological change is intense, and immediate
entry to international and even global markets is becoming a pre-requisite to success.
New ventures need to be anticipative and ready to survive and compete in an industry
that is increasingly internationally defined.
From the perspective of small new ventures in life sciences sectors the challenges are
often threefold: and encompass:
• Establishing and growing a new venture, including its knowledge and
resource base, and the establishment of a sustainable income stream.
• Developing and commercialising a new technology, for which there may be
no clearly defined market at the outset.
• Internationalisation, which to some extent may be inevitable and embedded
in other processes, but which needs to be acknowledged and accommodated
by firms as an integral part of growth and development.
Internationalisation traditionally was defined as the outward and usually gradual
expansion of a firm’s activities, typically commencing with exporting. The so-called
7
http://www.ycf.co.uk/content/fx.ycf/resources/specialpublications/YCFLifeSciencesReport2004.pdf,
p4, accessed on 21/05/2007
3
“born-global phenomenon” acknowledges that many small firms, especially those in
high technology sectors may begin internationalising immediately and this process
could involve a range of activities such as importing and exporting, licensing in and
out of technology, and various investments in knowledge, capital and so on, all of
which create cross-national flows of knowledge, resource, payments, liabilities and
benefits. The “international new venture” is a “business organization that, from
inception, seeks to derive significant competitive advantage from the use of resources
and sale of outputs in multiple countries” (Oviatt and McDougall, 1994: 49).
Internationalisation is no longer confined to the outward expansion of a firm’s
activities and consists of a process of increasing exposure, anticipation of and
adjustment to knowledge, stimuli and triggers from an increasingly international
environment. The internationalisation process for many firms is inevitable and may be
implicitly embedded in other developmental processes rather than an explicit strategy
in its own right. It is however an important process inter alia, as a means of;
augmenting the firm’s resource base, or that of its local networks, identifying and
accessing strategic partners and potential customers, and may help overcoming the
limitations of the “local stickiness” of knowledge within locally defined clusters and
centres of excellence. Exposure to international experiences, cultures and different
business and innovation systems may potentially increase the firm’s absorptive
capacity and growth potential. Temporal challenges however may introduce
diseconomies in which firms have difficulties in building organisational resource, or
stocks of assets (Dierickx & Cool, 1989) that would support sustainable international
growth due to the increasingly short periods of time available to prepare for global
competition. In short, while international new ventures may be “born global”, they
may also die young!
Aim of the Study and Key Research Questions
This study is the first stage of what is intended to be a longitudinal study that will
trace life science new ventures over time and examine the effect of early international
decisions such as for example, the choice of international partner on growth
trajectories and sustainable development. The aim of this stage is to determine the
extent to which a sample of innovative small life sciences firms in Scotland are
international, or prepared to be international. Taking an international new venture
perspective of internationalisation that views the process as potentially encompassing
all aspects of the firms activities and not just exporting (J ones, 1999), the primary
interest for this study is to explore early influences on the internationalisation process
of life science new ventures. This involves an examination of factors that may be
indicative of readiness to internationalise and likeliness of success, and to examine the
extent to which internationalisation may be embedded in other processes such as the
foundation process of the firm, and the process of innovation. Research on
international new ventures has suggested that such firms have global vision, previous
international experience, management commitment, knowledge assets, unique
products based on leading-edge technology, technological innovativeness, proactive
international strategies (Sapienza et al., 2004). Social competencies such as
international experience through education, work or social contacts, language abilities
and established global networks are increasingly noted as important (Madsen and
Servais, 1997). The international success of international new ventures is attributed to
combinations of internal and environmental factors such as new market conditions,
technological developments, and the capabilities of people (Madsen and Servais,
4
1997), and international entrepreneurial orientation, strategic competence, technology
acquisition and international preparations (Knight and Cavusgil, 2004). The purpose
of this study is to explore the extent to which Scottish life science young firms are, or
potentially may be international new ventures. The key research questions are:
• How international are Scottish life science new ventures?
• To what extent and how quickly have they internationalised over their life
span to date?
• What gaps in their early resources, competencies and capabilities may inhibit
their ability to compete internationally early?
• What managerial and policy implications emerge regarding the international
competitiveness and sustained international growth and development of life
science new ventures?
•
Twenty Scottish life science firms participated in the study. All were founded on the
basis of a major scientific or technological innovation. Ten of the firms were new
ventures and under 5 years old at the time of the study, 6 firms had survived to 10
years old and 4 firms had survived for longer than 10 years with the oldest being 26
years old at the time of interview. The youngest category ranged in size from 2 to 9
employees (including working directors). The group of firms from 5 to 10 years old
ranged from 3 to 30 employees, and one larger firm of 100 which had recently made 2
overseas acquisitions had expanded to 300 employees. The oldest group ranged from
16 to 200 employees, with the largest firm having an additional 60 employees in their
overseas subsidiary.
2. Key Findings
Firm Age and Internationalisation Profile at Interview
• Firms may not develop any revenue stream whatsoever in the first year or two
following foundation.
• During the first five years of life, firms tend to rely on research grants,
development grants and other, often personal sources of income.
• Typically firms commence earning revenue from sales within 3 years from
foundation and during the period between 5 and 10 years into their lives, are
able to rely on sales of products or services rather than other sources as their
main income stream
• Firms seek research income again later in their lives as indicated by the firms
that are over 10 years old, and do so in response to patent expiry, increased
competition and the need to introduce new products and/or to diversify.
• Internationalisation as indicated by the source of revenue commences early,
usually within 2 years of foundation and life science new ventures can expect
that their first customers will be based in overseas markets.
5
• Although most firms did report having a product or service that could be sold
to earn revenue, for some firms, development times were long and demanded
significant resource and management commitment. This meant that time,
resources and attention had to be deflected from the core technology towards
other means of revenue generation. For one firm this led to closure after 6
years, before commercialisation of their core technology and without having
earned any revenue. Respondents across the sample indicated that this
example typifies the problems faced in simultaneously trying to establish a
business, and commercialise new technology.
Foundation Conditions and Processes
Funding and Motivation
• More than half of the firms were university spin-offs or founded on the basis of
university technology through links between the founders and one or more
universities. Despite these connections, only one firm reported receiving any
financing from a university.
• Combinations of research grants, development grants, and personal sources
of capital were most commonly reported as the means by which firms were
financed at foundation. Venture capital is a source most likely to be sought at
a later stage.
• Motivations for founding firms tended to be mixed and complex including; the
desire to make a lot of money, to develop the technology further, to exploit
technology that had not been commercialised by a university or previous
employer, the desire to set-up a company and dissatisfaction with a previous
employer or career path. Interestingly, few founders reported establishing
their firm as a result of recognising a market opportunity, and only one
identified a global niche.
Intellectual Property
• The source of the firms’ first innovation was universally local. No innovations
were sourced from overseas; half were explicitly from Scotland and the rest
from the UK in general. Although some firms mentioned international
academic networks, no explicit mention of overseas input into R&D or pre-
commercialisation stages of product development was made.
• Intellectual property protection was seen as important by most firms and
applications tended to be made for several countries or regions. Approval by
regulatory bodies and medical councils was also of some importance and
application to the US Food and Drug Administration (FDA) was recognised
as important as an international benchmark standard as well as an entry
requirement for the US market.
6
• While firms were positive about gaining international recognition and
protection for intellectual property, the local sourcing of knowledge inputs, or
at least absence of international influence on innovation is of some concern.
Entrepreneurial Profile and Education, Experience and Networks
• All founders had a high education level, often to PhD and usually in science,
medicine or engineering. There was a marked absence of business
qualifications, entrepreneurial experience or family histories of
entrepreneurship. However, some founders had previous corporate experience
although some had only academic backgrounds.
• Half of the firms had no human capital in the form of international
experiential knowledge, overseas education and foreign language abilities that
would prepare them for internationalisation. The lack of relevant international
human capital is of concern in that it provides the means through which
international networks and network resources may be accessed and
developed.
• Although most firms expressed an open and eager attitude towards
internationalisation, the general lack of international experience and
qualifications suggests that the business outlook amongst founders may be
more parochial than they are aware.
• Networks were important for all firms at foundation and an extensive range of
network types including interpersonal/ social, academic, hospital based,
industry based, local, and international were mentioned across the sample.
Problems emerged where networks were narrow, in the wrong field, industry
or were of the wrong type and significant effort was made by most founders to
extend networks or enter new ones. Networking activity was noted as
particularly important in the period immediately before and after foundation
of the firm.
Critical Events and Milestones
• The establishment, or results, of networking activity in the form of key contacts
were noted as critical events by most firms as regards growth and
development.
• A major change in management, for example the appointment of a marketing
or business director was noted as a critical event by some firms and appears
to mark a new stage of development in the commercial capability and growth
potential of the firms.
• The achievement of funding is noted as an important milestone by younger
firms but not those in the oldest group. Achievement of a licensing, R&D or
sales contract was noted as a major milestone especially by younger firms in
that it marks the establishment of a revenue stream.
7
• International sales contracts were noted as critical events by firms in all age
groups but most prolifically amongst the longest established firms.
• Respondents tended not to distinguish international from domestic critical
events and milestones indicating the embeddedness of internationalisation in
other development processes of the firm and associated with opportunities and
goals that enabled further development of the firm.
• Amongst international events and milestones, networking and sales are
important to the youngest group, but international licensing is important to
firms between 5 and 10 years old reflecting the need for early revenue
generation to support the development of key technology that is later licensed.
• Foreign investment is noted as a critical event only amongst the longest
established group however, as these firms are still less than 26 years old, this
emphasises the rapid international growth that is achievable by life science
firms
• Significantly, government assistance in internationalisation was not mentioned
as a milestone in development by any firms.
Competitive Awareness
• Firms with leading edge technologies tended to see industry potential as a
niche with international or global potential. These firms tended to rely on the
future promise of their technological developments and some had no other
portfolio of products or products with regular sustainable sales. As the
number of products in a firm’s portfolio or pipeline is associated with success,
early development of a product portfolio is important for survival and
sustainable growth. While some firms with leading edge technologies had
started to build a product portfolio, others had not.
• Overall, answers to questions on the competitiveness of their major
products/services and industry/market potential, tended to represent a
complex interplay between the respondents’ actual knowledge of their
technology and markets, projections made on that understanding, and hopes
and aspirations as to what might be achieved. Younger firms tended to give
answers that were optimistic but naive whilst older firms answered on the
basis of informed knowledge on market conditions.
• Responses to questions on local, international and global applicability seemed
to be influenced by their awareness of absolute market potential on the one
hand, and awareness of issues that might impede their ability to exploit those
opportunities on the other.
• Most firms were well informed about direct competition however, respondents
in the youngest firms and those with leading edge technology tended to define
competition in relation to the specifications and/or uniqueness of the
technology rather than its application in the marketplace. This may inhibit
8
ability to assess indirect competition from potentially substitutable products
and services.
• Firms varied by age on perceptions of their source of competitive advantage.
In general younger firms tended to identify advantage as lying in product or
service based attributes whereas older firms tended to source it in firm
specific advantages such as organisational routines and combinations of
resources and human capital and membership of local communities and
networks.
• Almost all firms in the sample faced competition from foreign firms, but
tended to see their source of competitive advantage in overseas markets as the
same as in the domestic market.
Performance and Future Planning
• While life sciences new ventures may take some time to establish a revenue
stream, they can expect that their first sales are will be international. A
quarter of the firms interviewed noted that international sales amounted to
over 80% of their total revenue. As this may be achieved from only one or two
foreign customers questions emerge as to sustainability of income from
overseas, and the long term value and opportunity cost of those first
customers. While most firms in this sample could be described as rapidly
internationalising, or even born-global, longitudinal studies of their
development are needed to determine the long-term effects of early
internationalisation on survival and growth.
• Less than half of the firms reported having been profitable since foundation,
only six reported having made any profits in year one. In general, life science
new ventures are unlikely to make profits before the 3
rd
year in business due to
lead times for development and high R&D costs.
• Respondents were asked to assess the successfulness of their ventures. Success
tended to be determined by respondents on the basis of goals and milestones
achieved rather than by financial, productivity or other traditional
performance measures. In general success was attributed to what firms had
set out to achieve and various goals, milestones and benchmarks attained in
that process. Typically, attaining proof of concept funding, achieving
recognition, industry standards, attracting capital and key contacts were
identified as important indicators of success. These findings reflect the events
and milestones identified by firms as critical events in the development of the
firms.
• Firms without exception reported having a written strategic plan however
most noted that the plan was a requirement for various stakeholders. Some
firms, typically the younger ones tended to express frustration with the plans
in that they tended to restrict entrepreneurial opportunity. Others, particularly
those subject to strict regulatory requirements such as clinical trials took the
plans seriously and were formally working towards pre-determined targets.
9
• More than three quarters of the firms indicated that their formal plans
included plans for entry into new foreign markets or adaptation to foreign
markets.
3. Conclusions and Implications
How international are Scottish life science new ventures?
To determine how international the sample life science firms are, the following
aspects were examined; initial funding and motivation for founding the firm, human
resource in the form of the human and social capital of founding members at the
inception of the firm, knowledge resource in the form of innovation activity and
intellectual property at founding in order to determine the relative preparedness of
new ventures for internationalisation from the outset. The respondents’ perceptions of
their firm’s current source of competitive advantage, in local and international
markets, the industry potential of their technology, and their awareness of competition
locally and internationally was explored.
Funding from foundation was provided through various combinations of sources
including grants, loans, personal sources and venture capital although the latter was
usually sought at a later stage. No explicit mention of funding from international
sources was made, and only one firm mentioned receiving funding from a university.
The absence of international investment at the foundation stage of the firms requires
deeper investigation in future research.
Motivations for founding firms tended to be mixed and complex including; the desire
to make a lot of money, to develop the technology further, to exploit technology that
had not been commercialised by a university or previous employer, the desire to set-
up a company and dissatisfaction with a previous employer or career path.
Interestingly, few founders established a firm because they recognised a market
opportunity, and only one identified a global niche. In terms of the founders initial
motivations none made any reference to any international aspirations or goals for
example founding an international firm, becoming a world leader in a specific field,
establishing international collaborations and so on. This absence of initial
international motivations contrasts strongly with the generally accepted view in the
literature, that international new ventures have founders, from the outset, with a global
mindset. Respondents (most of whom were one of the original founders) did express
an open and eager attitude towards internationalisation at the interview suggesting that
while internationalisation is not in itself a motivating factor for establishing a firm, it
is recognised as an interesting process but not necessarily a goal in its own right.
There was a great deal of variability across the sample regarding the international
education, working experience and language capability amongst founders, and few
had founders of a foreign nationality. These factors are important in contributing to an
open attitude towards internationalisation and also because experience and confidence
in communicating across cultures enables the formation of social networks that extend
across national borders and provide a foundation for international business activity.
International social and business networks may also be pre-established by individuals
with international education and life experience. While some firms did have a range
10
of international experience, language and networks amongst founding members,
others did not. Further research into the effect of international human and social
capital on early stage development and growth of life science new ventures is worthy
of further research especially as regards the type and international span of networks
that founding members bring to a new venture. This preliminary investigation
suggests that some networks may be very specific to a narrow field of
science/technology, or to local healthcare bases and further research into bridging
mechanisms between networks could add to understanding on how to foster
connectivity in a global, but fragmented market such as life sciences. Comments from
respondents indicate that the networks they had at founding were important to the
development of the firm but sometimes these proved to be the wrong networks, or in
the wrong places.
The source of firms’ first innovations was universally local. No innovations were
sourced overseas; half were explicitly from Scotland and the rest from the UK in
general. Although some firms mentioned international academic networks, no explicit
mention of overseas input into R&D or pre-commercialisation stages of product
development was made. This should be investigated further as it was not explicitly
examined through the preliminary interviews, which were more concerned with
commercialisation factors than knowledge inputs into the R&D process. Intellectual
property protection was seen as important by most firms and applications tended to be
made for several countries or regions. Approval by regulatory bodies and medical
councils was also of some importance and applications to the US Food and Drug
Administration (FDA) recognised as important as an international benchmark
standard as well as an entry requirement for the US market. While firms were positive
about gaining international recognition and protection for intellectual property, the
local sourcing of knowledge inputs, or at least absence of international influence on
innovation is of some concern.
Applications for regulatory approval and intellectual property rights overseas, is to
some extent indicative of firms’ awareness of the international potential of the science
and technology. Further insight into their awareness and preparedness for competing
on an international basis was gained through respondents’ perceptions of the
competition they face, their source of competitive advantage and what their advantage
might be in international markets. Firms with leading edge technologies tended to see
industry potential as a niche with international or global potential. These firms tended
to rely on the future promise of their technological developments and some had no
other portfolio of products or products with regular sustainable sales. As the number
of products in a firm’s portfolio or pipeline is associated with success, early
development of a product portfolio is important for survival and sustainable growth.
While some firms with leading edge technologies had started to build a product
portfolio, others had not. The concern is that the promise of global markets may
obscure the firms’ view of the need for immediate sales and coupled with a limited
knowledge or understanding of movements in the global industry or market may lead
to early failure. Taking this further, responses to questions on local, international and
global applicability seemed to be influenced by their awareness of absolute market
potential on the one hand, and awareness of issues that might impede their ability to
exploit those opportunities on the other. Most firms were well informed about direct
competition however, respondents in the youngest firms and those with leading edge
technology tended to define competition in relation to the specifications and/or
11
uniqueness of the technology rather than its application in the marketplace, or the long
term competitiveness of the firm over and above the advantage conveyed from their
core technology. This may inhibit ability to assess indirect competition from
potentially substitutable products and services, or to develop advantage in for example
organisational routines to sustain the competitive edge sourced in the technology.
Almost all firms in the sample faced competition from foreign firms, but tended to see
their source of competitive advantage in overseas markets as the same as in the
domestic market. This failure to appreciate differences in the competitive structure
and conditions of overseas markets is of some concern.
To what extent and how quickly have they internationalised over their life span
to date?
Life science new ventures internationalise early as indicated by international revenue
earned within the first one or two years of life. All firms with the exception of 4 were
earning revenue from overseas at the time they were interviewed and the minimum
percentage of sales from overseas to total sales was 20%. Almost half of the firms
reported earning income from overseas in their first year of operation and more than
half earned income from overseas by the end of the second year. While international
to total sales ratios were in general high (from 20 to 100% of total sales), in some
cases respondents reported having only one or two customers and that these customers
were based overseas. Sales contracts in some cases were relatively large in terms of
value but were one-off contracts. In a few cases, while firms reported high
international ratios in the first year, because of the dependency on a large overseas
customer, the international ratio fell in future years as domestic business developed.
These issues raise questions about the sustainability of sales in general and of sales to
foreign markets.
For firms serving global niche markets internationalisation may be a process of
building a customer base customer-by-customer over a diverse geographic area, rather
than country by country in the traditional and more gradual manner. The resource
implications of such a growth pattern, particularly the need for rapid accumulation of
country specific knowledge may put considerable pressure on new venture firms.
Respondents in general reported that the first sales or licensing deal was a major
achievement, however, it was not clear whether longer term relationships with
customers would develop, whether the initial contracts made were the best available
for longer term growth or indeed whether early sales contracts could or would be
repeated. In conclusion, whilst life science new ventures in Scotland can be described
as “born-global”, that initial internationalisation position may be fragile and tenuous.
The nature of early international sales and how they influence decisions regarding the
long-term development of the firm’s technology needs further investigation. The need
for research into the impact of early internationalisation is particularly pressing with
regard to new ventures with potentially platform technologies that have applications
across a number of industries. An abundance of development and market
opportunities coupled with a very limited resource base could render firms vulnerable
to ostensibly attractive international investors and customers with immediate answers
to short-term financial problems but limited prospects for long term growth.
Exploiting the wrong opportunities could ultimately limit new venture growth
potential to a less than optimal technological and growth trajectory. The worst case
scenario is that the benefits of scientific discovery and technological development
12
may be lost to short term returns, and the potential for significant value add moved
out of the Scottish economy.
While international sales commenced early for most firms, the profitability of their
international operations is less clear and less than half of the firms attributed profits to
international business. However, as most firms interviewed were under 10 years old
and lead times in this industry are long, profits will take longer to materialise and
further examination of their development over time is needed to ascertain the effect of
international sales on overall profitability.
While firms make their first international sales almost from inception, they are also,
from the outset involved in international activities such as networking at trade fairs,
seminars and conferences at which they reported seeking recognition, legitimacy,
investors, industry links and customers and suppliers. Important early events include
making contact with the right people in the right networks, achieving industry
recognition or intellectual property rights, making contact with potential customers
and other business links. More concrete milestones such as the achievement of sales
and licensing contracts, and international investment decisions occurred later although
even in the case of investment overseas, this tended to occur relatively early in the
firm’s life given that the oldest firms interviewed were 22 and 26 years old
respectively. From key international events and milestones reported, the typical
internationalisation pattern appears to follow the traditional route of export sales
followed by licensing and then by direct investment overseas, however, this should be
interpreted with some caution as early sales in some cases were of products and
services sold to support development of the main technology. Other early critical
events reported relate to the appointment of new management, usually a commercially
aware and experienced manager. To some extent this may reflect the difficulties faced
by scientific entrepreneurs in accumulating knowledge about international and global
markets in very compressed periods of time Further research on the compression of
time over which internationalisation occurs for firms entering global, dynamic
industries and the extent to which firms experiencing this process are able to
accumulate knowledge assets, capabilities and competencies under temporal pressures
is under-researched to date.
What gaps in their early resources, competencies and capabilities may inhibit
their ability to compete internationally early?
Next to the funding gap, the most significant issues that are likely to affect the growth
and survival of life science new ventures are lack of business experience and business
related knowledge, the absence or slow development of a portfolio of products and
services on which to build competitive advantage and sustainable growth. Firms at
the leading edge of technology, with long development times are more likely to
struggle with the simultaneous processes of developing a technology and building a
business which detracts attention from the technology with the risk of loosing out to
competitors for first patent rights. Whilst this gap tends to be identified by
respondents as a funding gap, essentially what is missing is the human resource i.e.
founders or managers with relevant business experience, networks and contacts who
are sufficiently knowledgeable about the technology to be able to work alongside the
scientists. For some firms the appointment of such a person marked a critical juncture
in the development of the firm.
13
Scientific entrepreneurs do not tend to have a family history of entrepreneurship so
establishing a business may be a new and somewhat experimental process.
Collaborations, even of an informal nature may help to fill the experience gap and
provide important bridging mechanisms into relevant networks domestically and
internationally.
Gaps relating specifically to internationalisation potential include; the absence of
language ability, overseas education and working experience, and foreign national
founders in the entrepreneurial team. People with international experience or
backgrounds provide international perspectives to the growing business and have been
identified in the new venture literature as contributory to rapid internationalisation.
Amongst the longest surviving firms interviewed, factors that appear to lead to
success are; previous working experience of the founders in a relevant industry, with a
multinational firm or internationalising firm coupled with the ability to bring to the
business a team of like-minded colleagues; networks of contacts, a relevant business
model, clear goals for an early revenue stream and for controlled growth. Thus the
truly born-global firm is likely to be one that is ready-made, can hit the ground
running, and is able to meet international competition from a stock of capabilities and
competencies assembled from the individual and corporate background and history of
the founders. The absence of this or similar assembles of experiential knowledge and
resources in some new ventures may render them particularly vulnerable entrants to
global markets. Internationalisation for such firms may be rapid because of the
advantage vested in their technology but unsustainable because the capabilities and
competencies (asset stock accumulation) required to face competition in dynamic and
global industries such as life sciences may only be attainable over a longer period of
time than available given the rapidly changing competitive landscape. There is a need
for research into time compression effects on the internationalisation process and the
impact of that process on the long term survival and growth of life science new
ventures, and small firms in general.
What managerial and policy implications emerge regarding the international
competitiveness and sustained international growth and development of life
science new ventures?
Implications for policy are to continue to integrate programmes designed to support
the early stages of development of firms in new and emerging technologies and in
particular, life sciences, across entrepreneurship, innovation and internationalisation
processes. The paradox for life science new ventures lies in the very specialised and
knowledge intensive nature of the science and the breadth of business, industry and
market knowledge required to commercialise the technology and to compete
successfully in a global market. Significant connectivity is required with
complementary technologies, and a range of partners as the technology moves along
the value chain towards the market. Usefully, partnership between the Life Sciences
Division and the Growing Global Companies programme of Scottish Enterprise might
provide a more seamless transition for new venture firms between the launch of the
venture, and its development towards becoming a successful global company.
Similarly, closer cooperation between medical and other science faculties with
business schools might help to bridge the gap between science and commercialisation
14
through more integrated programmes of study. What is required are scientists with
commercial awareness, and management students with some understanding of the
ways in which science become s innovation.
Key amongst managerial implications are that founders of science based new ventures
need to make explicit preparations for internationalisation from the outset. An early
audit of tacit and internationally relevant knowledge and skills amongst founding
members would alert managers to the resource needs of internationalisation
particularly where the firm will need to bridge different industry, geographically and
culturally dispersed networks. Founders need to ensure that they are fully informed
about the markets and industries for which they intend to commercialise their
technologies, identify and prepare for local differences between countries even within
the global market, and most importantly, anticipate and plan to develop competitive
advantages beyond those vested in the technology itself.
A number of research implications emerge from this exploratory study, key amongst
which is that the impact of early and rapid internationalisation on new ventures and
the local economies in which they reside is not well understood. Further examination
through longitudinal research designs tracking the growth trajectories of firms from
inception, and surveys to determine the generalisability of some of the findings of this
study, are indicated. Particularly pertinent for future research are questions relating to
the early international contracts on both technological and growth trajectories of life
science firms, the impact of rapid internationalisation on the firms’ ability to develop
capabilities and competencies in addition to their core technologies to ensure
sustainable competitive advantage in dynamic global industries. From the perspective
of the local economy, the short and long-run gains to the economy of early rapid
internationalisation need to be better understood as regards the mode of international
business through which technology is transferred, and the stage of development at
which it is transferred.
15
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17
Invitation to Participate
This report and seminar were intended to bring together academics, entrepreneurs and
managers, and policy makers in an open dialogue about the international
competitiveness of small firms in the increasingly global life sciences industry.
The results of the study represent the views and experiences of senior executives from
20 Scottish firms, who willingly spent some valuable time with us, and shared their
even more valuable experience to further our understanding of this growing business
sector.
The purpose of the research is to identify implications and advice, from empirical
study, that will direct and support firms, and the sector as a whole towards survival
and sustained competitive advantage in international and global markets
If you are an owner, manager, or entrepreneur of a life science or medical products
firm and would be willing to participate in our research project, though interviews
(once annually), and occasional short telephone or e-mail conversations, Please fill in
the form below, or e-mail Professor Marian J ones at:
[email protected]
All research conducted by University of Glasgow staff and research students is
subject to ethical approval from the relevant Faculty Ethics Committee.
Expression of Interest
I am interested in participating in on-going research into the growth and development
of life science firms.
Name:
Position:
Contact details:
e-mail:
Telephone:
Other:
Name of Firm:
Main Business:
Date of Foundation
Address of Firm:
Please return the form to: Professor Marian V J ones, Centre for Internationalisation
and Enterprise Research (CIER), Department of Management, University of Glasgow,
Gilbert Scott Building, University Avenue, Glasgow G12 8QQ, Scotland, UK.
Centre for Internationalisation and Enterprise Research
University of Glasgow
West Quadrangle
Gilbert Scott Building
Glasgow G12 8QQ
Scotland, UK
Tel: +44 (0)141 330 3993
Fax: +44 (0)141 330 4939
Email: [email protected]
Web: www.gla.ac.uk/cier
ISBN: 978-0-85261-833-2
photography: lilies courtesy Diana Stewart; all other photography courtesy the University of Glasgow
doc_254867419.pdf