Chapter 16University-Industry Cooperationand Conditions for Start-Ups

David Audretsch, Ahmed Alshumaimri and Taylor Aldridge

16.1 Introduction

After decades of relying on oil to generate economic growth, Saudi Arabia ispursuing a new, knowledge-based development strategy. Beyond simply increas-ing investment in education, a key component of the new strategy is to foster theentrepreneurial activities of scientists in order to create economic growth andenhance international competitiveness. This chapter seeks to analyse and identifythe specific conditions in Saudi Arabia that either promote or inhibit scientistentrepreneurship. Future work on the subject will be merited to study actual start-up behaviour and determinants of success or failure. Also, the somewhat unex-pected findings on female entrepreneurship call for a good deal more investigation,including how and why nascent female entrepreneurs decide to start companiesand, more importantly, what start-up method they choose. For instance, do femalesuse proxy start-ups, such as family networks, or openly start a company bythemselves? Another study limitation is the lack of a codified human capital stockin Saudi Arabia (and in the Middle East in general), which indicates that futureresearch may need to identify proper proxy variables to quantify human capital.

D. Audretsch (&)Indiana University, United Statese-mail: daudrets@indiana.edu

A. AlshumaimriEntrepreneurship Centre, King Saud University, Saudi Arabiae-mail: alshum@yahoo.com

T. AldridgeIndiana University (United States) and The Max Plank Institute on Entrepreneurship,Germanye-mail: ttaldrid@indiana.edu

T. Andersson and A. Djeflat (eds.), The Real Issues of the Middle Eastand the Arab Spring, Innovation, Technology, and Knowledge Management,DOI: 10.1007/978-1-4614-5248-5_16, � Springer Science+Business Media New York 2013

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Despite these limitations, this chapter is able to present new data and obser-vations on what determines scientist entrepreneurship in Saudi Arabia and how itdiffers from corresponding entrepreneurship elsewhere, thus contributing to ourunderstanding of warranted policy reform in this area.

16.2 Background

The Eighth Development Plan, which King Abdullah unveiled in 2005, confirmedthat the national administration was concerned with the unsustainability ofcontinued over-reliance on oil. It was concluded that ‘‘revenue from oil resources,which are non-renewable by nature, should best be invested in renewable assetsthat would contribute to diversifying the economic base and achieving sustainabledevelopment. It is, therefore, essential for non-oil public revenues to be enhancedso that oil revenues may be gradually transformed into productive assets andeffective human capital’’ (Ministry of Economy and Planning 2004). The antici-pation of declines in oil revenue has spurred the government to consider alter-native ways to drive the economy (Alshumaimri et al. 2010).

In Twilight in the Desert (2005), Simmons describes the unsustainable nature ofoil production at its current level and predicts its inevitable decline in SaudiArabia, an opinion that has been corroborated by over 200 technical studies by theSociety of Petroleum Engineers. Saudi Arabia is the largest oil producer in theworld and holds the largest proven oil reserves in the world (estimated at267 billion barrels). The country accounts for 36 % of oil reserves in the MiddleEast and around one-fifth of the world’s total reserves (Simmons 2005).Whilethere are a large number of oil fields, 60 % of Saudi oil production comes from asingle oil field, the Ghawar field, and 90 % from five fields. As of 2008, SaudiArabia produces 11 million barrels of oil per day. On average, 80 % of allgovernment revenues are from oil (Saudi Arabian Monetary Agency 2010).

Historically, the Saudi government’s response to decreases in oil revenues,which highlighted the extent to which the economy was dependent on a singlecommodity, has been to place an increased emphasis on investment in education,see Fig. 16.1. In 1982, during the first period of a sharp, prolonged decline in oilrevenues, investment in education increased from 3 % of gross national income to5 % (Benavente and Dutta 2011; Saudi Arabian Monetary Agency 2010).Education expenditures remained fairly consistent until they increased to 7 %in1997, which marked yet another period of sharp decline in oil revenues. Theyhave remained constant at 7 % since 1997, despite fluctuations in oil revenues.

Current demographic trends are a compounding factor in Saudi Arabia’s plansfor economic development. Saudi Arabia has one of the highest population growthrates in the world, at 3.9 % per year in 2004 (al-Rasheed 2010). This has led to ahuge population boom, with a disproportionate share of young people. Officially,unemployment for 2004 was 9.6 % for working-age Saudis, including women.However, Saudis represent only 19 % of the labour force; foreign workers, who

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account for more than 30 % of the population, comprise the bulk of the workforcein Saudi Arabia. Some estimate that as many as 30 % of working-age Saudis areoutside the official labour force (al-Rasheed 2010). Around 9 million jobs wouldneed to be created in order to ensure full employment for the current population.Neither the hydrocarbon sector nor the public sector can come close to creatingthat number of jobs.

Based on the anticipated decline in oil revenues and the urgency of addressingunemployment, Saudi Arabia has acknowledged that its future competitivenessmust be based on knowledge and innovation, rather than oil. Investments inscientific research and the development of technology and informatics areidentified as the key factors for creating a knowledge-based economy (Kingdom ofSaudi Arabia, Ministry of Economy and Planning 2010).

16.3 Theoretical Background for Scientist Entrepreneurship

Recent studies of OECD countries have concluded that investment in scientificknowledge and research alone will not automatically generate growth and pros-perity. In order for investments in research and education to create growth,innovation and competiveness, they must penetrate through the knowledge filter toleave the academic environment and move into the economy at large (Audretsch2007; Audretsch et al. 2006). Overcoming the knowledge filter and facilitatingspillover for commercialisation are the keys to fostering entrepreneurial activity.

Fig. 16.1 Relationship between Oil revenues and education expenditure

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Entrepreneurial activity, in turn, is what will ultimately lead to economic growthand employment creation (Audretsch 2007).

A large and compelling literature, both theoretical and empirical, has evolved toexplain entrepreneurial behaviour for the general population (Aldrich andMartinez 2010). However, academic scientists appear to be more actively involvedin entrepreneurial activity than was previously understood. For example, recentstudies show that over one-quarter of scientists who were awarded a patent go onto start their own business, an astonishingly high rate of entrepreneurship based oncomparable measures for other sub-groups of the population (Aldridge andAudretsch 2010 and 2011). Scientist entrepreneurship in the context used hererefers to university scientists who are broadly engaged in the process of starting afirm (Aldridge and Audretsch 2010 and 2011).

Scientist entrepreneurship appears to be the sleeping giant of universityresearch commercialisation. And yet, studies have only recently begun to distin-guish scientist entrepreneurship as a special case that is distinct from the moregeneral population (Aldridge and Audretsch 2010 and 2011; Mosey and Wright2007; Phan and Siegel 2006; Elston and Audretsch 2010; Link et al. 2007).

16.4 The Nature of Scientist Entrepreneurship

Based on the findings from existing studies from OECD countries analysingscientist entrepreneurship, Aldridge and Audretsch (2010 and 2011) posit a seriesof hypotheses linking the specific characteristics of scientists to their propensity toengage or consider entrepreneurial behaviour:

1. Experience. Career experience subsequent to attaining a Ph.D. is positivelylinked to the likelihood of a scientist engaging in entrepreneurial activity. Thisrelationship reflects the priority that university scientists tend to place onestablishing their scientific reputation before engaging in commercialisationactivities.

2. Gender. The likelihood of entrepreneurial activity is lower for females than formales (Minniti and Arenius 2003; Minniti and Nardone 2007; Elston andAudretsch 2010).Empirical evidence for the OECD suggests that the differen-tial between male and female entrepreneurship rates found in the overallpopulation1 is even greater and more decisive than for university scientists.

3. Social capital. The social capital of a university scientist is positively related tothe scientist’s propensity to become an entrepreneur. This relationship has beenfound to be at least as strong for university scientists as it is for the generalpopulation for studies based on a country within the OECD (Aldrich andMartinez 2010).

1 The participation of women in entrepreneurship is about two-thirds that of men acrosscountries, taking national variances into consideration (Minniti and Arenius 2003).

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4. Human capital. The human capital of a university scientist has a positiveimpact on the likelihood of that scientist engaging in entrepreneurship. Studiesfrom OECD countries have almost always found a positive relationshipbetween human capital and entrepreneurship for the general population.2

5. University support. Scientist entrepreneurship will be higher insofar as it ispromoted by university and other institutional policies that aim to facilitatecommercialisation and start-ups by university scientists and other researchers.

While studies have been able to test the above hypotheses concerning scientificentrepreneurship in the context of OECD countries, virtually nothing is knownabout this issue in the context of developing countries in the Middle East, such asSaudi Arabia, primarily due to a lack of available data. To determine the nature ofentrepreneurship in the Middle East, we apply the same hypotheses to SaudiArabia. However, since political, social and economic developments in MiddleEastern countries are specific to the region,3 we do not expect that the nature ofscientist entrepreneurship in Saudi Arabia will simply mirror the OECD countries.With regard to female entrepreneurship, for instance, we might expect an evenlarger differential than that found in OECD countries.

To test these hypotheses, we created a database of entrepreneurial intentions foruniversity scientists in Saudi Arabia. In the current analysis, this new database hasbeen used in such a way as to examine whether the emerging entrepreneurship ofscientists at Saudi Arabian universities can be linked to the factors identified asinducing or impeding scientist entrepreneurship in the OECD countries.

16.5 Modelling Scientist Entrepreneurship in Saudi Arabia

The greatest impediment to analysing scientist entrepreneurship outside the OECDcountries has been the lack of systematic data identifying scientists and theirentrepreneurial activities. To overcome this deficiency of measurement, weimplemented a survey of scientists at universities in Saudi Arabia. The actualsurvey instrument used is listed in the Appendix. The goal of the survey was tocollect the data necessary to test the hypotheses discussed in the previous section.

Scientists were selected randomly from three universities in Saudi Arabia—King Abdulaziz University, King Fahd University and King Saud University. Thistrio was selected based on the following four criteria:

1. They are the only universities that have engaged in commercialisation activitiesup to this point in Saudi Arabia.

2 However, Aldridge and Audretsch (2011) did not find statistical evidence for any such positiverelationship among a sample of high-performing university scientists in the United States.3 For example, scientists at Saudi Arabian universities have only recently been allowed by law toengage in entrepreneurial activity.

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2. They represent different geographic parts of Saudi Arabia: King SaudUniversity is in the middle of the country, King Abdulaziz University is in thewest and King Fahd University is in the east.

3. They are the oldest and most established in terms of scientific research in SaudiArabia and are the leaders in terms of patents and papers published.

4. They are public universities that teach in English.

A total of 726 questionnaires were sent to scientists employed at all individualcolleges within each of these three universities. The distribution of questionnaireswas 42 % to scientists employed at King Saud University scientists, 50 % toscientists employed at King Abdulaziz University and 8 % to scientists employedat King Fahd University. There were 288 responses, of which 272 included usableresponses, yielding a response rate of 37 %.

The variables and measures obtained from the survey are found in Table 16.1.The dependent variable is a dummy variable assuming the value of 1 if the sci-entist is considering starting a firm and zero otherwise. The independent variablesare as follows:

1. Experience. Career experience since obtaining a doctorate was addressed byasking each scientist the year in which they obtained their Ph.D. A negativerelationship would support the hypothesis that younger scientists are less likelyto be entrepreneurial.

2. Gender. This variable was addressed by asking the scientist to reveal theirgender. A dummy variable was then created, with 1 indicating that the scientistis male. A positive coefficient would support the hypothesis that male scientistsare more likely to be entrepreneurial.

3. Social capital. Scientist social capital was addressed by asking the scientists toreport if they serve on a board of directors or engage in research compatiblewith the needs of industry. A positive coefficient would suggest that socialcapital enhances the likelihood of scientist entrepreneurship.

4. Human capital. Human capital was addressed by measuring the number ofpublications of each scientist. A positive coefficient would suggest that humancapital enhances the likelihood of scientist entrepreneurship.

5. University support. The level of support or impediment from the university wasmeasured by an assessment of how encouraging the university is towardsstarting a company. A positive coefficient would suggest that high levels ofuniversity support enhance the likelihood of scientist entrepreneurship.

In addition to these measures, other variables were included to control forconcerns the scientist might have that entrepreneurship will crowd out his orher scholarly research, income opportunities and lack of financial resources, andwhether they obtained their Ph.D. in Europe, North America or the MiddleEast.

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16.6 Results

A probit model was estimated whereby the dependent variable assumes the valueof 1 if the scientist considered starting a firm and zero otherwise. The results,displayed in Table 16.2, suggest the following regarding our hypotheses:

1. Experience. The positive and statistically significant coefficient of the year inwhich the Ph.D. was obtained suggests that younger scientists who gained theirPh.D. more recently tend to be more entrepreneurial.

Table 16.1 Description of variables

Variable Description

Entrepreneur A dummy variable taking on the value of one if the university scientist isconsidering starting a new business and zero otherwise

Shared costs Likert scale variable, scientist asked: ‘‘Research co-operations alreadyhelped me to share the costs of a research project with private firms’’

Time-consuming Likert scale variable, scientist asked: ‘‘Starting up a company is time-consuming and therefore reduces the time for my personal scientificresearch’’

Income 0 pp Likert scale variable, scientist asked: ‘‘Research co-operations greatlyincrease personal income opportunities of researchers’’

Affects research Likert scale variable, scientist asked: ‘‘Starting up a company is time-consuming and therefore reduces the time for my personal scientificresearch’’

Research andcoordination

Likert scale variable, scientist asked: ‘‘In research cooperationconfidentiality is a problem for researchers since industrial partnerswish or contractually enforce that results will not get published’’

Universitybureaucracy

Likert scale variable, scientist asked: ‘‘The current university bureaucracyis encouraging for starting up a company’’

Research related toindustry

Likert scale variable, scientist asked: ‘‘Coordination in research co-operations is problematic since research approaches and methods ofprivate firms greatly differ from my research approaches andmethods’’

Board Binary variable, for scientists indicating the scientist at time of reportingsat on a Board of Directors, Board = 1

Lack of finance Likert scale variable, scientist asked: ‘‘The lack of financial support oftenkeeps scientists from applying for a patent’’

Gender Binary Variable, where Gender is male. Male = 1Research neg

affectedLikert scale variable, scientist asked: ‘‘Doing cooperative research is

time-consuming and therefore reduces the time for my personalscientific research’’

Phdyear The year where the scientist reported completing their degreePhdeuro Binary variable, where if scientist received their Ph.D. in

Europe, Binary Variable = 1Phdwest Binary variable, where if scientist received their Ph.D. in

North America, Binary Variable = 1Phdmiddle Binary variable, where if scientist received their Ph.D. in the Middle East,

Binary Variable = 1

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2. Gender. The coefficient of the dummy variable indicating gender is not sta-tistically significant. This does not provide support for the second hypothesissuggesting that male scientists are more likely to be entrepreneurial.

3. Social capital. The coefficient of the dummy variable for belonging to acompany board is not statistically significant, nor is the variable measuringresearch related to industrial applications. Thus, there is no support for linkingsocial capital to entrepreneurship.

4. Human capital. There is at least some evidence that publications are moreconducive to scientist entrepreneurship. This finding is consistent with theresults of studies undertaken in OECD countries.

5. University support. There is evidence suggesting that the level of universitysupport influences scientist entrepreneurship.

The findings generally suggest that university scientists in Saudi Arabia emulatetheir colleagues in OECD countries in some ways, but not in others. Scientists whoare more productive in terms of publications have a greater propensity to beentrepreneurial in the Saudi Arabian context compared to the OECD context.Moreover, younger scientists with less experience in Saudi Arabia are more opento entrepreneurship. This result sharply contrasts with results from OECD

Table 16.2 Probit regression where nascent entrepreneurship is dependent variable

1 2 3 4

Shared costs -0.271 (4.46) a -0.331 (3.75) a -0.319 (3.62) a -0.322 (3.66) a

Time-consuming 0.167 (2.72) a 0.207 (2.43) b 0.210 (2.47) b 0.205 (2.43) b

Income 0 pp 0.071 (1.17) 0.155 (1.57) 0.156 (1.61) 0.162 (1.67)Affects research -0.011 (0.16) 0.061 (0.66) 0.085 (0.9) 0.087 (0.92)Research and coordination 0.022 (0.37) -0.049 (0.55) -0.051 (0.58) -0.047 (0.54)University bureaucracy -0.169 (2.86) a -0.165 (2.08) b -0.164 (2.06)b -0.163 (2.06) b

Research related to industry – 0.092 (1.29) 0.103 (1.43) 0.106 (1.47)Board – 1.364 (2.57) 1.489 (2.69) 1.505 (2.73)Publications – 0.597 (1.85) b 0.451 (1.31) 0.464 (1.35)Lack of finance – 0.064 (0.82) 0.056 (0.72) 0.061 (0.79)Gender – – 0.315 (1.1) 0.319 (1.11)Research neg affected – -0.110 (1.36) -0.115 (1.42) -0.121 (1.51)Phdyear – 0.127 (5.01) a 0.117 (4.32) a 0.115 (4.29) a

Phdeuro – 0.326 (0.55) 0.308 (0.52) –Phdwest – -0.654 (1.46) -0.611 (1.35) 0.690 (1.63)Phdmiddle – 0.260 (0.8) 0.243 (0.51) 0.170 (0.58)Constant 0.919 0.891 0.915 0.852Number of obs 238 184 184 184LR. chi2(6) 33.06 32.4 33.54 33.9Prob chi2 0 0 0 0Pseudo R2 0.1004 0.15 0.11 0.18a Statistically significant at the 99 % level of confidence, two-tailed testb Statistically significant at the 95 % level of confidence, two-tailed test

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countries, where maturity and experience are more conducive to scientist entre-preneurship. This disparity may reflect a generational shift in attitudes towardsentrepreneurship among scientists at Saudi Arabian universities, where youngscientists are more open and excited about pursuing entrepreneurial activities thantheir more experienced and older counterparts.

In an added contrast to OECD countries, we did not find a lower propensity forentrepreneurship among female researchers. Given the growing number of womenresearchers, and also the varying conditions for female and male entrepreneurship,it will be important to improve our understanding how attitudes of the former mayevolve over time compared to those of their male counterparts, as well as com-pared to those of women researchers in other countries. We can expect the con-tinued evolution of behaviour among female researchers in Saudi Arabia to exertan increasingly strong impact on overall outcomes.

16.7 Conclusions

This chapter has demonstrated the presence of an ongoing shift in the attitudes ofscientists at Saudi universities. Although the recent literature has emerged iden-tifying how scientist entrepreneurship differs from that of the more general pop-ulation, these studies have focused exclusively on the OECD countries. Bycontrast, we analysed intentions and attitudes with regard to scientist entrepre-neurship in the context of the Middle East. Based on a new and original data setfocusing on university scientists in Saudi Arabia, we found compelling evidencethat scientist entrepreneurship in the Middle East differs distinctly from what hasbeen identified in the extant literature based on studies from OECD countries.

We found nascent scientist entrepreneurship in Saudi Arabia to be robust. Thefactors contributing to scientist entrepreneurship in the Saudi Arabian case werefound to be remarkably similar those in OECD countries. For example, scientistswith a high degree of human capital, as measured by number of publications,exhibited a greater propensity towards entrepreneurial activity.

Additionally, we found that universities play a key role in Saudi Arabia’sattempts to transform its resource-based economy into a knowledge-based one.Not only do they serve as an important source for the creation of knowledge andnew ideas, they can also provide a crucial source for entrepreneurship. Universitiesare a conduit for the spillover of knowledge into entrepreneurial activities, leadingto the creation of new firms where knowledge is converted into innovation andultimately economic growth and competitiveness (Audretsch et al. 2011).However, some of our findings deviated from the OECD countries. While humancapital seems to play a similar role in facilitating scientist entrepreneurship, it isthe younger and less experienced researchers who are more open to entrepreneurialactivities in Saudi Arabia. Also, we found no evidence that female researcherswould be less apt than male researchers to engage in entrepreneurship.

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While we discovered evidence of scientist entrepreneurial propensity atuniversities in Saudi Arabia, the exact social and economic impact of scientistentrepreneurship can only be ascertained through subsequent research analysingthe performance of the new firms actually being started. Such research wouldprovide an important insight as to how targeted public policies to create aknowledge-based economy are succeeding, or how they may need to be adjusted togenerate better results.

Acknowledgments This chapter was contributed by David Audretsch, Ahmed Alshumaimri,Taylor Aldridge, and Marcie Hummel.

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