Business incubation

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  • It is widely accepted that small and medium enterprises are important in creating income and employment. Their flexible structure enables them to adapt quickly to changes in economic environment and technology. Many politicians believe and economists have the intuition that new possibilities for growth, innovation and job creation will come from small and new firms. They can play vital role in achieving economic growth especially in the developing countries. However SMEs have several disadvantages. They are generally unable to obtain benefits from economies of scale both from output and input side. Small size is an important obstacle for process and product innovation, which are the core of recent competitiveness. They also have various problems in gaining access to resources and in the development of R & D (Research and Development) initiatives possibly because of their limited access to scientific knowledge. In dealing with the above difficulties and to serve means, incubators provide an attractive framework. They can be considered as a remedy for the disadvantages that SMEs encounter by providing many business support services and they are useful in fostering technological innovation and industrial renewal. There is a range of definitions of incubation around the world and they keep evolving as the incubation industry changes and adapts to different environments. We can say that:
  • Business incubation emerged as an economic development tool in the early and mid 1980s, initially in the USA and Europe, subsequently spreading around the world. Today, observers and the ‘global business incubation community’ estimate about 5,000 business incubators in the world, depending on definitions and without accurate ‘audit’ data, of which at least 1,000 are in Asia (approximately half in China), 1,000 in North America, 900 in Europe and close to 400 in Latin America (with a sizeable and robust industry in Brazil).
  • The key success factors that contribute to the ultimate economic, social and political success of a new business incubator”, are divided into four phases:     Preparatory Process: Identification surveys to selected locations Local consultants who are familiar with local conditions Careful identification of a strong sponsor to take local implementation responsibility Resolution of issues concerning feasibility, particularly analyses of the entrepreneurial pool of potential tenants, linkages to universities, the support services network, the availability of suitable (vacant) building space, and financial cash flow estimates Commitment by governmental agencies
  • The Start of Initial Operations requires: Involvement of the private sector Continuing programs for improving management skills of incubator staff and tenants Links to other SME programs Exchanges of information and bench marking
  • The Sustainability of Incubator Operations needs: Imaginative ways of raising income An objective evaluation of the incubator experience Political stability, macro-economic policy structure and regulatory framework that encourage entrepreneurship
  • Topics in a feasibility study Feasibility studies typically examine the following core topics, at a minimum:   1.    Market - the composition of the region’s entrepreneurial pool and needs of prospective clients, now and into the future Market for business incubation – needs analysis Analysis of the market for business incubation is considered to be very important. It is crucial for both designing the incubators services, to meet the needs of its clients and to develop realistic financial projections. Assessment of the market requires synthesis of data from a range of sources using a variety of steps and techniques.     1.    Stakeholder-Community support   Through face to face interviews with business, government and community leaders a feasibility study valuates the extent of community support and longer term ownership, identifies potential champions, helps raise awareness about business incubation, identifies potential partners and allies and identifies strengths and weaknesses of the proposal.   The market analysis may show feasibility, from a purely market perspective, but unless there is good community support, knowledge and understanding, with champions wanting to take on the challenge and having the necessary capability, the business incubator may not be feasible.   Commonly, stakeholders are very enthusiastic, but unless they understand business incubation they may have unrealistic expectations, anticipating outcomes and impact in only a few years, rather than over a far longer period. Expectations and ownership need to be managed from the outset and this should start with feasibility study interviews.   2.     Facilities and Services   Building upon the needs analysis the feasibility study should provide the initial plan for the services that are to be delivered to meet the needs of the targeted entrepreneurs and the facilities this requires. Good business incubation, especially where markets are limited, will offer each of the following sets of business incubation services, which should be incorporated in the design.            Pre-business incubation – services to nurture the market for intensive incubation, typically focusing on developing ideas and business plans, often with competitions and in conjunction with universities          Core Business Incubation – delivered from one of more business incubator buildings          Outreach Business Incubation – incubation support to companies not located in the business incubator but which visit the business incubator from time to time          Virtual Business Incubation – purely on line business incubation support, by way of information and a growing set of on line support services, such as business plan reviews, mentoring (once a face to face relationship has been initiated) certain types of advice.          Post Business Incubation – supporting companies that have graduated in the next phase of their business expansion       Infrastructure   Business incubation usually relies upon buildings and ICT infrastructure, with the design of each, dependent on the model chosen, client needs and the extent of outreach or virtual incubation to complement core incubation. As general rule, buildings need to be suitable for flexible configuration, in a location that is good for business (for the clients), free and debt minimized.   Financial feasibility - both short and long term, including establishment costs   Developing a workable business model that leads to financial self-sufficiency is a crucial part of a feasibility study. Opinions vary as to how long it should take a business incubator to become self-sufficient (from 2 to 10 years) and the extent to which a business incubator can be self sufficient without ongoing support (it may never be possible to be 100% financially self sufficient and many successful incubators rely upon ongoing operational subsidies). Irrespective of the debate, the issue needs to be addressed in a feasibility study. All too often it is ignored, or put off till later, whereas feasibility should address financial viability once establishment funding has been exhausted, with multi-year financial projections. The capital and operational establishment costs need to be estimated in feasibility study, to support stakeholders’ efforts to raise and sustain the necessary funds.  
  • The support of ‘stakeholders’ and quality of the management team are critical factors in successfully establishing and operating incubators. Business incubators are more likely to succeed if they are supported by a broadly based partnership of public and private sector sponsors. In particular, the capacity to leverage private sector inputs, whether this is in the form of finance or other types of support (e.g. expertise, access to facilities, corporate venturing) is critical. However, it also widely recognised that in the early developmental phase, public funding is vital because it can often take a number of years before a business incubator can attract private sector funding and/or generate sufficient income from other sources (e.g. rent) to cover operating costs. An analysis of incubator ‘stakeholders’ is provided in the Table. This confirms that public authorities are generally the major shareholders in most incubators established in EU countries but private sector organisations also play an important role.
  • Business incubation

    1. 1. Business Incubation <ul><li>Is a public / private, entrepreneurial, and social development process designed to nurture business ideas through a comprehensive business support program, help them establish and accelerate their growth and success. </li></ul>
    2. 2. <ul><li>Is a facility designed to assist businesses to become established and profitable during the start up phase. </li></ul><ul><li>It provides </li></ul><ul><li>Business advice </li></ul><ul><li>Business services </li></ul><ul><li>Networking </li></ul><ul><li>Mentoring </li></ul><ul><li>Full time manager </li></ul>Business Incubator
    3. 3. Four Phases Of Business Incubation
    4. 4. <ul><li>Pre Incubation </li></ul><ul><li>> Research support, training, business Planning </li></ul><ul><li>Early Stage </li></ul><ul><li>> Advice, Marketing, Technical, Legal, Accounting </li></ul><ul><li>Classic Incubation </li></ul><ul><li>> Accommodation, Funding Access, Network, Support </li></ul><ul><li>Graduation </li></ul><ul><li>> Marketing Close Support </li></ul>
    5. 5. Key success factors The four phases <ul><li>Preparatory Process: </li></ul><ul><li>Identification surveys to selected locations </li></ul><ul><li>Local consultants who are familiar with local conditions </li></ul><ul><li>I dentification of a strong sponsor </li></ul><ul><li>Commitment by governmental agencies </li></ul>
    6. 6. Key success factors The four phases <ul><li>The Start of Initial Operations requires: </li></ul><ul><li>Involvement of the private sector </li></ul><ul><li>Continuing programs for improving management skills of incubator staff and tenants </li></ul><ul><li>Links to other SME programs </li></ul><ul><li>Exchanges of information </li></ul>
    7. 7. Key success factors The four phases <ul><li>The Sustainability of Incubator Operations needs: </li></ul><ul><li>Imaginative ways of raising income </li></ul><ul><li>Political stability, macro-economic policy structure and regulatory framework that encourage entrepreneurship </li></ul>
    8. 8. Feasibility study <ul><li>Is an important and necessary step to design the business incubator and assess whether an incubator must be feasible or not. </li></ul><ul><li>Topics </li></ul><ul><li>Market (need analysis) </li></ul><ul><li>Stakeholder-Community support </li></ul><ul><li>Facilities and Services </li></ul><ul><li>Infrastructure </li></ul><ul><li>Financial feasibility </li></ul>
    9. 9. Planning Feasibility study <ul><li>Social </li></ul><ul><li>Economic </li></ul><ul><li>Political </li></ul><ul><li>Business </li></ul><ul><li>Cultural situation </li></ul>
    10. 10. Establishment of Technology Incubation Center Partners (Board Members and other Partners Number Percentage international agencies 36 13,4% National authorities and public agencies 68 25,3% Companies, banks and other private sector organizations 56 20,8% Universities and other organizations 44 16,4% Community and voluntary organizations 34 11,5% Total 269 100%
    11. 11. Strengthening Technology Incubation Systems For Creating High Technology Based Enterprices In Advance Developing Companies Of Asia and The Pacific
    12. 12. I – Innovation & Entrepreneurship N – Networks and Collaboration C – Competitiveness U – Understanding the roles (Public / Private Sector) B – Buy -in A – Access to resources T – Technologies O – Outreach R – Review : Monitoring and Evaluation
    13. 13. Thank you for your Attention and participation

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