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Building an Industry Cluster
September 29, 2012

When you own or manage a business you quickly learn working together in teams or groups brings something more to the solution than sitting apart in separate rooms working on the same problem. These interactions develop emergent properties - where the sum is greater than the parts. The same is true within communities. By connecting between organizations, problem solving relationships develop and the greater the power of unique mindsets from different backgrounds and perspectives, the greater the potential for creative solutions and innovative problem solving.

The bioscience/health care sector in San Antonio is an example of the potential of emergent properties - the entire bio-cluster in San Antonio is made stronger by all of its parts. Today, one in every six jobs in San Antonio is in this sector and it didn't happen by accident - relationships were developed by creating emergent thoughts, ideas and solutions to bring this sector to South Texas.

A Texas CEO Enlightened Speakers Series event in San Antonio featured four key players in the San Antonio bio-cluster: Henry Cisneros, former Secretary of Housing & Urban Development, former Mayor of San Antonio and current Chairman, San Antonio Economic Development Foundation; Mir Imran, Founder & CEO, InCube Labs; Jeff Ruiz, General Manager/SA Operations, Medtronic; and Ken Trevett, President & CEO, Texas Biomedical Research Institute and Chairman of BioMed SA.

Their insights and experiences can help other businesses figure out how companies can benefit by creating partnerships, finding community backing, and developing initiatives that enable industries to flourish.

The benefits of clusters were spelled out in a Harvard Business Review article by professor Michael Porter, who defined them as "critical masses in one place of linked industries and institutions from suppliers to universities to government agencies - that enjoy unusual competitive success in a particular field."

This critical mass, said Porter, has three important effects on competition: they increase productivity of local companies; they stimulate innovation; and prompt the creation of new businesses within the cluster.

How San Antonio Fostered a Bioscience Cluster
Henry Cisneros pointed out that one cluster being pursued on a national basis is the biosciences - the applications of bioengineering and more and more esoteric scientific applications to biomedical advances. "Biosciences will be to the 21st century what computers and telecommunications were to the 20th century," Cisneros said.

One of San Antonio's advantages in developing a biosciences cluster is that it's been around for some time. "We've had hospitals and military medicine and research such as the Southwest Foundation for Biomedical Research," Cisneros said. In 1969, the South Texas Medical Center was established on a 750-acre tract that has evolved into a complex of 20 different hospital and research facilities, accounting for 40,000 jobs.

The biosciences cluster in San Antonio is built on "four pillars," Cisneros said - medical education, including a medical school and nursing school, a dental school, optometry and pharmacy at Incarnate Word plus military medicine; medical clinical capabilities, made up of UT Health Science Center, a Baptist hospital system, a Catholic hospital system, a Methodist hospital system, independent medical groups and military medicine with specializations; medical research, being done at UT Health Science Center, UTSA, and military related medical research; and medical business, including such companies as KCI, DPT, Mission Pharmacol, Genzyme and InCube and Medtronic.

These four pillars have become San Antonio's largest employer, with 140,000 jobs and a payroll of more than $20 billion, said Cisneros. "Analysis of that cluster going forward tells us that those 140,000 jobs will be about 180,000 jobs in 2020, so we'll add another 20,000 in medically related endeavors and the impact on the community grows," he added.

BioMed SA sprang from those four pillars, Cisneros said, as an effort to make "two plus two equal five" and develop something that would have substantial impact on the future of San Antonio. BioMed SA is a nonprofit organization charged with growing San Antonio's biomedical industry. In the organization's strategic planning process, BioMed SA identified four disciplines that would allow San Antonio's biosciences cluster to grow into a national and international force.

"First, diabetes because we have a concentration of professional capabilities here as well as serious problems," Cisneros said. "Second is traumatic injuries because we have the seedbed of military medicine that is world class in burns and trauma; neurosciences because stroke is a leading killer; and finally, there's infectious diseases."

Cisneros said San Antonio's vision for the biosciences cluster is to do "noble work." Some cities, he said, build their economies around casino gambling or manufacturing cigarettes. "Here," he said, "we want to sell a healthy life for people around the world. We want our children in elementary and middle school to excel in science and math that will give them jobs that allow them to care for people for the rest of their lives."

Attracting Businesses to the Cluster
Mir Imran, the CEO of InCube Labs, explained how his company got public and private financing to add operations to San Antonio. He had planned to set up shop in Dallas, but BioMed SA President Ann Stevens, Cisneros, and other industry leaders convinced him to move to San Antonio instead.

"What really sold me, besides the financial support the city put together to cover expenses of our laboratory, was the cohesive business environment in San Antonio," Imran said. "The business leadership and city leadership work hand in glove and everyone was pulling in the same direction."

For the first time ever, San Antonio invested public resources in a private corporation, giving InCube a $10 million grant to move three of its budding companies to the city. In addition, the Texas Emerging Technology Fund gave $9.2 million, and the financial community, business leaders, and others invested almost $30 million in Imran's venture capital fund - InCube Ventures. The fund invests in companies developed by InCube Labs, as well as external companies.

Imran says one of the biggest challenges facing emerging companies in San Antonio is lack of venture capital. "I'd like to see ten more venture funds because if there isn't risk capital, it's hard to attract companies with entrepreneurs," he said.

When medical device company Medtronic looked for a new home for its diabetes management unit, it considered 930 different cities. Three of its top five were in Texas. But General Manager Jeff Ruiz says San Antonio stood out from its competitors because of its labor force and its business climate. The city's vision for the biosciences cluster helped Medtronic see possibilities for future growth.

"I can't underestimate that," Ruiz said. "That cluster and that vision for what San Antonio was building was very important to us to know that we had capabilities and options going forward."

The fact that San Antonio sent a delegation, led by Cisneros, to Los Angeles to woo Medtronic also played a vital part in the company's decision to relocate there. "We went to a lot of places, but nobody else came to us," Ruiz said. "The whole group came and told a story and set out a vision that Medtronic could be a part of helping build a city of health and healing. I can't tell you how much that mattered to us, that we could play a part in helping to build that."

Any City Can Build a Cluster
Ken Trevett, the president and CEO of the Texas Biomedical Research Institute, offered advice for anyone interested in organizing a cluster. San Antonio's experience in biosciences could apply to any other sector - aviation, cyber security, or manufacturing.

"All industry clusters of any significance require advocates," Trevett said. "Public support is extremely important for the vitality of the sectors." He urged new or aspiring clusters to form an advocacy organization like BioMed SA.

Trevett recommended that such a group have a diverse board of directors. "If you have organizations within the sector, say an aviation sector, you may have people who are interested in communication systems or navigation systems, so you want your board to reflect that diversity," he said. "You also want your board to turn over on a pretty regular basis, so that you have new people getting invested, not just in their particular industry, but in the industry cluster as a whole."

Then, if the organization is big enough, appoint a CEO to emphasize team building and collaboration.

"From the beginning, you should try to properly resource your advocacy organization," Trevett said. "You need to have the vision of what you need to do and want to do and properly assess what that's going to cost."

It's extremely important for the group to serve as an honest broker and not put themselves in the position of picking winners and losers within the sector, Trevett said. "The group should be very careful about taking sides on public policy issues that are not directly related to the mission and goals of the group as a whole."

He suggests retaining a high quality advertising and public relations firm. Not only should it be credible within the community, but it should have good chemistry with the staff and leadership.

"The group should develop effective communication with elected and appointed officials at the local, regional and state levels," Trevett said, "maybe even the national level."

Finally, the group should develop good relationships with members of the news media. "I would remind people that many members of the media today are now general assignment reporters so you may need to take extra time to educate these folks about your organization or group," Trevett said. "That time is well worth it."

A city doesn't have to be content with one cluster, said Cisneros. New clusters have been created in San Antonio over the last several decades, like tourism, manufacturing (23 vendors are now supporting Toyota's truck plant), cyber security and financial services. "A great city cannot plan to stand still because standing still, by its definition, is moving backward," Cisneros said. "Others are moving ahead. The only option is to innovate, adapt and go forward."

Copyright © Texas CEO Magazine.


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