Strategies of SME sector developmentLessons learned from the infoDev business incubator initiative in ECA

Stefan SchanderaRegional facilitator infoDev incubator initiative, ECAVIII Knowledge Economy Forum, The World Bank and INSEADFontainebleau, 01 May 2009

Worldwide estimation: 4.000 ECA estimation: 200-300

„Officially, there are 70 incubators operating in our country, but in practice there are 12.“ (incubator manager, ECA)

3 generations of incubators in ECA. Country examples:

Croatia: 10 incubators/2 specialized/started in 1990/donor support

Romania: 20 incubators/5 specialized/started in 1992-1994/donor support

Russia: 120 (estimates)/started in 1995 by donors/new program started in 2005

Uzbekistan: 30 incubators/1 specialized/started in 1995/donor support

Bulgaria: 15 incubators/started in 1997/donor support

Belarus: 8 incubators/no specialized incubator/started in 1998

Kazakhstan: 6-8 (estimates)/started in 1999 with over 40 incubators/donor support

Armenia: 2 incubators/1 private/2 IT focus/started in 2003/donor and diaspora support

Azerbaijan: 1 incubator in planning stage/university based/donor support

1. Fact sheetBusiness incubators in ECA

1

2. Incubator life cycleIncubating the incubators

2

Feasibility and plan

Start

Growth

Maturity

ReplicationReplicationScaling up

Fiction

2. Incubator life cycleIncubating the incubators

3

Feasibility and plan

Growth

Maturity

ReplicationReplicationScaling up

No incubator

Failure

Different

Stagnation

Facts

ReplicationStart

Scaling up

2. Incubator life cycleIncubating the incubators

4

Feasibility and plan

Growth

Maturity

ReplicationReplicationScaling up

No incubator

Failure

Different

Stagnation

Facts

Replication

Scaling up

Start

Value chain Saxony (Germany) South Kazakhstan Maramures (Romania)

StrategyState and regional economic development policies incl. industry policies

No role of incubator Incubator providing input to regional government

Incubator roof organization providing input to regional gov.

Exogenous Attracting investors and existing businesses to the region

No pro-active role of incubator

Incubator providing input to regional government, incubator implementing programs

Incubator roof organization providing input to regional gov.

EndogenousSupporting new business development and extension (incl. start-ups)

Specialization of incubators within industrial policy, narrow mission, PPP, strong government link

Incubator specializes in several industries, wider mission, also serving non-start-ups, international

Wider mission, also serving non-start-ups, incubator roof organization also operates EU information centre

Tendencies: Industrial policies Industrial policies, International role, International role EU competence

3. Role of incubators in value chain of economic development

5

4. Enablers and barriers:Actors and the prototype incubator

LED Local economic

development policy

Competitors

Clients

IncubatorPrototype incubator:Focusing on start-ups, integrated incubation program,Incubatees (inhouse) leaving the incubator after fixed period

Start-ups(industry-focus or non)

Narrow: IncubatorsWide: Non-profit and for-profit services

Government, universities, financial institutions, donors, private investors, …

Horizontal and/or vertical economic development policies

Shareholders

6

CI

Culture

Institutions

4. Enablers and barriers:Local economic development policy

LED Local economic

developmentpolicy

Competitors

Clients

Incubator

Shareholders

Existence of LED and integration of incubator:

Case study Viasphere and EIF Yerevan, Armenia*

Case study BIOS Osijek, Croatia*

Case study Broker Inc. Skopje (client of YES Incubator Skopje, FYRO Macedonia)*

Lessons learned:

- Government-incubator dialogue: Top-down and bottom-up – not ‘versus’

- LED strategy and its consistency (overall SME support policy, industrial policies, FDI policy etc.) define incubator mission

7

CI

Culture

Institutions

* More details under Appendix slides 20-21

4. Enablers and barriers:Incubator shareholders

Who owns the incubators, anyway?

Case study ABIT Uzbekistan*

Case study CSSC Incubator Initiative Georgia*

Case IT Incubator Timisoara, Romania*

Lessons learned:

- Internal lead with external (e.g. donor) support

- Local networks (and board) of trust

- Long-term commitment beyond the break-even required

- Links to academia and R&D stronger amongst specialized incubators

8

LED Local economic

developmentpolicy

Competitors

Clients

Incubator

Shareholders

CI

Culture

Institutions

* More details under Appendix slides 20-21

4. Enablers and barriers:Competitors

Competition: Incubators only?

Case study SODBI Shymkent, Kazakhstan*

Survey question: Competition?*

Lessons learned:

- Incubators must understand the competition and positioning in both for-profit and non-profit contexts for both hard (facility) and soft services

- Key strengths in BDS context: Long-term commitment through investment (facility), long-term client relationship, hub for local innovation network

- Mission requires control, risk of crowding-out effects

9

LED Local economic

developmentpolicy

Competitors

Clients

Incubator

Shareholders

CI

Culture

Institutions

* More details under Appendix slides 20-21

4. Enablers and barriers:Clients

Client: Where is the prototypical incubatee?

Case study Almaty Technopark, Kazakhstan*

Case study Kharpcheloproduct Ltd. Kharkov*, incubatee of Kharkov Technologies Incubator, Ukraine

Survey question: Clients?*

Lessons learned:

- Vague client definition -> vague outcomes

- Key USPs from client perspective beyond subsidies: Good address, peer group function, international skills and links

- Mission requires control, risk of moving upmarket

- Little formal equity/royalty model experiences in ECA, as well as VC

10

LED Local economic

developmentpolicy

Competitors

Clients

Incubator

Shareholders

CI

Culture

Institutions

* More details under Appendix slides 20-21

4. Enablers and barriers:Incubator management (I)

Entrepreneur No 1: The incubator manager

Case study Incubator Program Kazakhstan 2000*

Case study Incubator Program Russia 2008*

Case study Incubator management and funding (see next slide 12)

Lessons learned:

- Sustainability by motivation, mission – and financial

- Incubator managers are entrepreneurs, innovators and networkers

- Skill set of manager at founding stage differs from manager at growth stage (donor vs. client focus)

11

LED Local economic

developmentpolicy

Competitors

Clients

Incubator

Shareholders

CI

Culture

Institutions

* More details under Appendix slides 20-21

4. Enablers and barriers:Incubator management (II)

Case study Incubator management CIS

12

4. Enablers and barriers:Culture and institutions

The big question mark

- Entrepreneurship and innovation culture- Role of education, science and technology- Informal sector- Competition culture and state capture- Role of public sector and authorities- ….........

“Institutions are the humanly devised constraints that structure the human interaction. They are made up of formal constraints (rules, law, constitutions), informal constraints (norms of behaviour, conventions, and self-imposed conduct), and their enforcement characteristics. Together they define the incentive structure of societies and specifically economies”. Douglass C. North (1993): Lecture to the memory of Alfred Nobel, December 09, 1993)

13

LED Local economic

developmentpolicy

Competitors

Clients

Incubator

Shareholders

CI

Lessons learned:

- Holistic research approaches required- Case studies required

4. Enablers and barriers:The incubator perspective

Risk No. 1 (as perceived by incubator managers)*: Government support

- Long-term strategy- Funding- Regulation

* ECAbit network members surveyed April 2009

14

LED Local economic

developmentpolicy

Competitors

Clients

Incubator

Shareholders

CI

4. Enablers and barriers:Summary of lessons learned: 6 theses

Mission: Regional economic development policy and value chain define the incubator mission.

Focus: Specialized incubators are effective for setting up local innovation networks including links to R&D.

Ownership: Incubators start from within, not outside. Donors should support but not drive.

Positioning: Incubators and incubator planners have to understand positioning and value proposition – and its monitoring – within both the non-commercial and commercial context.

Management: Skill set of manager at founding stage differs from manager at growth stage (donor vs. client focus).

Upgrading: IT incubators are good starting points in ECA for specialized incubators with ‘low-cost labs’.

15

LED Local economic

developmentpolicy

Competitors

Clients

Incubator

Shareholders

CI

4. Enablers and barriers:7 tendencies and needs

TENDENCIES

Industrial policies and local innovation networks

Investment-readiness of incubators (crisis context as new driver)

EU convergence path. Integration into EU networks also outside the EU

Internationalization and networking

Innovation in IT (e.g. virtual incubators, networks)

NEEDS

Verifying assumptions: Data (hard and soft) on impact and sustainability required – identifying the winners

Time to learn from experiences: Capacity-building among incubator managers and planners

16

LED Local economic

developmentpolicy

Competitors

Clients

Incubator

Shareholders

CI

5. Global learning and networkingThe infoDev incubator initiative

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• Infodev = information for development, started in 1996

• Incubator initiative started in 2003, supported by Japanese government

• Focus on financing and technical assistance of business incubators in developing countries

• Growing global network: 173 incubators from 76 countries worldwide (status September 2008)

• Research: First assessment of incubator impact in developing countries

• Global working groups: Women, Youth, High Growth

• idisc.net: Global learning and exchange platform for incubator

• Global Forum as global key event (Florianopolis, October 2009)

5. Global learning and networkingThe infoDev incubator initiative

18

RedLAC Incubation

Asia

ecabit

MENAinc

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Main network activities on regional level

• Knowledge generation and sharing among incubators, policy-

makers and other key stakeholders

• Events and trainings on regional level

• Exchange and mentoring programs

• Hub function for members to other networks

• Collaborative project, research and fundraising activities

5. Global learning and networkingThe infoDev incubator initiative

Eastern European and Central AsianNetwork of Business Incubators and Technology Parks; focus on incubators, 39 members (including associations approx. 100) in 18 countries

Thank you very much for your interest!

Contacts:

infoDev: www.infodev.org, iDisc: www.idisc.net

ECAbit: www.ecabit.org

Stefan Schandera: s.schandera@schandera.de

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Case study Viasphere and EIF Yerevan, Armenia: Viasphere Technology Park started in 2003 with substantial support from Armenian diaspora in the US. Focusing on IT (software programming). Private technology park. EIF Enterprise Incubation Foundation Yerevan started in 2002 supported by the Armenian government and the World Bank. Focusing on IT (software programming). Both organizations integrated into Armenian IT cluster policy. For more information, please see http://www.idisc.net/en/Article.38458.html.

Case study BIOS Osijek, Croatia: Mixed incubator and technology park. Strategic focus on IT and biotech. Platform for regional economic development policies. Opened in 1996. For more information, please see http://www.idisc.net/en/Article.38808.html.

Case study Broker Inc. Skopje (client of YES Incubator Skopje, FYRO Macedonia): Online investment portal founded by university student (age 22). YES incubator focusing on youth and IT. For more information, please see http://www.idisc.net/en/Article.38837.html.

Case study ABIT (Association of Business Incubators and Technoparks) Uzbekistan: Co-founded in 2000 by government and international donor with the objective to coordinate incubator program in Uzbekistan (incubator program started 1995). Today, coordinating 30 incubators in Uzbekistan. Self-sustainability since 2005 under revision following donor pull-out. For more information, please see www.abit.uz.

Case study CSSC Incubator Initiative Georgia: Incubator feasibility study and program development in 2005. In 2007, funding assured but incubator creation delayed by CSSC management following concerns about local partner (institute) commitment and reliability. In 2009, new shareholder structure with funding assured, incubator starts operation. More information: www.bii.ge <http://www.bii.ge> .

Case IT Incubator Timisoara, Romania: Incubator started operation in 2004. IT focus. Effective local shareholder network including city counsil, county counsil, university. Main factor for donor support: Shareholder network with concrete plans and support needs. For more information, please see http://www.it-incubator.ro.

Case study SODBI business incubator Shymkent (South Kazakhstan): Opened in 2002. Mixed profile. With lack of local consulting market and business service infrastructure, SODBI set up consulting services (including IT, business development, marketing) and spinned-off these units after their self-sustainability (break even).

Case study ATP Almaty Technopark (Kazakhstan): Opened in 2000. Mixed profile. In 2005, ATP conducted survey on innovation commercialization potentials among institutes in Almaty. Criteria: industry sector, commercial feasibility, readiness of scientist to implement commercialization. 200 proposals reviewed. Only 2 matched criteria, but no readiness of scientists to implement commercialization.

AppendixCase studies in brief (I)

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Case study Kharpcheloproduct Ltd. Kharkov (incubatee of Kharkov Technologies Incubator, Ukraine): Honey and wax producer, honey and wax production instruments producer. Aircraft technologies engineer by profession. 2004: Four employees, focus on local market. Supported by incubator in IT application and international marketing. 20 full and 40 seasonal employees in 2007. Sales increased 40-fold. Network of 100 local honey producers. For more information, please see: http://www.idisc.net/en/Article.38661.html.

Case study Incubator program Kazakhstan 2000: Incubator development supported by international donor programs focusing on Entrepreneurship Development Centres, and government – starting 1999. Out of approx. 40 incubators initially supported, 6-8 are still operating as incubators. Main reasons according to incubation experts in Kazakhstan: Lack of ongoing government support after launch together with unrealistic self-sustainability objectives. In university context, unrealistic tech commercialization objectives and expectations, followed by budget cuts for incubators. Technology park program launched in 2005 with very little co-operation with incubator program. Support for new and existing incubators currently under consideration in the context of entrepreneurship support centre program.

Case study incubator program Russia 2005: Approx. 15 incubators supported by international donor programs founded in mid 1990s. By today, only 5 of them are still in operation. 70 more incubators including private incubators operating throughout the country. Very limited government support. In 2005, 50 new incubators funded by the government (Federal program) established; planned total 120. In first stage, public support for infrastructure (until 2008). In second stage (2009 onwards), public support for client financing on competitive basis.

SURVEY QUESTIONS

Survey question “Competition”: In an internal survey among incubator managers of the ECAbit network conducted in April 2009, the majority of incubator managers answered on the question “Who are the main competitors of your incubator in your local environment?” with “We do not have local competitors, since there are no other incubators here.” Only a minority also considers commercial service providers competitors. Background: Most recent examples in the economic crisis context and in particular the decline of market rates for office and work space leave show, that incubators directly compete with both non-commercial and commercial service providers.

Survey question “Clients”: in an internal survey among incubator managers of the ECAbit network conducted in April 2009, the majority of incubator managers answered on the question: “To which of the following groups would you say belongs the majority of your incubatees: 1) Requesting office or work space mainly, 2) Participating also in incubation program including, where your incubator can be seen also as the lead consultant, 3) Office/work space and from time to time consulting and business services, as for example accounting, marketing etc., 4) If other, please describe briefly.?”: Majority of clients belong to group 2, followed by 3. There is also substantial support for external clients not participating in incubation programs but receiving business support services from incubators.

AppendixCase studies in brief (II)