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Tertiary Education and Management (2005) 11: 337354

DOI 10.1007/s11233-005-0983-4

Springer 2005

PAUL MADGETT, CHARLES H. BELANGER AND JOAN MOUNT

CLUSTERS, INNOVATION AND TERTIARY EDUCATION

ABSTRACT. The purpose of this paper is to investigate the integration between


research ndings produced at the University and Community College levels and local
SMEs (small and medium enterprises) as it impacts regional innovation systems and
in particular the prospect of cluster formation. The paper explores certain factors
that have been identied in international literature as being critical to fostering
innovation in non-metropolitan regions. These factors include government policies
and programmes, internal and external infrastructure, partnership or research links
among educational institutions, and support from local business and civic leaders.
Stakeholders from non-metropolitan regions were asked to judge the level of eectiveness with reference to these development factors while highlighting weaknesses, strengths, and eects on innovation in their locale.

Introduction
Innovation is generally dened as a process through which value such
as new economic and social benets is extracted from skills and
knowledge by generating, developing, and implementing ideas to
produce new or improved products, processes, and services (Conference Board 2003a, b). Holbrook and Clayman (2003) believe that
tertiary education plays an important role in generating innovative
skills and research that feed enterprises in the particular region.
Examples such as the core contribution of Stanford University and
MIT to the success of the Silicon Valley and route 128, respectively,
have often been cited. Knowledge created at universities is a basis for
providing needed skills and expertise, and also allows companies to
access state of the art labs and capable graduates. Downstream
activities such as testing and prototype development are congenial to
community colleges. This type of interaction between public research
infrastructure and the private sector helps attract new investments by
allowing companies to access the level of expertise to test and to
improve new ideas, processes, and products. Therefore, public

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PAUL MADGETT ET AL.

research may play dual roles in these regions but the main attraction
is the potential economic and intellectual spillover of these areas.
Wolfe (2004a, b) states that
universities are now expected to generate more applied knowledge of greater relevance to industry, to diuse knowledge, and to provide technical support to
industry... reinforced by the political expectation that research funding be tied to
broader public policy objectives about promoting national innovative capacity,
greater competitiveness and, increasingly, local and regional economic development.

As noted by Holbrook and Clayman, Wolfe, and the Conference


Board of Canada, innovation is generated mostly in large urban
centres with universities, where public and private sector actors join
the same platform(s). However, only six large urban areas represent
approximately 40% of its total population: Greater Toronto Area,
Greater Vancouver Regional District, Edmonton, Calgary, Ottawa
and Montreal. These areas have diverse and easily accessible skills
sets that are important in further strengthening their regional economies. These cities have easier access to venture and angel nancing,
and to government capital for more innovative and higher risk
business projects. What about the remaining 60% of the population
located in more remote and non-metropolitan regions, dotted across
roughly 85% of the inhabited non-circumpolar territory? The
majority of these areas are resource based economies supported by a
few large publicly owned rms, and as a consequence are also the
theatre of a mass youth exodus due to the lack of employment
opportunities. These areas are experiencing skill gaps that are hindering their capabilities for innovation. Also, even when nancing
can be procured for new technologies that would allow further
expansion, many small and medium enterprises (SMEs) are unwilling
to take part in any sort of research or process change because of the
relatively high nancial risks (Goldfarb & Henrekson 2003; Todtling &
Kaufman 2002). To date Canada has not formulated a visible and
eective strategy to stem the youth exodus from these regions.
Focus of This Study
The main purpose of this study is to examine the innovation
requirements to create and foster industrial clusters in more remote
non-metropolitan regions of Canada. Bridges between university/
college research expertise and local businesses/industries were identied as major factors in fostering innovation, and regional economic

CLUSTERS, INNOVATION AND TERTIARY EDUCATION

339

growth. The study looked at the tertiary education institutions, their


connections with local economic development agencies, and their
interactions with local SMEs, the latter being relatively dominant in
these non-metropolitan areas. The rst segment of this article tries to
encapsulate the international and Canadian contexts. The second
segment presents the views of key stakeholders in relevant locales.

International Context
There has been a global trend to progressively increase innovation
levels in many economies. Innovation is multifaceted, drawing upon
stakeholders in the public, the private, and the non-prot sector.
Strong positive eects have been seen where close links exist between
tertiary education research and SMEs, and such collaboration has
been successfully fostered in many countries for the advancement of
regional innovation systems. Many industrial countries have one or
more levels of government using and/or creating policies to initiate
and further develop their innovation systems. At the regional level
these innovation systems, when linked with many stakeholders and
stable government funding, may expand into an industry cluster.
Porter (1998) denes clusters as a geographically proximate group
of interconnected companies and associated institutions in a particular eld, linked by commodities and complementarities. Wolfe
(2004a, b) believes that strong research intensive universities feed the
growth of clusters by expanding the local knowledge base and providing a steady stream of talent to support the growth of rms in the
clusters. There has been a strong belief in recent literature that
public research, which includes university research, is a prerequisite
for accumulating the skills and capacities required to further develop
innovation (Holbrook & Clayman 2003). Figure 1 depicts the
European context and demonstrates the network of stakeholders
required for innovation where no dominant player exists. This set of
interactions could be extrapolated and/or adapted to any industrial
country (Kuhlman 2001).
The United Kingdom, Israel, Australia, and Japan, as well as
Sweden, Upper Austria, Italy and other European countries have all
been attempting to strengthen their innovation network with government programmes. These strategies are typically based on
emphasising research collaboration between industry and the public
research sector, for the most part of universities. Where the research

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PAUL MADGETT ET AL.

Figure 1.

Network of stakeholders with no dominant player.

capacity is lacking, industry may look at technology centres


(Todtling & Kaufman 2002). The United States seems to be following
a regional innovation platform, as opposed to a national, by
increasing the linkages between the university research capacity and
industry players within the region. The US has created a programme,
SBIR (Audretch 2003), to help reduce the barriers so as to allow
SMEs to integrate research and development by funding some of the
process. This funding allows for these SMEs to improve their
performance and quality of the product and services.
To date, there have been dierent indicators used in dierent
countries and in some cases a general lack of measurable data,
making comparison of national economies in terms of progress,
growth, and sustainability arduous and time consuming. As examples, the United States counts the number of new patents, licences,

CLUSTERS, INNOVATION AND TERTIARY EDUCATION

341

and copyrights to rate the innovativeness of their universities while


Sweden employs the number of spin-o companies (Goldfarb &
Henrekson 2003; Henrekson & Rosenberg 2001). Every industrial
country is attempting to maximise performance on its chosen indicators, hoping that deliberately crafted policies will help preserve the
standard of living, improve productivity and increase income levels.
For the most part, these industrial economies need to continue generating and implementing new ideas, processes and products in order
to maintain their competitiveness in the global market while compensating for cost dierentials oered by developing countries.
Developing countries have an opportunity to wreak havoc on the
manufacturing sector of the major global economies by oering
inexpensive human capital, government subsidies, and incentives.
Most industrial countries have three responses (Audretch 2002) to
confront this threat:
(1) Realign and reduce wages and production costs signicantly to
compete with international competitors (downsizing).
(2) Substitute equipment and technology for labour and productivity.
(3) Shift production to these low cost countries.
To compensate for these drawbacks, the industrial sector is gradually
learning to incorporate new technologies into its manufacturing
processes from universities, other public research centres (e.g., government laboratories, technology transfer centres) and industry
consortia. In this circumstance, the government tries to play an
instrumental role by providing nancial resources to mitigate the
risks for businesses, improving the relevant research infrastructure
and creating desirable legal frameworks. To optimise new discoveries,
for example, many governments have created an intellectual property
(IP) policy to implement the required ownership frameworks. In the
United States, the BayhDoyle Act (1980) gives universities control of
their professors discoveries, thus allowing them to market these
ndings to industry (Goldfarb & Henrekson 2003). This means that
overall the university administrators have a greater motivation to
seek out potential revenue sources via commercialisation of research,
through such means as corporate partnerships, licensing agreements
and royalties. On the opposite end, in Sweden all rights and discoveries are owned by the inventor which may cause some problems
in demonstrating, prototyping and commercialising the research
ndings, and hence compel the university and industry to employ

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certain incentives such as royalties, shared ownership and nancial


reward in order to gain the inventors cooperation (Goldfarb &
Henrekson 2003). Arguably, when dealing with public research, an
intellectual property policy permits the dierent players involved to
understand the framework and rules.
In general, a number of countries have avoided trying to implement a broad mandate to strengthen their National Innovation
System and are working on creating regional innovation systems in a
hope of establishing a strong innovation base. These countries may
be attempting to simulate the creation of clusters such as route 128,
Silicon Valley and Cambridge that brings international recognition,
skills, expertise and spillover opportunities. These clusters in almost
all cases include universities and colleges, and at least one large
anchor company that will help attract competitors as well as suppliers
to an area (Conference Board 2003). Exhibit 1 provides an example
of a well known success story that illustrates the evolution of a cluster
by way of new product development.
Many governments, ministries and programmes have used and/or
supported dierent tools in their strategies, such as technology parks,
incubation centres, research centres, industry liaison ocers and
strong industry partnerships. They have deliberately undertaken to
create or to enhance a number of major medical/doctoral universities,

Exhibit 1.

Silicon valley renewal.

CLUSTERS, INNOVATION AND TERTIARY EDUCATION

343

mainly located in large metropolitan areas, and to encourage commercialisation wherever possible.
There are many dierent types of collaborations being used. For
example, the Japanese government instituted a plan to transfer some
of the innovation capacity away from its metropolitan areas by creating Technopoles in more remote, less auent areas. The desired
outcome has been dogged, however, by the diculty of maintaining
the long-term commitment of large anchor corporations and also by
branch plant status relative to Tokyo (Conference Board 2004;
Kitagawa 2004). In Canada it has been noted that plants belonging to
Canadian rms place a higher degree of importance on building the
local economy and give distinct preference to locally conducted
research. Foreign owned companies, of which there are many, normally tend to conduct research within their own geographical home
base (Wolfe 2000a, b).

The Canadian Context


Canadas innovation indicators reveal that this country is not keeping
pace with its southern neighbour and main trading partner, the
United States. Falling behind will spell detrimental long-term eects
on productivity, social capital, brain drain and standard of living of
Canadians. The Federal and Provincial governments have taken
some important steps during the last 15 years by continuing to provide an aordable higher education for their students while engaging
in world class research. This allows the federal government the
opportunity to utilise the highly skilled graduates produced by colleges and universities to help implement its innovation agenda.
Further, in recent years Canada, following a world trend, has been
attempting to use its research funded bodies and tertiary education to
increase the level of innovation directly in an attempt to develop
industry clusters. Higher education research has mostly been funded
through federal government research councils (NSERC, SSHRC,
CIHR) which support both pure and applied research and also provide demonstration funding. Another arms-length, federally funded
group, the Canadian Foundation for Innovation (CFI), requires
other partners to supply funding for their projects which are intended
to support applied research centres. These funding programmes are
the main tools at the discretion of the federal government to realise its
goals and objectives. The current strategic direction has universities

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PAUL MADGETT ET AL.

playing the role of an economic trigger (Carson 1999; Rae 1996) for
the national economy.
In Canada, the innovation agenda has put substantial onus on the
universities and colleges to provide three important factors: new
ideas, expertise and skilled graduates for the market (Government of
Canada 2002). These are needed to support the level of technological
change required to maintain, if not grow, regional economies. Canadas Innovation Agenda focuses on three areas: knowledge performance, skills and the environment for innovation. There is evidence
that the Highly Qualied Personnel (HQP) ratio is very important to
establishing prolonged innovation leading to economic growth
(Holbrook and Clayman 2003). Clearly the youth migration of skilled
labour must be stemmed for any innovation policy to be eective.
Canadian universities may have some communication issues with
the private sector outside their research centres, while the community
colleges typically have strong linkages with suitable industry partners.
The colleges concentrate on contract research designed to nd
applied solutions to industrial issues that a company may be facing.
In this regard, the Association of Community Colleges of Canada,
their national association, has articulated their role as being to assist
in product and process development; provide industry access to
equipment and pilot plants; build awareness of new and best practice
technologies; provide access to resource centres; assist with market
and product feasibility assessments; and supply input to business
planning (ACCC 2002). At the same time the universities participate
in contract research, engage in joint R&D projects, and often provide
testing and consulting skills (Fritsch & Schwirten 1999), all of which
also lead to commercialisation, technology transfer, etc. In this
regard the line of demarcation between the two types of educational
institution is conspicuously fuzzy.
Canadas national innovation strategy, while quite broad, has not
emphasised strengthening non-metropolitan regions to any notable
degree despite its vast land mass. However, in order to counter a
strong metropolitan representation at all levels of government, the
federal government has created FedNor and other agencies to provide
stronger nancial support for more remote regions. Most provinces
and territorial governments have established similar entities to
develop local economies. Recently, regions such as Northern Ontario
have begun looking at industrial clusters to re-stimulate their economies. Most of these regions have certain environmental rehabilitation
skill sets and knowledge that may be readily used to further strengthen

CLUSTERS, INNOVATION AND TERTIARY EDUCATION

Exhibit 2.

345

Evolution of clusters according to phase.

the sector. Two decades ago, many of these same regions or communities strove to bolster their economic life through diversication.
However, there is currently a feeling that diversication strategies
alone have proved disappointing and that they should be strengthened
by the cluster approach (Robinson 2002). This new strategy would
aim at building and capitalising on regional assets, essentially through
vertical and horizontal integration. The evolution of a viable cluster
normally entails recognizable phases (Conference Board 2004).
Some uncertainty exists as to whether these non-metropolitan
locales would have the capacity within their regional universities and
colleges, industry, and government to handle the evolution of the
cluster.
Methodology of the Study
In line with the objectives of this exploratory study, a one-page
questionnaire was prepared and emailed and/or faxed to a selective
number of stakeholders perceived as representative experts, with the
overarching view of stimulating the policy debate. Such experts were
the deans of science at local universities, college presidents, Chamber
of Commerce presidents or managing directors, and executive
directors of regional economic development agencies in the targeted
regions. The questionnaire dealt with the main items identied in the
international literature as being critical for the development of
industry groupings/clusters, Many of the bigger non-metropolitan
regions have at least a community college and/or a university to help
stimulate their knowledge and research capacity. The questionnaire

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PAUL MADGETT ET AL.

queried the stakeholders on certain issues to determine the current


state and attempted to identify the most eective levers of development for the region. The section below shows the results of expert
opinions sought from tertiary education (N=22) and economic
(N=9) targeted stakeholders.
Do Different Perspectives Exist?
Innovation involves the collaboration of both business and tertiary
education. These groupings and partnerships do bring rewards to all
the involved participants; otherwise no individual or institution
would partake in these transactions. Why collaborate? Both groups
harbour their own perspectives, goals and understandings
concerning the benets to be derived. For example, the business
community is looking for prot or competitive advantage while
academia is devoted to expanding knowledge and expertise.
In Exhibit 3, Lee (2000) posited some reasons for these industry
academic partnerships:
Looking at some of these potential rewards, one wonders if the
proper framework prevails at present for eective links between
educational institutions and business enterprises in non-metropolitan
regions. The questionnaire sought to discover the extent to which key
factors are present, as well as the degree to which they are deemed to
be desirable. The dierence between the occurring and desired
columns represents the gap analysis.
Table I sets out the dimensions most desired by universities, with
ve out of six dealing with integrating themselves within the business
community or commercialising their ndings through collaboration.
Hopefully, SMEs will actively pursue and use applied research due to
their major economic roles in non-metropolitan regions. Overall,
there is a strong indication that universities and colleges are vying to
occupy a bigger role in the economic development of their regions.
The business communities (Table II) show a close parallel to the
tertiary education institutions, with the rst ve desired factors being
the same. Particular to the business communities was the desire
expressed to obtain nancial support from federal and provincial
sources in order to attain productive linkages with university/college
researchers. Overall, both higher education and local businesses
understand the changes that must be implemented in order to
improve innovation in their economies. This type of agreement could
provide a joint platform to lobby for greater funding.

CLUSTERS, INNOVATION AND TERTIARY EDUCATION

347

Reasons for:
Academic collaboration
with industry

Firms collaborating
with academics

To supplement funds for ones own


academic research
To test the practical application of
ones own research and theory
To gain insights in the areas of
ones own research
To further the universitys
outreach mission
To look for business opportunity
To gain knowledge about practical
problems useful for teaching
To create student internship and job
placement opportunities
To secure funding for research
assistants and lab equipment

To solve specic technical or


design problems
To develop new products and
processes
To conduct research leading to
new patents
To improve product quality
To reorient R&D agenda
To have access to new research
(via seminars and workshops)
To maintain an ongoing relationship
and network with the university
To conduct blue sky research
in search of new technology
To conduct fundamental research
with no specic application in mind
To recruit university graduates

Exhibit 3.

Where to focus their innovation strategies?


This section of the questionnaire dealt with the respective foci of both
universities and colleges in their geographical areas. These institutions responses were used to tabulate the chart in Figure 2.
This graph demonstrates that universities believe that applied
sciences, natural resources, and physical sciences are the main players. Looking at these results, there could be a link between the natural
resources, environment sciences and metals being part of a single
industry, for example mining. The mathematical sciences seem to be
the weakest area of innovation foci in these non-metropolitan
regions.
Figure 3 shows that the business community has identied the
main foci to be the resource industry and, at a lesser level but all on a
par, agriculture, drugs and medicine and biotechnology. Most of
their regional economies are resource based economies. There seems

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PAUL MADGETT ET AL.

TABLE I
Tertiary education institutions
Questions

Now occurring
(%)

Desirable
(%)

Dierence
(%)

Local business/industry interest in


out-sourcing research
Tax incentives/R&D tax credits
Extent to which business/industry
is ready, and able, to act upon R&D
Joint university/college partnerships
to push R&D through to
commercialization
Substantial proportion of R&D
done for SMEs
Non-proprietary R&D done
for industry/business groupings

30

94

64

35
50

94
100

59
50

44

94

50

44

94

50

52

100

48

to be a slight dierence in perspective in the regions innovation


research emphasis. The business community seems to want more
focused research outputs that would help the local economy in the
TABLE II
Business/economic agencies
Questions

Now occurring
(%)

Desirable
(%)

Dierence
(%)

Joint university/college
partnerships to push R&D
through to commercialization
Non-proprietary R&D done
for industry/business groupings
Willingness of universities/colleges
to participate in R&D
Local business/industry interest
in out-sourcing research
Extent to which business/industry
is ready, and able, to act upon R&D
Backing ($) from a federal or
provincial governmental body

11

100

89

13

100

87

25

100

75

33

100

67

33

100

67

37

100

63

CLUSTERS, INNOVATION AND TERTIARY EDUCATION

349

short-term while the universities choose to pursue a broader and


more generic approach.
Discussion and Conclusion
Why are clusters and public research being emphasised? Clusters have
become a prominent strategy for economic development because they
provide knowledge that penetrates immediately into local rms in a
targeted sector(s), and may provide spillover to neighbouring sectors
not necessarily so central to the region. However, some uncertainty
exists regarding the formation of clusters because varying ndings
about their evolution have emerged. Wolfe (2004a) insist The key
assets that determine the viability of the cluster are rm based. On
the other hand, Holbrook and Clayman (2003) emphasise that universities play an important role in generating innovative skills and
research. Fisher and Atkinson-Grosjean (2002) believe in the
importance of a Science and Technology policy that integrates the
following 3 forces: the commodication of knowledge, the acceleration of information and technology, and the globalisation of markets
and capital. In 2002, Canada funded $4.0 billion in public research
with $2.2 billion directed to federal laboratories (Holbrook & Clay-

Figure 2.

Tertiary education innovation research foci.

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PAUL MADGETT ET AL.

Figure 3.

Business innovation research foci.

man 2003). It is unknown whether the laboratory funding has provided transferable knowledge for industry.
Some believe that a major corporate player is integral for the
beginning of a cluster, and specically that there must be a leader to
champion the cause and unite all stakeholders. Others contend that
clusters have evolved over time. Looking at international literature
and past successes, one can conclude that a cluster has some very
striking dynamics that may have evolved naturally. It is prudent to
gather experts in specic knowledge areas to further the research
agenda. In most cases, it has been proven that universities play an
important role, perhaps or perhaps not a founding role. If the cluster
is properly managed through the dierent stages, there is a good
chance that regional economic growth may be realised by the
endeavor. This growth can be attributed to (Conference Board
2004):
(1) the ability of companies to introduce new products, services or
processes;
(2) the quality of new products and services;
(3) the speed at which companies can take new products and services to market;
(4) the ability to keep up with competitors; and
(5) the protability or productivity of companies.

CLUSTERS, INNOVATION AND TERTIARY EDUCATION

351

In Canada, we have universities that have a strong pure/basic


research base and community colleges similar to Fachhochschulen
delivering the know-how (Fritsch & Schwirten 1999). The combination of these skill sets could provide dierent and valuable results to
businesses that are horizontally or vertically integrated within a
common industry. In non-metropolitan regions with limited nancial
and economic resources, and often only one game in town (i.e., one
major industry), the players must unite to bring knowledge to local
companies, mostly SMEs. At the same time, research has demonstrated that SMEs will concentrate on adopting technologies only if
they are associated with risk levels that do not threaten their sometimes fragile existence and embrace processes that are a proven success (Todtling & Kaufman 2002). This reality must be addressed in
order to achieve the improved competitiveness that can arise from
being part of regional agglomerates of sector rms (Caniel & Romjin
2003). To help in this respect, the provincial and federal governments
may aid by supporting the development of skilled labour, investing in
regional knowledge infrastructure, using procurement to enable
growth, marketing Canadian clusters, catalysing networking and
research and gathering performance data (The Conference Board
2004). Finally but not least, central governments must encourage
local creativity and recognise that local leaders and decision makers
are often a better solution source than committees dominated by
large metropolitan ideas.
The role of the tertiary education sector assumes a very particular
importance in non-metropolitan regions because there are sometimes
only a few major rms that will adopt as well as generate new technologies (Todling & Kaufman 2002). They often rely on out-sourcing
of research, or on innovation(s) transferred from the parent company. To aid SMEs in the same area, the provincial and federal
governments may be willing to provide more funding to initiatives
similar to IRAP (Industrial Research Assistance Programs) and
Centres of Excellence, in Ontario, that help in the implementation
and research of new technologies directly into industry. Further,
regional tertiary education players must continue to foster change in
their Research and Development policies by acknowledging the
current reality (Jankowski 1999) of new patterns of research funding,
the trend toward multidisciplinary research activity within and across
sectors, and the pressure to be more commercially oriented.
At a greater level of specicity, all regional innovation systems
should, as stated by Chung (2002), include academia, other public

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research centres, and industry. Policies to encourage collaboration


have become the foundation of innovation policies in many countries.
For example, Sweden (Jacob et al. 2003) has been changing its
national research policy to one of innovation, and as a result, its
universities have tried to become more entrepreneurial, embracing
innovation as a key institutional indicator. This type of interaction,
especially between universities and SMEs, has been noted as an
important part of innovation in South Korea, Austria, the United
States, Australia, Israel and many other countries (Audretsch 2003;
Chung 2002; Milton-Smith 2001; Todtling & Kaufman 2002; Trajtenberg 2001). The role of commercialisation, licensing, fabrication,
patents and development of research ndings is fast becoming a
global requirement of tertiary education.
Canadas Federal Government has announced plans to create 10
internationally recognised clusters (Government of Canada 2002).
Arguably, this count will in some measure include clusters in nonmetropolitan regions. The relevant collaborations must be in place,
with substantial onus on the tertiary education sector. Despite
caveats related to willingness and also to resources, we are guardedly
optimistic that the necessary links will be forged.

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Charles Belanger,

Laurentian University,
80 Juliana Rd,
Ottawa, Ontario, K1M 1K3,
Canada
E-mail: cbelanger@bmvglobal.ca

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