Increasingly, the value of business incubators as a tool to aid the development of the business sector and countries’ development is being discussed. Can this mechanism really help countries achieve their objectives of raising productivity, economic growth, employment, innovation, financing etc?
The beginning of business incubation systems
It is said that the formal concept of business incubation began in the United States of America in 1059 – In July 1953 the United States Congress had created a Small Business Administration in the Small Business Act of that year. The purpose was to protect the interest of small businesses. Business Incubation Programmes partnered with local Small Business Development Centres to create a one-stop-shop for Entrepreneurial Support. The concept of business incubation is said to have spread to the United Kingdom and Europe in the 1980’s offering counselling, mentoring, prototype, funding, Tech Hubs for IT companies etc.
Top countries with business incubators
The top three countries which are said to have the most successful business incubators/accelerators are: The United States of America which include the Silicon Valley Institute, the HubSpot Accelerator, and the Boston-based Social Capital.
Canada, which include, Canada Business Incubator and the Toronto Business Incubator and Europe: which include the Berlin-based Startup Lab, the Lisbon-based InnoVest Portugal Accelerator, and the Madrid-based Abertis Ventures Spain Accelerator.
Justification
During the fledgeling stage of an enterprise (and resources may be limited) business incubators can enable businesses to share services and facilities (viz. premises space, management, accounting, administration, computer services, contacts/networks etc) and so reduce the cost and risks of doing business. By sharing resources and reducing costs and risks, the opportunities for business success can be increased.
Research publishes in February 2022 involving three universities in Spain (Juan Carlos University, ESTC University and University of Cordoba) found business incubators provide important support to reduce failure rate of their incubators and promote their long-term presence on the market.
Incubator programmes are said to accelerate the successful development of entrepreneurial companies. According to the Organisation of Economic Co-operation and Development (OECD) 1999, business incubators have become an increasingly popular policy instrument for local economic development and employment creation.
Theories in support of business incubators
In 2012 Mathew Manimala and Devi Vijay of the Indian Institute of Management wrote about a number of theories which explain the incubator system, among these are:
- The Structural Support Theory- where pooling of resources, reducing costs of infrastructure, and overheads costs leading to increasing operating efficiencies.
- The Cluster Theory (developed by Michael E. Porter)- where networks of industries/linked entities take advantage of being part of the network to enable the cluster to compete favourably.
- The Social Network Theory- Through which contacts, access to eg capital, credibility, respectability etc can be facilitated
- The Resource-Based Theory – The view that incubation inter-dependent co-production stimulates developmental assistance which increases the likelihood that start-up enterprises will survive.
Types of business incubators
In a “Guide to Build and Manage a Successful Business Incubator” (HowDo) , it says, some of the most common types of incubators are Internal corporate incubators. These are built inside the corporation, often without walls. These incubators increase the chances of intrapreneurial success, and the corporation often receives equity ownership as though they were founders of the start-ups.
The experience to date confirms that there is no unique business incubator model rather, there is considerable diversity in the types of incubators, their modes of operation and the objectives they pursue – most incubators tend to be either physical incubators providing work space for clients, virtual incubators which utilize computer technology to deliver services or a hybrid approach incorporating elements of the two main types (The International Journal of Economics, Commerce and Management – September 2016).
Sometimes, there is an application process to get into a business incubator programme. Most incubators provide shared management services to their clients.
Entrepreneurs wishing to participate in a business incubation programme may need, through their business plan, to demonstrate the viability of their business and their aim of fostering community entrepreneurship. Because of to this, it may not be proper for the term “business incubator” and the generic term “enterprise/entrepreneurial support” to be used interchangeably.
Some efforts at initiating business incubator systems in the Caribbean
In 2009 The World Bank Group initiated a Caribbean Business Incubator Association. This was launched by representatives of a number of independent Caribbean countries to coincide with the CARICOM Single Market and Economy. This Association is now dormant- it is said due to lack of funding.
The Global online Incubator and Accelerator (Faster Capital) says “Jamaica has many business incubators of many types in a rapidly growing scene. Some incubators are run by commercial organisations e.g. the Jamaica Business Incubation Centre (JBIC), others are run by non-profit organisations e.g. The Jamaica Chamber of Commerce and Industry (JCCI). These incubators are said to offer space, mentorship and resources to start-ups. —- there are a number of business incubators and accelerators which can help businesses get started in Trinidad and Tobago. Some of the most common types of incubators/accelerators in Trinidad and Tobago are the business development Centre, the start-up accelerator, the Venture Capital Centre and the business incubator programs —-there are also a number of incubator/accelerator programs specifically designed for small businesses——Dominica and some other Caribbean countries have such incubator/accelerator programs some of which may be virtual”.
In a news release issued on March 18, 2008 the National e-Business Incubator (NEBI) said it was an initiative of the Government of Dominica, funded by the European Union and implemented by the University of Technology (UTech),Jamaica. NEBI and Dominica AID Bank were said to have entered into a partnership to accelerate the development of Dominica’s Small Business Sector. Dominica AID Bank had made available to NEBI office space for a main incubator site and four other satellite incubator sites in Dominica. This appeared to be an interesting initiative, and according to the report, was the only one of two such initiatives in the Caribbean, the other being the Technology Innovation Centre (TIC) operated by the University of Technology in Jamaica. It is not certain if the NEBI initiative now exists in any form.
Selecting an incubator system
Clearly, the growth/spread of business incubators has been very fast. These incubators can be of many different types. Careful consideration ought to be given to the type of programme/system which would best fit the particular initiative which one wishes to embark upon – the objectives and development priorities of the particular project/country /region are important. One should also consider the nature and level of support and resources available for projects in the sector/industry selected. Above we drew attention to a number of theories which are said to explain the incubator system. These may have an influence on your decision. Also, in view of the Development/Sector Narrative which we discussed elsewhere (see www.SnEWork.com), the relevance/appropriateness of any of these theories may be considered.
If there it is the case that Tourism and Technology are the preferred Development/Sector Narrative, then the business incubator theories which are likely to be of particular interest may be:
- The Cluster Theory – where a network of industries enable the Cluster to compete favourably in a global industry.
- The Social Network Theory – which argues contacts and access to capital, credibility respectability are facilitated by this theory.
- The Resource-Based Theory – which believes incubator co-production and developmental assistance are facilitated by this Theory.
Economic performance/incubator linkages
While it is believed that it is not easy to assess tourism sector performance, it has been shown (The UK Tourism Productivity gap) that regional spread of demand and output can influence productivity and revenue management, which are key to improving productivity (which in turn, is an indication of how effectively and efficiently resources are used to generate economic growth, innovation and well-being for the population (Linkedin.com). Such efficiencies are required in the operation and management of tourism products as hotel, travel etc and technologies involved in data analysis and forecasting systems etc.
Global economic growth was forecast to slow from 6.0% in 2021 to 2.2 % in 2022 and 2.1% in 2023 (IMF). The Economic Commission for Latin America and the Caribbean (ECLAC) forecast growth will decelerate in Latin America and the Caribbean in 2023.
International tourism receipts grew by 50% in real terms in 2022 compared to 2021 (UNWTO). Historically, tourism has been a major contributor to the GDP of Caribbean economies. Forecast growth for 2025 is 2.3% (FITCH Solutions).
Research has shown (AERNOUDT 2004, KHANNA and PALEPU 2010) that business incubators create international knowledge linkages which facilitate the growth of start-up businesses. This role of incubators as knowledge intermediaries is achieved through several networking and learning mechanisms including clustering and coaching of clients up -stream and down -stream in international markets.
Incubator organisations, client businesses and Private/Public sector organisations
Business incubators should strive to be sound organisations. It is often said that many businesses complain that banking financial institutions tend not to understand and know businesses very well therefore, incubator organisations’ role should, in part be to enhance the performance, reputation and credibility of their client firms and aim to establish better links with financial institutions for the benefit of incubator organisations and their client businesses. Some say incubator organisations ought to be the first point of contact for their client businesses because these organisations should know the businesses best and certainly better than external institutions. It would be wise if efforts at establishing incubator programmes/organisations paid due attention to their possible financial intermediation role.
To the extent that there may be inadequacies (in quality and quantity) of institutional capacity in countries (particularly developing countries) which may limit development, business incubators, by developing international linkages, among other things, may be able to play an important role in filling any knowledge/expertise gaps which may exist in institutions.
The degree of success achieved in developing and operating business incubators vary from country to country (region to region). Generally, it may be useful if private and public sector organisations identify good ideas/enterprises with potential and the most appropriate location in-country for establishing such a programme – with important consideration given to securing experienced leadership for the programme. This may then be rolled out nationally, and with regional co-operation explore possible and appropriate regional operation.
pfa-sag