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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: s.schandera@schandera.de
                                                                                                                                                    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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