targets. Venture capital will not invest you for too long, nor at its seed stage, this is the situation that Taiwanese biotech firms have faced.”
111Indeed, Taiwanese venture capital firms tend to invest firms in the taking off stage rather than on the seed stage. As a result, venture capital is of little help to the emergence of new biotech firm. As the above three cases have shown, these biotech firms have depended much on own savings and friends in the professional circle to find necessary capital which is very different from the counterpart in the U.S. where venture capital is essential for new firms in biotech. Therefore, the CEO of Boston Investment, Dr.Wu Ding Kai, vividly describes, due to the high risk nature of biotech
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110 Interview. TP1013, Dec 2012, Taipei.
111 Interview.TP1007, May 2012, Tainan.
firm, “In Taiwan, there are three Fs that will invest into a biotech firm at its seed
stage: there are family, friend, and fools.”
4-3 Marketing
As has been discussed above, the insertion of Taiwanese biotech firms into the global division of labor of biopharmaceutical industry seems to become the dominate pattern of the development of Taiwan’s biopharmaceutical industry. Taiwanese industrial structure does not support its firms to pursue for a vertically integrated pharmaceutical industry. It nevertheless fits this ‘insertion’ pattern very well112.
This kind of insertion is very different from the marketing strategy which conventional pharmas have undertaken. Instead, science firms’ CEOs are already in the global science communities who have global networks at hands through which they can use the network channels to explore the possibility of selling their candidate drugs for further clinical trials. Or they can contact directly to those giant pharmas to explore the possibility of buying the candidate drug. Because the products are based on the results of frontier scientific research, therefore, the market exchange has to go through very strict and stringent checks by counter scientists of the buyer firms. This kind of marketing therefore cannot be based on guanxi as did of the conventional pharmas, it is based on very rational calculation in the market exchange.
4-4 Sources of Knowledge
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112 For example, PharmaEngine sold its candidate drugs for pancreatic cancer and stomach cancer, PEP02, to an US pharma, Merrimack in 2011. PharmaEngine gained USD$220million patent fee in this transaction which was 87 times of its investment
Developing new drugs is a knowledge intensive industry, which needs advanced science knowledge, therefore most of the founders of Taiwan’s new biotech firms have Ph.D. degree and work experiences in major biotech firms in the U.S.. The returnees are the major human resources of the new industry. Besides the above three cases, we use the example of PharmaEngine to illustrate. The CEO of PharmaEngine, Dr. Yeh, Chang Ching, has a Ph.D. degree on medicine of South Carolina in the U.S., and had long term work experience in Millennium Pharma of the US for over 30 years up to the position of vice president of that company before he returned to Taiwan. Now, PharmaEngine has only 17 employees, but most of them had worked for well known pharmas like Novartis, Merck before they joined PharmaEngine. Of this 17 employees, 10 of them are in R&D department, among them 7 have Ph.D. degree and 3 had MA degree (Interview data)113. The personnel composition of this company thus is totally different from the conventional pharma.
In fact, the company is based on scientific research teams, thus their knowledge mainly gained from advanced researches and processing new knowledge from the global scientific community.
In addition, many of our cases have established a very strong consulting team for the company to gain new frontier knowledge. The most famous example in our case is TaiMed Biologics. The main target that TaiMed is endeavoring to develop is a inhibitor for HIV/AIDS. In fact, TaiMed Biologics has been dedicated to develop inhibitor HIV since its inception, by the introduction of world renown biotech scientists, Dr. David Ho ( ), from Genentech (TMB-355), and he has involved
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113 Interview. TP1012, Nov 2012, Taipei.
very deeply in the process of the development of this new drug. Now, the new drug, called, ibalizumab, has completed the second phase of clinical trial, Dr. Ho again helped the company to gain financial support from the Bill Gates Foundation for further trail and research. Dr. Ho is of course an invaluable asset for TaiMed Biologics to gain new knowledge and international recognition through his high profile networks.
6, Discussion and Conclusion:
This paper asks questions regarding the role of social capital in the creation and management of the conventional pharmaceutical and biotech industry. We assume that bonding social capital plays an important role in the initial stage of capital formation in both sectors of the pharmaceutical industry, while bridging social capital is more important to the biotech sector. However, in the process of the firm’s evolution, firms in both sectors of the pharmaceutical industry will be depended much on bridging social capital to expand the market share. Furthermore, we assume that due to the difference of knowledge type, biotech firms depend much more on professional networks, that is bridging social capital than bonding social capital, than does conventional pharmas in every aspect of the firm’s development.
As we have shown, the creation of a conventional pharma was just like a normal SME in the 1950s or 1960s in Taiwan, the founder collected initial capital by his own savings and from his friends and relatives. The founder did not receive too much support from the state. He had to collect and run the company by his own effort. In contrast, the new biotech firms were the product of state’s strategic development
policy, they also were able to go gain initial capital investments from both the state’s funding and big private capital. But interestingly, the ways in which these new biotech firms gained the financial investments from public or private sources are all related to personal networks, though these networks are of weak ties than strong ties type. Regarding to the corporate governance dimension, the conventional pharmas tend to be family owned and now these firms have passed the ownership to the second generation. In contrast, the biotech firms are very young and the corporate governance pattern tends to become professionalized with little family firm’s features. Although some of the biotech firms are heavily invested by private companies, the corporate governance patter seems not to have family firm characteristics114.
Regarding the source of knowledge of both types of firm, because the founders of conventional pharma tended not to have professional background, their sources of knowledge therefore were either provided by the founders’ existing social networks, or by purposely building new networks, such as connecting to medical doctors or to hire professional to the company to run the business at the firms’ earlier stage.
However, in the process of evolution, the firms’ knowledge become much depended on their own R&D or gained license from foreign companies. In contrast, most of the founders of biotech science firm come from professional circle who have Ph.D.
degrees and have work experiences in major pharmas in the U.S.. Even the founder comes from other sectors, he/she tended to be persuaded by an idea that is proposed by a Ph.D. who has strong background on drug development. These biotech firms
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114 The biggest private investor of biotechnologyin Taiwan is Runtex Financial Corp., owned by Yin YanLiang. He has invested over NTD$4 billion on biotech industry, almost equal to the investment of the National Development Fund’s NTD$4.6 billion, Wealth Magazine, 416(Jan-17-2013).
tend to have strong professional networks in supporting the company, usually by the channels of building up consulting teams as to access the most recent knowledge development in the frontier areas. Both conventional and biotech firms depend on professional knowledge to run the firms, which shows the strong feature of bridging social capital in the networks. Nonetheless, the case in biotech has shown much stronger features of knowledge community, or epistemic community, due to the founder’s own professional networks. In contrast, the founder of conventional pharma had to link to others to get access to the epistemic community in order to access the knowledge. It clearly shows that bridging social capital plays an very important role in knowledge creation and accession in both cases.
Regarding the marketing strategy, the conventional pharmas use two channels to do the marketing. One was media advertisement and the other was by direct contacts by sales representatives with medical doctors in hospitals. The latter tended to use very traditional guanxi manner to expand the pharma’s market share. However, as the National Health Insurance Program was established in the early 1990s, this type of guanxi system has been replaced by market competition. In contrast to the conventional pharmas, the new biotech firms are inserted in the global value chain of the biotechnology industry. They become the R&D centers for big global pharmaceutical firms. The biotech science firms have their specific networks in negotiating with global big pharmas to buy the patents of their candidate drugs. The biotech firms’ scale is global whereas the conventional pharmas’ is local. Market exchange is the principle of marketing in biotech industry.
The above differences between conventional pharmas and newly emerging
biotech firms can be shown in table 3:
The comparison of the conventional and new biotech pharmas shows that the knowledge difference certainly has created variations in firm’s behavior in the aspects of initial capital collection, marketing, and knowledge learning. In which, bridging social capital overwhelmingly plays much important role in biotech pharma than does in conventional pharma. However, even so, we have observed that even in the highly professional new drug development area, personal relations or social networks still are important in getting touch the source of capital, information, and knowledge. This is not much different from the cases of the conventional pharma. This leads to one of our concerns of this project: whether the Chinese firms, disregard the knowledge level, share some common cultural features in economic behavior? Our study seems to show both yes and no. Nonetheless, using personal networks, birding social capital, to get access to invaluable resources seem to be the rule in Taiwanese firms’
economic behavior.
Table 3: Comparison of Conventional and Biotech Pharma
Conventional Biotech
Initial capital Mainly from own savings, relatives and friends; Family owned
knowledge Depend on others: professional clients, foreign firms
(Bridging social capital)
Returnees themselves, and professional networks (Bridging social capital) Marketing Media, Guanxi and to arm-length
market exchange Mainly arm-length market exchange Sources: By authors
1, Introduction
Recent discussions on the economic role of the state have focused on two major issues: the first is the effect of globalization on the role of the state; the second is the transformation of the developmental states in East Asia due to the double pressures of democratization and globalization processes. In the first stream of the debate, some argued that globalization process has created economic integration and social relations across borders, state capacity and institutional capability have been largely constrained (Ohmae, 1990; Reich, 1992). Still there are some scholars argue that the state’s role is transformed rather than constrained, because the state is still one of the major actors in the domestic economy that is responsible for the modification of the impacts of global process against the domestic society (Mann, 1997; Weiss, 1998, 2005). As Weiss (2005) argues, “if we combine both long-run and contemporary trends, it is difficult to avoid the conclusion that globalization is reinforcing and, in some important respects, augmenting the role of territorially-based institutions.”
(2005:346). Or in terms of scaling politics, Brenner (1999), Jessop (2002) also argue the state in the globalized world, has been de-territorialized and re-territorialized to strengthen its economy’s competitiveness.
In terms of the debate on the role of the developmental state in East Asia, many have argued that the state’s role is declined due to the changes of geopolitical environment, globalization processes, and domestic politics (Kim, 1999; Dent, 2003;
Radice, 2008; Wong, 2009). Nevertheless, Chu (2009) uses the case of ICT (information and communication technologies) industries to illustrate that the
“Korean state continues to play a developmental role by providing leadership and arbitrating differences”, and successfully promoted those Korean industries to be the leaders in the world market.
Indeed, the above two streams have recognized the impacts of globalization and democratization on the role of the state to the economy. This paper agrees that the transformation of the state does not necessary mean the decline of the state, it rather indicates that the state has to adapt to new environment and readjust itself to new globalized world. In the globalized world, the segmentation of global value chain on specific industry, for example the auto, the semiconductor, or the biopharmaceutical industry which this paper is focused on, has created a global production network that links firms in various places of the world together to produce a specific product (Ernst, 2004, 2005; Breznitz, 2007; Wang, and Lee, 2007). Through these global networks, a new international division of labor has been created that is different from the former North-leading and South-following pattern. Now due to the abundance of cheap talents in the developing countries, a new global innovation network has been formed, in which many segments of the innovation works are performed in the developing countries, if the latter are able to grab the windows of opportunities. Globalization of the segmentation of value chain indeed has created new opportunity for the state to
adapt to new environment to facilitate its competitiveness in the new world market (Breznitz, 2007). As Weiss (2005) observes, “there is strong evidence that in the contemporary period the growth of the state has gone hand-in-hand with the rise of global corporations and multilateral institutions, and that these contemporary global networks remain intimately entwined with the domestic structures of nation states”
(p.346).
Thus, the state remains important in restructuring its economy. The question however is not whether the state’s role has declined, but how the state has been reformed and transformed to adapt to the new globalized environment. In the East Asian context, the issues also relate to how the states transformed from helping the economies changing from catch-up to innovation-based stages as well as from labor-intensive to knowledge based economies. As being well-known that the nature of the innovation-based economy is highly uncertain and involved risky investments, which state bureaucrats may not have sufficient frontier knowledge in making adequate decisions to lead the economy as they did in the catch-up era. Thus, state decision making process will be very different from that of the developmental state model in which there involved a coherent bureaucracy with strong leadership (cf.
Johnson, 1982; Amsden, 1989; Wade, 1990; Onis, 1991; Woo-Cummings, 1999).
Instead, we will argue that when developing an innovation-based industry, the state tends to learn the best practice from abroad (Gertler, 2001) and transform itself into a
platform builder that links various actors together to foster the emergence of the
industry, which involves the dilution of state leadership to become an innovation-based industrial facilitator and enabler. We will also argue, thistransformation is an evolutionary process which involves a process of learning and adaptation where the effect of state policy is not certain due to the uncertainty nature of the innovation-based industry. In this paper, we will use the Taiwanese state’s promotion of the biopharmaceutical industry to illustrate how the state transforms and adapts to new global competition in facilitating the formation of an frontier knowledge based industry.