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Science Parks in China

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Charles Eesley

on 30 October 2013

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Transcript of Science Parks in China

Science Parks in China
design by Dóri Sirály for Prezi
Motivation
Acquiring financing in emerging economies unclear

Science Parks = Major Policy Focus

Focus on public sector perspective


...and not venture perspective

Science Parks Spur Entrepreneurship and Innovation?
Stanford Industrial Park - 1st university-owned, tech-focused industrial park.

1951 by Fred Terman

Recruited visionary companies - Varian Associates, Hewlett-Packard.
Science Parks Spur Entrepreneurship and Innovation?
Little empirical evidence (Eesley, Yang, Liu, WP - 2007 Tsinghua Alumni Survey)

Clustering theory (Porter, 1990; Sorensen)
Agglomeration economies (Krugman, 1990)

Countless failure cases (Lerner, 2009)
- Malaysia (Cyberjaya)
- Transfer $ from taxpayers to real estate dev.
What should an entrepreneur expect to get out of the science park?
By what mechanism might they work?

Connections (guanxi)
Legitimacy
Major Initiative
Science parks take on many names in China such as science parks (kējì yuán), science park district (kējì yuán qū), or High-Technology Industrial Development Zones (gāoxīn jìshù)
700 acres of university land, 140 companies

Office space, colleagues to bounce ideas off of, equipment to share, "new blood" from the university.

HP, Facebook, Skype, Tesla Motors and Genencor

William Hewlett - "One of Stanford’s most valuable contributions to Silicon Valley was its constant generation of master’s students who then pursued opportunities in the Valley."
105 national high-tech industrial dev. zones
83 national univ. science parks
72 national agricultural tech. science parks in operation/ development

Used globally

infoDev incubator network - 290 science parks, 87 countries (Dutt et al., 2011; Khalil & Olafsen, 2009)
Science parks have mixed/no effects
(Colombo & Delmastro, 2002; Di Gregorio & Shane, 2003; Löfsten & Lindelöf, 2002; O’Shea, Allen, Chevalier, & Roche, 2005; Rothaermel & Thursby, 2005; Siegel, Westhead, & Wright, 2003; Westhead, 1997)

An important omitted variable relates to the role that science parks play as public infrastructure that helps ventures acquire public policy resources.

Recent review of the science parks literature, the authors argue that studies in this domain suffer from selection bias (Åstebro & Bazzazian, 2011).
Science parks may provide services, connections, institutional setting (for legitimation & brokering) that is not common outside these parks.

However, in developed economies, institutions, national innovation system is developed (Young, Peng, Ahlstrom, Bruton, & Jiang, 2008), science parks do not provide such added value.

Effects of science parks stronger in emerging economies or nascent markets
From venture's perspective, should you locate in a science park?
In 2006, the 54 state-level ETDZs, 53 state-level HIDZs and the 13 FTZs accounted for a combined 11.1% of China’s GDP, and 29.8% of exports.

In 2006, the 54 state-level ETDZs alone attracted US$ 14.7 billion FDI, accounting for 23.3% of the national total.

By early 2004, there were nearly 7,000 industrial parks in China.
China has six thousand industrial parks and 58 national-level science parks (Cai, Todo and Zhou, 2007).

To curb the blind expansion of industrial parks, China has stepped up its efforts to clean up unqualified industrial parks since July 2003.
By the end of 2006, officially, the number of industrial parks had been reduced from 6866 to 1568.


1988 Provisional Regulations for the Operation of Beijing’s high-tech industrial zone - facilitate translation of scientific research into businesses.

1991 - Ministry of Science and Technology (MOST) - the Conditions and Measures for Identifying High-Tech Enterprises in High-Technology Industrial Development Zones, updates in 1996 and 2000
Science parks - identify high-tech enterprises based on key high-tech industries (Article 4) and whether they met R&D and operation guidelines (Article 5)

Science parks - legally mandated to help commercialize scientific research, translating their research into high-tech ventures (Article 10) (Baark, 2001; Gu, 1996; Hu, 2007)
Theory
Public infrastructure

Public and private sector (brokering)

legislative bodies - mandate to implement (legitimacy)



(Sabatier & Mazmanian, 1980; Van Meter & Van Horn, 1975)
Brokering:

Actor sitting at a structural hole between two distinct groups uses privileged position to selectively facilitate exchange of resources

(Burt, 1992)
Brokering
Strategy scholars: weak institutions, use networks

seek local brokers through a joint venture or interpersonal ties
(Meyer, Estrin, Bhaumik, & Peng, 2009; Xin & Pearce, 1996)

seek to become a broker themselves
(Batjargal et al., 2013).
Capacity to broker...

compensates or reinforces

...capacity to legitimate?
Theoretical Debate
Organizational sociologists and political scientists:
legitimate and to broker are mutually reinforcing.

Tennessee Valley Authority (TVA)
(Selznick, 1949)

Argentine wine-making
American estuary protection

(McDermott, 2007; McDermott, Corredoira, & Kruse, 2009; Schneider, Scholz, Lubell, Mindruta, & Edwardsen, 2003)
Hypothesis 1: Science Parks select entrepreneurs at an earlier stage of development
dual brokering and legitimating capacities act in reinforcing ways when selecting ventures.
actors who sit at more structural holes are more likely to form ties with earlier stage ventures (Podolny, 2001)

provide more novel & diverse info - allow to assess ventures earlier in their development.
Hypothesis 2: Science Parks will select entrepreneurs without ties to government officials
Gov. officials - do not have the capacity to assess quality
(Lerner, 2009; McDermott, 2007; Schneider et al., 2003; Tan, 2006).
Entrepreneur in educ. software - “When you are starving, they [the government] won’t help you; but when you look beautiful, they put a flower on your head.” .

An entrepreneur in petroleum technology concurred, “Once you do [a] job well, [the] government will keep good relationship with you.”
Hypothesis 3a: Science parks will help entrepreneurs with valuable and less rare resources access more public policy resources through brokering.
(local elite education - Tsinghua/Beida alums)

capacity to legitimate a venture is diminished and their capacity as a broker must compensate

help the venture reach milestones that make their quality more widely recognizable.
Hypothesis 3b: Science parks help entrepreneurs with valuable and more rare resources access more public sector resources through legitimation.
Returnees - many returnees arrive w/ varying experience
uncertainty around the quality of these entrepreneurs’ experiences abroad
Given wide variety of returnees, gov. officials often hesitant to allocate money to returnees until they have proven their value potential.

One of the predominant answers returnees gave as to why they went into a science park was the possibility of easier access to government channels for funding once they met the science park’s selection criteria.
Empirical Context
Haidian District: science parks/non-science park firms within same district


Matched Sample (O’Connor et al., 2006; Obloj & Capron, 2011)
Ensures treatment (science parks) matched w/most similar control (non-science park)

Surveyed 81 science park, 65 non-science park firms
N=94 matched science park and non-science park firms (matching controls: industry and age)
Daniel E. Armanios, Stanford University
Chuck E. Eesley, Stanford University
Li Jizhen, Tsinghua University
Kathleen M. Eisenhardt, Stanford University

Dependent Variables:
Public Sector Investment
Patents
Venture Growth

Independent Variables:
Government Official Ties
Science Park
Elite Education - whether the respondent received a degree from Tsinghua or Peking University (1-yes/0-no).
Returnee or Expatriate as to whether the respondent received a degree from outside of mainland China (1-yes/0-no).

Additional Controls: (industry, policy, age controlled in matching and district selection)
VentureSize2010

Measures
Statistical Methods
1) Matched Sampling (industry, age, CEM)
2) Instrumental Variable Analysis
Instrument: Science Park Entry Help
F=18.8: strong instrument
instrument’s exogeneity - r=0.69 w/Science Park, r=0.16, -0.07, -0.13 w/Public Sector Investment, Patents, and Venture Growth, respectively

3) Science Park’s Selection Criteria: Market Potential, TMT quality, Sales and Finance Experience

Public Investment & Patents: P-QMLE, Negative Binomial, Venture Growth: OLS

Sought to conduct in-person surveys with 136 science park firms and got 81 responses (60% response rate).
Non-science parks, tried to collect in-person surveys of 318 firms and obtained 65 responses (20% response rate).

Full unmatched sample of 146 firms. As is consistent with the ventures in this area (Zhou, 2005), the vast majority of firms sampled were in IT-related sectors (88%).

Web scraped the most exhaustive directories we could find for the parks we studied.
non-science park venture, we took advantage of the firm directories from each non-science park building - two archival databases, one of all Chinese patents (http://search.cnpat.com.cn/) and all of Beijing’s registered companies (http://qyxy.baic.gov.cn), we obtained the number of patents and registered capital

We found no statistically significant differences in patents and registered capital.
Response Bias
The Stanford Research Park
Science parks as key public infrastructure to disburse public resources towards high-tech entrepreneurship.
2002, the 43 national university science parks had absorbed a total investment of RMB 29.7 billion.

Incubators being put into service covered a total area of 2.27 million square meters.

5,500 enterprises, among which 2,300 enterprises were under incubating, stayed in these 43 university science parks.

920 enterprises have graduated. The enterprises under incubating in the parks had commercialized more than 1,860 high-level R&D achievements, obtained 1,923 patents, developed 4,116 new products, attracted over 1,300 returned overseas scholars who wanted to start their businesses in China, and created around 100,000 employment opportunities.
Summary
No direct effect of science parks on innovation or venture growth.

Indirect effect via public funding

Those lacking personal government ties, sea turtles and Tsinghua/Beida grads benefit most from science parks.
Contributions to theory
Institutions, networks
Reconcile debate - entrepreneurs, policy

Brokering - more important for valuable but less (locally) rare human capital (ie, Tsinghua/Beida grads)

Legitimacy - more important for returnees (valuable and more rare, varied) individuals
Patenting
Venture Growth
Robustness checks
Instrumental variables
Several alternative explanations ruled out
Definition of govt. ties incl. party
Specification - P-QMLE, OLS, log-linear
Full sample (not restricted on matching)
History
Prior to experimental zone, a thriving “Electronic Street” already existed (Tan, 2006).

1970s, researchers located in Zhongguancun area began to come out of the labs and start entities for commercializing research achievements.

1986, public funding was increased through the “863” program to improve IT of public research institutes (Xiwei & Xiangdong, 2007).

Demand from research institutes for improved IT. Networks began to form where these CAS-backed “people run” companies sold electronic products to other research institutes (Zhou, 2008).

End of 1987 - 148 technology companies registered in Zhongguancun.
Though technically illegal, State officials decided to tolerate such activity because they saw an opportunity to increase China’s economic growth (Kuhn, 2010; Zhou, 2008)
Zhongguancun






Tsinghua Science Park (TUSPark)
TUSPark
The Tuspark or Tsinghua University Science Park, Tuspark Holding Limited is a company which builds business parks.

It has 30 branches around China. 400 companies and 25,000 employees are working in Tuspark.

The TusPark's founder and President is Mei Meng, the senior vice-president is Chen Hongbo, Tuspark's CEO is Xu Jinghong.

Tuspark - set up in 1994, first building, the TusPark Development Center built in 1998.
Face-to-face surveys, Archival legal and historical research

We conducted 36 interviews with entrepreneurs, government officials, science park officials, and venture capitalists

...provide a more contextual understanding of the role science parks play in China’s high-tech sectors.
Policy Implications
Policy debate
Not center entirely on success stories, anecdotes

Cost-efficiency must to be taken into account
Accelerators: YCombinator, TechStars (only offer young firms ~15k each, $O taxpayer dollars)

Focus on data-driven experiments and on market failure that policy seeks to overcome

Barriers to growth more important than barriers to entry (Eesley, 2013 WP)
Many alternatives
Project 985 paper

Startup Chile project

Online education (http://novoed.com)
Chuck Eesley (Stanford)
Management Science & Engineering, STVP
Science Parks, Chinese Innovation Policy & Firm Strategy
October 2002, 43 national university science parks had absorbed a total investment of RMB 29.7 billion.

5,500 enterprises, among which 2,300 enterprises were under incubation, stayed in these 43 university science parks.

920 enterprises have graduated. $5.4million USD per graduating company?

The enterprises under incubating in the parks had commercialized more than 1,860 high-level R&D achievements, obtained 1,923 patents, developed 4,116 new products, attracted over 1,300 returned overseas scholars who wanted to start their businesses in China, and created around 100,000 employment opportunities.





Innovation Feedback: Interactive Development in Research Universities and
Their Science Parks
Meng Mei, Professor, Tsinghua University, Managing Director, Tsinghua Science Park
H3a & H3b
IV helps distinguish the two different mechanisms of brokering and legitimation.
Brokering is a process that occurs after entry into the science park. It is a "treatment effect".

Legitimation occurs as a result of the science park selecting ventures with certain qualities.

IV variable (science park help) is correlated with joining the science park, but not correlated with the factors that drive selection into the park.
Emphasis on FDI/SOEs has left startups tolerated but small...

Yet they are the more productive/innovative firms in the economy (Huang, 2005; 2008)

Find/develop these "ladders" up - allow the poor & poorly connected to be successful w/ a good idea
Put economic/political decision-making into hands of a broader set of people.
(Cuervo-Cazurra & Dau, 2009; Mahmood & Rufin, 2005, Spicer et al, 2005)
(Batjargal & Liu 2004; Vissa 2011)
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