The Cambridge high tech cluster: resilience and response to cyclical trends

Abstract

This paper explores trends shown by technology based companies in the Cambridge area over the cycles of the past two decades. Influences from the macro-economy include the impact of the information revolution on the area, the recession of the early 1990s and the technology crash of 2000. The expansion of the cluster of Cambridge tech firms over time reflects the extent to which firm entries have exceeded exits since the 1960s and the high survival rates of new firms. There has been sector-specific volatility in the current decade, pre-figuring economic difficulties since evident elsewhere. In order to reveal the dynamics behind trends at the cluster level, data are examined by sector, size and cohort. This shows that the decline in firm numbers between 2002 and 2006 reflects the founding of large numbers of short-lived IT software firms during the technology boom. Branches of corporations headquartered elsewhere have increasingly been attracted to the area but the larger tech based businesses in the Cambridge area are found to be those long-standing to Cambridge. Branch firms were more prone to closure and relocation than the larger indigenous firms with their accumulated local competence. Biotech and R&D experienced steady growth through the 1990s and 2000s with an increase in firm and job numbers. The biotechnology sector contracted along with the recent reduction in venture capital but the R&D sector continued to grow. Cambridge technology firms have been attractive targets for acquisition by corporations seeking to improve their innovation performance by buying promising technology. The number of acquisitions rose during the boom years, particularly in Biotech and IT, with associated cutbacks in employment in acquired units. The boom in venture capital investment and the incidence of acquisition during the boom period may be related. VCs seek early exit from their investments and acquisition rates fell along with the fall in local venture capital funding. After 2004, the fall in the number of tech start-ups (as compared with county VAT registrations for all new firms) and increasing numbers of exits, indicate that Cambridge tech-based firms were experiencing pressures specific to high tech. Long term effects of lower firm entries will depend on survival rates and the growth of surviving firms. During the recession of the early 1990s, a smaller cohort of tech start-ups achieved higher survival rates than those started in boom years. The number of new firms active in emerging technology sectors points to continuing innovation and diversity among firms in the Cambridge technology cluster despite a contraction in numbers of start-ups which anticipated the economic downturn. In the current financial situation, knowledge based firms engaged in technological and creative activity are more important than ever as providers of exports and of the skills of the future.