120426 Ah Innovation

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1 INNOVATION ECONOMICS ALEX HARYOWISENO FUTURE CHRISTCHURCH: STRATEGIES TO ECONOMIC RECOVERY

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I N N O V A T I O NE C O N O M I C S

ALEX HARYOWISENOFUTURE CHRISTCHURCH: STRATEGIES TO ECONOMIC RECOVERY

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1. Innovation Economics

1.4. Perceived Barriers to DevelopingInnovation culture

1.2. Connective Structure

1.3. Commercialization as a form of Knowledgetransfer

1.1. Innovation through the BuiltEnvironment

Thesis Framework

Thesis Statement

2. Creating a Culture Based onInnovation

2.1. New Zealand Within the Global Context

2.2. NZ’s Market Orientation

2.3. Christchurch’s Industry Profile

2.4. Conclusion: Creating InnovationCulture

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Table of Contents

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3.1. Sector Priorities

3. Fostering Connectivity & anInnovation Ecosystem

3.2. A Measure of Innovation

3.3. An Overview of NZ’s Innovation Landscape

3.4. An Overview of Policies

3.5 Overseas models

3.6 Conclusion: Fostering Connectivity and anInnovation Ecosystem

4. Educated Workforce

5. Urban & Building Design

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4.1. The Importance of generatingan Educated Workforce ______________28

4.1. Graduate Concentrationsin Canterbury Universities ______________29

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Thesis Statement

The Innovation Economics doctrine is a theory whichputs the importance of technological developmentand transfer of knowledge at the centre of a nation’seconomic growth. Knowledge and its subsequent

products are seen as important factors alongsidetraditional primary commodities. It has shifted frombeing seen as independent forces unaffected bypolicies, to being a driving force which promotesproductivity and better use of resources.

The two key questions to be asked when consideringthis : Why should New Zealand consider adopting thisthinking into its economic development strategy? andwhat is this theory’s significance in terms of creating a

strategy for Christchurch’s recovery?

New Zealand’s orientation towards the primaryindustries is widely known, with its agriculture andforestry products being the country’s top export incomegenerators. The country has also marketed its productsbased on its clean and green image. However, thisover-reliance on the exploit of natural resources hasresulted in the inability to reverse the country’s declinein prosperity since the 1970’s, as seen in its current

position within the Organization for Economic Co-Operation and Development (OECD). Sitting at 22ndout of the 33 registered countries, New Zealand fallsshort in terms of Gross Domestic Product (GDP) percapita compared to the average OECD mark, as well ascountries such as Australia.

New Zealand currently generates $29,800 GDP percapita, 35% behind Australia and 20% below theOECD average standard. One of the key reasons for

New Zealand’s decline in GDP is the persistence ofintense labour and low-impact jobs. It is recorded thatNZ workers put in as much as 15% more working hoursand generate 20% less returns when compared to theOECD average.

In order to just maintain this current position, NewZealand needs to generate a minimum of $120,000per employment, given its current FTE number of1,300,000 (1 FTE = 1 Full Time Employment). Industrysectors such as winery and tourism, although popular,can only manage at the moment to generate $100,000and $80,000 per job respectively. This is again causedby their nature to employ labourers for largely unskilledand low-impact jobs. It is clear that we need to lookbeyond the current orientation and invest in a sectorwhich has potential to prosper in the long term.

The key to generate values beyond the current minimumamount will be to invest in sectors which create highimpact margins. The science, technology, as well asthe high value manufacturing and services industryare sectors which present us with this opportunity. Inthe scale of New Zealand, Fisher & Paykell is currentlythe leader in innovation as well as R&D. The companycurrently employs 1,250 people and generates $290million in revenue per year. This accounts to $232,000generated per FTE, making it one of NZ’s top earningcompanies.

In the scale of Christchurch, emerging companiesin the Information and Communications Technology(ICT) sector present an opportunity to progress inthis direction. ICT currently employs 4500 people inChristchurch and generates over $ 850 million GrossRegional Product (GRP) per year. This accounts to anaverage of $190,000 generated per FTE, 60% morevalue than the minimum required for New Zealand tomaintain its current economic position.

The city also has over 10,000 employees in the field

of science and research which will be beneficial increating the initial talent pool needed to establish it as acity for science, technology & innovation.

Christchurch holds potential in fostering this new

aspect of economic growth, where it is recorded that thecity has a substantial number of graduates from its universities (Canterbury students make up around 25% ofNZ’s graduates). By fostering this talented workforce,the city will be able to create a ‘self-reinforcing cycle’which creates a synergy with its existing manufacturingindustries as well as Canterbury’s agriculture sector.The emerging industries in science and technologiesserve as potentials for development and may introducemore technological export products to New Zealand’seconomy, while the existing industries also stand tobenefit from improved efficiency as a result.

This thesis proposes to look at architecture’s role inencouraging the regeneration of economy throughinnovation and technological development. It isrecognized that the integration of competencesfrom various social areas, such as education,science, politics and the public, is an integral partof encouraging growth through innovative means(Simmie, 2001). As such, the research and designprocess will take stance from an ecological perspective.Within this methodology, architecture has taken up thefunction of contributing to the continuous provisionand adaptation of the built environment as a framingsystem of social communication and organized spatialrelations (Schumacer, 2010). As an ecological system,Architecture becomes the connective strand whichcreates the possibility for innovation and diffusion ofknowledge to happen.

The built environment operates as a catalyst for thesedevelopments to happen but they are dependent on theprogression of other economies within the city. Aspectssuch as quality of life, advancement in sustainable

practice will be necessary in order to maintain thestandard of living to allow these environments tooperate. The interdependency of these different aspectswill also be looked at as part of the design’s ecologicalframework.

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1. Innovation Economics

The concept of innovation economics positionsa nation’s advance of technological developmentand knowledge transfer at the centre of itseconomic strategy (Lambooy & Boschma, 1998.).One of the fundamental aspects to this doctrineis that higher productivity, efficiency and moreeffective use of resources should be achievedthrough higher levels of innovation.

In many cases within the world’s emerging anddeveloped countries, this would mean a shift

away from the traditional material economy basedon export and manufacturing, and into a newparadigm which fosters innovation capacity andknowledge based economy. Growth in innovation

economics is the end-product of knowledgetransfer, policies allowing for entrepreneurshipand innovation (R&D expenditures, permits,licenses), technological spillovers and contactbetween collaborative firms, as well as systemsof innovation that create innovative environments(clusters, agglomerations, metropolitan areas).

Empirical evidence worldwide points to a positivelink between technological innovation andeconomic performance. For example, Germany’s

flourishing Bio-tech industries can be attributedto a national innovation system where there existssuch factors as R&D subsidies to joint projects,network partners, and clustering effect which

facilitates close contacts with research associates.

A shift towards innovation leads to a betterperception the quality of life, as shown in the GESurvey for global innovation (2012). Innovationis seen to have significant potential in facilitatingfuture advances in the fields of healthcare, energy,environmental quality, as well as improving thejob market.

The following sections will look at the necessary

aspects required in order to implement thiseconomic theories, as well as the perceivedbarriers currently faced by New Zealand in orderto establish itself as an innovative country.

1. Innovation Economics

WORKFORCEATTRACTION

MARKETINTERACTION

ORGANIZATIONS&

POLICIES

INNOVATIONPROCESS

Adaptation of environment

Adaptation of environment

Conducive Innovation

Environment

(Fig. 1) Innovation Economics Diagram (Fig. 2) Diagram on the Perceived Effectsof Innovation

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1. Innovation Economics

1.4. Perceived Barriers to DevelopingInnovation culture

Efforts to introducing Innovation to New Zealand’seconomy is currently met with several barriers which canbe classified into problems within 3 differing scales ofinteraction: Culture, Connectivity and Capability.In order to implement an economic strategy based oninnovation, it is necessary to locate key areas of issueswithin these aspects, as well as the possible solutionswhich can be facilitated by a consideration of the urbanand architectural form.

1. The first problem looks at New Zealand’s National andOrganizational ‘Cultural Barriers’, which involvesthe current interaction between New Zealand and theglobal market. In order to establish innovation as a keyfactor in the progress of the country’s economy, severalproblems within this aspect can be identified:

• New Zealand’s position within the OECD ranking

•The reliance on primary industries and the exploit of

natural resources as being key earners for the country

•Relatively low support for the long-term investment

in R&D, which is reflected in the current level ofgovernment funding

2. The second problem looks at the issue ofConnectivity, which deals with the way organizationsoperate and policies are implemented to supportthe progress of innovation. The following problemscurrently needs to dealt with:

• Fragmentation in geographical spread and lack

of business and research clustering. Sub-optimalnetworking and collaboration between industries,universities and government research facilities

• A lack of advanced technology manufacturing

infrastructure

• Sub-optimal networking and collaboration between

industries, universities and government researchfacilities

• There is a need to turn more research projects into

commercial products

3. The third problem looks at Capability issues,revolving around the workforce needed to support theprogress of innovation. Current problems exist whichrevolve around:

• Low mobility of R&D staff between universities, CRIs

and industry

• Problems with the attraction and retention of an

educated workforce.

1.2. Connective Structure

1.3. Commercialization asa form of Knowledge transfer

1.1. Innovation through the BuiltEnvironment

Innovation is serendipitous in its nature. As such, it isimportant to consider that we can not plan innovationas a linear process. Rather, we can create environments

within which innovation can flourish as the result of theorganic process between its associated actors (researchinstitutions, small to medium sized companies,government research facilities, etc.). (Komninos, 2008)

The Agglomeration theory (close proximity of businesseslead to a higher level of competition and thereforea higher level of productivity) is seen as a significantcontributor to innovation, and regions which possesssuch urban configurations, signified by the presenceof high quality facilities and attractive environments arein a better position to attract and retain innovators andbrainworkers. (Lambooy & Boschma, 1998)

Local mechanisms such as meetings at tradeshows,conferences, seminars and social activities are alsoseen as contributors to the exchange of knowledge inthe region.

The discussion in regards to innovation alwaysemphasizes the importance of cooperation - It attributesinnovation to the ability of organizations to collaborateand advance collective learning and knowledge sharing.There is a great need to promote an awareness toinnovation culture within businesses, organizations & thegeneral public. Entrepreneurship, cooperation betweeninstitutions, research facilities, as well as companies allcontribute to this to create networks of synergy (Simmie,

2001.) In order to facilitate this connectivity, measure ofbusiness clustering which is enabled by a considerationof the urban fabric will be needed. This facilitatesincreased ccolaboration between organizations whichcan lead to higher levels of productivity

Research is a crucial component of innovation; but itbecomes fertile by mobilizing various capabilitieswithin a wider system of knowledge, risk taking &

entrepreneurialism. Converting scientific knowledgeinto new products and services, which is the core processof innovation, is only feasible under an environment richin resources for research, experimentation, financingand entrepreneurialism.

In order to facilitate the organic nature of theinteractions, a conducive innovation environment needsto be provided, one that allows the 5 basic innovationfunctions to operate: research, funding, technology

transfer, new product development, and innovationsupply networking (Komninos, 2008)

2 1 C ti I ti C lt NZ’ ithi th Gl b l C t t

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2.1.1 New Zealand’s decline in OECDranking

The Organization for Economic Cooperation andDevelopment (OECD) report has highlighted NewZealand’s decline in economic growth when com-pared to the OECD average. Although NZ startedout well above the OECD average in the 1970s, itsposition continued to fall down. It currently sits at22nd out of 33 countries.

The entry of Britain into the European Union andthe resulting loss of free entry to British marketsfor dairy products, and the oil price shocks of the1970s are also potential explanations for NewZealand’s relative fall in the real GDP per capitarankings during this period.

Although New Zealand performs well in certainareas within the OECD’s measure, some aspectsare lacking which ultimately lead to the inabilityfor the country to reverse the decline in prosperity.

For example: New Zealand ranks as the 3rd mostdemocratic country and the 6th in terms of itsachievement in the field of science, however it

currently sits on the 26th position in terms of therate of employment output.

The cause of this as well as its impact on thenation’s economy will be discussed in thefollowing sections.

Source: Little, S. (2010). Role of Innovation in Economic Growth in a New Zealand Context. Wellington: The Treasury.

2.1 Creating Innovation Culture: NZ’s within the Global Context

2. Creating a Culture Based onInnovation

The first aspect necessary to introduce innovationinto to a country’s economic development planis situated within the global realm - that is todetermine the country’s current position given itseconomic strategy, and whether a shift towardsan approach based on innovation is needed

This step starts by looking at how New Zealand isdoing economically compared to other countriesin the Organization of Economic Cooperation andDevelopment (OECD) (Section 2.1), an analysisof NZ’s current market orientation will then bedone to determine whether it deters or supportsNew Zealand’s progress (Section 2.2). A localstudy based on Christchurch’s existing andemerging industries will then be carried out tolocate opportunities within the scale of the city.(Section 2.3) A conclusion will then be drawnout (Section 2.4)

2.1. New Zealand Within the Global Context

Oil Price Shock & Loss of Britain Dairy Market

(Fig. 3) OECD ranking (1972 to 2009)

2 2 C ti I ti C lt NZ’ M k t O i t ti

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2.2 Creating Innovation Culture: NZ’s Market Orientation

2.2.1. A Measure of NZ’s Productivity

The decline in New Zealand’s relative prosperitycompared to other OECD countries since the1970s can be attributed to its current economic

orientation favoring industries with intensivelabour and low-impact output.

This fact is shown in the diagram to the right,which measures a country’s properity in termsof the average number of working hours andthe amount of output generated per person. Itis clearly shown that New Zealand is the secondhardest working country out of the list (putting

around 15% more working time compared to theOECD average), yet generates one of the lowestoutput (We achieve an output worth only 80% ofwhat the rest of the OECD countries achieve)

2.2.2. New Zealand’s Market Orientation

& Free Trade Arrangements

New Zealand currently generates an averageof $29,800 GDP per capita. In order to justmaintain this rate (and thus its 22nd positionout of 33 countries), we need to generate$120,000 from every one of our 1,300,000Full Time Employments (FTE). However, NZ’scurrent economic orientation towards primaryexports in agriculture, forestry low-skilled andlow-impact employment makes this hard to do.

Popular industries such as wine and tourism onlygenerate around $100,000 and $80,000 per FTE.In order to prosper in the long term, we need toconsider other sectors which has the ability tocreate high-impact employments.

2.2. NZ’s Market Orientation

(Fig. 4) Measure of productivity within OECD countries

(Fig. 5) Amount of revenue generated per FTE

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TOP 3 COUNTRIES FOR NZ EXPORT:

Dairy Export (2007 - 2011)Meat Export (2007 - 2011)Wood Export (2007 - 2011)

data sourced from www. stats.govt.nz

2.2 Creating Innovation Culture: NZ S Market Orientation

(Fig. 6) NZ’s market orientation, showing increasing reliance on primary industry exports

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2.2.3. Opportunities for Development

The key to generate values beyond the currentminimum amount will be to invest in sectors whichcreate high impact margins. The science, technology,as well as the high value manufacturing and servicesindustry are sectors which present us with this

opportunity. More emphasis needs to be put onpotential technology markets (e.g. Electronic parts inAustralia - Fig.6 )

For example, Fisher & Paykell is currently the leadingcompany in R&D. The company currently employs1,250 people and generates $290 million in revenueper year. This accounts to $232,000 generated perFTE, around 90% more than the average amountgenerated per FTE in New Zealand. In order to make

sustainable progress in the future

2.2 Creating Innovation Culture: NZ S Market Orientation

2.2.4. Current Level of Investment inR&D as a Barrier to Innovation

The amount of R&D spent as a percentage of a nat ion’sGDP can be seen as an indicator of whether a countryis leaning towards prioritizing high-impact sectors.As such, the relationship between the two can oftentimes be seen as linear (as seen in Fig. 8 - countries

which spend more on R&D generates more GDP percapita because it is less focused on providing lowimpact employments). The graph shows that NewZealand is underperforming when compared to othercountries within this respect. A need to better utilizethe country’s resources has been acknowledged, andone of the ways to go forward is to improve efficiencyand productivity through innovation and R&D.

There is a relatively low level of overall expenditure

on R&D as a percentage of GDP (1.30% in 2010,compared with the OECD average of 2.33%). Theseratios are considerably less than those in othereconomies similar to that in New Zealand.

Source: Raine, J., Teicher, M. & O’Reilly, P. (2011). Powering Innovation. Wellington: Ministry of Science & Innovation.

NZ invests the least amount of R&D andgenerates the least GDP per capita

(Fig. 7) Revenue generated per employee in top tech companies

(Fig. 8) Comparison of GDP to R&D investment (1981 - 2009)

2.3 Creating Innovation Culture: Christchurch’s Industry Profile

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2.3.1 Existing and Emerging Sectors

within Christchurch

(Fig. 9) Industry GRP Progression (2000 - 2009)

(Fig. 10) Industry Employment Count (2000 - 2009)

An analysis into the statistics of employment andGRP per industry in Christchurch shows that amajority of its employment opportunities comefrom the manufacturing sector. This industryalso generates the second highest amount ofGRP for the city in 2009, next to the propertyand business services. However looking at theemployment count of this industry reveals that it

has seen quite a significant decline of around 15 %between the period of 2006 and 2009 - a possiblecause of this is the increasing value of the NZDbetween this period (0.59 to 0.75 index), whichlimits exporter income .

Another analysis of the GRP per industry valuesalso reveal Christchurch’s emerging industries,notably in the health & community services area,

as well as the communication services.

The health & community services experiencedand increase of GRP by 25% in the period between2000 and 2009, and is currently the second largestemployer in Christchurch next to manufacturing.

The communications services (ICT) sectoris an interesting case of a high growth sector.

Although levels of employment remained modest(around 4500 people) in the period of 2010, theindustry generated a high amount of GRP in 2009and shows a significant growth in this respect (GRPgrew almost 50% within a period of 10 years)

Source: www.ccc.govt.nz

2.3 Creating Innovation Culture: Christchurch s Industry Profile

2.3. Christchurch’s IndustryProfile

2.3 Creating Innovation Culture: Christchurch’s Industry Profile

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2.3.2 Innovation Economy Vs.Embedded Economy

In ‘The Economies of Cities’ (2007) Sassen bringsforward an enquiry into the nature in which inno-vation economics principles are introduced intoa city’s development strategy. An argument was

made regarding the role of the old material econ-omy (manufacturing industries, etc.) with regardsto its newer counterpart (High Value Manufacturingand ICT, etc.).

Source: Stats NZ. (2009). International engagement by NewZealand businesses. Wellington: Stats NZ

Rather than abandoning a city’s older sector, asuggestion was made to create a synergetic rela-tionship between the two different industry types.Introducing strategies based on innovation has thepotential to reverse the role of manufacturing and

service.

While the service of labour is traditionally used ina linear pathway to produce finished commoditythrough manufacturing, a reversal in thismethodology would create a ‘self-reinforcing cycle’(Simmie, 2001) - which means that manufacturingwould benefit the high value services as well asthe ICT sectors, whose products can be utilized to

further improve the efficiency and product qualityof the manufacturing industry. There is possibilitythat this process can be applied to Christchurch tohelp create a powerful innovation agglomeration.

This trend shows the increasing value of GRPgenerated per capita within this industry. In2010 the industry generates over $850 million inrevenue, adding up to $190,000 per FTE.

The survey of the industry’s engagement withthe service export market also shows a strongreturn,with IT (part of the ICT industry) placingsecond in terms of income from overseas.

The decline in employment of Christchurch’s mainindustry, as well as the trend in emerging sectorswould suggest that a shift will be taking place inthe coming years which favours the emerging high

impact technology industry.

2.3 Creating Innovation Culture: Christchurch s Industry Profile

2.4. Conclusion: CreatingInnovation Culture

New Zealand’s decline in prosperity since the1970s, triggered by the oil price shocks and theloss of the British dairy market, has resulted in itscurrent position within the OECD. The persistenceof intense labour and low-impact jobs in thecountry has prevented it from reversing this overallnegative trend.

In order to just maintain its current positionwithin the OECD ladder, New Zealand needs togenerate $120,000 from every one of its full-time employment. Popular sectors such as winery

and tourism has been identified, at present, tobe unable to fulfil this demand due to its labourintensive nature.

One of the key solutions identified which may deal

with this situation is to put higher priority towardsgrowing sectors which are characterized by itshigh level of output. The science, technologyand high value manufacturing services have beenidentified as examples of these R&D intensivesectors. Key companies within this sector, such asFisher & Paykell have been recorded to generateover 90% more than the minimum value per FTEneeded for New Zealand.

One of the key barriers to developing this sectorat the moment is the low level of funding towardsR&D made by the government. Although this isnot the only source of funding available within theinnovation ecosystem, government support can becrucial in enabling basic research by companies.

Christchurch already has a strong base of ICT

industries to serve as a basis for introducing morehigh output sectors. Introducing sectors such ashigh value manufacturing and services can alsocreate a synergy with its current manufacturingindustries and both new and existing companieswill benefit from this.

3.1. Fostering Connectivity & an Innovation Ecosystem: Sector Priorities

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3.1. Sector Priorities

In the ranking for sector priorities based onfunding and competitiveness, the Agriculture andfood industry is ranked as the most competitive

and received the most funding. The clean energy,Creative industries, as well as the Information,Communication and Technology sector wasshown to have moderate levels of competitivenessand received relatively low government funding.Section 2.3.1 talks about the opportunity forChristchurch to benefit from its ICT industry, whereit currently generates 60% above the average valuefor 1 FTE. The high technology sectors present the

emerging economies within New Zealand andneed to receive more support in order to become

internationally competitive.

The profile of funding by the Ministry of Science

and Innovation for its 8 Crown Research Institutesshows a trend towards prioritizing research inthe Agriculture sector (CRI Task Force, 2010).However, it was addressed in the ‘PoweringInnovation’ report (2011) that the government willbe increasing funding in the area of High ValueManufacturing (which includes ICT). This is a stepin the right direction towards promoting the highvalue industry in New Zealand. Organizations and

businesses in Christchurch within this field willstand to receive benefit from further funding.

Source: Innovation Policies and Funding in New Zealand: HowEffective Are They? (2011 report). Wellington: MoED

3.1. Fostering Connectivity & an Innovation Ecosystem: Sector Priorities

3. Fostering Connectivity and anInnovation Ecosystem

The previous section discusses the importance ofaligning New Zealand’s priorities towards high growthsectors in the global scale interaction with other

countries in order to reverse its decline in prosperity.The next step is to then consider the issue of enablingthe interaction between organizations within the nationalscale, which would help develop these high growthsectors.

Connectivity between organizations and the presenceof a conducive Innovation Ecosystem are crucial inorder to promote the implementation of InnovationEconomics. It is important, therefore, to understand the

interaction between the current spread of organizationswith government policies and existing industries togauge whether New Zealand and Christchurch providesan environment which enables the organic process ofinnovation to take place.

A general picture will first be drawn by looking at thecurrent priority sectors for research funding, assessingwhether the money put in by the government is beinginvested in the most favourable sectors (Section 3.1).

A current measure of interaction between business,government research institutions, as well as the rate ofR&D activities in businesses will also be looked at tosee whether there is a sufficient level of connectivitybetween these organizations (Section 3.2)

In order to better understand the structure of organizationsand policies involved in enabling innovation, an overallpicture will also be drawn in Section 3.3 and 3.4. Astudy on an overseas model will done (Section 3.5.)

and a conclusion will drawn (Section 3.6.)

(Fig. 11) Sector priority diagram

3.2. Fostering Connectivity & an Innovation Ecosystem: A Measure of Innovation

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In a survey of businesses between the years 2007and 2009, it was found that existing staff membersand costumers were the primary source of busi-ness information. In contrast, tertiary institutionsand CRIs ranked the lowest in terms of providinginformation to businesses. This suggests a lack ofconnection between industries and research insti-tutions and facilities. There is a clear lack of com-munication structure between these institutions

and business which needs to be addressed. Anopportunity to promote better connectivity arisesfrom this situation, because these organizationscurrently represents untapped potentials in con-tributing towards the advance of businesses. (Forexample, Christchurch universities generate 20%of New Zealand graduates and research projectswhich offers potential help for companies trying toexpand their R&D activities)

3.2.1. Source For BusinessInnovation

3.2.2. Level of Innovation Activities

There is a relatively low ratio of Small to Mediumsized Enterprises (SMEs) in New Zealand whichengage in R & D activities when compared tolarge companies (100+ staff members).

A conducive innovation ecosystem shouldinvolve equal interaction by both SMEs and largecorporations, and this low rate of R&D activitymay be caused by an absence of innovationculture and awareness and an overall reluctanceby business to take risk.

Source: Little, S. (2010). Role of Innovation in Economic Growth in a New Zealand Context. Wellington: The Treasury.

Source: Innovation Policies and Funding in New Zealand: How Effective Are They? (2011 report). Wellington: MoED

Overall trend of decline (especially in small & medium enterprises)

3.2. A Measure of Innovation

(Fig. 12) Source of business innovation

(Fig. 13) Trend in business innovation (by size - number of employees)

3.3 Fostering Connectivity & an Innovation Ecosystem: NZ’s Innovation Landscape

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3.3. An Overview of NZ’sInnovation Landscape

Tertiary Institutions

Tertiary institutions in New Zealand are comprised

of three main bodies: Universities (AucklandUniversity, Otago University, etc), Polytechnics(Unitec, etc.) and the Wananga.

These institutions are one of the leading sources ofresearch projects, and is connected to offices whichorganizes the turning of intellectual properties intocommercial products.

Crown Research Institutes are publicly funded

research facilities which conducts projects basedon industry sector needs.

Their range of expertise varies from fields inagriculture, geology, to ICT

In order to better understand the way the innovation

system operates within the country, it is necessaryto break down the structure of innovation into itsmain actors.

As it currently stands this comprises of threetypes of organizations: Research Facilities (TertiaryInstitutions, Crown Research Facilities andIndependent Research Organizations), Centresof Research Excellence which aims to create asynergy between the different research facilities,and finally funding agencies and offices, whichprovide the initial investment for these facilitiesto conduct research, as well as services whichturn completed research projects into profitableproducts.

Crown Research Institutes3.3.1. Breakdown of OrganizationTypes

3.3 Fostering Connectivity & an Innovation Ecosystem: NZ’s Innovation Landscape

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Independent ResearchOrganizations

Privately funded research organizations of differingfields of expertise

Centres of Research Excellence(CoREs)

The Centre of Research Excellence is a relativelynew typology within the main bodies of New Zea-land’s innovation field.

It represents the interaction between tertiary in-stitutions with publicly funded Crown ResearchInstitutes. Eight centres of excellences existthrough New Zealand, each focusing on a specificfield of interest.

Funding Agents

Government funding agencies. Each one offersfunding and incentives based on their own fieldsof interest. A number of organizations, such as theMinistry of Science and Education holds annualinvestment round, in which applications can bemade to secure a contract with the organization

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Crown Research Institutes (red dots on theNew Zealand map)

Eight CRIs were established in 1992 asgovernment owned businesses with a scientificpurpose. Each institute is based around aproductive sector of the economy or a groupingof natural resources.

1. AgResearch – A life sciences researchorganisation with an increasing emphasis on

product development and commercialisation ofAgricultural Bio-technology.

2. Institute of Environmental Science andResearch Ltd (ESR) – Provides specialistscience solutions related to public health,environmental health and forensic science.(Micro-biology)

3. GNS Science (Institute of Geologicaland Nuclear Sciences Ltd) – the NewZealand Crown owned research institute thatfocuses on geological resources, environmentaland industrial isotopes, and natural hazards.

4. Industrial Research Ltd (IRL) –Undertakes science, development and technologycommercialisation in areas of communication,

information and electronic technologies,advanced materials and performance, intelligentdevices and systems, biochemical technologies,energy technologies, complex measurement andanalysis.

3.3.2. Spread of ResearchOrganizations

Source: Raine, J., Teicher, M. & O’Reilly, P. (2011). Powering Innovation. Wellington: Ministry of Science & Innovation.

(Fig. 14) Map of NZ research organizations

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1. Building Research Association of NewZealand – company supplying research, testing,consulting and information to the buildingindustry

2. Cawthron Institute – marine, freshwater andaquaculture research

3. Cement and Concrete Association of New

Zealand

4. CRL Energy Research – energy andenvironmental consulting company

5. DairyNZ – industry body funding R&D andtechnology transfer

6. Fert Research – the New Zealand Fertiliser

Manufacturer’s Research Association

7. Harmonic – NZ’s Information andCommunications Technology Research Institute

8. Heavy Engineering Research Association(HERA)

9. Malaghan Institute of Medical Research

10. Beef and Lamb (formerly Meat and Wool)New Zealand – funding for R&D and technologytransfer activities

11. New Zealand Leather and Shoe ResearchAssociation

12. New Zealand Plant Breeding and ResearchAssociation

13. Transport Engineering Research NZ

14. Information Technology and Communications

5. Landcare Research – Research focuseson six areas: biodiversity and ecosystem

processes, greenhouse gases and carbonstorage, sustainable business and government,biosecurity and pest management, rural landuse and urban environmental management.

6. National Institute of Water andAtmospheric Research (NIWA) –Provides a scientific basis for the sustainablemanagement and development of New

Zealand’s atmospheric, marine and freshwatersystems and associated resources.

7. Plant and Food Research – A sciencecompany formed in December 2008 throughthe merger of HortResearch and Crop & FoodResearch. Provides R&D that adds value tofruit, vegetable, crop and food products.

8. Scion – Provides research and technologysolutions to all levels of forest and woodproducts industries, including biomaterialsscience, alternative species and plantationresources. Scion has recently extended itsfocus beyond wood to meet the growingconsumer demand for renewable materials andproducts from plants.

Independent Research Institutes

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3.3.6. Clustering Mechanism

The importance of urban clustering has beenidentified as beneficial to a city’s efforts inharnessing its knowledge resource potential(Komninos, 2008). The clustering phenomenon

is described as the building of systematicrelationships between companies and institutions,based on their involvement in specific fields ofexpertise.

The close linkages between organizations withinurban clusters facilitates cooperation as well asimprovement in competition and productivity.Recent studies have highlighted the nature of this

potential as an aspect that is generated throughthe collective transfer of knowledge betweenorganizations which are located within closeprozimities (Nonaka and Takeuchi,1995)

(Fig. 15) Map of Christchurch’s research organizations

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General Engineer

Manufacturing Engineer

Mechanical, Automation,Precision Engineer

Metal Engineer

Several typologies have been identified with respect toa cluster’s life-cycle:

Potential clusters comprise of a collection oforganizations concentrated around a region. However,the are still lacking in synergy which results in a lowlevel of interaction.

Emerging clusters are a concentration of organizationwhich have just started to realise common opportunitiesthrough their linkages and operate around a core activity.

Established clusters are those which have gainedcritical mass (the amount of organizations necessary tofacilitate cooperation and colaboration), and are able todevelop relationships inside and outside of the clusteraround the use of common infrstructure and services.

Declining clusters are those thich have reached theirpeak and have to adapt to changes in order to sustainitself.

A preliminary study to identify Christchurch’s existingurban clusters reveals the broad spread of organizationsparticipating in research activities.These organizationsare mainly focused on the study of energy andagricultural products. Although the city shows great

promise in its high value manufacturing and services(as discussed in section 2.3.), there is currently littleresearch infrastructure and facilities which supports thisfield.

There is however, a trend for engineers and mechanicalmanufacturers to gather in Middleton - Waltham, aswell as the Bromley suburbs. This existing cluster ofmanufacturers and consultancy services represents aemerging cluster which may be helpful in creating

the critical mass required to implement a strategy tofurther the field’s progress in the future. The currentlack of research infrastructure opens up possibilities fororganizations specializing in this particular field to beintroduced in Christchurch.

(Fig. 16) Map of Christchurch’s specialized manufacturing clusters

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3.3.3. Private Organizations

A business incubator dedicated to supportSmall to Medium sized enterprises (SMEs).The organization provides access to variousfunds as well as connections to angel investornetworks. It was named as one of the world’s top

10 business incubators by Forbes magazine.

An organization which serves as a platformfor business investors to generate capital forinvestment in SMEs. Angel investors are affluentindividuals who invest capital in exchange fora company’s convertible debt or ownership

equity.

3000.org.nz is an initiative with a goal to helpset up 3000 New Zealand based businesses bythe year 2020 in order to raise the country’spresence in the international market. It servesas a platform for pitching ideas to better NZ’sinnovation ecosystem.

The New Zealand Knowledge Bank is a knowledgeand information portal proposed by Sir Ray Averyin order to focus the “sum” knowledge of NZ’sinnovation ecosystem and “provide a conduit forInternational Trade and Knowledge exchange”. Itaims to improve the country’s global innovationindex by creating a high density collection

of research information to be accessed bybusinesses.

Power House is a seed-stage investment housespecialising in emerging technologies. Its sectorfocus is on engineering, clean technology,agri- and bio-sciences, software, innovativefoods and healthcare devices. The intellectualproperty powerHouse commercialises comesfrom Universities and Crown Research Institutes

and from private sector businesses. It is based inChristchurch.

Private organizations also play an important roleto creating a conducive innovation ecosystem.The presence of these organization play a majorrole in helping SMEs, because of the amount ofinvestment they make during the initial stages ofthe business’ projects.

The following list provides a examples of theseorganizations which can help SMEs in particularand can serve as a catalyst to attract companies tolocate themselves within their proximity to form aproductive business cluster.

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What incentives support the R&D field in New

Zealand at the moment?

Technology Development Grants: 

designed to assist firms that conduct significantamounts of R&D. The grants cover 20% of projectcosts to a maximum of $2.4M.

TechNZ Project and TechNZ Capability: 

provides 1:1 matching funding for discrete projectsand capability development.

Technology Transfer Vouchers: 

designed to give firms that lack existing R&Dcapacity access to research organizations.

Pre seed Accelerator Fund: 

Helps commercialization of research projects

These incentives provide an opportunity for SMEsto conduct in R&D activities, and thus plays animportant part in enabling Christchurch’s emergingcompanies to undertake the activities necessaryduring the critical initial development stages

3.3.4. Incentives 3.3.5. Christchurch’s Technology Hub

It was announced on the 3rd of April 2012 that

funding has been allocated in the construction ofa new IT hub for Christchurch.

The $1.8m investment into the Enterprise Precinctand Innovation Campus (EPIC) will come as twogrants from the Ministry of Science and Innovationand NZTE

The Christchurch City Council granted the use of

the site on the corner of Manchester and Tuamstreets, rent free for five years. The site wasoriginally the location of a para rubber store

The rest of the finance would come from the Bankof New Zealand, and be paid back with the grantsand rent from tenants.

The bank had naming rights for the hub and would

be a tenant as well. The hub will take 20 weeks tobuild and another month to fit out - It is aimed tobe occupied by August of 2012.

The EPIC initiative is broken down into two stageswhich corresponds with both a short and longterm approach.

The short term stage of the project (EPICSanctuary) will house sixteen companies thatare currently displaced from the CBD by theEarthquake.

In the long term phase of the project (SIGMAStage), the project is expected to attract morethan 700 FTEs, representing a value of $3 millionper annum in rent. Given the current value ofthe ICT sector in Christchurch of $ 190,000,the introduction of this project could bring in anadditional $133 million in GRP to the city when

it’s fully up and running. Comparing these valuesto the level of initial government investment ($1.8million), alongside the cost of providing a rent freesite to the project for five years ($40,000 per yeartotaling to $200,000 over five years - this is howmuch money the government would have made ifit were to follow through initial plans to turn thesite into a car parking lot), the EPIC project isviable in terms of generating a return which wouldbenefit both the city and in promoting the advanceof the technology industry

Preliminary design by Warren & Mahoney

Source: http://www.stuff.co.nz/business/rebuilding-christ-church/6687155/IT-hub-set-for-central-Christchurch

3.4 Fostering Connectivity & an Innovation Ecosystem: Government Policies

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3.4.1. The Knowledge Wave

Source: http://www.localgovt.co.nz/ 

In 2001, They University of Auckland, in partnership withthe labour party, held a conference which was intended to

addresses the long term economic development plan forNew Zealand. A focus on the growing knowledge sector wasemphasized, with workshops held to establishes key policieswhich would help foster the emerging sectors such as scienceand technology. The following are some of the highlights fromthe workshop:

Innovation and creativity

- Provide extra resources for education in priority areas, e.g.ICT

- Ensure cross-fertilisation between industry and researchproviders to ensure R & D is relevant;- Encourage growth of New Zealand venture capital industry;

People and capability

- Liberalise immigration rules to attract immigrants withskills in industry, academia and the arts;- Establish specialist centres of excellence in our leadingresearch institutions.

Sustainable Economic Development Strategy:

- Active foreign direct investment attraction& pursuing freetrade agreements;- Build a young entrepreneur system;- Create specialist industry clusters capable of internationalleadership through consultative and collaborative localprocesses.

Entrepreneurship:

- Create a venture capital industry body;- Create 100 new, high-growth business ventures per annum;- Upgrade the status of science and technology in NZ

 

3.4.2. National DevelopmentPolicies

Source: http://www.national.org.nz

3.4. An Overview of Policies

3.4 Fostering Connectivity & an Innovation Ecosystem: Government Policies

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(Fig. 17)Survey of InnovationActors

(Fig. 18)New Modesof Innovation

3.4.3. Global Innovation Survey

A comparison between the 2001 Knowledge waveworkshop outcome, the GE Global Innovation surveyand the current National Economic development planprovides a comparison between past aspirations,

perceived ideal conditions, as well as current efforts toimprove New Zealand’s progress on innovation.

In the survey of the world’s executives and CEOswith regards to innovation actors, a majority supportsthe idea where an ecosystem is established basedon the synergy between different public and privateorganizations.

The synergy would include the cooperation between

government as well as private investors to encouragethe growth of SMEs as well as large companies. Theneed for better industries access to tertiary institutionand government research facilities is also addressed.New possible modes of innovation were also discussed

where it is yet again identified that innovation dependson the partnership between several different players.The need for more efficient use in R & D funding,as well as greater awareness of innovation culture is

also important to boost innovation activity of smallerenterprises.

A majority of the points addressed within this surveyis actually in line with the 2001 Knowledge Waveworkshop outcome (Promotion of science andtechnology, synergy between different industries andorganizations, prioritizing high value sectors suchas Information Communication Technology, etc.).However, the implementation of these workshop

outcomes has largely been lacking. Over the past 10years, there is still an apparent lack of synergy betweengovernment research facilities, tertiary institutions aswell as industries; and the emphasis of governmentfunding is still largely on New Zealand’s primary

sectors. It is only recently that National has introducednew policies to better support the technological sectorssuch as ICT and High Value Manufacturing.

Although the recent introduction of policies in supportof these high impact sectors represents a step towardsthe right direction for Christchurch (in support of itsgrowing ICT industry), a consideration also needsto be made in how this money is spent. An adequateinfrastructure is needed for the city in order fordevelopments to be made within this field (investmentin internet connection to facilitate transfer of knowledge

among other things)

3.4.4. Past, Present, Future Source: GE Innovation Survey

3.5 Fostering Connectivity & an Innovation Ecosystem: Overseas Model

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3.5. Overseas model

Finland ranks second in the OECD in R&Dinvestment (3.45% of GDP). Investment is mainly

made in the areas of electronics Research &Development, while the traditional industries(wood and metal) account for less than 16% ofthe nation’s GDP. A continuing increase in R&Dspending since 1990, from $600 to $1400 perperson has seen the level of GDP per capitaincrease from $20,000 to over $ 37,500 in 2009.

The following discussion of Finland as a possible

model for creating innovation ecosystem followsa similar structure in enquiry with regards to itsinnovation culture, ecosystem and workforce.

Finland is one of the world’s leader in the field ofinnovation and R&D. They were, however, faced

with a similar post-industry situation in the early1990s, where their manufacturing sector plungedinto decline. As a model of transformation towardsan economy based on innovation, Finland shiftedfrom its reliance in the traditional industry andshifted towards a strategy favoring the use ofknowledge resources. In order to do this, managedto increase the number of researchers in scienceand technology from 16,000 in 1990 to 40,000

in 2000.

New Zealand is now faced with a similar challengeof generating a greater mass of educated workforce

needed in order to shift towards innovationeconomy. In order to catch up to the OECDstandard, it is estimated that the country needsto boost its number of active researchers from4,000 to 20,000 people. The first step towards isto create a culture based on innovation where theimportance of scientific knowledge and technologyis more recognized.

(Fig. 20) Comparison of Innovation Level Between Finland & New ZealandSource: www.globalinnovationindex.org

(Fig. 19) Finnish Science & Technology System

3.5.1 Finland’s Innovation Culture

3.6 Fostering Connectivity & an Innovation Ecosystem: Conclusion

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3.5.2 Finland’s Innovation Ecosystem

Finland’s Strategic Centers of Excellence(SHOKs) -

Finland’s SHOKs are public private partnershipsestablished in the early 2000s, tasked withspeeding up the innovation processes and boostingprivate sector initiated research in par tnership withpublicly funded research.

There are six centres, based around particularareas of industry:

- forest cluster- information and communication industry andservices- metal products and mechanical engineering- energy and the environment- built environment innovations- health and well-being.

Companies and research units work in close

cooperation, carrying out research that has beenjointly defined in the strategic research agenda ofeach Centre. The research aims to meet the needsof Finnish industry and society within a five-to-ten-year period.

R&D activities are also encouraged by thecountry’s policies. Some of its newly introducedones include:

- Boosting R&D spending to 4%

- Creating incentives for higher education

institutions to engage in co-operation withcompanies.

- Introducing an R&D tax incentive scheme forcompanies

- The most important funding targets are researchinfrastructures, basic R&D of tenure tracks forresearchers, fields of education, research andinnovation activities of the highest internationallevel and other selected focus areas, SHOKs andinternationalisation.

3.5.3 Finland’s Educated Workforce

The awareness for R&D culture in Finland isreflected in the progression of university graduatesin the field of science and technology (a 500%increase in the period 10 years). In comparison,it is recorded in 2006 that NZ produced 51 PhDgraduates in engineering , while Finland produced300. An increase in the amount of researchers isnecessary in order to eventually create the critical

mass needed for an effective innovation ecosystem

3.6 Conclusion: FosteringConnectivity and an InnovationEcosystem

In order to start implementing strategies for theadvance of innovation and high output sectors

in New Zealand, consideration has to be maderegarding the existing structure and connectionbetween the associated organizations andbusinesses, as well as the relevant policies that

are currently put in place.

Funding continues to be an issue in researchfacilities specialising in high output sectors.Itis evident that the Science, ICT and High Value

Manufacturing sectors that require a substantialamount of investment in R&D have received littlefunding over the years. Given its potential in theexisting ICT industries, Christchurch has littlesupport in terms of relevant research organizations.Primary sectors such as agriculture and forestryare mainly prioritized. It is only recently that thegovernment has introduced more funding towardsresearch in the high value manufactures.

Connectivity between the relevant organizations isalso an issue, where it was shown that a decliningtrend in the investment towards R&D by companiesof all scale is taking place. Out of these activities,universities and Crown Research Institutes (theprimary research organizations within the country)are shown to have a relatively low impact towardsthese businesses.

These issues regarding connectivity need tobe dealt with in order to create an innovationecosystem that will support the introduction ofhigh output sectors.

A focus towards investment in these areas byestablishing relevant research organizations asanchors for R&D activities can be helpful informing the necessary agglomeration in order forthese emerging sectors to flourish.

4.1 Educated Workforce

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(Fig 21.) Rate of NZ Graduates by Faculty

The attraction and retention of an educatedworkforce is crucial in the process of creating the

critical mass needed for New Zealand’s innovationecosystem. This fact has been illustrated in theprevious section in the case of Finland, whereit was shown how the country has managed toovercome the hurdles of transitioning into a post-industrial economy by increasing its number ofknowledge workers five fold in the span of tenyears.

New Zealand is faced with a similar position.It needs to increase the amount of knowledgeworkers from 4,000 people to 20,000 in order toprogress forward in the OECD standard.

The New Zealand skill deficit is a phenomenonthat has been identified in a number of OECDreports. An ongoing issue related to this is thecountry shortage of talent working in the field ofapplied sciences. This fact is illustrated on figure21, where it a trend can clearly be observed thatgraduates this area has not seen any significantincrease since 1998. Meanwhile, PhD graduatesin the field of social sciences, business andcommerce has been steadily increasing in theperiod of 1998 to 2006. Within this time, thefield experienced an increase of about 110% ingraduates.

Within the field of science (Fig. 22), we canagain observe the lack of progress in the numberof graduates in engineering and architecture.Although the increase in the number of researchersgenerated from the biological science area since

4.1 The Importance of Generating anEducated Workforce

(Fig 22.) Rate of NZ Graduates In Science Faculties

4.1 Educated Workforce

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2001 is encouraging (this is mainly caused bythe New Zealand government’s push towards bio-tech to make further investment on New Zealand’sexperience in the agriculture industry), it is nowknown that field has generated minimal returns forNew Zealand’s economy since its introduction.(This is shown by the fact that the TIN100 report,which lists the 100 top earning companies in NewZealand only features 2 bio-tech companies).

4.2 Graduate Concentrations inCanterbury’s Universities

The trend towards the social sciences field is

again shown in the data for Lincoln and Canterburyuniversity, where it is shown that graduates in thescience and technology area makes up 16% and26% of the total in the respective universities.This poses an opportunity for Christchurch cityto invest more towards creating the educatedworkforce necessary to fuel its growing high valuemanufacturing and ICT sectors.

The knowledge worker is a crucial part ininnovation-based economies and a betteralignment is needed between tertiary educationsand associated industries to generate theeducated workforce in order for New Zealand toclose the skill deficit gap.

(Fig 23.) Graduates by Faculty - Lincoln University

(Fig 24.) Graduates by Faculty - Canterbury University

A hit t C t l t

5. URBAN & BUILDING DESIGN

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Architecture as Catalyst

The urban design needs to address the followingissues:

At the scale of global interaction

1. Market Led Research - as opposed to Blue-skies research

2. Establishing Global Partnerships - to expandthe product market and sharing of knowledge andtechnologies.

3. Synergy with Existing Industries

At the national scale, involving organizations &policies

4. Connectivity - cooperation between related

firms, funding agencies, as well as end users.

5. Greater awareness to innovation culture &entrepreneurship - Encouraging Small andMedium Sized Enterprises (SMEs) to invest inR&D

6. Implementation & Commercialization

of Technologies - Ensuring contribution to the

economy & transfer of knowledge

At the local scale, involving the educated workforce

7. Attraction and Retention of Workforce -What attracts people and what makes them stay?

- Strong cultural setting, provision of highereducation and connectivity to industries, betterinfrastructure

Funding Agencies

(Fig 25.) Diagram of Urban Design Factors

BIBLIOGRAPHY 

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Carrillo, F. J. (2006). KnowledgeCities: Ap-proaches, Experiences, and Perspectives. Amster-dam: Elsevier.

Cooke, P., Schwartz, D. (2007). Creative Regions.London and New York: Routledge.

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Edensor, T., Leslie, D., Millington, & S., Rantisi,N. (2010).Spaces of Vernacular Creativity. Londonand New York: Routledge.

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Little, S. (2010).Role of Innovation in EconomicGrowth in a New Zealand Context. Wellington: TheTreasury. Accessed on the 14th of March 2012from http://www.treasury.govt.nz/publications/ media-speeches/speeches/innovation-ecogrowth

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