Unclassified OCDE/GD(97)202

TECHNOLOGY INCUBATORS: NURTURING SMALL FIRMS

ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT

Paris

60358

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 FOREWORD

Technology incubators are a specific type of business incubator - a property-based venture which provides
tangible and intangible services to new technology-based firms, entrepreneurs, and spin-offs of
universities and large firms, all with the aim of helping them increase their chances of survival and
generate wealth and jobs and diffuse technology. The large majority of technology incubators are
affiliated with public and private sources of research knowledge, such as universities, science and
technology parks, or clusters of firms with R&D capacity. Public support for business and technology
incubators is generally provided at the local and regional levels of government, but central governments
play a role both directly and indirectly. The justification for government support lies in market and
systemic failures that limit the ability of small technology-based firms to survive and of entrepreneurs to
overcome the uncertainty and obstacles associated with the early stages of firm creation. Despite lack of
comprehensive research on the costs and benefits of technology incubators, this document identifies
several “good practices” at the overall policy level and that of technology incubator programmes.

The analysis of technology incubator initiatives is part of the activity of the Working Group on Innovation
and Technology Policy (TIP) of the OECD Committee for Scientific and Technological Policy (CSTP) to
identify “good practices” in innovation and technology policies. Most of the papers in this document were
presented at the Workshop on Technology Incubators held on 25 June 1997 and organised by the TIP
Group in co-operation with the OECD’s Local Employment Development Programme (LEED) of the
Territorial Development Service (TDS). These have been supplemented by a rapporteur’s summary
prepared by the Secretariat and based on the oral report by the rapporteur, Mr. Philip Shapira of the
School of Public Policy, Georgia Institute of Technology, United States. In addition, a special review of
technology incubators and related initiatives to support technology-based firms in Russia and Central and
Eastern European countries is included.

This document has been declassified by the Committee for Scientific and Technological Policy.

Copyright OECD, 1997

Applications for permission to reproduce or translate all or part of this material should be made
to: Head of Publications Service, OECD, 2, Rue André-Pascal, 75775 Paris Cedex 16, France.

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 TABLE OF CONTENTS

EXECUTIVE SUMMARY...........................................................................................................................4

RAPPORTEUR’S SUMMARY ...................................................................................................................5

BUILDING BUSINESS AND TECHNOLOGY INCUBATORS ...........................................................12

BACKGROUND REPORT
OECD Secretariat......................................................................................................................................13
BUSINESS INCUBATORS IN AUSTRALIA
David Winter, Australia/New Zealand Association of Business Incubators, Australia ............................33
THE SAINT-NAZAIRE CENTRE FOR LOCAL INITIATIVES
Frédéric Choloux, Nantes-Saint-Nazaire Chamber of Commerce and Industry, France.........................40
THE UK EXPERIENCE WITH SCIENCE PARKS AND TECHNOLOGY INCUBATORS
Ian Hamilton Fazey, Consultant, United Kingdom ...................................................................................44
ADVANCED TELECOMMUNICATIONS AS A NEW STRATEGY FOR SCIENCE PARKS
Alfred Urban, Salzburg Technology Centre, Austria ................................................................................49
EVALUATING THE IMPACTS OF TECHNOLOGY INCUBATORS...............................................52
TECHNOLOGY BUSINESS INCUBATION: LEARNING FROM THE US EXPERIENCE
Sarfraz A. Mian, State University of New York at Oswego, United States ...............................................53
GEORGIA’S ADVANCED TECHNOLOGY DEVELOPMENT CENTER: AN ASSESSMENT
Rhonda Culp, University of Southern Mississippi, and Philip Shapira, Georgia Institute of Technology,
United States..............................................................................................................................................63
TECHNOLOGY CENTRES AND BUSINESS INCUBATORS IN GERMANY
Bernd Gross, Association of German Technology and Business Incubation Centres, Germany .............75
THE EXPERIENCE OF CATCHING UP AND TRANSITION ECONOMIES..................................90
TECHNOLOGY INCUBATORS IN ISRAEL
Rina Pridor, Ministry of Industry and Trade, Israel.................................................................................91
KOREA’S POLICY TOWARDS TECHNOLOGY INCUBATORS
Dal Hwan Lee, S&T Policy Research Division, Science and Technology Policy Institute (STEPI),
Korea .........................................................................................................................................................98
TECHNOLOGY INCUBATORS IN RUSSIA AND CENTRAL AND EASTERN EUROPE
Katya Samsonova, Consultant, France ...................................................................................................106

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 EXECUTIVE SUMMARY

Since the 1980s, technology incubators have become an important policy tool in OECD and non-Member
countries for helping new technology-based firms increase their chances of survival and generate wealth
and jobs. Technology incubators are a specific type of business incubator: property-based ventures which
provide a range of services to entrepreneurs and start-ups, including physical infrastructure (office space,
laboratories), management support (business planning, training, marketing), technical support
(researchers, data bases), access to financing (venture capital funds, business angel networks), legal
assistance (licensing, intellectual property) and networking (with other incubators and government
services).

The rationale for public support of technology incubators lies in market and systemic failures which limit
the ability of small, innovative firms to survive during the early stages and of entrepreneurs to overcome
the uncertainty and obstacles associated with firm start-ups. Support by OECD governments is generally
provided at the local and regional levels, but central governments may also play a direct and indirect role.
It is recognised that entrepreneurs face numerous challenges in starting a business, including substantial
entry costs, high-fixed costs, lack of access to equity capital, insufficient technical and market
information, and weak management skills. The start-up phase of a small business is associated with
considerable uncertainty, and new businesses often have cash flow problems during this period. Support
for business incubators is also provided on the basis of (regional) economic development objectives:
stimulating job creation and industrial restructuring.

Technology incubators have four main objectives: 1) economic development; 2) technology

commercialisation; 3) property venture/real estate development; and 4) entrepreneurship. Job creation is
a main underlying purpose of incubator support for new business formation, especially of
technology-based firms. Incubators can also play an important role in strengthening co-operation between
public and private actors in regional economic development. They have an outreach role, fostering
entrepreneurship and training in the local community. Moreover, incubators have a symbolic role in that
they allow governments to demonstrate their efforts to address problems of regional development and
unemployment.

Evaluations of the effects of technology incubators on firm survival rates tend to be positive, but evidence
regarding their impacts on job growth and net firm creation is mixed. Because technology incubators are
a recent development, their broader economic and innovative impacts may only be realised over the
longer-term. Good practices with regard to technology incubators have been identified at the overall
policy level and the level of the incubator. Above all, there is a need for incubators to avoid sole reliance
on subsidies and to diversify sources of financing. While leveraging existing services and tailoring them
to client needs is important, incubators should not over-emphasize these functions to the detriment of
building linkages and networking with industry and especially investors. Technology incubators can be
lucrative property-based ventures, underlining the need to balance short-term prerogatives (i.e. high
occupancy rates) and longer-term goals (e.g. technology commercialisation). Sharing experiences among
incubators and improving systems of evaluation are also important practices.

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 RAPPORTEUR’S SUMMARY

Note: This summary was prepared by the OECD Secretariat, based on the oral report by Philip
Shapira, School of Public Policy, Georgia Institute of Technology, United States, who acted as
rapporteur of the OECD Workshop on Technology Incubators held on 25 June 1997.

Background

Business incubators provide new firms and entrepreneurs with physical facilities and a variety of business
services to help them increase their chances of surviving in the early stages of development. In general
technology incubators are business incubators which focus on new companies with more advanced
technologies. Technology incubators are known under various names and definitions in OECD
countries – innovation centres, science parks, and technology centres. In Germany, for example,
20 per cent of technology centres do not offer incubation facilities but rather services. Still, a common
characteristic is that the physical and intangible support they provide to these new firms are specifically
tailored to helping them commercialise knowledge-intensive products and services. Another feature is
that technology incubators are not usually stand-alone ventures and tend to be affiliated in one form or
another with public and private sources of research knowledge including universities, public research
institutions as well as large technology-based firms.

Evaluations of business and technology incubators have shown a positive impact in terms of increasing
the chances of firm survival, but broader economic research is lacking. Questions also remain as to the
cost of public support relative to alternative policy measures and the possibility of adding other
instruments for promoting technology-based firms. Policy makers in OECD countries have recently
focused attention on improving the performance of existing incubators by deepening the analysis of their
impact on firm and job creation, technology diffusion, entrepreneurship and identifying good practices.

In the late 1970s and especially in the 1980s, business incubators, in particular technology incubators,
became an important policy tool in the United States as local and state governments sought to reconvert
declining industrial regions by promoting the development of clusters of technology-based firms. In the
face of increased globalisation and structural change, technology incubators also gained ground in
European countries, notably the United Kingdom, France, Germany, and Italy, as small and flexible
conduits for promoting job-creating innovative firms, the commercialisation of university research and
entrepreneurship.

More recently, technology incubators have been characterised by a sectoral focus on the development and
diffusion of technologies such as biotechnology and information technologies. Technology incubators
have also diversified their client base to include non-tenant firms, mainly SMEs. And while the number
of incubators continues to increase in both OECD and non-OECD countries, the lessons from earlier
initiatives, some of which were driven mainly by real estate ventures during the 1980s, have given way to
efforts to integrate technology incubators more closely to the surrounding infrastructure for innovation
and the broader national innovation system.

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Objectives of business and technology incubators

From the workshop, it emerged clearly that there is no single model for a business or a technology
incubator. The incubation of new firms is a highly flexible process with multiple stakeholders
maintaining differing objectives. Nevertheless, these objectives can be broadly grouped under the
following four categories:

Economic development

Incubators are a tool for promoting new businesses, especially technology-based firms. A main
underlying goal of support for new business formation is job creation as was illustrated by the Centre
d’Initiatives Locales (CIL) in Saint Nazaire, France. Faced with a local unemployment rate of 17 per cent,
the goal of the CIL is to help diversify a local economy dependent on large metalworking firms. The
Georgia Advanced Technology Development Centre (ATDC), created in the United States in 1980,
emerged as a part of a state policy to diversify the industrial base to new technology sectors in the face of
foreign competition. In Italy, the establishment of Business Innovation Centres (BICs) was the result of
regional development policies in depressed northern areas and in the Mezzogiorno. While central
governments may provide direct or indirect support, business and technology incubators are largely
supported by local and regional governments.

Technology and business incubators, as in Germany, also play an important role in strengthening
co-operation between regional public and private actors in regional development. Incubators also have a
symbolic goal in that they allow governments to show a visible example of their efforts to address regional
development and employment concerns. This is important at a time when OECD governments can no
longer afford to provide costly support to large declining industries and when globalisation has rendered
such direct supports largely ineffective.

Beyond general economic development, incubators are a tool for addressing specific or unique economic
challenges. In Japan, regional development policies in support of incubators and related initiatives are
driven by a desire to increase the concentration of knowledge and industry around the major metropolitan
areas. In Israel, technology incubators were developed as an instrument to help integrate highly qualified
immigrants from the former Soviet Union. In Germany, the ADT network of technology and business
incubation centres quickly became a tool for promoting a new way of doing business in the eastern Länder
and as a means of helping the reunification process. Finally, incubators play a role in infrastructure
building, both in physical and immaterial terms. In Italy, the BICs have targeted areas without
spontaneous clusters and where the lack of infrastructure impedes the growth of small firms.

Technology commercialisation

In the context of university-based incubators, there is a perception that most universities have technology
which needs to be commercialised and that universities, with help from industry, can accomplish this.
However, the workshop discussions showed a diversity of views on university links. On the one hand,
university research results are rarely immediately commercially viable while the short-term demands of
industry may comprise longer term goals of university research. Universities may also prefer, for both
economic and technological reasons, to work with larger industrial firms rather than SMEs. For firms,
proximity to industrial R&D is often more important than university linkages. Studies of firms located in
UK science parks have found only marginal impacts on turnover and job performance when compared to
similar firms located outside the park. Surveys of firms in technology incubators suggest what is most

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important is not access to university research but increased credibility, prestige, access to a pool of highly
qualified university graduates, access to databases and libraries and greater creditworthiness in the eyes of
investors and banks.

Still, if access to university research results appears to be less important than factors such as university
image or access to infrastructure, this may reflect more a mismatch in the expectations of the two parties
rather than fundamental incompatibilities. Indeed, universities are a critical element in the supply of
future PhDs to industry. Perhaps one of the most important impacts is cultural – making universities more
aware of industry and giving academic entrepreneurs business skills. Approximately half of the estimated
4 000 firms that have emerged from German technology and business incubation centres since 1990 are
university-spin-offs. Besides the commercialisation of research results the German example showed that
a main goal of technology incubators is the diffusion of know-how to SMEs, not only from universities
but also from applied research centres.

Property venture/real estate development

Technology and business incubators are also lucrative property-based ventures. The example of the
Italian Business Innovation Centres (BICs) illustrated the importance of this on the supply side. On the
demand side, firms may also wish to relocate in incubators because of the tangible and intangible benefits
involved. In fact, while most incubators charge below market rents, many such as those associated with
the universities and science parks in the United States or the United Kingdom can charge higher rents.
Incubators, in particular those located in science and technology parks, can also provide the parks with a
source of future tenants. There is, however, the potential for conflict between the profitability of a
property-based venture and longer-terms goals of technology and economic development. In many cases,
incubators have been forced to take on tenants among whom there are little synergies in order to maintain
occupancy rates and generate sufficient operating revenue, if not profits. In the United Kingdom, for
example, an estimated 35 per cent of space in science parks is occupied by accountants, insurance
companies and financial services.

Entrepreneurship

Promoting entrepreneurship through incubators is another objective of public support. One of the main
goals of business and technology incubators in eastern Germany but also in Russia and Central and
Eastern Europe, has been the development of an entrepreneurial culture and the creation of SMEs in
economies long dominated by large state-owned firms. Entrepreneurship is increasingly recognised as a
critical element in the process of innovation and the creation of technology-based firms. While large
firms may create spin-offs, there is some anecdotal evidence, at least in the United States, that the growth
of new technology-based firms is associated with an increase in entrepreneurial activity. Entrepreneurs,
however, are not a homogenous group nor are the founders of technology-based firms necessarily
individuals with advanced science degrees. There is, however, evidence that the proportion of founders
with science PhDs has increased in recent years.

Incubators, in particular those located in universities, can act as a laboratory for commercialising the ideas
of academics and provide a “training ground” for entrepreneurs. Incubators often have an outreach role,
fostering training in areas such as information technology skills in the local labour market. Finally,
through the building of networks with surrounding formal and informal investors, incubators can help
strengthen the link between capital and entrepreneurs.

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While these objectives may not be mutually exclusive, experience suggests a need for stakeholders to
clarify objectives from the outset in order to avoid friction between different actors and, just as important,
to facilitate the evaluation of such initiatives. The establishment of advisory boards of incubators
involving a mix of public and private stakeholders provides a mechanism for continuous monitoring and
guidance.

Approaches to incubators: institutional and policy setting

In many ways the objectives of incubators reflect the policy context in which they operate at the local,
regional and national levels. In the United Kingdom, the development of science parks that provide
incubation support was facilitated by the structure of the property market and the relatively flexible rules
with regard to the participation of academic staff in private ventures. In the United States, the
development of technology incubators was driven by universities and local economic development
groups. In France, incubators are sponsored by local and municipal governments. Institutional
differences in the public university system and the regional tax-base may play a role. For example, most
municipalities in France receive their tax receipts from levying taxes on local firms. However, as the land
and property of universities belongs to the central government, establishing property-based incubators on
central government-owned land may result in conflict. In Korea, technology complexes are usually
independent and in most cases they have developed as industrial estates without formal links to
universities. In addition, domestic firms lack a tradition of co-operation with universities.

In many countries, support for incubator initiatives is based on addressing specific gaps in the market and
institutional infrastructure for small and technology-based businesses. In Israel, support has focused on
the initial start-up phase where there was a financing gap in the private sector but also in public support.
In many other countries such as Australia and Italy, incubators are providing services to existing small
businesses which lack access to business and technological services from other private or public sources.
But large companies and national laboratories are also going to incubators as a launching pad for new
ideas. Figure 1 presents a schematic presentation of technology incubation as a vehicle for linking
technology, entrepreneurs, small and large firms and sources of capital.

Nature and delivery of incubator services

Regardless of the objectives of stakeholders or the approach to incubation, business and technology
incubators are service-oriented businesses. In contrast to general or mixed-use business incubators,
technology incubators provide very specific and high value-added services. While few incubators are
large enough to provide comprehensive services themselves, most provide referrals or links to existing
public and private resources. Location also matters for servicing firms. In many cases, technology
incubators remain isolated. The German and Austrian presentations at the workshop demonstrated the
importance of networking for helping tenant firms access technology and markets. In Italy, the National
Research Council’s Consorzio Roma Ricerche is linking innovation centres, technology-oriented BICs,
and science parks in Central Italy into one network for helping SMEs bridge the gap with the supply of
technology services and managerial know-how.

There is a need, however, to tailor incubator services to the needs of clients. The emergence of “virtual
incubators” or non-property-based ventures in many countries, not least Australia, Italy, and the
United States, can be regarded as a cost-effective way of servicing small firms in areas with insufficient
critical mass. Virtual incubators have also been established as a way of testing demand and tailoring
future physical premises to the needs of clients. The role of services, however, should not be

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overemphasised. Client surveys of firms located in the Georgia ADTC incubator showed that what firms
valued most were not the services but the credibility from being associated with the Georgia Institute of
Technology, the host university. Building relations that help entrepreneurs and new firms raise finance is
perhaps another of the most important roles of incubators, particularly in regions or countries where
venture capital is underdeveloped.

Figure 1. Technology incubation

Science / Technology Park

University
Research
Venture
Technology Capital
Transfer Incubator
Agent Business
Angels

Graduate Spinoffs of
Firms Large Firms

Industrial Base and S&T Infrastructure

Measuring the success of business and technology incubators

The success of incubators generally depends on the objectives of the stakeholders. At times, the
objectives are not explicit from the outset nor are the mechanisms for measuring success necessarily
linked to objectives. Nevertheless, in most OECD countries, incubators are considered successful when
they generate income for stakeholders, develop new businesses which move out, create jobs, diffuse
technology, and generate tax revenue. Like the process of innovation, the success of firms in technology
incubators tends to be viewed in a traditional linear fashion: a young firm or a start-up would stay in the
incubator for a couple of years, graduate and hopefully grow. The question arises whether the mere
survival of tenant firms is a sufficient criterion for success. Certain new technology-based firms expand
from 2 to 3 employees to 20 employees in a very short period and are quoted on secondary stock markets
within their first few years. It is these fast-growing firms, the “gazelles” which create the most jobs and
wealth among SMEs, that technology incubators should be hatching. Yet, promoting such fast growing
firms is difficult, risky, and may not be possible in all circumstances.

Technology incubation also costs money and takes time. In the Italian presentation the cost of public
support for a job created in a BIC was estimated at L 60 million, excluding the sunk costs of building the
incubator. The CIL in France estimated the cost of public support per job created at FF 6 000. These

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appear to be very economical costs compared to other public measures in OECD countries for maintaining
or creating jobs. Yet there is a problem of scale as illustrated by the Italian Integrated Centre for
Entrepreneurial Development (CISI), a business incubator in Taranto. In an area devastated by the closure
of steel industries and the loss of 22 000 jobs, the creation by the CISI of 100 new jobs a year (assuming
occupancy turnover targets are met) needs to be balanced against economic realities. In addition, there is
a chance that the indirect support for jobs may benefit the relatively advantaged, i.e. the highly-skilled.

For these reasons, it is important to distinguish between direct and indirect effects as well as the short and
longer-term. In addition to jobs, incubators have other impacts such as encouraging the development of
an entrepreneurial culture, attracting service industries (including low-skilled jobs), and increasing
property values. The BIC in Genoa, for example, was instrumental in arresting the decline of the
surrounding industrial zone The acquisition of incubator graduates by larger firms can also be considered
a success. In many ways, the “failure” of firms in or exiting incubators can be regarded as a necessary
step in building future successes. Entrepreneurs failing their first business venture gain valuable
experience and create a network of relations that may help them succeed down the road. The experience
of Silicon Valley and other vibrant clusters of knowledge production are riddled with examples of
successful firms established by entrepreneurs who failed several times over before succeeding. Perhaps
the glowing figures of incubators touting 80 per cent survival rates for tenant firms is too high if the firms
that survive do not grow or are unable to leave the incubators after 3 to 5 years. This raises the question
of whether incubators are merely helping business that otherwise would have or should have closed,
remain on life support. In Israel, only 40 per cent of incubators projects are graduated, but the graduates
have grown into successful firms generating wealth and skilled jobs.

Selected good practices in technology incubation

The workshop demonstrated that in spite of the growth in the number of the technology incubators in
OECD countries, there is a continued lack of evaluation and, more importantly, the lack of common
criteria or methodology for evaluating both business and technology incubators. In addition, there is a
need for longitudinal data sets for monitoring performance of firms receiving incubator support against a
statistical control group. Nevertheless, there is a wealth of accumulated experience that can provide
policy makers and stakeholders with examples of “good practices” in technology incubation. Many of
these are based on case studies or surveys of incubators and may reflect specific institutional and
economic realities. This notwithstanding, the presentations and the ensuing discussions at the Workshop
on Technology Incubators have helped identify good practices at the overall policy level as well as at the
level of the technology incubator:
◊ Define objectives and mission from the outset. In several countries the lack of clear
objectives of some incubators resulted in a conflict between economic/technology
development and the need for economic self-sufficiency and stakeholder revenue.
◊ Recruit entrepreneurial managers. The examples of the Italian BICs and US technology
incubators highlighted the importance of experienced and entrepreneurial incubator managers
both for providing tenant firms with direction and establishing links to investors and industry.
◊ Focus on “cluster-based” technologies. Focusing on technology clusters such as software,
information technologies etc. can help incubators achieve critical mass and enhance synergies
between firms. This was illustrated by the Salzburg Technology Centre.

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◊ Select tenants according to “needs and fits”. Successful incubators often stress the role of
screening applicants. However, rigid selection criteria can miss potential successes. In Italy,
incubator managers cautioned against relying too much on business plans and highlighted the
importance of factors such as entrepreneurial experience, the marketability of products, and
the overall “fit” with other incubator tenants.
◊ Tailor and leverage existing services. Technology incubators are often too small to provide
an entire gamut of business and technology services. Services should be tailored to client
needs. As well, brokering and networking can help tenant firms access existing resources for
technology development and commercialisation. In Korea, efforts are underway to link the
KAIST technology incubator to the network of Regional Technology Centres (RTCs) .
◊ Build on local and international linkages. Incubators have an outreach role to the local
community including universities, local firms, and clients. Successful incubators need to be
integrated into the local infrastructure but also to national and global sources of technologies
and markets. The German network of technology and innovation centres is the largest in
Europe with links to 250 centres including those in Central and Eastern Europe.
◊ Diversify sources of finance. Incubators act as gatekeepers for investors. To help match
entrepreneurs and capital, incubators should build on linking firms to a variety of financing
sources including venture capital funds, business angels, equity/royalty financing and
soft-loans.
◊ Share experience. In Australia, Austria, France, Germany, Italy, the United Kingdom and
the United States, there exist business and technology incubator associations that disseminate
examples of “what works” in business incubation which is central to improving performance
of incubators.
◊ Improve evaluation mechanisms. A main gap in evaluation is the lack of research on
technology incubators as opposed to general business incubators. Differences in the
definition of technology incubators across countries and a lack of a common methodology for
evaluation weakens international comparability. Also there is a need for longer-term data
sets that allow for comparing firms in technology incubators with comparable firms outside.
Local and central governments as stakeholders, together with incubator associations, have a
role in encouraging a “culture” of evaluation and the benchmarking of incubation practices.

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BUILDING BUSINESS AND TECHNOLOGY INCUBATORS

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 BACKGROUND REPORT

OECD Secretariat

Business incubators: a source of jobs and growth

Defining business incubation

The ability of firms to innovate and grow is widely recognised as the fundamental driving force behind
rising incomes and living standards. Small innovative firms, including new technology-based firms, are a
major part of this process as they speed structural change and create new jobs to replace those destroyed
by the decline of older industries or the downsizing of large firms. Public initiatives to foster the
emergence of new and innovative firms have taken on an increased importance in OECD countries in
recent years. In this context, business incubators have emerged as important tools of regional economic
strategies and, more recently, technology and innovation policy. The aim of this paper is to briefly review
business incubators as a basis for analysing the development of technology incubators, including their
main characteristics and impacts.

At a general level, the concept of business incubation refers to the practice of providing low-cost,
property-based facilities and shared services to nurture the development of new firms. Business
incubators provide for, on a temporary basis, the use of shared premises, capital equipment, business and
technical services as well as access to finance, including venture capital and “business angel” networks.
Incubators involve a diverse set of sponsors and stakeholders including government, local development
agencies, universities, science parks and non-profit actors. Private for-profit agents also sponsor business
incubators, generally as part of a real estate development venture. The provision of below-market rents
and shared services help reduce business set-up costs. Further, incubators provide facilities to businesses
on very flexible terms. Offices are licensed or leased on a month-to-month or yearly basis. Such flexible
entry-exit arrangements are an essential feature of business incubators.

Since their first inception in the 1950s in the United States, the concept of business incubators has
continuously evolved and has been adapted in other OECD countries, reflecting very specific economic,
institutional, regional and technological conditions. Initially a means for revitalising declining
manufacturing regions by providing entrepreneurs with a breeding ground to develop new firms, business
incubators became an instrument for promoting a more diversified industrial base for a regional economy
and stimulating local job creation. During the late 1970s, business incubators in the United States and in
other OECD countries became a tool for improving regional and national competitiveness by fostering the
emergence of innovative and technology-based firms. This shift was accelerated in the 1980s by linking
the incubator concept more closely to higher education and public research institutions. In the 1990s,
there has been a trend to develop business incubators around specific industrial and technological clusters
such as biotechnology, information technologies and environmental technologies.

The number of business incubators world-wide was estimated in 1992 at more than 2 000 (OECD, 1992),
and since then business incubators have continued to develop throughout OECD and non-Member

13
countries. There are currently over 600 business incubators in the United States and Canada of which 550
are affiliated with the National Business Incubation Association, compared to only 13 in 1980 (NBIA,
1996). Only a few business incubators are developed by sole for-profit sponsors. Around 90 per cent of
business incubators in the United States are sponsored by public agencies, government, academic
institutions or a combination thereof. One of the reasons for this is the high fixed costs in acquiring or
building physical facilities; most business incubators are not self-sufficient for a period of five to seven
years.

Rationale for public support

A main justification for public support to business incubators is based on market failure which results in
disincentives to firm creation. Entrepreneurs face significant obstacles to starting a business,
e.g. high-fixed and entry costs, lack of access to equity capital, insufficient technical and market
information, and weak management skills. The start-up phase of a small business is associated with
considerable uncertainty and new businesses often have cash flow problems during this period. The
existence of bottlenecks in the post start-up phase, in particular later-stage financing, weak management
and marketing have been associated with the very high failure rate of new firms, another justification for
nurturing new firms in incubators. Support for business incubators is also provided on the basis of
(regional) economic development objectives: stimulating job creation and industrial restructuring. More
recently, business incubators are supported as part of socio-economic policies to help under-represented
groups in business development (e.g. youth, women, minority groups).

In the case of technology incubators, support may be justified on the basis that market or systemic
failures impede the commercialisation and diffusion of technology by new firms. The greater uncertainty
associated with technology increases the risks inherent to new business start-ups; incubator services help
reduce this uncertainty, thereby increasing the chances for survival. On balance, evidence on survival
rates of technology-based firms suggest such firms are in fact a lower risk, but the problem may be one of
perception among investors and reflect different levels of experience in assessing risky projects (European
Commission, 1996). Technology incubators are also supported as a means of increasing returns from
public R&D spending by promoting its commercialisation and diffusion.

Types of business incubators

The definition, type and focus of business incubators varies greatly within and between countries. To a
large extent, the sponsors of incubators determine their objectives: for example, local economic
development agencies generally seek to stimulate growth and jobs while universities seek to promote
technology transfer and diffusion. In the United States, the NBIA has identified five types of incubators
according to sponsors/stakeholders: 1) for-profit property development ventures; 2) non-profit
(economic) development corporations; 3) academic institutions; 4) venture capital firms; and 5) a hybrid
of the above. Another way to categorise business incubators is according to their overriding objective and
characteristics of tenant firms. Three main types of business incubators can be identified (see Box 1).

In Europe, where business incubators are a more recent development, there is an equally broad range of
approaches and objectives. At the EU level, the European Business Innovation Network (EBN), started in
1984, has developed a network of over 120 Business Innovation Centres (BICs) throughout Europe. A
1995 survey of 83 BICs showed that 78 per cent of them offered some level of incubation support, mainly
to technology-based firms (EBN, 1996). In the United Kingdom and the Netherlands, business incubators
were developed in the late 1970s and took the form of “managed workplaces” in which small firms were

14
located in unused buildings and offered common services as a means of regenerating declining regions. In
France, business incubators (pépinières d’entreprises) provide temporary accommodation for individuals
and small businesses and have mainly been sponsored by local government and community actors with
the goal of stimulating local job creation. A main factor behind this has been the role of regional and local
governments in developing incubators adapted to their specific economic and territorial needs. In Italy
business incubators are a recent development and generally target the creation of manufacturing and
innovative firms in depressed industrial regions of the north and the Mezzogiorno. In general, incubation
support to new firms is provided by BICs (property/services-based) and some science parks while the
Citta Richerche network of innovation centres mainly provide services-based support to innovative SMEs.
In Germany, incubation is a function largely carried out by innovation centres and technology parks.

Box 1. Typology of business incubators

General/Mixed-Use Incubators: The main goal of these incubators is to promote continuous regional
industrial and economic growth through general business development. While these incubators include
knowledge-intensive firms, they also include low technology firms in services and light manufacturing. A main
focus of support is access to local/regional sources of technical, managerial, marketing and financial resources.
Economic Development Incubators: These are business incubators whose main aim is to stimulate specific
economic objectives such as job creation and industrial restructuring. Often the result of local government
initiatives, the main goal is to help create new firms and nurture existing firms that create jobs. In some
countries, this goal may target specific groups such as youth, long-term unemployed, women and minorities. In
the United States, examples include “empowerment/micro-enterprise” incubators.
Technology Incubators: These are incubators whose primary goal is to promote the development of
technology-based firms. These are mainly located at or near universities and science and technology parks.
They are characterised by institutionalised links to knowledge sources including universities,
technology-transfer agencies, research centres, national laboratories and skilled R&D personnel. Specific
industrial clusters and technologies may also be targeted such as biotechnology, software or information and
communications technologies. A main aim is to promote technology transfer and diffusion while encouraging
entrepreneurship among researchers and academics. In some countries, technology incubators not only focus
on new firms but also help existing technology-based small firms, including subsidiaries of larger established
firms.

Source: OECD.

Technology incubators: stimulating innovation

Emergence of technology incubators

Since the 1980s, technology incubators have become an important focus of technology and innovation
policies in North America, Europe and, more recently, Japan, largely due to the growing importance of
small and medium-sized enterprises (SMEs). At the aggregate level, small technology-based firms are
significant creators of employment, facilitate structural change and stimulate economic growth. About
93 per cent of high-technology firms in the United States have less than 500 employees and 70 per cent
have less than 20 employees. In 1991, small high technology companies (those with less than
500 employees) provided 25 per cent of the jobs in high-technology industries (US, SBA, 1997). Not all
new technology-based firms are large creators of jobs, with such firms in the United States showing
higher rates of job creation than similar firms in Europe (European Commission, 1996). While the
reasons for different rates of performance may vary (e.g. access to capital, university links, competence

15
centres), it is widely acknowledged that the creation and growth of technology-based firms can be
inhibited by lack of finance, management skills, technology and access to markets.

Technology incubators are difficult to categorise and the concept of technology incubation differs
widely from one country to another; incubators may be distinct entities within universities or science
parks or be a part of innovation centres (see Box 2). In some cases, technology incubators are owned and
managed by the host institution but with some autonomy or they may be owned by several stakeholders.
In the United States, approximately 30 per cent of the 550 NBIA-affiliated business incubators are
technology-oriented (NBIA, 1995). The Association of University-Related Research Parks (AURRP)
estimates that half of university-affiliated technology incubators in the United States are core elements of
research parks. Similarly, in Europe, the growth of technology incubators has been very much tied to the
development of science and technology parks wherein incubators are part of an integrated process for
helping tenant firms commercialise knowledge emerging from the park. In Germany, 73 per cent of all
technology and business incubation centres are located either near universities or other research
establishments.

Box 2. Operators/hosts of technology incubators

There is no single model or definition of a technology incubator. In most cases, it is a knowledge-based
venture affiliated with a university, science or technology park, or innovation centre. In some cases, the
incubator is an integrated function of a science park (United Kingdom) or innovation/technology centre
(Germany), or it may be a distinct unit operating within the broader knowledge-based infrastructure of a
university or science and technology park (United States, Japan, France).
Innovation centres
The concept of an innovation centre is akin to that of an incubator of knowledge-based ventures. The
Association of German Technology and Business Incubation Centres (ADT) defines an innovation centre as an
infrastructure-based venture for the establishment and growth of firms. Related goals include the development
of innovation in the region, co-operation between researchers and industry; provision of information and
technical and management training; and strengthening regional economic development through regional and
international networks for information exchange and co-operation between firms.
Science parks
A science or research park can be characterised as a complex set of activities within a limited geographic area
around a university campus where high value-added research, industry and capital are combined by
entrepreneurs, including academic and research personnel. The International Association of Science Parks
(IASP) further defines science parks as being managed under a formal co-operative agreement with university
research centres for the purpose of promoting the establishment and growth of knowledge-based enterprises.
A main mechanism is the transfer of technical and managerial expertise to tenant firms. In some countries, the
parks aim to attract existing firms as well.
Technology parks
Larger than science parks, a technology park or technopolis is a zone of economic activity composed of the
universities, research centres, industrial and tertiary units, which realise their activities based on research and
technological development. Technology parks are limited in geographic area but maintain network links to
large firms and the public research infrastructure at both national and international levels. In Japan and
France, the technopolis model extends over the entire surrounding urban area. In the United States,
technology parks differ in so far as their main goal is to promote synergy between the surrounding research
and industrial sectors and create specific “centres of competence”. (Coudivat and Giusti, 1991)

Source: OECD.

16
Technology incubators are also found in institutions which do not conduct basic research but which have
strong links to the S&T infrastructure and focus on commercialising existing close-to-market
technologies. The Centre for Applied Competitive Technologies at the San Diego City College in
California, a public funded institution with links to federal laboratories, provides incubator facilities to
start-ups, spin-offs of larger firms and entrepreneurs. National laboratories, such as those of NASA are
also establishing incubators or partnerships with existing incubators as a means of speeding the diffusion
of dual-use technologies. In the United Kingdom, the location of British Nuclear Fuels in the Birchwood
Technology Park (which is not located at a university) has attracted scores of small high technology
companies and consultancies. Against a background of shorter time-horizons for R&D, technology
incubators are also seen as a way for existing small R&D firms to access technology and facilities that
may otherwise be too time-intensive or expensive to develop on their own.

Newly-industrialised and transition countries such as Mexico, the Czech Republic, Hungary, Poland
and Russia have also developed business incubator programmes, many of which focus on new
technology-based firms. In Korea, where incubators did not emerge until the 1990s, in line with a more
active policy towards promoting the creation and development of SMEs, five Technology Innovation
Centres (TICs) which act as incubators for technology-based firms had been established by 1994. The
TICs, however, tend to focus more on technological development and less on providing firms with
managerial skills and access to financing. China, Chinese Taipei, and Hong Kong also promote
technology-based incubators as part of their industrial development strategies and S&T policies, often in
the context of science and technology parks. In these countries, technology incubators emerged from
central government schemes rather than local public-private initiatives.

Incubators in science and technology parks

While the large majority of technology incubators are less than ten years old, the “incubation” of
technology-based firms finds its origins in the practice of linking research universities to private industry
and capital. Following the development of the Stanford Research Park in 1951 and the Research Triangle
Park in North Carolina in 1959, public-private partnerships for creating a research base for the
development of new firms became central to state and local economic development strategies throughout
the United States. In an effort to replicate such hubs of technological effervescence as California’s
Silicon Valley and Route 128 in Massachusetts, many other OECD countries undertook the development
of science and technology parks (Table 1).

In the 1960s, France launched the Sofia-Antipolis Technology Park followed by similar initiatives in
Toulouse and Grenoble. The “technopolis” concept in France extends beyond the cross-fertilisation
between universities, research and industry to include urban development (aménagement du territoire).

In general, European science and technology parks, with the exception of a few in France, tend to be
smaller than those in the United States which are quite large and involve several hundred firms and
thousands of employees (Table 2). In the United Kingdom, public support for incubating
technology-based firms dates to the establishment of the Cambridge Science Park in 1970 which was
followed by a rapid growth in the number of science parks during the early 1980s. This increase in UK
science parks, in particular of non-university science parks (e.g. the West of Scotland Science Park), was
due in part to policies for reconverting declining regions but also to real estate ventures. In Germany, the
first innovation centre was created in Berlin in 1983. Although German innovation centres differ from
science and technology parks in so far as they are not part of “park-based facilities”, they are nevertheless
designed to develop close links with neighbouring universities and research institutions in order to support
the technological development of tenant firms. At the same time, some German innovation

17
centres/incubators such as in Aachen, Berlin, Karlsruhe and Dortmund have tended to expand, taking on
park-like characteristics or by integration with existing technology parks.

Table 1. Number of science and technology parks in the European Union

Country Year Number of parks Number of firms Number of employees

Austria 1993 28 innovation centres 350 tech. based firms 2 800 employees
45 research institutes
2
Belgium 1988 8 science parks 68 firms 4 000 employees
Denmark 1995 5 parks 180 firms 1 025 employees
Finland 1994 9 parks 800 firms 8 000 employees
1
France 1995 35 parks 7 160 firms 145 834 employees
Germany 1992 124 technology centres
1
Greece 1995 4 parks 41 firms 690 employees
Ireland 1993 1 park 90 firms 2 400 employees
3
Italy 1997 23 parks (operational) 147 firms 6 900 employees
Luxembourg No parks
Netherlands 1993 7 science parks 280 firms 3 000 employees
Portugal 1995 4 parks
Spain 1995 15 science parks 311 firms 8 307 employees
Sweden 13 science parks 500 firms 8 000 employees
United Kingdom 1995 46 science parks 1 250 firms 23 229 employees

Notes: 1) Greek and French data are taken from “World-wide Research and Science Park Director 1995/6”. In the case of Greece,
data on employment is provided by only 41 out of 55 firms. In the case of France data are provided by 35 out of 51 parks. It is
probably reasonable, however, to assume the non-providers of data are likely to be newly established, and hence small, parks.
2) Employment data for Belgium are based on a survey data. Nearly half of the firms are part of multinational groups which may
explain the high number of jobs reported.
3) In Italy 13 of the 23 science parks in full operation were established in the Mezzogiorno with support from the Ministry of
Education and Scientific Research. The Italian Association of Science and Technology Parks (APSTI) regroups 19 Members
not all of whom are included in the global figure of 23 parks. This is because the APSTI includes parks without “park” facilities
as well as development agencies. The data on firms/employees are drawn from 5 parks of the 19 APSTI Members.

Source: European Commission, 1996; Association of Science and Technology Parks in Italy, 1997.

Table 2. Science and technology parks in Europe and the United States

Park Date Number Employment Average

established of firms firm size
Standard Research Park, USA 1951 162 26 000 160
Research Triangle Park of North Carolina, USA 1959 71 34 0 00 479
Charleston University Research Park, USA 1968 29 12 000 414
Metro Tech., USA 1986 18 14 000 778
Irvine Spectrum, USA 1978 2 000 32 000 16
Louisiana Biomedical and Development Park, USA 1991 20 15 000 750
Sophia Antipolis, France 1969 1 034 16 200 16
Cambridge, England 1970 72 3 600 50
Tetrapole, Grenoble, Isère, France 1972 600 12 000 20
Nancy Brabois Innovation, France 1977 250 15 000 60
Villeneuve D’Ascq Technopole 1986 2 497 22 259 9
Milano Centrale Servizi, Milan, Italy 1985 40 5 000 –
Area Science Park, Trieste, Italy 1982 35 790 –
Technopolis, Bari, Italy 1984 43 500 –

Source: European Commission, 1996; Association of Science and Technology Parks in Italy (APSTI), 1997.

18
Following the evolution of science and technology parks from bases of industrial production towards
technological development, the incorporation of incubators represents the entrepreneurial development
phase – as distinct from the institutional building phase of the 1970s – of their development (Figure 1).
Whereas the traditional role of universities in science parks was to attract major research laboratories
(either from government or industry), their role has expanded to include support for entrepreneurs and
small knowledge-based firms. One factor that contributed to the creation of technology incubators in
universities and science parks, at least in the United States, has been changes in intellectual
property-protection legislation which has allowed universities to keep the rights of innovations resulting
from federally-supported research. Also, requirements that universities commercialise research results as
a means of securing additional federal funding for research may have accelerated this trend. Similarly, in
the United Kingdom, financial constraints on universities in the early 1980s and relatively flexible rules
with regard to the ability of faculty to participate in commercial ventures, were factors in the development
of university-based science parks (European Commission, 1995).

Figure 1. Incubators in science and technology parks

HOST University Research Production Technology Park Incubator Venture

INSTITUTION facilities facilities transfer office facilities capital

Science and X X O X X X O
research parks

Innovation O O X X O X O
centre

Technopolis/
Technology X X X X X X X
park

Notes: X= Essential or integrated feature

O= Desirable feature; accessible through the S&T infrastructure and industry

Within this framework, however, the targets of technology incubators differ widely from one country to
another. In Belgium and in Spain, the focus of science parks and incubators, at least initially, was on
attracting branches of multinational firms. In Germany, a survey of technology and innovation centres
found that 99 per cent targeted innovative start-ups and entrepreneurs (ADT, 1997). In 1985, France’s
Sofia-Antipolis technology park opened its first incubator in 1985, the Centre d’Acceuil des Technologies
(CAT), specifically targeting entrepreneurs based on the university-incubator model in the United States.
The Montpellier Technopole also launched an incubator in 1993 with the aim of attracting branches of
multinational companies. In 1994, there were over 60 business incubators associated with science and
technology parks in France (European Commission, 1995). In Italy, an incubator (Incubatore Tecnologico
Bicocca) was set up in 1994 near the Bicocca Technopole in Milan to specifically support the
development of high technology firms and entrepreneurs while the Technopole Bari provides incubation
facilities to local newly created SMEs. In Japan, the development of incubators in science and technology
parks in the late 1980s did not target entrepreneurs per se but was more a tool to attract existing small
firms or subsidiaries of larger technology-based firms.

19
Services provided by technology incubators

Whether the incubator target is an entrepreneur or spin-off of a large firm, the range of services provided
by technology incubators aim to help small firms exploit and commercialise research knowledge. These
services can be divided into 1) physical infrastructure, 2) management support, 3) technical support,
4) access to finance, 5) legal services and 6) networking. Technology incubators tend to provide greater
assistance than general incubators to financing, legal/intellectual property rights as well as marketing
(Table 3). Not all incubators provide comprehensive services, however, and there are differences in the
value-added firms gain from such services. In some cases, for example, generic financial accounting
services may not be adapted to the sector-specific needs of tenant firms.

Table 3. Types of services offered by incubator type

Services Technology General

incubators
Space rental 100 E 100 t
Management advice 98 97
Business planning 87 85
Office services (reception, typing, etc.) 83 85
Financing assistance 87 84
Marketing assistance 83 79
Financial/accounting 70 65
Technology consulting 87 50
Legal/intellectual property assistance 72 44
Other 20 19

Source: NBIA 10th Anniversary Survey, ILGARD 1995.

Physical infrastructure

In addition to shared office space and administrative services, technology incubators require access to
specific facilities such as laboratories and testing facilities. At the same time, while some incubators have
a large on-site laboratory and related equipment, they tend to be technology-specific and do not always
meet the needs of other firms in the incubator. For many smaller technology incubators, access to
laboratories and testing facilities is provided through partnerships/referrals with universities, technology
transfer agencies, or the leasing of equipment. For incubators located in science and technology parks, the
infrastructure is generally provided by the parks or it may be provided through links with host universities
and outside agents (e.g. national laboratories, research centres). In Canada, the Laval Science and
Technology Park recently launched an incubator known as the Quebec Biotechnology Innovation Centre.
Incubator firms have access to the Park’s facilities such as laboratories, pilot production plants, and access
to research branches of major pharmaceutical companies located in the Park.

Management support

Owners of new technology-based firms require the business know-how to develop and commercialise
their innovations. Business support from technology incubators begins with the evaluation and selection

20
of incubator tenants based on their business plans. Many incubators have adopted review methods based
on the “due diligence” concept to screen potential tenants and increase the number of quality firms.
Incubators may also provide or broker technology assessment and market studies whereby the potential to
commercialise and market a technology is reviewed and analysed by the entrepreneur with the help of
experts. Marketing services are also very important. In some cases, marketing assistance may be
provided by other tenant firms, third parties, or even by university students who conduct market research
for tenant firms. The Ben Franklin Technology Centre in Pennsylvania has developed a procurement
matchmaking service which helps tenant firms outsource and develop supplier relationships with local
manufacturers.

Incubators also provide training services as a way to strengthen the longer-term ability of a tenant firms
to survive. For example, some incubators may provide entrepreneurial training, business planning
workshops and seminars. The Venture Program at the British Columbia Institute of Technology in
Canada provides classes to entrepreneurs on building their proposed business and developing a fully
operational business plan. Companies located in the Salzburg Techno-Z are provided with training in the
Polytechnic University for Telecommunications, Multimedia and Art. Technology incubators can also act
as a bridging institution between the vast panoply of business and export support services provided by
various government agencies, chambers of commerce, small business divisions of accounting firms, etc.

Technology incubators require the active involvement of local stakeholders from the outset, including
representatives from economic development agencies, entrepreneurs, investors, and universities.
Advisory boards set the policy and objectives of the incubator, select and hire the incubator manager and
oversee tenant interaction. At the level of the tenant firms, most of them are small operations and do not
have a “board of directors”. Advisory boards fill this gap by acting as a monitoring presence and a source
of guidance in business planning and management. Advisory boards are an important conduit for
developing networks which can help tenant firms access information, technology and financing. In many
instances, individual venture capitalists or business angels sit on advisory boards and assist companies in
raising equity finance.

Like advisory boards, well-trained and active managers are important to the success of incubators and
their tenant firms. Incubator managers play a critical role in selecting and screening of tenant firms and
assisting them in their development. In the United Kingdom, a 1992 study of science park managers
found that tenant firms expressed a higher level of satisfaction with managers who were active in
day-to-day operations, although the managers’ functions tended to focus on property-related problems
rather than issues related to business information or relations with higher education institutions (Westhead
and Storey, 1994). Besides providing networking and referral support, incubator managers can help tenant
firms recruit qualified staff. The Incubator Program at the Rensselaer Polytechnic Institute (RPI) in New
York, for example, helps its tenant firms by working with the Institute’s career development office in the
recruitment of graduates and student interns/trainees.

Technical support

A main objective of technology incubators is accelerating the transfer and diffusion of technological
know-how. Experience from incubators at the University of Maryland and the Georgia Institute of
Technology suggests that having an appropriate technology transfer environment is necessary for
incubator firms to be able to acquire and use technology in their own development. Incubators at both
these institutions provide links to technology/manufacturing extension services. Co-operation between
technology-transfer programmes and incubator firms as well access to external technical facilities,
libraries, and databases is also important. Another essential practice among university-related incubators

21
is the use of faculty and students on a “loan” or consulting basis. Incubators may also broker relations
with outside expertise through a contract or a grant. The Business Technology Centre in Ohio for
example, has established contracts with nearby “centres of excellence” which grant tenant firms access to
technical facilities and research and product testing. The CIL in St. Nazaire, France co-operates with a
nearby Technopole in Nantes.

Access to finance

Equity financing is essential for start-up businesses, especially technology-based firms. While venture
capital funds are a potential source, they generally are not an option for firms with little experience and
without a proven market record. Venture companies generally invest in later-stage investments and
established firms (OECD, 1997). Trying to fill this gap is a major task of technology incubators, as well
as business angels. On the one hand, incubators can help firms prepare their business plan before
soliciting investors for early-stage financing. As well, incubators may organise venture forums and act as
gate-keepers for investors. Incubators may also develop new venture funds drawing on private sources or
in partnership with public support as in the case of the Scottish Enterprise in the United Kingdom. Access
to venture funds generally signals the departure of a firm from the incubator. The Software Business
Cluster (SBC), a public-private incubator in Silicon Valley devoted exclusively to emerging software
companies, has helped two of its 15 tenant firms receive a combined US$ 5 million in venture funding
(SJBC, 1997).

In Spain and Italy, another tool for providing access to finance is that of mutual guaranteed loans which
are obligations underwritten by and for members of small business groups. For university-related
technology incubators, royalty financing based on future returns from innovations is one way of helping
technology-based start-ups obtain equity capital. Incubators may also take equity in tenant firms which
generates future revenue to incubators as these firms grow. The Arizona Technology Incubator founded
its own seed capital fund through which each firm accepted in the incubator has access to an immediate
US$ 25 000 investment in return for the fund taking equity in the company. In Israel, technology
incubators are allowed to own up to 20 per cent of their tenant firms. Among European Business
Innovation Centres (BICs), some 23 per cent invest directly in projects. This not only helps the client
firms expand at a critical stage but it can garner additional support and attention from outside investors,
including business angels.

Legal assistance

Tenants of technology incubators often require legal assistance for incorporation, drafting licensing
agreements, and ensuring intellectual property protection (e.g. patents). While legal assistance may be
too expensive for all incubators to provide directly, the incubator manager can help by maintaining a legal
referral service. Support may also come from the local community, university law schools or law firms
that provide low-cost or pro-bono legal services. University-related incubators can tap into legal interns
as a way to help tenant firms while providing law students with training and experience. This innovative
approach has been used by technology incubators affiliated or located near the University of Maryland
and has involved guidance from area law firms.

Intellectual property rights (IPR) protection is critical for helping tenant firms develop the market for
their technology as well as accessing seed and early-stage finance. In university-based incubators, the
university generally owns the rights to an innovation which is then licensed to companies. In technology
parks which deal with more than one university, incubators may have to deal with different IPR regimes.

22
Technology incubators generally broker legal assistance for IPR rather than provide it directly. On the
other hand, some incubators such as the Advanced Technology Development Centre (ATDC) of the
Georgia Institute of Technology many provide direct assistance. Staff of the ATDC mentor entrepreneurs
and show them how to review and prepare the filling of patents.

Networking

Networking is an important element of successful technology incubators. Incubators may organise

venture forums/fairs to bring together potential investors and tenant firm owners. In Canada, the
Ottawa-Carlton Research Institute (OCRI) holds monthly meetings to bring together experienced business
executives. Increasingly, technology incubators are also establishing links with incubators in other
regions or even in other countries as a way to broaden their sources of information but also as a way to
build markets for their tenant firms and diversify their client base. In Austria, six regional innovation
centres in the state of Salzburg are connected via the Salzburg Data Highway, a broadband network that
provides companies with access to international networks. Maintaining links to graduate firms is also
important. In Australia, some 72 per cent of graduate firms remain in the local area or region, a figure
slightly below that of graduate firms in the United States (80 per cent).

While the large majority of incubators are sponsored by regional and local actors, central governments
may play a role. In the United States, the federal government helps incubators by linking them to other
business services such as those offered by the nationwide network of Small Business Administration
Development Centres. Some technology incubators assist tenant firms with tapping other sources of
finance such as development grants from the Small Business Innovation Research (SBIR) program. The
US Department of Commerce’s Economic Development Administration (EDA) also assists public and
non-profit incubators with feasibility studies, technical assistance and construction costs. It is estimated
that the federal government through it various agencies, but primarily the EDA, has provided over
US$ 100 million to US business incubators over a period of 15 years (Molnar, 1997). In the
United Kingdom, the Business Links network provides ready access to business advice and support to
small firms, including those in science parks.

A recent trend among both general business and technology incubators is the provision of services to
existing firms outside the incubator facilities, known as affiliate clients and to large or established firms
known as “anchor” firms (these may include graduates of incubators). The servicing of affiliates not only
helps increase incubator revenue but serves as a marketing tool and a way for tenant firms to co-operate
with outside firms. The NBIA estimates that 19 per cent of technology incubators provide services to
outside firms; 5 per cent provide services to anchor firms with the remaining 76 per cent concentrating on
regular in-house firms. Figure 2 indicates the main clients (affiliate and regular in-house) for business
incubators (technology and general) by industry type.

While most technology incubators are facilities-based from the outset, some are being created without
facilities as mere providers of business and technology services to existing small firms. One reason is that
this allows time for incubators to build or acquire infrastructure and facilities that are better suited to
client needs. Another reason relates to the costs of large facilities-based incubators. In regions with low
critical mass, occupancy rates may be insufficient for the incubator to break-even, despite the incentives
of below-market rental fees and services. Depending on the sponsors of the incubator and the existing
technological infrastructure, an “incubator without walls” may be a cost-effective option for helping new
technology-based firms grow. In Australia, such “virtual incubators” are being used to help link isolated
businesses in the north-western territories via computer and telecommunications networks. In Russia,
three “virtual” incubators have been established in Moscow, Tomsk and Novgorod.

23
 Figure 2. Incubator clientele by industry type

Light
Service Manufacturing
40% 23%

Technology
Research 22%
7%
Other
8%

Source: NBIA 10th Anniversary Survey.

Assessing the impact of business and technology incubators

The assessment of business and technology incubators very much depends on the criteria used which in
turn reflect the objectives of stakeholders. Economic development agencies, for example, may consider
the number of business created and/or the diversification of a local economy as the most important
criterion. In general, business incubators are evaluated on the following criteria, although not necessarily
in this order: 1) number of jobs created; 2) number of graduates/survival rates; 3) increased sales and
profits of tenant firms; 4) clients served; 5) increased incubator revenue (self-sufficiency/profit); 6) new
technologies brought to market; and 7) taxes paid by incubators.

The majority of firms in US incubators remain for less than two years while the survival rate after
five years is approximately 80 per cent, which compares to a much lower rate for new business in general
(NBIA, 1995). The US Small Business Administration estimates that only 47 per cent of firms survive
after four years and only 38 per cent survive after six years. Another study found that 50 per cent of
graduate firms in Australia in 1986 were still in business in 1994 compared to only 5 per cent of
non-incubator firms (Gardner and Kenyon, 1994). In France, only 8 to 20 per cent of incubator firms fail
after two years as compared to 31 per cent of new firms in general (ANCE, 1997). A 1994 study on
incubators/science parks in the Netherlands found that the tenant firms had low rates of business failure
(European Commission, 1996). At the EU level, a survey of the EBN network of Business Innovation
Centres (BICs) – although not incubators in a strict sense – found that the average survival rate of BICs
firms is approximately 85 per cent at three to five years (excluding companies sold off) as compared to a
European average of only 50 per cent after five years (EBN, 1996).

There is growing interest among policy makers as to the impact of incubators on wealth creation. A 1995
survey of business incubators in North America found that incubator tenant firms reported average
aggregate revenues in the preceding fiscal year of US$ 4.3 million for entrepreneurial firms served

24
in-house, US$ 2.8 million for affiliate companies, and US$ 24 million for graduates – median values were
$1.5 million for current clients, $500 000 for affiliates and US$ 6.6 million for incubator graduates
(NBIA, 1995). A survey of 19 business incubators in Michigan found that 83 per cent of firms that started
off in incubators became profitable and foresaw annual growth of 20 to 25 per cent over the next five
years. Among clients that had not left the incubator, 69 per cent were profitable and expected to grow
between 51 and 74 per cent over the next five years. The study also found significant impact on the local
economy both in terms of investment by tenant firms and taxes paid (Molnar, et. al., 1996). A study by
Coopers and Lybrand found substantial increase in sales revenue after incubator firms had graduated.
Eighty per cent stayed in the incubator for two years or less: more than half graduated in a year.
Eighty-seven per cent were out of the incubator and on their own for two years or less. A main weakness
of this survey is that it did not compare performance to comparable firms that had not been “incubated”
(Figure 3).

Figure 3. Annual sales of firms leaving a business incubator

Annual sales
100%
< $ 100 m ill.

80%
$ 100 m ill. to $ 250
m ill.

60% $ 251 m ill. to $ 500

m ill.

40% $ 501 m ill. to $ 1

bill.

$ 1.1 bill. to $ 5 bill.

20%

> $ 5 bill.
0%
Entry Graduation two years

Source: Coopers and Lybrand, 1990.

In terms of job growth, the evidence is mixed. A US study found no substantial difference in job growth
between firms in Pennsylvania business incubators and firms outside (Allen and Bazan, 1990). One reason
is that firms that do experience job growth do so once they have entered an “accelerated growth stage” –
which generally occurs after a firm has left its nurturing environment. The NBIA estimates that
graduates of incubators in 1994 created an average of 216 jobs per incubator or 23 927 jobs, excluding
jobs created in “affiliate firms”. A survey of graduate firms in the US found that while nearly 99 per cent
had less than 10 employees on entry in the incubator, 44 per cent had more than 10 employees after
exiting the incubators and 6 per cent had more than 50 employees (Figure 4). In the United Kingdom a
study of technology-based firms located on and off science parks found that resident firms had higher job
growth between 1986 and 1992 than firms located off the park, however most job growth was
concentrated in a small number of tenant firms (Westhead and Storey, 1994). The same study, however,
found that location in a science park had no effect on overall financial performance of independent
business but that their turnover did appear to benefit from being located in the park.

25
 Figure 4. Employment growth of firms leaving a business incubator

Number of
100%
employees

80%
< 10

60%
10 - 25
40%
26 - 50
20%

> 50
0%
Entry Graduation two years

Source: Coopers and Lybrand, 1990.

As regards university-based technology incubators, one study found that tenant companies leaving the
incubator experienced a 49 per cent jump in employment and a rise in sales of 166 per cent on an annual
basis between 1986 and 1990 (Mian, 1996). The association between the success of graduate firms from
university-related incubators lends support to broader research that firms affiliated with universities have
above average performance. The US Small Business Administration, for example, estimates that the
return on R&D for both small and large firms involved with universities is 26 per cent, but only 14 per
cent for firms not involved with a university (SBA, 1997). A 1995 Coopers and Lybrand survey found
that fast-growth companies that utilise university resources boast productivity rates 59 per cent higher
than peers without a university relationship, as well as 21 per cent higher annual revenues and 23 per cent
more capital investments.

While data on the number of jobs and firms entering and exiting incubators is available, information on
the innovative impact of incubators tends to be limited, partly because there is a lack of research that
matches innovation inputs with outputs and because of the difficulty of quantifying objectives. Data on
the patenting, licensing, and copyright activity of UK firms in science parks found no clear difference
when compared to non-tenant firms. There was also no difference in the levels of educational
qualification between tenant and comparable non-tenants. Tenant firms, however, did appear to have
increased their links with higher education institutions, although tenant firms were no better informed than
other firms about the research activities in the university (Westhead and Storey, 1994). Using technology
services as a proxy for inputs, a survey of firms in six US university-related technology incubators found
that the technology-related services most frequently used by over 50 per cent of client firms were:
1) students; 2) university image; 3) laboratories and workshops; 4) library/information databases; and
5) faculty consultants. In contrast, more than half of client firms did not use or access technology transfer
programmes and employee education training. This however does not capture differences in the mode of
delivery of services. In terms of the frequency of use and value added, there was a strong association
between use of R&D activities and valued added to firms (Mian, 1996).

Other criteria may include the indirect effects on the surrounding community (e.g. an increase in
property values). Similarly, the growth of incubator firms may generate multiplier effects such as the
development of ancillary industries and services around tenant firms. Despite some evidence, little
research has been carried out on the indirect effects of incubator programmes. As well, evaluations of

26
incubator firms based on comparisons with the performance of non-incubator firms often face problems of
selectivity bias. Most of the firm data on non-tenant firms (i.e. the control group) are drawn from
databases (e.g. Dun and Bradstreet) or from Chamber of Commerce sources which may exclude firms that
fail early on – unsuccessful firms do not register with Chambers of Commerce. Such methodological
problems not withstanding, evaluations of the economic impact of business incubators tend to find
positive results. One problem, however, is that much of the research on business incubators has not
focused specifically on technology incubators, but this may be partly due to problems of definition and
because most of them are less than 10 years old.

While incubators have generally been successful, some are more so than others. The Arizona Technology
Incubator has a 90 per cent survival of graduate firms, for example. Evidence suggest that the reasons for
this depend heavily on “soft-factors” such as the selection of tenants, the management and the design and
delivery of related services to tenant firms. At the same time, hard factors such as geographical location,
industrial specialisation and physical infrastructure do matter. Anecdotal evidence from the
United Kingdom suggests proximity to industrial R&D rather than universities is more important for
re-locating firms. In Manchester, firms locating at the Biotechnology Park cited the park location near air
and land transport routes as a main criterion. Ultimately, technology incubation is part of a longer term
investment and the full impact on innovation and job growth and may not appear until several years after a
firm has left the incubator. Understanding what makes some technology-based firms emerging from
incubators “fast-growing” is necessary for increasing the potential for incubators to contribute to
technology development and diffusion. In the future, longitudinal data sets of tenant and non-tenant firms
in technology incubators would help shed further light on their impact and ways to improve their
performance, including links to the surrounding infrastructure for innovation.

27
 Annex: Selected examples of technology incubators

Australia In Australia there are currently 63 business incubators operating. Since the mid-1980s several
state governments, together with federal support, have established incubators with the main aim
of generating jobs. In 1996 the Department of Employment, Education, Training and Youth
Affairs launched a programme to provide funding over four years to local communities for the
establishment of new business incubators in 60 different regions of Australia, and the
enhancement of 30 existing incubators.
Austria Incubators in Austria are mainly a function of technology and innovation centres. The state of
Salzburg regroups six technology and innovation centres including the Salzburg Techno-Z which
is specialised in information technologies. In the last five years, more than 800 jobs have been
created in these regional technology centres. Many of them have been created by outsourcing
from central regions and are remote working and tele-working jobs. In Wiener Neustadt, the
Regional Innovations Zentrum (RIZ) Neustadt houses new firms and entrepreneurs in the
communications sector, medical and environment technologies. The most important factors in
the success of the RIZ is the screening of entrepreneurs and projects followed by the product,
the market and financing. Since 1988 the RIZ has helped create 37 firms of which 35 have
survived and created 200 jobs, mainly highly skilled.
European The European Business Innovation Network (EBN) has established a network of over
Commission 120 Business Innovation Centres in 17 European countries, including in Central and Eastern
Europe. The BICs are mainly instruments for local economic development. A 1995 survey found
that private companies are the largest sponsors of BICs followed by regional public sector
bodies. In addition to financial support 42 per cent of contributions are made in-kind (e.g. access
to equipment and staff) by public research and higher education institutions. Some 78 per cent
of BICs provide or broker technology services to client firms. Over half of them have access to
seed capital funds while 52 per cent have access to start-up capital funds (EBN, 1996).
Denmark Between 1986-1992 five science parks were established with close ties to universities. Danish
parks are primarily funded by the private sector. The main aim is to promote growth and
development of the region’s knowledge-based firms and organisations while supporting
entrepreneurial activity among researchers. In such a way the science parks act as incubators
for creating new technology-based firms. A main weakness of Danish science parks has been
the lack of links to sources of venture capital (OECD, Science, Technology and Innovation
Policies, Denmark, 1995).
Finland There are approximately 26 business incubators in Finland and another 18 are planned; of the
existing incubators, 10 are technology-based (InnoVest, 1997). The DIO Business Centre,
located in the Turku Technology Centre is a technology incubator whose objectives are to
promote new companies and create jobs. The DIO Business centre also offers services and
facilities to operational units of large firms including Ericsson, Nokia, and Lundbeck. A total of
65 technology companies were established within the incubator between 1989-1995.
France According to the Agence Nationale pour le Développement et la Création des
Entreprises (ANCE), there are some 210 business incubators in France of which 100 are
considered “true” incubators (offering facilities and services) as opposed to
property-development ventures. In 1993 French incubators had budgets of between FF 200 000
and FF 7 million, and were funded directly or indirectly by local actors (communes,
départements, régions and chambres consulaires) as well as private investors. The ANCE
estimates that there are 2 500 firms in incubators responsible for the creation of 10 000 jobs. A
total of 5 000 firms representing 23 000 jobs had graduated from French incubators and were still
in operation.

28
Germany Following the creation of the first innovation centre in Berlin in 1983, the number of technology
and innovation centres (technologie-und Gründerzentren, TGZ) has increased to around 200, a
third of which are concentrated in the new Länder. It is expected this number will rise to nearly
300 by the year 2000. A survey of incubator managers found that on average incubators
focused on three main technologies: information and communications, software, and
environmental technologies. Between 1983 and 1996 some 6 500 firms had been created in
technology and innovation centres of which 82 per cent were new technology-based
firms (NTBF), nearly half of which were spin-offs from university research.
Japan In Japan, technology incubators are a function of innovation centres and science parks.
Japanese incubators did not appear until 1989 and in 1994 there were some 45 in operation.
Unlike US or European technology incubators, those in Japan do not generally set tenancy limits.
Furthermore, Japanese incubators tend to function more as real estate ventures with tenant
space. While Japanese incubators do provide a range of office and technical services
comparable to incubators in Germany and the United States, a main weakness is the
underdevelopment of access to financing, including venture capital and external business
linkages.
Israel Approximately 27 technology incubators have been established in Israel which together employ
over 1 000 professionals. In 1996 the Israeli Office of the Chief Scientist had allocated an
equivalent of US$ 32 million to the technology incubator programme. Financial assistance
covers 100 per cent of personnel costs and 75 per cent equipment with a cap of US$ 140 000 for
incubator projects for two years. Technology incubators in Israel specifically target R&D
entrepreneurs, in particular, recent immigrants. Training is provided to new immigrants in both
business and technical skills. As of 31 August 1996, some 280 projects had graduated from
incubators of which 58 per cent continued operating.
Italy In Italy, there are several mechanisms for supporting the incubation and growth of new
technology and innovative firms. The National Research Council’s Citta Ricerche is a network of
services-based consortia grouping innovation centres in Rome, Milan, Genoa, Naples, Pisa and
other cities which provide technological, managerial and training services to SMEs. The
Promozione e Sviluppo Imprenditorial (SPI), a finance subsidiary of a state holding company, the
Institute for Industrial Reconstruction (IRI) has established a network of 12 mainly
property-based business innovation centres (BICs) – with another eight planned – which target
new firm creation and SMEs in lagging regions. Many of the BICs, including the BIC in Trieste
focus on advanced technologies. In addition, a network of Italian Science and Technology Parks
provide support to new technology-based firms.
Korea Korea’s policy towards technology incubators is based on two objectives: technology diffusion
and regional technological development. The Ministry of Science and Technology (MOST)
recently granted responsibility to the Korean Advanced Institute of Science and
Technology (KAIST) for the creation of an incubator comprising 1 600 sq. meters and housing a
total of 10 firms. The KAIST’s location in the Daeduk Science Town provides the incubator with
strong links to 50 government-supported institutions and private laboratories. During 1997-1999,
the KAIST plans to expand the incubator into a “high technology center” with 35 000 sq. meters.
Mexico In Mexico, technology business incubators have been promoted by the federal and local
governments since 1990. By 1995 some 15 incubator programmes had been established with
another 8 in the planning stage. The majority of incubators are supported by the Conacyt PEIBT
programme for technology incubators. Drawing on international experience in this area, the
programme has made access to banks and financing an integrated part of its institutional
structures.
Netherlands The Netherlands has a limited experience with technology incubators and science parks in
general. Incubators are integrated in the Groningen and Enschede technology parks and
provide services to new high technology firms both inside and outside the parks. In 1985 the city
of Leiden, in conjunction with the university and chamber of commerce, launched an incubator
near the university hospital as a means of commercialising projects conceived by the faculty of
medicine. The university provides services to the incubator including access to its chemical
waste processing plant, administrative staff and the secondment of the director of the technology
transfer centre who helps develop links between tenant firms and public institutions. The
Chamber of commerce and the city provide the incubator with an executive officer.

29
Poland Like other countries in Central and Eastern Europe, Poland has established business incubators
and innovation centres, sometimes in co-operation with international support. Germany is
currently sponsoring the establishment of an incubator in Gdansk as part of its TRANSFORM
programme. A main goal of incubators in Poland is to increase university-industry relations as
illustrated by the establishment of an incubator at the Warsaw Technical University in 1990. The
OECD, Review of National Science and Technology Policy, Poland 1995, found that the
short-term impact of incubators had been relatively weak. Efforts are underway to improve the
planning of incubators and raise the quality of services provided to tenant firms as well as
exchange experience among Polish incubators.
United In the United Kingdom technology incubators are generally a function of science parks and
Kingdom technopoles. In 1995 there were an estimated 1 250 firms located in 46 UK science parks
employing over 23 000 people. The Enterprise Panel has identified four types of UK incubators.
The first concern new and established technopoles such the Aston Science Park, Warwick
University Science Park and the more recent Cranfield Technology Park. The second are
sector-specific incubators including the Oxford Centre for Innovation/Oxford Trust, the St. Johns
Innovation Centre at Cambridge or the Manchester Bioscience Incubator. The third and fourth
categories are general incubators which cover mixed-use enterprises and “building business”
incubators such as the Electronic Commerce Centre at the University College London.
United States The United States has extensive experience with business and technology incubators. The
National Business Association estimates there are more than 600 business incubators in the
United States and Canada of which 550 are NBIA affiliated. Approximately 30 per cent of them
are technology incubators. The research literature on business incubators has found high
survival rates of graduate firms, but evidence is mixed on impacts such as job and wealth
creation. There is a need for further research, in particular longitudinal data, on the impacts of
technology incubators, both in terms of economic and technological development as well as
innovation.

30
 REFERENCES

ALLEN, D. and E. BAZAN (1990), Value-added contribution of Pennsylvania’s Business Incubators to

Tenant Firms and Local Economies, report prepared for the Pennsylvania Department of
Commerce, Pennsylvania State University, University Park.

AGENCE NATIONALE POUR LA CREATION ET LE DEVELOPPEMENT DES ENTREPRISES,

(ANCE) (1997), www.ance.asso.fr

ARBEITSGEMEINSCHAFT DEUTSCHER TECHNOLOGIE-UND GRUNDERZENTREN (ADT)

(1997), Technologie-und Grunderzentren in Deutschland und ihr Beitrag zur Entwicklung
technologie-oreirter Unternehmen, Berlin.

COOPERS & LYBRAND (1990) “Incubators Are Finding the DNA of Business Success”, Coopers and
Lybrand Emerging Business Newsletter, March-April 1990.

COUVIDAT, Y. and J. GIUSTI (1991), Atlas International des Technolpoles, DATAR, Ministère de la
Ville et de L’Aménagement du Territoire, Paris.

ENTERPRISE PANEL (1995), Growing Success: A report by the Enterprise Panel, Securities Institute,
London.

GARDNER, J. and A KENYON (1994), Business Incubators in Australia – An Evaluation

GIBB, J (1985), Science Parks and Innovation Centres: Their Economic and Social Impact, European
Commission, Proceedings of the Conference held in Berlin, 13-15 February 1985, Elsevier Science
Publishers, Amsterdam.

EUROPEAN BUSINESS AND INNOVATION CENTRE NETWORK (1996), EC-BIC Observatory,

1995, Brussels.

EUROPEAN COMMISSION (1995), European Innovation Monitoring System (EIMS), Comparative

Study of Science Parks in Europe.

EUROPEAN COMMISSION (1996), European Innovation Monitoring System (EIMS), New

Technology-Based Firms in Europe.

GUY, I. (1996), “New Venture on an Ancient Campus”, in Technovation 6, June, Elsevier Science Ltd.,
Oxford.

GUY, K. et al. (1995), The Evaluation of the Otaniemi Science Park Cluster: Report to Park Promoters,
Technopolis, Innovation Policy Research Associates, United Kingdom.

31
MOLNAR L., DePIETRO, and GILLETTE (1996), Sustaining Economic Growth: the Positive Impact of
the Michigan Incubator Industry 1985-1995, NBIA, Athens, Ohio.

MOLNAR, L. (1997, forthcoming), Community Impact of Incubator Investments, University of Michigan

School of Business, A report funded by a grant from the US Department of Commerce, Economic
Development Administration.

MIAN, S. (1996), “Assessing Value-Added Contributions of University Technology Business Incubators

To Tenant Firms”, Research Policy 25, Elsevier Science Publishing, New York.

MINISTRY OF TRADE AND INDUSTRY OFFICE OF THE CHIEF SCIENTIST (1995), Technology
Incubators in Israel, MTI, Tel Aviv.

NATIONAL BUSINESS INCUBATION ASSOCIATION (1995), 10th Anniversary Survey of Business

Incubators 1985-1995: A Decade of Success, NBIA, Athens, Ohio.

NATIONAL BUSINESS INCUBATION ASSOCIATION (1992), The State of the Business Incubation
Industry, 1991, NBIA, Athens, Ohio.

OECD (1992), “Business Incubators and Job Creation”, Innovation and Employment Newsletter, No. 9,
LEED Programme, April, Paris.

OECD (1996), Technology, Productivity and Job Creation, Paris.

OECD (1997), Venture Capital and Innovation, OCDE/GD(96)168, Paris.

SAN JOSE SOFTWARE BUSINESS CLUSTER (1997), www.sjsbc.org/

TORNATZKY, L.G. et al., (1996) The Art and Craft of Technology Business Incubation, The Southern
Technology Council and the National Business Incubation Association.

US CONGRESS OFFICE OF TECHNOLOGY ASSESSMENT (1995), Innovation and

Commercialisation of Emerging Technologies.

WESTHEAD, P. and D.J. STOREY (1994), An Assessment of Firms Located On and Off Science Parks in
the United Kingdom, HMSO, London.

32
 BUSINESS INCUBATORS IN AUSTRALIA

David Winter, Australia/New Zealand Association of Business Incubators, Australia

Introduction

The Australian and New Zealand Association of Business Incubators acts as a peak body advocating for
and resourcing the business incubation industry in Australia and New Zealand. It will come as no surprise
therefore that my role today is to give an overview of the development of the industry in Australia. To
ensure that my address is meaningful I need to provide a contextual setting in both physical and human
terms.

Demographics

The Australian continent covers a vast area, with its people living in a range of environments from
sophisticated cities to isolated settlements (see Figure 1). Of particular relevance to this discussion are the
Australian population demographics compared to Europe’s. In terms of delivering equitable economic
development these factors present some special challenges which the business incubation industry in
Australia has started to address. Like other developed nations the well-being of the Australian economy is
inextricably linked to that of other countries; indeed Australia’s economic isolation is gone forever.

Unemployment in Australia peaked in the early 1980s and again in 1993, a year after the United States,
when it reached 10.9 per cent. Australia has the third highest unemployment rate of the
Group of 7 (G7) countries, trailing behind the United Kingdom, Germany, United States and Japan.
Currently the Australian national unemployment rate is 8.7 per cent, which represents 803 000 people. In
cash terms, unemployment payments in Australia totalled A$ 6.6 billion in 1995/96 – around 1.3 per cent
of GDP.

Given that in Australia over 50 per cent of workers are now employed in or by small business, our task as
the providers of business incubation services is to help mobilise the inherent entrepreneurial spirit of this
and coming generations in order to generate new jobs and wealth.

33
 Figure 1. Australia - Europe comparisons

Source: Author.

Business incubation in Australia

The business incubation concept is remarkably simple and finds its roots in the industrial revolution, when
tradespeople formed guilds for mutual support and to facilitate the exchange of ideas and techniques.
These very human needs are in just as much demand today as they were then. Starting a new business, is
for most, a lonely and demanding experience.

The most important service that a business incubator can provide is an encouraging and supportive
business environment. A main objective is to build on the very essence of human success, that is drive,
enthusiasm and commitment. Technical competence or a good idea is not enough to assure the success of
an embryonic venture. The business incubator and its management needs to provide, as part of an overall
package:
◊ a positive working environment;
◊ professional administrative support;
◊ readily accessible business advice and mentoring;
◊ mechanisms to facilitate the linking of tenants with professional networks and services; and
◊ infrastructure to accommodate the special needs of the start up/growing business.

Incubators provide the appropriate rocket fuel to boost business growth, however it is up to the budding
entrepreneur to take the first step by lighting the fuse. Generally, the provision of infrastructure assumes
greater importance for the more technically-oriented firms. From the financial perspective of the
incubator the establishment of specialised work places or the acquisition of industry specific equipment
can be a significant drain on fiscal resources.

34
In addition, capital expended may not be recoverable through rent payments resulting in a dilemma which
is not readily solved by a cost benefit analysis driven by cash flow imperatives. The question is, who
should take the risk and put up the funds - governments, universities, regional development agencies, big
business, venture capitalists, banks, the project proponent etc. etc.

This subject, the developmental financing of specialised technology oriented work spaces, is an important
issue that justifies more discussion than time today allows. Fortunately the Australian federal government
has recognised the effectiveness, as a wealth creation, economic development and job creation tool, of
business incubators and is committing roughly A$ 8 million per year to facilitate their establishment. This
amount when coupled with other funding sources has allowed the Australian business incubator industry
to rapidly expand.

To date (1997) there are 63 incubators operating in Australia. This compares to 49 in 1996, 39 in 1994;
40 in 1992 and 17 in existence or being planned in 1988. The number of incubators being established
each year is fairly constant at about six per year for the past four years. The incubator industry is
maturing with an average of four years of age. This compares to 1992 when only 30 per cent of
incubators were more than three years old.

Configuration

In mid 1996 when the Australian/New Zealand Association of Business Incubators undertook an
evaluation of the industry and simultaneously documented best practices it was found that incubators were
being set up in three streams - embedded, independent and technology - which illustrate the diversity.
Analysis between these groups shows differences in factors such as regional area of location, incubator
size and provision of services. At that time there were 49 incubators operating in Australia, composed of:
◊ 28 embedded incubators which are part of a broader organisation, e.g. a regional
development organisation;
◊ 12 independent incubators which stand alone; and
◊ 9 industry-specific incubators of which 5 are technology incubators.

Location

Incubators are located in all states and territories and are present in many regional and metropolitan areas
of Australia; 60 per cent are in regional cities or towns. Physically, incubators are located in buildings as
diverse as purpose-built facilities to incubators in converted buildings - often recycling unused publicly
owned infrastructure. Incubators are also attached to technology parks and/or universities.

Size

Incubators vary widely in size ranging from 20 to 8 000 square metres of rental space. These two figures
however are singular extremes. The remaining incubators range between 100-5 000 square metres with
nearly 70 per cent of incubators having less than 1 000 metres of lettable space. Figure 2 illustrates the
percentages of incubators at various sizes. As one would expect, size of incubators varies according to
their location. Broadly speaking, the larger the supporting population the larger the incubator.

35
 Figure 2. Size of incubator by rental space

Source: Author.

Figure 3 illustrates the relationship between rental space and regional area. There is also an important
relationship between incubator age and area of rental space. Three main points emerge:

◊ First, on average incubators older than 5 years are larger than more recent incubators.

◊ Second, there was a steady decrease in the average size of incubators from 1991 to 1994.
Since 1994 this trend has reversed and incubator size on average is increasing.

◊ Third, the trends in size are linked to the regions in which the incubators are being
established.

36
 Figure 3. Size of rental area by population centre

Source: Author.

Incubator management

Over 66 per cent of incubators either own their own building or pay a modest rent compared with 20 per
cent in 1994. There is remarkable similarity in the management practices among managers from
embedded, independent and technology incubators. The majority of incubator programs aim to operate
without on-going subsidies. This aim is achieved through one or more of three ways:
◊ The proportion of incubators operating from their own building or paying a peppercorn rent
has dramatically increased. This is in large part due to local, state or federal government
support.
◊ Incubator programs with less than 1 500 square metres in rental space are part of a successful
larger umbrella organisation which commands considerable community support.
◊ Provision of business services which tenants require and which yield a profit.

Incubator business outcomes

Incubators have an impact on their surrounding community in three important ways. They reduce the
failure rate of new businesses; increase local economic development; and increase local employment.
When these three outcomes are taken together the benefit to local economies is significant and obvious.

Reduction in business failure

An indication of the extent to which incubators are reducing the failure rate of new businesses can be
gained by assessing the number of tenant businesses which fail as a proportion of the total number of
incubator tenants. This figure can then be compared to the failure rate of businesses outside of incubators.

37
 ◊ The failure rate for businesses starting up in incubators which have been operating more than
five years ranges from 6-9 per cent. This is considerably less than the 32 per cent failure rate
for start up business outside of incubators.

This evidence gives credence to the argument that business incubator graduates are ideal recipients of
venture capital funds or other patient capital.

Current contribution to local economic development

An indication of the extent to which incubators increase local economic development can be gained by
looking at four measures: the total number of tenant businesses within incubators; the total number of
incubator graduates; the number of tenant businesses graduating per year; and the annual dollar value of
sales and services of the incubator, tenants and graduates.

◊ In 1996 a total of 637 businesses operated within 49 incubators. A further 706 businesses
have graduated from 45 of these incubators.

◊ The estimated annual dollar value of sales and services of the incubator, tenants and
graduates is approximately A$ 238 million.

◊ The average number of businesses graduating per incubator per year ranges from 1 to 4.43.
On average 12 per cent of incubator businesses graduate each year. For 1995/96 this
translates into 76 businesses graduating from incubators.

Current trends and issues

The management of business incubators are continually examining ways to increase their services, contain
costs and realise their business development objectives.

Diversification

Successful incubators are now extending beyond in-house development of tenant businesses. They are
reaching the wider small business market in their community including businesses operating at home.
Examples of assistance offered to external businesses include telephone answering services; small
business training in the form of seminars, access to the incubator programs business support network; and
the development and marketing of training manuals.

Amalgamation

Some incubators are seeing value in being set up with organisations that have compatible
objectives - economic development organisations and other business advisory groups. This gives the
combined umbrella organisation more financial stability and security which means that business
development can take place in regional areas with small communities and finite resources.

38
Networking

Australia’s large distances create a sense of isolation for regional incubators. This problem is being
overcome by incubators in the same region forming networks. The incubators each have different
‘catchment populations’ which means that the incubators are not directly competing. Steps which have
been taken include setting common priorities, establishing regular formal meetings where common
problems and ideas can be discussed.

Best practice

The Australian/New Zealand Association of Business Incubators has formulated a set of industry ‘best
practices’ which aim to bring some consistency and quality to the set up and operation of incubators. The
production of this document, the insight that it provides and the ability to cross fertilise ideas on “what
works” in business incubation is central to the efficient on going development of the business incubation
industry in Australia to which the Association is committed.

39
 THE SAINT-NAZAIRE CENTRE FOR LOCAL INITIATIVES

Frédéric Choloux,
Nantes-Saint-Nazaire Chamber of Commerce and Industry, France

Background

Saint-Nazaire is located in the west of France in the département of Loire-Atlantique, which in turn is part
of the Pays de la Loire region. With some 120 000 inhabitants, it is the second largest city in the
département, after Nantes. The port of Saint-Nazaire is on the Atlantic Ocean, at the mouth of the Loire,
France’s longest river. This location naturally led to the development of shipbuilding (in the 19th century)
and the construction of seaplanes (between the world wars).

The predominance of large industrial groups

Today, large corporations are predominant in the region. The Chantiers de l’Atlantique shipyards (owned
by the GEC-Alsthom group), which employ 4 500 people, build ocean liners and cruise ships, and
Aérospatiale (2 000 employees) manufactures a portion of Airbus. The Donges oil refinery (the Elf-Antar
group), with 500 employees, is the largest refinery in France and the third largest company in the
Saint-Nazaire employment area.

SMEs concentrated in a single sector

Alongside these large companies, there are a vast number of small SMEs (with fewer than 50 employees),
primarily in the metalworking sector. They possess considerable know-how, but have some obvious
weaknesses:
◊ they are subcontractors and few of them produce real products of their own;
◊ few of them have a sales department;
◊ few of them have markets outside the region.

In all, it is estimated that two-thirds of local jobs are either directly or indirectly dependent on large
industries. The resulting structural instability has led to 17 per cent unemployment, well above the
national average.

The response of local actors

Faced with this situation, local actors have given thought to what can be done and have set two priorities:

40
◊ these SMEs must take advantage of their know-how to diversify their activities, while keeping their
existing customer base;
◊ at the same time, the emergence of new enterprises must be promoted.

These developments should make the local economy less vulnerable to the changing fortunes of the large
industrial groups. With this in mind, a number of tools have been introduced over the past 10 years, one
being the Centre for Local Initiatives (Centre d’Initiatives Locales, or C.I.L.). Others include local
business associations and clubs where firms can work together to open up new markets and swap
experience. Recently, the Nantes-Saint-Nazaire Chamber of Commerce and Industry launched the
“Nouvelle Donne” programme, which helps SMEs to think strategically in order to find other ways of
using their know-how.

The objectives of the Centre for Local Initiatives

Its objectives are twofold:

◊ To promote the emergence of new firms in industry and services. This involves assisting individuals
who have a business plan during the start-up period and providing support during the development
phase.
◊ To assist existing enterprises. This primarily involves financial assistance provided through a capital
investment programme created in 1992.
But first and foremost the objective is to help create jobs.

What is the Centre for Local Initiatives?

The characteristic feature is that the Centre combines a number of complementary tools. Established as an
association in 1988, it above all reflects the determination of the city’s political and economic actors to
join forces in a project aimed at promoting enterprise creation. The City of Saint-Nazaire and the
Chamber of Commerce and Industry, and the three main industrial groups (Chantiers de l’Atlantique,
Aérospatiale and Elf), are all members of the association.

Tools at the service of enterprises:

The “Créatlantic” incubator

This incubator may provide assistance to new firms for up to two years, which is the maximum period
allowed by law in France. After a project has been examined by the Executive Board, a new business may
join the incubator and use the physical infrastructure and other services it provides.

This infrastructure allows a fledgling firm to optimise its external and internal costs. The firm has access
to all the necessary office equipment (fax, photocopier, E-mail, etc.), but it may also avail itself of our
secretarial services to type correspondence or do accounts.

The other services provided are of real value and distinguish us from other business incubators. They
include:

41
◊ a monthly internal newsletter that keeps enterprises abreast of new legal, fiscal or labour
developments;
◊ a quarterly external newsletter that promotes our enterprises;
◊ weekly economic monitoring of each firm;
◊ a network of skilled advisers who work in close co-operation with the Centre, such as accountants,
lawyers and bankers;
◊ membership of an Entrepreneurs’ Club, which holds monthly evening meetings devoted to specific
themes;
◊ exchanges and joint initiatives (publication of a directory of new businesses) with other incubators in
western France through the “Pépinières Réseau Ouest” network.

Preliminary assistance

This fund makes it possible to finance market research or sales prospection prior to start-up.

The Intervention Fund for Local Initiative

This fund lends money to newly established businesses in order to share the risk with a bank.

“Atlantique Initiatives”: a capital investment company

This company was set up by the Centre in order to provide a portion of capital for start-ups and for
enterprise development or transfers of ownership as well. As a minority shareholder, the company
supports projects and entrepreneurs by providing cash, but it may also advise and monitor operations if
necessary.

Involvement of local actors

Local actors are actively involved in the Centre’s operations. For example, its Chairman and
Vice-Chairman are respectively the Chairman of the Chamber of Commerce and Industry and the Mayor
of Saint-Nazaire. Representatives of the city, the Chamber of Commerce and the large industrial groups
sit on its various review boards. This day-to-day involvement of the founder institutions is important
because it shows that they are genuinely interested in small firms and gives credibility to the Centre.

The results achieved by the Centre

After ten years of existence, our various programmes have provided assistance to over 110 projects:
◊ more than 75 businesses have gone through the incubator;
◊ 25 loans have been made;
◊ 40 enterprises have received preliminary assistance;
◊ 10 SMEs have been invested in by Atlantique Initiatives.

Over 70 of these businesses are still active in the region. Of the firms assisted, 85 per cent ultimately
remain in the area. The incubator’s success rate has been approximately 70 per cent for the past ten years,

42
which is above the national average. On average start-ups remain in the incubator for 19 months, so the
firms there are renewed every three years. In all, the Centre has so far helped to create some 500 jobs.

Future directions

Based on our day-to-day observation of new businesses, three questions have emerged:

Can the assistance given to new businesses be improved?

In other words, what more can be done to help businesses avoid risks? We must strike a balance so as not
to cross the fine line between effective monitoring (advice) and interfering with entrepreneurs’
management of their businesses. The more systematic use of operating reports is no doubt a possibility
that should be investigated. This is in line with the new standard set by AFNOR (the French
Standardisation Association), which requires incubators to sign an agreement with each business.

How can chances of success be improved?

This question is a logical extension of the previous one. It means detecting businesses’ problems better.
Anticipating problems effectively helps prevent failure.

The products and services of tomorrow have yet to be invented. What role can the Centre play?

The Centre must establish closer relations with technical colleges and laboratories in Saint-Nazaire to help
promote the emergence of innovative new firms. An innovation company, which will hold patents for
college inventions and exploit or license them, is to be set up in the near future. The Centre will be
actively involved in this company through Atlantique Initiatives.

By pursuing these goals, the Centre for Local Initiatives will improve its services and become an
important actor in the region’s economic development.

43
 THE UK EXPERIENCE WITH SCIENCE PARKS AND TECHNOLOGY INCUBATORS

Ian Hamilton Fazey1, Consultant, United Kingdom

What is the definition of a business innovation centre (BIC)? The term is usually understood to mean a
collection of incubator units for small businesses which can draw on centralised facilities for day-to-day
operations, coupled with ready access to advice. There is, however, a more down-to-earth, possibly
cynical definition. A BIC, according to a recent article in the Financial Times, is little more than a high
technology version of a managed workshop.

In the United Kingdom, the same problem of definition applies to science and technology parks, where
some BICs are housed. These so-called “parks” are no more than pleasantly designed industrial estates,
usually with an elegant pavilion style for most of the buildings. Calling them “parks” is better for
marketing the property built upon them or encouraging companies to move in and build their own. One
result is that almost every pocket of industrial development outside a UK town centre is now called a
“park” of some sort or another, whether prefixed by “science”, “technology” or “business”. Indeed, in the
last ten years, at least 200 million square feet (that is about 20 million square metres) of space for offices
and light industry have been marketed in these “parks”. To give an idea of how much this comprises, it is
more than the total office space available in central London. At the beginning of the 1990s, a survey
showed that about 35 per cent of it is occupied by accountants, insurance companies and providers of
financial services.

These observations of reality are important because they serve to remind us that when we talk about
business innovation centres and science parks, these are euphemisms for managed workspace and
industrial estates. BICs and science parks are niches in the property market and although governments,
politicians, university vice-chancellors and the people who market them often speak as though BICs and
science parks have magic powers, what makes them work - if they work at all - is commerce and profit.

The United Kingdom invented managed workspace in its modern form in 1975, when British Steel formed
a subsidiary called British Steel (Industry) - BSI - to create jobs in steel closure areas. BSI created
managed workspace, sometimes out of old buildings, sometimes building new ones. BSI also backed
many in the UK’s network of enterprise agencies, which give advice to small businesses and were
pioneered in north-west England, notably in St. Helens, which faced large technological redundancies in
its principal glass-making industry.

1. Ian Hamilton Fazey is a British journalist who has written extensively about small and medium-sized
enterprises and was a Financial Times correspondent for 10 years to 1996. He has most recently
completed a report for the OECD - LEED Programme on Italian business innovation centres entitled,
Italy’s National Hatchery: The experience of SPI (OECD, 1997). This latter report was also presented at
the OECD Workshop on Technology Incubators (25 June 1997) but is not republished in this document in
order to avoid duplication.

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Other institutions, government agencies, local authorities and private companies followed BSI’s example
of creating managed workspace. The result is that there are now more than 100 managed workspace
schemes dotted around Britain. This is now a mature market. About a dozen of these managed workspace
schemes are technically BICs in the European Union’s understanding of the term: they received EU
money to help with set-up costs and are part of the European Business Network (EBN) of BICs promoted
by Brussels. BSI, however, the arch practitioner and expert in this field, has little to do with the EBN, the
European Union’s network of BICs. BSI is an associate member for contact purposes, but considers the
European Union’s rules for management structure of BICs too prescriptive and constraining. It is simply
not always necessary for a BIC to always have a chief executive and supporting directors responsible for
marketing, finance and so on, or even a business plan. If companies need specialised advice, the person in
charge in any reasonably organised managed workspace centre should be able to direct them where to go.
It is not necessary to have it on the spot or be over-sophisticated. Looking at the many companies based
in managed workspace in the United Kingdom, they appear remarkably similar and have a similar feel to
companies in the BICs in Italy. In Italy, the SPI (Sviluppo e Promozione Imprenditoriale, or
Entrepreneurial Development and Promotion) has very good reasons to operate its BICs in a rather more
formal way than BSI does in the United Kingdom. These are early days for them, a climate for
entrepreneurship has yet to be established in many parts of southern Italy, and BSI used to be more formal
before the UK managed workspace market matured.

The point is that it is the climate for doing business that matters to all kinds of small companies - whether
high tech, low tech, or even no tech - rather than the technical details of how a BIC is run. The key things
needed are a good standard of reasonably priced accommodation and easy access to finance and advice
where required. By definition, entrepreneurs succeed or fail mainly through their own efforts; the skills
of entrepreneurship can be taught or imparted so that people do not have to reinvent the wheel, but people
who need to have their hand held on a day-to-day basis are unlikely to succeed.

Therefore, what has evolved in the United Kingdom, as far as managed workspace is concerned, is a
property market. BSI started off in 1975 with similar ideas to those of SPI in Italy. Workshops would be
incubators; tenants would be nurtured and would grow; they would move out to bigger premises and
their places would be taken by newcomers, ready to be incubated. The reality is that only about a quarter
of companies move out. They grow and need bigger premises. The majority stay where they are. Some
expand without moving out, often by taking over adjacent workspace when it becomes vacant. The new
dynamic is far different from that first envisaged by BSI in the 1970s: it is to sell mature, managed
workspace to a property management company - often an insurance company or pension fund - and use
the money to build another cluster of managed workspace and start the cycle over again.

The same commercial realities have driven the development of science and technology parks in the
United Kingdom. In the United States, science parks - there are more than 200 of them - were driven by
universities, usually to exploit ideas within those universities. There has been some of this in the
United Kingdom, but science and technology parks are, in the main, part of the commercial property
market. The most famous is the Cambridge Science Park, which was founded in 1970 on 120 acres of
farmland - about 48 hectares - owned by Trinity College. It is an outstanding success, but not so much
because academics have spun out of Cambridge colleges to translate ideas into commercial reality, but
because it is associated with one of the world’s greatest seats of learning and this cachet has encouraged
people to start up high technology businesses there or relocate to the science park from outside. Many
businesses have no connection with the university at all. The latest newcomer, as you will have read
recently, is going to be Microsoft.

Another highly successful industrial estate of this kind is the Birchwood Technology Park in Warrington,
half-way between Manchester and Liverpool. It was built in the late 1970s and early 1980s by Warrington

45
New Town Development Corporation - which was a government agency - and the NCR Pension Fund.
There is no university at Warrington at all, but the park contains the headquarters of British Nuclear Fuels
and is adjacent to what used to be called the UK Atomic Energy Authority. This proximity has
encouraged scores of small high technology companies and consultancies to set up in the technology park,
creating more than 3 000 jobs. Other, blue-chip high technology companies have also set up in the park,
not least because it is at the cross roads of the UK motorway system with more than 90 per cent of
Britain’s population with a half-day’s driving time, and is only 20 minutes from Manchester Airport, now
the ninth largest in Europe, with scheduled daily connections to most of the world’s important
destinations, particularly in the United States. When Warrington New Town Development Corporation
was wound up ten years ago, property companies moved in with their chequebooks.

There are more than 40 science or technology parks in the United Kingdom now. Many are attached to
universities and there are notably successful ones at Warwick, Aston, Coventry, Cranfield and
Manchester. Oxford’s is at the nearby Abingdon Business Park. It is owned by Standard Life, an
insurance company. The Surrey University Science Park at Guildford also houses a good-quality,
four-star hotel as part of its infrastructure. Indeed, it is infrastructure like this, together with good
restaurants and proximity to an international airport, that many science park developers say is more
important than proximity to a university. Where there is a link to research and development, it is to
industrial R&D, not blue sky work in universities.

It can be said that with both science parks and incubators, it is commerce and profit that make the world
go round, not a driving need for technological innovation for its own sake. The latter happens, but
because of market demand, not because of a push from academia or the government to improve
competitiveness.

To illustrate: medical scientists at Manchester University want to develop a biosensor that can be used for
instantaneous blood analysis by ambulance paramedics confronted with unconscious people. This would
save lives because some treatments could be started immediately, rather than having to wait until the
patient arrives at the hospital and the lab has done the necessary analysis. But accurate analysis is very
difficult in the field because of contaminants. The secret is to use membrane technology to filter out these
contaminants. It proved impossible to do the development because the time taken to get approvals in the
health sector would mean too long a period with no income stream. The university, however, turned the
problem over to MBA students at Manchester Business School. They found that the principles that would
make the blood-testing device work, could also be used - in the field - for measuring the ratio of sugar to
alcohol in fermenting grapes or brewing beer, or for testing the ripeness of fruit before it is picked so it
can have maximum shelf-life in supermarkets. The device is being developed now for these markets.
They will provide the income stream needed by venture capitalist backers while it is developed further for
the medical market for which it was first envisaged.

Last year in the United Kingdom the government set up an Enterprise Panel to look at technological
innovation. It came up with some interesting conclusions which included setting up a national business
innovation centre to set a UK pattern for incubating high technology companies. It noted that about
30 incubators were planned or had been set up already, often associated with successful science parks, but
it had reservations about the 12 EU-model BICs set up in the United Kingdom at places like Barnsley, in
the shut-down Yorkshire coalfields, because they lost impetus after the initial EU funding finished.

This is echoed by the experience of an organisation called Nimtech, the name of which is derived from
“New and Improved Technology”. Nimtech was set up in north-west England by Unilever, ICI, and
Pilkington - with government assistance - in 1986 to act as a broker and clearing house for ideas and
projects between nine universities and industry in a region of more than 7 million people. The idea was to

46
improve technology transfer. Five years later it was about to go bankrupt and a business consultant was
brought to try and save it. He said this to me recently: “A government grant is one of the worst things
that can happen to you. All it does to an organisation is encourage it to sit back and start delivering
statistics. Then, as the money runs out, the principal task becomes one of how to get another grant.”

Nimtech stopped trying for more subsidy. Instead, it targeted small and medium-sized businesses which
needed to grow but lacked specialised resources to find new technologies and potential markets. Nimtech
enrolled more than 100 of them in a network with the universities, charging them all yearly subscriptions.
It seems to work. It has now formed a worldwide marketing subsidiary to look for new export markets
and venturing opportunities and plans to open a London office to operate on a wider, national basis.
Because survival relies on Nimtech making a commercial success of technology transfer and brokering
partnerships and joint ventures between its subscribing customers, it is not only surviving, but flourishing
as a business in its own right as a result of the entrepreneurial disciplines it has imposed on itself.

There is also a profound change under way in the UK universities. They too have been having problems
getting enough government subsidies. This is imposing commercial disciplines on them such as we have
never seen before. Many lament the fact that the state can no longer fund universities in the way it used
to, but one result is that universities are almost certainly going to have to develop their science parks much
more along US lines, so that universities will increasingly become drivers, rather than passengers in a
vehicle driven by the property market. The signs are already there. Most have already set up technology
transfer companies, for example, and are finding new uses for substantial funds of their own, other than
investing them on financial markets.

Bio-incubators are becoming almost fashionable. The UK government is giving £1 million of

pump-priming money to no less than eight of them. Last January, Cambridge’s Bioscience Innovation
Centre announced it intends to raise up to £6 million from a private share placing, accompanied by
flotation in the London Stock Exchange’s Alternative Investment Market.

The most ambitious project so far, however, is the Manchester Biosciences Incubator, which is to have its
own £12 million building attached to Manchester University’s School of Biological Sciences, and an
exploitation fund expected to total £30 million. The incubator is a concerted attempt by Manchester,
backed by a £6 million grant from the European Union, to secure a big share of the fast-growing biotech
sector.

In the United Kingdom, this has so far been concentrated in what is known as the bio-triangle of
Oxford-Cambridge-London. The project is expected to create more than 900 local jobs over five years as
companies expand out of it on to Manchester Science Park and elsewhere. Manchester University is
investing nearly £4 million, as well as its portfolio of bioscience patents, but most of the funding will
come from the private sector. Merlin Ventures, a specialised venture capital company, is to make a
substantial investment, and other potential investors are negotiating with the university.

The incubator will be integrated with the academic activities of what is the largest biological sciences
department in a European university, and will have a seed corn fund to support business ideas. The
university hopes its own academics will provide most of the ventures for the incubator, although it will
also welcome small bioventures from elsewhere, including spin-offs from the drugs industry.

The idea is to bridge what the university calls the discovery gap, so that academics can test the
commercial viability of a piece of excellent science - and go back to the lab without losing face if it does
not work. If it goes well, there would be further development within the incubator, followed by spin-out
to a science park or somewhere else. The new building, which will be able to house 250 scientists, will be

47
ready in two years. In the meantime, the university will provide laboratory space to run a smaller “virtual
incubator”. Coincidentally - or perhaps not - Manchester University is also being helped by the
European Union to try and develop another type of incubator.

A disused electrical engineering building has been converted to support young scientists with ideas and
nurture them through the pre-business stage of development with no risks to take until they can form
viable companies. In a normal BIC they would be expected to start with a business plan, which
Professor David Auckland, the man behind the experiment, believes is likely to thwart promise by forcing
a company into inflexible objectives too soon. There will be no such early pressure in the Manchester
experiment. Instead, it will provide a half-way house for people who as yet have something between an
idea and a business but need to carry out a type of technological due diligence before final commitment.

It is being run by a new company owned by the university called Campus Ventures. The units on offer
range from single desks to 1 000 sq ft partitioned workshops. Those who occupy them will need no
capital, but will be given a “graduate account” by the centre against which their costs will be debited. In
the pre-business period there will be no risk attached to the tenants at all, but debits in the graduate
account will build up. A compulsory stage in the process is to form a company to take responsibility
eventually for the graduate account, but support is good for six to twelve months.

In the second year the university expects some repayment, with final clearance of the graduate account
over the next 18 months to two years. The tenants would then be expected to leave for normal
commercial premises and operate independently within three years. The capacity of the building will be
30 to 40 budding entrepreneurs at any one time.

The only other compulsory element will be for each new company to give Campus Ventures a 5 per cent
non-dilutable stake on formation so that there will be an eventual return if a business succeeds, either
through dividends if it stays in its original ownership or through a realisation if it floats or is sold.

In addition to EU backing, the project is being sponsored by Manchester Airport Commercial Ventures,
British Nuclear Fuels, The Co-operative Bank, ICL, the regional electricity supply company and
Manchester training and enterprise council. Support in kind is coming from the university itself, which is
providing the premises rent-free, and Addleshaw Booth, Manchester’s largest corporate law firm, which is
giving free legal services. In other words, local industry and commerce is putting up real money. This is
not altruism, but enlightened self-interest: it makes long term commercial sense to support initiatives that
encourage a more diversified, high tech economy.

These two examples give some idea why Manchester University is a leading contender to house the
national business innovation centre proposed by the Enterprise Panel last year. The Enterprise Panel also
believes that commerce and profit make the world go round. Its view was very much that any BIC must
be part of a wider project, not something that exists in isolation. The commercial approach, rather than
heavy subsidy from public funds, gives the BIC involvement in its own success. If its job is to encourage
entrepreneurship, it should be entrepreneurial itself in the first place.

Another example is that of Milton Park, a high technology business park in Didcot in Berkshire, near
another centre of activity for the UK nuclear industry. It has a BIC, owned and run by MEPC, the
property company which developed Milton Park. Although it gets rent from BIC tenants, it provides
advisory and support services at no extra charge. It expects to recoup its outlay when companies grow
large enough to move out of the BIC into the technology park proper. In other words, it is using the BIC
to provide its own customers for tomorrow. This is certainly a new slant on research and development.

48
 ADVANCED TELECOMMUNICATIONS AS A NEW STRATEGY FOR SCIENCE PARKS

Alfred Urban, Salzburg Technology Centre, Austria

Telecommunication as a chance for networking on a regional as well as on an international level

A main of objective of Austrian innovation and technology centres’ policies is the provision of a
communications-based infrastructure that enhances the attractiveness of regions as sites of economic
activity. This is very important for future activities towards settling companies in rural regions and for
creation of new jobs in these regions. Science park activities must be connected and co-ordinated with
telecom initiatives in order to get new synergies for the technology centres. Entrepreneurs in the
technology centres are supposed to be able to apply the newest telecom technologies in daily business.
Information and communication will become one of the most important competitive factors in many
economic branches. World-wide networks offer access to new markets and thereby offer new possibilities
in the area of marketing and sales.

Access to international science and research via broadband data highways will be absolutely necessary for
science parks. Regional technology and innovation centres in particular must be integrated in national and
international networks. Telecom links to patent offices, data bases for standardization and technology
brokerage as well as funding institutions and the European research and development programmes are
essential for tenants in the centres. A common virtual office must be set up by interconnecting all
technology and innovation centres in a greater region. The Austrian technology centres have been
practising this for three years and have gained very good connections to national financing funds and
federal governments. The time lapse for efficient information flow has been decreased dramatically.

New synergy between science and enterprises by telematic applications

The main aim of the Salzburg telecom initiative was to make a powerful telecommunication infrastructure
available to firms and research institutions and thereby provide Salzburg’s economy with a decisive
competitive advantage. Faster and immediate access to information based on a powerful data network
brought a better educational possibility by tele-learning and tele-teaching.

The overcrowded area around the town of Salzburg is supposed to be relieved by the evacuation of
electronic data services to southern parts of the country using the broadband link in the state of Salzburg
with ATM nodes (asynchronous transfer modus). Numerous telematic applications have been created:
tele-publishing, information engineering, multimedia and tele-working. New research institutes have been
created in the regional technology parks in the state of Salzburg as a consequence of telematic
applications and broadband links with the regional data highway.

The organisation of the future information society brings us smoothly to one of the next important
challenges to regional policy, for instance in connection with telecom and regional technology centres.
Information can be made available independently of place and time and this allows us to shift business
settlement from central and strong economic regions to rural regions. Science and research institutions
can be re-located into rural areas. Transport of information instead of people which could relax the traffic
situation, relieve the environment and thereby fulfil ecological aims. A requirement for regional
technology centres is competitive equality by levelling of differences in tariffs: currently data

49
communication in the local area is considerably cheaper and affordable whereas long distance
communication is very expensive. The alternative data highway, which is provided by the regional
Salzburg technology centres, offers a low cost model for data communications on broadband links.

Broadband network between science parks, technology centres and regional innovation centres

The Salzburg Data Highway and Telecommunication Company Limited was established in 1994 as a
daughter company of the Salzburg Technology Centre to serve as an infrastructure facility. The aim is to
broaden the use of new telecommunication services among companies in Salzburg, particularly to rural
companies that are at a disadvantage compared with the economically strong central region of Salzburg.

Five regional innovation centres are established in the state of Salzburg and connected via the data
highway. The Salzburg Data Highway offers a country wide broadband network and accompanying
services that allow companies to have a connection to international networks. The private ATM
back-bone with 18 local nodes is connected to the public ATM server of the Austrian PTT to assure a
connection to other Austrian capital cities and also to international ATM networks. Value added services
for trade and tourism such as Internet, electronic data interchange, telebanking and online retrieval in data
bases and multimedia applications in the graphics and publishing industry demonstrate the success of
business settlement in regional technology centres in Salzburg. More than 800 jobs have been created in
the last five years in these regional technology centres. Many of them have been created by outsourcing
from central regions and are remote working and tele-working jobs.

Video conferencing rooms in the regional technology centres allow direct links to EC offices in Brussels,
providing the newest information in European law and funding. The regional technology centres are focal
points of the Salzburg Data Highway offering a powerful, reasonably priced, and generally accessible
telecommunication infrastructure. Target groups are enterprises, firms, and professional users, which
already today need broadband services such as multimedia and graphic data transmission for their work.

Furthermore, the super highway offers value added online services that are data banks (law, technology,
business, EC research data bases, stock exchange), information services, agencies and most of all access
to Internet at the local tariff. Considering these points the Salzburg Super Data Highway offers
international access for Salzburg firms and professional users especially in the regional technology centres
as well as an enormous advantage in costs.

The data highway initiative has connected all regional technology centres in Salzburg to the biggest
existing computer network in the Salzburg region. All in all there are six innovation technology centres
bound together in this regional Techno-Z compound. Additionally, two campus buildings for students and
employees exist and all together 15 different buildings were built in six expansion phases and more than
340 students are in 11 research institutes. As many as 940 employees are working in more than
170 companies and more than 40 000 square metres have been rented. Since 1988, telecommunication
and telematic applications have been the basis for this rapid expansion.

Connected to this data highway network are technology and innovation consulting offices as well as
official European Info Centres and Relay Centres of the European Commission which are located in the
state of Salzburg.

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Multimedia as a new challenge for the Salzburg Technology Centre

The Salzburg Technology Centre is the largest technology centre in Austria and consists currently of
78 enterprises employing 600 specialists and professionals. More than 300 students study at the
University of Salzburg’s Institute for Computer Science and a new Polytechnic University for
Telecommunication and Multimedia and Art was created last year. These institutions of higher learning
are focusing on studies for the information super highway with master programmes in telecommunication
engineering, multimedia production and communication, and information economics and management.
International broadband links are the basis for the Salzburg Technology Centre now going into a phase of
great expansion, nearly doubling its size. Additional business locations for more than 50 companies who
wish to use Salzburg’s cultural class and international reputation as a meeting place for multimedia
production will be available in 1997.

Companies located in the Salzburg Techno-Z can take advantage of the training potential of the Techno-Z
Polytech University in co-operation with its telecom research centre and world class audiovideo and
media labs as well as broadband international connections. Multimedia and cultural competence have
invited the best of high technology firms to seek Salzburg as their European location for production and
management using international broad band telecommunication links.

Today in Europe there is no comparable course of education concentrating on the training of technical
creative and management orientated specialists for multimedia, online services and other new forms of
media in connection with telecommunication. By 1998, 1 000 students are expected at the Techno-Z
Information Super Highway Polytechnic University. This will attract new companies to run their business
in the Techno-Z Salzburg.

51
EVALUATING THE IMPACTS OF TECHNOLOGY INCUBATORS

52
 TECHNOLOGY BUSINESS INCUBATION: LEARNING FROM THE US EXPERIENCE

Sarfraz A. Mian, State University of New York at Oswego, United States

Introduction

The rapid evolution of the technology-driven global economy is placing an ever-increasing emphasis on
effective development of new technology and its speedy commercialisation into the marketplace. As
policy makers at various levels of government grapple with strategies to stimulate such efforts, they are
searching for appropriate mechanisms to promote these economic development objectives. One such
promising mechanism employed for more than two decades is technology business incubation – a
mechanism operationalized through the establishment of incubators. Typically, incubators provide
qualifying new start-up firms with building space in physical proximity to other similar tenant firms. The
tenant entrepreneurs receive a host of shared services, business advice and financial inputs to provide a
nurturing environment for the fledgling new firms.

The incubators whose primary goal is to focus on the development of technology-oriented firms are called
technology incubators. The technology incubator concept holds out the possibility of linking technology,
know-how, entrepreneurial talent and capital. These incubators are generally established through
collaboration among university, industry and government, and are aimed at promoting technology
diffusion into the local economy. Most US technology incubators are directly or indirectly associated
with universities – the primary source of trained human and intellectual capital – and share common
objectives, such as providing a training ground for entrepreneurs and supporting technology-led
entrepreneurship based on university research results. Therefore, a majority of US technology incubators
are sponsored in full, or in part, by universities and colleges. They are generally incorporated as
independent non-profit entities. Other sponsoring organisations include state and local economic
development agencies as well as private parties, such as hospitals and research institutes.

This paper, after providing an overview of the emergence of the US technology business incubation
industry, examines more than two decades of research on technology incubators (TIs). It specifically
addresses the issue of performance assessment and reports on the efforts to develop “best practice”
technology incubator programmes. The article concludes with a discussion of the lessons learned from
experience in this emerging industry and some associated policy implications.

Overview of the US technology business incubation industry

The United States has extensive experience in technology business incubation with facilities spread all
across the 50 states. According to the National Business Incubation Association (NBIA), there are more
than 500 business incubators operating in North America (including 5 to 6 per cent in Canada and
Mexico), occupying roughly 30 million gross square feet of space. These incubators have served
7 795 client firms and launched 4 651 graduates. Approximately 30 per cent of these incubators (around
165) are technology-related, half of which (around 82) are university-affiliated with an average of

53
14 tenants per incubator (National Business Incubation Association (NBIA), 1995). Another US study
(Tornatzky et al., 1996) identified a total of 84 technology incubator programmes in the country, of which
only 54 were accessible for the national survey. According to the Association of University Related
Research Parks (AURRP), in Arizona, roughly one quarter of the 140 science/research parks in the
United States are equipped with technology incubation facilities (around 35).

Figure 1 graphically displays the growth of technology incubators by showing the number of North
American facilities (around 10 per cent of these are from Canada and Mexico) established by year. More
recent data is being compiled by NBIA and AURRP, the results of which will be available by the end of
1997. The graph demonstrates the drastic increase in the establishment of technology incubators in the
mid-1980s to the early 1990s. The science/research park followed a similar trend as seen in Figure 2. As
shown, during the mid-1980s, there was considerable growth in newly established science/research parks.
However, in comparing this graph with the previous one, it becomes apparent that science/research parks
were around a bit longer than the technology incubators. Both graphs demonstrate a slowing trend for the
1990s. The available literature relevant to this industry seemed to follow a similar trend – most of the
literature was generated in the 1980s. As the industry peaked in the early 1990s, researchers, policy
makers, and incubator managers began to focus more on improving the effectiveness of existing
incubators rather than the establishment of new facilities. Moreover, the literature suggests that until
policy makers are given conclusive feedback on the impact of such programmes on state and local
economies, they will be hesitant to subsidise the establishment of similar programmes (Mian, 1997).

Figure 1. Number of North American technology incubators established by year

14
12
10
Incubators 8
6
4
2
0
50- 60- 70- 75- 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94-
59 69 74 79 95

Years

Source: Author.

Figure 2. Number of North American science/research parks established by year

16
14
12
10
8
Parks 6
4
2
0
50- 60- 70- 75- 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94-
59 69 74 79 95

Years

Source: Author.

54
Significant US research on technology incubators

Because of the popularity of the business incubation concept in the United States during the 1980s,
numerous studies were conducted to assess the emerging incubator industry across the nation, but most of
these studies are primarily descriptive in nature (Mian, 1994). A review of the significant research
undertaken in the country directly or indirectly related to the subject of technology incubators is provided
in Table 1. The table excludes most of the basic descriptive literature, the “how to?” accounts and
anecdotal information on the subject of business incubation in general (this information is available from
NBIA). As shown, the earlier literature (Allen and Bazan, 1990; Smilor and Gill, 1986; Campbell et al.,
1988; and Rice, 1993) did not differentiate technology incubators from other types of incubators, but did
include TIs in their study samples. The more recent studies (Mian, 1991; Mian, 1994; Tornatzky et al.,
1996; and Culp, 1996), however, exclusively focus on technology incubators. The first two of these are
national in scope, while the third provides an in-depth review of a more established TI programme in the
United States. It is, therefore, obvious that, to date, only a handful of studies have looked at technology
incubators (TIs) in a scientific and systematic manner.

At a macro level these limited number of studies do establish the fact that the US technology incubators
are providing a nurturing environment for the start-up and growth of technology-oriented firms. They
facilitate technology transfer and hold promise as an innovative tool of technology capturing for regional
economic development. In the absence of a well-developed and sound theoretical foundation, the
innovation model provides a rationalising theory. This theoretical rationalisation when combined with the
limited empirical support described earlier, provides the necessary rationale for the TIs as a viable option
for promoting regional economic development.

On a more micro level, however, with the exception of the aforementioned studies, there is very limited
work done on technology incubators as such. Consequently, there is no consensus on what makes up the
content of the technology incubator’s performance, and the best TI programme management and policy
practices. A recent study (Mian, 1997) attempts to fill this gap by addressing the often controversial
question of TIs’ performance assessment by providing an integrative model which is summarised in the
next section. Similarly, the subject of benchmarking the TI “best practices,” which has received attention
recently, is addressed by Mian and others (Tornatzky et al., 1996) and included here.

Performance assessment of technology incubators

As described earlier, despite the steady increase in the number of technology incubators since the early
1980s there has been no single framework available to assess how they are working and thereby improve
their effectiveness. This has placed the economic development leaders in the United States in a difficult
position. On the one hand, the regions that see a wave of activity sweeping the country and the world feel
some pressure to follow suit. On the other hand, experts caution that the jury is still out due to the lack of
pertinent experience, and hence, evidence about their usefulness. This is particularly true in light of the
numerous questions regarding their impact and organisational self-sustainability. The challenges
confronting researchers developing such a framework include:
◊ the emerging nature and relatively short life of the TI industry means an absence of
longitudinal data;
◊ lack of consensus on the type of evaluation criteria to be used; and
◊ lack of understanding of the technology incubation process itself.

55
 Table 1. Technology incubator perspective: major US studies

Author(s), year Research sample Study context Key findings/contribution

Allen and Bazan, 70 incubators (TIs Institute of Public Administration, This study pointed out the potential of incubators for
1990 15%, response 66%) Pennsylvania State University, regional development. It helped to define incubator
University Park, Maryland and the organisation types based on sponsorship and service
910 firms (response US Department of Commerce, categories provided to the tenants. The concept of
56%) Washington DC incubator was described as: a network of
organisations providing skills, knowledge and
motivation, real estate experience, provision of
business and shared services.

Smilor and Gill, 117 incubators (TIs IC Square Institute, University of The findings of this research supported much of what
1986 10%, response 43%) Texas at Austin, Texas was already known and provided new data about the
age, education and salary of incubator managers.
211 firms (response Using the four incubator organisation types identified
N.A.) earlier, the study further identified their measures of
success.

Campbell et al., 13 incubators (TIs H. Humphrey Institute, In this case study, the features identified as
1988 21%, case study) University of Minnesota, contributing to incubator effectiveness were: low
Minneapolis, Minnesota cost developing and operating; and quality
294 firms (response management of facilities.
55%)

Mian, 1991, 1994 6 incubators (TIs School of Business & Public As the first TI-focused work, the study supported the
100%, case study) Management, George assertion that university incubators appear to provide
Washington University, the resource base and environment conducive to the
150 firms (response Washington DC development of technology-based firms. It provided
32%) a checklist for successful facilities and developed an
assessment framework for TIs.

Rice, 1993 9 incubators (56% School of Management, The study contended that managerial intervention is
TIs, case study) Rensselaer Polytechnic Institute, the key in incubation support and success is
Troy, New York measured by proactive, direct intervention. Factors
36 firms (selected) limiting the effectiveness of direct intervention were
identified as the availability of time and the lack of
responsiveness of the firms.

Culp, 1996 1 incubator (TI with Georgia Institute of Technology, This study suggests that current theory is insufficient
in-depth case study City Planning, Dept. Atlanta, in explaining the phenomenon of technology
and surveys) Georgia business incubators, although the innovation theory
holds the most promise. Also there has been a low
19 tenant firms (total incidence of technology transfer due to various
population 24) and barriers. According to the research, incubator
20 comparable membership did not make a significant difference in
non-tenant firms the tenant firm performance when compared to
similar non-tenant firms.

Tornatzky et al., 54 incubators (TIs Southern Technology Council, The findings of this study describe the best practices
1996 mostly) out of 84 Durham, North Carolina in for each of the following technology incubator
identified through collaboration with NBIA and domains: management, business planning, finance
reputational ILGARD, Ohio University, Ohio and capitalisation, research and technology, legal
snowballing. and regulatory, physical infrastructure, markets and
Mail questionnaire products, and structure/operations. Descriptions
followed by phone supported with data provide benchmarking
interviews. measures in each of the above domains.

No firms included

Source: Excerpted from Mian, 1996 and updated.

56
In short, the research on technology incubator performance has been less than comprehensive, and often
no more than an extension of the general business incubator studies which are primarily descriptive and
anecdotal in nature.

For the first time, Mian (1997) has proposed a comprehensive framework to access TI’s performance in a
systematic way (see Figure 3). In an effort to fill the gap in the current literature, this framework provides
conceptual clarity by proposing an integrative model for assessing and managing the technology
incubator. The model builds upon existing knowledge in three areas relevant to technology incubators:
business incubation support in general; the role of higher education; government and private industry’s
involvement in technology development; and commonly accepted organisational effectiveness
approaches. This proposed model for TI’s performance assessment is based on the following three sets of
variables:
1. Performance outcomes – the TI programme’s performance outcomes are assessed using four
elements: (a) programme sustainability and growth; (b) tenant firms’ survival and growth;
(c) contribution to the sponsors’ (in this case university) mission; (d) community-related
impacts.
2. Management policies and their effectiveness – an assessment of the TI’s management
practices and operational policies in light of the programme objectives provides a review of
the effective utilisation of resources resulting in the success of the TI programme. The key
elements assessed include: (a) goals, organisational structure and governance; (b) financing
and capitalisation; (c) operational policies; (d) target markets.
3. Services and their value added – a review of the actual provision and their perceived value
added to the client firms in the form of: (a) the typical shared office services including rental
space and other business assistance services; (b) the university-related inputs, such as
student employees, faculty consultants, and the presence of a university’s institutional
support system around the TI.

These three sets of TI performance assessment variables are conceptualised in Figure 3 and are defined by
the TI characteristics drawn from the relevant literature, and proposing a framework that captures most of
the key TI performance dimensions (Mian, 1997). The framework provides a systematic and
comprehensive approach to the TI performance assessment and is applicable to the TI programmes for
which the appropriate data are available. Further, the use of this framework is illustrated through its
application to four representative US cases taken from the author’s national study of thirty “successful”
US TI programmes in operation for at least seven years (Mian, 1991).

Characteristics of best practices in US incubators

An obvious implication of the ever-increasing importance of new technology-based ventures that the
newly established technology incubation centres are aimed to spawn, is TIs are to become more effective
with a better understanding of their entrepreneurial milieu. This is made possible through learning from
successful models, specifically by studying their policies, management practices and the provision and use
of services; and applying the experience gained in quality programme development. Significant work has
already been accomplished through the respective professional associations to define useful approaches in
the form of guidebooks, training programmes, case histories, etc. However, most of this material is
directed toward general incubator programmes (available from NBIA). Only a handful of studies (most
notably Mian, 1991; Mian, 1994; Culp, 1996; Tornatzky et al., 1996) have focused on technology
incubators that are national in scope, the results of which are outlined as follows.

57
Figure 3. Conceptual model for assessing and managing the performance of technology incubators

Technology incubator Sponsoring university -

motivations and environment
programme
- University’s public image in
Management and policies promoting econ development
1 - Commercialise technology
- Goals, structure and - Nurture new start-up firms
governance 2 3 - Provide entrepreneurship
- Financing and capitalisation training
- Operational policies - Other
- Target markets
- Services provided
6
Entrepreneurs and
Incubation process new start-up firms

Value added in the creation 4

- From university community-
and growth of tenant firms professors and alumni
- From outside community

7
Performance outcomes Community and other
stakeholders
- Programme growth and
sustainability 5 - Public sector:
- Tenant firm’s survival and federal agencies
growth state government
- Contributions to the local government
university mission - Private sector:
- Community-related impacts large companies
small and medium firms
- Other: citizens, etc.

Note: Brief description of the loops:

1. University plays leading role in securing resources and provides on-going support.
2. Community and other stakeholders provide funds and volunteer in-kind support.
3. The TI performance is compared against expectations for necessary feedback.
4. Qualified entrepreneurs and new start-up firms move into the TI as tenants.
5. Graduate firms and trained entrepreneurs move within the local industrial base.
6. University serves as a source of new entrepreneurs to be developed in the TI.
7. Entrepreneurs from the outside community seek to locate in the TI as tenants.

Source: Excerpted and adapted from Mian, 1997.

58
As noted in Table 1, more recent studies conducted during the 1990s allow us to draw important
conclusions in the form of US “best practices” in technology incubation. The TI’s salient policy and
business-management practices are organised under four key functional domains: management,
marketing, finance, and operations (including the provision of services).

Management policies and practices are covered under goals, organisational structure and governance. In
terms of goals, TIs seek participation in the regional economic development activities by supporting the
development of technology-based firms; providing a laboratory for learning entrepreneurial skills;
promoting commercialisation of university technology; and, in some cases, recruiting future tenants for
the associated science/research park. A study of the leading US-based TIs with respect to their past
accomplishments shows that most of them have made considerable progress in meeting these goals.

Structurally, most of the TIs are non-profit organisations supported by multiple stakeholders drawn from
the university, regional and/or state government entities, and private industry. In a number of cases,
university foundations have played a prominent role in co-ordinating. Most of the facilities are inside or
in close proximity to the university and are surrounded by complementary research and development
institutes and related programmes, such as science/research parks.

In the area of governance, most of the US TIs have private sector-dominated boards which provide policy
guidance. Typically, the incubator management team has an average staff of four, headed by an incubator
manager/director.

Marketing practices of targeted technologies and the type and characteristics of entrepreneurs admitted
were the key factors reviewed most often. In terms of targeted technologies, the new and emerging fields
including software, informatics, electronics and biotechnology firms, represented the largest number of
tenants; however, the relative marketing emphasis varied according to the area/university strengths and/or
developmental policies. A majority of technology entrepreneurs were older and better educated than the
average entrepreneur in the country. In spite of encouragement through incentives and various technology
ferreting initiatives, the participation of university faculty as entrepreneurs has so far been limited.

Financing practices have been studied both from the incubator as well as their client firm perspectives.
Whether public or private, most TI programmes have benefited from state grants in one form or another.
2
Those associated with land-grant universities have received operational subsidies as well. However, none
of the TIs (including a large number of those established in the early 1980s) have attained financial
self-reliance – a goal of some more successful private university-sponsored TIs. Therefore, TI
management has had to spend more time and energy ensuring financial stability than on providing real
value-added entrepreneurial advice to their tenants. The support for the provision of easily accessible
seed and venture capital from multiple sources has been the hallmark of successful TIs. In the
United States, private investors or “angels” have often been described as the best source for early seed
capital for emerging technology companies. Most TI tenants have ample opportunity to pursue private
venture capital funds. However, the venture capitalists make highly selective investments in young
companies they perceive as having a high growth potential. Moreover, a host of state and federal grant
programmes are available for which ample guidance and support is provided by the TIs to their
technology-oriented tenants. As a result, all successful TIs generally have a high percentage of tenants
supported through external funds.

2. Land-grant universities are American institutions of higher education initially given federal aid in 1870s,
especially by the land grants, and are supported by government funds. These universities have
traditionally emphasised outreach function as part of their mission.

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Operational policies of the TIs essentially include: tenant selection policy, graduation policy, tenant
performance review procedures, equity/royalty policy, intellectual property policy, and alumni-firm
relationship policy. As a general rule, most of the successful TIs have developed elaborate policies and
procedures in all of these areas except in intellectual property safeguards where some of the host
universities have taken the lead. There are stringent selection/entry criteria applied across the board.
Such criteria often include technical and business feasibility assessments combined with the
entrepreneur’s needs and possible fit with the TI resources. Further, these are often group level
admittance decisions. The normal incubation period is three years and is applied with some flexibility,
based on each entrepreneur’s needs. Tenant performance is regularly monitored, and mentors from the
private sector are encouraged to participate along with the incubator manager, to provide necessary
feedback to the entrepreneur. Though not widely practised in the United States, equity/royalty holdings in
client firms by the TIs is a growing practice levied in the form of “success fees”, etc. for which new
procedures are being developed. Well-run TI facilities not only stay in contact with their alumni firms
(tenant firms which have already graduated) but also involve these firms with the current tenants to
provide advice. However, only a few successful TIs have developed formal policies for alumni
involvement.

In the provision of services, the most successful TIs have been responsive to the client needs and
perceived usefulness of the gamut of services often provided through the TI mechanism. The
technology-based client firms have consistently given higher ratings to the university-related
services/benefits, such as university image; use of student employees and faculty consultants; and access
to libraries and laboratories. Therefore, most of the successful TIs provide these services/benefits,
depending upon their overall reputation and commitment to technology incubation. Research results on
the value-added contribution and, hence, desirability of typical incubator services are mixed. However,
most of these typical incubator services, including rent breaks, facilitating networking, business and legal
consulting, are available in one form or another to most TI clients.

In summary, it may be noted that there are several areas of improvement suggested by the research
dealing with the US “best practices” in technology incubation. The researchers often emphasized the need
for greater methodological rigour in study designs and the need for more longitudinal work in future
studies dealing with this challenging task of benchmarking the technology incubation practices.

Conclusions, lessons learned and policy implications

Two levels of conclusions are drawn and lessons learned for future policy purposes. These are: (a) macro
TI industry level, and (b) micro TI unit level.

At macro level

1. Based on the past research, it is widely believed in the United States that TIs are providing a
nurturing environment for spawning technology-based firms. In this context, the innovation
model serves as a rationalising theory with a limited empirical support as well. Therefore,
the technology incubator continues to provide a viable tool for US policy makers to promote
technology diffusion in the local economy.

60
 2. With the growth of incubators and parks reaching a plateau, TIs may need to position
themselves as the gatekeeper and focal point for integration across various complementary
technology development support mechanisms, especially those employed for technology
transfer and commercialisation purposes. More specifically, TIs and research/science park
projects provide a potential for synergy – with the TI acting as a tenant-capturing tool and a
bridging mechanism for the park – and the parks providing for TI’s financial sustainability
and operational flexibility. More and more US science/research parks are moving toward
developing such integrated models. Similarly, TIs need to be better integrated into the
ambient innovation environment, such as related training/internship ground, thus, enhancing
their capability for drawing resources from the available support structure. Some more
successful US TIs have made progress in this direction.

At micro level

1. To be successful, new TIs must arrange infrastructure development grants at the time of
project inception. This will promote operational sustainability and free up management time
to focus on service quality. Some newer US TIs have followed this strategy.

2. TIs should strive for broad-based support by encouraging stakeholders’ active involvement
with tenant entrepreneurs. This will further improve the quality of support to the tenant
firms. A good percentage of US TIs already enjoy broad-based support.

3. Unlike the prevailing practice of over-emphasizing the potential for future success in
recruitment decisions, TIs need to base entry and service decisions on “needs” and “fit”
rather than on success potential only. This will maximise benefits to the region over a longer
term. There is a need to adjust the current entry policies in most of the US TIs to achieve
this objective.

4. Develop and use comprehensive performance assessment tools which will promote
professionalism in the industry. These efforts also need to be enhanced to develop more
effective TIs.

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 REFERENCES

ALLEN, D. and E. BAZAN (1990), “Value-Added Contribution of Pennsylvania’s Business Incubators to

Tenant Firms and Local Economies”, report prepared for Pennsylvania Department of Commerce
(Pennsylvania State University, Pennsylvania).

CAMPBELL, C., D. BERGE, J. JANUS, and K. OLSEN (1988), Change Agents in the New Economy:
Report on Business Incubation and Economic Development, University of Minnesota, Minneapolis,
Minnesota).

CULP, R. (1996), “A Test of Business Growth Through Analysis of a Technology Incubator Program”,
unpublished PhD dissertation (Georgia Institute of Technology, Atlanta, Georgia).

MIAN, S. (1991), “An Assessment of University-Sponsored Business Incubators in Supporting the

Development of New Technology-Based Firms”, unpublished PhD dissertation (The George
Washington University, Washington, DC).

MIAN, S. (1994), “US University-Sponsored Technology Incubators: An Overview of Management,

Policies, and Performance”, Technovation 14, pp. 515-528.

MIAN, S. (1996), “Assessing Value-Added Contributions of University Technology Business Incubators

to Tenant Firms”, Research Policy 25, pp. 325-335.

MIAN, S. and W. PLOSILA (1997), “Mechanisms for Commercializing University Research: A study of
Selected University Programs in the US”, paper presented at the Sixth International Conference on
Management of Technology, Goteborg, Sweden.

MIAN, S. (1997), “Assessing and Managing the University Technology Business Incubator: An
Integrative Framework”, Journal of Business Venturing 12, 4, pp. 251-340.

NATIONAL BUSINESS INCUBATION ASSOCIATION (NBIA) (1995), Athens, Ohio, United States.

RICE, M. (1993), “Intervention Mechanisms Used to Influence the Critical Success of New Ventures: An
Exploratory Study”, unpublished PhD dissertation (Renssalaer Polytechnic Institute, Troy,
New York).

SMILOR, R. and M. GILL (1986), The New Business Incubator: Linking Talent, Technology and
Know-How, Lexington Books, Lexington.

TORNATZKY, L., Y. BATTS, N. McCREA, M. LEWIS and L. QUITTMAN (1996), The Art and Craft
of Technology Business Incubation, Southern Technology Council, Durham, North Carolina and
NBIA, Athens, Ohio.

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 GEORGIA’S ADVANCED TECHNOLOGY DEVELOPMENT CENTER: AN ASSESSMENT

Rhonda Culp, University of Southern Mississippi and

Philip Shapira, Georgia Institute of Technology,

United States

Introduction

Over the last two to three decades, state and local governments in the United States have focused
increased levels of policy attention and resources to the promotion of economic development and
employment within their jurisdictions. During this period, the strategies adopted to foster development
have changed and evolved. Initially, economic development efforts (particularly in the US South) sought
out-of-area branch plants to relocate using such lures as low-cost labour, cheap land, easy road or rail
access, and tax incentives for new investments in plant and equipment. These efforts were subsequently
extended by more sophisticated initiatives to foster indigenous start-up companies and technology-based
industries and services. As part of this extended approach to economic development, technology business
incubators have been established in numerous locations in the United States, with about 100 facilities in
operation by the mid-1990s (Culp, 1996).

These technology incubators have similarities with general business incubator facilities (of which there
are several hundred) in their focus on creating new start-up businesses and jobs, providing shared
facilities, and offering management support. But there are important differences, with technology
business incubators focusing on companies with more advanced (and often untried) technologies that can
be commercialised into marketable products and services. These emerging firms may have needs for
research facilities and equipment as well as specialised expertise in management, licensing, marketing,
and venture financing. In the United States, technology incubators are often associated with universities,
where research and technical facilities are available. Indeed, universities may establish technology
incubators as ways of commercialising faculty research.

This paper examines the experience of one of the first technology incubators in the United States – the
Advanced Technology Development Centre (ATDC), which was established by the Georgia Institute of
Technology in 1980. We consider the history and development of the ATDC and the services offered.
This is followed by an assessment of the ATDC’s performance, drawing on case studies, interviews, and
surveys of ATDC firms.

History and development of the ATDC

The concept for a technology business development centre in Georgia began to take shape in the late
1970s. It was during this decade that the still-emerging stories of successful high-technology based
regional growth in “Silicon Valley” in Northern California and “Route 128” in Massachusetts began to be
more widely known in other parts of the United States (Castells and Hall, 1994). Georgia – as elsewhere
in the South – had experienced an influx of mass-production branch plant industrial facilities since the
1950s, attracted by the region’s low labour costs and burgeoning markets. But concerns were growing
about the vulnerability of this industrial base to increasing offshore competition. At the same time,
Georgia was not perceived as a major location for high technology enterprises, despite the presence of

63
large research universities and federal installations. Paralleling similar trends throughout the South,
where state-aided facilities and programmes to promote high technology firms were rapidly being
established, leading officials and influential groups in Georgia began to explore how the state could foster
high technology (McMath, 1991). To strengthen Georgia Tech’s capabilities to promote high technology
businesses within the state, a “Technology Business Development Project” was organised by a group of
prominent Georgia Tech alumni, known as the Committee of Twenty. In 1979, this group advocated a
new “Technology Business Development Centre” as the focal point of a strategy to foster more high
technology firms in the state (Committee of Twenty, 1979).

The idea of a technology development centre was further endorsed in a subsequent study of Georgia’s
Science, Engineering and Technology Programs, commissioned by the Office of the Governor – and
performed by the Georgia Tech Engineering Experiment Station. This study recommended that Georgia
Tech should develop, with state support, an “advanced technology development service”. This would aid
technology business entrepreneurs, help in the recruitment of domestic and foreign advanced technology
companies, assist existing industries to expand into high-technology product lines, promote industrial
development of alternative energy sources, and provide education in high-technology venture
development and management (Georgia Tech Engineering Experiment Station, 1980).

In 1980, with legislative and financial support from the Governor and General Assembly, the Advanced
Technology Development Centre (ATDC) was established at Georgia Tech (see Table 1). Four
professional staff members were employed to focus on four major programmes: entrepreneurial
development, industrial recruitment, education, and venture capital. Space in a former high school on the
campus was renovated and, in 1981, the ATDC admitted its first incubator company. In 1984, a new
incubator facility (7 710 square metres) was opened at Georgia Tech.

In addition to this Atlanta-based facility, efforts were also made to extend technology incubation services
to other parts of the state. With additional state support, the ATDC opened technology business
incubators in the eastern city of Augusta, Georgia, in 1987, and Warner Robbins, in the middle part of the
state, in 1989. The Augusta centre aimed to promote new start-ups in health-science technologies,
drawing on the nearby Medical College of Georgia. However, the clinical nature of research at this
college led to few opportunities for start-up companies with marketable health-science products or
services. The Augusta facility was subsequently closed in the early 1990s. At Warner Robbins, the
ATDC sought to promote aerospace and defence-related spin-offs. Located in a greenfield corporate
technology park, progress has been slow, but there are several companies in the Warner Robbins ATDC or
located in new adjacent facilities.

In 1996, the ATDC opened a new branch facility, occupying a floor of the new Georgia Centre for
Advanced Telecommunications Technologies (GCATT) building. This building, close to the main
Georgia Tech campus in Atlanta, was built with state and private funds to promote research, business, and
exchange in emerging telecommunications fields. In the GCATT building, ATDC seeks to promote the
start-up of new ventures in multimedia, software, and associated communications technologies. A further
ATDC branch is scheduled to open in fiscal year 1997-1998 in Thomasville, in the southern part of the
state, as part of a new wood products technologies facility.

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 Table 1. Chronological development of the ATDC programme

Year Description

1996 ATDC is named Incubator of the Year by the National Business Incubation
Association, wins the Tibbitts Award, and graduates two companies.
1996 ATDC at Warner Robins celebrates its 5th Anniversary. ATDC opens its third branch
office - the Georgia Centre for Advanced Telecommunications Technology in Atlanta.
1995 ATDC graduates five companies, one of which is the second graduate company of
the ATDC/Warner Robins branch.
1994 ATDC graduates two companies, one of which is the first graduate of the ATDC
Warner Robins branch.
1994 ATDC recruits two major industry leaders - The Army Environmental Policy Institute
and Integrated Device Technology, Inc.
1993 ATDC becomes a part of the newly formed Georgia Tech Economic Development
Institute under New Enterprise Development.
1993 ATDC graduates two companies.
1992 ATDC/Augusta centre is closed. Area Chamber of Commerce sponsors South-East
Technology Centre.
1992 ATDC establishes the Faculty Research Commercialisation Program to provide initial
support for research faculty to convert research technology at the laboratory stage
into a prototype of a commercially viable product.
1991 ATDC graduates two companies.
1991 The Middle Georgia Technology Development Centre at Warner Robins is
established by ATDC.
1990 ATDC/Augusta broadens focus to include energy and other technologies.
1989 The ATDC graduates five companies.
1989 The ATDC/Warner Robins opens to encourage the development of new defence and
aerospace technology firms.
1988 ATDC graduates four companies.
1987 ATDC graduates four companies.
1987 The ATDC/Augusta is formed to focus on the health-science industry.
1987 ATDC graduates first five companies - Digital Transmission Systems, ERDAS,
Millimetre Wave Technologies, Sales Technologies, and Theragenics.
1984 Dedication ceremony of ATDC’s new 83 000 sq. ft. facility.
1981 ATDC admits first company to the programme. ATDC renovates a portion of the
O’Keefe High School building to use as incubator space.
1980 ATDC is established at Georgia Tech. It is staffed with professionals concentrating
on four major programme areas: Entrepreneurial Development, Industrial
Recruitment, Education, and Venture Capital.
1979 Governor’s office commissions a study of the state’s Science, Engineering and
Technology Programs.

Source: Adapted from information prepared by the Advanced Technology Development Centre, Atlanta,
Georgia.

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ATDC services

The ATDC operates three main programmes: the Entrepreneurial Services Program; the Faculty
Research Commercialisation Program; and the Corporate R&D Support Program. Each of these
programmes is summarised below.

The ATDC Entrepreneurial Services Program. The ATDC’s central function is to provide
“commercialisation assistance to move technology toward the marketplace more rapidly” (ATDC, 1994).
The Entrepreneurial Services Program is the ATDC’s primary mechanism for performing this function
and the majority of funding and staff resources are allocated to it. Under this programme, ATDC offers
services to support the growth and development of “early-stage” technology companies. These are
companies that are typically less than one year old beyond the conceptual stage of product development.
Applications are generated through referrals from other economic development agencies in the state,
responses to direct requests for information, and through marketing 15 to 20 application information
packets per month have been sent out in response to requests. Companies are admitted into the ATDC
incubator based on a staff review of the applicant’s growth potential, product marketability, quality of the
management team, and the application of new technologies in products, processes, or services (ATDC,
1994). The applicant’s technology has to be of a proprietary nature and protected by copyright or patent
and the company overall should have a research and development emphasis.

Before entrepreneurs can become members of ATDC, a development plan and strategy and a completed
ATDC application form must be presented to and approved by a review committee comprised of ATDC
staff members. After this first review, some applicants may be requested to provide additional
information or provide a more comprehensive development plan. Should an applicant pass successfully
through the first review, a second review is conducted in which the applicant’s management team presents
a complete development plan before a staff committee. Should an applicant be approved in the second
review, a contract is negotiated and the applicant becomes a member. Typically, about 200 application
packages are given out each year; approximately one-quarter are returned as formal applications. Of the
formal applications, the acceptance rate has been around 20 per cent during the 1988 to 1994 period, or in
other words, about one in five applications are approved for ATDC membership.

Entrepreneurs who are members of the ATDC incubator facilities have access to the following
entrepreneurial, administrative and facilities services: assistance with business planning, sales and
marketing strategies; development of financial sources; intellectual property guidance (for example,
patents, copyrights, licenses); staffing guidance; market research; corporate communications assistance;
identification of service providers; shared fax, copy, conference rooms, audio and visual equipment, word
processing assistance; access to the Georgia Institute of Technology’s research facilities and services,
including the library, chemistry stockroom, computer centre, student athletic complex, and machine shop;
access to faculty and students as consultants, advisors, or employees; and attractive rates on office and
laboratory space. Another service is the Corporate Partnering Program. This programme, implemented in
1988, identifies potential corporate partners by matching the resources of large corporations with the
needs of the ATDC member companies. These strategic partnerships aim to accelerate the growth of
ATDC companies while at the same time benefiting the corporate partners by allowing access to new
advanced technologies.

After admission, reviews are conducted by ATDC staff members on an annual basis. Each company is
assigned an ATDC Business Management Consultant. This staff member is responsible for working with
the companies to address problems which inhibit growth and development. The type of assistance
provided depends on the needs of each company; for example, one company may need help with

66
researching a patent, another may need help gathering market data. Within a three year period after
acceptance into the programme, companies are expected to graduate from the programme. These firms
typically relocate to other facilities in the area. Graduation is achieved when member firms achieve one
or more of the following goals:
◊ US$ 1 million or more annual sales;
◊ more than ten employees;
◊ more than 5 000 square feet of space needed;
◊ acquisition by a larger company; and consistent profitability.

Some companies do not graduate within the three year period due to the long-term nature of their product
development process. This includes companies developing biotechnology products which may be
undergoing lengthy government testing and approval processes.

The Faculty Research Commercialisation Program. Established in 1991, this programme offers
support to faculty members for the conversion of laboratory stage technology into commercially viable
products. The programme is available to faculty members from academic institutions that are members of
the Georgia Research Alliance – a partnership between state government, six major research universities
in Georgia, and private industry (Georgia Research Alliance, 1997). The programme provides financial
support, in the form of an ATDC sponsored project. Basic research projects are not eligible for funding:
only applied research projects which focus on products or technologies with commercial market potential
are considered (ATDC, 1996). Project awards, which range from US$ 30 000 to US$ 100 000 per project,
can be used for equipment, contract consulting, release time, materials and related expenses. The funds
are exempt from university administrative overhead charges. Matching funds for the projects are usually
developed with the co-operation of public and private sources. The programme also provides business
development support. This includes assistance with project management, marketing, business planning,
and licensing. Proposals for support are solicited in the spring of each year and are screened by ATDC
staff and external reviewers with expertise in business, venture finance, and the proposed technological
area. Review criteria include: scientific and technical innovativeness; probability of market deployment;
quality of research personnel; potential for job creation and revenue; availability of corporate matching
funds; and likely impact of programme participation. Between 1991 and 1994, the programme funded ten
projects. More recently, between five and seven projects have been funded annually. Total funding is
US$ 350 000 a year.

The Corporate R&D Support Program. In addition to supporting early-stage technology companies,
the ATDC provides “landing party” assistance to corporate research and development divisions or special
product, service or marketing units of established companies that seek access to the faculty and facilities
of the Georgia Tech. A landing party usually occupies office and laboratory space in the ATDC incubator
facility in Atlanta. There is no formal process for selecting landing party members. Potential corporate
members are usually referred to the ATDC by state and other economic development organisations and
are accepted as part of ATDC’s mission of helping technology-based corporations that seek to locate or
expand in Georgia. The programme offers direct contact with Georgia Tech researchers, access to
laboratory equipment, and access to library resources. Through to 1994, 25 companies had participated as
landing party members. Current landing parties at ATDC include three corporations engaged in either
electronic or multimedia technologies and the US Army’s Environmental Policy Institute.

67
Organisational structure

The organisational structure of the ATDC has changed through the years. In 1982, the director of ATDC
reported to the Vice President for Research at the Georgia Institute of Technology, who then reported
directly to the President. By 1994, the ATDC organisation had changed significantly, becoming part of
the Georgia Tech Economic Development Institute.

The ATDC now reports directly to the Economic Development Institute director, who in turn reports to
the President of the Georgia Institute of Technology. The budget for ATDC has grown throughout the
years. In its first year of operation, fiscal year 1981, the budget was US$ 185 000. The bulk of the
ATDC’s operating budget has been funded through appropriations from the state legislature. Current
funding is about US$ 1.5 million a year. In 1988, the ATDC first generated enough revenues from its
activities to cover the debt service of the facility at the Georgia Tech campus.

Overall measures of performance

The following sections discuss the performance of ATDC, focusing particularly on the entrepreneurial
services programme.

More than 100 companies have participated as formal members of the ATDC since 1986. Many other
companies have sought information and assistance from ATDC staff without becoming members.
Currently, in 1997, there are 49 member companies, comprised of 30 companies at the main ATDC
facility, four companies at GCATT, six companies at Warner Robbins, and nine companies who are
members “without residence” – mainly firms ATDC is working with while awaiting incubator space.
Occupancy rates of the facility have generally been very high, averaging about 95 per cent. The number
of members remained fairly constant between 1986 and 1995 (averaging about 35 firms per year), with
recent increases in membership attributable to the new GCATT facilities. By 1997, 29 firms had
graduated from the ATDC programme. Of these, 22 are still in business, one was acquired and is no
longer tracked, two others are no longer tracked for other reasons, and two are no longer in business.

ATDC records were identified to track what happened to firms during the period 1986 through 1995.
Over this period, 111 firms had been admitted to ATDC. Of these, 32 were current tenants, 26 had gone
out of business before graduating, and two firms were acquired while in the ATDC. Some 24 firms had
left the ATDC or dropped out of the programme, usually by mutual consent. There were 27 graduate
firms. On this data, excluding the current tenants and counting the acquired firms as successes, the
“success rate” was about 40 per cent. This probably underestimates the ATDC success rate, in that a
number of the firms that left the ATDC continue to maintain good relationships with the programme.

Another way to calculate a survival rate for ATDC firms is to look at a set of firms at one point in time
and then track the status of the same firms five years later. In December 1989, there were 24 member
firms and 19 graduate firms according to the ATDC’s 1989 Annual Report. Five years later, in December
of 1994, 11 of the member firms, or 46 per cent, had gone out of business. Four of the firms graduated,
one dropped out, one was acquired, and four were still members. The 19 graduate firms fared much
better. Only one firm had failed between 1989 and 1994. Five firms were acquired by other firms several
years after graduation. Acquired firms can be considered successes. This data suggests that the riskiest
part of the incubation process is the period in the incubator itself. Once graduated, ATDC firms appear to
be relatively successful.

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In 1996, the ATDC portfolio had grown to 49 member firms and 29 graduate firms (Table 2). Total
annual revenues for these 78 companies were US$ 266 million, with identified employment exceeding
2 100 jobs. The average graduate firm had revenues of US$ 8.7 million and 66 employees. As expected,
the mean for members companies was much smaller – five employees on average, with typical revenues
of about US$ 0.3 million. Employment and company revenues associated with ATDC have doubled since
1990, but in terms of revenues per company or revenues per employee, ATDC graduates have reported
rather constant (as opposed to growing) figures since 1990 (i.e. the growth has come from more graduate
companies rather than increased average revenues per firm over time). But this may mask the fact that
growth among older and larger ATDC graduates is averaged out by a growing number of new, small
graduate firms.

Table 2. Summary data on ATDC participating companies

Year 1986 1988 1990 1992 1994 1996

Companies participating in the ATDC programme
Graduates - 14 18 18 22 29
Member firms 34 28 25 38 36 49
Total 34 42 43 56 58 78
1
Identified revenues of participating companies (US$ million)
Graduates - 69.2 142.9 186.0 200.0 252.4
Member firms 28 10.4 5.2 9.8 14.0 13.4
Total 28 79.6 148.1 195.8 214.0 265.8
1
Identified employment in participating companies
Graduates - 633 1 025 1 294 1 352 1 910
Member firms 327 234 81 157 180 227
Total 327 867 1 106 1 451 1 532 2 137
1
Average identified employment in participating companies
Graduates 45 57 72 61 66
Member firms 10 8 3 4 5 5
Total 10 21 26 26 26 27
1
Identified revenues per participating company (US$ million)
Graduates 4.9 7.9 10.3 9.1 8.7
Member firms 0.8 0.4 0.2 0.3 0.4 0.3
Total 0.8 1.9 3.4 3.5 3.7 3.4
1
Identified revenues per employee (US$ thousands)
Graduates 109.3 139.4 143.7 147.9 132.1
Member firms 85.6 44.4 64.2 62.4 77.8 59.0
Total 85.6 91.8 133.9 134.9 139.7 124.4

Note:
1. Several ATDC companies have changed their corporate structure through mergers or acquisitions,
making it impossible to continue to track actual revenues and employment data of some ATDC
graduates. The data reported here thus under-estimate the revenues and employment identified with
graduated ATDC companies.

Source: ATDC, 1997.

69
Additionally, there are significant variations around the means. Some ATDC graduates have been highly
successful, for example Mindspring Enterprises, Inc., which has emerged as a major Internet access
provider in the US South. This firm now has over 170 employees. Indeed, Mindspring is one of four
ATDC graduate companies that have completed initial public offerings, with more than US$ 46 million
raised in subscribed funds (in three cases, ATDC companies are now traded on NASDAQ).

On the face of it, the ATDC appears to represent “good value” from an economic development
perspective. For a total state expenditure of under US$ 20 million since 1981, there are now more than
2 100 jobs in companies associated with the programme. Recently, some US states have offered
incentives of several hundred million dollars to attract individual companies with similar total
employment. To fully verify and qualify the net economic development of ATDC, studies are needed
which compare the performance of ATDC companies with comparable non-member firms.

Customer case studies

Although this paper does not report on a full control group study (but see Culp, 1996), it does present
evidence from interviews and surveys conducted with ATDC members and graduates.

Interviews were conducted in 1996 with principals of 19 ATDC members to assess the impact that
membership has made on each firm (Culp, 1996). This research approach was qualitative in nature,
focusing on the motivations and characteristics of members as well as their involvement with ATDC.
Overall, the ATDC membership experience was reported to be positive by a majority of respondents.
While the “typical” incubator factors such as business development services were not found to be
extremely important to a majority of member firms, there were other benefits of ATDC membership
which impacted the firms. The entrepreneurial environment, the facilities (both on-site and at the Georgia
Institute of Technology), and the intangible factors such as heightened credibility all emerged as important
factors of influence. In some cases, access to student labour and university equipment was valued,
although other firms reported difficulties in hiring students or using facilities due to high overhead rates.
Table 3 summarises the key ATDC activities and interventions and an aggregate rating of impact for each
case.

Why did the principals of the 19 ATDC companies want to become ATDC members? A frequently cited
reason was the desire to obtain business development assistance, not surprising since that is usually what
is sought from a business incubator. However, once in the ATDC, some members reported that they had
not used available ATDC services or that the assistance received had not aided their business
development. In other cases, there were principals who reported that ATDC’s assistance had positively
helped them.

Another frequently cited motivation for seeking ATDC membership was to be in close proximity to the
Georgia Institute of Technology. Since some of the principals were faculty members at the university, a
primary benefit of ATDC membership was the close proximity. For four of the companies, the ATDC
membership offered a chance to pursue technology licensing or transfer from the university. Two of the
companies pursued technology transfer but were not able to do so due to impediments (perceived by the
principals as emanating from the university’s licensing organisations). The third company succeeded in
securing a technology licensing agreement but reported much difficulty in the process. The fourth
company was able to secure a technology transfer agreement with no difficulty. Principals in the third and
fourth companies were faculty members – this probably helped in securing a technology transfer
agreement.

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 Table 3. Case Studies: summary of impacts of ATDC on member firms

Company Sector Years Key ATDC Total

in ATDC interventions* impact**
A Biomedical 7 1,3,4,5 3
B Electronics 4 5,6 2
C Software 1 5,6 3
D Hardware/software 3 5 1
E Hardware/software 4 1 2
F Environmental 3 6 1
G Materials 1 1,2 2
H Information services 2 5 2
I Software 3 5 1
J Software 0.5 1,4,5 3
K Software 1 1,3,5 3
L Environmental 1 1,3,5 2
M Biomedical 6 1 1
N Information services 2 6 1
O Biomedical 2 2,5,6 2
P Electronics 4 3,5 3
Q Electronics 3 2,6 3
R Information services 1 2,3,5 2
S Materials 7 5,6 3

Notes:
* Interventions are of the following types:
1 = Business development assistance and special events (n=7)
2 = Assistance in technology transfer (n=4)
3 = Lenient rental terms (n=5)
4 = Assistance in identifying financing (n=2)
5 = Heightened credibility factor (n=13)
6 = Assistance in accessing facilities at the Georgia Institute of Technology (n=7)
** Total impact was rated as:
3 = Definite positive impact (n=10)
2 = Somewhat positive impact (n=4)
1 = Neutral impact (n=5)
0 = Negative impact (n=0)

Source: Culp, 1996.

For many companies, ATDC membership was said to result in heightened credibility. While hard to
quantify, there was a “halo” effect of being closely associated with the Georgia Institute of Technology.
Most companies reported that this was the primary benefit of ATDC membership. This benefit was
viewed as more important than any other benefit of ATDC membership, including business development
assistance. Indeed, in cases where principals were most strongly motivated to apply for ATDC
membership by their desire to be associated with Georgia Tech, these principals said their expectations
regarding membership had been fulfilled. In other words, these principals were not necessarily seeking
typical business incubator services. Among those who sought specific services, there were some
disappointments.

71
All except a few of the principals reported that obtaining adequate financial resources was the major
impediment to development of their companies. For those principals seeking business development
services from the ATDC, it was hoped that financial assistance would be delivered. However, the level of
ATDC financial services has been limited to serving as a broker or information intermediary for member
companies and potential financiers. While these services have been beneficial for many of the members,
it was still not enough to provide a tangible, significant impact on the business development for all firms.
At the same time, the association with Georgia Tech and ATDC’s links with venture capital firms at least
opened some doors for firms that could otherwise have been hard to get into.

In summary, 10 of the 19 member companies reported a definite positive impact on their business
development resulting from ATDC membership. All of the these companies cited the heightened
credibility factor as important and some cited the business development assistance as important. Most of
these ten companies had principals who were involved and participated in the ATDC programme; some
of the principals were associated with the Georgia Institute of Technology, either as faculty or staff
members. Four companies reported some positive impact, primarily reflected in the heightened credibility
factor. For these companies, there was some positive impact on development, for example through
business assistance services, but there were also some problems (for example, some of the principals had
problems with the physical services such as high prices or lack of laboratory space). Five firms said they
had not experienced any impact on business development as a result of ATDC membership. In other
words, they had a neutral experience. While none of the companies considered that they had been
negatively impacted, these companies reported no gain or perceivable positive benefit from membership.
It was interesting to note that in some cases, the principals of these companies were not at all involved
with ATDC staff or programmes. In fact, it was stated by a few of the principals that they were not
seeking any of the typical business development services but rather the association with the Georgia
Institute of Technology. In other words, with the exception of one of these five companies, it was not felt
that ATDC membership had been a disadvantage or necessarily a disappointment, rather, the principals
were not seeking anything other than a landlord-tenant relationship and/or to be close to the university.

A follow-up mail survey with current members and graduate firms confirmed these findings. Although
response was low (13 in total), the factor of heightened credibility of the firm was by far the most
frequently cited impact of ATDC membership. Reduced equipment costs and assistance with marketing,
management, and time were noted as impacts, but less frequently. Access to qualified employees or
shortening of time to market (among the common benefits ascribed to incubators) were barely noted
(Table 4).

Conclusions

Overall, the ATDC has established a track record of promoting new high technology start-up companies,
some of which have graduated with significant success. ATDC is recognised as one of the most
well-established technology incubators, and has won national awards. The cost over nearly two decades
has been relatively modest. In a state which has experienced relatively fast employment and population
growth, but which has lacked the reputation as a high technology location, many deem the benefits of
ATDC, including “perceptual” benefits, to be worth the cost. Most success has been achieved in
metropolitan Atlanta, which is the state’s most favoured location and which has the advantages of Georgia
Tech’s research and technological resources. Outside of Atlanta, ATDC has had some success, although
results are still limited.

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 Table 4. Interview surveys with ATDC member firms and graduates

Impacts of participation in ATDC Current Graduate All Per cent

members firms
Heightened credibility of your firm 6 4 10 77%
Cost reductions by reduced equipment costs 2 2 4 31%
Impact on new market position through marketing 3 1 4 31%
assistance
Improvement of overall management of firm 2 1 3 23%
Time savings in responding to government 2 1 3 23%
regulations
Enhanced access to technological resources 0 2 2 15%
Improvement of financial management of firm 1 1 2 15%
Identification and access to qualified employees 0 1 1 8%
Impact on existing market position through marketing 1 0 1 8%
assistance
Impact on new or existing market position by product 1 0 1 8%
development assistance
Shortened time to market of primary product 0 1 1 8%
Number of respondents 8 5 13 100%

Source: Culp, 1996.

Would the high technology firms associated with ATDC in Atlanta – and which now employ a couple of
thousand workers – have been started without ATDC’s help? It is hard to provide a definitive answer on
this point: metropolitan Atlanta had more than 100 000 jobs in technology-related companies in 1996.
But most of these high-tech jobs are in large companies, particularly in telecommunications. Despite the
technological presence of Georgia Tech (and other research universities), Atlanta has not, until recently,
had the infrastructure of finance, management expertise, and entrepreneurial support to create multiple
new small start-ups in the fashion of the much admired (but hard to replicate) models of Silicon Valley
and Route 128. ATDC has had a role in pioneering improvements in this infrastructure and in beginning
to leverage Georgia Tech resources and credibility to aid small start-ups. There is now a sense,
particularly in technologies involving media, communications and bio-sciences, that Atlanta is a viable
location to start a new technology venture. Here, state and university policy makers hope that ATDC’s
experience and its new presence in GCATT – and possibly in other similar facilities in media-related and
research complexes in the city and state – could help to foster a round of start-up firms in these emerging
technological areas.

From the view of individual firms, ATDC membership generally resulted in a positive impact (in varying
degrees) for the majority of member companies interviewed. However, the impacts did not occur
primarily by provision of business development services alone. Rather, the primary positive impact of
ATDC membership on member companies was the heightened credibility factor generated by an
association with a major technological university, sometimes but not always in conjunction with business
development services, lenient rental terms, and access to facilities, expertise and students.

73
 REFERENCES

ADVANCED TECHNOLOGY DEVELOPMENT CENTER (ATDC) (1994), Annual Report, Fiscal Year
1993-94, Advanced Technology Development Centre, Atlanta, Georgia.

ATDC (1996), Faculty Research Commercialisation Program: FY 1998 Request for Proposals,
Advanced Technology Development Centre, Atlanta, Georgia (available at:
http://www.atdc.gatech.edu/ATDC/fcrp_download.html).

ATDC (1997), Report Card of Affiliated Companies.

CASTLES, M. and P. HALL (1994), Technopoles of the world: The making of 21st century industrial
complexes, Routledge, London and New York.

COMMITTEE OF TWENTY (1979), Status Report on the Technology Business Development Project,
Georgia Institute of Technology, Atlanta, Georgia, 20 November.

CULP, R. (1996), A Test of Business Growth Through Analysis of a Technology Business Incubator,
Ph.D. Dissertation, Georgia Institute of Technology, Atlanta, Georgia.

GEORGIA RESEARCH ALLIANCE (1997), Georgia Research Alliance Web Site (http://www.gra.org).

GEORGIA TECH ENGINEERING EXPERIMENT STATION (1980), State Science, Engineering, and
Technology Program, Atlanta, Georgia: Georgia Institute of Technology, February.

MCMATH, R.C. (1991), Variations on a theme by Henry Grady: “Technology, modernisation, and social
change”, in Joe P. Dunn and Howard L. Preston, The Future South: A Historical Perspective for
the Twenty-first Century, University of Illinois Press, Urbana and Chicago.

74
 TECHNOLOGY CENTRES AND BUSINESS INCUBATORS IN GERMANY

Bernd Gross, Association of German Technology and Business Incubation Centres,

Germany

Introduction

Innovation is a motor for social development. Healthy economic development - the key to social
prosperity - cannot take place without constant renewal of the technological base. This is a challenge
faced by all developed industrialised countries, which are struggling with fundamental changes in their
industry structures and with growing unemployment.

Managing innovation as a driving economic factor means ever more rapid translation of the latest research
findings into marketable technological products and innovative services. And this aim is closely
intertwined with provision of support for small and medium-sized innovative companies.

On this basis, different types of centres for supporting innovation (innovation centres) have been
established in many countries, with names such as technology centres, research and technology parks,
“technopolises”, business innovation centres and science parks. A central focus of such support is on
assisting new technology-oriented companies; consequently, a central role is played by “technology
incubators”.

Three important trends and requirements are particularly apparent in the development and activities of
technology centres and business incubators:
◊ the growing role of small and medium-sized companies, and the need to support start-up
firms and promote their growth;
◊ the need to promote innovation as one of the most important factors for maintaining
economic competitiveness in a global economy;
◊ the transition from a society based on traditional industries to one based on services and
information.

In this light, technology and business incubation centres are complex innovation centres that - each in its
own regional environment - support creation of start-up firms and technology transfer and provide the
relevant business services. They provide impetus to the economy’s structural transformations and
promising new development sites.

The network of technology centres and business incubators in Germany

Germany has high standards of education and research, backed by a powerful network of institutes of
higher education and research centres. In 1983, construction of the first technology incubator began with

75
the aim of enhancing transfer of research findings to industry, and with the help of relevant experience in
the United States and some European countries. An extensive network of technology and business
incubation centres - one of the foundations of an innovation-oriented economy - has been growing since
then (Figure 1).

Figure 1. Technology centres and incubators in Germany 1997

76
they are already proving to be showcases for German industry - centres that are helping to protect the
innovation energy of large industrial companies.

Technology and business incubation centres are effective instruments for regional economic development.
Understandably, the various federal Länder differ in this regard. Berlin and North Rhine-Westphalia were
confronted early on with structural change in their industrial sectors; they began promoting such
technology networks ten years ago. North Rhine-Westphalia now has a state-wide network of over
60 centres.

With the aim of supporting smaller companies and start-up firms, Berlin is planning to expand its network
from 10 to about 30-40 business incubation centres. Expansion of regional networks of business
incubation centres, and of technology parks (which also concentrate capacities), is continuing.

Table 1 shows how distribution of business incubation centres differs by region. In some federal Länder,
especially North Rhine-Westphalia, the distribution has become so dense that it could be termed as
“saturation”. In a number of federal Länder, such as Bavaria and Hesse, expansion of business incubation
centre networks began later but continues apace. Overall, the number of centres in Germany can be
expected to increase further. By the early part of the 21st century, a nation-wide network of nearly
300 technology and business incubation centres will be in place to support innovative start-up firms.

Table 1. Distribution of business incubation centres by region

Region/Länder 1996 Number of Area in Population in Employment

2
incubators 10 000 km millions in millions
A B A/B C A/C D A/D
Baden-Württemberg 19 3.50 5.43 9.8 1.4 4.7 4.04
Bavaria 11 7.00 1.57 11.4 0.96 5.7 1.93
Berlin 12 0.09 133.33 3.4 3.53 1.5 8.00
Brandenburg 13 2.90 4.48 2.5 5.20 1.2 10.83
Hamburg 1 0.08 13.25 1.7 0.59 0.8 1.25
Hesse 4 2.10 1.90 5.7 0.70 2.7 1.48
Mecklenburg-Hither Pomerania 7 2.30 3.04 1.9 3.68 0.9 7.78
Lower Saxony & Bremen 17 4.70 3.62 8 2.13 3.5 4.86
North Rhine-Westphalia 61 3.40 17.94 17.3 3.53 7.4 8.24
Rhineland-Palatinate 7 1.90 3.68 3.7 1.89 1.7 4.12
Saarland 2 0.25 8.00 1 2.00 0.4 5.00
Saxony 20 1.80 11.11 4.7 4.26 2 10.00
Saxony-Anhalt 10 2.00 5.00 2.8 3.57 1.2 8.33
Schleswig-Holstein 8 1.57 5.10 2.6 3.08 1.2 6.67
Thuringia 8 1.60 5.00 2.6 3.08 1 8.00
West Germany 135 24.90 5.42 63.7 2.12 29.3 4.61
East Germany 65 10.80 6.02 15.9 4.09 7 9.29
Germany 200 35.70 5.60 79.7 2.51 36.3 5.51

Source: ADT.

77
Experience from over a decade has shown that innovation centres have become a recognised instrument in
Germany for regional and innovative economic development. In terms of their most important
function - helping technology-oriented start-up firms to get established and providing innovative
companies with possibilities for growth - innovation centres have been a success, in different ways, within
their regional environments. They have also been acclaimed on the supra-regional and international
levels.

Figure 2. Conceptual framework for technology centres and business incubators

Source: ADT.

Technology centres and business incubators have become economic factors as infrastructure facilities. As
the nodes in networks, they have arisen primarily through regional initiatives, and they are considered
living examples of “public-private partnerships”.

They are not an end unto themselves; they are business-oriented infrastructures for innovative start-up
firms and developments. The centres have been developed as dedicated, powerful models for technology
transfer from science to industry and business, oriented especially to small, innovative companies.
Technology incubators can be regarded as SME-based models of technology transfer. Start-ups in
general, academic “spin-offs” and companies formed from parts of large industrial companies also play
central roles in the centre concept (Figure 2).

The technology centres and business incubators in Germany are an independent variant of the innovation
centre concept - one that incorporates international experience in the development of science parks,
incubators and “technopolises”. The result is a flexible model that has survived a number of tests, under
the special conditions prevailing in Germany, such as the need to provide assistance in structural crises in
western Germany or to reshape eastern Germany’s economy and research sector.

In the coming years, efforts will be focused on giving innovation centres in Germany a more visible
profile, using the challenges of the next century’s economic and social developments as a measure. To a
considerable extent, the basis for dealing with such challenges will be created through innovation - but
only if capable infrastructures and frameworks are in place that enable and help innovative companies to
be founded and to grow. Investments in such infrastructures pay off.

78
Increasingly, Germany’s network of technology centres and business incubators is proving to be a source
of impetus and a network of future-oriented workshops for industry. The companies involved are
extensively active in new and emerging fields of technology development and applications, including such
areas as information and computer technology, communications, software development and multimedia,
micro-electronics and automation technology, robotics, environmental technology, micro-structure
technology, new materials, biotechnology, medical technology etc.

The centres have an average of 25 companies and research institutes, with a total of 200 employees; the
average number of employees per company is 8. In the past few years, the total space available for
occupancy in the centres has grown by leaps and bounds; it is now over 1.3 million m2, this is equivalent
to an average of 5 400 m2 in rental space per centre. The centres vary widely with regard to size and
organisation, however, primarily as a result of regional conditions and resources.

In eastern Germany, the Federal Ministry for Education, Science, Research and Technology has supported
construction of technological business incubators. This effort has profited from good co-operation with
western German centres that has also created a basis for an intra-German east-west co-operation network.

Figure 3. The development of technology and business incubation centres in Germany (1983-1996)

200

180

160

140 Germany

120
West Germany
100
East Germany
80

60

40

20

0
1983 84 85 86 87 88 89 90 91 92 93 94 95 1996

Source: ADT

In light of the collapse of the eastern German economy and the restructuring of the research sector, these
centres have a major role to play in the economic recovery of the various eastern German regions.
Historically, eastern Germany has had very few small and medium-sized companies. Consequently, these
centres are playing an important role in fostering entrepreneurial approaches in eastern Germany. Eastern
Germany now has 65 centres in operation, and its network of centres is twice as dense as that in western
Germany.

Western Germany has some 135 centres in operation, with a total of 3 200 companies and about
28 000 employees. The 65 active centres in eastern Germany represent over 1 750 companies and
11 600 jobs. The average number of companies per centre is 27 in western Germany; in eastern Germany
it is 24. Such differences are disappearing, however.

79
Now, more than ever, the framework for start-up firms and small innovative companies must be improved.
In addition to support programmes, such efforts must include the appropriate tax framework and the
creation of the proper infrastructures. Just as the state bears responsibility for building roads and bridges
in the public interest, it must also provide the necessary roads and bridges for innovative start-up firms.
Such roads and bridges lead directly into the future, and they stimulate private investors to invest in the
new innovative firms. Technology incubators and technology parks have proven to be one of the best
instruments for attracting investment.

Technology incubators and science and technology parks

In many countries, such as in the United States, France and the United Kingdom, a distinction is made
between business incubation centres (incubators) and technology parks (science parks), a distinction that
is sometimes manifested through separations of networks and associations.

Figure 4. Combining technological and business potential

Source: ADT.

Germany’s concept of technology centres and business incubators is a proven approach in which there are
no sharp separations by content or organisation. Basically, Germany’s innovation centres are centres that
provide support for technology-oriented start-up companies and developments, or technology-oriented
business incubation centres. In other words, support of technological developments and applications is
closely linked to support for start-up firms. Technology centres and business incubators achieve their
aims through this combination, although the specific emphases can vary (Figure 4). An increasing
number of business incubation centres in Germany are focusing on assisting start-up firms in general,
especially firms in the areas of services and of the crafts. Business incubators in rural or structurally weak
regions fall into this category.

In keeping with their core function, innovation centres are business incubation centres for
technology-oriented companies. Whereas some centres concentrate primarily on technology companies,

80
with an orientation to relevant regional requirements and resources, other centres function more as
generally oriented business incubation centres. For the network as a whole, the connection between the
two tasks is the characteristic feature, however.

If one wishes to stimulate innovation, as a force that spurs economic development, one must concentrate
both on developing technology resources and on encouraging company start-ups. Today, more than ever
before, the “long-wave” theory of technological innovation is proving its validity: profound technological
changes occur not only as a result of scientific revolutions; they depend on entrepreneurial action and go
hand-in-hand with “waves” of start-up firms. Support for technological developments and applications is
closely linked to support for start-up firms. This is the unity within which technology and business
incubation centres achieve their aims. Innovation has two sides: technological innovation and creation of
new companies.

In the last few years, the business incubation centres have supported an average of 1 000 company
start-ups per year - and this rate is increasing. This growth is being driven by three factors:
◊ the centres’ incubator function;
◊ expansions of the infrastructure in existing centres;
◊ construction of new centres.

Figure 5. Creation of small innovative companies in German incubators (1983-1996)

1000

6 000 1 332

5 000
1 002

4 000 Technology-based 756

3 000 Others 542

373
5 236
248 4 339
2 000
159 3 545
2 829
104
1 000 49 65 2 192
33 1 636
19 476 1 185
1 6 309 891
45 156 668
8
0
83 84 85 86 87 88 89 90 91 92 93 94 95 96

Source: ADT.

One of a business incubation centre’s basic tasks is to provide support during start-up and the first growth
phase. Consequently, limits must be placed on the time start-up firms and young companies can spend
within centres. Of the nearly 7 000 companies supported since 1983, over 5 000 are technology-oriented
(Figure 5). The success rate for the new companies is remarkable. According to experience to date, only
5-8 per cent of new companies have had to close during their stay within a centre. This success is due
primarily to the support provided for preparation of new firms (including a selection process), as well as
to on-going support.

As a result, companies started within technology centres and business incubators can be expected to have
considerably higher survival chances than other companies. Whereas official statistics (nation-wide)

81
show that only 50 per cent of companies are still in operation three years after they are started, the
technology and business incubation centres have achieved impressive success rates. It is worth
mentioning that Germany not only needs to considerably increase the rate at which new firms are created;
it must also reduce numbers of insolvencies and ensure that companies achieve long-term stability. The
network of technology and business incubation centres is making an outstanding contribution toward this
aim, in two regards.

Nearly 2 000 companies have moved out of centres, following limited stays of three to seven years, in
order to experience their next growth phase in neighbouring technology, industry or business parks.
Often, centres grow together with their companies.

Figure 6. Infrastructure for innovative and technology-based firms

82
 Figure 7. Linkgages between incubators and science/technology parks

Source: ADT.

But not every incubator must be linked to a science park. Germany’s concept of innovation centres has
proven to be versatile, flexible and highly effective. In recent years, many incubators have expanded to
become technology parks or are planning such a step (Figure 7). This is already true of nearly
50 incubators, or about 25 per cent of all innovation centres. The technology centres in Aachen, Berlin,
Karlsruhe, Dortmund and Bochum are such “flagships” (also simply by virtue of their size). Other
examples of cities where technology parks are taking shape near business incubation centres include
Münster, Erlangen and Kiel.

Assuming that companies that move out of a centre continue growing, later employing about 15 persons
(or about twice as many as during their stay in the centre), then the total number of companies involved
corresponds to at least 30 000 jobs. If employees of co-operation partners in industry and science are also
counted, it can be assumed that the developing network of technology centres, business incubators and
technology parks has directly created about 100 000 jobs since 1983.

The concept of technology and business incubation centres is continually being refined and adapted to the
various regional conditions and global challenges (Figure 8). A central aspect of such efforts is tailoring
the centres’ services to the requirements of their tenant companies.

The new tasks of many centres include:

◊ creating regional and supra-regional networks of centres and companies;
◊ assuming innovation project sponsorships;
◊ providing further training and qualification for the relevant region;
◊ developing technology “early warning systems” and technology assessments;

83
 ◊ improving frameworks for innovative regional economic development and enhancing the
climate for innovation.

Figure 8. Network interactions of Innovation centres in context

Source: ADT.

Two tasks in particular are being given special emphasis in further qualitative development of the network
and are of strategic importance:
◊ Technology and business incubation centres not only use modern information and
communications technologies to stimulate company start-ups and growth, they are also
developing into powerful information nodes for regional economies. Technology centres are
bases for a modern information society. As a result, new possibilities are being opened up
for networks of co-operation between large and small companies. Many companies in the
centres operate in the promising fields of information, computers and communications.

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 ◊ Technology and business incubation centres will continue in the future to play an active role
in providing financing for technology companies. By providing qualified consulting and
support for young companies, they are far more than simply “renters of office space”. In
co-operation with savings institutions, banks and insurance companies, they play a significant
role in backing new companies. This aspect will become more and more important in the
future, since many companies are undercapitalised. Equity participation funds, venture
capital and innovation-sharing of business angles are growing in importance.

Technology-based enterprises and academic entrepreneurship

Germany’s economic history shows that large industrial companies are often founded through the
initiative or active entrepreneurial effort of researchers and technicians. Many well-known companies
that have set the pace of technological progress in this century, over the course of many decades, grew out
of innovative start-up firms in the 19th century - in the areas of electrical engineering, mechanical
engineering and vehicle construction and chemistry.

This group of companies includes, for example, Siemens, AEG, Hoechst, Bayer, BASF and Carl Zeiss. In
many cases, the technological implementation of an idea or scientific finding was the driving force, a
force which found its expression in entrepreneurial action. New industries have also arisen in connection
with scientific revolutions and technological “waves”.

Such new industries manifest themselves first in a wide range of new, small companies, before
fast-growing companies begin dominating the market. New technological waves, especially those in
information technology and biotechnology, are now occurring in connection with waves of new
innovative start-up firms. Traditional companies often find themselves in conflict with start-up firms,
which draw much of their innovative power from their flexibility.

In 1983, almost exactly 100 years after the founding of AEG, 14 scientists from Berlin Technical
University founded their own companies. A short while later, in 1985, the first German technology and
innovation park was established on AEG’s decommissioned site in Berlin. Now, after the closing of AEG
in Germany last year, some AEG spin-outs can be found in various technology and business incubation
centres. Ever since this “birthdate”, support of technology companies and company start-ups emerging
from institutes of higher education and non-university research establishments has been one of the most
important tasks of technology centres and incubators.

With the aim of improving the framework for technology-oriented start-up firms and companies emerging
from the science sector, the Association of German Technology and Business Incubation Centres (ADT),
under commission to the Federal Ministry of Education, Science, Research and Technology (BMBF), has
been carrying out the ATHENE project (Ausgründung von Technologieunternehmen aus
Hochschul-Einrichtungen und Naturwissenschaftlich-technischen Einrichtungen - Start-ups of technology
companies that have emerged from higher education institutes and scientific establishments). The project,
which is scheduled to run until the end of 1997, is aimed at stimulating academic spin-offs and collecting
relevant statistics.

Initial research has shown that technology and business incubation centres, in co-operation with institutes
of higher education and research centres, exert a driving force in support of academic spin-offs.
Technology and business incubation centres are found in the vicinities of 59 universities in Germany,
i.e. 76 per cent of this sector’s institutions. Other university cities, such as Kassel, Potsdam and
Darmstadt, will soon open technology and business incubation centres or are planning to construct centres.

85
A total of 47 per cent of all technology and business incubation centres are located in cities with higher
education institutes and 26 per cent are located in cities with non-university research establishments.

Technology-oriented start-up companies account for 77 per cent of all companies in the business
incubators. The corresponding figure for older centres, most of which are located in cities with higher
education institutes, is 90 per cent.

Table 2. Tenant firms in technology centres and incubators

Companies in technology Academic Technology

centres and incubators spin-offs companies
Germany total 49% 77%

Western Germany 47% 79%

Eastern Germany 52% 73%
North Rine-Westphalia 47% 78%
Locations of institutes of higher education 57% 79%
Locations of public research institutes 55% 82%
Locations without higher education and research 34% 68%
Rural regions 44% 65%

Source: ADT.

Since 1990, a total of 4 400 technology companies, 1 500 of them in eastern Germany, have been founded
and supported. In 1996 alone, the centres registered 1 200 new companies; of these companies, 890 can
be considered technology companies (western Germany: 560, eastern Germany: 330). The number of
new companies that have emerged from the science sector, as a percentage of all companies in technology
and business incubation centres, is 49 per cent.

Table 3. Incubator firms emerging from the science system

Academic spin-offs Germany Locations of Locations of public Locations without

in technological incubators total institutes of research institutes higher education and
higher education research
Academic spin-offs total 49% 57% 55% 34%

from institutes of higher 26% 35% 32% 12%

education
from non-university, public 7% 6% 9% 4%
research institutes
from institutes of industrial 7% 7% 9% 6%
research
others, mixed 10% 9% 6% 11%

non-academic start-ups or 51% 43% 45% 66%

spin-outs

Source: ADT.

86
When this figure is extrapolated to the entire network of technology and business incubation centres, it
indicates that there have been 2 350 academic spin-offs. Applied to the entire number of created
companies and companies that have moved out (at least partially), this percentage points to a figure of
3 300. Since 1990, the centres have supported about 2 750 academic spin-offs. At 26 per cent, the group
of companies that have emerged directly from institutes of higher education is the largest group of
academic spin-offs (western Germany: 28 per cent; eastern Germany: 21 per cent).

A number of technology incubators that are either located on a higher education institute’s campus or
co-operate very closely with institutes of higher education have even higher percentages of academic
spin-offs. Prominent among this group are the centres in Aachen, Berlin, Bochum, Chemnitz, Dortmund,
Dresden, Karlsruhe and Warne-münde. There have been 7 per cent coming directly from non-university
research institutes. These figures are reflected in the qualifications of the employees in the companies.
Various recent analyses have agreed that academic employees account for between 50-60 per cent of all
employees.

Figure 9. Correlation between academic spin-outs and technology-based companies in German incubators

80
Aachen
70
Dresden
60
Academic
spin-outs Bochum IGZ Berlin

40 Münster Teltow

30 BIG Berlin

20

10 Dortmund

0
0 10 20 30 40 50 60
Technology-based companies

Source: ADT.

An important reason for the high percentage of technology-oriented companies is found in the many
spin-offs from higher education institutes and research establishments; this fact is also reflected in the
correlation between academic spin-offs and technology-based enterprises within the technology incubators
(Figure 9). Overall, these figures show that most technology and business incubation centres, in keeping
with their aims, concentrate on supporting new technology-oriented companies that have emerged from
the science sector - and thereby make important contributions to commercial implementation of research
findings.

In the technological sector, over 1 000 innovative new companies are founded each year in Germany.
Experts maintain that much more must still be done to maintain economic competitiveness and to halt the

87
dramatic loss of jobs. In spite of positive experiences and a successful development, efforts must still be
intensified to stimulate academic entrepreneurship and to profit from experience gained in such fields in
other countries.

The network of innovation centres in Europe

Europe now has over 1 000 business incubation centres and technology parks. Together with the
associated small companies and research establishments, these centres and parks represent enormous
potential for innovation in Europe’s future. In many cases, technology and business incubation centres
have played a leading role in the process of European integration. Regardless of the differences in
terminology from country to country - i.e. regardless whether one must speak of incubation or innovation
centres, technology centres, “technopolises” or science parks - all European countries are experiencing
similar developments in this area - each with its own differences and diversity.

This trend similarity applies to the establishment of smaller business innovation centres (incubators), in
order to enhance regional economic development; to the creation of technology parks (science parks), in
order to achieve effective transfer of technology from science to business; and to the quantitative and
qualitative development of the network. Co-operation within networks is a defining trend.

The entire European network of innovation centres is continuing to grow and now holds broad potential
for innovative partnerships between medium-sized companies. It is a network of networks:
NICE - Networks of Innovation Centres in Europe. This network includes both regional and national
networks and cross-border and international networks. Germany’s network of technology and business
incubation centres is the largest national network in Europe. This fact, in conjunction with Germany’s
central European location, means that Germany has special responsibility to help shape co-operation
between north and south, and between east and west.

And the western European countries have a special responsibility for the development of eastern Europe’s
network of innovation centres (Figure 10). This network now comprises about 250 technology and
business incubation centres. Often working under very complicated conditions, these centres are making a
significant contribution to the development of innovation resources within a market economy, to
promotion of the entrepreneurial approach and to the necessary restructuring of large industrial companies
and research centres.

Initial experience has shown that business incubation centres are useful instruments of market-oriented
structure policy and innovative economic development even in countries undergoing economic
transformation. Technology and business incubation centres are thus becoming basic pillars of research,
technology and economic co-operation between East and West. German unification has enabled Germany
to gather unique experience in using business incubation centres in order to restructure a former
state-planned economy, and this experience is now being applied fruitfully to consultation support for
eastern European countries.

88
 Figure 10. Innovation centres in central and eastern Europe

Source: ADT.

In the framework of the TRANSFORM consulting programme, the Federal Government is currently
supporting 6 pilot projects for establishment of technology centres and business incubators in Eastern
Europe, including centres in Russia (Vladimir), Poland (Gdansk), Belarus (Mogilev), Ukraine
(Saporoshje), Bulgaria (Sofia) and Latvia (Riga). A further project will be started soon in Kaunas
(Lithuania).

Under commission to the Federal Ministry for Economics, the Association of Technology and Business
Incubation Centres is carrying out a range of activities to support east-west co-operation between small
technology-oriented companies. Similarly, projects for co-operation between science parks and
technology incubators in western Europe are being supported by the European Union.

International conferences and bilateral workshops, co-operation projects and the Internet are all
contributing to the development of this pan-European network. The network is not an end in itself,
however. Its ultimate purpose is to tap potential for innovation, through co-operation in Europe and
world-wide, and to jointly create a better, and better co-ordinated, framework for start-up firms, for
co-operation and for technology companies’ growth.

89
THE EXPERIENCE OF CATCHING UP AND TRANSITION ECONOMIES

90
 TECHNOLOGY INCUBATORS IN ISRAEL

Rina Pridor, Technological Incubators, Office of the Chief Scientist

Ministry of Industry and Trade, Tel Aviv, Israel

Technological Incubators Programme

Background

Israel’s economic independence is contingent to a large extent upon the development of its technology
based industry. According to this basic belief, the Office of the Chief Scientist of the Ministry of Industry
and Trade has formulated and is carrying out an extensive support programme for business incubators
aimed at promoting technological entrepreneurship in Israel. The programme, established over the last
five years, endeavours to create a tool, that will be used on a continuous basis, to support the first stage of
technological entrepreneurship, and to integrate these activities with the very special circumstances,
created in Israel, by the recent massive immigration. It provides the support and environment essential for
innovative ideas to develop and bloom. Both veteran Israelis and new immigrants are given an unequalled
opportunity to transform their concepts into commercial products and viable businesses.

Objectives

Foster starting entrepreneurs possessing innovative technological ideas and help them to develop and
commercialise a product

Entrepreneurs taking their first steps are in need of much assistance: financial, professional,
administrative, logistic, managerial, and legal. The incubator provides the needed support, in a framework
conducive to uninterrupted development work. After the risks inherent in the project are reduced, and the
project is more attractive to potential investors and strategic partners, it continues as an independent
corporation. If further research and development are required, the company may apply for any of the
standard support and assistance programmes provided by the Office of the Chief Scientist.

Implement technological ideas brought by new immigrants

The recent immigration was accompanied by an inflow of technological knowledge and know-how in a
variety of fields. Within the incubator framework, new immigrants are given the opportunity to direct
their expertise toward commercial applications. The incubator framework expedites the transfer of
innovative and advanced technologies to the local technological and commercial environment.

91
Promote employment of technologically experienced immigrants in their profession

The incubator programme is by no means an employment program, yet it remains one of the most
promising avenues for professionally trained new immigrants to work in their designated fields of
expertise. They start, initially, on the research and development project teams. In the future, as the
projects leave the incubators and expand their activities toward full commercialisation, they continue
work on the development, production, and marketing staff of enterprises based on these projects.

The Steering Committee

The technological incubator programme was established and is operated by the Office of the Chief
Scientist within the Ministry of Industry and Trade. The policy is determined by the Steering Committee
for Technological Incubators, whose members are appointed by the Director General of the Ministry.

Members:

◊ Chief Scientist, Ministry of Industry and Trade - Chairperson;

◊ a representative of the public, from high-tech industry;
◊ the co-ordinator for industrial affairs, Budget Division, Ministry of Finance;
◊ the Manager of the Incubator program, Office of the Chief Scientist, Ministry of Industry and
Trade.

Functions:
◊ set the policy regarding the technological incubator program;
◊ set support procedures for the incubator and for the projects run by it;
◊ approve financial support to projects, candidates for the incubators, within the approved
budget, as per the recommendation of the project committees of the incubators;
◊ approve financial support for administrative operations of the incubators within the approved
budget;
◊ follow-up on the incubators’ developments and that of the projects within them;
◊ decide upon cessation of support, to an incubator or a project, in case they do not fulfil their
function or do not comply with regulations.

The Incubator

Legal obligations

During the incubator stage, the State provides the major part of the project’s operating budget. The
incubator’s management is responsible to the State for professional and efficient management of the
projects, including project budgeting and commercialisation. The incubator’s management acts as a
trustee on behalf of the State, for operating the projects within the incubator.

92
The agreements and contracts that secure the State’s support to the incubator and to the projects are signed
by the incubator’s management. The budget, for both the administrative management of the incubator and
for the individual projects, is transferred by the state to the incubator.

Organisational requirements:
◊ The incubator is an independent legal entity, registered as a non-profit organisation.
◊ A public entity is involved.
◊ Directed by a Board of Directors that sets the policy, consisting of industrialists, business
professionals and research professionals serving on a voluntary basis.
◊ Projects are examined and approved by a project committee consisting of industrialists,
business professionals and research professionals serving on a voluntary basis. The
committee also guides, directs and consults the projects during the course of development.
◊ The incubator is managed by a salaried General Manager: a professional, with industrial
management experience.
◊ The incubator is housed in a building with facilities suitable for ten to 20 R&D projects.

Functions:

The function of the incubator is to assist entrepreneurs to successfully complete their projects and turn
them into commercially viable ventures. To accomplish this, the incubator provides the projects with the
following services:

◊ assistance in conducting technological and marketing feasibility studies on the idea and in
preparing the R&D plan;
◊ assistance in recruiting and organising R&D staff;
◊ providing physical facilities suitable for carrying out the project, including plant, equipment
and administrative facilities;
◊ professional and managerial guidance and direction;
◊ secretarial, administrative, maintenance, purchasing, bookkeeping, and legal services;
◊ assistance in recruiting investment capital and preparation for commercialisation and
marketing.

Areas of activity

There are no preferred areas of specialisation dictated to the technological incubators operating within the
programme. A number of incubators have shown a preference for projects that can most benefit from the
resources at their disposal - such as association with universities and research institutions. Other
incubators find themselves leaning toward a particular technological segment, in accordance with the
number of projects sharing a common know-how base. In general, the projects cover the entire range of
R&D activities.

93
The Project

Criteria for approval

THE PROJECT is based on an innovative, technological idea. Its objective is to produce a marketable
product, intended for export.

THE INITIATOR is making his first steps as an R&D project entrepreneur.

SCOPE: Approximately five R&D professionals for a period of one to two years.

Legal structure

The project will be established as an independent limited corporation and will operate as a commercial
company. An agreement will be signed between the project’s initiators and the incubator’s management,
detailing the rights and obligations of the initiators and the incubator to implement their stated objectives
and comply with the requirements as set forth by the government.

The equity ownership in the project’s company will be broken down as follows:
◊ The initiator – at least 50 per cent.
◊ Key employees who are not initiators – at least 10 per cent.
◊ The person or persons who contribute additional
funding to operate the project (this could be the initiator) – up to 20 per cent.
◊ The incubator – up to 20 per cent.

All additional investment required in the future will be open for negotiations, and will dilute the founders’
equity ownership, as detailed above, proportionally. Notwithstanding the above, the management of the
incubator reserves the right to initially allocate equity ownership to outside investors and/or future
strategic partners. In this instance, these shares will be held in trust by the management of the incubator,
and the percentage of ownership as detailed above will apply only to the remaining shares issued and not
to those held in trust for future investors and/or partners.

Financial government assistance

Incubator projects

A grant of up to NIS 450 000 (US$ 140 000) per year for up to two years. Total maximum grant per
project - up to NIS 900 000 (US$ 280 000). The actual grant amounts to 85 per cent of the recognised
R&D expenses.

Incubator management

A grant of up to NIS 550 000 (US$ 170 000) per annum, including the salary of the Managing Director of
the incubator, operating expenses, expenses associated with sorting and recruiting projects, and expenses
associated with starting the projects on the path toward commercialisation.

94
The actual grant amounts to 100 per cent of recognised expenses.

Non-government support

The government support in establishing and operating the technological incubators is sustained, in many
instances, by the following organisations:

◊ The Jewish Agency, which has been involved in the technological incubators from the
beginning, contributes to the financing of the incubators mainly for housing, equipment and
commercial efforts. The Jewish Agency’s involvement is mainly in peripheral incubators
located in development areas as a part of its general effort to promote regional economic
development. The activity involves Jewish communities fostering incubators and
contributing professional advice and business networking abroad.
◊ Public organisations e.g. the World Zionist Organisation, The Joint and other public funds.
◊ Local authorities.
◊ Veteran Israeli industries.
◊ Research institutes.
◊ Private donors.

The Technological Incubator Program today

Funds allocated by the Office of the Chief Scientist

◊ 1991 - NIS 3 250 000

◊ 1992 - NIS 23 000 000

◊ 1993 - NIS 51 000 000

◊ 1994 - NIS 80 000 000 (US$ 26 million)

◊ 1995 - NIS 90 000 000 (US$ 30 million)

◊ 1996 - NIS 97 000 000 (US$ 32 million)

Incubators

Today, 27 incubators are operational throughout Israel, on the following locations: Jerusalem, Tel Aviv,
Haifa, Nesher, Beer Sheva, Sde Boker, Dimona, Ofakim, Gush Katif, Arad, Ashkelon, Kiryat Gat,
Kiryat Arba, Yavne, Nes Ziona, Netanya, Hadera, Ariel, the Jezre’el Valley, the Jordan Valley, Nazareth,
Gush Segev, Kiryat Yam, Katzrin and Kiryat Shmona.

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Projects

There are currently 200 projects operating within the 27 technological incubators. Half of them are based
on ideas brought by new immigrants. The average number of projects per incubator is 8, with the
maximum per incubator currently standing at 11.

Employees

Almost 800 professionals are employed on the projects’ staff. About 70 per cent of them are new
immigrants. 800 work on projects, which have graduated from the incubator. The majority of the staff
are scientists and engineers holding academic degrees.

R&D results

As of 31 August 1996, 280 projects have finished their stay in the incubators. Fifty-eight per cent
continue operating independently:
◊ 41 per cent produced a viable product and continue work with strategic partners and
additional investments. The investments range from US$ 100 000 to US$ 5 200 000.
◊ 17 per cent are at various stages of negotiations with potential strategic partners or investors,
or are continuing work via independent resources (sales, consulting work etc.).
◊ 42 per cent were suspended or closed.

Employment and training of immigrant professionals

During the incubator period, new immigrants receive training and guidance, from professional and
business aspects. They are exposed to the latest technological developments, in terms of methodology and
equipment. As the need arises, they are retrained. There is tremendous improvement in terms of
communication skills - both in Hebrew and in English. Experience shows that at the end of the incubator
period, the problem of unemployment among this sector is relatively small. In cases where projects were
shut down, the majority of the employees found employment in their respective fields, either in industry,
or in other projects, in the same incubator framework or with other incubators.

Admission

Presently the 27 incubators are capable of incorporating any new project, suitable for a technological
incubator.

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Further information

may be obtained from the Administration of the Technological Incubator Program: Tel: 972-3-5103941;
Fax: 972-3-5173734

Written information includes:

◊ an updated list of incubators; addresses and contacts in Hebrew and English;
◊ a brochure of regulations and procedures related to the technological incubators (in Hebrew);
◊ a brochure on the Technological Incubators Program (in Hebrew).

Note:

This summary includes R&D projects operating in the framework of the Technological Incubators
Program, and also information about projects, which have already graduated from the program but still are
getting certain support from the incubators.

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 KOREA’S SYSTEM AND POLICY TOWARDS TECHNOLOGY INCUBATORS

Dal Hwan Lee, S&T Policy Research Division,

Science and Technology Policy Institute (STEPI), Seoul, Korea

Definitions of Business Incubators (BI) and related concepts

What is an incubator?

As the incubators in medical institutions nurture and take care of prematurely born infants in controlled
conditions, the Business Incubator (BI) takes in newly-started small and medium-sized enterprises in their
infancy and helps them overcome difficulties and continue to survive, grow and develop.

BI and related concepts

In Korea, such concepts as Technology Incubator (TI), Technology Innovation Center (TIC), and
Technology Business Incubator (TBI) are quite similar to the Business Incubator.
◊ Business Incubators (BI): Universities, public research institutions, local governments, and
private institutions established BIs with the purpose of promoting and supporting small and
medium-sized enterprises. BIs host start-ups and provide various benefits and services. The
BI is a very effective way of achieving development goals both in the public and the private
sectors: it promotes the survival rate of newly started small and medium enterprises,
reinforces the application of technological innovations, creates new business and
employment, revitalises regional economies and the research functions of universities and
research institutes, and, finally, fosters technical manpower.
◊ Technology Incubators (TI): The TI’s main concern is to bolster the technological
development stage. It aims to complete technological ideas or technologies currently under
development. Specific activities by TIs include specialists sent as technological guides; joint
development; supporting and raising necessary funds; and the provision of support in using
machinery and related experiment/instrumentation equipment and computers. In some cases,
the TI provides facilities such as office and telegram/telephone equipment.
◊ Technology Innovation Centres (TIC): The TIC conducts research and development (R&D)
and technology innovation required by the industrial field, which aims to jointly invest
resources into university campuses or research institutions and achieve commercialisation
with support from business enterprises or public institutions. As a concept, the TIC is similar
to that of the Technology Park; and at the R&D stage to the TI.
◊ Technology Business Incubators (TBI): The TBI is a venture of universities, public research
institutes, local government, and private institutions to promote and bolster a new
technology-intensive enterprise. The TBI is different from the TI or TIC in that it supports
the commercialisation of previously developed technology; that is, the start-up activities of

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 an enterprise. It differs from general BIs in that it concerns technology-intensive or high-tech
business.

Types of BIs

By sponsors
◊ Public BIs: established by government or a local self-governing body with the purpose of
revitalising the economy, creating employment, and fostering local economy.
◊ University-affiliated BIs: Established by a university; contributes to the development of the
local community; increases independent power of the university by raising research funds
and utilising its benefits; rapidly commercialises the R&D results; practical location for
industry-university joint activities.
◊ Private BIs: Established by private enterprises in order to selectively support prospective
small and medium enterprises and to gain capital profits by ownership.
◊ Joint BIs by the private and the public: Established and operated by the private sector,
universities, and public institutions.

By typology
◊ University district BIs: Utilise the accumulated know-how and equipment of the university,
hence suitable for supporting high-tech industry; able to rapidly commercialise the research
results by the university.
◊ Urban BIs: Easy to use at various sites, buildings and equipment; BIs play an important role
in revitalising a stagnant local economy, especially in urban centres.
◊ Rural BIs: Though disadvantageous in that they are distant from much indirect capital, the
rural BIs have the advantage of being able to use resources indigenous to those regions; the
rural BI revitalises local economy of rural areas and increases income.

By participant business types

◊ Specified BIs: Take in, support and foster limited kinds of start-up companies; since the
space, common facilities and services required by industrial characteristics differ, it is
necessary to restrict tenants and have specialists to deal with their requirements.
◊ Non-specified BIs: Tenants can be any kind of enterprise in diverse industries; provide the
minimum common facilities such as office equipment; need professional executives with
average administrative capacity.

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By organisational structure
◊ Manager-initiated BIs: Consists of a manager and three or four staff members such as a
clerk, a receptionist/typist, and a secretary/receptionist; directly operates only in case of
common office works, services supports and general management affairs. As concerns
technology, equipment and administrative support, it connects tenants to outside institutions.
◊ Functionally specialised BIs: Organised by function with a manager and three or four unit
departments. If, for example, the departments of planning and management, operation
support, and administrative consultation are divided, the direct provision of services to
tenants will be diverse. Excessive manpower requirements, however, may cause budget
waste and bureaucratic inefficiency in operation. Japan usually takes this organisational
form.

General TBI model

TBIs have different characteristics according to the conditions, such as purpose and physical location.
However, in any TBI, the three basic elements of investor, operator, and tenant are essential. The three
elements can be described as follows:

Investor
◊ Starting point to the existence of the TBI.
◊ Provides the operator with funds for construction/rent of the building, equipment purchase
and operation. Commercial investors occasionally invest directly in a promising tenant
company.
◊ Public investors gain benefits on a more macro and national economy basis, which leads to
revitalising the economy and creating employment. Private investors own equity of
promising enterprises and later earn dividends as the stock price rises when the firm is listed.

Operator
◊ Conducts practical operations such as selecting, incubating, and graduating tenants with
financial support from the investor. Universities, research institutions or government
institutions often assume responsibility due to their non-profit status.
◊ Provides common facilities, administrative guides, and funding arrangements for tenant
companies but also receives paid rent and consultation fee.
◊ In general, the TBI manager assumes all the responsibilities and liabilities. It is essential to
appoint a person respected by the government and the fields of banking, science and
technology. A TBI manager should have administrative and technical abilities and
understand the characteristics of the start-up process and small and medium enterprises.

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Tenant
◊ Should be technology-intensive small and medium-sized enterprises which belong to the
high-tech industry, such as electronics, computer, software, genetic engineering,
mechatronics, and precision machinery.
◊ Admittance shall be limited to those enterprises who can contribute to the development of
national technology and economy and possess excellent technological capacity.
◊ Possess ability to take advantages such as administrative guidance, technological guidance,
fund arrangement and operational support. Tenant has a responsibility to pay rent, utilities,
and consultation fees to the operator but should also share part of the profit in cases where the
investor has provided the tenant with capital.

The above is summarised in Figure 1.

Figure 1. General TBI model

Operator

Administrative guide Rent Building

Technological guide Consultation fee Facilities
Fund arrangement Operating cost
Facilities

Revitalised economy, dividend

Tenant Investor
Direct investment

Source: Author.

The role of and need for TBIs

The role of TBI

◊ Minimises the operating costs of technological business starters through inexpensive rent and
common use of office machinery and conference rooms; increases the success rate of small
and medium enterprises in the early stages through diverse financial, information,
technological, and administrative support including administrative guidance, technological
guidance by university/research institute researchers, information exchange among tenants,
and venture capital arrangements.
◊ Contributes to the revitalisation of local economy: promotes the commercialisation of
technology innovations through support for technology-intensive small and medium-sized
enterprises.
◊ Compared to average BIs, TBIs characteristically contribute more to technological
development.

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The need for TBI establishment
◊ Due to the evasion of technology transfer and grant by advanced countries, more restrictive
intellectual property rights, and UR/GR/TR, the need for one’s own R&D increases.
◊ New technology-intensive business are needed more than ever to promptly commercialise
research results and to cope with international competition.
◊ On a national basis, it is necessary to anticipate restructuring of technology-intensive
industrial structure and the creation of employment while possessing international
competitiveness.
◊ By reactivating universities with research promotion and support for technology venture
creation, the TBI fosters the cultivation of highly qualified labour and research capacity on a
long-term basis.
◊ From a centralised development system, a shift to the revitalisation of local economy by
self-government is required. The TBI provides an important means for this kind of
decentralised development system.
◊ To survive international competition, it is necessary to build up technology development
systems on a national scale. Also, a system of co-operation through networking by the
leaders of decentralised local technology development is needed.

Impacts of (T)BIs

Advantages for the TBI tenant enterprises

◊ Reduction in the initial investment and operating costs through inexpensive rent and common
use of various equipment.
◊ The TBIs’ administrative, technological, information, and financial support and advice offset
the inexperience of new business founders, hence allowing them to concentrate on product
and market development.
◊ Tenant firms will reduce trial and error by sharing experiences and achieve synergies with
other TBI tenant companies through the common use of resources.

All of these advantages help reduce business and investment risks and the increase the possibility for
survival and success.

Advantages by investor types

◊ Public investors: The public (T)BI’s main purpose is to create employment and revitalise
local economy. Another important purpose is to diversify the local economy and secure the
economic base. Employment creation, revenue expansion, maximum use of the unemployed
equipment and resources, and revitalisation of stagnant local economy are major advantages
of public (T)BIs.
◊ University investors: Universities can provide outside businessmen with their research
results and commercialise them by establishing and operating (T)BIs. They will boost the
social contribution of the university by employing university space, technology, facilities,
and supporting small and medium enterprises. This will promote the outside notion that

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 university research can create commercially-viable technology and therefore may reinforce
research funding support from the outside. In addition, through the (T)BIs, universities
provide opportunities for professors, students, or their graduates to start up their own
business.
◊ Private investors: Private investors can commercially establish and operate (T)BIs and then
foster a subcontract business of their own. They can also intensively invest with less risk and
costs by selective admission of promising enterprises while revenues from rent will cover
some of the operating costs. The corporate social responsibility and corporate image will be
promoted.
◊ Joint investors (by private and public sectors): Joint investors can seek out more broad
ranging and flexible goals. They play a role in economic development with public welfare
aspects; but on the other hand they offer investment opportunities to private investors by
granting access to the government’s technology venture business creation programme, and
sometimes concentrate investment on certain high growth industries.

As discussed above, the establishment of (T)BIs can enhance the success rate of newly created small and
medium enterprises, and hence contribute to the development of local economy. In addition, it creates an
atmosphere that fosters business start-ups, and induces the commercialisation of research results. Another
effect of the (T)BI is that it vitalises technology-intensive venture businesses, therefore promoting high
level industrial structures and international competitiveness.

Problems in TBI implementation and policy considerations

Domestic/international conditions, differences for TBI implementation

◊ There is an important difference between Korea and other advanced countries (especially the
United States) as regards the 4Ms (Money, Manpower, Material and Management) which are
essential elements for research and venture creation. Therefore, it is necessary to take the
difference into account and make TBI establishment and operation planning accordingly.
◊ Foreign enterprises are very active and normally engaged in joint research with universities,
consigned research, and scholarship donation. However, Korean enterprises have relatively
low interest and contribution to these activities.
◊ In advanced countries, the concept of local development by organic interconnection among
research complexes, technology complexes and university campuses are general. In Korea,
technology complexes are usually independent and in most cases they have developed as
industrial complexes, which are business centres irrelevant to any university. Only recently
has there been a movement to synthesise and interconnect these complexes.
◊ In advanced countries, government, particularly local government, is enthusiastic about
technology innovations and technology venture through support for universities. In Korea,
support by central government is insubstantial and that by local government almost
non-existent.

Policy considerations and their implications for TBI implementation

◊ In advanced countries the frequency of disused building usage is fairly high, though this
differs by TBI types, and in most cases new buildings are used only to create research

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 complexes. On the other hand, Korea has high sites and construction costs, and few unused
buildings. Therefore, Korean alternatives are to use the unemployed buildings in universities
and to construct buildings with the sponsorship of outside institutions on the
university-owned sites.
◊ Funding for the operation and construction of TBIs is covered by outside support at the initial
stage. In Korea, some enterprises support universities, however, support from central and
local governments is still lacking. A considerable increase in policy funding is urgently
needed. In addition, it is desirable to make policy considerations so that the execution of
such funding in institutions such as the Small and Medium Industry Promotion Co-operation
and Production Technology Research Institute may be interconnected with TBI activities in
universities.
◊ TBI tenants shall be technology-intensive small and medium enterprises that will respond to
the technology innovation demand by industrial field. Also, technology venture funding
support for actual production shall be linked to the venture capital company.
◊ The TBI, by its nature, requires the active participation of various interested parties such as
universities, research institutes, banks, and government and local communities. For the
successful operation of the TBI, these parties should share deep understanding and co-operate
with each other.
◊ Currently, some Korean institutions, including the Ministries of Trade and Industry and of
Science and Technology, are operating or planning TBIs. Korea is now confronting the
problem of fostering specialists for its effective operation. Therefore, in order to activate
TBIs and promote their subsequent nation-wide diffusion, it is urgent that Korea develop
specialised programmes to foster TBI specialists.
◊ Support for TBIs can be obtained from government, technology/banking enterprises, local
self-governing bodies, or research institutions. The contents of support will require the new
building construction and operating cost support. The minimal support will consist of
operating costs and then the building for tenant enterprises.
◊ In the Taeduk Science Town in Korea, TBIs shall be established and operated within a
university (KAIST, Korea Advanced Institute of Science and Technology) for diverse
purposes. However, universities should operate and interconnect the TBIs to the government
sponsored institutions within Taeduk Science Town, and small and medium industry related
institutions such as The Small and Medium Industry Promotion Co-operation, Production
Technology Research Institute and Korea Productivity Center, and finally to the local
self-governing bodies.

Conclusion: essential factors for successful TBIs

◊ Competition and co-operation and coalition among nations and business enterprises is a
global trend which is critical to achieving international competitiveness. That is to say,
co-operation with universities is essential in technology development for corporate
international competition.

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◊ In Korea, much needs to be done to foster a positive attitude and culture towards
co-operation/coalition building. Therefore, co-operation between corporate LAC research
institutes and universities, or policy measures for promoting co-operation should be directed
accordingly. In particular, the role of government-sponsored research institutes in
technological support or providing testing equipment/machinery in TBIs is more crucial than
ever. Each government research institute should reduce ownership focused resource
mobilisation systems and build up usage focused ones.
◊ In Korea, TBIs can only survive in the specific environments offered by certain universities.
Government and local self-governing communities should provide support for those
universities on an experimental basis and expand according to the development of the
surroundings. Technology support institutions for small and medium industry in particular
should be more actively involved in technology development and venture creation supported
through universities.
◊ Most Korean universities suffer a lack of capacity for TBI activities due to insufficient
support. However, it is necessary to provide support and commitment as a university policy.
Professors and researchers in particular should be able to dedicate themselves to the
technology development support for domestic enterprises, most of which are encountering
difficulties in international competition.
◊ Finally, the following are major factors for the successful operation of TBIs, based on
examples in other OECD countries:
− financial support from government/local self-governing bodies;
− pooling imminent universities and technology venture founders;
− remarkable incubator managers;
− financing for tenant enterprises;
− selection standards for tenant enterprises (business opportunity, technology, personal
characteristics of the venture founder);
− consideration of the diversity of TBI patterns, to select a suitable model for Korean
climate (with considerations for cultural factors);
− considerations for marketing by TBI tenants are required.

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 TECHNOLOGY INCUBATORS IN RUSSIA AND CENTRAL AND EASTERN EUROPE

Katya Samsonova, Consultant

Introduction

The purpose of this paper is to present an account of some of the recent policy measures to encourage
small innovative and technology-based business creation in Russia and Central and Eastern European
countries. An attempt was made to look more closely at technology incubators and various financing
measures for technology-based firms in the recent years. However, insufficient information and the need
to account for many intervening factors, given the present economic situation in these countries, have
broadened the focus of this paper to include policies towards small business promotion in general.
Technology incubators have not yet become an important policy tool in Russia and other transition
economies, but in co-operation with the international community, steps have been taken to introduce
them into the framework of economic reforms.

As part of the economic and innovation infrastructure, incubators have multiple stakeholders and pursue
different objectives. In general, in the OECD countries four major categories of objectives have been
identified by previous research:

− Economic development: incubators promote the creation of new firms, and in the case of
technology incubators, technology-based firms. New firms create jobs, diversify the
industrial base, target depressed regions, build a link between public and private sectors,
provide an arena for addressing the problem of regional economic concerns. In each
particular case, incubators can take on additional unique economic objectives. In the case of
economies in transition, their unique function is to help utilise the huge idle potential of the
declining research base of the former state-run science and technology, and create a new
market structure of small innovative firms.

− Technology commercialisation: the benefits of the formation of the innovative belt around
the academic institutions are two-fold. Innovative centres allow technology developed in
such institutions to find immediate practical application. In turn, firms associated with the
research institutions increase their credibility, prestige and access to a pool of highly
qualified university faculty and graduates, libraries, databases and networks. In the case of
Russia and other countries in transition, incubators associated with large academic and
research organisations help identify potential technologies for commercialisation and co-
operation with foreign partners. The reputation and credibility that small dynamic start-ups
get from their internationally established hosts is a very important factor in the
intergovernmental co-operation programmes. The need to create databases and provide
training services also binds many new innovative centres with academic institutions.

− Property venture/real estate development: most technology incubators supply facilities at

below market rates, that translates into a real estate subsidy to small-firms unable to afford

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 adequate premises, but having otherwise good chances for survival. Incubators, especially
those located in science and technology parks, can also provide those parks with a source of
future tenants and maintain high occupancy rates. In the case of the Central and Eastern
European countries, there is a large mismatch between the stock of state facilities for
innovation and economic needs and financing abilities of the regions. Poorly functioning
property markets force many start-up firms to come up with unusual ways of utilising
external fixed assets. However, such ingenuity does not promote stability and transparency
of operations. Hence, an important role of incubators lies in creating a new explicit market
structure of established small businesses, working openly in the formal economy.

− Entrepreneurship: this objective is of major importance in eastern Germany, Russia and

Central and Eastern European countries, where the economies have been previously
dominated by large state-owned firms. Entrepreneurship is increasingly recognised as a
critical element in the process of innovation and the creation of technology-based firms.
While large firms may create spin-offs, there is some evidence that the growth of new
technology-based firms is associated with an increase in entrepreneurial activity. Incubators,
in particular those related to the universities can provide useful training ground for
entrepreneurs coming from the academic and research institutions, as well as for creating
skilled labour force for the local markets. Creating networks of similar firms, and
facilitating their links to investors is another valuable contribution of incubators to economic
growth.

Issues and policies in promoting small technology firms in Russia

Technology commercialisation

Science and technology in Russia is widely acknowledged to have a huge potential. Much of the scientific
knowledge, however, has not yet been commercialised nor even identified by domestic and foreign firms.
Foreign companies and investors who have tried to expand on the Russian technological market have
found it extremely difficult to identify and access commercially viable technologies and skills. The
United States government began working with the Russian government through the Science and
Technology Committee of the Gore-Chernomyrdin Commission on soliciting the views of US high-
technology industries, and their Russian counterparts on ways to improve technology commercialisation.
Given the range of issues and the role of governments in addressing the impediments to technology
commercialisation, companies report a need to regularly brief their governments and explore the potential
solutions to problems impeding technology commercialisation in Russia. Such briefings can also bring
together private firms with similar interests. The Gore-Chernomyrdin Commission acts as a forum for
such discussions.

Researchers trying to assess the commercial potential of Russia’s technologies face a number of obstacles.
Besides the lack of technical and legal information which inhibits the evaluation of technologies, it is
difficult to obtain credible information about research organisations and small start-ups budding within
them, as well as their areas of specialisation and expertise. According to surveys of US firms, even when
information is available, it is often too general for technical and business analyses.

US businesses have suggested the need for information products, such as databases, that would identify
the research centres and innovative companies by discipline, specialisation, and researcher. Education and
training about technology commercialisation could also have a strong positive impact. Education and
training are vital because Russia’s relative lack of commercial experience and the non-commercial

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orientation of Russian science leads to misperceptions about the nature of the commercialisation process
and the value of Russian technologies.

There are two sets of education and training issues: evaluating the commercial potential of technologies
and understanding the technology commercialisation process overall. Since research that is excellent
from a scientific or technical standpoint is often not commercially valuable, scientists need to understand
that a technology must not only be unique and excellent, it must also have an identifiable commercial
application and be financially practical to develop. Scientists must also be aware of international practices
regarding intellectual property rights, provision of samples, exclusivity, and other standard parts of the
technology transfer process. Short-term intensive training courses for scientists and the development of
Master’s programmes in Technology Management started by some Universities in Russia is a good start,
but cannot alone satisfy the high demand throughout the country.

Small business promotion

In European OECD countries about 70 per cent of all innovations are initiated and implemented by small
technology businesses (Rothwell, 1991). Most research institutions and universities have technologies
that need to be commercialised and small and medium enterprises are playing an important role in
providing a link between industry and university-produced research. At the same time, small companies
are capitalising on the facilities, libraries, databases, prestige, faculty and student body of the academic
and research institutions. In the case of the economies in transition, the state universities and state
research centres are experiencing severe financial difficulties following the restructuring of the academies
and government research institutes. Setting up or participating in small innovative businesses represents
one of the few ways for academic and research personnel to continue productive and dignified
professional existence. Needless to say, profitable innovative SMEs can help prevent imminent brain
drain and erosion of the domestic intellectual capital base by providing a viable alternative to employment
abroad.

In Russia a small business is defined as a self-employed group of individuals or as an individual,

organised into an entity, in which authorised capital of public sector bodies, charities, or businesses does
not exceed 25 per cent of ownership shares, and the average number of employees is generally between
30-100 employees and does not exceed 60 for scientific and technical firms in particular. As stated in the
Russian Federal Program of State Support to Small Businesses, the Russian government relies on small
businesses to create jobs, provide the Russian market with competitive products, to contribute to regional
development, to provide training for women, youth, handicapped, military people, and promote high
technology and innovative businesses.

A number of laws and decrees have been passed to create a favourable environment for small business
development in Russia: a Federal Law on State Support for Small Businesses in Russia, adopted in June
1995; a Presidential Decree to create the State Committee for the Support and Development of Small and
Medium-sized Businesses, signed in June, 1995; a Presidential Decree on Immediate Measures of State
Support for Small Businesses of the Russian Federation signed in April 1996; and a Federal Program of
State Support for Small Businesses for 1996-1997, adopted in December 1995.

Among the Program priorities the following are worth special mention: stimulation of investment
activities (risk capital funds, leasing development) and innovative and R&D business development. The
principal provisions of the Program are: transition from pilot projects to the comprehensive infrastructure
development of urban territories; greater emphasis on regional level programmes for funding; a shift from
direct SME project support to the establishment of guarantee funds for SME credit lines; transition from

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Federal funding to the principle of variety in funding sources; and linking SMEs to large corporations and
financial-industrial groups.

According to the initial plan, the cost of the Program was estimated at 883 billion roubles
(US$ 190 million) – 707 billion from the Federal Budget and the remainder from regional and non-budget
sources. A multiplier effect is expected to increase the number of SMEs by 1.5 to 2 times. Several other
Ministries are also supporting small firms through specific “sectoral” programmes: for example, the State
Committee on Industrial Policy is carrying out a programme on innovative business; the Ministry of
Economy is implementing a programme on engineering; the Government Commission on Science and
Technology is also working on these issues. All of them are dealing with different aspects of SME
development through these overlapping initiatives.

The State Committee for the Support and Development of Small and Medium-sized Business (GKRP),
created by a Presidential Decree in June 1995, plays a leading role in the implementation of the Federal
Program of State Support to the Small Businesses. It also co-ordinates and oversees the Federal Fund for
Small Business Support (tentatively: 1997- 200-250 billion roubles, data of US Embassy in Moscow) and
executes small business low interest credit programme in all regions of Russia. Policies and programs for
small businesses are, for the most part, realised at the regional or local level. By 1997, special
administrative bodies or funds designated for the support of small businesses have been created in 50 and
70 subjects of the Federation respectively. Regional SME support programmes began to develop before
the Federal Programs on the initiatives of the most dynamic regions. In December 1995, a law was
passed, “On a Simplified System of Taxation and Accounting Small Businesses” that allows such
businesses to pay only a single tax on their income. Apparently, however, problems at the regional level
in the registration and accounting procedures have prevented the vast majority of small businesses from
shifting to this system.

The State Committee also develops business relationships with similar organisations abroad to attract
foreign direct investment in Russian small businesses. For example, the US Small Business
Administration works closely with GKRP within the framework of the Gore-Chernomyrdin Commission,
including its Committee on Science and Technology.

The latest programme, “Main Guidelines for SME Development in Russia and Its Support till year 2000”
has been prepared on the basis of the 1996-97 SME support Program. The Guidelines focus upon the
stimulation of innovative and investment activities, and aim at developing technological entrepreneurship
in the formerly “closed” high technology cities such as Arzamas-16, Chelyabinsk-40 and Obninsk.

A network of small business support organisations was created in Russia over the last few years:
including GKRP itself, Chambers of Commerce, institutions funded by USAID – 8 regional centres,
144 units for technical support for small and medium-sized businesses, 19 business incubators, among
them a technology incubator in Moscow; 23 small business development agencies funded by the
European Union’s technical assistance for the CIS programme (TACIS), business training centres
(Morozov Project), regional information centres (funded by GKRP and federal/regional funds), and
federal employment centres.

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 Table 1. Trends in Small Business Development in the Russian Federation

In thousands
1992 1993 1994 1995 July 1, 1996 1996
Number of SMEs (end-year) 560.0 865 896.9 877.3 804.7 841.7
Number of workers (yearly average) 7076.7 8630 8479.9 8944.8 5619.0 6269.1

Source: OECD, 1997

Due to a new definition of a “small business” used in the data collection for 1996 in Table 1, these figures
are not strictly comparable to previous years. Although the trend in the second half of 1996 was
marginally positive, it nevertheless appears that the growth in small business creation and employment
slowed down significantly, and may have even stabilised since 1995, with jobs in official small businesses
standing at roughly 13 per cent of total employment. This can be compared to an average level of over
50 per cent in OECD and many other transition economies. Because of a large number of unregistered
SMEs operating in the Russian “shadow economy,” however, these numbers should be interpreted with
caution.

Box 1. Economic Statistics on Russian Small Business Development, as of January 1996

• 300 small businesses registered in Russia, and 1.5 million unregistered small traders;

• small businesses employ about 9 million people, that is 15 per cent of the working population;
• small businesses contributed 12 per cent of GDP and generated 20 per cent of the Russian exports in the first half
of 1996;
• Russian small businesses profits constitute 35 per cent of total Russian industry profits;
• approximately 35 per cent of Russian small businesses are offspring of the large Soviet enterprises, the other
65 per cent are newly founded businesses;
• small businesses constitute 60 per cent of all enterprises in Russia:
By industry, per cent:

Other
18%
Transport
2% Trade and
Science and services
technology 42%
6%

Industrial
production
15% Construction
17%

Source: Goskomstat, 1997.

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The creation of small businesses is crucial for the transformation to the market economy and the
democratisation of society, which is closely linked to privatisation. The economic transformation of the
former state sector, dominated by large firms, to achieve economic efficiency and private initiative can be
reached simultaneously by creating an enabling environment for new economic endeavours. For this
reason, the development of SMEs is intrinsically bound up with privatisation.

But the recent years appear to be associated with very difficult times for both registered and unregistered
small businesses in the Russian Federation. Surveys conducted in 1995 and 1996 found small businesses
increasingly frustrated and pessimistic, complaining of liquidity constraints, increasingly scarce bank
credit, high and unstable taxation, non-payment by customers, increases in the relative prices of energy
inputs and transportation, crime and corruption. Russian SMEs operate in a more difficult overall
environment than exists in many other transition economies. A recent comparative study found that it
takes, on average, four times as long to set up a new business in Russia as in Poland, and that such
businesses are subject to significantly more inspections and other cumbersome regulations. (Frye and
Shleifer, 1997).

Crime and corruption are particularly widespread in the SME sector. In a February 1996 survey,
supported by OECD, of 887 managers from Russian SMEs throughout the country, 57 and 50 per cent of
all managers, respectively, considered “extortion based upon threats of violence” and “extortion by
government officials” to be common occurrences. It was mentioned also that the local officials use legal
and semi-legal means of extortion, including the manipulation of 40 to 50 tax rates and deductions, and
common pressures to make various “voluntary” contributions to municipal funds.

The prime importance of policies at the regional and local levels for small businesses is reflected in a
highly uneven development and geographic distribution of small firms throughout the country. According
to Goskomstat, the Russian State Committee on Statistics, the city of Moscow accounted for 22 per cent
of all small businesses and 19 per cent of small business employment as of 1 January 1997. The
corresponding numbers for Saint Petersburg are 10 and 6 per cent respectively. By contrast, 28 regions of
the Federation each have less than 4 000 (0.5 per cent of the total) registered small businesses of their
territories (OECD, 1997a).

In the sphere of technological innovation the process of privatisation and setting up small high-tech
companies is complicated by the difficulty of privatising the inventories of technological capital, that is
usually referred to as defining intellectual property rights in the post-communist economies. One of the
consequences of weak intellectual property rights for technology commercialisation in Russia is apparent
immediately. On one hand, many start-ups face downward instability and even danger of disintegration,
due to potential heavy losses in sales. On the other hand, the same missing link in the legislation appears
to be a way to cut costs for many innovative firms: generally smaller markets, higher risks and difficulties
in sales promotion, make the participation of inventor or designer indispensable for successfully launching
products, and the need to have secured rights less pressing. Expenditures involved in securing intellectual
property rights are considered unacceptable by many current managers of small technological firms. But
it is obvious, that further delay in establishing a stable regime of intellectual property rights protection due
the economic consideration mentioned above will hinder the development of small innovative companies
in the long run.

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Innovative and venture businesses are not registered in the official statistics. Some rough estimates show
that about 40 000 innovative firms with 200-300 workers are now functioning in Russia. The sector of
dealing with skilled scientific services in the fields of engineering, leasing, consulting is estimated to
count about 3-4 000 firms and 20-30 000 workers, that constituted about 2.6 of total full-time employment
in 1995.

Financing technology-based firms: the potential of venture capital and technology incubators

Given the economic situation in Russia, applied research experienced a dramatic decrease in state
financing. Most industrial enterprises are dealing exclusively with short-term problems of financing their
immediate survival and have neither the interest nor the means to pour resources into R&D. Neither do
they have the necessary experience in strategic risk management. Many organisations suffer from broken
links with the old partners in the former republics. Both industry and research institutions need to re-
establish the old and create new efficient networks for regional co-operation, based on market principles.
In these circumstances business and technology incubators, especially in their virtual form of “incubator
without walls”, could serve as a cost-effective way to help newly created firms grow, as well as generating
network externalities among firms linked via computer and telecommunications networks.

Similarly, the experience of OECD countries with the public support for venture capital, especially in the
context of underdeveloped private markets, can be useful at this stage of Russia’s economic development.
The Russian government has put forward an initiative to set up a venture fund by January 1998. OECD
countries employ three main types of government programmes: 1) direct supply of capital to venture
firms and small firms; 2) financial incentives for investing in venture capital funds or small firms; and
3) regulations, controlling types of venture capital investors.

The first type of scheme involves the greatest risk. Here capital is provided as equity investments and
low-interest loans. The number of such programmes is increasing in the OECD countries. However,
financial incentives are more widely used and are intended to stimulate private sector investment. They
take the form of tax credits or deductions, loan guarantees taken out by small firms or venture funds.

The venture capital challenges confronting Russia and other economies in transition are significantly
greater than those in most OECD countries. Industries in these countries are characterised by a top-heavy
business structure and an underdeveloped small and medium enterprise sector. Some aspects of the
banking system and capital markets remain underdeveloped and there is often a weak business culture.
Fiscal constraints make funding for public programmes difficult. However, most governments are taking
steps to address the lack of venture capital. For example, Hungary has enacted a new law to expand the
supply of venture capital. In this context, technology incubators are viewed as a useful link in the system
of venture financing. Managing a large number of small projects can be costly for venture funds, while an
incubator can offer a consolidated package of preselected projects. The management team of an incubator
can be delegated some of the responsibilities in handling the oversight of venture capital financing. At the
same time, the venture fund is expected to allocate a share of its resources to financing incubator
companies at preferred rates.

Prior to 1993 there was no institutional framework or functioning mechanism for providing state financial
support to small enterprises in Russia. The situation changed when a number of foundations were created
for SME support. The Foundation of Enterprise Support and Competition Development created in 1993,
provided low interest loans as its main funding scheme. Direct subsidies were to be avoided and risk
capital funds were developed. By mid-1995 the practice of direct project funding had almost disappeared.
The major resources were to be directed to initiate special credit lines, piloted in the “Garantia”

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programme in the Moscow and Tula regions. Federal Funds contributed 40-50 per cent to the risk capital
funds. Risk capital funds are accumulated by the Foundation. The resources are placed into the most
reliable instruments (mainly state securities), and reliable banks are selected for the programme. Small
enterprise management submits a set of documents to a commercial bank in the region. After reaching a
provisional agreement they apply to the regional SME Support Foundation for the loan guarantees or/and
partial interest rate compensation. These funds are given to those who are able to back the loan at 30 per
cent with their own assets.

In February 1994 the government of the Russian Federation created the Fund for Assistance to Small
Innovative Enterprises. Since its creation, some 1 800 business proposals for funding were submitted by
small innovative enterprises, 560 of which have obtained the Fund’s support and which totalled
134 billion roubles. The Fund accepted projects covering more than 50 regions in Russia.

Given the economic circumstances in Russia today, the Fund is not trying to “actively” manage
technological innovations; that is, it does not determine commercialisation priorities for the innovative
firms, nor does it influence their organisational structure and financial behaviour through different types
of development support. Instead, the Fund focuses its efforts on searching for and selecting firms that
have already entered the market for high-tech products. It “passively” manages those firms that have
designed the product and have secured intellectual property rights on it, embarked on commercial
manufacturing of the product, and have managed to find prospective customers.

The Fund can only work with legal entities, rather than individuals, and provide credit facilities instead of
investing in the businesses. The Fund’s long-term goals are to develop a system of the most efficient
methods of supporting small innovative businesses in Russia and ensure a gradual transition from the
passive to active management of technology commercialisation.

At present the Russian market for technological products demands only non capital-intensive products,
and small innovative companies only survive if they find niche markets, mainly in the following
industries: pharmaceuticals; medical equipment and materials; construction materials; safety, control and
diagnostic instruments and systems; technology for environmental control; computer software; food
products, and household appliances. Advertising in specialised publications and participation in technical
shows are the main mechanisms for promoting such products in the marketplace.

Small technology firms in Russia fall into two roughly equal groups according to the extent they make use
of their own funds for technology commercialisation. The first group uses external financing, the
premises and equipment of factories and institutions of the Russian Academy of Sciences, Ministry of
Education and associated industries. Their own activity is limited to the design, assembly and
modification of the final product and mechanisms of swap transactions.

The second group of firms has learned that cutting production costs by avoiding taxes on assets leads to
the firm’s instability, its low appeal to investors and problems in copyright protection. Such companies
acquire fixed assets, either by taking up premises for manufacturing development, or accepting premises
and equipment as part of the authorised capital stock contribution from their cofounders.

According to Mr. Bortnik, the general director of the Fund, the conditions for the transition from passive
to active technology management in Russia already exist. To better capitalise on the world experience
and the existing stock of management skills applicable to Russian markets, there is an urgent need to set
up a system of business consulting for small technology-intensive firms. A wide network of technology
consulting firms and business/technology incubators should be put in place, with or without international
assistance.

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International funding

In the interim period, transition economies are obtaining funding for such initiatives from international
organisations, such as the European Bank for Reconstruction and Development (EBRD), the Eurasia
Foundation, and the Enterprise Funds. The European Union’s PHARE program provides early-stage
funding for Central and Eastern Europe and its TACIS programme offers similar funding for the former
Soviet Union. As these countries are trying to attract private finance, they may also tap into emigrant
communities abroad. For example, an important source of venture capital funding in Poland has been the
Polish American Enterprise Fund. Along with the money such investments brings comes valuable know-
how for building the business community and raising the standards of the financial system. Foreign banks
and organisations that are providing lending in this region state that training and building capacity with
their local partner is the single most important factor that determines the success or failure of these
lending programs.

International programmes that target SMEs in Russia are quite numerous: 156 SME support programmes
had been funded by international institutions in Russia as of October 1995. These technical and financial
assistance programmes were carried out by 53 donors including governments and international financial
organisations. Germany alone sponsored 170 projects worth DM 75 million, 60 per cent of which related
to the SME support. TACIS began its support of the SMEs regional agencies network in 1992.

The EU Commission began a number of SME support projects in Russia in 1992. The following list gives
an idea of the kinds of projects that were in effect in 1995: Support of the network of SME Development
Agencies (24 months, US$ 4 million); Support for SME Development Agencies and the Business
Communication Centres in Moscow and St. Petersburg (12 months, US$ 900 000), Resource Centre for
the network of SME Development Agencies (24 months, US$ 2 million); Joint Opportunities Programme
24-36 months, US$ 2.6 million); Joint Venture Opportunity Programme (24-36 months, US$ 3.9 million);
Organisation of a “Partnership” for the NIS (24 months, US$ 1.8 million).

The USAID started an SME programme in September 1993 with funding of US$ 40 million, allocated for
four years. In total USAID provided US$ 76.2 million for the Entrepreneurship Development Program in
Russia in 1993-1995.

The EBRD established the Foundation for Small Business Support with resources of US$ 303 million. In
1993, the EBRD launched the “Small Business Find Pilot and Extended Pilot” in Tula, Nizhniy Novgorod
and Tomsk regions. Each year the programme is extended to include new regions. Other EBRD
programmes aim to encourage the development of regional Venture Funds, and micro-credit systems. The
latter grant loans of US$ 20-30 000 to enterprises with 20 employed workers or less for a period of
6 months.

The Know-How Fund (KHF) has been active in SME support and development since 1990. It offers
advisory, training and support services through contracted British consultants. Among others, the fund
offers assistance to eight Russian Technoparks, jointly funded by TACIS. Other similar programmes have
been initiated by Germany, Switzerland, Japan, Sweden, the Eurasia Foundation, and the Russian
American Investment Fund. However, one of the most controversial issues concerns the sustainability of
international assistance programmes, e.g. whether SME development agencies in Russia will survive after
international donors stop supporting them. International institutions are careful to avoid the Moscow city
area, which is more complicated to operate in, in favour of regional projects which often concentrate in
the same areas. By and large, the actions of international donors tend to be poorly co-ordinated and there
is a lack of continuity between different programmes and stages of the same project.

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New infrastructure for innovation

In Russia there are three major groups of institutions for promoting innovation: technology parks,
innovation centres, and business/technology incubators. They differ not only by the declared mission, but
also by the time period in which the underlying concept was put into practice. The concept of technology
parks was the earliest to appear at a time of large state support for science and “research giantism”
(large-scale scientific research). Business and technology incubators, linked to higher education and
research institutions, as well as to specific industrial and technological clusters are a much more recent
phenomenon, being brought to Russia from the West, where they have proved themselves as important
tools of technology and innovation policies. Innovation centres are even more recent. They resulted from
the appearance of a wide range of small firms which have succeeded to achieve relatively large and stable
sales and are looking for adequate office space and transparency in their operations.

According to Professor Nina Fonstein, executive director of the International Business Technology
Incubator (IBTI), one of the Russia’s three exclusively “technology” incubators, the country still lacks
another important component of the infrastructure for a developed innovation system: institutions that
exclusively work on helping firms in the management of science of technology, that can conduct analyses
of domestic and foreign experiences, publish the results and organise conferences, and carry out consistent
monitoring of the development and practices of small innovative companies.

Technology parks

Long established in the West, the technology parks phenomenon in Russia dates only from the pre-
perestroika days when the notion of technology parks first appeared in 1988 in a paper published in a
Russian scientific journal. Moscow University was the first institution to experiment with the concept and
St. Petersburg followed shortly thereafter. Around 50 technoparks were created under the auspices of the
Ministry of Education but 90 per cent of them never really took off the ground to reach the stage of a
developed institution. In 1991 a drop in government financing and changing social priorities forced most
of the projects to remain in the planning stage or experience severe financial difficulties. Currently about
26 technoparks are in operation (see Annex). Most of them provide services similar to those of other
institutions for supporting innovative firms (i.e. innovation centres, technology incubators) which makes it
difficult to differentiate between them. In general, Russian technology parks:

− Provide start-up innovative firms with office space at a below the market rate for a limited
time. The space is usually allocated at the business incubator of the given technopark. If the
firm survives, it graduates to become a client of an innovation centre which usually hosts
small companies that have proven their self-sufficiency.

− Provide firms with consulting services such as auditing, business plan drafting, assistance in
raising funding and networking with other firms. Support is also provided for office services
such as access to electronic networks (e.g the Internet), etc.

A good example is St. Petersburg State Electrotechnical University that leads and co-ordinates a number
of national research programmes: Scientific Instrumentation, Technology Transfer, High Technology
Products, Forecasting of Emergencies, Small land Medium Enterprises Incubation and others. The
university maintains close links to many research institutions and industrial companies in Russia and
abroad, and plays an active role in the numerous science and technology business spin-offs and
incubators. The ETU technopark seems to act as a host for a technology incubator – by bringing various

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companies and projects in a single building complex, located on campus, and offering its members basic
business services, financial investment and training.

Other similar organisations in St.-Petersburg include the Baltic International Technopark and the
St. Petersburg Cybernetics Technolopolis, which focus on the areas of computer integration and
automation, information network and databases, training for experts, and provide assistance in finding a
commercial Western partner and other sources of financing.

Business Innovation Centres

Contrary to technology parks, business innovation centres (BICs) are a more recent development. The
BICs’ goal is to be self-sufficient and help new firms commercialise viable technologies. Innovation
centres are being set up in the wake of the emergence of a number of small innovative companies with
large and steady sales. Most of them, however, lack adequate office space or their landlords cannot
guarantee them stable, reliable and modern facilities. Such firms seek to relocate to premises that would
be long-term and convenient enough, but affordable. They re-locate in the innovation centres, because in
spite of their sales, they are still unable to rent modern office and production space directly or invest in
refurbishing old buildings. The firms are also looking to make their operations more open to public
scrutiny and regulation. Locating within the innovation centre is often considered an important
commitment to transparency in their further development.

Innovation centres take applications from the independent self-sustaining companies and can be
physically located within technology parks. Candidates are required to show a good record of sales from
the previous years, and secured intellectual property rights on their products. They are essentially
provided with a soft loan for up to 10 years, and in return are expected to guarantee enough steady cash
flow to cover monthly utilities expenses. The reconstruction of space in the innovation centre is tailored
for previously selected companies and every possible effort is made to guarantee stable long-term
agreements for holding office space (for list of BICs see Annex).

Business and technology incubators

Policy makers in Russia are generally aware of technology incubators and their role in technology
commercialisation. The need is often voiced to orient more existing business incubators to launching
innovative companies. For comparison, according to a US survey by the National Association of Business
Incubators, technology-based firms account for about 22 per cent of incubator clients.

Russian business and technology incubators have as their main aim to stimulate industrial restructuring by
way of creating a wide range of small and medium firms. They absorb excessive labour force from
bankrupt or downsizing former state enterprises, and create a new class of entrepreneurs. It is well
understood that business incubators can reduce the risk of starting up a company or making an investment
in a new company, create an enabling professional environment for businesses at the beginning of their
learning curve. In the current economic climate in Russia, re-establishing broken commercial links and
developing new regional markets is seen as another main goal of business incubators. Recently a National
Association of Business Incubators (NSBI) was created in Russia in order to facilitate the exchange of
information and experience. Twenty-two organisations were among the founders of this Association
which brings together successful incubators from the most western parts of Russia to eastern Siberia (see
Annex).

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As of this date, however, there are only three organisations in Russia that can be classified as exclusive
technology incubators: International Business and Technology Incubator (IBTI) in Moscow, one in
Nizhnyi Novgorod, and another one in Tomsk, created with the assistance of IBTI. All these incubators
are “virtual” incubators or incubators without walls. The traditional type of incubators do not easily
accommodate the economic and political realities of Russia today. In order to stabilise the economy by
building business bases in various regions of the country, it is important that key scientists and technical
personnel remain in their present laboratories and institutes. The large number of firms attempting to
establish themselves, usually still inside the parent organisation, and intricacies of their selection, warrant
the creation of “virtual” incubators. These incubators are also seen as a cheaper alternative to building
costly physical facilities in the current unstable economic environment. The IBTI has offered tutelage
over three more prospective regional incubators, but so far the Federal government has not allocated
funding for this project. Some regional authorities have volunteered to share the financing burden, but no
action has been taken yet.

Case study: International Business and Technology Incubator (IBTI)

In order to maintain this type of decentralisation of technical activities and still provide administrative and
financial support as well as business training, a first “virtual” incubator was funded under a multi-year
grant from the US Agency for International Development (USAID). The resulting initiative, called the
International Business and Technology Incubator (IBTI), is presently located in Moscow on the grounds
of the Academy of National Economy (ANE), Russia’s leading graduate business school. The IBTI is
managed and operated by Atlas Group. Inc (AG) under a sub-contract from the Virginia Polytechnic
Institute and State University (VPI).

The IBTI’s original charter uses part of the USAID grant to fund selected technology projects submitted
by the entrepreneurial Russian research institutions and individual scientists and engineers and to support
private technology-oriented enterprise development. Through demonstrated performance, the IBTI has
gained recognition from various outside sources, including the Russian government, who have also
committed to provide additional funding and loan guarantees to a number of IBTI-approved projects.
Virginia Polytechnic Institute and State University is the prime contractor under the USAID grant. In this
capacity, the Institute provides administrative oversight and selected technical consulting services to the
programme.

Atlas Group, Inc. is acting through its corporate headquarters in the suburbs of Washington, DC, and has
overall IBTI technical and operational responsibility. Atlas established its operations in Russia in 1991
and has five offices in Moscow and Krasnodar. The company’s management of IBTI operations includes
the Moscow-based physical facility as well as the professional and support staff. This staff establishes
and implements the methods and procedures for proposal solicitation, evaluation, and sub-grant award
recommendation. Experts in specific technical or scientific disciplines augment the IBTI staff when such
expertise is needed.

Felix Technology International, Inc. (FTI) is an American-owned affiliate of Atlas Group. The FTI’s staff
assists in evaluating the business potential of candidate projects and seeks to form joint ventures and other
joint business arrangements with US industry partners and outside funding sources. On the Russian side,
the Academy of National Economy hosts the IBTI facility and administers the business development
training component of the programme. Curricula and training material are developed jointly between
ANE and VPI. The instructional faculty is composed of recognised US and Russian leaders in their
respective fields of specialization.

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The IBTI activities are carried out in both the US and Russia. The US effort concentrates on proposal
review, project selection, business planing and assistance, and serves as a liaison with US industry. The
Russian effort centres around the establishment and operation of the IBTI. This unit is staffed entirely by
Russian personnel, working under the direction of Nina Fonstein, the IBTI Executive Director.

Requests for innovative projects that can lead to the formation of small businesses within the Russian
Federation are solicited through mailings, advertisements in professional publications, and media
publicity. Direct contacts with the Russian Government agencies responsible for science and technology
also play an important role in generating selected projects.

Applications for funding support are reviewed by members of the IBTI professional staff who make a
preliminary determination of technical feasibility and practicality, market potential, investment
requirement, and potential profitability. The screening process eliminates proposals that are of no interest,
flags areas lacking sufficient information, and identifies potential candidates for support funding.

Successful candidate proposals are then analysed in detail. Technical feasibility and viability are verified
by technical experts in the field. Marketability is confirmed through analysis of demand, competition, and
niche availability, in both domestic and foreign markets. Financial analysis of cost, investment
projections, and such key parameters as return on investment, profitability, cash flow, etc., are performed
concurrently. The results of these projections are then utilised in the review of the submitted business
plan.

Candidate project applicants gain their business planning skills by attending an intensive business
development training programme at the Academy of National Economy. Funding for development and
delivery of these courses is included in the USAID grant. IBTI also conducts similar courses for outside
groups of Russian engineers, as well as representatives of government, banks and industry. The revenue
received from this initiative is used to support and expand IBTI activities.

Upon completion of the above analyses, a “due diligence” investigation of the potential recipient of IBTI
funding is conducted. This process is supervised by Russian-born US citizens with experience regarding
such issues as ownership, privatisation, financial audits, cost realism, personnel qualifications, and
adequacy of facilities.

Proposed projects that remain attractive after undergoing these analyses are presented to an IBTI senior
management panel for review and approval of recommendations. Those that are approved are then
authorised to receive support funding. Whenever possible, support finding is provided in the form of
low-interest loans at attractive interest rates or small grants. IBTI also makes direct equity investments in
projects that warrant such action.

The IBTI recognised from the outset that the funding support capacity and authority embodied in the
USAID grant is, at best, “seed money” that must be supplemented in order for most projects to mature into
viable business entities. As a result, IBTI initiates searches for additional foreign and domestic funding
and/or US industry partners for possible joint ventures. IBTI attempts to apply Russian matching funds to
critical stages of projects at the level of feasibility verification, proof of concept, or prototype
manufacturing. The Western funds are usually introduced as the second level of financing. Identification
of such financial support is the responsibility of Fenix Technology International.

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 Box 2. IBTI activities as of June 1997

Currently the IBTI Incubator has a portfolio of 400 research projects which were reviewed and assessed for their
technical novelty and commercial potential. As a result 25 projects have been selected for funding. Each project has
been supplied with seed funding of $25 000. To supplement the seed money, the IBTI has raised additional funds in
the form of equity financing form the Federal Fund for Assistance to Small Innovative Firms.

Eight of the 11 completed projects have already been launched in the market, and some have already started making
profits. These projects are expected to bring returns of about 40 million US dollars (based on business plans
developed jointly with US partners), provided there will be a flow of future investment of 5 million US dollars.

The IBTI is soliciting and receiving proposals from all regions of the Russian Federation. A wide variety
of candidate projects are evaluated and considered for support funding since few restrictions on
technology and its implications are imposed. The IBTI plans to expand interaction with geographically
dispersed incubators. Such incubators are intended to serve the needs of specific regions and
municipalities within the Russian Federation. The formation of these incubators is driven by the character
of existing facilities and available manpower skills that can survive and grow in a free market economy.
The IBTI is being developed into a replicable model to be utilised for the development of regional
incubators like the one in Tomsk.

The IBTI also promotes the development of industry-specific incubators. Such incubators are intended to
serve the needs of a particular segment of industry or government, which may or may not be targeted for
privatisation. In some technologies it is possible that a two-way transfer of technology can be achieved.
The IBTI provides oversight and guidance for these incubators as they are formed. The IBTI operations
augment ongoing business incubators with the technical procedures and expertise that are missing or
inadequate in their current business-oriented support services. These are exemplified by some of the
business incubators established under USAID grants in various cities within the Russian Federation (see
below - the Morozov Project).

The founders of IBTI believe that while each of these incubators is established to meet a narrower set of
objectives, the methodology and infrastructure developed for IBTI can be transferred and scaled to the
specific requirements of each such client incubator. To reduce cost and provide ready access to technical
speciality experts, it is planned for the IBTI will be the hub of a distributed incubator network. In this
capacity, the IBTI provides expert evaluations of candidate projects and funding recommendations.

Spillovers between the development of business and technology incubators: the Morozov Project

As mentioned above, the IBTI shares its expertise and procedures with incubators that are not necessarily
concerned with promoting technology firms. The main example in this case is the so called Morozov
project – a network of business incubators headquartered in Moscow, with pilot incubators in Tula,
Orekhovo-Zuevo, Borovichi, Voronezh, Samara and Perm. The project resulted from the USAID funded
participant training programme for business training centres’ directors in San Diego, USA in 1994. Each
business incubator reflects the specific economic realities of its region, such as military conversion, high
technology, agriculture or food processing.

The Morozov project is closely linked to the Austin Technology Incubator (ATI) in the US which
provides potential incubator managers with the tools and support to initiate incubator programmes in their
communities through participation in training programmes sponsored by the ATI. Participants learn about
development of strategic alliances, tenant recruitment and evaluation, facilities management, and the

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services sector, such as shared resources, consulting, security. The ATI also assists in development of
incubator operations manuals and on-site consulting.

Although most of the business incubators foster non-technology entrepreneurship, the spillover effects are
significant. While technology incubators, like the IBTI share their practices with the general business
incubators, they themselves indirectly create demand for new small technology firms to provide high-tech
products which help develop the business infrastructure. Thus, with the help of Borovichi, a town
implementing Morozov’s business incubator programme, the city of Novgorod set up a small telephone
company to compete with the state enterprise that had a monopoly on the local telephone service. That
led to lower prices and better phone coverage for the residents of the city, as well as improved quality of
the phone service for the Novgorod Business Park, which, among other businesses, hosts a company that
manufactures television sets. The new small private telecommunications company, which produces
digital telephones had to submit a business plan for the business incubator competition at Borovechi
incubator. At the time it already had 20 clients. Today the company not only competes against
Novgorod’s former state monopoly, it is also making a profit. Such spillover effects on the local economy
resulting from co-operation between business incubators with technology firms, and technology
incubators with private businesses, are filling the gaps in the developing infrastructure for private markets.

Experience from Poland, Hungary, and the Czech and Slovak Republics

Business Innovation Centres and Innovation Relay Centres

The German Association of Technology and Business Incubation Centres (ADT) plays a co-ordinating
role in maintaining the network of innovation centres in Central and Eastern Europe defined as “an
infrastructure-based venture for the establishment and growth of firms”. Related goals include the
development of innovation in the region, co-operation between researchers and industry; provision of
information and technical and management training; and strengthening regional economic development
through regional and international networks for information exchange and co-operation between firms.

Europe now has over 1 000 business incubation centres and technology parks, that are united into
NICE - Networks of Innovation Centres in Europe. The network includes both regional and national
networks, as well as cross-border and international networks. Germany’s network of technology and
business incubation is the largest national network in Europe. This fact, and the country’s central
European location, and its experience in German reunification gives Germany a special role in shaping
co-operation in this field.

In the framework of its TRANSFORM consulting programme, through the Association of Technology and
Business Incubation Centres, the federal government is supporting 6 pilot projects for establishment of
technology centres and business incubators in Eastern Europe, including centres in Russia (Vladimir),
Poland (Gdansk), Belarus (Mogilev), Ukraine (Saporozhje) and Latvia (Riga) and a new project is
underway in Lithuania (Kaunas).

Another group of relevant organisations is the network of Fellow Member of Innovation Relay Centres
(FEMIRCs) of the Central and Eastern European countries. It consists of ten centres, many of which
involve several local partners. The FEMIRCs began a two year operation on 1 January 1997. Each
FEMIRC is paired with an EU Innovation Relay Centre. Poland, Hungary, and the Czech and Slovak
Republics each participate in this network (see Annex).

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The main objective of the FEMIRC is to contribute to the integration of the CEEC with the European
Union by exploiting and developing their industrial potential and by establishing an infrastructure for
information and advice on technology transfer and on Community Research and Technological
Development (RTD) activities which will facilitate the participation of organisations from CEEC in
Community RTD programmemes. Each FEMIRC plays an important role as it is expected to become the
focal point for information, advice and co-ordination in the geographical area it covers. The relay centres
work closely with the national authorities responsible for R&D and industry.

In order to achieve their objectives, the network of FEMIRCs offer their clients the following services:

− information and advice on community RTD activities: electronic networking and databases;
assistance in the submission of proposals to Community RTD programmes and search for
partners, e.g. guidance/advice to local clients for identifying opportunities in Community
programmes; information to interested organisations in the EU on the RTD potential of
organisations in the geographical area covered;

− technology transfer and innovation tasks: awareness actions on innovation, such as

seminars, conferences, publication of targeted newsletters and brochures, company visits,
etc.; assistance on issues like intellectual property and integration of new technologies;
training in technology marketing, locally and in the local language; assisting local
companies in the definition of their technology requirements, in the identification of external
technology suppliers and in the absorption of new technologies (e.g. company visits,
technical audits, development of databases after the requirements of local companies,
organisation of workshops, seminars, partnering events, participation in exhibitions, direct
contact with SMEs and other pertinent players, publication of technology opportunities in
relevant media).

Poland

Like other countries in central and eastern Europe, Poland has established business and technology
incubators, sometimes in co-operation with international support, as a means to support industrial
restructuring and provide research personnel with assistance in starting a business. In addition to small
business creation, a main goal of incubators in Poland is to increase university-industry relations as
illustrated by the establishment of an incubator at the Warsaw Technical University in 1990 and the New
Technology Centre (Table 2). Germany is currently sponsoring the establishment of an incubator in
Gdansk as part of its TRANSFORM programme. The OECD, Review of National Science and
Technology Policy, Poland 1995, found that the short-term impact of incubators had been relatively weak.
Efforts are underway to improve the planning of incubators and raise the quality of services provided to
tenant firms as well as exchange experience among Polish Incubators.

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 Table 2. Incubators and technology transfer centres in Poland

Incubator Type of activity

Enterprise Development Centre at the Warsaw University Setting up small enterprises, availability of premises,
of Technology technical and information services
Incubator Foundation Setting up small enterprises, transfer of technology from
Lodz Centre of Technology Transfer university to practice
Wroclaw Centre of Technology Transfer of technology from university to industry
at the Technical University in Wroclaw
Centre of Technology Transfer Setting up new enterprises, development of advanced
at the “MARR” Agency of Regional Development technologies in the region, restructuring of industry
Centre of Technology Transfer in Gdansk Setting up new small enterprises, transfer of technology
from university to industry
High Technology Park in Poznan Setting up new small enterprises, transfer of technology
from university to industry
Business Incubator in Starachowice Regional restructuring of industry, providing new jobs
Agency of Regional Development
Regional Development Association Providing new jobs
New Technology Centre in Warsaw Transfer of technology from university to industry

Source: Wlosinski (1997).

Hungary

Hungary believes that its science and technology parks should play the leading role in the industrial
restructuring, solving its employment problems, commercialisation of technologies that would meet
European standards, and creation of adequate infrastructure and training facilities. The Hungarian
government promotes growth of the science and technology parks with grants and interest-free loans from
its economic development funds. These funds support the infrastructure for investments and export
marketing. The government also grants corporate tax exemption and facilitates authorisation of new
projects. The local municipalities give industrial parks located on their territories temporary tax breaks.

Other networks of innovative firms in Hungary include the Entrepreneurial Incubators Association and
Hungarian Association for Innovation. The latter has provided a list of institutions that it considers to be
proper technology incubators: Industrial Technology Centre (Budapest), INNOSTART National and
Innovation Centre (Budapest), Science and Technology Park (Debrecen), INNOTECH (Budapest), Central
Research Institute for Physics (Budapest), TALENT (Szeged), Regional Innovation Centre of Veszprem
(Veszprem), Innovation and Technology Transfer Centre of Miskolc, Innonet Innovation and
Technological Centre (Gyor).

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Czech Republic

In 1990 The Czech Republic established its Society of Science and Technology Parks (SSTP) at the
Ministry of the Interior. Members of the Society aim at speeding up the implementation of innovations in
manufacturing, technology and services, and turning the STPs into an efficient tool of structural changes
in the regions, in active employment policy and the creation of small and medium-sized enterprises. The
Society proclaimed the following goals:

− to establish high quality facilities for activities of technologically oriented small and
medium-sized innovation companies;

− to accommodate the technology transfer in the broadest sense of the word both on the Czech
and international markets;

− to develop educational and training activities aimed at technical creative work and
innovation entrepreneurship.

The SSTP regroups three types of institutions for promoting technology and innovative firms: science
parks, technology parks, business and innovation centres. They are operated by the R&D institutes, urban
authorities, district labour offices, industrial and commercial organisations. Many of them are being
started in the border regions, funded by PHARE and other similar programmes. The usual selection of
services offered includes: assistance in designing business plans, technological, legal, patent and
marketing advisory service, training courses and a standard set of technical and office services, such as
telephone, fax, photocopy, computer networks and conference facilities.

One of the oldest members, the Business and Innovation Centre BIC CVUT in Prague was founded in
1991 by the Czech Technical University and the Society of the Science and Technology Parks in order to
assist in creation and development of small and medium-sized innovation companies in mechanical,
electric and civil engineering – the main fields of research of the University. The selection requirements
are a solid business plan, requirements of the region and environmental considerations.

A business and innovation centre in the city of Brno was established within the framework of an EU
project for support to small- and medium-sized innovative firms in the region of South Moravia. The
centre’s main goal is to co-operate with the city of Brno to support business activities of local innovative
firms and assist in their co-operation with foreign partners. The projects considered for admission must
demonstrate originality and win approval of the business centre incubator council. The Business and
Innovation Centre in the city of Plzen is another example of co-operation between the city authorities, the
local university and the research organisations. The Incubator has just moved to its new premises with
offices and production space in the new developing area of Plzen-Na Borech.

The new wave of privatisation of state companies spurred the growth of a new generation of innovation
centres, like the Technology Park INCEL in Prague. The technology park was established on the basis of
TESLA – the Research Institute for Communication Technology during the second wave of privatisation.
Its goal is to support new private companies in the field of electronics, see them through their growth and
introduce them to the market. New emerging companies use the equipment and space of the TESLA that
enables them to have access to under-utilised high quality facilities of the former state-run organisation.

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Slovak Republic

In the Slovak Republic, the Association of Slovakian Technology Centres regroups 16 members. The
FEMIRC Slovakia is part of the network of 62 European Innovation Relay Centres whose goal is to
improve the competitiveness of European industry through innovation. The FEMIRC Slovakia aims to
improve the competitiveness of Slovak firms and institutes by providing them with better access to
European R&D resources and by integrating them into the European technology community. Another
institution, the Business and Innovation Centre in Bratislava, combines elements of a business incubator
with those of a business consultancy. The BIC provides working space, assistance in financing, computer
services, and a regular set of business consultancy services.

The FEMIRC Slovakia was established by three consortium partners: Business and Innovation Centre
(BIC) Bratislava Ltd, BIC Group Ltd, and Slovetechcentrum Ltd. BIC Group is a consulting company
that is providing comprehensive consultancy for enterprises involved in commercialisation of innovations
in the area of overall company analysis, business plans, loans acquisition, restructuring, enterprise
development preparation and implementation. It provides assistance in management system innovation,
production innovations, product innovations, and business activities innovation.

In the category of production innovations, the company provides assistance in development of the
investment plan for obtaining credit; assistance in obtaining credit for the purchase of a new technology;
leveraging funding for development of a technology, introduction of new technology. Product innovation
is understood as support in leveraging funds for research, development and introduction of the innovated
product; and introducing the innovated products in manufacture.

According to the context of work defined for the FEMIRC, the areas of activities are the utilisation of the
European R&D results and transnational technology transfer, as well as the participation of the national
target groups in the community RTD programmes. The FEMIRC supplies information on the community
RTD programme, calls upon the candidates for their proposals, provides assistance in submission of the
proposals with the aim to increase the number of successful proposals and to promote international
co-operation between the Slovak and EU research and technological development institutions. The
FEMIRC disseminates information and promotes the absorption of the community RTD results by
communicating them to the potential users of the local industry. This aim is achieved through the element
databases such as CORDIS, results and partners are matched according to the international and local
requirements. The FEMIRC provides assistance on transnational technology transfer based on the
demand and offer of the Slovak industrial companies. Using the European innovation relay centre
network and technological databases, the FEMIRC supports technology transfer from the EU to the
Slovak industry and vice-versa, from the Slovak RTD institutions to European companies.

Conclusions

Among policy makers in Russia and Central and Eastern Europe, there is an appreciation of the role of
business and innovation centres as broadly defined by the German Association of Technology and
Business Incubation Centres (ADT): “an infrastructure-based venture for the establishment and growth of
firms”. The ADT, along with other European and US institutions, is playing an active role in
co-ordinating, expanding and funding the growing networks of knowledge-based ventures. The main
goals of such organisations are understood to be: promoting technology commercialisation as part of
rebuilding the science and technology management systems and developing the economic potential of the
regions and employment creation in the light of privatisation, unemployment in industry and among
research personnel, and the drop in funding to state supported research organisations. Perhaps one of the
most important contributions of innovation centres and technology incubators is providing technical and

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management training, and creating a network that strengthens firm to firm co-operation and information
exchange between new firms at their early stages of development.
In the case of Russia, general business incubators are more widespread than technology incubators, but
efforts are underway to increase support for the latter. Several factors, however, remain deterrents to
starting small businesses, and many technology firms take a long time to legalise or “regularise” their
existence. As of today there appears to be only three technology incubators, strictly defined, all of them
originating from the USAID grant to set up a model incubator in Moscow. But other types of incubators
and innovation centres provide support for technology-based firms. There are attempts to expand the IBTI
type of technology incubator but problems with financing even the virtual type of incubators in the regions
are an important obstacle. Most financing for regional incubators is in the form of foreign government
grants and soft loans. New forms of equity financing are slowly appearing, and there are proposals to
create the first Russian venture fund by January 1998.
Technology incubators are expected to provide a good nurturing environment for a large number of small
innovative businesses that are growing out of the old system of state-run science. In their virtual form,
they could help to rebuild the decentralised research and industry network, by keeping and augmenting the
research and economic base in the regions. They can also provide ready-made management teams for the
future venture funds. Regardless of the official name of the new infrastructure elements being put in place
in these economies by governments, domestic organisations, individuals, and their international partners,
the spillover effects of such efforts are very important. There is a growing network of organisations
promoting entrepreneurship and efficiency based on solid market principles, and technology incubators
have a future role to play.

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 ANNEX: TECHNOLOGY INCUBATORS AND RELATED INITIATIVES IN RUSSIA

Innovative Technological Centers

Name Location
Science Park of Moscow State University Moscow
BIC MGUET Moscow
Technopark Center Moscow
IBC New Technologies Moscow
Science Park “Ismailovo” Moscow
Center of Cooperation with Innovative Firms at Universities Moscow
Technology Complex at the Center of Photochemistry Moscow
ITC of ETU St. Petersburg
ITC of Regional Fund for Science & Technology of S.P. St. Petersburg
BIC “Energy and Electrophysics” St. Petersburg
ITC MUBINT Yaroslav
Regional ITC “Uralsky” Ekaterinburg
Vladimir ITC Vladimir
Tatarstan ITC Kazan
STP “Novosibirsk” Novosibirsk

Source: Federal Fund for Assistance to Small Innovative Enterprises.

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 Technoparks in Russia

Name Institution Location

Altai Technopark Altai State University Alta, Barnaul
STP Mosecotech-Gang State Academy of Oil & Gas Moscow
STP Daltech Park Far East State Tech. University Far East, Vladivostok
STP Kazan Kazan State Tech. University Kazan
Tartarstan Kazan State Tech. University Kazan
STP of Moscow State University Moscow State University Moscow
STP Avtoprogress-21 Moscow Academy of Auto & Tractor Design Moscow
International STP “Technopark in Moscow Institute of Engineering & Physics Moscow
Moskvorechye”
STP of Zelenograd Moscow Tech. University of Electronics Zelenograd, Moscow
Moscow Institute of Energy MIE Moscow
STP Novgorod Technopark Novgorod State University Novgorod
INEGRO Obninsk Institute of Atomic Energy Obninsk
STP Sosnovy Bor Perm State Tech. University Perm
STP Karelia Business Incubator Petrozavodsk State University Petrozavodsk
STP Aviatechnokon Samara State Aerospace University Samara
Technopark v Lesnom St. Petersburg State Tech. University St. Petersburg
Technopark ETU S.P. State University of Electrotechnology St. Petersburg
Volga Technika Saratov State Tech. University Saratov
Volga Saratov State University Saratov
Tver STP Tver State University Tver
Tomsk International Business Center T.S.A. of Control Systems & Radio Tomsk
Technopark Electronics
Tula STP Tula State University Tula
Ulyanovsk Technopark Ulyanovsk State Tech. University Ulyanovsk
STP Uralsky Ural State Tech. University Ulyanovsk
Bashkortostan Ufa University of Aviation Ufa, Bashkortostan
STP Yaroslavia Yaroslav State University Yaroslav
Source: Federal Fund for Assistance to Small Innovative Enterprises.

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 National Association of Business Incubators: Business Incubators of Morozov Project

Name Location
Academy of Management & Markets Moscow
International Business Incubator Volkhov
Russian Center for Promoting Youth Entrepreneurship Moscow
SME Fund Ekaterinburg
Novocherkassk Industry-Humanities College Novocherkassk
“RITM” Moscow
Urals Regional Fund “Progress” Ekaterinburg
“Technopark” Zarechny
“Partnerstvo” Orekhovo-Zuevo
Bryansk STP BI Bryansk
Association “Business Incubator” Voronezh
Voronezh Regional STP Voronezh
Irkutsk Youth Business Incubator Irkutsk
Regional Business Incubator Obninsk
Omsk Regional Business Incubator Omsk
Uralsky Business Incubator Perm
Karelian Innovation Center Business Incubator Petrozavodsk
Rostov Regional Business Incubator Rostov-on-Don
Samara Innovation Business Incubator Samara
Povolzhye Regional Business Center Saratov
Tula Regional Business Incubator Tula
Ulyanovsk Business Incubator Ulyanovsk
Source: Federal Fund for Assistance to Small Innovative Enterprises.

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OECD (1994), Science, Technology and Innovation Policies, 2 volumes, Federation of Russia.

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