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Strategies of SME sector development Lessons
learned from the infoDev business incubator
initiative in ECA Stefan
Schandera Regional facilitator infoDev incubator
initiative, ECA VIII Knowledge Economy Forum, The
World Bank and INSEAD Fontainebleau, 01 May 2009
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1. Fact sheet Business incubators in ECA
Worldwide estimation 4.000 ECA estimation
200-300 Officially, there are 70 incubators
operating in our country, but in practice there
are 12. (incubator manager, ECA) 3 generations
of incubators in ECA. Country examples
Croatia 10 incubators/2 specialized/started in
1990/donor support Romania 20 incubators/5
specialized/started in 1992-1994/donor
support Russia 120 (estimates)/started in 1995
by donors/new program started in 2005 Uzbekistan
30 incubators/1 specialized/started in 1995/donor
support Bulgaria 15 incubators/started in
1997/donor support Belarus 8 incubators/no
specialized incubator/started in 1998
Kazakhstan 6-8 (estimates)/started in 1999 with
over 40 incubators/donor support Armenia 2
incubators/1 private/2 IT focus/started in
2003/donor and diaspora support Azerbaijan 1
incubator in planning stage/university
based/donor support
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2. Incubator life cycle Incubating the incubators
Scaling up
Replication
Replication
Maturity
Growth
Start
Feasibility and plan
Fiction
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2. Incubator life cycle Incubating the incubators
Different
Scaling up
Replication
Replication
Stagnation
Maturity
Growth
Scaling up
Replication
Start
Failure
Feasibility and plan
No incubator
Facts
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2. Incubator life cycle Incubating the incubators
Different
Scaling up
Replication
Replication
Stagnation
Maturity
Growth
Scaling up
Replication
Start
Failure
Feasibility and plan
No incubator
Facts
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3. Role of incubators in value chain of economic
development
Value chain Saxony (Germany) South Kazakhstan Maramures (Romania)
Strategy State and regional economic development policies incl. industry policies No role of incubator Incubator providing input to regional government Incubator roof organization providing input to regional gov.
Exogenous Attracting investors and existing businesses to the region No pro-active role of incubator Incubator providing input to regional government, incubator implementing programs Incubator roof organization providing input to regional gov.
Endogenous Supporting new business development and extension (incl. start-ups) Specialization of incubators within industrial policy, narrow mission, PPP, strong government link Incubator specializes in several industries, wider mission, also serving non-start-ups, international Wider mission, also serving non-start-ups, incubator roof organization also operates EU information centre
Tendencies Industrial policies
Industrial policies, International
role,
International role EU competence
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4. Enablers and barriers Actors and the
prototype incubator
Incubator
C I Culture Institutions
Prototype incubator Focusing on start-ups,
integrated incubation program, Incubatees
(inhouse) leaving the incubator after fixed
period Start-ups (industry-focus or
non) Narrow Incubators Wide Non-profit and
for-profit services Government, universities,
financial institutions, donors, private
investors, Horizontal and/or vertical
economic development policies
Clients
Competitors
Shareholders
LED Local economic development policy
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4. Enablers and barriers Local economic
development policy
Incubator
C I Culture Institutions
Existence of LED and integration of
incubator Case study Viasphere and EIF
Yerevan, Armenia Case study BIOS Osijek,
Croatia Case study Broker Inc. Skopje (client
of YES Incubator Skopje, FYRO Macedonia)
Clients
Competitors
Shareholders

• Lessons learned
• Government-incubator dialogue
• Top-down and bottom-up not versus
• LED strategy and its consistency (overall SME
• support policy, industrial policies, FDI policy
  etc.)
• define incubator mission

LED Local economic development policy
More details under Appendix slides 20-21
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4. Enablers and barriers Incubator shareholders
Incubator
C I Culture Institutions
Who owns the incubators, anyway? Case study
ABIT Uzbekistan Case study CSSC Incubator
Initiative Georgia Case IT Incubator Timisoara,
Romania
Clients
Competitors

• Lessons learned
• Internal lead with external (e.g. donor) support
  
• Local networks (and board) of trust
• Long-term commitment beyond the break-even
• required
• Links to academia and RD stronger amongst
• specialized incubators

Shareholders
LED Local economic development policy
More details under Appendix slides 20-21
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4. Enablers and barriers Competitors
Competition Incubators only? Case study SODBI
Shymkent, Kazakhstan Survey question
Competition?
Incubator
C I Culture Institutions
Clients

• Lessons learned
• Incubators must understand the competition and
• positioning in both for-profit and non-profit
  contexts
• for both hard (facility) and soft services
• Key strengths in BDS context Long-term
  commitment
• through investment (facility), long-term client
  
• relationship, hub for local innovation network
• Mission requires control, risk of crowding-out
  effects

Competitors
Shareholders
LED Local economic development policy
More details under Appendix slides 20-21
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4. Enablers and barriers Clients
Client Where is the prototypical
incubatee? Case study Almaty Technopark,
Kazakhstan Case study Kharpcheloproduct Ltd.
Kharkov, incubatee of Kharkov Technologies
Incubator, Ukraine Survey question Clients?
Incubator
C I Culture Institutions
Clients
Competitors

• Lessons learned
• Vague client definition -gt vague outcomes
• Key USPs from client perspective beyond
• subsidies Good address, peer group function,
• international skills and links
• Mission requires control, risk of moving
  upmarket
• Little formal equity/royalty model experiences
  in
• ECA, as well as VC

Shareholders
LED Local economic development policy
More details under Appendix slides 20-21
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4. Enablers and barriers Incubator management (I)
Entrepreneur No 1 The incubator manager Case
study Incubator Program Kazakhstan 2000 Case
study Incubator Program Russia 2008 Case study
Incubator management and funding (see next slide
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Incubator
C I Culture Institutions
Clients
Competitors

• Lessons learned
• Sustainability by motivation, mission and
  financial
• Incubator managers are entrepreneurs, innovators
• and networkers
• Skill set of manager at founding stage differs
  from
• manager at growth stage (donor vs. client focus)

Shareholders
LED Local economic development policy
More details under Appendix slides 20-21
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4. Enablers and barriers Incubator management
(II) Case study Incubator management CIS
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4. Enablers and barriers Culture and institutions

• The big question mark
• Entrepreneurship and innovation culture
• Role of education, science and technology
• Informal sector
• Competition culture and state capture
• Role of public sector and authorities
• .........
• Institutions are the humanly devised constraints
  that structure the
• human interaction. They are made up of formal
  constraints
• (rules, law, constitutions), informal
  constraints (norms of behaviour,
• conventions, and self-imposed conduct), and
  their enforcement
• characteristics. Together they define the
  incentive structure of societies
• and specifically economies. Douglass C. North
  (1993) Lecture to the
• memory of Alfred Nobel, December 09, 1993)

Incubator
C I
Clients
Competitors
Shareholders

• Lessons learned
• Holistic research approaches required
• Case studies required

LED Local economic development policy
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4. Enablers and barriers The incubator
perspective
Incubator
C I
Clients

• Risk No. 1 (as perceived by incubator managers)
  Government support
• Long-term strategy
• Funding
• Regulation
• ECAbit network members surveyed April 2009

Competitors
Shareholders
LED Local economic development policy
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4. Enablers and barriers Summary of lessons
learned 6 theses
Incubator
C I
Mission Regional economic development policy and
value chain define the incubator mission. Focus
Specialized incubators are effective for setting
up local innovation networks including links to
RD. Ownership Incubators start from within,
not outside. Donors should support but not
drive. Positioning Incubators and incubator
planners have to understand positioning and value
proposition and its monitoring within both
the non-commercial and commercial
context. Management Skill set of manager at
founding stage differs from manager at growth
stage (donor vs. client focus). Upgrading IT
incubators are good starting points in ECA for
specialized incubators with low-cost labs.
Clients
Competitors
Shareholders
LED Local economic development policy
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4. Enablers and barriers 7 tendencies and needs
TENDENCIES Industrial policies and local
innovation networks Investment-readiness of
incubators (crisis context as new driver) EU
convergence path. Integration into EU networks
also outside the EU Internationalization and
networking Innovation in IT (e.g. virtual
incubators, networks) NEEDS Verifying
assumptions Data (hard and soft) on impact and
sustainability required identifying the
winners Time to learn from experiences
Capacity-building among incubator managers and
planners
Incubator
C I
Clients
Competitors
Shareholders
LED Local economic development policy
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5. Global learning and networking The infoDev
incubator initiative

• Infodev information for development, started in
  1996
• Incubator initiative started in 2003, supported
  by Japanese government
• Focus on financing and technical assistance of
  business incubators in developing countries
• Growing global network 173 incubators from 76
  countries worldwide (status September 2008)
• Research First assessment of incubator impact in
  developing countries
• Global working groups Women, Youth, High Growth
• idisc.net Global learning and exchange platform
  for incubator
• Global Forum as global key event (Florianopolis,
  October 2009)

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5. Global learning and networking The infoDev
incubator initiative

• ecabit

• MENAinc

• Incubation Asia

• RedLAC

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5. Global learning and networking The infoDev
incubator initiative

• Main network activities on regional level
• Knowledge generation and sharing among
  incubators, policy-makers and other key
  stakeholders
• Events and trainings on regional level
• Exchange and mentoring programs
• Hub function for members to other networks
• Collaborative project, research and fundraising
  activities

Eastern European and Central Asian Network of
Business Incubators and Technology Parks focus
on incubators, 39 members (including
associations approx. 100) in 18 countries
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Thank you very much for your interest! Contacts
infoDev www.infodev.org, iDisc
www.idisc.net ECAbit www.ecabit.org Stefan
Schandera s.schandera_at_schandera.de
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Appendix Case studies in brief (I)
Case study Viasphere and EIF Yerevan, Armenia
Viasphere Technology Park started in 2003 with
substantial support from Armenian diaspora in the
US. Focusing on IT (software programming).
Private technology park. EIF Enterprise
Incubation Foundation Yerevan started in 2002
supported by the Armenian government and the
World Bank. Focusing on IT (software
programming). Both organizations integrated into
Armenian IT cluster policy. For more information,
please see http//www.idisc.net/en/Article.38458.h
tml. Case study BIOS Osijek, Croatia Mixed
incubator and technology park. Strategic focus on
IT and biotech. Platform for regional economic
development policies. Opened in 1996. For more
information, please see http//www.idisc.net/en/Ar
ticle.38808.html. Case study Broker Inc. Skopje
(client of YES Incubator Skopje, FYRO Macedonia)
Online investment portal founded by university
student (age 22). YES incubator focusing on youth
and IT. For more information, please see
http//www.idisc.net/en/Article.38837.html.
Case study ABIT (Association of Business
Incubators and Technoparks) Uzbekistan
Co-founded in 2000 by government and
international donor with the objective to
coordinate incubator program in Uzbekistan
(incubator program started 1995). Today,
coordinating 30 incubators in Uzbekistan.
Self-sustainability since 2005 under revision
following donor pull-out. For more information,
please see www.abit.uz. Case study CSSC
Incubator Initiative Georgia Incubator
feasibility study and program development in
2005. In 2007, funding assured but incubator
creation delayed by CSSC management following
concerns about local partner (institute)
commitment and reliability. In 2009, new
shareholder structure with funding assured,
incubator starts operation. More information
www.bii.ge lthttp//www.bii.gegt . Case IT
Incubator Timisoara, Romania Incubator started
operation in 2004. IT focus. Effective local
shareholder network including city counsil,
county counsil, university. Main factor for donor
support Shareholder network with concrete plans
and support needs. For more information, please
see http//www.it-incubator.ro. Case study
SODBI business incubator Shymkent (South
Kazakhstan) Opened in 2002. Mixed profile. With
lack of local consulting market and business
service infrastructure, SODBI set up consulting
services (including IT, business development,
marketing) and spinned-off these units after
their self-sustainability (break even). Case
study ATP Almaty Technopark (Kazakhstan) Opened
in 2000. Mixed profile. In 2005, ATP conducted
survey on innovation commercialization potentials
among institutes in Almaty. Criteria industry
sector, commercial feasibility, readiness of
scientist to implement commercialization. 200
proposals reviewed. Only 2 matched criteria, but
no readiness of scientists to implement
commercialization.
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Appendix Case studies in brief (II)
Case study Kharpcheloproduct Ltd. Kharkov
(incubatee of Kharkov Technologies Incubator,
Ukraine) Honey and wax producer, honey and wax
production instruments producer. Aircraft
technologies engineer by profession. 2004 Four
employees, focus on local market. Supported by
incubator in IT application and international
marketing. 20 full and 40 seasonal employees in
2007. Sales increased 40-fold. Network of 100
local honey producers. For more information,
please see http//www.idisc.net/en/Article.38661.
html. Case study Incubator program Kazakhstan
2000 Incubator development supported by
international donor programs focusing on
Entrepreneurship Development Centres, and
government starting 1999. Out of approx. 40
incubators initially supported, 6-8 are still
operating as incubators. Main reasons according
to incubation experts in Kazakhstan Lack of
ongoing government support after launch together
with unrealistic self-sustainability objectives.
In university context, unrealistic tech
commercialization objectives and expectations,
followed by budget cuts for incubators.
Technology park program launched in 2005 with
very little co-operation with incubator program.
Support for new and existing incubators currently
under consideration in the context of
entrepreneurship support centre program. Case
study incubator program Russia 2005 Approx. 15
incubators supported by international donor
programs founded in mid 1990s. By today, only 5
of them are still in operation. 70 more
incubators including private incubators operating
throughout the country. Very limited government
support. In 2005, 50 new incubators funded by the
government (Federal program) established planned
total 120. In first stage, public support for
infrastructure (until 2008). In second stage
(2009 onwards), public support for client
financing on competitive basis. SURVEY
QUESTIONS Survey question Competition In an
internal survey among incubator managers of the
ECAbit network conducted in April 2009, the
majority of incubator managers answered on the
question Who are the main competitors of your
incubator in your local environment? with We do
not have local competitors, since there are no
other incubators here. Only a minority also
considers commercial service providers
competitors. Background Most recent examples in
the economic crisis context and in particular the
decline of market rates for office and work space
leave show, that incubators directly compete with
both non-commercial and commercial service
providers. Survey question Clients in an
internal survey among incubator managers of the
ECAbit network conducted in April 2009, the
majority of incubator managers answered on the
question To which of the following groups would
you say belongs the majority of your incubatees
1) Requesting office or work space mainly, 2)
Participating also in incubation program
including, where your incubator can be seen also
as the lead consultant, 3) Office/work space and
from time to time consulting and business
services, as for example accounting, marketing
etc., 4) If other, please describe briefly.?
Majority of clients belong to group 2, followed
by 3. There is also substantial support for
external clients not participating in incubation
programs but receiving business support services
from incubators.