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Information Technology Landscape in Nations

Evaluating Technology Parks: There is no standard method for evaluating the success or failure of a technology park.  While number of jobs and tax revenues generated are the usual focus, to ensure long-term success a technology park must focus on technology transfer and development of local technology capability.  The experience of Silicon Valley provides some insight into the mix of factors required for a successful technology park and the culture and patience required to see long-term benefits.

It is extremely difficult to quantify the financial and economic impact of a technology park, primarily because there is no established definition of success¹ or a standard way to examine a company's effect on an economy.²  Studies that have attempted to determine success or failure of technology parks tend to focus on two areas: benefits received by the park or the community and benefits received by businesses locating in the park.

Benefits to the Park

Every technology park we investigated indicated that at least some job creation and economic diversification had resulted as a result of the development of the park.  Whether the job creation and tax revenues generated exceed the initial investment is a more difficult question, as many parks take several years to become profitable and attract a large number of tenants.  Sometimes parks must offer generous subsidies and tax incentives to attract business, adding to the initial expense. 

The potential for success, however, is what drives technology park creation.  In many cases, returns can be immediate and substantial.  For example, the U.S. state of Maryland has six technology incubators that began in December 2000.  After less than one year, the estimated value of these incubators (depending on the methodology used) is 2,200 - 6,800 new jobs and contributed between $31 million and $96 million in tax revenue.³

Benefits to Business

Many studies have attempted to measure the effect on business of a technology park location by comparing businesses located in technology parks with similar businesses located outside technology parks.  These studies have compared factors such as knowledge transfer rates, level of innovation and the financial success among technology firms.  One study in Sweden found that while firms located in technology parks "expressed a greater interest in close proximity" to researchers and universities, they "reported no significantly greater access or contact with such actors" than firms located outside of technology parks.⁴ Another study of 9 technology parks in Sweden found that there was "no evidence of a direct relationship between science park location and profitability."⁵  "The strongest and most consistent difference detected was an image advantage associated with a science park location that firms both expected and felt that they received."⁶  Indeed, this image boost is one of the selling points of established technology parks.  As the CEO of Incyte Pharmaceuticals pronounces on the website of the Stanford Research Park,

One of the unexpected benefits of being in the Stanford Research Park was the incredible customer perception that it gave us. We couldn't have gained the instant credibility in a better way.⁷

Other researchers are more positive, suggesting that firms in technology parks generally receive four basic benefits:⁸

1. A broadened understanding of mutual problem and needs between university and industry researchers;
    
2. Increased information and knowledge transfer;
    
3. Access to student workers, faculty consultants, laboratory, computer and other resources; and
    
4. Increased business opportunities.

The Development Process

One researcher suggests that a good first building block in the development of a research and technology park is the development of a technology incubator.⁹  While incubators take on many forms, generally the term incubator implies an arrangement where business, legal and financial assistance are given to new businesses to help them succeed and grow.  About one third of U.S. technology parks also provide business incubator services.¹⁰  If the incubator is successful, then the development of a technology park that requires a longer-term, capital-intensive investment might be warranted.  Many parks forego the incubator step, however, when there is no local intellectual capital to incubate and pursue a "build it and they will come" technology park strategy to attract foreign investment.

This strategy is quite risky as a technology park can take a decade or more to bear fruit.¹¹  Ultimately, if the country does not develop its own local technology competency in addition to that provided by foreign investment, the park will never "move beyond real estate to real innovation."¹²

Success Factors

When we account for the goal of many technology parks, (discussed in our definition section), the creation of SMEs, the factors driving innovation success are still a mystery.  Silicon Valley is the gold standard when it comes to judging innovation, with one in five of public companies in the area counting as 'gazelles' or small firms that saw their revenues grow by at least 20% in per year from 1993 - 1997.¹³  This is quite extraordinary, considering the national average in the United States during the same time period was only one firm in 35.¹⁴  Many have searched for the secret to Silicon Valley's success.  One researcher describes Silicon Valley as an "innovation machine" whose technology prowess can be attributed to the following factors:¹⁵

• A culture of risk-taking, competitiveness and the freedom to fail
• A critical mass of professional services, including lawyers and accountants
• Technical infrastructure
• The availability of venture capital
• The proximity of research universities

Stanford researchers, however, suggest that extra emphasis should be given to Silicon Valley's culture, particularly the presence of 11 factors, such as "tolerance of treachery," "reinvestment in the community," "enthusiasm for change," and "obsession with the product." ¹⁶  Based on Silicon Valley's history, the current downturn in the economy is not necessarily a signal of the Valley's demise.  As a Stanford researcher explains: ¹⁷

To an unusual degree Silicon Valley's economy relies on what Joseph Schumpeter, an Austrian economist, called "creative destruction." Some modern writers have rechristened the phenomenon "flexible recycling," but the basic idea is the same: old companies die and new ones emerge, allowing capital, ideas and people to be reallocated. An essential ingredient in this is the presence of entrepreneurs, and a culture that attracts them.

Indeed, Silicon Valley has seen downturns before, particularly in the mid-1980's when Japanese chip manufacturers were outclassing Silicon Valley companies.¹⁸ Silicon Valley responded by changing its emphasis from hardware to software development and spurred the growth of the "New Economy."  Biotechnology and environmental science companies in the Stanford Research Park currently may yet lead to another boom cycle.

The agony of defeat

While technology park development seems to be an easy answer for economic revitalization, not every park is successful.  Some parks fail after the investment of substantial amounts of capital, some do not accomplish the objectives they set out to achieve and some never get off the ground.  The following are some examples of technology park failures:

• Plans for an information technology park to be located in an old psychiatric hospital in Bendigo, Australia, was scrapped in December of 2000 due to lack of a serious corporate backer or lead tenant.¹⁹
   
• A biotech science park owned by Yale University was losing up to $500,000 per year, largely as a result of payments for asbestos removal.  The park received a $15 million loan in 1999 for renovations and hopes to attract new tenants in light manufacturing.  The park has not generated the number of jobs expected  and has not had much impact on improving the troubled neighborhood it is located in.²⁰

Some reasons identified for failure of technology parks include: "insufficient assistance to tenant companies, low levels of local technological development, weak incubator center management or frequent reassignment of managers, inability to develop value-adding advisory and training services, and undefined standards for tenant entry and exit."²¹ 

These factors are likely to impact technology parks in developing countries most strongly.  A literature review on research parks suggests that the supply of technology park space may be fast outpacing demand and that not all environments are conducive to research park settings.²²  The crop of new technology parks hoping to attract foreign investment without improving local technology capabilities will likely realize some benefits from their investment but may also end up disappointed.

REFERENCES

1. Denise M. Drescher, "Research Parks: A Brief Overview of Research Parks for Economic Developers," http://www.unc.edu/depts/dcrpweb/courses/261/drescher/index.html, visited December 14, 2001.

2. Id.

3. Johnston, Nicholas, "Study shows Md. Incubator's Value," The Washington Post, November 16, 2001, http://www.washtech.com/news/emerging/13727-1.html, visited December 14, 2001.

4. Löfsten, Hans and Lindelöf, Peter, "Science parks in Sweden - industrial renewal and development?," R&D Management, July 1, 2001, 312, citing Ferguson R., "What's in a Location? Science Parks and the Support of New-Technology -Based Firms," Dissertation.  Swedish University of Agricultural Sciences, Uppsala.

5. Löfsten, Hans and Lindelöf, Peter, "Science parks in Sweden - industrial renewal and development?," R&D Management, July 1, 2001, 316.

6. Id. at 312.

7. Stanford Research Park, "About the Stanford Research Park," http://www.stanford.edu/dept/SMC/researchpark/park04.html, visited December 14, 2001.

8. Princeton Unversity, "Encouraging High-Technology Development: Chapter 3: University Initiatives," http://www.wws.princeton.edu/cgi-bin/byteserv.prl/~ota/disk3/1983/8308/830805.PD F, visited December 14, 2001.

9. Lalkaka, Rustam, "Venture Creation and Growth through Business Incubators and Technology Parks," http://waitro.dti.dk/Publications/Seminars/Best_Pra/Lalkaka.htm, visited December 14, 2001.

10. Id. at http://waitro.dti.dk/Publications/Seminars/Best_Pra/lalkaka2.htm, visited December 14, 2001.

11. Id.

12. Id.

13. John Micklethwait, "The Valley of Money's Delight," The Economist, March 29, 1997 http://www.stanford.edu/group/mmdd/SiliconValley/SVMoney.html, visited December 13, 2001.

14. Id.

15. Lalkaka, Rustam, "Venture Creation and Growth through Business Incubators and Technology Parks," http://waitro.dti.dk/Publications/Seminars/Best_Pra/lalkaka2.htm, visited December 14, 2001.

16. Micklethwait, John, "The Valley of Money's Delight," The Economist, March 29, 1997 http://www.stanford.edu/group/mmdd/SiliconValley/SVMoney.html, visited December 13, 2001.

17. Micklethwait, John, "The Valley of Money's Delight," The Economist, March 29, 1997 http://www.stanford.edu/group/mmdd/SiliconValley/SVMoney.html, visited December 13, 2001.

18. Id.

19. Chessell, James, "Regional Technology Park Proposal Stymied," IT, December 27, 2000, http://www.it.mycareer.com.au/breaking/20001227/A9964-2000Dec27.html, visited December 14, 2001.

20. Johnson, L. Erik, "Science Park Pays Its Bills: Can it Pay Newhallville's Too?," Yale Daily News, Feb. 5, 1999, http://www.yaledailynews.com/article.asp?AID=620, visited December 14, 2001.

21. Lalkaka, Rustam, "Venture Creation and Growth through Business Incubators and Technology Parks," http://waitro.dti.dk/Publications/Seminars/Best_Pra/Lalkaka.htm, visited December 14, 2001.

22. Drescher, Denise M., "Research Parks: A Brief Overview of Research Parks for Economic Developers," http://www.unc.edu/depts/dcrpweb/courses/261/drescher/index.html, visited December 14, 2001.