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Cultivating Rotterdam’s Life Science Industry


Cultivating Rotterdam’s Life Science Industry Institute for Housing and Urban Development Studies (IHS) Specialization: Urban Competitiveness and Resilience (UCR) Dr. R. Wall: Head of UCR and F. Pajevic: UCR research assistant Erasmus University, Rotterdam January 28 – March 1 2013


Foreword In the last few decades we have witnessed a restructuring of the world order that has placed emphasis on the role of cities as drivers of economic development. Globalization has standardized the way in which business is conducted, allowing new markets to emerge, providing firms around the globe with access to consumers and more profitable production processes. Nowadays, multinational corporations are responsible for 90 percent of foreign direct investment (FDI) and facilitate 50 percent of world trade, affecting national GDP and urban development. Expanding value chains result in a vast network of investments that connects cities across the world. This has had a significant impact on urbanization, allowing some cities to grow while others shrink as a result of changing demands of the market and patterns of production. Investment brings capital and innovation to cities; the more investment a city receives, the more it grows in significance to the world economy e.g. Shanghai, Singapore, New York. When firms look for cities to locate and/or invest in, they search for specific cities that fit their requirements. Therefore, it is imperative to match the changing demand in industrial sectors of the economy with existing strengths and future opportunities of cities. Also, current economic turbulences are stressing the need for urban resilience- the ability to withstand ‘shocks’, such as recession, innovation, and competition. This calls for a new form of urban planning that would focus on enabling smart, local adaptations and interventions.


Empirical research can show cities’ positions and significance within the world economy, and link this information to new planning concepts. This document discusses the possibility of developing a thorough research and planning concept for the city of Rotterdam, specifically targeting the life science sector. It is based on an initial study conducted at the IHS/Erasmus University by participants of the Urban Competitiveness and Resilience specialization (2013). We hope that this pilot research will interest various stakeholders in Rotterdam to take this initiative further.

On UCR/IHS

The IHS/EUR offers specialized post-graduate education and training, provides advisory services, and conducts applied research in the fields of urban management. One of the six specializations of the Master’s program this year is the Urban Competitiveness and Resilience specialization (UCR), developed by Dr. Ronald Wall, senior researcher and academic staff member at the institute. UCR is aimed at understanding the relationship between global and local economic development, using various forms of economic data e.g. international investment flows and local urban developmental indicators. Through quantitative and qualitative techniques, knowledge is generated and advice is given to cities on how to innovate, improve their performance, and ultimately improve the quality of life in cities. UCR is driven by the ambition to establish a strong bond between economics and planning in the future development of cities, and promotes extensive research and investigation of economic and urban conditions.

Students explore the value chains of different industrial sectors, the attraction of this to particular cities, and how this relates to different urban stakeholders. Based on this, creative urban strategies and plans are developed that lead to more resilient and competitive cities. This year, UCR was aimed at developing the life science cluster in Rotterdam. Various experts were involved in the course; for instance, Bert Helmsing (Professor at the department of Human Resources and Local Development at the International Institute of Social Sciences in The Hague), Juval Portugali (professor at the department of Human Geography and Human Environment at Tel Aviv University, and Visiting Professor at the department of Urbanism at TU Delft), and Erik Braun (Professor at the department of Regional, Port and Transport Economics). Input was also received from Science Park Holland, Rotterdam Science Tower, Erasmus MC, Chief Marketing Office of Rotterdam, and Gemeente Rotterdam.


The Need for New Sectors in Rotterdam Rotterdam’s economic foundations have, for a long time, relied on the port and its corresponding industrial activities. As a result, the city is suffering from brain drain, and unable to meet the demand of more serviceoriented sectors, the dependency on the port for employment and development is increasing (Gemeente Rotterdam 2013). With the port gradually moving out of the city and towards North Sea, and innovation in technology replacing manual labor, Rotterdam is left devoid of an economy tightly interlaced with its urban structure. In order to attract high-skilled, knowledge-intensive sectors and provide its residents with more employment opportunities, improving overall quality of urban life, Rotterdam needs to diversify its economy. The Rotterdam Urban Vision 2030 revolves around two key objectives: 1.Strengthening the urban economy 2.Creating an attractive, residential setting with a balanced population (Gemeente Rotterdam 2007)


To accomplish this, the municipality is focusing on expanding the city’s economic base. However, the city remains very much dependent on the port, as it continues to be an important source of local and national revenue1. Therefore, venturing into sectors with ties to the existing urban economy is favorable. Research shows that Rotterdam and the surrounding region of South Holland have a strong potential in developing a life science sector (Wall and Burger 2012; Van Oort 2012)2. As some activities covered by this sector relate to the existing port industry, such as the chemical and alternative energy sectors, and the existing medical cluster, life science offer numerous opportunities for expansion and diversification of Rotterdam’s economy. Furthermore, life science has been identified as one of the top 12 sectors for attracting investment in the Netherlands (Dutch National Government 2013), and is therefore likely to be supported by the national government as a sustainable course of action.

1Even though Gemeente Rotterdam owns about 70 percent

of Port of Rotterdam Authority shares, and the Dutch government owns about 30 percent (Port of Rotterdam Authority 2013), the national government is reluctant to risk diverging from port activities in the area (Gemeente Rotterdam 2013).

2Ronald Wall en Martijn Burger (2013) De strijd om

kapitaal: Internationale netwerkpositie en ruimtelijke neerslag van directe buitenlands investeringen in ZuidHolland. Haags blauw Den Haag. Provincie Zuid-Holland.


The Life Science Industry In UCR, the life science sector was revealed as a complex network of activities (Figure 1). Apart from pharmaceuticals (drugs, vaccines, etc.), biotechnology (genetic testing, biological engineering, etc.), and medical device technology (medical equipment, scans, etc.), other sectors such as nutriceuticals (vitamins, health drinks, fortified foods, etc.), healthcare and health-services (medical tourism, etc.), clean-tech (solar, wind, water energy systems, etc.), virology (viral disease research and testing), and biomics (gene-related technologies) count as segments of the life science industry. Supporting activities, such as business services, transport and logistics, and ICT also play a significant role in laying down a strong foundation for the development and maintenance of a cultured life science cluster. This definition was derived and formulated on the basis of studies conducted by The Decision Group (2012), Ernst & Young (2012), Jones Lang LaSalle (2011), Meric S. Gertler and Tara Vinodrai (2009), Indiana Business Research Center (2009), and Philip Cooke (2005; 2004)3.

Despite the recession, the life science sector continues to grow exponentially around the globe: compound annual growth rate of pharmaceutical and biotech revenue was 6.7 percent between 2007 and 2011, with total revenue of $1107 billion in 2011 (Deloitte 2013)4. This implies that life sciences cover the band of global demand that is resilient to market volatility. The sector provides opportunities for various research activities to transform into “adult� science by offering access to technology, enormous databanks, large consortia, and so on. It is because of this that life sciences require major investments in knowledge and innovation, and are thus highly competitive and key clusters in attracting FDI. Knowledge spillovers and variety in specialized labor pools occur most at links established between core and related industries of the sector (Neffke and Nedelkoska 2012; Frenken et al 2007)5, stressing the significance and potential of creating synergies to cities and regions.

3The Decision Group, 2012. Dutch Life Sciences

Outlook 2012 Ernst & Young, 2012. Progressions: The Third Place: Healthcare everywhere Jones Lang Lasalle, 2011. Global Life Sciences Cluster Report 2011 Gertler, M.S. and Vinodrai, T., 2009. Life Sciences and Re gional Innovation: One Path or Many? European Planning Studies, 17:2, 235-261 Indiana Business Research Center, 2009. Indiana’s Life Science Industries Cooke, P., 2004. Life Science Clusters and Regional Science Policy. Urban Studies, vol. 41

4Deloitte, 2013. Global Life Sciences Sector Report 5Neffke, F. and Nedelkoska, L., 2012. Skill-gerelateerdheid

in de arbeidsmarkt van de provincie Zuid-Holland. Provincie Zuid-Holland, Den Haag Oort, F. van, 2012. De Weerbare Regio: Ruimtelijk-econo misch beleid in de Zuid-Hollandse kenniseconomie. Provincie Zuid-Holland, Den Haag


Supporting industries

Life Sciences

Related Variety

Pharmaceuticals Transport and Logistics

Business Services Consultancy

Chemicals Energy/Bio-Fuel

Biotechnology

ICT Medical Device Technology

Related industries

Knowledge Spillovers and High Skilled Labour Market

Nutriceuticals and Herbs Healthcare

Figure 1: Sectoral structure of a life science industry (IHS 2013)

Agriculture Aquatic Ind. Cosmetics Food Ind. Wellness and Spa


Dissecting Value Chains of Life Science Firms Firms are generally driven by the need to maximize profit at minimum cost and high productive efficiency, and locate and invest in cities that meet the needs of the sector. Understanding the mechanics of a life science industry is an important step in revealing the reasons behind investment decisions and finding the means to develop the sector. Research on firms such as Pfizer, Unilever, Danone, and Philips showed that the value chains of life science firms are case-specific; that is, depend on the nature of business conducted (pharmaceuticals, nutriceuticals, or medical devices). However, common denominators do emerge, and show that research and development (R&D) inputs are highly important for business, followed by manufacturing (M), commercialization (sales, marketing and support- SMS), and logistics (logistics, distribution and transportation- LDT).

Another common necessity are links to global and local networks through partnerships, joint ventures, collaborations with other firms, sectors and research institutes (Figure 2). The geography of FDI in life sciences for different parts of the value chain shows that clustering around research facilities is important for knowledge-intensive activities, and business and financial services are needed to support headquarters. Other activities, such as manufacturing, sales and marketing, and logistics are not bound to a particular location or cluster (Figure 3).

Care and Cure Providers Hospitals, Consumers, etc Distribution and Storage Logistics Business Services Legal Capital Consultancy etc.

Headquarters Offices

Marketing and Sales Comercialization Manufacturing Exploiting

Management HR

Logistics Firms

Design / Developement / Testing R+D Centre: Synthetic Knowledge Translation Research R+D Centre: Analytical Knowledge

Suppliers Materials Knowledge Tacit Codified

Clinical Trials Specialized Firms

and Education

Research Suppliers

Fundamental Research Universities / Institutes

Core firm Figure 2: General value chain of a life science firm (IHS 2013)

Support

Other


H

R+D

DDT

BSS

Figure 3: Map showing the geography of life science clusters in Europe (IHS 2013)

M

SMS

LDT


Location Factors for Life Science Firms Recent trends have shown that manufacturing and logistics activities are moving to Asia, where costs of production and mobility are lower; Europe, unable to compete with the low costs, is venturing into predominantly knowledge-intensive activities, and concentrating heavily on innovation as demands in healthcare continue to rise (Jones Lang LaSalle 2011). Out of a list of top cities in Europe for attracting FDI for one or more life science activity (Wall 2013), a few were selected for benchmark analysis, so as to determine the criteria of firms in selecting a location, as well as the cities’ ability to match those criteria. Some of these cities include London, Dublin, Cambridge, Antwerp, Copenhagen, Cork, Budapest, Barcelona, and Poznan. For these cities, and Rotterdam, a comparison of regional variables (Kitson’s Capitals)6 was conducted, based on the framework shown in Table 1.

Kitson’s Capital

Indicator

Human Capital

% highly educated, % unemployed

Cultural Capital and Amenities

Presence of an IPA (investment promotion agency), government support (national and local), tax structure.

Infrastructure Capital

Number of cultural amenities, entertainment venues, events

Knowledge Creative Capital

Transportation infrastructure (accessibility), presence of an international airport, flow/traffic rates

Productive Capital

Economic structure (sectors, activities), number of significant firms and services

Table 1: Scheme outlining Kitson’s capitals and corresponding indicators


Based on this benchmark analysis, headquarters (H) cluster in cities that have a strong financial sector, and are well connected to other financial and business centers within the network. Among top requirements are strong human, productive, and institutional capitals. Copenhagen, for instance, has a highly skilled, highly educated labor force, a strong institutional framework and transparency, an economy that outperforms the rest of the country, and is considered a primary nexus for innovation- all of which make it an attractive location for headquarters in life science. In some cases, headquarters also locate in cities that have a history of conducting business in that field. Knowledge intensive activities- such as R&D, and design, development and testing (DDT) - require a proximity to university and research facilities, and cities in which these activities take place score high in human, knowledge and cultural capital. There is also a strong correlation between these segments of the value chain and the presence of investment promotion agencies and tax incentives. Dublin has a strong track record in attracting life science projects due to its national and local government support units for firms and initiatives in this field, and high levels of human capital. Similarly, manufacturing (M) activities take place in areas7 where institutional support is high and corporate taxes are low. In fact, many cities in Ireland are the preferred choices for majority of activities in the value chain of the life science sector (Figure 3). Apart from national IPAs focusing on life sciences, and a history of business in the field, Ireland has one of the lowest corporate taxes in Europe: 12 percent, compared to an average of 23 percent in the rest of Europe8.

For SMS and business services (BSS), Figure 3 indicates widespread presence of these activities, mainly in capital cities. This is most likely because capital cities provide access to consumer markets, and offer the possibility of overseeing operations in other cities throughout the country. LDT centers can be found in different areas, but a significant concentration of these activities is shown in the Netherlands and Belgium. Centrally located in Europe, both of these countries have high levels of infrastructure capital, allowing for easier and more efficient access to international trade. LDT activities take place in cities along transport corridors with special handling capacity (e.g. Antwerp and Rotterdam for sea freight, and Frankfurt for air cargo). In sum, some variables are more important to life science firms in selecting a location than others. Research showed that these are: •Percentage of highly educated residents (above 25 percent) •Institutional support: presence of an IPA and tax incentives •Access to main transport nodes •Presence of well-established universities and research facilities •Presence of an existing cluster of firms and services 6Iyer, S., Kitson, M., & Toh, B. 2005. Social capital, eco

nomic growth and regional development. Regional Studies. Taylor and Francis. vol 39; Issue 8.

7Manufacturing activities are not always situated within

city limits; this is because availability of land and accessibility to transport nodes are required.

8Deloitte 2012 , Ireland, Corporation Tax: http://www.

deloitte.com/view/en_IE/ie/insights/budget-2012-ire land/tax-types-irish-budget/corporation-tax-irishbudget/


Rotterdam: The Analysis Rotterdam has both positive and negative traits that impact the development of life sciences as an important segment of the city economy. Erasmus University does well in the ranks and outperforms cities such as Cork and Budapest; in the field of clinical research the Erasmus Medical Center (Erasmus MC) is ranked first in Europe. Healthcare has a strong presence in Rotterdam, with several hospitals specializing in diagnostics and treatment of different conditions (such as the Rotterdam Eye Clinic in ophthalmology, Havenziekenhuis in tropical diseases, the Maasstad Hospital in general healthcare, and the Daniel den Hoed-clinic in cancer treatment). The recently opened Rotterdam Science Tower accommodates top virology labs and university powered incubators that could bring more research to complement and improve this base of expertise.

A hindering factor in developing life sciences in Rotterdam is the absence of a cluster, or critical mass, which would attract other firms and sectors. Some important firms and activities are present, such as the headquarters and research laboratory of alimentary goods producer Unilever, and other smaller firms in pharmaceutical and biotech sectors. Communication and collaboration between these actors, however, is severely limited. Focusing on establishing a strong partnership network at a national, regional and local level is therefore an important step and opportunity in developing a life science sector in Rotterdam. Networking on the basis of relatedness and complementarity at these levels emerged as a strong foundation for strategy development during the course of the specialization.

In terms of infrastructural capital, Rotterdam is quite well connected: the port is a major node in the global trade network, the local airport (Rotterdam/The Hague) offers connections to London, Munich, Barcelona, Rome, Vienna, Madrid, and so forth; the main Dutch international airport Schiphol is 25 to 45 minutes away (depending on means of transportation), and the central station offers high speed train connections to Belgium, France and Germany.

Figure 4 shows the distribution of life science activities in the Netherlands. The table shows that Rotterdam has little possibility in attracting headquarters of firms in the pharmaceutical, biotechnology and medical devices. Connecting to cities with a strong headquarters presence, such as Copenhagen, London, Paris, Munich and Barcelona would increase Rotterdam’s capacity to accommodate other activities in these segments. Joining the European Network of Headquarters and Business Services and further improve collaboration.

Looking at the strengths and weaknesses of Rotterdam, and relating them to demands of different segments of the life science indusDespite all this, Rotterdam is not reaching try, we were able to deduce possibilities for full potential through existing means in atcollaboration, on the basis of relatedness and tracting firms and fresh talent. This is partly complementarity (Table 2). It is important to due to the lack of an adequate institutional note that Rotterdam’s position was also anasupport system on a national and local level, and high corporate tax rates at national level lyzed within its regional context, resulting in at 25.5 percent. Although improvements have an inventory of life science activities in South Holland that shows areas in which Rotterdam been made to tax incentives for research, can collaborate with and complement other development and innovation in the past few cities in the area and/or specialize in activiyears, due to the economic crisis firms have not yet had the chance to take full advantage. ties without fear of strong competition.


HQ

BS

R+D

DDT

MAN SMS

LDT

PHARMACEUTICALS MED. DEVICES BIOTECHNOLOGY NUTRICEUTICALS HEALTHCARE BIOMICS (new) VIROLOGY (new) Table 2: Life science segment opportunities for Rotterdam (IHS 2013)

H

R+D

Figure 4: Life science in South Holland (IHS 2013)

DDT

BSS

M

SMS

LDT


On the scale of the BENELUX, Rotterdam could benefit from manufacturing and DDT sites in the area; in the latter activity in particular, Rotterdam could form a stronger relationship with Antwerp and form a hub. For SMS, a complementary relationship with Amsterdam could be established. On the regional scale of South Holland, Rotterdam already has a knowledge network with universities and cities of Leiden and Delft (Medical Delta and Science Port Holland). While Leiden is strong in R&D for pharmaceuticals and red biotechnology (e.g. cell products), and Delft is strong in R&D for medical devices and white biotechnology (e.g. cell technologies), Rotterdam could complement these cities by specializing in DDT for these segments and also incorporating its well-established chemical sector. Rotterdam already has experience in DDT (via its medical sector), so joining forces would help the regional life science sector as a whole (Figure 4).

On the local level, Rotterdam has huge potential in nutriceuticals and health care. Due to the presence of Unilever and a wide range of hospitals in the area, the development of specialized foods and drinks for patients, children and elderly is a strong opportunity. The firm could benefit from knowledge and data provided by hospitals and research institutes, which in turn could benefit from the use of specialized products. Healthcare providers could also benefit from the hotel and tourism sector, improving comfort for patients. The architectural sector could also help here, restructuring the areas vacated by the port to cater to the needs of the life science industry. In order to facilitate such collaborations, new networks need to be formed (Figure 5). Lastly, venturing into new segments of life sciences, such as biomics and virology, is a strong opportunity for Rotterdam. These segments are still in the development phase and not yet settled in a particular area or region. Rotterdam already has experience in these fields at the Erasmus MC, with growing firms at the Rotterdam Science Tower, but still has to build on this further by attracting and retaining firms and researchers.


H

R+D

DDT

Figure 5: Rotterdam potential in life sciences (IHS 2013)

BSS

M

SMS

LDT


A New Strategy for Rotterdam Due to its dependency on the port, Rotterdam has had a weak focus on other economic sectors such as life sciences. In order to improve the city’s economic outlook, the specialization developed a strategic plan for future development that consists of four main pillars:

1.Create a promotion agency specifically for life sciences in Rotterdam via the ‘triple helix’ model; the Life Science Promotion Agency (LSPA) would focus on specialized sectors and activities, and concentrate on establishing a local as well as global network 2.Enable and maintain a life sciences zone, with special tax incentives, space for meetings and conventions, information centers and support for firms; to be located around the Rotterdam Science Tower (Figure 6) 3.Organize fairs, exhibitions, workshops for local and international actors in the field 4.Market Rotterdam as a life science city in joint efforts with the Rotterdam Investment Agency (RIA) and national investment agency (WNFIA), Medical Delta and Science Port Holland

Public transport (tram)

Redevelopement area for housing on water

Figure 6: Proposed area for a life sciences zone (IHS 2013)


The specialization concluded that the last pillar is a pivotal step in developing a life science sector. Nowadays, the brand of Rotterdam still relies on the port9 , and by doing so fails to showcase other strong characteristics of the city. A survey on a target group of international students showed that the brand of Rotterdam evokes different reactions10 (Table 3). By turning the negative into positive, and weaknesses into opportunities, the city can develop a set of positive future values.

These values can form a new brand for Rotterdam, and a more neutral brand is more likely to appeal to different target groups. For life sciences the brand would be: Rotterdam Green/Knowledge/World/ Business/ Dynamic City.

9Chief Marketing Office Presentation at IHS 10Conducted by UCR participants at IHS

Current Perception

Future Value

Port city

Water City

Industry & pollution

Green City

Multicultural

World City

Top ranking university

Knowledge City

Modern architecture

Beautiful City

Poor city

Budget-friendly City

Young population

Vibrant City

Small city

Compact City

Not very cultural (leisure) city

Festival City

Table 3: Survey results showing the perception of international students of Rotterdam (IHS 2013)


Conclusion In order to become resilient to changes in the global market, and ensure continuous development, cities must concentrate on specializing in sectors that are adaptive and can create synergies with other economies, so as to avoid a crash resembling the domino effect of the current recession. In order to make smart choices, in-depth research is essential. The pilot research conducted at IHS by the UCR specialization showed that cities that focus on life sciences must excel at innovation so as to raise productivity, foster competitive businesses in an increasingly global economy and meet the challenges associated with environmental, social and demoghraphical change. This requires product innovation, process innovation, marketing innovation and a new organizational structure that enables alliances between larger companies and smaller related firms, as well as leading cities and supporting ones. For Rotterdam, a focus on life sciences could create direct and indirect employment opportunities, establish the city as knowledge economy, and offer a new step towards meeting environmental objectives set by the Rotterdam Climate Initiative (2011). Imagine what further research could do.

Editors Filipa Pajević Mattijs van t’Hoff Ronald Wall


Acknowledgments Students/ UMD Participants:

Yifei Ma (China) Anle Shen (China) Shuai Shi (China) Olga Lucia Gomez Charry (Colombia) Carolina Maria Santos Figueroa (Guatemala) Nicolas Romain Sauthier (France) Samuel Antwi- Baasiako (Ghana) Charles Sitsofe Sakyi (Ghana) Randolf Wilson (Ghana) Floretta Adriana (Indonesia) Angela Yerina Mandarika (Indonesia) Retno Indrawati (Indonesia) Asmorowati (Indonesia) Edi (Indonesia) Muhammad Ioyud Abdul Rahman (Indonesia) Rizky Ardiyanto (Indonesia) Walid Guntur Cahyadi (Indonesia) Mattijs van’t Hoff (Netherlands) Kolawole Landre Ma’aruf Sanni (Nigeria) Saima Sabit Ali (Pakistan) Michelle Untalan Ardales (Philippines) Sukran Yaylaci (Turkey) Anthony Mwenya (Zambia) Fred Lusale Musukuma (Zambia) Grace Njoloma (Zambia) Nkonde Phiri (Zambia) Rosalyn Muleya Siamutwa (Zambia) Precious Muzya Simasiku (Zambia)

Content Organization:

Ronald Wall/IHS – head of UCR Filipa Pajević/IHS – UCR research assistant

Lecturers:

Aloysius Bongwa/IHS Eric Braun/EUR Meine Pieter van Dijk/EUR/IHS Jan Fransen/IHS Bert Helmsing/ISS Juval Portugali/Tel Aviv University/TU Delft Ronald Wall/IHS

We would like to thank the following individuals for their contribution to the specialization:

Science Port Holland:

Chris v. Voorden/Managing Director Martijn Schol/Marketing Manager Med Tech

Rotterdam Science Tower:

Hendrik Halbe/Director of HOPE, Start-up Campus Hanneke De Graaf/Project Leader Innovation in Care

Chief Marketing Office Rotterdam: Kitty Tang/Marketing Director

City of Rotterdam (Gementee):

Maarten Suijker/Department of Economics Chris de Lange/Coordinator International and EU Affairs

Contact Information wall@ihs.nl


ERASMUS UNIVERSITEIT ROTTERDAM


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