Knowledge City is a planned environmentally and technologically advanced city in China's Guangzhou Development District. This report introduces innovation systems and clusters, describes the factors that led to the successes of Silicon Valley, the life sciences corridor in Maryland, and the Israeli technology cluster, and uses findings from those cases and other research to outline the steps GDD will need to take to make Knowledge City a success.

Cover: Creating an Innovation System for Knowledge City
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Creating an Innovation System for Knowledge City

by Shanthi Nataraj, Howard J. Shatz, Keith Crane, Steven W. Popper, Xiao Wang, Chaoling Feng

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Research Questions

  1. What are the existing models of innovation in China's Guangzhou Development District?
  2. Are any international best practices in developing a high-technology cluster applicable to the goals for Knowledge City?
  3. What should be in the strategic plan for developing Knowledge City as an innovative area that attracts high-technology companies and enables their growth, attracts and retains highly skilled workers, and ensures the availability of innovation-oriented finance?

China's Guangzhou Development District (GDD) will be the site of the new innovation cluster known as Sino-Singapore Guangzhou Knowledge City. Jointly developed by GDD and Singbridge of Singapore, Knowledge City will be a new environmentally and technologically advanced city that hosts innovative industries and their associated knowledge workers. To achieve this goal, GDD must design a strategic plan to pursue three primary goals: attract high-technology companies and enable their growth; attract and retain a highly skilled, innovative workforce; and ensure the availability of innovation-oriented finance. This report first presents a portrait of high-technology firms in Guangzhou and compares Guangzhou with other Chinese cities. It then presents an analysis of three case studies — Silicon Valley, the life sciences corridor in Maryland, and the technology cluster between Tel Aviv and Haifa in Israel — and describes the factors that led to their success. Finally, it provides an overview of the current innovation system in GDD and applies lessons learned from the case studies and from the literature on entrepreneurship, innovation, and cluster formation to GDD and Knowledge City. This is a companion volume to another RAND report, An Outline of Strategies for Building an Innovation System for Knowledge City (MG-1240-GDD), which outlines a strategic plan for Knowledge City and is intended to help the developers create conditions that are conducive to innovation and the commercialization of new technologies.

Key Findings

Where Knowledge City Will Not Have an Innate Advantage over Competing Areas, It Must Develop Assets to Attract Innovative Firms and Their Workers

  • Guangzhou Development District (GDD), the site of Knowledge City, and the surrounding region have many features that will be attractive to high-technology companies, including transportation infrastructure and seaports, universities, and a solid manufacturing base.
  • GDD also faces a number of challenges in terms of Knowledge City's distance from Guangzhou city, GDD's heavy focus on manufacturing, the intellectual property rights framework in the country, and other conditions.
  • Marketing is critical for Knowledge City: GDD must convince innovative companies and talented individuals to stake their futures on an unproven new development.
  • Anchor institutions, such as multinational firms or large research institutions that can establish a location in Knowledge City, are the nucleus around which a geographical high-technology cluster can form.

Establishing an Innovation-Oriented Financing System Will Be Critical to Knowledge City's Development

  • Survey results showed that entrepreneurs in GDD have trouble accessing early-stage financing, or financing at the point when a technology has been developed but is not yet commercialized.
  • Angel investors appear to invest in a very small number of firms relative to the total population of high-technology firms in GDD. Case studies of Silicon Valley and Maryland showed that at least some innovative areas have active angel investment networks, which GDD lacks.
  • Although commercial banks cannot be a primary source of innovation-oriented financing, they are an important part of the financial ecosystem, and GDD will need to ensure that commercial bank branches are present in Knowledge City.

Recommendations

  • To help ensure Knowledge City's success, Guangzhou Development District (GDD) will need to create an environment that will both attract and enable the growth of high-technology businesses.
  • GDD should consider facilitating both tax and nontax incentives to attract businesses to the area. It must also ensure that there are strong protections for intellectual property rights but that government policies also stimulate knowledge-sharing and worker mobility among Knowledge City firms
  • GDD would benefit from building stronger links to wealthier markets, including those in Hong Kong, Taiwan, Japan, and Korea. It should also build networks through Chinese workers overseas and establish a strong marketing effort to attract returnees to Knowledge City.
  • GDD will need to address quality-of-life issues to attract and retain highly skilled workers, including, for example, establishing good elementary and secondary schools and making Knowledge City a destination for business, entertainment, and shopping.
  • GDD can enhance its current financing tools by working to attract angel investors and outside venture capital firms and by ensuring that commercial banking has a presence in Knowledge City.

Table of Contents

  • Part I

    Introduction to the Guangzhou Development District and Knowledge City

    • Chapter One

      Introduction

    • Chapter Two

      Innovation Systems and Cluster Formation

    • Chapter Three

      GDD in Depth and in Comparative Perspective

  • Part II

    Three Case Studies of Innovative Clusters

    • Chapter Four

      Case Study: Silicon Valley

    • Chapter Five

      Case Study: Maryland's Life Sciences Cluster

    • Chapter Six

      Case Study: Israel's Information and Communication Technologies Firms

  • Part III

    Applying Global Practice to Knowledge City

    • Chapter Seven

      Introduction

    • Chapter Eight

      Lessons Learned from the Case Studies: Taxes, Nontax Incentives, and Intellectual Property

    • Chapter Nine

      Lessons Learned from the Case Studies: Other Issues

    • Chapter Ten

      Conclusions and Summary

  • Appendix A:

    Company Case Studies

  • Appendix B:

    Brief History of Small Business Investment Corporations

  • Appendix C:

    Excerpts from Speeches by Local Officials..

  • Appendix D:

    GDD Project Survey Methodology and Results

  • Appendix E:

    Indicators of Innovation

This project was sponsored by the Guangzhou Development District and was conducted in the Environment, Energy, and Economic Development Program within RAND Infrastructure, Safety, and Environment.

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