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McKinsey International Innovation Hotspots

Last year McKinsey partnered with the World Economic Forum to create an “Innovation Heat Map,” by identifying factors that are common to successful innovation hubs. They have examined the evolution of hundreds of such clusters around the world and analyzed over 700 variables, including those driving innovation (business environment, government and regulation, human capital, infrastructure, and local demand) along with proxies for innovation output (for example, economic value added, journal publications, patent applications) to identify trends among the success stories. Dublin came out as a small innovation cluster at that point, though the data was up to 2006.

In the process, they found patterns that suggest the critical ingredients required to grow, nurture, and sustain innovation hubs. They have compiled thousands of data points that may be used to identify bottlenecks and benchmark the performance of cities, regions, and countries by measuring how they are evolving.

The research identified a set of fundamentals that are needed to establish a minimum infrastructure base. Criteria such as the quality of the physical infrastructure (for example, electrical, transportation, and telecommunications) and governance indicators (for instance, rule of law and government stability) are essential for a location to “earn the right to play.” Meeting this minimal threshold is an important prerequisite. Further improvements to this base, interestingly, are associated with only incremental growth in innovation capacity.

Early innovation hubs have historically followed one of three primary paths:

  • Heroic bets: large, government-led, targeted investment efforts that focus on a specific promising sector and provide substantial initial support in the form of subsidies, tax holidays, and direct investments, to name a few. While this has been an attractive option for many locations, it has historically been a challenging path: governments are often ill-equipped to identify the right sectors, to define nondistorting incentive structures, and to ensure an effective path out of the initial support phase.
  • Irresistible deals: regions that are able to attract established companies (often foreign players) who want to capitalize on a significant local advantage, such as low-cost of qualified labor or access to large local markets. When done effectively, the location can build on this base to add greater value over time, moving, for example, from manufacturing to basic engineering to design and innovation. To be successful, regions need to create mechanisms that encourage the effective transfer of knowledge to the local ecosystem, as well as tools and processes to raise the skills of the local labor pool.
  • Knowledge oases: locations with a critical mass of highly specialized talent (for instance, a large research university or government R&D lab). These hubs capitalize on breakthrough technical advances for commercial success. This path is less frequently successful, however. It requires that locations attract the capital and entrepreneurial skills needed to bridge the chasm between idea creation and commercialization.
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