Technology Transfer and Commercialization: Their Role in Economic Development

July 26, 2004

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Over the past several decades, the U.S. economy has been undergoing a series of substantial, sometimes exhilarating, sometimes wrenching, transformations. Industry structures are in constant churning—firms are merging, acquiring, leaving, dying, entering, growing, downsizing, outsourcing, and spinning off. At a faster and faster pace, the U.S. economy is experiencing the phenomenon the economist Joseph Schumpeter called “creative destruction.”

"Technology Transfer and Commercialization: Their Role in Economic Development" by:

Andrew Reamer

Andrew Reamer & Associates

Newton, Massachusetts

with

Larry Icerman

Icerman & Associates

Santa Fe, New Mexico

and

Jan Youtie

Economic Development Institute

Georgia Institute of Technology

Atlanta, Georgia

The process of structural change shows no signs of abating. Markets and industries are far more competitive and volatile than before. With the availability of new production, transportation, and communication technologies, developing countries can effectively compete with industrialized ones in a number of markets. As the pace of technological innovation has exploded, leading to a stream of new goods and services, emerging firms and industries are constantly rising to challenge older ones.

The multi-decade process of radical economic change has significantly transformed regional economies across the United States. The ongoing series of industrywide downsizings and expansions and corporate mergers, acquisitions, failures, births, and relocations has led to major geographic redistributions of jobs and income. While some regions have emerged in better shape than others, no region of any size has escaped the pain and uncertainty involved in the restructuring process. Even regions now dominant in high technology once experienced substantial job loss before their recent remarkable upturns. Moreover, as the process of creative destruction intensifies, the uncertainty of the future has become clear to all regions, regardless of their current status. No U.S. region can take its economic stability for granted.

To address pain and uncertainty, and to take advantage of opportunity, regions around the United States have created and implemented a diverse array of economic development strategies. While diverse in focus, these strategy elements have one key characteristic in common—they strive to support firms that increase the region’s value added per worker. They seek to add value to corporate operations through investing in a region’s assets, such as its ability to innovate, entrepreneurial base, workforce, physical facilities, and venture capital base. These assets have provided the foundation for the ongoing transformation of the U.S. economy. Experience suggests that, in the long run, those regions that prosper are the ones that have competed on the basis of value, investing in their assets, and not on cost alone.

In many regions, certain development tools aim to build value by encouraging the development and commercialization of new technologies. While much attention is paid to successful innovations in high-technology industries, such as biotechnology and software, market opportunities for innovative technology-based products exist throughout all goods-producing industries, such as carpets and automotive parts, for instance. In fact, in 2001, less than 50 percent of the patents granted by the U.S. Patent and Trademark Office are for technologies in high-technology industries.

From an economic development perspective, the primary reward to a region in which successful technology development takes place may be, but is not necessarily, new employment directly resulting from the commercialization of that technology. In this age of geographically dispersed corporate functions and outsourcing of manufacturing, distribution, administrative, and service activities, the direct employment benefits of a successfully commercialized technology may be spread across many locales. Whatever the direct employment benefits, an important regional reward for successful technology development and commercialization is the enhanced capacity to attract additional wellpaid jobs related to innovation.

If an area is seen as having the human talent needed to enable successful technology development and commercialization, other firms, entrepreneurs, and researchers are attracted to the area, leading to “virtuous cycle” of additional successful technologies, waves of new technical staff, and a stream of new businesses.

Successful development and commercialization of innovative technologies is a difficult, multifaceted endeavor, and a variety of development tools exist to promote this activity. by far the most popular approach to directly promoting successful innovation is through technology transfer and commercialization programs. For the most part, the state and regional organizations with primary responsibility for economic development do not manage these technology transfer and commercialization efforts, which usually require a level of technical expertise not found in traditional development agencies.

While the aim is to promote economic development, technology transfer and commercialization programs tend to operate in a “parallel universe” apart from, and often uncoordinated with, general purpose economic development organizations. The geography covered by place-based technology transfer and commercialization programs is often different from that covered by development agencies. While many economic development agencies cover only part of a region (e.g., a county), technology transfer and commercialization initiatives are rarely smaller than a multicounty region in geographic scope. Many are statewide in focus; a few are multistate.

Technology transfer occurs when a firm obtains technology from an external source (e.g., a university, a federal laboratory, another corporation, or an individual). All innovation builds on existing knowledge. So technology development very much depends on scientists and engineers knowing about and having access to other researchers’ good ideas and discoveries. The greater the extent to which technical staff have knowledge of and access to other researchers’ work, the more likely they will develop new technologies that can be the basis for successful products. Technology transfer is essential to technology development. The potential economic development impacts of technology transfer are so compelling, in fact, that states and regions across the country with valuable repositories of technical information (e.g., universities, federal laboratories, and technology Executive Summary businesses), have created public and nonprofit technology transfer initiatives. These initiatives, numbering in the hundreds, aim to increase the supply of and access to unique local technical information in order to bolster the development of new technologies. Such programs are found in every state and in all types of economic areas, from the well-to-do to the less-well-off, from those rich in technology assets to those less so. These placebased technology transfer initiatives are diverse in nature. They differ greatly in the types of technical information offered, the means of providing it, sponsorship, industry breadth and focus, and impetus for creation.

Commercialization is the process of transforming new technologies into commercially successful products. The commercialization process includes such efforts as market assessment, product design, manufacturing engineering, management of intellectual property rights, marketing strategy development, raising capital, and worker training. Typically, commercialization is a costly, lengthy process with a highly uncertain outcome. The costs of commercialization can run from between 10 and 100 times the costs of development and demonstration of a new technology.

Moreover, success is rare—less than five percent of new technologies are successfully commercialized. Even when successful, technology commercialization does not happen quickly. On average, the commercialization of university research takes over six years. Commercialization of radically new technologies can take well over a decade. Given the multiple resources required for successful commercialization of technology, it is not surprising to find a large number and variety of state and regional commercialization programs. Examples of such programs include technical assistance in product design and manufacturing engineering offered by public universities; access to market assessment and intellectual property experts through regional technology councils; and access to the equity capital needed to finance technology commercialization through public venture capital funds.

For the full report (PDF) : http://www.eda.gov/ImageCache/EDAPub ... a_5fttc.pdf
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