Business incubators: A global trend
Syed Mansur Hashim
Assistant Editor, The Daily Star.
Business incubation is not a new concept. It focuses on growing new companies which will leave the business incubation programme when ready. It has evolved since the mid-'80s. What started as an experiment in the United States has over the course of three decades encompassed Europe and become a global trend. According to 2002 data, there were an estimated 5,000 business incubators globally. The concept found a solid founding in Asian economies accounting for about a fifth of that total. Again half of this figure is concentrated in the Chinese economy. Interestingly, China along with Australia and the US has incubators that have lasted more than fifteen years.
The idea of business incubators was born out of necessity. As any entrepreneur will agree, starting a business is no joke. Although most start-up companies and new entrepreneurs know their product or service they wish to launch, a great many lack all requisite skills and resources to turn their ideas into success stories. Incubators step into fill these voids. A 2008 study by Grant Thorton conducted on behalf of the US Department of Commerce Economic Development Administration found that business incubators produce new jobs at a low cost for the government. As stated in the report Construction Grants Program Impact Assessment Report: for every $10,000 in Economic Development Administration (EDA) funds invested in business incubation programmes, an estimated 47 to 69 local jobs are generated. Hence, these incubators are creating jobs at a much more cost effective manner than EDA and their application is in areas such as roads and bridges, industrial parks, commercial buildings, sewer and water projects. It was further found that incubators provide up to 20 times more jobs than community infrastructure projects at a federal cost per job of $126 - $144, compared with $744 - $6,972 for other infrastructure projects.
There is no set model for an incubator. Rather, cultural differences and work ethos in different countries and continents have helped variants of the base model. In China, incubation has merged with technology parks and investment incentives resulting in hybrid models that are best suited to the Chinese business environment. To illustrate how incubation works within set models of business development, we may take the example of a science park in China. It provides a platform for businesses with educational and research institutions. It borrows from the "incubator" idea to provide start-up businesses the infrastructure and support services, viz. real estate, office space, office equipment and personnel in terms of fax, telephone, internet, computers, Xerox machines, etc. -- all capital expenditure that most new companies can ill afford. While larger businesses will remain within the confines of the park to do business, start-ups will at some point in time leave, i.e. when they have reached a certain maturity level. As pointed out by the National Business Incubation Association, USA, "A business incubator's main goal is to produce successful firms that will leave the programme financially viable and freestanding. These business incubator graduates have the potential to create jobs, revitalise neighbourhoods, commercialise new technologies, and strengthen local and national economies."
Reverting back to where it all started, the United States, the incubator model has proved to be a success and legislation to that effect has been drafted. The National Business Incubation Association estimated back in 2005 that business incubators supported some 27,000 start-up companies which created space for fulltime employment for 100,000 workers. The revenue generation by these businesses was estimated to be $17 billion annually.
Such findings, especially in the middle of the recession that hit the global economy in 2008, were not lost upon policymakers. And it paved the way for the introduction of Business Incubator Promotion Act as a bill to US Congress in April, 2010. The bill has a two-prong approach. First it ensures that the most economically distressed have access to EDA funding and second, it promotes business incubators by constructing new incubators and expanding and supporting existing incubators. The bill provides for an independent EDA funding stream that will "provide competitive grant funding up to $750,000 for feasibility studies and plans, and up to $3 million for implementation."
The need for such legislation has been encapsulated by people like Terry Martell, Director of Operations and Business Development for the Akron Global Business Accelerator who states: "Between 1980 and 2005, 40 million jobs were created by firms five years old or less, while established firms produced no net new jobs. Start-up companies historically have a high attrition rate, with only five percent surviving after the first five years; however, fully 40 percent of incubated companies survive after five years -- or an eight-fold increase over non-incubated companies."
Yet for countries such as Bangladesh, it is still a developing concept, but one that holds immense potential. The Bangladesh experience has already started. Infant incubators have started bearing fruit. Unheard of start-ups have started graduating. What is needed now is government patronisation and legislation, but that is the subject matter of another article.
