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Strategies of SME sector development Lessons learned from the infoDev business incubator initiative in ECA Stefan Schandera Regional facilitator infoDev incubator initiative, ECA VIII Knowledge Economy Forum, The World Bank and INSEAD Fontainebleau, 01 May 2009 1 1. Fact sheet Business incubators in ECA 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 2 2. Incubator life cycle Incubating the incubators Scaling up Replication Replication Maturity Growth Start Feasibility and plan Fiction 3 2. Incubator life cycle Incubating the incubators Different Scaling up Replication Replication Maturity Stagnation Scaling up Growth Replication Start Feasibility and Failure plan No incubator Facts 4 2. Incubator life cycle Incubating the incubators Different Scaling up Replication Replication Maturity Stagnation Scaling up Growth Replication Start Feasibility and Failure plan No incubator Facts 5 3. Role of incubators in value chain of economic development Value chain Saxony (Germany) South Kazakhstan Maramures (Romania) Strategy No role of incubator Incubator providing Incubator roof State and regional input to regional organization economic development government providing input to policies incl. industry regional gov. policies Exogenous No pro-active role Incubator providing Incubator roof Attracting investors and of incubator input to regional organization existing businesses to government, providing input to the region incubator regional gov. implementing programs Endogenous Specialization of Incubator Wider mission, also Supporting new incubators within specializes in serving non-start- business development industrial policy, several industries, ups, incubator roof and extension (incl. narrow mission, wider mission, also organization also start-ups) PPP, strong serving non-start- operates EU government link ups, international information centre Tendencies: Industrial policies Industrial policies, International role, International role EU competence 6 4. Enablers and barriers: Actors and the prototype incubator Prototype incubator: Incubator Focusing on start-ups, integrated incubation program, Incubatees (inhouse) leaving the incubator after fixed period Start-ups Clients (industry-focus or non) C Narrow: Incubators I Competitors Wide: Non-profit and for-profit services Culture Institutions Government, universities, financial institutions, Shareholders donors, private investors, … LED Horizontal and/or vertical Local economic economic development policies development policy 7 4. Enablers and barriers: Local economic development policy Incubator Existence of LED and integration of incubator: Case study Viasphere and EIF Yerevan, Armenia* Clients Case study BIOS Osijek, Croatia* C Case study Broker Inc. Skopje I Competitors (client of YES Incubator Skopje, FYRO Macedonia)* Culture Institutions Lessons learned: Shareholders - Government-incubator dialogue: Top-down and bottom-up – not „versus‟ LED Local economic - LED strategy and its consistency (overall SME development support policy, industrial policies, FDI policy etc.) policy define incubator mission * More details under Appendix slides 20-21 8 4. Enablers and barriers: Incubator shareholders Incubator Who owns the incubators, anyway? Case study ABIT Uzbekistan* Clients Case study CSSC Incubator Initiative Georgia* C Case IT Incubator Timisoara, Romania* I Competitors Lessons learned: Culture Institutions - Internal lead with external (e.g. donor) support Shareholders - Local networks (and board) of trust LED - Long-term commitment beyond the break-even Local economic required development policy - Links to academia and R&D stronger amongst specialized incubators * More details under Appendix slides 20-21 9 4. Enablers and barriers: Competitors Competition: Incubators only? Incubator Case study SODBI Shymkent, Kazakhstan* Survey question: Competition?* Clients C Lessons learned: I Competitors - Incubators must understand the competition and positioning in both for-profit and non-profit contexts Culture for both hard (facility) and soft services Institutions Shareholders - Key strengths in BDS context: Long-term commitment through investment (facility), long-term client relationship, hub for local innovation network LED Local economic - Mission requires control, risk of crowding-out effects development policy * More details under Appendix slides 20-21 10 4. Enablers and barriers: Clients Client: Where is the prototypical incubatee? Incubator Case study Almaty Technopark, Kazakhstan* Case study Kharpcheloproduct Ltd. Kharkov*, Clients incubatee of Kharkov Technologies Incubator, Ukraine Survey question: Clients?* C I Competitors Lessons learned: Culture - Vague client definition -> vague outcomes Institutions Shareholders - Key USPs from client perspective beyond subsidies: Good address, peer group function, international skills and links LED Local economic - Mission requires control, risk of moving upmarket development policy - Little formal equity/royalty model experiences in ECA, as well as VC * More details under Appendix slides 20-21 11 4. Enablers and barriers: Incubator management (I) Entrepreneur No 1: The incubator manager Incubator Case study Incubator Program Kazakhstan 2000* Clients Case study Incubator Program Russia 2008* Case study Incubator management and funding C (see next slide 12) I Competitors Culture Lessons learned: Institutions - Sustainability by motivation, mission – and financial Shareholders - Incubator managers are entrepreneurs, innovators LED and networkers Local economic development - Skill set of manager at founding stage differs from policy manager at growth stage (donor vs. client focus) * More details under Appendix slides 20-21 12 4. Enablers and barriers: Incubator management (II) Case study Incubator management CIS 13 4. Enablers and barriers: Culture and institutions The big question mark Incubator - Entrepreneurship and innovation culture - Role of education, science and technology - Informal sector Clients - Competition culture and state capture - Role of public sector and authorities - …......... Competitors “Institutions are the humanly devised constraints that structure the C human interaction. They are made up of formal constraints I (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 Shareholders memory of Alf red Nobel, December 09, 1993) Lessons learned: LED Local economic - Holistic research approaches required development - Case studies required policy 14 4. Enablers and barriers: The incubator perspective Incubator Risk No. 1 (as perceived by incubator managers)*: Clients Government support - Long-term strategy Competitors - Funding C - Regulation I Shareholders LED Local economic * ECAbit network members surveyed April 2009 development policy 15 4. Enablers and barriers: Summary of lessons learned: 6 theses Mission: Regional economic development policy and Incubator value chain define the incubator mission. Focus: Specialized incubators are effective for setting up local innovation networks including links to R&D. Clients Ownership: Incubators start from within, not outside. Donors should support but not drive. C Competitors Positioning: Incubators and incubator planners have to I understand positioning and value proposition – and its monitoring – within both the non-commercial and commercial context. Shareholders Management: Skill set of manager at founding stage differs from manager at growth stage (donor vs. client LED focus). Local economic development Upgrading: IT incubators are good starting points in policy ECA for specialized incubators with „low-cost labs‟. 16 4. Enablers and barriers: 7 tendencies and needs TENDENCIES Incubator Industrial policies and local innovation networks Investment-readiness of incubators (crisis context as new driver) Clients EU convergence path. Integration into EU networks also outside the EU C Competitors Internationalization and networking I Innovation in IT (e.g. virtual incubators, networks) Shareholders NEEDS LED Verifying assumptions: Data (hard and soft) on impact Local economic and sustainability required – identifying the winners development policy Time to learn from experiences: Capacity-building among incubator managers and planners 17 5. Global learning and networking The infoDev incubator initiative • 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) 18 5. Global learning and networking The infoDev incubator initiative ecabit MENAinc Incubation RedLAC Asia 19 5. Global learning and networking The infoDev incubator initiative 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 Eastern European and Central Asian Network 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: firstname.lastname@example.org 20 Appendix Case studies in brief (I) Case study Viasphere and EIF Yerevan, Armenia: Viasphere Technology Park started in 2003 with substantial support f rom Armenian diaspora in the US. Focusing on IT (sof tware programming). Private technology park. EIF Enterprise Incubation Foundation Yere van started in 2002 supported by the Armenian government and the World Bank. Focusing on IT (sof tware programming). Both organizations in tegrated into Armenian IT cluster policy. For more inf ormation, please see http://www.idisc.net/en/Article.38458.html. Case study BIOS Osijek, Croatia: Mixed incubator and technology park. Strategic f ocus on IT and biotech. Platf orm f or regional economic development policies. Opened in 1996. For more inf ormation, 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 f ounded by university student (age 22). YES incubator f ocusing on youth and IT. For more inf ormation, please see http://www.idisc.net/en/Article.38837.html. Case study ABIT (Association of Business Incubators and Technoparks) Uzbekistan: Co-f ounded 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 f ollowing donor pull-out. For more inf ormation, please see www.abit.uz. Case study CSSC Incubator Initiative Georgia: Incubator f easibility study and program development in 2005. In 2007, f unding assured but incubator creation delayed by CSSC management f ollowing concerns about local partner (institute) commitment and reliability. In 2009, new shareholder structure with f unding assured, incubator starts operation. More inf ormation: www.bii.ge < http://www.bii.ge> . Case IT Incubator Timisoara, Romania: Incubator started operation in 2004. IT f ocus. Ef f ective local shareholder network including city counsil, county counsil, university. Main f actor f or donor support: Shareholder network with concrete plans and support needs . For more inf ormation, please see http://www.it-incubator.ro. Case study SODBI business incubator Shymkent (South Kazakhstan): Opened in 2002. Mixed prof ile. With lack of local consulting market and business service inf rastructure, SODBI set up consulting services (including IT, business development, marketing) and spinned- of f these units af ter their self -sustainability (break even). Case study ATP Almaty Technopark (Kazakhstan): Opened in 2000. Mixed prof ile. In 2005, ATP conducted survey on innovation commercialization potentials among institutes in Almaty. Criteria: industry sector, commercial f easibility, readiness of scie ntist to implement commercialization. 200 proposals reviewed. Only 2 matched criteria, but no readiness of scientists to implement commercializa tion. 21 Appendix Case studies in brief (II) Case study Kharpcheloproduct Ltd. Kharkov (incubatee of Kharkov Technologies Incubator, Ukraine): Honey and wax producer, honey and wax production instruments producer. Aircraf t technologies engineer by prof ession. 2004: Four employees, f ocus on local m arket. Supported by incubator in IT application and international marketing. 20 f ull and 40 seasonal employees in 2007. Sales increa sed 40-f old. Network of 100 local honey producers. For more inf ormation, please see: http://www.idisc.net/en/Article.38661.html. Case study Incubator program Kazakhstan 2000: Incubator development supported by international donor programs f ocusing 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 af ter launch together with unrealistic self -sustainability objectives. In university context, unrealistic tech commercialization objectives and expectations, f ollowed by budget cuts f or incubators. Technology park program launched in 2005 with very little co -operation with incubator program. Support f or new and existing incubators currently under consideration in the context of entrepreneurship support centre progr am. Case study incubator program Russia 2005: Approx. 15 incubators supported by international donor programs f ounded in mid 1990s. By today, only 5 of them are still in operation. 70 more incubators including private incubators operating throughout the countr y. Very limited government support. In 2005, 50 new incubators f unded by the government (Federal program) established; planned total 120. In f irst stage, public support f or inf rastructure (until 2008). In second stage (2009 onwards), public support f or client f inancing on compet itive 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 environ ment?” with “We do not have local competitors, since there are no other incubators here.” Only a minority also considers commercial servi ce 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 se en also as the lead consultant, 3) Office/work space and from time to time consulting and business services, as for example accounting, mark eting etc., 4) If other, please describe briefly.?”: Majority of clients belong to group 2, f ollowed by 3. There is also substantial support f or external clients not participating in incubation programs but receiving business support services f rom incubators.
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