Ind Pub 2137

FOREWORD ESCAP has been taking various initiatives to strengthen technological and industrial capabilities for integrated development and promotion for SMEs and to promote cooperation among the economies of the region. A new initiative for SMEs undertaken by ESCAP is the project, “Mechanism for Strengthening Technology Incubation System for SMEs in Asia and the Pacific”. Under this project, ESCAP has identified nodal agencies and representatives of participating countries to take the responsibilities of promoting technology and business incubation. A survey based on questionnaires had been undertaken to identify the current status of technology and business incubators and catalytic factors for supporting and facilitating technology and business incubation which participating countries had initiated for creating technology-based enterprises. A study mission was also undertaken by ESCAP to survey technology incubation system in selected countries such as Malaysia, Singapore, Republic of Korea and Japan. The Regional Consultative Meeting was held in Seoul, during 29-31 August 2000, to draw policy guidelines and recommendations for creating technology-based enterprises through technology and business incubators. ESCAP’s survey indicates that technopreneurs, national policies and financial support are most important among the catalytic factors for supporting and proliferating technology incubation for technology-based enterprises. Developed countries in general spend large amounts on national R&D, about 2-3 per cent of their GNP, out of which 50-80 per cent is contributed by the industry. On the other hand, in developing countries, the total R&D expenditure is generally in the range of 0.1 to 1.0 per cent. In absolute terms, these expenditures are even at subcritical levels for meaningful R&D. It is implied that developing countries increase their R&D budgets for creating technology-based enterprises, based on commercialization of their R&D outputs. As the force of globalization intensify, knowledge and technological capabilities are becoming increasingly crucial for national development in order to respond effectively to emerging challenges and opportunities. In an increasingly competitive international trading environment, there is an imperative need for industrial restructuring and strengthening of technological capabilities in developing countries. In order to mobilize the opportunities of the technological resolution and cope with the challenges of globalization now upon us, member countries in Asia and the Pacific have to develop new strategies to stimulate innovation and entrepreneurship. In this regard, ESCAP will continuously develop technology and business incubation programmes to promote efficiencies and competitiveness of SMEs. ESCAP will also support and facilitate national initiatives towards an enabling policy framework for the development and promotion of technology and business incubators. It is expected that this document will contribute to greater awareness and understanding of the issues concerning technology and business incubation and that the recommendations presented will assist policy makers in these efforts to formulate and implement national policies and programmes, effectively and efficiently. Finally, I would like to take this opportunity to express my deep appreciation to the Government of the Republic of Korea for generously funding this project and hosting the Regional Consultative Meeting in Seoul, and providing NRL expert, Mr Song Woo-Geun who has initiated and successfully implemented this project as the project coordinator.

Kim Hak-Su Executive Secretary ESCAP

iii

ABBREVIATIONS ACP

Association for Craft Producers

AMF

Asian Monetary Fund

APCTT

Asian and Pacific Centre for Transfer of Technology

ARD

American Research Development

AVM

Advanced Venture Management

BDS

Business Development Service

BEPG

Board Economic Policy Guidelines

BI

Business Incubator

BIC

Batavia Industrial Centre

BICs

Business Innovation Centres

BTDS

Business and Technology Development Strategies

CAE

Chinese Academy of Engineering

CAS

Chinese Academy of Sciences

CDA

Capital Development Authority

CDC

Council for Development of Cambodia

CEO

Chief Executive Officer

CHED

Commission on Higher Education

CIB

Cambodian Investment Board

CITI

Clothing Industry Training Institute

CITs

Countries in Transitions

COMPETE

Comprehensive Programme to Enhance Technology Enterprises

COTAC

Competitive Technology Assessment Centre

CRDB

Cambodian Rehabilitation and Development Board

CSC

Commonwealth Science Council

CTEVT

Council for Technical Education and Vocational Training

CTs

Critical Technologies

DAGS

Demonstrator Application Grant Scheme

DECS

Department of Education Centre and Sports

DFCC

Development Finance Corporation of Ceylon

DNA

Deoxyribonucleicacid

DOI

Department of Industry

DSIR

Department of Scientific and Industrial Research

EDB

Economic Development Board

ESCAP

Economic and Social Commission for Asia and Pacific

ESEP

Engineering and Science Education Programme

FDIs

Foreign Direct Investments

GNP

Gross National Product

GRI

Government Research Institute

GRIs

Government-supported Research Institutes

GSP

General System of Preference

xi

GTH

Gifts, Toys and Houseware

HAN

Highly Advanced National

HDI

Human Development Index

HIC

Hanamaki Incubation Centre

HSDP

High Speed Data Communications

HTC

High-Tech Complex

HTV

High-Tech Venture

HTVC

High Tech Venture Centre

IBI

International Business Incubators

IC

Innovation Centre

ICICI

Industrial Credit and Investment Corporation of India

ICT

Information Communication Technology

IDA

Info-Communication Development Authority

IDB

Industrial Development Board

IESC

International Executive Service Corps

IFCI

The Industrial Finance Corporation of India

IGS

Industry R&D Grant Scheme

IIT

Indian Institute of Technology

IMCs

Incubator Management Companies

IMF

International Monetary Fund

INTET

International Network for Transfer of Environment

IPO

Initial Public Offering

IPR

Intellectual Property Rights

IRPA

Intensification of Research and Priority Area

ISO

International Organization for Standardization

IT

Information Technology

ITBI

International Technology Business Incubator

ITI

Industrial Technology Institute

JANBO

Japan Association of New Business Incubation Organizations

JICA

Japan International Cooperation Agency

KAIST

Korea Advanced Institute of Science and Technology

KAP

Kazusa Academia Park

KERIS

Korea Education and Research Information Service

KGSM

Korea Advanced Institute of Science and Technology Graduate School of Management

KINITI

Korea Institute of Industry and Technology Information

KIPRIS

Korea Industrial Property Rights Information Center

KIST

Korea Institute of Science and Technology

KOBIA

Korea Business Incubators Association

KOSDAQ

Korean Securities Dealer Automated Quotations

KRIBB

Korea Research Institute of Bioscience and Biotechnology

KRP

Kyoto Research Park

KSP

Kanagawa Science Park

xii

KTAC

Korea Technology Advancement Corporation

KTB

Korea Technology and Banking

KTDC

Korea Technology Development Corporation

KVA

Korea Venture Association

M&A

Merger and Acquisition

MDC

Multimedia Development Corporation

METI

Mechanism for Exchange of Technology Information

MFN

Most favoured Nation

MIME

Ministry of Industry, Mines and Energy

MIT

Massachusetts Institute of Technology

MITI

Ministry of International Trade and Industry

MOCIE

Ministry of Commerce, Industry and Energy

MOID

Ministry of Industrial Development

MOST

Ministry of Science and Technology

MOSTE

Ministry of Science Technology and Environment

MPEX

Manufacturing Productivity Extension Programme for Export Promotion

MRC

Multimedia research centre

MSC

Multimedia Super Corridor

MSTQ

Metrology, Standards, Testing and Quality Assurance System

MTDC

Malaysian Technology Development Corporation

MTIR

Ministry of Trade, Industry and Resources

MUST

Manpower Upgrading for Science and Technology

NAITA

National Apprentice and Industrial Training Authority

NBIA

National Business Incubator Association

NBSM

Nepal Bureau of Standard and Metrology

NCSRD

National Council for Scientific Research and Development

NDB

National Development Bank

NEA

The National Exporters Association

NERDC

National Engineering Research and Development Centre

NGO

Nongovernmental Organization

NIBM

National Institute of Business Management

NIDC

Nepal Industrial Development Corporation

NIE

National Institute of Electronics

NRCP

National Research Council of the Philippines

NRs

Nepalese rupees

NS

Nepal Standard

NSDB

National Science Development Board

NSTA

National Science and Technology Authority

NSTB

National Science and Technology Board

NSTEDB

National Science and Technology Entrepreneurship Development Board

NTSFC

New Technology Supporting Financing Company

PEZA

Philippine Economic Zone Authority

PQLI

Physical Quality of Life Index

xiii

PRs

Pakistan rupees

PSB

Productivity and Standards Board

PSP

Private Sector Programme

RACORD

Regional Association for the Commercialization and Application of R&D results

R&D

Research and Development

RBI

The Republican Business Incubator

RECAST

Research Centre for Applied Science and Technology

RM

Malaysian Ringgit

RNA

Ribonucleicacid

RONAST

Royal Nepal Academy of Science and Technology

S&T

Science and Technology

SBFC

Small Business Finance Corporation

SBMA

Subic Bay Metropolitan Authority

SCI

The Sabarangamuwa Chamber of Industry

SDF

Skills Development Fund

SE

Small Enterprise

SHIBI

Shanghai International Business Incubator

SIDBI

Small Industries Development Bank of India

SIRIM

Standards and Industrial Research Institute of Malaysia

SLBDC

Sri Lanka Business Development Centre

SLIIT

Sri Lanka Institute of Information Technology

SLIM

Sri Lanka Institute of Marketing

SLSI

Sri Lanka Standards Institution

SMAP

Small and Medium Enterprises Assistance Project

SMB

Small and Medium sized Business

SMED

Small and Medium Enterprise Developers

SMEDA

Small and Medium Enterprises Development Authority

SMEESA

Small and Medium Enterprises Establishment Support Act

SMEs

Small and medium scale enterprises

SMI

Small and Micro Industry

SMILE

Small and Micro Industries Leader and Entrepreneur

SMQC

Standardization, Metrology and Quality Control

SOEs

State-Owned Enterprises

SPB

Standards and Productivity Board

SSP

Singapore Science Park

SSI

Small Scale Industries

SSTC

State Science and Technology Commission

STA

Science and Technology Agenda

STAND

Science and Technology Agenda for National Development

STDB

Science and Technology Development Board

STEP

Science and Technology Entrepreneurs Park

STEVPP

S&T Experts Volunteer Pool Programme

STIC

The Shanghai Technology Innovation Centre

xiv

STMP

Science and Technology Master Plan

STP

Software Technology Park

TACDPAP

Technical Consultancy Development Programme for Asia and Pacific

TAPI

Technology Application and Promotion Institute

TBI

Technology Business Incubators

TBI-TIC

Technology Business Incubator-Technology Innovation Centre

TBT

Technical Barriers to Trade

TCDPAP

Technical Consultancy Development Programmes for Asia and Pacific

TDCs

Technology Development Clusters

TDICI

Technology Development and Information Company of India

TESDA

Technical Education and Skills Development Authority

TEVT

Technical Education and Vocational Training

TI

Technology Incubator

TIC

Technology Innovation Centre

TIF

Technopreneurship Investment Fund

TIPS

Technology Initiative for the Private Sector

TLOs

Technology Licensing Organizations

TNCs

Transnational Corporations

TPM

Technology Park Malaysia

TRIPS

Trade Related Intellectual Property System

TST

Taeduk Science Town

UKM

Universiti Kebangsaan Malaysia

UM

Universiti Malaya

UNDP

United Nations Development Programme

UNFSTD

United Nations Fund for Science and Technology Development

UNIDO

United Nations Industrial Development Organization

UPM

Universiti Putra Malaysia

USAID

United States Agency for International Development

UTI

Unit Trust of India

VCCI

Viet Nam Chamber of Commerce and Industry

VCCs

Venture Capital Companies

VCTI

Virtual Centre for Technology Incubation

VTA

Vocational Training Authority of Sri Lanka

WAN

Wide Area Networks

WEAN

Women Entrepreneurs’ Association of Nepal

WTO

World Trade Organization

YESL

Young Entrepreneurs of Sri Lanka

xv

PART ONE REPORT OF THE REGIONAL CONSULTATIVE MEETING ON STRENGTHENING TECHNOLOGY INCUBATION SYSTEM FOR CREATING HIGH TECHNOLOGY-BASED ENTERPRISES IN ASIA AND THE PACIFIC

1

I. ORGANIZATION OF THE MEETING The emergence of new technologies has significantly changed the nature and scope of industrial competitiveness. Competition has been increasing and the need for improving technological and innovative capabilities has become urgent to meet the requirements of international competitiveness. In a knowledge-based economy, technology venturing is a key factor of internationally comparative advantage in industry. Recently, technology venturing through incubator activity is emerging and has become a useful strategy to improve international competitiveness. Business incubator, which bred and nurture enterprises, has become an important instrument in the creation of new enterprises and jobs. In particular, technology incubator which plays a role of accelerating commercialization of R&D outputs and transfer of technology has contributed to start-ups of high technology-based enterprises in the newly industrializing economies. However, an incubator by itself is not enough for business as it is necessary and essential to provide business/technology incubation system to create and sustain competitive enterprises at a national level. Keeping those perspectives in mind, the ESCAP secretariat with the generous financial assistance provided by the Republic of Korea, organized the Regional Consultative Meeting on “Strengthening Technology Incubation System for Creating High Technology-based Enterprises” in Seoul, during 29-31 August 2000. The meeting was held in cooperation with the High-Tech Venture Center/Korea Advanced Institute of Science and Technology (HTV/KAIST), the Republic of Korea.

A. Objective The objectives of the meeting were as follows: (a)

To review policy guidelines, best practices, methodologies and constraints to establish effective and efficient technology incubators which will help entrepreneurs set up and develop small technology-based enterprises in various national economies and suggest models for various levels of economies in the region.

(b)

To assess the determinants of success and failures and study their impact in forging R&D community-industry relationships in selected countries.

(c)

To evolve suitable mechanisms for strengthening networking and cooperation among relevant institutions/agencies.

B. Attendance The meeting was attended by senior officials of Governments and representatives of the private sectors from the following countries: Cambodia, China, India, Malaysia, Nepal, Pakistan, Philippines, Republic of Korea, Sri Lanka, Tajikistan, Uzbekistan and Viet Nam participated at the three-day meeting. The list of participants is attached as Annex-I. Resource persons from Germany, Japan, the United States of America and Asian and Pacific Centre for Transfer of Technology (APCTT) also participated.

C. Election of officers The meeting elected Mr Kim Ji-Soo, Professor, Graduate School of Management, Korea Advanced Institute of Science and Technology (KAIST), as Chairman, Mr P.K.B. Menon, Advisor, Department of Science and Technology, Ministry of Science and Technology, India, as a Vice-Chairman, and Ms Maripaz L. Perez, Director, Technology Application and Promotion Institute, Department of Science and Technology (DOST), Philippines, as a rapporteur.

3

D. Opening session The meeting was opened by Mr Jun Eui-Jin, Deputy Minister of Science and Technology, Republic of Korea. In his opening address, Mr Jun welcomed the participants and delivered his statement. He emphasized the importance of high technology-based venture businesses which are involved in commercialization of scientific and technological innovations. He added, the Government of the Republic of Korea provided the long-term plan for S&T development. The Republic of Korea prepared a fundamental legal framework for S&T development and promotion. In addition, to secure competitive high technologies, the Republic of Korea has initiated national R&D projects in such areas as information, mechatronics, energy, environment, new materials, and bioengineering. To support these ambitious projects, the Republic of Korea will increase the share of the Government budget for R&D from the current 4.1 per cent to 5 per cent by 2002. He also promised that the Republic of Korea will be an active participant in follow-up projects to assist member countries in strengthening technology incubation. Mr B.P. Dhungana, Chief of Industry Section, International Trade and Industry Division, ESCAP communicated the message of Mr Kim Hak-Sue, Executive Secretary of ESCAP, and welcomed the participants to the meeting. He thanked the Government of the Republic of Korea for the excellent host facilities and cooperation in organizing the meeting. He also thanked Mr Jun Eui-Jin, Deputy Minister of Science and Technology, for having inaugurated the meeting despite his busy schedule and the Government of the Republic of Korea for having provided generous financial assistance to ESCAP to undertake the meeting. He further thanked Mr Choi Duk-In, the President of the Korea Advanced Institute of Science and Technology (KAIST), for having played a vital role in organizing this event in Seoul. He further pointed out that knowledge and technological capabilities are becoming increasingly crucial for national development in order to respond effectively to emerging challenges and opportunities. In an increasingly competitive international trading environment, there is a need for industrial restructuring and strengthening of technological capabilities in developing countries. In this connection, strengthening and promoting technology venturing through incubation programmes for new technology-based enterprises is necessary to survive in a competitive society. He recommended out that R&D expenditures of developing countries should be increased up to more than 2-3 per cent of their GNP, which advanced countries spend on their national R&D projects. He concluded by saying that, based on the findings of the study and the recommendations of this meeting, ESCAP will, through a follow-up project, support and facilitate national initiatives towards a conducive policy framework for the development of physical infrastructure of technology and business incubators, technical entrepreneurship, innovative financing support-system and formulation and implementation of R&D projects for business incubation. In his welcome statement, Mr Choi Duk-In, President of KAIST, pointed out that in an era of knowledge-based economies, venture companies play a key role in improving internal and international competitiveness in industry. Technology venturing through incubator activities is regarded as an important tool for the commercialization of R&D outputs and transfer of technology. He hoped that the meeting would not only suggest effective and efficient models for technology incubation for various levels of economies in the region but come up with a suitable mechanism for strengthening networking and cooperation among relevant institutions. Mr B.P. Dhungana delivered a vote of thanks. He stressed the importance of technology and business incubation for creating high technology-based enterprises. He pointed out that developing countries should make efforts to acquire industrial technologies for products to compete with other competitors in international markets.

E. Programme The meeting adopted an agenda and a programme for its deliberations, which is attached as Annex II to the report.

II. CONSIDERATION OF ISSUES After the inaugural session, there were presentations on the following issues: (a)

Strengthening Technology Incubation System for Creating High Technology-based Enterprises in Selected Countries (Malaysia, Singapore, Republic of Korea and Japan).

4

(b)

German Experiences on “Technology Incubation System for Creating High Technology-based Enterprises” in Germany.

(c)

Japanese Experiences on “Technology Incubation System for Creating High Technology-based Enterprises” in Japan.

(d)

United of America’s Experiences on “Technology Incubation System for Creating High Technology-based Enterprises”.

(e)

Project Selection, Monitoring and Evaluation for Technology Incubation in developing countries.

(f)

The experiences of the Republic of Korea in venture capital, venture business and technical entrepreneurship development.

In addition, there were presentations on the experiences of the following countries: Cambodia, China, India, Malaysia, Nepal, Pakistan, Philippines, Republic of Korea, Sri Lanka, Tajikistan, Uzbekistan and Viet Nam. There were presentations on “Strengthening technology incubation system for creating high technology-based enterprises in selected countries”. It was pointed out that: (a) In Malaysia, Technology Park Malaysia (TPM) is an independent real estate driven entity under the Ministry of Science, Technology and Environment, and is currently operated as a public company with government grants. Malaysia Technology Development Corporation (MTDC), under the Ministry of Trade and Industry, is promoting Technology Development clusters in universities with focus on specialization related to that of the university or high tech areas such as electronics and biotechnology. It has set up a public company to manage and operate these incubators or technology development clusters. Multimedia Development Corporation is also promoting information technology related incubators and their networking. Private involvement is limited. (b) In Singapore, Science and Technology Development Board, Standards and Productivity Board, and Economic Development Board are the main government agencies promoting technology incubators and technopreneurs in new and high technologies, with and without private participation. Several laws and procedures are being simplified or relaxed to attract bright technopreneurs, including foreigners, and new financing mechanisms are being evolved. Singapore Science Park is a large real estate driven activity to promote national and international high tech companies and businesses including R&D institutions. (c) The Republic of Korea has taken several initiatives to promote various types of technology incubators including those located in S&T parks or science towns or at industrial clusters or near the universities/R&D institutions. It is estimated that there are about 300 incubators promoted or in pipeline at present. Attempts are being made to evolve new financing support measures for the incubators/incubatees such as venture capital, angel investors, etc. Various economic ministries including Ministry of Science and Technology, are engaged in development of incubators and in attracting young and bright technopreneurs and foreign R&D institutions. (d) In Japan, there are about 140 science parks and 40 incubators. Japanese incubators do not function to hatch new corporations but rather nurture hatched corporations and also enable SMEs that have nurtured to develop new businesses. Both the purpose and function of a Japanese incubator differ greatly from incubators in Europe or the United States of America which are intended for entrepreneurs newly establishing a corporation. However, recent initiatives are towards new SMEs, employment creation and also industrial restructuring besides creating new credit and financing mechanisms including venture capital and new stock exchange systems. (e) Germany started its business incubation in 1983 in Berlin with the opening of the Berlin Innovation and Business Incubation Center. Now Germany has more than 350 centres and parks in all Federal States of Germany. More than 10,300 technology-based enterprises with about 70,000 employment, are involved in technology incubators. More than 2,300 technology-based enterprises have already graduated from technology incubators. (f) Business incubators originated in the United States of America and have proliferated most rapidly there. The origins of the idea can be traced to 1942, when Student Agencies Inc., in Ithaca, N.Y., began incubating student companies. In 1946, the first incubator outside the student community was created by American Research Development (ARD), started by several MIT alumni, to supply risk capital to New England entrepreneurs. In 1959, Charles Mancuso and his family purchased the Batavia Industrial Center (BIC) in New York state and

5

used this former factory warehouse to create jobs in an economically depressed small town. It was only in the 1960s that incubators began to develop. Growth accelerated in the 1970s and 1980s largely as a result of the need to revitalize regions suffering from job losses in basic industries. The 1990s have witnessed further development of incubators throughout the country. Starting in 1996 and gathering momentum in 1998, a new kind of incubator, variously called an “Internet incubator”, “accelerator” or “venture catalyst”, made its appearance. Recent growth in the American incubator industry has been driven largely by these Internet incubators. The network of 800 incubators (including about 550 traditional incubators and 250 Internet incubators) is up from 12 in 1980 and is the largest in the world. Internet incubators are driving new growth, with more than a hundred established in 1999 and early 2000 alone. According to the National Business Incubator Association’s (NBIA) survey of its member firms: ◆

40 per cent of incubators are technology focussed; 30 per cent are mixed use, accepting a wide variety of clients; and the remainder focus on service, light industrial and niche markets or on assisting targeted populations

◆

75 per cent of incubators are nonprofit and 25 per cent are for-profit

◆

45 per cent are urban, 36 per cent are rural and 19 per cent are suburban.

Based on the above findings and secondary papers, the definitions of business and technology incubators were presented as follows. However, the definitions are very broad and general and vary from country to country or even in the same country. (a) Business incubators are to promote continuous regional and national industrial and economic growth including increasing employment through general business development or stimulating specific economic objectives such as industrial restructuring and wealth generation or utilization of resources. The incubator combines a variety of small enterprises support elements in one integrated affordable package. It has a special niche, i.e. nurturing early stage, growth-oriented ventures, through focussed assistance within a supportive environment. A “third generation system” termed as “International Enterprise Centre” is reported to be emerging to bring under a single aegis the full range of support services for the development of knowledge-based business, with linkages to universities, research institutes, venture capital and international joint ventures. (b) Technology Incubators (TI) are to bolster the technology development stage. This type of incubator aims to complete technological ideas for technologies under development. However, in practice, the primary goal of technology incubators is to promote the development of technology-based firms, and assist in completion of the technologies under development. These are located at or near universities, R&D institutes, and Science and Technology parks. They are characterized by institutionalized links to knowledge sources including universities, technology transfer agencies, research centres, national laboratories and skilled R&D personnel. The aim is also to promote technology transfer and diffusion while encouraging entrepreneurship among researchers and academics. Technology incubators, in practice, are a variant of business incubators, and combine broadly the functions of technology business incubator and innovation centre. (c) Technology Innovation Centres (TIC): The TICs conduct research and development (R&D) and technology innovations required by the industrial field, which aims to jointly invest resources into university campuses or research institutions and achieve commercialization with support from business enterprises or public institutions. As a concept the TIC is similar to that of the Technology Parks, and, at the R&D stage, to the TI. (d) 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 TI or TIC in that it supports the commercialization of previously developed technology; that is, the start up activities of an enterprise. It differs from general BIs in that it concerns technology-intensive or high tech business. The stated good practices include: strong and deep commitment of the promoters, well defined objectives and missions, recruitment of competent and dynamic management team and constitution of an advisory committee of members from promoting organizations, focus on cluster based technologies, selection of tenants according to ‘needs’ and ‘fits’ with set criterion including residency time, tailor and leverage existing services, diversified sources of finances, shared experiences and improved evaluation mechanisms.

6

The various catalytic factors for supporting and expediting technology incubation for high technology based enterprises include: well coordinated implementable national policies including S&T, industrial, trade & commerce, and finance policies; strong R&D institutions and capabilities including researchers and academia; larger investments in R&D including liberalized tax structure and grants, technical entrepreneur development programmes and incentives; innovative financing support system including venture capital, angel investors; specialized and liberalized stock exchange systems for high tech enterprises; intellectual property assistance and professional services including legal and technical consultancy services; development of S&T parks, establish next of strategic business alliances and networking, and support for standardization, quality management and marketing etc. The nature of these factors will vary with the stage of development and national objectives. Research parks and S&T parks are integrated large facilities, mostly real estate development-driven and located in or near major universities or R&D institutions. They are mostly promoted and supported by the national governments along with regional or local development agencies. Easier availability of financial grants and investments and loans on soft terms is a major attraction to the tenant corporations or organizations which are usually large and even TNCs or other foreign companies. Technology incubators are usually a part of the S&T parks or linked organically and are capital intensive. The total R&D expenditures range from about 0.1 per cent to 3 per cent or even more of GNP in different groups of countries. The absolute amounts of national R&D expenditure are sub-critical in several countries, and may sometimes be less than R&D expenditures of a TNC in advanced countries. Further, the corporate R&D expenditures are much lower (about 20 per cent) than those of the governments (about 80 per cent) in most of the developing countries. Also, the quality of support infrastructural facilities such as communications, transport, roads, education, financing institutions, etc. widely vary among various groups of economies, and influence the technology incubator activities as well as the quality and levels of technopreneurs or technology-based enterprises. Thus, the models of incubators in different groups of economies have to be necessarily different. Besides development of high-tech enterprises in areas such as information technology, computer software, internet and e-commerce, biotechnology, microelectronics, etc., it is necessary to apply new technologies to revitalize the existing enterprises including SMEs in the traditional economic sectors and to promote new enterprises based on natural resources or comparative advantages. Also, the industrial clusters and industrial estates etc., which have come up over the years in various countries, need to be vitalized or reoriented through appropriate models of technology incubators located therein with their connectivity to the larger incubators or S&T parks. In many countries, such as India, Republic of Korea or even Japan, old corporations are reorienting their strategies, including privatization of public sector companies, and adopting Voluntary Retirement Scheme (VRS) etc. to reduce the strength of their employees. This is creating unemployment in the society. Also technopreneurs who have vast managerial and technical experience and capabilities, have worked in senior positions, and are willing to start their own enterprises need initial support to become technopreneurs. At the same time, new generation young technopreneurs are emerging who also need to be encouraged and supported. Thus, the strategies for technology incubators would be different for different groups of economies and targets in the region. In view of the above, the objectives, models and practices for technology incubators have to be flexible and varying to meet specific needs ranging from simple business incubators in least developed countries or island developing and transition economies countries or even some of the developing countries to more sophisticated stand-alone technology incubators or an integral part of a technology park in industrially advanced countries. They may be of general type in least developed or some of the developing countries and highly focussed sector wise in developed countries or a mix of the above models. It is unlikely that there would be many researchers or researchers/academia needing sophisticated technology incubators in least developed or some of the developing countries. Industrializing countries are attempting to create such capabilities in their R&D and university systems. The immediate problem in many of the developing countries or least developed countries is to revitalize and restructure local industries, including SMEs, and create employment through development and applications of new and high technologies in traditional sectors besides taking advantage of the opportunities for developing high tech enterprises in computer software, bio-technology, and information technologies etc. Industrially advanced countries and industrializing countries are focussing on establishing their technological leadership in selected sectors and consequently promoting high-tech corporations through technology incubation systems on a global basis.

7

Keeping in view the S&T capabilities, financial resources, and the needs arising out of the globalization of economies and internationalization of trade and R&D, to revitalize the core sector capabilities already built, to provide employment and assist industrial and tiny sector clusters etc., in industrializing and developing countries, least developed countries, island developing countries, and transition economies following models of technological incubators are suggested: (a) Well-equipped technology incubators at or near universities/R&D institutions as independent entitics but closely networked with knowledge sources. They could be “general” or specific to the expertise of the concerned university/R&D institution and integral to S&T parks. (b) Virtual incubators or “open wall” type incubators located at or near industrial clusters of SMEs or at the concentration of tiny sectors or in rural areas. (c) Incubator Management Companies identified by the government and interested in technology incubation programmes with R&D grants and venture capital etc. from the government or jointly with private corporations. (d) International technology incubators to globalize and internationalize R&D and encourage transfer of technology with or without foreign direct investments. (e) Each country will, however, have to evolve its own model/models depending upon its own need, capabilities and resources.

III. CONCLUSIONS AND RECOMMENDATIONS In developed and advanced developing economies, technology incubators have played a critical role in developing ideas, technologies and innovations from R&D and academic institutions and in-house R&D units of corporations, including TNCs, and converting these to commercially viable high-tech enterprises. Technologybased entrepreneurs or technopreneurs have been nurtured and supported in their early stages of development through various types of services available at the technology incubators. However, the models, services and practices in TIs vary widely from country to country and even within the same country. In advanced developing countries and newly industrializing countries such as Republic of Korea, large, integrated and well-equipped technology incubator complexes, that are high-tech sector specific, may be promoted in addition to developing the existing incubator facilities. In other developing countries, simple business incubators to technology business incubators or, preferably, technology incubators may be promoted to support technology-based enterprises or promote commercialization of selected technologies from academic and R&D institutions. These facilities may be subsequently upgraded with advanced facilities later to address the more complex needs of high-tech and sector specific companies. Foreign R&D institutions and corporations, including TNCs, may also be encouraged to take advantage of these facilities through collaborative projects and/or activities. Development of technology incubator management skills, availability of innovative financing mechanisms and financial grants, support in marketing and IPR issues including patenting, etc. are some of the important key factors that should be considered. Development of stronger S&T infrastructure facilities and S&T manpower are needed on a long-term basis. ESCAP and other international developmental organizations have an important role to play in the above programmes.

Government The development of technology incubators should be explicitly included as an objective in S&T policies to promote and nurture high technologies and high technology based enterprises. Technopreneurs and specific financial outlays to be provided may also be indicated. At present, the promotion of technology incubators is generally implicit. In some countries such as Republic of Korea, Singapore and Malaysia, a number of ministries/departments are involved in the promotion of technology incubation systems. There is a need for well-coordinated and complementary efforts with clear distinction of the responsibilities of each agency. Similarly, various policies related to the incentives, tax structure, real estate development, operations, skill-development and human resource development programmes and development of SMEs, among others, should be evolved in consultation with

8

technology incubator promotion agencies. State governments and local bodies should be fully involved in these efforts preferably in encouraging them to be active stakeholders. Consortia approach could be useful and should be reviewed. In developed countries, the focus should generally be on nurturing new technologies of generic nature through sector specific incubators mostly located in or near a university or an R&D institution, with the ultimate objective of developing more successful SMEs and new TNCs. Economies in transition and developing countries may, however, need to develop generalized technology incubators and sector specific incubators to support the restructuring of traditional economic sectors, including industrial clusters and estates, besides commercializing of new technologies and supporting technopreneurs. In least developed and island developing countries, initial focus may be on the development of simple business incubators with technology as a central theme and located in industrial estates and/or industrial clusters. Closed wall type of TIs, equipped with integrated and sophisticated S&T facilities near a scientific/ academic institution or as an integral part of technology parks, may be desirable in developed countries. In developing countries, open wall type or virtual incubators with access to R&D facilities and support services including professional services, requiring minimum investments may be more practical. In fact, with the availability of modern information technologies and communication facilities, virtual incubators may be suitable even in developed or industrializing countries and can be widely dispersed all over the country. The “Incubator Management Companies” (IMCs) concept of Singapore may be considered to nurture high technology based enterprises in other countries. Once the objectives, location and models are defined, the government and the promoting partners should constitute an advisory committee and select a dynamic and professional expert as chief executive to implement best management practices. The sustained commitment of the government and management team is extremely necessary, as is ensuring the availability of adequate financial grants/support to the incubators and their incubatees. Incubatees and graduated enterprises should be given preference in R&D grants, liberalized tax laws, government purchases, low cost loans, etc. New mechanisms should be evolved and encouraged to finance activities such as venture capital, angel investors, specialized stock markets and listing arrangements, patents and technology auctions, patent insurance, etc. Use of information tools such as internet, websites, e-commerce, etc. should be encouraged. National R&D expenditures, both public and private, should be enhanced continuously so that R&D facilities and expertise in universities and R&D institutions are strengthened and researchers/academicians are encouraged to become technopreneurs. Patentable R&D should be encouraged. Similarly, young technopreneurs should be trained and supported to nurture their technology based businesses. Mechanisms need to be evolved to cover or share the risks in high-tech businesses. Some of the R&D institutions may be privatized as in Japan. International Technology Business Incubators (ITBI) should be encouraged to attract foreign R&D institutions and companies including TNC. Local technopreneurs should also be encouraged to go abroad and undertake collaborative contract research to enhance accessibility to international R&D systems. Collaborations and partnerships among and across countries should, therefore, be encouraged. Government should support and encourage the setting up and networking of Technology Incubator Associations within the country and outside. Exchange of experiences, organization of trade fairs and exhibitions for technologies and products of incubatees at national and international levels could be encouraged. Since incubatees and graduated companies are generally small with limited resources, such activities could assist them in marketing their products and promoting cooperation. Inward and Outward Foreign Direct Investments (FDIs) for SMEs with related technology transfers should be encouraged through TIs that may even be involved, albeit technically in the selection and acquisition of technologies. Concerted efforts should be made on long term basis to develop trained and skilled manpower. Mobility of S&T personnel between industry and R&D institutions should also be encouraged. Intellectual property systems including patent literacy, search and filing facilities should be encouraged through training etc. Financial support could also be given to enable companies to file patents abroad through the TIs.

9

Incubatees and graduated enterprises should be encouraged and supported to obtain international certification such as ISO 9000 and ISO 14000, quality management and energy conservation, etc. In fact, TIs themselves should be encouraged to obtain such certifications. Technology assessment and forecasting services and other technology related information systems should be available to TIs and tenants. TIs can advise SMEs and corporations in legal and technical matters related to technology transfer and joint ventures or collaborative arrangements for the development and acquisition of technologies. There is a need to evolve and promote widely-dispersed TIs that are less capital intensive and with relatively low operating expenses but nevertheless meet the technological and professional services needs of technology-based SMEs. There are, at present, specific industry clusters in developing countries which are not covered by TNCs but have very high economic and social relevance and need technology input. Virtual incubators and even simple business incubations may help promote and support enterprises, for example, in the handicrafts, gifts, toys and houseware (GTH) industry, lock industry, glass industry, garments and textiles industry. Impact and performance evaluation of TIs should also include technology-related parameters such as the number of technologies developed, commercialized and transferred; number of patents granted and used and royalties and know-how fee earned in addition to the more popular parameters such as the number of enterprises incubated and which sustained operation, employment generated and annual turnover achieved. However, the evaluation procedures followed will largely depend on the objectives of the country. TIs, in low cost new buildings which are small, compact and specifically designed, may be preferred although renovated old buildings are considered cheaper and helpful in the initial stages of TI. Location is an important criterion to attract good tenants. Thus, TIs are preferably housed in intelligent buildings with efficient business and office facilities with efficient communication services and having availability of external expert services on areas like technical consultancy, legal, marketing, etc. Intenet-incubators have good potential. However, the R&D and technical facilities available elsewhere should be used rather than creating expensive facilities within the TI itself. International collaborative arrangements and agreements should identify opportunities for possible linkages with institutions and among TIs in different countries. Each government should develop its own models based on their objectives and available resources. A combination of physical technology incubators requiring huge investments and virtual incubators with minimum investment requirement may be appropriate for most of the developing countries. The government may set up a specific division in the Ministry of Science and Technology or the Ministry responsible for S&T development, with specific financial budgetary outlay, for the development of technology incubators to promote and support high-tech enterprises in chosen areas. An interagency Task Force or a high level committee may be constituted by the office of Prime Minister/ President and may be serviced by MOST, with members from various economic Ministries and development organizations, R&D institutions, financial institutions, industry, and consultancy/service group at the central and state levels. The committee should set policy directions, evolve and implement strategies/mechanisms to establish technology incubators in the country. Technology Incubation promotion divisions may also be set up in key economic ministries/departments such as industry, commerce, and education, in coordination with MOST. A survey should be carried out to identify the strengths of important R&D and academic institutions in the country, including the commercializable technologies, advanced or specialized S&T facilities and expertise available, and the number of scientists/engineers/professors interested in becoming technopreneurs. This should be widely publicized within the country and abroad. Efforts should be made to identify technopreneurs needing the facilities/expertise available in the national or private R&D and academic institutions. Interactions with industrial associations, industrial clusters of SMEs, etc. would be helpful, as would invite proposals through advertisements.

10

Officials responsible for the technology incubator promotion programme should be trained and exposed to the technology incubation systems in developed countries such as the United States of America and Germany or advanced developing countries such as Republic of Korea, Malaysia, Singapore, India and China. Experts from these countries may be invited to train and create awareness about the role of technology incubators in developing countries. At the same time inter-country entrepreneurship and entrepreneurial capability-building training programmes may be developed and pursued vigorously. Large corporations, including TNCs and small enterprises from other countries, may be invited and encouraged to set up R&D facilities or new enterprises in the incubator. Collaborative R&D and contract research may be encouraged. Domestic technopreneurs may also be encouraged to undertake technology related subcontracting or partnerships with foreign companies. Quality foreign direct investments in high-tech enterprises should be encouraged, preferably involving export-oriented products and services. Technology-related new products and services from the incubatee enterprises should be given preferential treatment in government purchases, in addition to better tax incentives and concessions and increased financial grants during the developmental phase. Liberalized and innovative financial facilities should be evolved and made available to the incubatee enterprises, especially during the early phase of their commercial activities. These may include interest free loans, venture capital, angel investors, technology mortgage and insurance, SWEAT Capital, employees shares option programme, etc. Advanced developing economies may predominantly promote new and emerging sophisticated technologybased enterprises while other developing economies may promote relatively simple technology-based enterprises. That is, integrated technology incubators that are mostly sector specific may be encouraged in advanced developing economies and simple business incubators or technology business incubators may be pushed in other developing countries. Particular attention should be given to the technological needs of SMEs. Simple business incubators may be set up in industrial clusters in cooperation with industry associations and regional development agencies. Business plans need to be prepared in each case. In the long-term, policy initiatives should be taken to strengthen S&T infrastructural facilities and increase national R&D expenditures through increased government and private R&D initiatives and to develop skilled and specialized S&T personnel. Networking and strategic alliances of incubators, including association of incubators and incubatees, should be encouraged and supported. Incubators should promote venture capital enterprises or other forms of technology financing.

Private Sector Large corporations, private universities, training institutions, R&D institutions, industrial associations, export promotion councils and trade development agencies etc. should also promote technology incubators independently or jointly with government agencies. Private financial support agencies and investors should also actively associate themselves with government-supported or privately-promoted incubators. Foreign companies and TNCs should support TIs in specific areas to augment their R&D and technological capabilities, as is being done by Oracle in Singapore. TNCs can also set up R&D centres or centres of excellence in developing countries, which can be linked to TIs. Large corporations and SMEs should seek the services of TIs during technology transfer while actively pursuing inward or outward FDIs. Large corporations can subcontract their R&D or technology development projects to TI companies and source some of their requirements (goods and services) from TIs or their graduates. Private agencies can promote and manage real estate or property development driven TIs and technology parks as in case of some developed and industrializing countries. International Technology Incubators may be promoted by large corporations or TNCs in their home countries and abroad to attract the best of talents and services and residents abroad.

11

Exchange of R&D personnel and professionals between the TIs and manufacturing companies, including training arrangements, may be encouraged by industrial associations. Private corporations as well as SMEs should increase their R&D expenditures in developing countries. At the same time, private corporations in developed countries should enhance their R&D efforts in basic sciences or generic technologies to complement efforts of universities and specialized research centres identified by the government. Industrial associations should actively interact with TI associations and networks and support their activities in areas of mutual interest. The private sector should be represented in the management committees of government supported TIs and vice-versa.

Regional/subregional cooperation ESCAP and other international promotional agencies should assist national governments in developing training managers of TIs and in establishing and operating technology business incubators. Workshops and training programmes may be organized towards this objective. In addition, support may be provided to facilitate the exchange of experts or even deploying experts from countries with wide experiences in technology incubation to those desiring to establish or promote incubators. ESCAP may document experiences in developing countries and prepare guidelines for promoting technology incubators in developing, least developed and island developing countries as well in economies in transition. ESCAP should support the establishment, strengthening and networking of national and regional associations of incubators including Asian Association of Incubators. It should also support the exhibition of products and technologies of incubator tenants to encourage international trade and cooperation among SMEs in the region. This would encourage the globalization of R&D and technology transfer with or without FDIs in the region. Asian and Pacific Centre for Transfer of Technology (APCTT) is currently implementing a UNDP funded project on “Nurturing Technological Entrepreneurship through Science & Technology Entrepreneurs Parks and Technology Business Incubators”, which hopes to create two technology business incubators (TBIs) in India that promote linkages with R&D institutions and industries. Similar projects may be implemented in other developing countries. APCTT can also play an important role in identifying R&D projects which can be implemented through partnership arrangements among the TIs in various countries. The establishment of a revolving fund may be considered to promote the developments/operation of technology incubators in various economies of the region. ESCAP and APCTT should support technopreneurship training programmes particularly in technology management, patents and intellectual property protection, international standards, technology transfer arrangements and issues, and awareness about the laws, rules and regulations attendant to WTO agreements and implications thereof. For example, information about Technical Barriers to Trade (TBT) is an important issue and may need R&D or technology development activities to enhance exports and overcome such barriers. ESCAP should support and facilitate the development of innovative financing support system to meet initiate expenditures of start-up companies until venture capitalists or angel investors become interested. Technology auction, patent auction and patent insurance are some of the new mechanisms emerging in developed countries. There is a need to examine these and create awareness about such mechanisms among developing and less developed economies. ESCAP should support and facilitate technical capability-building of institutions and organizations directly assisting technology based enterprises. For example, researchers and technopreneurs should be supported to undertake graduate studies and enhance Ph.D. thesis projects in various universities through technology incubators. Establishment of virtual incubators in industrial clusters and niche areas especially for craftsmen, artisans, and women, relevant to rural development and needing technological upgradation, or new technologies in

12

developing, least developed and island developing countries should be supported. Expert services should also be made available in selected areas. ESCAP may support and facilitate capacity-building for formulating national policies in science, technology and industry and national R&D programmes to expedite business and technology incubation. Deputation of experts to national governments/institutions and exchange of researchers may be supported. International developmental and promotional organizations, such as ESCAP, should evolve and undertake projects to promote and support capability-building for the establishment of technology incubators in developing countries, particularly in less developed and transition economies. These activities may include support for training, services of experts, exchange of experiences through workshops and seminars; organization of exhibition of technologies; products and services from incubators in various countries, among others. The technologies and technological capabilities available in member countries of ESCAP should be assessed and documented for possible technological cooperation among the incubators and incubatees. Manuals and guidelines may be prepared for the establishment, operation and practices etc. for technology incubators in different groups of economies in the region. A revolving fund may be considered for the incubators, which may be operationalized through APCTT. ESCAP may commission a study relating to various innovative financing systems for the guidance and benefit of high tech enterprises. APCTT should play a pivotal role in the formulation and implementation of the above activities including setting up of incubators and information sharing and networking of incubators in the region. A periodical or a magazine may be brought out by APCTT on technology incubators and related activities in various countries. It may also interact with organizations such as UNDP, UNIDO and UNFSTD etc. which are actively engaged in the development and promotion of technology incubators in developing countries. ESCAP should support and encourage the setting up of national and regional associations of incubators and promote cooperation at policymaking and operational levels among member countries besides strengthening their technology-related capabilities.

13

PART TWO RESOURCE PERSON PRESENTATIONS I. STRENGTHENING TECHNOLOGY INCUBATION SYSTEM FOR CREATING HIGH TECHNOLOGY-BASED ENTERPRISES IN SELECTED COUNTRIES (MALAYSIA, SINGAPORE, THE REPUBLIC OF KOREA AND JAPAN) BY

ESCAP CONSULTANT, MR S.P. AGARWAL, ADVISER DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH MINISTRY OF SCIENCE AND TECHNOLOGY, NEW DELHI, INDIA

15

I. INTRODUCTION A. Background Economic and Social Commission for Asia and the Pacific (ESCAP) has been taking various initiatives to strengthen technological and industrial capabilities towards integrated developments at national and regional/ subregional levels and to promote cooperation among the economies of the region. A new such initiative, among others, relates to strengthening technology incubation systems for creating high-technology-based enterprises in selected countries (Japan, Malaysia, Republic of Korea and Singapore). United Nations fund for Science and 1-5 UNIDO, UNDP and other promotional organizations are credited with Technology Development (UNFSTD), initiating programmes to promote the concepts of incubators including Technology Business Incubators (TBI) in developing countries, as early as 1980s. These countries have gained varied experiences in the setting up and operations of incubators in various forms and a large number of reports/publications/papers etc. are available today relating to their performances and practices adopted in the developed and developing economics. The incubation systems ranging from simple business incubators to highly complex establishments in the form of science parks/research parks or industrial parks seem to have met with mixed results, subjective successes and failures and are still considered to be in the evolutionary stage. The definitions, models, objectives, operations and best practices, physical structures, modes of financing and assessment and evaluation methods for incubators etc. vary from country to country and even within the same country, and seem to lack clarity at many instances. In this context, the present programme of ESCAP relating to Technology Incubation system for creating High-technology Enterprises is a timely and focussed effort towards strengthening and promoting technological and industrial capacities at national and regional/subregional levels, particularly for developing economics and command economies at a time when knowledge-driven development and technology are becoming dominant in the strategies for globalization of economic policies and building internationally competitive strengths. Among various issues relevant to the development of technologies and need for high-tech enterprises in the new emerging order, only two issues viz. globalization of R&D and role of Foreign Direct Investment (FDI) are briefly discussed below.

B. Globalization of research and development (R&D) The process of globalizations, establishment of World Trade Organization (WTO), rapid scientific and technological advancements, newer developments and applications of information technologies, emergence of knowledge based and capital intensive industries, stricter quality standards and systems including ISO 9000 and ISO 14000 systems, environment and pollution control and energy considerations, direct and indirect trade barriers by advanced countries, etc. are eroding the traditional competitive advantages of industries in developing countries, particularly of Small and Medium Enterprises (SMEs), which significantly contribute to the over all industrial and economic developments at national level. Industrial restructuring, including privatization, is creating the need for retraining and redeployment of the workforce in order to increase employment, besides increase efficiency and productivity in traditional manufacturing sectors through development and use of modern technologies and methods, including computers and information systems and technologies such as e-commerce and internet services, for competitive advantages. Emergence of a stronger service sector and its role in economic development is being increasingly realized in developing economies also. All these changes are necessitating the globalization of manufacturing facilities as well as that of services and technologies including R&D, so as to take advantages of the strengths such as markets, skills, policies and infrastructure including S&T, natural resources and so on, available in various countries. The objective is to encourage higher value addition activities and preservation of natural resources through the developments and applications of high-technologies such as biotechnology, new materials; computers, telecommunications and information techniques and systems, microelectronics, etc. According to Mashelkar7 the chain of concept to development of technologies and commercialization of R&D necessarily crosses transnational boundaries today. Companies realize that to gain competitive advantage they have to leverage their capabilities. The globalization of R&D is closely linked to globalization of business and consequently to global competition of skills. In the decade from 1985-1995, Companies from the United

17

States of America doubled their research spending overseas, principally in Europe and Japan, from 5 per cent to 10 per cent of their overall budgets.7 In 1995, firms throughout the world spent a total of more than US$ 20 billion on R&D conducted outside their home base Ð a figure that is increasing rapidly. The globalization process is moving up the R&D value chain (figure 1.1),8 indicating the increasingly important role assumed by foreign facilities in the creation of knowledge. Leading firms such as IBM, Philips, Hyundai, Samsung, Hewlett-Packard, are expanding their networks worldwide. Globalization of R&D is sometimes defined as ÒThe ability of the technology development organization to recognise and respond to technology and market signals from all strategically important locationsÓ. Based on a survey of a large number of companies by Arthur D. Little7 it was found that most companies claim to globalize for one or more of the following factors as drivers: S. No.

Drivers

Relative importance

1

To acquire new knowledge

45 per cent

2

To be close to external customers

31 per cent

3

To accelerate the deployment of technology

21 per cent

4

To reduce the cost of R&D

3 per cent

There are two types of new industries: the industries which can be created by consuming new technologies or markets with existing industries, and completely new industries.8 Creation of completely new industries requires the application of innovative technologies, at least in some part. To apply innovative technologies, original basic research should be conducted. To facilitate basic research covering a wide range of fields, it is desirable that laboratories specialised in various technical areas gather in a research park where they can share their expertise and conduct joint research. Basic research that focuses solely on the discovery of unknown areas does not result in new industries. As a next step, the ÒincubationÓ stage should follow where potentials of new industries are studied. Preferably, a research park should have an incubation town in it to facilitate research at the ÔincubationÕ stage. Then should follow an ÔinnovationÕ stage, which helps new industries to grow on a larger scale. In this ÔinnovationÕ process, focus is given to specific new large scale, high-tech industries. In developing new products in the established industries, manufacturers will have to manage the process starting from research

Technology Development

R&D labs in foreign countries play a role in a global programme of basic or applied research. Objective: Leverage pockets of innovation and knowledge in foreign countries

Product Development

R&D labs in foreign countries participate in the development of new products. Objective: be fully responsive to local markets and production environment

Technology Support

Engineering centres in foreign countries adapt existing products and provide technical support. Objective: Reduce cost of adaptation and tech support

Globalization Process

Reference:

A. Boghani, and others, ÒGlobalization of R&DÓ,International Journal of Technology Management, vol. 17 No. 6 (1999), pp. 698.

Figure 1.1. The process of globalization is moving up the value chain

18

and ending with the creation of new industries in a manner totally different from a conventional one. International harmonization of intellectual property is considered to be essential for growth.8

C. Foreign direct investment and technology development and transfer Most of the Governments are encouraging foreign direct investments (FDIs) which is being considered as an aid for speedy industrial and economical development, besides strengthening indigenous technological capabilities. In fact, ESCAP itself has formulated and implemented several programmes to promote investment related technology transfers. There have been a large number of studies and literature on the experiences of various countries at different stages of development. However, the impact of FDI on technology development in local firms is mixed and9 depends upon several factors including the policy environment and in-house technological capabilities. There are different routes to greater involvement of transnational corporations (TNCs) in R&D in developing countries. Where the production base is large and considerable local adaptations or improvements are needed, adaptive R&D is likely to be launched. Over time, adaptive R&D generally shades into genuine innovation, especially where skill the base is good and TNCs gear their operations to world markets. The incidence of local R&D will be higher the more technologically complex and fast moving are the activities undertaken by TNCs. Innovative R&D is attracted most to countries with strong science and research bases. Some economies, like Taiwan Province of China and India, have mobilized local research consortia to collaborate with TNCs in developing new technologies. The costs of innovation, the spread of international production and policy liberalization have increased the role of TNCs in all aspects of technology. Both externationalization Ð oriented and internationalization Ð oriented strategies have been adopted by most developing countries requiring local technological and innovatory capacities, besides networking and policy measures. However, the sheer pace of technological change makes technological strategies more risky and expensive. Not too many developing countries are in a position to create broad and deep domestic capabilities in the immediate future. Host country efforts need to be complemented by international efforts to foster effective transfer of technology. The new rules of international trade, investment and the protection of intellectual property rights have rendered many instruments used in the past by the then newly industrializing economies difficult to apply. As regards industrial policy, for instance, it is becoming harder to impose local content rules, give infant industry protection, or subsidise targeted activities. Nevertheless, with regard to technology policy, there is some scope for developing countries to provide technology support services and finance for innovation. Also, a number of policy options remain to strengthen the Òsupply sideÓ. One of the possible mechanisms for effective transfer of technology from TNCs relates to developing industrial parks with high-technology infrastructure to attract high-technology investors. Governments can also enter the pre-production stage by fostering high-technology entrepreneurs in technology incubators located in universities or technological institutes in an industrial park.9 The suggestions for encouraging local R&D include contract R&D with local research institutions and universities, developing human resources for R&D in specialized disciplines, developing local enterprises including clusters and network of high-technology firms and enterprises active in niche markets to attract knowledge intensive FDI.9, 10

D. Problems and perspectives for creating new technology-based enterprises in developing countries New Technology-based enterprises in developing countries may be broadly categorized as follows: 1. A young technopreneur (highly qualified specialist) with new ideas or innovations willing to set up an enterprise and take risk, with limited financial resources and limited or practically no management and marketing or organizational experiences. 2. Senior professionals and executives who are well qualified and have long management, marketing or organizational experiences, and have left their jobs due to industrial restructuring or otherwise, and may have small capital/assets. They may need technological and financial support.

19

3. Existing SMEs or family businesses including traders etc., planning to diversify to technologybased production enterprises, and have financial resources as well as organizational experience, but need technological inputs and support. 4. Large Corporations and TNCs planning to diversify or expand into new technology-based businesses utilizing their in-house R&D efforts or acquiring new technologies from national or private R&D or academic institutions or utilizing national R&D facilities to further develop and commercialize their own innovations/ideas. These corporations have strong financial and organizational as well as marketing muscles but look for competitive advantage factors such as knowledge and skills or technological capabilities, infrastructural facilities and policy framework, and market potential in the host country. Technology incubation facilities or systems in the form of technology incubators and S&T parks, etc. is one of the important concepts which has emerged during last about two decades based on the experiences in developed economics such as United States of America, United Kingdom of Great Britain and Northern Ireland, Germany, and more recently in Japan, to promote and nurture technology-based enterprises in their initial growth phase. These incubation systems may vary from country to country or region to region in the same country, depending upon the needs and resources and also the type of problems of promoters or technopreneurs and the sectors of technology. For example, the models and facilities for biotech enterprises would be different than those for information technology or microelectronics or communication engineering enterprises. Developing countries today are struggling to develop sustainable economies through technology-based industrial and agricultural developments including development and application of new and high-technologies in a competitive environment, and fully recognising the role and needs of SMEs. At the same time the traditional industrial sectors including those largely based on natural resources need to continue to be productive and competitive since large investments have already been made besides development of social and infrastructural systems. While there is a large potential to promote and support technology-based enterprises through technology incubation process, in areas such as Information technology, Microelectronics, Communications, Biotechnology, drugs and pharmaceuticals, there are some inherent constraints also. These include S&T and other policies and institutional mechanisms, inadequate financial resources and financing mechanisms to support technopreneurs and R&D activities, non-availability of technologies from R&D and academic institutions, inadequate S&T manpower and training facilities, etc. besides firm commitments and will at the highest policymaking levels, in some developing countries.

Analysis of responses to questionnaires A questionnaire was designed by ESCAP and sent to the representatives in the participating countries for the Regional Consultative Meeting on ÒStrengthening Technology Incubation System for Creating High technology-Based EnterprisesÓ held at Seoul during 29-31 August 2000. This questionnaire related to the information about the technology incubation systems in the participating countries. Responses have been received from the following countries: ◆

Bangladesh

◆

Cambodia

◆

China

◆

India

◆

Nepal

◆

Pakistan

◆

Philippines

◆

Republic of Korea

◆

Sri Lanka

◆

Uzbekistan

◆

Viet Nam.

Five countries of these responses have been analyzed and indicated in table 1.1. It is seen from this table 1.1 that:

20

21

83

10

No VC No organized source

No organized source

Nil

University/colleges

Innovative financing

Intellectual property assistance/technical consultancy

S&T parks

Technical Entrepreneur

◆

R&D institutions

R&D Institutions

◆

0.01 (1995-1996)

Intellectual Property/ Technical consultancy

◆

R&D expenditure (% of GNP)

◆

Location

◆

Key factors

Service

◆

Entrepreneurship development

None

No

No

------

------

------

◆

7 61

5

0.21

Special support and tax incentives

S&T Agenda for national development includes TIs

Legal frame work for special economic zones

DST

3

IPR Assistance Programme of DST

Venture capital corporations

79

◆

◆

◆

Strategic alliances

Management

7 Public Private

◆

◆

Philippines 68 (including 61 industrial estates)

◆

Cambodia

R&D Institutions

Private

---

3

Public Sector

3

Technology incubators

Bangladesh

Ownership of incubators

4

Incubators

Tax incentives VC, technology financing, angel Technology mortgage

◆ ◆ ◆

Taeduk Science Town Technopark Programme Incubators by SME

◆ ◆ ◆

3 types of projects

Government technical assistance for SMEs by professors and researchers and technical consulting programme by MOST

VCC 114 Angel Clubs 20

323

183 government and 2419 private (1998)

2.5% of GNP (1998) 4.1% of total government budget (2000)

Military exemption

◆

Technical credit and Assessment Programme

TDA for SMEs

◆ ◆

Special articles for promoting venture business

291 10

Republic of Korea

◆

Public Private

291

301

Table 1.1. Brief analysis of country responses to questionnaires on technology incubators

Tax incentives

National policies and government support

Technopark

------

1

No venture financing

56

143

0.34% of GDP

◆

◆

1 22

Uzbekistan

Government Joint

2

23

22

Recommendations and future needs

------

------

Best practices in technology incubators

------

None

None

No special programmes

Technical entrepreneur development programmes

Bangladesh

BCSIR contacts with None Chambers of Commerce, etc.

Strategic alliances

Cambodia

Government support for commercializing of technologies

◆

Employment creation

◆

Government support for existing parks/incubators

Creation of technology based enterprises

◆

◆

Commercialization of new and emerging technologies

◆

Educational/technical training institutions

National and International linkages for technical and financial assistance

Philippines

Table 1.1. (continued)

Technology Venture class, Training Abroad Programme etc. of SMBA

◆

Legal and patent Technology assessment Marketing Information Outlet policy (IPO, M&A, etc.)

◆ ◆ ◆ ◆

Consulting ◆ ◆

Venture capital ◆

KAIST operates HTVC

Advanced venture management programme of KAIST

◆

Consultancy companies to support various components of venture companies

◆

Republic of Korea Korea Business Incubator Association (KOBIA)

◆

Uzbekistan

Preparation of institutional methodological, legislative and managerial basis for research commercialization, venture financing and development of ÒSpin OffÓ system as well as network of technology incubators and technoparks

------

No special state programmes for entrepreneurs

An Association of Incubators

1. Republic of Korea has maximum number of incubators (301 including 275 technology incubators), followed by Philippines (68 including 7 technology incubators) while there are only two technology incubators in Republic of Uzbekistan and there is no technology incubator in Cambodia. These incubators are mostly promoted and supported by the governments and also privately supported in Republic of Korea and Uzbekistan, etc. 2. R&D expenditures range from 0.01 per cent (Bangladesh) of GNP in 1996 to 2.5 per cent (Republic of Korea) of GNP in 1998 Republic of Korea has largest number of R&D institutions (183 Government and 2419 private in 1998) while Philippines has only 5. Similarly there were 267 Universities/colleges in Republic of Korea in 1998 as against only 10 in Bangladesh in 1995. 3. R&D institutions, location, intellectual property/technical consultancy assistance, venture financing, government finance support and tax incentives, entrepreneurship development programmes, and strategic alliances etc. are some of the important key factors identified for the success of the technology incubators. These support systems however vary from country to country. Several support programmes and incentives have been evolved in Republic of Korea while there are very few in Bangladesh and Cambodia or Republic of Uzbekistan. 4. The recommendations include need for strong S&T infrastructure, government grants and tax incentives, venture capital and other innovative financing mechanisms, consulting, legal and patent services, technology assessment services, marketing and information services and outlet policies including IPO, M&A, etc. The analysis of the responses to questionnaires, though limited in number, suggests that various developing countries are interested in promoting and nurturing technology-based enterprises through technology incubation systems. The number of technology incubators largely depends upon the S&T infrastructure, national R&D expenditures, financial grants and tax incentives as well as other support facilities including innovative financing systems for commercialization of R&D and setting up of ventures. Some of the developing countries such as Cambodia and Republic of Uzbekistan have sought international and foreign assistance to develop necessary systems and capabilities for promoting technology incubators.

E. Structure of the report It may be seen from the above that a variety of incubation systems are in practice in developed and developing economics and also in transition economics, with the primary objective of promoting regional and interregional economic developments, providing employment, development and commercialization of high-technologies as well as better utilization of R&D capabilities and facilities in public research/academic institutions, through nurturing technology-based enterprises, specially SMEs, in start up or development stages. The levels of investments, sophistication and practices may vary from country to country or place to place. In view of the faster technological developments and new rules for international trade and other issues including developments in information technology, it is necessary that appropriate incubating systems are evolved for promoting high-tech enterprises which may vary for various countries depending upon their resources, stage of development, and national policies, etc. With the above objective in view, ESCAP commissioned this study in March 2000. As part of this study, a two member study mission to Japan, Malaysia, Republic of Korea and Singapore during the period 23 April to 9 May 2000, was organized to study the incubation systems in these countries and evolve recommendations based on the data/information so collected as well as other information from secondary sources or through discussions, etc. Details of this visit are indicated in appendix 1.1. This study report is to reflect the appropriate models of technology incubators for various groups of countries in the ESCAP region. The following are the main objectives: 1. To review policy guidelines, best practices, methodologies and constraints to establish effective and efficient technology incubators which will help entrepreneurs to set up and develop technology-based small enterprises in various national economies and suggest models for technology incubation for various economies in the region; 2. To access the determinants of success and failures of incubators and study their impacts in forging R&D community-industry relationship in selected countries; and

23

3. To evolve suitable mechanisms for strengthening networking and cooperation among relevant institutions/agencies. The structure of this report is arranged as follows: I.

INTRODUCTION

II.

TECHNOLOGY INCUBATORS FOR CREATING HIGH TECHNOLOGY-BASED ENTERPRISES

III.

CATALYTIC FACTORS FOR SUPPORTING AND EXPEDITING TECHNOLOGY INCUBATION FOR HIGH TECHNOLOGY-BASED ENTERPRISES:

IV.

V.

A.

National Policies (S&T and others)

B.

R&D institutions

C.

Technical Entrepreneur Development

D.

Innovative financing support system

E.

Intellectual Property Assistance/Technical Consultancy Assistance

F.

Science and Technology Parks

G.

Strategic Business Alliances and Networking

H.

Standardization, Quality Control and Marketing, etc.

RECOMMENDATIONS FOR FUTURE ACTIONS A.

Introduction

B.

Recommendations for Technology Incubation

C.

Action Programmes

CONCLUSIONS

II. TECHNOLOGY INCUBATORS FOR CREATING HIGH TECHNOLOGY-BASED ENTERPRISES A. Theoretical background on technology incubators 1. Technology incubation system As mentioned earlier, the definitions and practices relating to incubation systems including Technology Incubation systems vary widely. However, some of the widely accepted definitions including the one considered appropriate here for technology incubation are briefly indicated below:

(a)

Business Incubators (BI)

According to Lalkaka,1 the incubator combines a variety of Small Enterprises (SE) support elements in one integrated affordable package. It has a special niche, that is, nurturing early stage, growth oriented ventures, through focussed assistance within a supportive environment. In Republic of Korea, BIs host start ups and provide various benefits and services for promoting and supporting small and medium sized enterprises.11 They promote the survival rate of newly started small and medium enterprises, reinforce the application of technological innovations, create new business and employment, revitalize economies and the research functions of universities and research institutes and finally, foster technical manpower.11 According to OECD studies,4 Business Incubators aim to assist entrepreneurs with enterprise start-ups and development. Incubators typically seek to provide workspace, often on preferential and flexible terms, for a specific industry or type of firm while concentrating spatially the supply of utilities, services, facilities and equipment. In addition to workspace, the services provided by incubators can include various forms of business planning and managerial advice, office facilities, finance and accounting access to business networks, and legal services.

24

What is also now emerging is the Òthird generationÓ system, more appropriately called an ÒInternational Enterprises CentreÓ, which will bring under single aegis the full range of support services for development of knowledge-based business, with linkages to universities, research institutes, venture capital and international joint ventures. This trend is already evident at the convergence of support mechanisms at business incubators/technoparks in South-East Asia. The business and technology incubation concept is at the convergence of two global movements: the emergence of small and medium scale enterprises as instruments of economic growth and accelerated pace of technological change.1

(b)

Technology Incubators (TI)

The TIÕs main concern is to bolster the technological development stage. It aims to complete technological ideas for 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 communication equipment.11 According to OECD studies,40 technology incubators take a range of institutional forms, operating as integrated or sometimes separate, organizations within science parks, universities, and innovation centres. TIs present a technology oriented variant on the BI theme. TIs more frequently provide technology Ð related services and support on issues of intellectual property and support from law schools and local legal firms. Some incubators focus on attracting branch plants, while others work almost exclusively with start up firms and SMEs. TI can help tackle many of the problems such as: capital requirements including venture capital, linkages to sources of knowledge, strengthening research capacities with appropriate interface mechanisms, supplementing business management and marketing skills of technopreneurs, technology acquisition skills, market intelligence and strategic planning, etc.3

(c)

Technology Innovation Centres (TIC)

The TIC conducts research and development (R&D) and technology innovations required by the industrial field, which aims to jointly invest resources into university campus or research institutions and achieve commercialization 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.11 In Japan, Innovation centres do not have parks on-site to allow for the expansion of business activities, including manufacturing activities by the founding enterprise or the new introduction of research facilities, etc. from outside. They are generally urban industrial development bases where research and technological development work is carried out in close cooperation with nearby universities, public research facilities and institutions of higher learning. They are established for the purpose of promoting interregional economic development through creation of enterprises to exploit scientific and technological resources.5

(d)

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 TI or TIC in that it supports the commercialization of previously developed technology; that is, the start up activities of an enterprise. It differs from general BIs in that it concerns technology-intensive or high-tech business.11 Two thirds of business incubators in industrializing countries focus on technology-based activities, compared to one Ð third in the United States of America.3 Figure 2.13 depicts success factors for an incubator while figure 2.23 indicates between Technology Park and Business Incubator as suggested by Lalkaka.3

(e)

Science parks

In Japan, these incorporate incubation facilities to support the creation of new enterprises alongside other major facilities housed in the park. Science parks have comparatively large areas of land at their disposal to

25

NATIONAL AND INTERNATIONAL ENVIRONMENT Supportive National Policies

Internet Technical Assistance

University Community Linkage

Initial Government Funding

Market Opportunities

Technical Infrastructure

ENTERPRENEUR

International Business Linkage

ENTERPRISE

EMPLOYMENT

Growth

INCUBATOR

Rigorous Business Strategy Development

Tenant Finance

Manager Training

Local Consultants

ÒChampionÓ Sponsors Board

Entrepreneurial Selection Graduation

Professional Services Network

INCUBATOR ENVIRONMENT Source:

Rustam Lalkaka, ÒTechnology business incubators; critical determinants of success; science based economic developmentÓ, Annals of New York Academy of Sciences, vol. 798, (18 December 1996), pp. 272.

Figure 2.1. Incubator success factors

Technical University Faculty-Graduate Students Research Facilities Liaison Office Government Policies Other Universities Research Laboratories Professional services

International Technology

Technology Park Quality

Technology Business Incubator for start up early-stage

Multitenant Enterprise Building for established business

Venture Capital Fund

R&D Parcels Anchor tenants

Know how International Markets Export of Technologybased Goods

Productive Sector Private/Public Source:

Rustam Lalkaka, ÒTechnology business incubators; critical determinants of success; science based economic developmentÓ, Annals of New York Academy of Sciences, vol. 798, (18 December 1996), pp. 275.

Figure 2.2. Technology park-business incubator nexus

26

allow space for concentrations of research facilities and R&D enterprises as well as room for enterprises that originated in incubators to expand into. These are generally suburban industrial development basis and built on a large scale. They are often located next to concentrations of universities and other research facilities. Through research and technological development carried out in close cooperation with institutions of higher learning such as universities, they aim positively to promote the creation of enterprises to exploit the results of such R&D work as well technological innovation within existing enterprises. Their basic goal is the promotion of interregional economic development, but they also function effectively as an attraction to enterprises from outside the region.5

(f)

R&D Parks

Lacking incubation facilities to promote the creation of enterprises to exploit S&T resources, these research parks in Japan were built to encourage the accumulation of research facilities such as universities and public testing research facilities in one area. Naturally, the set-up conditions and infrastructure provided differ from those of industrial parks. In addition to considerations such as access to transportation facilities, residential environment, living environment, and natural environment, easy access to urban functions is also important. One of the key elements is a foundation of social services to support human intellectual productivity. Research exchange functions enhance the regionÕs R&D capabilities as well as attract R&D enterprises from outside the region. Neither type of R&D park is principally aimed at promoting interregional economic development. These facilities have traditionally been developed as tools for attraction based regional economic development.5

(g)

Other Definitions

Other names such as Business Innovation Centre, Industrial parks, Business parks, S&T parks, etc. are also loosely used with almost similar objectives as above though details may differ. For example, Business Innovation Centres and S&T Parks in United Kingdom of Great Britain and Northern Ireland are essentially property based initiatives with strong financing facilities/linkages. S&T parks are somewhat similar to science parks/R&D parks in most of the countries including United States of America and industrializing countries.

B. Technology incubators in selected countries 1. Japan (a)

General scenario

1. Japan has always been a nation with many small businesses, despite its image as the land of corporate leviathans manned by regiments of salary men.12 Big companies are realizing the benefits of competitive procurement prices and are struggling to pare their work forces, largely by drastically cutting hiring of new employees. Also, they are adopting compensation programmes based on performance and abolishing remuneration determined by seniority, diluting the attractions of lifetime employment. A survey of SMEs in Japan and United States of America has indicated that 66.4 per cent of the firms spend 0 to 0.5 per cent of the total revenue on R&D or acquiring new technologies in Japan as against 44 per cent in the United States of America, while only 8.8 per cent expand more than 2.0 per cent in Japan against 20.1 per cent in the United States of America. This and other parameters in the study reveal that SMEs in the United States of America are more technology intensive than the Japan.13 The new S&T and other policies and mechanisms are also being reoriented to encourage high-tech businesses in Japan, in order to retain its leadership in technology and in industry in the world. 2. There are mainly two substantial problems that the Japanese economy faces. The first one is the societyÕs increasingly fewer children and ageing population. The second problem is the increasing trend toward hollowing out of the Japanese economy. Another industrial structure related problem is the high cost structure of management resources in Japan. The most important pillar of the series of measures taken by the government to solve these economic problems, relate to the creation of new business based on technological innovation14 and incubation. Incubator is a Òfacility (including that which provided only a fixed asset such as a rental office or a rental research room) that provides rental offices, rental research rooms and shared services at a low fee, consulting services for management and business planning and marketing and also financial support for persons

27

who are trying to establish a business, corporations that have recently been established, and also small and medium sized corporations that are attempting to advance into new fieldsÓ. Incubators are a part of the main infrastructure of innovation centres and S&T parks and are also important facilities and functions for bringing about innovation.5 3. Incubators started to spread from 1988 and a total of 45 incubators were established up to 1993 and another 20 have been under planning in 1994. Of the 70 S&T parks that had been established till 1994, 45 have incubators while only 20 out of another 41 parks were planned to have incubators. It was informed at Kanagawa Science Park (KSP) that there are 140 science parks and 40 incubators in Japan at present. Ministry of International Trade and Industry (MIT) is the nodal agency for incubators promotion though most of the parks/incubators are joint efforts of local governments along with private corporations. 4. Apart from rental research rooms and rental offices, technical consultancy, eating houses and restaurants, conference rooms and databases were provided by the incubators. Consultation services included patents, financing and marketing while shared services included telephones, fax machine or a reception desk. Tenant entrepreneurs were mostly recruited through personal introduction. Many incubators impose the condition that tenants be limited to corporations and individuals who are basically trying to carry out R&D, while some specify clearly that tenants be limited to those 16 kinds of industry stipulated in the Brain Site Act and SMEs. The tenancy period is limited to 3 to 5 years and can be extended if necessary. A rental fee that is lower than the market rate is an incentive for a prospective tenant.5 5. Japanese incubators do not function to hatch new corporations, but rather nurture hatched corporations. They also to enable SMEs that have matured to develop new businesses. Both the purpose and function of a Japanese incubator differ greatly from those of the European and United States type of incubator which is intended for entrepreneurs newly establishing a corporation. About 50 per cent of tenants are engaged in R&D, 9 per cent in manufacturing and 15 per cent in sales in incubators. 63 per cent of tenancies consist of branches of corporations, and 37 per cent head offices of a corporation or an individual. The areas occupied by tenants vary between 25 sq m to 75 sq m. Yoshizawa and others5 have identified the following issues for development of technology incubators in Japan: (a)

Employment creation type and industrial structural conversion type incubators need to be introduced before setting up of advanced technology industry generation type incubators.

(b)

The development of management know-how matched to the unique characteristics of the region, such as residence policies support functions for resident enterprises, and graduation policies, is important, for promoting incubators at Ôitem 1Õ above.

(c)

A careful analysis and evaluation needs to be made of the extent of accumulation of scientific and technological resources as well as S&T needs in terms of industry and lifestyle, in various regions to encourage continuous technological innovations for development of regional areas. Then, a social foundation that will support comprehensive intelligent production from basic research through technological development and application in business and industry must be built as part of a unified social system.

(d)

New credit and financing mechanisms such as venture capital, microloan system, seed capital at early stages, angel funding, and an over-the-counter system for putting on the market stock, etc. as in Europe and the United States of America, need to be introduced aimed at lowering the barriers facing new participants. However recently two new stock exchanges have been set up specifically to foster fledgling enterprises-Mothers and Nasdaq Japan. The pool of venture capital is also swelling.12

(e)

There is serious shortage of promising entrepreneurs in Japan. There were no incentives to encourage, in particular, researchers and engineers to establish themselves as entrepreneurs. There is a need to build a new framework for a cooperative system linking industry and the academy with incubation as its core, including a reassessment of the role and functions of the university in society, in order to induce spin-offs from universities and research organizations. Various measures are now being taken by the government to improve the situation.

28

(b)

Kanagawa science park (KSP)15

1. The Kanagawa Science Park (KSP) is a core project to strategically cultivate R&D enterprises in KanagawaÕs industrial society in order to realise the Brain Centre Concept. KSP is an urban style Science Park designed to create, develop and gather R&D cooperation in one place and promote exchange. 2. The special features include: Promotion of new small and medium sized R&D enterprises; incubation rooms to create and develop corporations, R&D, measurement and prototype design laboratories, exchange facilities, human resource development and other support & service facilities; Community based environment friendly facility; a new structure located near the Tokyo Metropolitan area with concentration of information, industry and research functions as well as of regional high-tech industry, R&D corporations and high level specialized industrial enterprises. KSP promotes new projects through a system in which the local government concludes a partnership with private corporations and utilizes the know-how and capabilities of the private sector while serving as leader of projects. 3.

The three central institutions of KSP15 are as follows: (a)

KSP Inc.

(b)

Kanagawa High-technology Foundation

(c)

Kanagawa Academy of Science and Technology foundation (KAST). KSP Inc. is the owner and is a semi-public corporation, established as the Central entity of the KSP in December 1986 with a Capital of 4.5 billion yen (Public Sector, 1.5 billion yen and Private sector, 3 billion yen).

The main projects include: (a)

Incubation: Actively and systematically promote the scouting of ambitious and creative entrepreneurs and the development of R&D Corporations

(b)

Incubator: Provide all types of support services targeted at individuals including technological support, funding, space, equipment, technological and management guidance, and foster development into independent corporations

(c)

Incubator: Provide space (start-up rooms) at a lower than average price and provide all types of support services for R&D Corporations that are newly established for five years

(d)

Laboratories

(e)

Human Resource Development

(f)

Exchanges Ð Information and facilities

(g)

Real Estate Rental

4. KTF was established in August 1989 to provide sophisticated testing and material characterization services as well as to create a technological information service that provides data on patents and promotes their application to support enterprises R&D and production activities. KTF functions as KSPÕs measurement laboratory, with an investment of 1.2 billion yen by the local government. 5. KAST was newly established in July 1989 with a basic capital of 4 billion Yen (public and private) to promote research in vanguard, high-level scientific and technological fields and technology transfers; to encourage gifted people with creative visions; to further academic pursuits; and to support regional SMEs in their R&D activities. It functions as the R&D laboratory for the KSP. Research and education for nationals and foreigners are the main objects. 6. Support for R&D activities include: all types of business support services for Corporate R&D, hotel services, amenities such as post office, banks, restaurants, shops, etc. Total area: 55,362 sq m; total building area: 15,987 sq m; total floor space: 146,336 sq m; innovation centre: 46,290 sq m; R&D business Park: 100,046 sq m. 7. The team was informed that there were 140 tenants including 70 from R&D sections of large companies and 70 start ups. Seventy companies have graduated in last 10 years. One-third tenants are successful, one-third failures and the remaining are borderline cases. The tenants employ 1 to 150 people and working

29

partnership with universities is established. KSP Inc. is profit making with 1.4 billion yen sales and 50 m yen profits per year, 80 per cent income from rent and 20 per cent from services. This profit however seems to be due to real estate activities and the tenant companies are getting several direct and indirect financial benefits from the government. In fact, KSP as a whole is being funded by the government and therefore the above profits appear to be notional only. KSP takes equity also in related tenants. There is a management team of 23 people representing various partners. 8. The success of the incubators/parks is attributed mainly to strong management team and the financing agencies. Information Technology is considered a new era for future developments in Japan. More and more Science Parks/Technology incubators are being encouraged in private and public university campus, with a focus on regional/subregional developments or technology/industry specific developments.

2. Malaysia (a)

General scenario

1. Malaysia is guided by its vision 2020 document, which states that the country should have a fully developed, matured and knowledge rich society by that year. To achieve the vision, Malaysia has embarked on an ambitious plan to embrace the Information Age and become a regional leader in information and multimedia technology. The creation of the Multimedia Super Corridor (MSC) is a necessary strategy to ensure that Malaysia is not left behind the rest of the world. It will attract leading companies of the world to locate their multimedia industries, undertake research, develop new products and technologies, and export from this base. MSC is expected to help in producing inventors, researchers, thinkers and leaders, and also to develop a new generation of small to medium size enterprises (SMEs).19 2. Traditionally, SMEs have contributed significantly to the overall industrial development of the country in various sectors such as rubber, palm oil, and recently petroleum and chemicals, metallic and non-metallic products, electrical and electronics. This type of economic growth strategy was followed after the oil crisis about two decades ago. A number of large industries in various sectors such as automobiles and textiles, etc. have also come up, the overall industrial development generally being based on natural resources. Presently, the emphasis is towards development of high-tech industries such as information technology, biotechnology, Telecommunications, etc. Towards the above objectives, Ministry of Science, Technology and Environment (MOSTE), and Ministry of International Trade and Industry (MITI) have undertaken programme to promote Technology parks and Technology Development Clusters etc. besides the initiatives of State governments, Universities/organizations and Private bodies. At present, there are about ten Technology Parks/Incubators/ Innovation centres in Malaysia, mostly developed by the Malaysia Technology Development Corporation (MTDC) through the University Campuses and operating in their respective areas of specialization/strength, except Technology park Malaysia (TPM) developed by MOSTE as an independent entity but networking with relevant organizations including universities and R&D institutes.

(b)

Technology park Malaysia (TPM)20

1. The TPMÕs mission is to provide first class infrastructure and services for technological innovation and R&D to enable high-tech enterprises to grow and compete in the global market place. The objectives are: (a)

To facilitate private sector R&D and innovation

(b)

To participate in the commercialization of research results and innovation

(c)

To facilitate joint government and private sector technology development

(d)

Wealth creating through technological innovation.

2. TPM focuses on engineering, IT, multimedia and telecommunications, and biotechnology including computer integrated farming areas. The infrastructure, facilities and services include: Resource Centre (auditorium, conference room, business centre, IT and multimedia centre, smart learning centre, etc.); Master Centre (design, prototyping and manufacturing engineering facilities, technical training, consultancy, skilled manpower, Robotics, flexible manufacturing systems, etc.); IT and Multimedia Centre; and buildings for innovation house, 3 incubator centres, 3 enterprise houses, and R&D plots. The common facilities include securities, local area network,

30

teleconferencing, maintenance, telephone connections and wide bandwidth Internet connectivity. TPM is an integrated complex covering 800 acres of land strategically located near Kaula Lumpur and in close proximity to academic and R&D institutions, besides having an easy availability of community facilities. 3. Presently there are 88 companies, out of which 74 per cent are in information technology followed by engineering (14 per cent) and biotechnology (8 per cent). The total built-up area for Incubator centre and Enterprise house is about 40 million sq ft, with reasonable rents and tenancy period of one to two years. TPM provides/arranges venture capital support for tenant companies and has obtained equities in three tenant companies so far. 4. TPM was established in 1988 and is now operating as a public sector company with paid up capital of M$ 59 million and annual turnover of M$ 80 million and is profit-making although continuous grants (M$ 40 million) are made from MOSTE and financing support also comes from other sources. The tenant companies are also given preferential treatment for R&D grants/loans and other financial incentives from the governments. It is essentially a real estate driven project for development of high-tech enterprises. TPM employs about 200 people, largely technical and a small management team headed by a smart and experienced chief executive. Large size, rentals, quality and types of services, and government support etc. were considered to be essential factors for success. It was felt by its CEO that such facilities should be independent, and not part of a university or an R&D institute, for efficient and commercial operations. Information was not readily available about the graduated companies and their present status or the promising technologies developed or commercialized.

(c)

Technology development clusters programme21

1. Malaysian Technology Development Corporation (MTDC) has been actively promoting the transfer of innovative ideas of Malaysian Universities and research institutions to the marketplace since 1997 through the establishment of Technology Development Clusters (TDCs) throughout Malaysia. TDC is an incubation Centre established within a university to allow companies within specific industries such as biotechnology and multimedia to operate in close collaborations with lecturers and scientists. TDC also strengthens linkages between universities/ research institutions and industry. 2. Following four TDCs have been developed and many more are proposed to be developed in other Universities/R&D institutes: (a)

Universiti Putra Malaysia (UPM) Ð 1996: IT and multimedia

(b)

Universiti Malaya (UM) Ð 1999: electronics and manufacturing

(c)

Universiti Kebangsaan Malaysia (UKM) Ð 1999: chemicals

(d)

Universiti Technologi Malaysia (UTM)

biotechnology, pharmaceuticals and

3. A funding of M$ 200 million is proposed during 2001-2005 to develop and establish such programmes with selected universities with focus on certain technology areas based on relative strength and location of the University. The technology centres incorporate features like laboratories for research and other amenities for small scale manufacturing activities including skills manpower, equipment and facilities. 4.

MTDC during last three years has learnt: (a)

Companies need close guidance from the stage of idea generation, formulation of business strategies and marketing;

(b)

Communication network;

(c)

Continued government assistance;

(d)

Incubation centres must be managed by a reputable management company. MTDC technology infrastructure Ltd. (MTI) is formed by MTDC and appointed as Project Manager;

(e)

Specialised training institutions within the centre;

(f)

Services provided include: R&D and engineering consulting;

(g)

High-technology Transfer and international collaboration;

31

(h) (i) (j) (k) (l) (m) 5.

Human Resource Development; Administration and Project consortium; Quality Management; Manufacturing and process development; Funding Assessment, Venture Capital, grants, etc. MTDC provides venture capital and promotes joint ventures; A steering committee for monitoring the direction and policy of TDCs.

The selection criterion for tenant companies include: (a)

R&D collaboration or cooperation with the respective university;

(b)

Beneficiary of research grants from MTDC;

(c)

R&D division from established companies (multinationals);

(d)

A technology-based company.

6. TDCs consist mainly of Technology Incubation Centres and Advanced specialised Industrial Training Institutions. The arrangement with universities will be as follows: (a)

Universities will lease land for a period of 30 years;

(b)

Universities will receive 5 per cent of the gross rental income;

(c)

Universities can acquire equity participation in a company through the capitalization of intellectual property rights.

7. It was expressed that TDCs would also provide space to large companies and multinationals to attract high-tech entrepreneurs and enterprises and also for better utilization and interaction with university facilities. No strict residence criterion is followed. There are 33 companies, mostly joint ventures with MTDC, and the area available is about 400,000 sq ft in UPM. Only one company is reported to have graduated in three years. Ten companies interact with the UPM and 8 companies are set up by the faculty of the university. There were 16 companies in the centre at UKM, all being MTDC holding companies. Thus, it seems from above that the finances and other support from MTDC, and the cheaper infrastructural facilities have been the main attractions for the tenant companies. Most of the tenant companies continue to be in the incubator even after three years or more of residency, and received preference for R&D grants, loans, etc.

(d)

MSC central incubator22

Multimedia Super Corridor (MSC) central incubator is another initiative of the Multimedia Development Corporation (MDC) to support budding entrepreneurs, SMEs and start-ups to become successful IT and multimedia companies. It is located within the multimedia university campus on a 765-acre area, in the smart city of cyberjaya. It is an integrated complex with office spaces on cheap rental for start-ups and facilities such as rest rooms, reception, meeting and conference rooms, office equipment and telecommunication facilities, IT equipment, in-house business advisory services including intellectual property and outsourced business advisory services such as legal, tax consultancy, etc. MCI is focussing to develop technopreneurs by assisting them to get capital and financing including venture capital, management assistance, etc. The tenant companies must be in the areas of multimedia computing, Internet commerce, software, biomedical, environmental technology, telecommunication, etc. MSC status companies are eligible for various types of preferential and concessional facilities in finance, govt. regulations, grants, etc. A National network of incubators is proposed to be set up. As of 24 April 2000, 59 companies were tenants in the incubator including 40 resident companies as against a capacity of 66 at this stage. However, the incubator is at an infancy stage and experience or the performance data is yet to be built up, as it was set up only in July 1999, and the residency period is defined as 2 years.

3. The Republic of Korea (a)

General scenario

In the Republic of Korea, a phased approach of developing technologies has been adopted for technological and regional developments since 1970s and the same has been speeded up after 1997, in line with a more active

32

policy towards technological leadership and promoting the creation and development of SMEs.26 Technopolis is defined as broader concept that comprises S&T park and S&T Industrial park. There are three clear phases of technopolis development: (i) the national science town construction at Taedok in the 1970s and 1980s, (ii) the technopolis programmes from 1989, and (iii) local high-tech industrial parks since the early 1990s.

(b)

Taedok science town (TST) – Phase 1

1. TST was established in 1973 by the Ministry of Science and Technology (MOST), with the main objectives of: (a)

Creating a foundation for joining the ranks of advanced countries in the 21st century based on science and technology development;

(b)

Fostering closer linkages among research institutes, academia and industry through the effective placement of government supported and private research institutes and universities;

(c)

Establishing a pollution free science garden city with cultural facilities.

2. A total of W 1,550 billion (approx. US$ 2,214 million) has been invested in the TST construction which is about 150 km away from Seoul. It has a total area of 6,880 acres including 3,370 acres for research and educational institutions. A great leap of urban development started in 1993. Moving of the eleven government offices in 1998 renewed the business environment, especially, the Korea Patent Agency, the Agency for Small & Medium sized Business (SMBA) and patent court.27 TST itself accommodates 61 research institutes including 16 national, 4 universities and 25 research centres of large companies, with 13,000 scientists. KAIST was relocated in 1989 from Seoul, facilitating technology innovation and higher education. It is recognised that spin-offs from research institutes start after 20-30 years of the science park construction. 3. In TST and the Taejon area, 13 incubators were in operation with 272 tenant companies in 1999. Facilities include fundraising, networking and outsourcing, marketing, training, IPO into KOSDAQ, information flow, intellectual properties and assessment of technology at Competitive Technology Assessment Centre. Other facilities include venture exhibition, SME service centre, the Korea Venture Association (KVA), High-Tech Valley, Taeduk 21st Century Club, Taeduk Angel Club. The KAIST TIC/TBI is now expanded to High-tech Venture Centre (HTVC) with the help of MOST. Comprehensive support for venture companies include: establishment of education and training programmes, cyber incubator, cyber technomart, collaboration of venture companies, overseas market entry, evaluate the future value and the technological strength of venture companies by analyzing the technology and market ability, commercialization of research results, etc. besides other services for entrepreneurship development. Since 1994, 5 companies have graduated, 17 companies closed and 4 companies have become bankrupt. The residency period for tenant companies is 3 to 5 years. Free space without security, cheaper operation costs, preferential financial support in the form of grants and free loans, high prestige, etc. are some of the incentives to the tenant companies. However, TST is reported to be now facing a new paradigm change from doing research to creating venture.

(c)

Development of technopolis programme – Phase 2

The basic plan for technopolis development was conceived in 1989, primarily to stimulate decentralization of R&D and high-tech industries to peripheral areas for sustained regional development. Ministry of Commerce, Industry and Energy (MOCIE) and MOST evolved two separate plans for creating new high-tech centres in peripheral area and 12 sites in total were identified. However, the concept of technopolis programme has been changed to S&T industrial parks with reduced sizes.

(d)

Development of S&T industrial parks – Phase 3

They focus on attracting high-tech industries with research labs engaged in the specialised sectors of industry. At the same time, residential zones are planned to accommodate employees and families. Considerable emphasis is given to the role of local efforts in providing basic facilities and local universities in facilitating technology transfer. Incoming private sector companies are key factors in the technological innovation process. The national plans of these local high-tech industrial parks are identified in table 2.1.26 Some other

33

Table 2.1. National plans for local high-tech industrial parks in Republic of Korea Area (km2)

Development period

Key industries

Initiatives

9.9 (9.5 in addition)

1989-1995 (1996-2001)

Bioengineering, precision chemicals, information industry, new materials

National

Pusan

6.6

1990-2001

Semiconductors, industrial robots, precision machinery, airplane parts, telecommunication, machinery

Regional

Taegu

3.5

1990-1995

Computers, semiconductors, precision instruments, bioengineering, new materials

Regional

Taejeon

4.5

1990-1995

Precision chemicals, precision instruments, telecommunications, new materials

Regional

Chongju

9.9

1991-1997

Semiconductors, computers, communication instruments, airplane parts, precision chemicals

Regional

Jeonju

3.5

1990-2001

Semiconductors, computers, new materials, precision chemical, bioengineering

Regional

Chuncheon

4.3

1992-1996

Semiconductors, computers, optical instruments, medical instruments

Regional

Kangneung

3.4

1990-2001

New materials, precision chemicals, telecommunication, machinery, maritime technology

Regional

Jinju

2.8

1992-2001

Telecommunications, precision instruments, airplane parts

Regional

Location Kwangju

Source: Zong-Tae Bae, Planning and Principles for the Construction of S&T Industrial Parks: the Korean Approaches (Republic of Korea, KAIST, 1999), pp. 32.

high-technology parks are planned by the private sector. For example, the Pohang Steel Corporation in Pohang and a Technocomplex by Korea University in its campus. 1. The following two laws were enacted to promote the effective development of industry at the national and local level. (a)

Industrial Location and Development Law

(b)

Industrial Distribution and Plant Establishment Law

2. As traditional SMEs have operated under high costs and low efficiency, the government enacted another law called ÒSpecial Measures to support new Technology and Knowledge Intensive businessÓ in 1997 to transform SMEs into technology-based enterprises and to encourage new small technology-based enterprises. This law provides measures to ensure an adequate supply of essential production factors such as financing, manpower, technology, and factory sites. Since this law was enacted, about 300 technology and business incubators are reported to be in operation and under construction in universities and R&D centres in Republic of Korea in 2000.25 Ministries of Commerce, Industry and Energy, Information and Communication, etc. are also promoting technology incubators besides MOST and local government. 3.

Considering the Korean experience, following broad conclusions are drawn26 for High-tech Industrial

parks: (a)

Local conditions and infrastructure should be strongly considered in the planning and design of the S&T industrial parks;

(b)

All components of the parks such as industrial units, academic and research institutes and a residential zone, should be linked and operated according to laid principles;

(c)

To induce high quality personnel, high education institutes should be supported/established in the area by the central and local governments. Science and engineering research centres also need to be designed;

(d)

Central government should continue to play the supportive role for regional development;

(e)

Although these conclusions cannot be generalized for all countries, they can be useful to them as guidelines.

34

4. Singapore (a)

Science park32

1. In Singapore, Science and Technology Development Board (STDB), Standards and Productivity Board (SPB) and Economic Development Board (EDB) are the main government departments/agencies concerned with the development of science and technology, and industry, including development of technopreneurship and high-tech enterprises through science parks, technology incubators and similar other mechanisms. Singapore Science Park (SSP) was set up by the government in 1980 to provide a focal point for research, development and innovation, as an integrated complex covering various types of services necessary for development and operation of enterprises and their employees, and is located in Singapore Technology corridor. The management of the science park was privatized in 1990 and is now owned and managed by Arcasia Land Pvt. Ltd. 2. Singapore Science Park I covering a total land area of 30 hectares is now fully developed with a built up area of 245,000 sq m. There are six land Lessees including Technology centres and laboratories with a focus on industrial R&D and information technology. There are three buildings housing IT companies, which are named CINTECH Buildings. Science Park II is being developed over two phases. Phase IIA, which covers a total area of 20 hectares houses an innovation centre as well as a technopreneur assistance centre catering to the need of technology based start-up companies, in addition to land lessee organizations such as The Institute of Micro Electronics. TeleTech Park, dedicated to R&D in telecommunications is also located here. Phase IIB covers a total land area of 15 hectares and is currently at the master plan design stage. 3. In 1997, there were a total of 226 companies, the majority of them come under the field of information technology followed by those in electronics. Currently there are more than 7,000 research engineers, scientists and support staff working in the Singapore Science Park. 4. The Technology Corridor is an area where there is a high concentration of knowledge based industry comprising R&D companies, Universities and R&D institutes and centres. Different types of research facilities are offered to meet the differing needs of R&D companies including custom built buildings and different sizes of land plots for development. Innovation centre is a one-stop facility for start-up technology companies and provides fully Ð fitted accommodation for more than 50 fledgling companies, sharing office services and on-sight legal and management consultancy services.

(b)

Technology incubator programme (TIP)33

1. The newly launched TIP of National Science & Technology Board (NSTB) is a structured investment programme with built in management support to increase the success rate for start-ups. Incubator Management Companies (IMCs) from successful and experienced groups of businessmen and technopreneurs render their services to nurture and mentor high-tech start-ups and provide advice in strategizing business. They incubate start-ups over a period of two years. NSTB and IMC will invest a maximum of total of S$ 600,000 over two years for a start-up. The financing will cover up to 85 per cent of the R&D costs and any other business expenditures. Upon graduation, the companies are expected to attract further financing from venture capitalists and other investors. 2.

The eligibility criteria include: (a)

Newly registered companies with 50 per cent local ownership;

(b)

Involved in R&D of new products and services;

(c)

R&D expenses more than 50 per cent of total operating expenses.

3. So far only three IMCs have been identified by NSTB. 70 per cent start-ups are expected to be in IT and e-commerce. Large companies, including TNCs, are supporting incubators, especially in computer software and e-commerce. For example, Oracle has launched a US$ 55 million incubation initiative to support budding internet start-ups and speed up the momentum of E-business in Southern Asia.35 Eight incubation centres in Singapore have agreed with Oracle to jointly deliver the oracle-E-business Accelerator Programme.

35

(c)

PSB incubator programme36

1. The objective of the PSB Incubator Programme is to promote, encourage and support development work and industrial innovation in Singapore with a view to enhance the international competitiveness of the local enterprise. Technology-based start-ups who wish to exploit their creative ideas for commercial application may have access to PSB technical expertise and resources such as laboratory space, facilities and equipment, besides developmental grants including local enterprise technical assistance and subsides ranging between 30 per cent to 70 per cent for essential expenditures. Foreign companies and institutes are also encouraged to initiate R&D activities and develop technology applications. 2. A science hub37 is planned at Buona Vista area for technopreneurs. Start-ups can operate from renovated bungalows and other old buildings so that initial costs are low. Jurong Town Corporation (JTC) has also launched programmes to promote incubators to cater to the growing number of technopreneurs start-ups. 59 incubator units have been launched at AYER RAJAH CRESCENT recently, and more will be set up in future.38

(d)

Technopark, Chai Chee39

This technopark with six blocks offering a total letable arc of about 1.2 million sq ft is located at the eastern part of Singapore and specifically developed for companies involved in the electronics and telecommunications industry. An e-biz hub has been created within the technology park for e-commerce companies. It is essentially a real estate initiative of the government through involvement of public and private sector companies including DBS Land Group. In-house facilities include a clinic, gym, cafŽ, tennis court, etc., and real estate rules have been relaxed to promote such technoparks. Presently, there are 45 tenants, the majority of them are start-ups and in e-business or information technology, and also companies such as Microsoft, with a total of about 500 people. The park is still under development.

5. Other Countries (a)

The United States of America

1. At present, it is estimated that there are more than 3,000 business incubators all over the world, out of which the United States and Europe alone seems to account for about 50 per cent. Business incubators are employed in the United States as a strategy for new business creation, and ultimately, for job creation.4 The business incubation industry including technology incubators in the United States of America is extensive and diverse. Although few programmes look alike, most operate on the principle that the synergy of providing business assistance and rental space to fledgling firms stimulates local enterprise development. Technology incubators are not limited to support the technology development phase alone but include technology transfer, commercialization and diffusion also. 2. According to the National Business Incubation Association (NBIA), there are more than 600 business incubators operating in North America, occupying about 30 million gross sq ft of space. These incubators have served 7,795 client firms and launched 4,651 graduates. Approximately 28 per cent of these incubators (around 165) are technology related, half of which (about 82) are university affiliated with an average of 14 tenants per incubator.28 Technology incubators are usually created in partnership with academic and research institutions to commercialize new technologies. Federal government generally support construction costs, industry research, R&D projects and analysis, besides support from other agencies such as local governments, corporations and Small and Medium Business Administration (SMBA). According to the NBIA impact study in 1997, 57 per cent of revenues for incubators in the United States of America came from rent or client fees, 21 per cent from service contracts or grants, and 31 per cent from cash subsidies. Most technology incubators have benefited from state grants in one form or other. Those associated with land-grant universities have received operational subsidies as well. Private investors have often been described as the best source for early seed capital for emerging technology companies. Most technology incubators tenants have ample opportunity to pursue private venture capital funds.

36

3. The majority of firms in incubators in the United States of America remain for less than two years while the survival rate after 5 years is approximately 80 per cent. It is estimated 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. Also, fast growth companies that utilize university resources boost productivity rates 59 per cent higher than peers without an university relationship, and have a 21 per cent higher annual revenue and 23 per cent more capital investments. The 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 1980 and 1990.

(b)

Germany

1. Europe now has over 1,000 business incubation centres and technology parks. Following the creation of the first innovation centre in Berlin in 1983, the number of technology and innovation centres in Germany has increased to around 200. It is expected this number will rise to nearly 300 by the year 2000. An average incubator focuses 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, nearly half of which were spin-offs from university research. Nearly 2,000 companies have moved out of centres, following limited stays of 3 to 7 years. Often centres grow together with their companies and survival rate of companies is estimated at about 50 per cent. 2. Two thirds of the money invested in German incubators comes from the budget of the local authorities and state governments. It is now reported that German incubators are becoming like many of their British counterparts, gradually moving away from their role as promoters of innovation-based companies and becoming mere suppliers of office space.5 On the other hand, it is also reported that GermanyÕs network of technology centres and business incubators is proving to be a source of impetus and a network of future oriented workshops for industry,4 including in reorienting the industry and research sector in the former East Germany. Technology centres are either part of technology parks or grow into technology parks over a period of time. These centres, in cooperation with institutes of higher education and research centres, exert a driving force in support of academic spin-offs, and are found in the vicinities of 59 universities in Germany.

(c)

The United Kingdom of Great Britain and Northern Ireland

In the United Kingdom, technology incubators are generally a function of science parks and technopoles. In 1995, there were estimated 1,250 firms located in 46 science parks employing over 23,000 people. The Enterprise panel has identified four types of incubators in the United Kingdom. The first concerns new and established technopoles such as Astan Science Park and the more recent Cranfield Technology Park. The second are sector specific incubators including the Oxford Centre for Innovation/Oxford Trust or Manchester Bioscience Incubator. The third and fourth categories are general incubators which cover mixed-use enterprises and Òbuilding businessÓ incubators such as the Electronics Commerce Centre at the University College London. The United Kingdom now has more than 100 business incubators.

(d)

The Russian Federation and Central and Eastern Europe

1. Among policymakers in the Russian Federation 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): Òan infrastructure based venture for the establishment and growth of firmsÓ. The ADT, along with other European and the United States of America institutions is playing an active role in coordinating, expanding and funding growing networks of knowledge based ventures. The main goal is to promote technology commercialization as part of rebuilding S&T management systems and developing the economic potential of the regions and lending to employment creation. Perhaps one of the most important contributions of technology incubators is providing technical and management training, and creating a network that strengthens firm to firm cooperation and information exchange between new firms at their early stages of development. 2. In the case of the Russian Federation, there appeared to be only three technology incubators and 19 business incubators in 1997, originating from a USAID grant to set up a model incubator in Moscow. But,

37

other types of incubators and innovation centres provide support for technology-based firms. There are attempts to expand International Business Technology Incubator (ITBI) type of technology incubators. Most financing for regional incubator is in the form of foreign government grants and soft loans. New forms of equity financing are slowly appearing and there have been proposals to create the first Russian Venture fund by January 1998.45 Virtual incubators in the form of Òincubator without wallsÓ were considered to serve as a cost-effective way to help new firms grow via computer and telecommunication network. 3. In 1997, 26 technoparks were in operation in the Russian Federation. A good example is St. Petersburg State Electrotechnical University that leads and coordinates a number of national research programmes. The ETU technopark seems to act as a host for a technology incubator. The federal government is supporting 6 pilot projects for the establishment of technology centres and business incubators in Eastern Europe. 4. Poland has established business incubators and innovation centres, sometimes in cooperation with international support. A main goal of incubators is to increase university-industry relations as at the Warsaw Technical University. The short-term impact of incubators has been relatively weak.

(e)

China

1. China has developed the largest business incubation system outside the United States of America. It established Shenzhen Science and Technology Industrial Park in 1985, the first park. In 1994, preferential policies including tax reduction and exemption were designed by the government of China. In 1999, the state council promulgated the ÒDecision to accelerate commercialization of science and technology research resultsÓ which highlights the importance of innovation centres and encourages venture capital investment by innovation centres. 2. There are around 127 incubators in China located in every province and widely spread all over the country. In addition, there are another 64 software parks and university S&T parks. At the end of 1998, 77 incubators were included in the Torch Programme, mostly representative of the first generation of incubators with general technology focus, had a total area of 884,000 sq m with 33 having space of over 10,000 sq m each, 4,138 tenant firms and 1,316 graduate firms. Tenants and graduates employed around 140,000 people.46 The primary objective of the incubator programme has been to commercialize technical innovations. Incubators are mostly sponsored and financed by the government or sometimes jointly with private sector. The Torch programme office of MOST is responsible for the Incubator programme.46 3. International Business Incubators (IBI) are designed to assist both international and Chinese start up firms enter the Chinese and international markets respectively. The IBI programme expects to attract high potential international and Chinese firms to facilitate domestic and international networking.

(f)

India

1. In India, ÒScience & Technology Entrepreneurs Park (STEP)Ó programme was started about twenty years ago by the Department of Science and Technology (DST), primarily with a view to support and promote technical entrepreneurs. About a dozen STEPs have been set up, mostly in university campuses in different parts of the country. A good number of entrepreneurs (about 600) have been developed and supported over the years, and have led to the commercialization of some of the technologies of the university system and generation of employment (about 5,000) in the country. National financial institutions have been involved in the programme to finance the entrepreneurs while financial grants are given by the DST on recurring basis.49 2. Around 1990, a pilot TBI project for promoting three types of incubators, viz a closed wall type in a national R&D institution, an open wall type in a private R&D institution, and physical incubation facilities through a technical consultancy company, was conceived with the support of UNFSTD through funding and administrative support from the Department of Scientific and Industrial Research (DSIR). The response was encouraging and the concept was getting accepted among the technology based start-up companies or entrepreneurs. About 40-50 incubatee companies took advantage of these facilities in a short duration of about two years. However, the programme was discontinued due to various reasons including sub-critical funding support from DSIR, change of top management at the host organizations and impatience to see quicker results on the part of promoters. However, this pilot project and experience created wider awareness among various sections of the

38

society and helped in subsequently setting up and promoting a large number of software parks, technology parks, industrial parks, etc. though with different models. Thus, the pilot project experience was useful in the country, to promote technology commercialization and transfer, besides technology-based enterprises. 3. Software Technology Parks, India (STPI) has been set up by the Ministry of Information Technology to promote Software parks for accelerating exports by providing infrastructural facilities, including High Speed Data Communications (HSDC) links. The offshore development through HSDC links has increased from 5 per cent in 1991-1992 to around 70 per cent in 1998-1999. STPI has set up 18 centres in the last nine years all over the country. STPI also established a Business Support centre in the Silicon Valley in the United States of America, in 1999. Some of the STP centres provide incubation infrastructure to SMEs, enabling them to commence operations without delay. The centres are equipped with business support facilities with a built up space of over 20,000 sq ft.47 A knowledge park is being developed at Hyderabad by Industrial Credit and Investment Corporation of India (ICICI) along with other agencies. 4. A recent initiative relates to setting up of two technology parks/technology incubators in academic institutions, one at New Delhi and the other in South India, with the support of UNDP. The DST is the nodal agency while Asia and Pacific Centre for Transfer of Technology (APCTT) is also involved actively with the implementation of the project. 5. It may be noted that there is a strong network of R&D and academic institutions in the country, besides a variety of institutional mechanisms and support systems including tax concessions etc. relating to the development of technopreneurs and SMEs. Small Industries Development Bank of India (SIDBI) exclusively provides finances and grants to SMEs to upgrade their technical and technological capabilities, and is taking several new initiatives such as promoting technology incubators and venture capital companies. New forms of financing systems such as venture capital, angel investors, technology sensitive stock markets and mutual funds are also being encouraged to finance technology-based companies.

C. Suggestions and development of appropriate models for technology incubation system for developing countries In the previous sections, we have seen that the incubation models and practices vary widely in various types of economics and need to be evolved on case by case basis. The developing countries are grouped into different levels of economies such as newly industrializing economies, developing economies, least developed countries, island and land locked countries, and economies in transition. As such, the technology incubator models have to be necessarily different and flexible for different levels of economies, taking into account that these models can be upgraded or extended or modified as the economies improve or as per requirements.

1. Linkages and other Considerations Technology incubators may be of general type in least developed countries or some of the developing countries and highly focussed sector wise in developed countries or a mix of these models. It is unlikely that there would be many researchers or researchers/academia needing sophisticated technology incubators in least developed or some of the developing countries. Industrializing countries are attempting to create such capabilities in their R&D and university systems. The immediate problem in many of the developing countries and least developed countries is to revitalize and restructure local industries, including SMEs, and create employment through development and applications of new and high-technologies in traditional sectors, besides taking advantage of the opportunities for developing high-tech enterprises in computer software, biotechnology, and information technologies etc. Industrially advanced countries and industrializing countries are focussing on establishing their technological leadership in select sectors and consequently promoting high-tech corporations through technology incubation systems, on a global basis. Figure 2.3 suggests organic relationships among various types of technology incubation systems which can be picked up and developed as per the needs of economies. Figure 2.4 suggests various types of services and linkages of technology incubator which may again be flexible and expanded as per needs. In some countries such as the Republic of Korea or Singapore or Malaysia, a number of ministries/ departments are involved in the promotion of technology incubation systems. There is a need for well-coordinated

39

Entrepreneur

BI

TBI

IC

TI

RP

TP

University/ R&D institution Industrial Estate/Cluster/ Town

BI

Business Incubator

TBI

Technology Business Incubator

TI

Tecnology

IC

Incubation Centre

RP

Research Park

TP

Technology Park Figure 2.3. Suggested technology incubation systems

and united efforts, with clear distinctions and responsibilities of each agency. Similarly, various policies related to the incentives, tax structure, real estate development, operations, skills-development and education programmes, development of SMEs, etc. should be evolved in consultation with the technology incubator promotion agencies. State governments and local bodies should be fully involved and should be stakeholders. Consortia approach should be useful. In developed countries and also in newly industrializing economies, the focus should generally be on nurturing new technologies of generic nature through sector specific incubators mostly located in or near a university or an R&D institution, with the ultimate objective of developing new TNCs. The industrializing economies in transition and developing countries may, however, need to develop generalized technology incubators and sector specific incubators to support the restructuring of traditional economic sectors including industrial clusters and estates, located at these places. In least developed and island developing countries, initial focus may be on the development of simple business incubators with technology as a central theme and located in industrial estates and industrial clusters. Closed wall type of TIs equipped with integrated and sophisticated S&T facilities near a scientific/ academic institution or as an integral part of technology parks may be desirable in developed countries. In developing countries, open wall type or virtual incubators (figure 2.5) with access to R&D facilities and support services including professional services, requiring minimum investments may also be desirable. In fact, with the availability of modern information technologies and communication facilities, virtual incubators may be suitable even in developed or industrializing countries and be widely dispersed all over the country. In this connection, the concept of Incubator Management Companies (IMCs) as in case of Singapore, may be considered to nurture high-technology-based enterprises (figure 2.6).

40

Government department & agencies policy makers

Experts knowledge sources (R&D, academia, etc.) within the country & abroad

Financing agencies including VC, angels, stock markets, etc. insurance companies

Testing & certification, training, patent offices

Local bodies

Incubators & industrial associations

Technology & industrial information system

¥ Responsive management ¥ Built up space ¥ Technology administration ¥ & business support facilities ¥ Computers, Internet, ¥ telecom facilities ¥ Advisory services ¥ Equipment, prototype, ¥ testing, etc. Technology Incubator

Market promotion including exports

Legal services & consultants, design & engineering

Foreign collaborators & investors

Equipment manufacturers

Networking

Corporations & private bodies

International institutions such as UNDP, ESCAP, ADB

Figure 2.4. Suggested technology incubator linkages and services

Technical consultants, legal services Local bodies and government agencies

Financing agencies INDUSTRIAL CLUSTER OR ESTATE

Industrial association

Markets and large corporations

VTI

Equipment manufacturers, material suppliers, etc.

R&D institutions and universities Technology parks & technology incubators

Figure 2.5. Virtual technology incubator (VTI)

41

R&D INSTITUTIONS

TECHNOLOGY PARKS

UNIVERSITIES

GOVERNMENT

IMC*

IMC*

IMC*

HIGH TECH ENTERPRISES

HIGH TECH ENTERPRISES

HIGH TECH ENTERPRISES

* IMC: Incubator Management Company.

Figure 2.6. TBI development through IMCs Once the objectives, location and models are defined, the government and the promoting partners should constitute an advisory committee and select a dynamic and professional expert as chief executive so as to implement best management practices. The deep and continuing commitment of the government and the management team is extremely necessary, besides ensuring adequate financial grants/support to the incubators and the incubatees for capital and recurring expenditures though the same may taper down over a period of time. The incubator management should be given to a private entity with freedom to operate and manage the affairs within the laid down parameters. Incubatees and graduated enterprises should be given preference in R&D grants, government purchases, low cost loans, etc. New mechanisms such as venture capital, angel investors, specialized stock markets and listing arrangements, patents and technology auctions, patent insurance, etc. should be evolved and encouraged for financing systems. Asia Monitoring Fund, with emphasis on high-tech enterprises may be worth considering. Use of information tools such as Internet, websites, e-commerce, etc. should be encouraged.

(a)

Models

Keeping in view the S&T capabilities, financial resources, and the needs arising out of the globalization of economies and internationalization of trade and R&D, to revitalize the core sector capabilities already built, to provide employment and assist industrial and tiny sector clusters etc., in industrializing and developing countries, least developed countries, island developing countries, and transition economies, the following models of technological incubators are suggested: 1. Well-equipped technology incubators at or near universities/R&D institutions as an independent but closely networked with knowledge sources. They could be ÒgeneralÓ or specific to the expertise of the concerned university/R&D institution and integral to S&T parks. 2. Virtual incubators or Òopen wallÓ type incubators located at or near industrial clusters of SMEs or at the concentration of tiny sectors or in rural areas. 3. Incubator Management Companies identified by the government and interested in technology incubation programmes, with R&D grants and venture capital, etc. from the government or jointly with private corporations. 4. International technology incubators to globalize and internationalise the R&D and encourage transfer of technology with or without foreign direct investments. Based on a survey of a large number of companies in

42

the Untied States of America and other countries by Arthur D. Little, it was found that most companies globalize generally to acquire new knowledge, to be close to external customers or to accelerate deployment of technology. 5. Each country will, however, have to evolve its own model/models depending upon its own needs, capabilities and resources.

D. Salient features of creating and developing technology incubators in developing countries Based on the above studies, some of the generalized salient features of Technology Incubators, which may, however, differ from country to country or even in the same country, are summarized below: 1. The main concern of Technology Incubators (TI) is to bolster the technological development stage. It aims to complete technological ideas for technologies currently under development. Strictly, TIs are to nurture technologies rather than business or entrepreneurs. However, in practice, particularly in developing countries, these functions are blurred with those of Technology Business Incubators (TBI) and Innovation Centres. They are mainly located at or near universities and science and technology parks, or are an integral part of S&T parks or innovation centres. TIs are characterized by institutionalized 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. 2. The technology development objective or the development of high-tech enterprises through incubation is largely integrated to the economic and social development in a region, besides encouraging the researchers or technopreneurs to promote enterprises. 3. The promoters of TIs are mainly national governments or state governments or local development agencies. Joint sector or, sometimes, private sector along may also be promoters. 4. TIs in new buildings, though modest, are preferred compared to renovating old buildings. The location is important to attract tenants. High investments are made in building and facilities, but low cost models have also been evolved. 5. The national governments have to provide financial grants for capital and recurring expenditures on a continuing basis which, however, may taper down to partial grants in the future. Part of the expenditure is met from the rentals and services provided by TIs. 6. The tenants are mainly attracted because of cheaper space, easy access to support facilities and specialized R&D facilities in universities etc., financial grants and soft loans, tax benefits etc. from the government for R&D and technology related activities and, sometimes, prestige and better market potential for their products. 7. The quality and deep commitment of the management team and the chief executive is crucial. It is better to have an independent or private management with an advisory committee of the members representing different interests in the TI. 8. Most of the incubators provide a range of administrative, professional and technical support services and linkages with service providers, computers and telecommunications with Internet, etc., on demand and on nominal payment basis. Some of the incubators equip themselves with R&D equipment, testing facilities, workshops, design and engineering, etc. facilities, especially in case of sector specific incubators. Training and skill upgradation facilities are also created at some places. 9. The tenancy period is usually limited to 3 to 5 years, but not strictly followed. Tenants are selected based on their business plans and merits. Some countries encourage outfits or branches of foreign or multinational companies also. In fact, the presence of multinationals is considered as a source of attraction for local technology-based enterprises. 10. The impact or performance of TIs is usually measured in terms of number of tenants, number of companies graduated and survived, number of people employed by these companies, the annual turnover, or revenue generated to the government. The information about the technologies developed, patents granted and used, actually commercialized and exports of technologies, etc. is rather limited or not readily available. However,

43

in some cases such as Germany, it is claimed that R&D based or technology-based companies from the technology centres are more successful in terms of innovations and new technologies. S&T parks in Japan are also reported to have produced significant number of technologies and corporations of international dimensions. In general, the total number of high-technology graduated companies over a period of more than a decade appears to be small compared to the investments made. In the United States of America, the success rate of small graduated enterprises is claimed to be about 80 per cent compared to about 30-40 per cent outside the incubators. 11. The trend is towards developing sector specific TIs, such as information technology, telecommunications, biotechnology, Internet and e-commerce, computers and microelectronics, etc. 12. A variety of financial incentives and favourable building laws and tax laws, financial grants for R&D, and support services are being made available to the incubators and tenants. Venture capitalists, angel investors, new forms of stock exchanges and laws for technology-based companies are emerging. 13. National, regional and international associations and networks have been formed for the TIs, etc., mostly in developed countries. Some of the developing countries are members of these internationals associations but, generally, do not have their own associations or are not effective. 14. The emerging issues arising from the globalizations and new laws of international competition and trade, which are adversely affecting the domestic companies particularly SMEs, are yet to be attended. 15. TIs also have to play an important role in the effective transfer of technologies and technology capability building associated with foreign direct investments. The developed countries such as Japan are reorienting the strategies of TIs to ensure their technology leadership. Republic of Korea is also fast changing to build its technological and industrial strengths in selected sectors through TIs as one of the measures including revitalization of industrial clusters and industrial estates. Other countries such as Malaysia do not seem to be addressing the existing and traditional industries but concentrating on electronics, information technology, multimedia technology development and biotechnology. The stated good practices include: well defined objectives and missions, recruitment of competent and dynamic entrepreneurial managers; focus on cluster based technologies, select tenants according to ÒneedsÓ and ÒfitsÓ, tailor and leverage existing services, build on local and international linkages, diversify sources of finance, shared expenses, and improved, evaluation mechanisms. Table 2.248 gives the offered by technology and general incubators.48 16. Many developing countries such as India, and Economies in Transition, and least developed countries such as Bangladesh, Nepal and Sri Lanka, etc. are yet to evolve meaningful TI strategies and take action to set up the same. China seems to be the leader in setting up TIs as far as developing countries are concerned. Table 2.2. Types of services offered by incubator type Service

Technology (%)

General incubators (%)

100

100

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

Space

Source:

Woo-Geun Song, ÒTechnology incubator for creating new technology-based enterprisesÓ, project paper for ESCAP International Trade and Industry Division, January 2000.

44

17.

Technology incubators essentially assume (a)

Strong R&D and technological capabilities in academic institutions and R&D organizations, thereby originating R&D results with commercial potential and encouraging potential entrepreneurship in research scientists.

(b)

Potential technopreneurs including researchers, who are willing to translate their ideas/ technology into products and services, are available.

III. CATALYTIC FACTORS FOR SUPPORTING AND EXPEDITING INCUBATION FOR HIGH TECHNOLOGY-BASED ENTERPRISES A. National policies (S&T and others) 1. Japan A series of policy measures have been recently taken by the government of Japan to strengthen its S&T infrastructure and capabilities, specially towards emphasizing basic research efforts in frontier areas, increasing government R&D expenditures and promoting high-tech enterprises/corporations. This includes drawing up a science and technology Basic Plan in 1996 for the next ten years beyond 2000. Fifteen new and growth fields have been identified for sustainable growth of the economy.8 Japan has made various efforts for the creation of new business in close cooperation between government and industries over the past few years. Capital, human resources and technology are considered to be indispensable for fostering new industries.8 Human Resources: In order to create an environment conducive to the development of venture businesses and growth, Ministry of International Trade and Industry (MITI) will pursue a three pronged strategy: ◆

To foster employees with diverse capabilities and creativity, efforts will be concentrated on promoting internships providing students with opportunities to acquire on-the-job experiences that are closely related to their specialities and future career and on enrichment of venture business-related education and studies in colleges.

◆

To encourage free labour mobility, employment placement businesses and stock option system that gives its employees an opportunity to purchase the companyÕs stock at a set price, through tax incentives, etc. shall be introduced.

◆

To facilitate personnel outsourcing, the manpower dispatching business law will be totally reviewed to allow the dispatching company, for instance, to provide services to all industries except those on the negative list.

Technology: MITI is creating and developing an environment that would encourage the development of innovative technologies and facilitate more effective use of existing intellectual resources of universities and national research institutes. The goal is to transfer and utilize budding technologies in a commercial context. The various measures include: resources for technology development related to identified industrial sectors, exchange of personnel and joint R&D among private businesses, universities and national research institutes; protection of intellectual property rights to inventors; and assisting technology licensing and transfer organizations. In August 1998, ÒThe Law for Promoting the Transfer of Technological Research Results at Universities and Institutes to Private SectorsÓ was enforced. The purpose of this Law is to establish TLOs (Technology Licensing Organizations). In February 1999, ÒThe New Business Promotion LawÓ came into effect when a system of renovating technologies of small and medium enterprises was started. In 1999, ÒThe Special Law to Encourage the Revival of JapanÕs IndustryÓ was approved. ÒIndustrial Power Enhancement BillÓ is aimed at to improve industrial competitiveness in Japan. Another measure is the New Venture Oriented Research and Development Promotion Project started in 1999 by the Japanese Science and Technology Corporation (JST). This system aims at cooperative research and development between researchers and those who wish to start business.14 Japan is one of the highest spenders on R&D as a percentage of its GNP (about 3 per cent). Besides the above measures, other initiatives include: globalized trade and competitive policies, enhanced international cooperation, establishing manufacturing and R&D facilities abroad, encouraging foreign direct investments (inward and outward), and

45

so on. A variety of tax concessions and fiscal incentives are provided to encourage R&D in industry and joint research. Japan is perhaps the only net exporter of technology in the world.

2. Malaysia The Ministry of Science, Technology and Environment (MOSTE) has evolved the following strategy to achieve its objectives of promoting science and technology competence for international competitiveness:23 ◆

Increase R&D activities

◆

Promote and develop local technologies, besides improving methods of diffusion

◆

Improve the nationÕs capabilities in receiving and implementing new technologies

◆

Control of pollution and environment management

◆

Develop and increase skilled manpower in S&T through effective human resource development programmes.

The National Council for Scientific Research and Development (NCSRD) helps to strengthen technology base through enhancement of R&D activities and formulation of technology development programmes. The S&T funding programmes include: Intensification of Research in Priority Areas (IRPA), Industry R&D Grant Scheme (IGS), Multimedia Super Corridor R&D Grant Scheme (MSC) and the Demonstrator Application Grant Scheme (DAGS). A National Plan of Action has also been prepared in 1998 which focussed on widespread adoption and adaptation of technology and increasing market-driven R&D activities. S&T Human Resource Development Fund was also introduced in 1997. Several other schemes include: Recruitment of Malaysian Scientists Overseas and Foreign Scientists, enhanced international cooperation, National Bio-Technology Programme, establishing S&T information Centre, environment friendly technologies, and Intellectual property etc. The overall R&D expenditure was estimated at about 0.22 per cent of GDP in 1996, predominantly in the public sector. The targeted level of investment for R&D is 2 per cent of GDP by the year 2000. However there is an increase in industryÕs investment in R&D accounting for 73 per cent of total R&D expenditure. Malaysia Technology Development Corporation (MTDC), under the Ministry of International Trade and Industry, is also actively engaged in the development and applications of industrial technologies, by way of promoting Technology Development Centres, including incubators, in the campuses of universities to promote high-tech enterprises. However, the linkages between the technology development agencies, industrial development organizations and academic institutions, need further strengthening. The number of researchers have fallen from 4,545 in 1994 to 4,243 in 1996. Malaysia ratio of researchers is 5 per 10,000 population, which is very low compared to the ratio in countries such as Singapore(48) and Japan(82). There is a 20 per cent shortage of needed scientists, engineers and technicians for the industrial workforce. Malaysia requires approximately 493,830 scientists and engineers for R&D in 2020.

3. The Republic of Korea30, 31 In an effort to join the ranks of technologically advanced nations, MOST has pursued a wide range of innovative measures that include the enactment of a special law for scientific and technological innovation, formulation of the Five-year (1997-2000) Plan for S&T Innovation, a Highly Advanced National R&D Project (HAN), and a Creative Research Initiative. During the late 1990s, R&D investments have gone up as a percentage of total government budget to 4.1 per cent in 2000 and is planned to be raised to 5 per cent by 2002. Also, the National Science and Technology Council (NSTC) was established in April 1999 to strengthen the overall coordination of national S&T policy. R&D manpower is estimated at 1,300,000. Programmes have been initiated to produce high-calibre manpower through financial support to universities on the basis of their research performance. The number of graduates in 1998 receiving BS, MS and Ph.D. degrees was 90,446, 16,781 and 3,392 respectively. The government is endeavouring to expand R&D investment to develop advanced technologies in fields such as biotechnology, environments, new materials, information technology and nuclear energy. The target is to be one of the top 7 nations in S&T by enhancing competitive advantage in specific areas by 2025. The government will encourage technology innovation driven by the private sector rather than by the government.

46

Further, emphasis would be shifted from investment expansion to efficient distribution of investments, and globally networked R&D will be pursued to acquire knowledge-creation capability to promote new industries. The government will strengthen policy measures to improve industrial R&D capabilities and to utilize the environments for new venture creation e.g. technoparks, technology incubation centres, regional consortiums among universities, industry etc. Also, R&D investment is to be increased for the development of social infrastructure technologies such as transportation, water resources and construction management. Increased efforts are to be made to promote international cooperation in S&T including undertaking joint research programmes.

4. Singapore The national policies are guided by a philosophy that competition is increasingly based not just on cost competitiveness but on capacity competitiveness as well Ð especially the ability to innovate and come up with new products and services for increasingly sophisticated customers. Singaporeans are stated to be among the most highly educated people in the world, with 60 per cent of high school students receiving tertiary education. With the highest personal computer ownership rate in the world today, Singaporeans are also stated to be among the most IT-Savvy. NSTB, established in 1991, has focussed on capability development in S&T, through emphasis on industrial R&D, technology infrastructure, promoting technopreneurship, R&D manpower development and international linkages.25 The emphasis of S&T development is to promote high-tech sectors such as computer software, e-commerce, biotechnology, microelectronics, telecommunications, information technology, besides other non-polluting industries. According to the 1999 R&D survey, there are 66 researchers and scientists per 10,000 workers. In 1998 R&D expenditure was estimated at 1.76 per cent of GDP. Private sector R&D expenditure was more than 61 per cent of the total R&D expenditure. The number of patents filed and worked by the research institutes and centres reached a cumulative figure of over 200 in 1998. More than 30 high-tech companies have spin-off, till 1998. R&D manpower is estimated at 130,000. Programmes have been initiated to produce high-calibre manpower through financial support to universities on the basis of their research performance. In 1998, Singapore had 12,810 research scientists and engineers. The goal is to increase this number to 90 per 10,000 in 2005, compared to 65.6 per cent in 1998. NSTB develops and upgrades the capabilities of local research scientists and engineers. It also facilitates recruitment of foreign research manpower and nurtures a scientific interest among the young. It networks closely with companies to develop capabilities of research talents to broaden and deepen the scope of R&D activities in Singapore. Several measures have been taken to develop and train skilled manpower to meet the growing requirement of infotech industry in Singapore. These include the establishment of INFOCOMM 21 Masterplan and consequently Info-Communications Development Authority of Singapore (IDA) in consultation with partners in industry and in other government organizations. The current pool of 93,000 infocomm manpower, comprising 5 per cent of the total workforce, needs to grow to 250,000, about 10 per cent of the total workforce by 2010.43 Another programme to boost IT manpower is through subsidizing course fee for Singaporeans and compensating employers for employees desiring to be trained in IT. Manpower Upgrading for S&T (MUST) aims to help companies to acquire and build capabilities and know-how in R&D and technopreneurship activities through training and postgraduate studies. PSB administers the Skills Development Fund (SDF) for manpower development in the industry and institutions of relevance.

5. General observations From the above sections, it appears that all countries have taken new policy initiatives to strengthen their technological capabilities and related infrastructure to promote high-tech enterprises sectorwise or in general, through various mechanisms including technology incubators in some form or the other. The fiscal incentives, tax structure, legal framework and investment policies, and grants etc. conducive to the setting up of technology incubators and attracting high-tech enterprises or technopreneurs have been evolved for their faster growth into successful corporations, with varying degree of experiences and successes. The quality and extent of implementation of policies as well as resources deployed for the purpose, however, vary from country to country.

47

B. R&D institutions 1. Japan Looking forward to the 21st century, Japan is committed to promoting creativity in science and technology for the betterment of society at home and abroad. A strong network of a large number of R&D institutions, universities and private sector R&D facilities has been established and several of institutions operate in highly specialized fields. During 1999, four technology transfer institutions were approved as targets for support measures for development of high-tech corporations. Joint Research centres at national universities for academic and private sector cooperation have been established. A new type of centre with liaison capabilities was established at Tohoku University and Tokyo Institute of Technology. The Science Council of Japan recommended in 1998 for the conversion of national research institutions into independently administered Corporations as part of the reforms.17

2. Malaysia There are about 30 R&D institutions and almost similar number of universities, both in the public and private sector, in Malaysia. The involvement of the institutes of higher learning and the private sector to carry out product R&D in technology parks and innovation centres has been on the increase.24 The collaboration between Universiti Malaya (UM) and Polylran Resources Ltd. Berhad to develop electronic ballast product and the collaboration between Universiti Putra Malaysia, Universiti Malaya and TropBio Research Ltd. Berhad in generic improvement of forest trees and other tropical plants research are examples of efforts of TPM. Public research institutes and universities concentrate their R&D efforts on socio-economic development and the advancement of knowledge, while the private sector focuses more on commercial goals.

3. Republic of Korea30, 31 To reorient the objectives and strengthen the R&D capabilities in government research institutes (GRI), a ÒLaw Concerning Establishment, Operation and Development of Government Supported Research InstitutesÓ was enacted in January 1999. Under the new system, there are five research councils under the Prime MinisterÕs Office, which oversee the operation of GRIs. The National Research Laboratory Programme is a new programme launched in 1999 to identify and support small-scale laboratories of industries, universities and public research institutes so that they can grow up as the major performers of national R&D projects. There were over 5,000 private institutes, 35 government supported research institutes and 61 centres of excellence in 2000.

4. Singapore SingaporeÕs technology infrastructure comprises 13 research institutes and centres, two universities, the polytechnics and government departments. R&D collaborations between research institutes and industry in Singapore or abroad are encouraged to promote globalizations of R&D.40 There is a strong network of research institutes and centres, institutions of higher learning and innovative companies. This helps promote viable innovations in technology in core research areas of IT, Communications, life sciences, chemicals, materials, and the environment, manufacturing and automation, and electronics. Kent Bridge Digital Labs, for example, has produced more than half a dozen start-up companies in the last two years through its innovative bridging units. In September 1998, the Institute of High performance computing was through the merger of the National Super-Computing Research Centre and the National University of Singapore Centre for Computational Mechanics to undertake upstream and industry driven research and simulation using advanced computational techniques. NSTB has recently established the centre for Drug Evaluation jointly with the Ministry of Health, with the support of Smithkline Beecham and Merck Sharpe Dohme, to strengthen the drug evaluation infrastructure and expertise for Singapore and the region. SingaporeÕs industries and TNCs continued to invest in setting up of new R&D establishments to introduce innovative technologies to strengthen their global competitiveness in various areas such as electronics, communications, chemicals, drugs and pharmaceuticals, automotives and information technology.

48

PSB plays a key role as a technology connector by establishing strategic linkages and collaborations that enable industry to gain access to the wide range of technologies available in the research institutes, both locally and overseas. PSB also helps companies exploit new technologies for higher productivity. Through its testing and analysis services and product and process improvement and development programmes PSB plays an active role in facilitating the wider diffusion of technology in industry.42

5. General Observations It may thus be seen from the preceding sections that setting up and promoting R&D institutions, academic institutions including universities and continuing development of human resources as well as encouraging research personnel for entrepreneurship has been a major activity in all countries. However, the focus of R&D programmes, the extent of facilities, the size and number of the institutions and the number of scientists/engineers trained depend upon the resources available and also the availability of expertise. Increasing participation of the private sector is encouraged. In some countries, the focus is on conducting basic and generic research in select areas with a view to establish global leadership besides encouraging industrial research, while in other countries the focus is on development of competitive high-technologies in select sectors for industrial development. Research and scientific personnel are encouraged to be technopreneurs through technology incubators. Globalization of R&D is also promoted.

C. Technical entrepreneur development Technology incubators essentially aim to nurture and support technopreneurs in development of their technologies from infancy stage to a take off stage for commercialization. These technopreneurs or technical entrepreneurs, desiring to establish high-tech enterprises based on their technologies, are often young and have high level of education in science and technology, but may lack adequate finances, knowledge or expertise in financial and administrative management, marketing etc. necessary to run an enterprise. These technopreneurs may often team up with other entrepreneurs having requisite experience and capabilities in these areas. Even so, a minimum level of knowledge in various fields is necessary for technopreneurs for setting up and for the growth of an enterprise. With this view in mind, almost all countries have evolved training and skill development programmes for technical entrepreneurs and made such programmes available free or at low costs. In some countries, Entrepreneur Development Institutes have been set up. Technology incubators often arrange such training programmes for continuous upgradation of management and administrative skills of technical entrepreneurs. Information and methodologies related to various government rules and procedures and matters requiring necessary approvals from various authorities are also included in the training programmes. In some countries, special programmes and incentives have been evolved to train and attract high quality high-tech entrepreneurs. For example, in Singapore, apart from various technopreneurship and manpower development programmes for industry and S&T personnel, another programme known as Technopreneur Home Office Scheme has been recently evolved. Under this scheme, technopreneurs are allowed to use their homes as offices as long as the character, ambience and environment of the residential estate is preserved. The type of business suitable for this scheme must be technology based and knowledge intensive. It must be a firm or an unlisted private company registered in Singapore and with more than 50 per cent equity owned by Singaporeans. NSTB is the implementing authority. NSTB is the lead agency for intensifying technopreneurship. A ÒTechnopreneurship 21Ó private sector effort is aimed at successful development of technopreneurs. Several financing and incubation support programmes including TIP have been launched. In Republic of Korea, with a view to promote development of entrepreneurship and venture business, several programmes and policy instruments have been evolved in recent years. Besides the law for special measures to support new technology and Knowledge Intensive Business, Venture Business Bureau was set up in Small and Medium Business Administration in 1997.25 Programmes for university professors, researchers and students and public are present to encourage them to enter venture businesses. Public R&D organizations are required to formulate R&D plans for SMEs with regard to their technology development efforts with emphasis on venture businesses.

49

D. Innovative financing support system Technopreneurs may not have adequate finances or financial support even to pay for the services of a technology incubator and for developmental activities and more so to establish an enterprise based on their technologies or technologies acquired and upgraded/improved. In order to encourage and support such entrepreneurs and recognising the knowledge as ÒcapitalÓ in a knowledge driven society, the government and even private corporations, independently or jointly, have taken several initiatives to fund early stage development efforts as well as the precommercial operations, besides financing of the manufacturing and related operations subsequently. Many new concepts and innovative financing systems have come up in recent years to value ÒknowledgeÓ as capital and to fund ÒideasÓ, and the ventures proposed to be established on such ideas. Financers and investors are increasingly getting prepared for high-risk and high return ventures. Usually, the financing support systems for development of technologies and supporting new and emerging technology-based enterprises include: ◆

Financial grants, tax concessions and fiscal incentives

◆

Interest free or low cost loans

◆

Venture capital

◆

Angel investors

◆

Banks including specialized banks for SMEs, financial institutions and insurance companies

◆

Stock options and liberalized listing

◆

Sweat equity

◆

Employees stock options

◆

Specialized stock exchanges and mutual funds

◆

Foreign investments

In globalized economies and in the age of extensive application of information technologies, it is now said that financing capital is no more a problem for a new high-tech venture. The evaluation of intangibles and invisible assets, including human resource, in high-tech companies is also getting widely accepted for financing purposes or for valuing the worth of a company. Venture capital is an established source of funding for new and emerging technology-based enterprises. Venture capitalists usually become involved with seed capital at an early stage and finance production, marketing and distribution activities. A large number of venture capitalists are coming up in countries such as Republic of Korea and Singapore with innovative schemes while in some countries such as Japan and Malaysia, venture capitalism is catching up. Technology incubators are also being financed by some of the financing institutions. TIs themselves may be equity partners or provide soft loans to their tenants. In some countries, venture capitalists have formed associations to voice their concerns and have been receiving preferential treatment in tax and other related matters from the governments. MITI in Japan is working to foster an environment which facilitates competition, lowers taxes, provides new financing mechanisms and reviews labour and employment systems. The new financing systems include diversifying capital supply sources and improving the capital market to new business that are unable to procure loans because of lack of collateral. Angel tax system helps private investors reduce risks of investing in venture businesses. Preregistration and prelisting in markets are being reformed to ensure a smooth flow of capital to enterprises. Public placement of shares and improvement of over the counter market are also being introduced.16 In Republic of Korea, based on the provisions of the law for special measures to support new technology and knowledge intensive businesses, various pension and other funds as well as investment trust and insurance companies are allowed to invest in venture business directly or through intermediary venture capital companies. Venture businesses listed on the KOSDAQ (Korean Securities Dealer Automated Quotations) market are allowed to issue corporate bonds in an amount equal to 10 times their capital and reserves as compared to the current five times. An ÒAngel MarketÓ, where businessman and investors come together to establish venture businesses, has been set up. Angel investment fund is not subject to audit, and tax deduction and exemption privileges are available for angel investors. Prospective technopreneurs seeking to establish start-up firms using their own

50

technology, holders of intellectual property assets and new firms are offered funds to start their business or develop new products and high-technologies. SMBA is also playing an important role in the development of high-tech venture businesses through technology incubators in Republic of Korea. It provides concessional financial and administrative support to venture businesses with the following condition: ◆

Venture is unlisted in the United States of America

◆

R&D expenditure is at least 5 per cent of total sales

◆

Venture capital investment is more than 10 per cent

◆

IPR and Patent related sales are more than 50 per cent of the total sales

◆

Technology is assessed by the government.

SMBA has planned to support 80 incubators per year in future, and 220 incubators are designated presently by it in universities/R&D labs. Future policy is to convert some of the existing companies to ventures and promote more start-ups, with no financial constraints, and encourage them to go abroad. Besides government grants and loans, venture capital companies and angel investors, a TIF of US$ 1 billion provides additional liquidity for venture capital and equity injections to support technopreneurship development and the establishment of a vibrant venture capital industry in Singapore. The TIF is placed with private sector funds and helps to attract larger funds with international repute. It is also aimed at establishing a global network of relationships to have the way for the transfer of technological know-how.41 To boost funding for technopreneurs, the government launched a US$ 1 billion Technopreneurship Investment Fund (TIF). This has drawn venture capitalists from the Silicon Valley and Taiwan Province of China to set up regional bases and Headquarters in Singapore. It has also resulted in the creation of several other venture funds for technopreneur start-ups.41 The former Vice Minister of Finance for International Affairs, Japan, has recently18 advised to quickly start the process of adopting economic and social system to the Information Technology (IT) revolution and globalization. Also, in order to cope with negative side of globalizations and virtualization as a result of IT revolution, defensive mechanisms need to be built up to shield from possible future (crises). He has suggested the creation of regional funds, which may be known as Asian Monetary Fund (AMF). As IT revolution eventually spreads through Asian and countries globalize their economy, intraregional transactions among all Asian countries would increase dramatically which may strengthen regional ties through increased intraregional trade and capital flows. In this process development of high-tech enterprises through technology incubation would assume an important role. The European Commission has also recognised access to Risk capital as a key factor in encouraging entrepreneurs and small business to achieve their full potential.44 The 1999 Board Economic Policy Guidelines (BEPG) have stressed that efficient risk capital markets play an important role and should be a part of structural reforms needed to improve the overall funding of capital markets. The very recent and rapid growth of electronic share trading, through electronic communication networks, will let companies, in the future, list and trade their shares globally and around the clock and will contribute to a decrease in the cost of raising capital. An analysis by the European Union in April 1998 on barriers to the development of risk capital showed six main areas of concern: market fragmentation, institutional and regulatory barriers, taxation, a paucity of high-tech SMEs, lack of qualified human resources and pernicious cultural barriers. Further, measures already launched in favour of business angels, to simplify administrative procedures, or to facilitate and development of long-term duration interaction between sources of finance and sources of technology would be enhanced. For example, actions taken to promote an entrepreneurial approach towards exploitation of university research or to develop adopted financial models and ownership structures for university incubators are examples of good practices to be developed in all countries.44 Patent insurance, patent auction, technology auction, technology mortgage, and financing on the strengths of patent are other mechanisms coming up to support the financial requirement of high-tech companies.

51

E. Intellectual property assistance/technical consultancy service 1. Intellectual property Intellectual property is a key legal issue for technology-based enterprises, particularly for new and high-technologies in areas such as drugs and pharmaceuticals, biotechnology, microelectronics and computer software and agriculture. Often, the key to business success is the ability of a company to protect legally its core technology besides the national policies and efforts to provide appropriate support systems and patent related services. An incubator facilitates access to legal assistance in this area. With the establishment of the World Trade Organization (WTO) and its Trade Related Intellectual Property System (TRIPS) Agreement, almost all the member nations are trying to harmonize their intellectual property laws, including patent laws. Several countries have undertaken modernization and upgradation of their patent related organizations and launched patent literacy among researchers and entrepreneurs. As a result, it has been noted that the number of patents filed and granted to researcher/companies in various countries in the region has dramatically increased, particularly in developing countries, after 1995. The number of patents granted and used is an indication of the technological capabilities in a country as well as of the patenting companies. It was, however, noted that the data/information related to the patents obtained by the incubatee companies in various countries was not readily available or reported, though many of the incubators are providing patent facilitating services to their tenant companies. This needs a review of the R&D projects on the technology development activities being taken up in incubators, as well as evolution of necessary measures to encourage patentable developments or create awareness among the technopreneurs and among the management of the incubators.

2. Technical consultancy services Technology based start-ups in particular have needs for more specialized expertise. One way of brokering this type of help is to bring specialized service providers to the companies in the incubator facility. Such in-house firms, which are weak in many areas, need to access niche expertise that complements or supplements staff abilities. Incubators themselves do not have resident technical expertise. The solution to this problem is to broker firm relationships with external expertise, often through a contract or grant, and often on a subsidized basis. Incubators usually arrange to provide external technical consultancy/professional services to their tenant companies as per requirements. These services may relate to preparation of feasibility and project reports, market requirements, field trials, detail design and engineering or upscaling of processes, drawing technical specifications, and identifying commercial sources of supply of plant and machinery, raw materials, components; mode of financing, and so on. Special issues such as those related to environment, energy, safety and international trade practices, laws of other countries, may also need external professional services.51 ESCAP has been supporting a Technical Consultancy Development Programme for Asia and Pacific (TCDPAP), with its Secretariat facilities at the Consultancy Development Centre at New Delhi.52 However, the activities under this programme needs more financial support of ESCAP and other international promotional agencies, besides cooperation and appreciation among the member countries. The technical consultancy services also promote technology transfer, investments and trade.

F. Science and technology parks (S&T parks) S&T parks have been discussed in detail in chapters I and II. Some of the S&T parks in advanced countries have been established ÒnaturallyÓ based on technological entrepreneurs and market demand, while almost all of S&T parks in developing countries have been established by the integrated efforts of the governments. This is a human, scientific and economic system, strongly supported by the government, to stimulate the technological innovation and commercialisation process and industryÕs need for competitiveness through working linkages between university, research institutes and businesses. As the developing economic are opening up and the need for international competitiveness is increasing, the S&T parks are expected to assume greater significance in the overall national plans for technological and industrial developments. However, the models practised in advanced countries such as the United States of America and Japan or in industrializing countries such as

52

Republic of Korea or even developing countries such as Malaysia, are too capital intensive and the gestation period is large which very few developing economics may be able to afford easily. Therefore, long term loans or grants from international agencies would be desirable as would developing alternative models which are less capital intensive and more effective. With the developments in information technologies, globalization of R&D activities and new financing mechanisms becoming available, including easier flow of foreign investments, it should be possible to evolve such new models to meet the emerging needs of high-tech enterprises.

G. Strategic business alliances and networking Entrepreneurship is a dynamic process, more so in case of high-technology enterprises. As such, it requires links or relationships, not only with individuals but also with a variety of institutions in the public and private systems. The potential links and relationships can promote and sustain new ventures in an incubator. A university provides business and research centres, continuing business education, and a potential base for research and development, particularly for generic technologies, and also helps to develop entrepreneurs. Emerging firms are provided with a tier of peer support which are needed to establish important links with suppliers and customers. Technology development and entrepreneurship is a complex multidisciplinary activity, requiring a wide range of inputs which may not be easily available at one place. Strategic business alliances and networking, therefore, is becoming extremely important with those who matter. These may include R&D institutions, universities and centres of excellence, government agencies and industrial associations, training and testing facilities, consultants, subcontractors and assemblers, financial agencies, information centres, and even competitors, within the country and abroad. Increasing costs of R&D and higher costs involved in commercializing and in setting up manufacturing and allied facilities, reduced technology and product life cycles, scarce R&D or specialized manpower and stricter quality requirements are also some of the factors for entering into strategic business alliances and networking arrangements. In fact, it is happening almost every day when geographical locations and other physical parameters are becoming less and less important compared to the source of knowledge and technology. Technology incubators should, therefore, develop strategic business alliances with the relevant organizations/agencies, including large corporations and R&D institutions. They should also network with the technology incubators in other countries, besides developing networking and creating associations of incubators in their home country. Exchange of experiences and visits of specialists from the incubators in developing and developed countries would be useful for all concerned. Also, organization of exhibitions, trade fairs and workshops etc. for the technologies and products from the incubators in various countries would enhance business prospects and cooperation in the region. International organizations such as UNDP, UNIDO, ESCAP and ADB should support such activities.

H. Standardization, quality control and marketing, etc. Standardization and appropriate quality control systems are no more optional but a necessity for any enterprise to be competitive, particularly for high-tech enterprises. Increasing attention on conservation of natural resources and international competitiveness are necessitating the development and adoption of international standards and quality management systems. Japan has been a pioneer in these areas and has set up many new practices. ISO-9000, ISO-14000 and other systems have almost become mandatory for international trade in many countries and a large number of companies in developing countries have obtained certifications. At the same time, most of the developing countries are creating necessary certification agencies for training of personnel and implementation of various standards and methods. In Malaysia, the Department of Standards Malaysia (DSM) is the national standards and accreditation body. It was established in 1996 following the corporatization of the Standards and Industrial Research Institute of Malaysia (SIRIM), to undertake the statutory roles in national standardization. In addition, DSM is also responsible in carrying out accreditation activities for laboratories and certification bodies. Several quality improvement programmes have been undertaken to ensure the quality of Malaysian goods and services for the international market.

53

Singapore Productivity and Standards Board (PSB) is a statutory Board set up in 1996 under the Ministry of Trade and Industry to raise productivity through standards and quality developments through various subsidized schemes, among other activities. ISO-9000 certification of quality management systems have been introduced and promoted to organizations. Technology incubators should assist their tenants in obtaining relevant standards and certification, besides adopting quality management practices of international level. Also, skill upgradation programmes in these areas should be organized. It is suggested that all high-tech companies graduating from incubators and the incubator itself should be encouraged to obtain ISO-9000 and/or ISO-14000 certification. Expenses in this connection should be met by the governments or the promoters of the incubators.

IV. RECOMMENDATIONS FOR FUTURE ACTIONS A. Introduction As the globalization of economy progresses, knowledge and technological capabilities are becoming increasingly crucial in national developments in order to meet the challenges and also avail the opportunities, arising from the new rules and laws of international trade and competition. The WTO and its various agreements have hastened the necessity of industrial restructuring and strengthening of technological capabilities in its member countries. In this process, the developing countries appear to be losing their traditional comparative advantages such as those based on cheap labour, natural resources, production by Small and Medium Enterprises (SMEs), and so on. Besides, various other issues such as those related to the need for environmentally friendly technologies and production facilities, conservation of natural resources, stricter quality management and new standards requirements, direct and indirect technical barriers, technology transfers, child labour, energy conservation, safety requirements, and emergence of regional groupings, are also to be addressed. The fast developments and newer applications of information technologies such as computer software, Internet and e-commerce, communication systems etc. are accelerating the re-structuring of technological and industrial systems. Foreign Direct Investments (FDIs) and transnational corporations (TNCs) are considered to be playing an important role in enhancing the technological and industrial capacities of developing countries and facilitating technology transfers as well as globalizing of R&D, essentially based on comparative advantages of various countries. Increasing costs of R&D and setting up of new dispersed production facilities are leading to various types of unprecedented mergers and acquisitions and also to the policy of Òcompete and cooperateÓ. In this scenario, there is a need to strengthen technology incubation systems as a mechanism for creating high technology-based enterprises in areas such as computer software and information technology, telecommunications, microelectronics, biotechnology and new materials, etc. Also there is a need to revitalize the traditional economic sectors as well as SMEs which significantly contribute to the industrial production, export and employment, particularly in developing countries. The present study undertaken by Economic and Social Commission for Asia and Pacific (ESCAP) outlines the concepts and practices of Technology Incubators (TIs), besides some related catalytic actors, in select countries primarily based on the information and details collected by an ESCAP sponsored two member study mission to some technology incubators in Japan, Malaysia, Republic of Korea and Singapore, during 24 April to 9 May 2000. The study also briefly covers a few other countries such as the United States of America, United Kingdom of Great Britain and Northern Ireland, Germany, Russian Federation and Eastern and Central Europe, China and India, based on information from secondary sources. The report then makes some recommendations and policy options relating to creating or strengthening technology incubators and for facilitating implementation of the identified priority projects by both government and the private sector as well as by international organizations such as ESCAP, in the short term and long-term. Since the study is mainly based on limited data and information available during the short visit of the study mission to a few select countries only, it is bound to be limited in its contents and recommendations made here and, therefore, should be taken in this perspective. The main goal of business incubators is to promote continuous regional and national industrial and economic growth including increasing of employment through general business development or to stimulate specific economic objectives such as industrial restructuring and wealth generation or utilisation of resources.

54

The incubator combines a variety of small enterprises support elements in one integrated affordable package. It has a special niche, that is, nurturing early stage, growth oriented ventures, through focussed assistance within a supportive environment. A Òthird generation systemÓ termed as ÒInternational Enterprise CentreÓ is reported to be emerging to bring under single aegis the full range of support services for development of knowledge based business, with linkages to universities research institutes, venture capital and international joint ventures. The main concern of Technology Incubators (TI) is to bolster the technology development stage. It aims to complete technological ideas for technologies under development. However, in practice, the primary goal of technology incubators is to promote the development of technology-based firms, and assist them in completion of the technologies under development. These are located at or near universities, R&D institutes, and Science and Technology parks. They are characterized by institutionalized links to knowledge sources including universities, technology transfer agencies, research centres, national laboratories and skilled R&D personnel. The aim is also to promote technology transfer and diffusion while encouraging entrepreneurship among researchers and academics. Technology Incubators, in practice, is a variant of business incubator and, in fact, combines broadly the functions of technology business incubator and innovation centre. In fact, TIs should be looked upon, in the broadest sense, as a mechanism for long-term capability-building and regional or local developments. Research parks and S&T parks are integrated large facilities, mostly real estate development driven and located in or near the major universities or R&D institutions. They are mostly promoted and supported by the national governments along with regional or local development agencies, easier availability of financial grants and investments and loans on soft terms is a major attraction to the tenant corporations or organizations which are usually large and even TNCs or other foreign companies. Technology Incubators are usually a part of the S&T parks or linked organically and are capital intensive. The above definitions are only broad and general and vary from country to country or even in the same country. There are about 3,000 incubators of various types in the world, about half of which are located in the United States of America and Europe. Among developing countries, China has taken the lead with about 130 incubators. Among industrializing countries, Republic of Korea is reported to have taken lead with about 300 incubators. Japan and Singapore are also making serious efforts to promote technoentrepreneurship in high-tech businesses through technology incubators. The objectives, models, practices and impact etc. appear to widely vary. Some countries such as the United States of America and Germany and also Republic of Korea have reported much better success rates for graduating and graduated enterprises over a period of about two decades but in countries such as Malaysia and China, any meaningful conclusions are yet to be drawn. The trend is now towards International Technology Business Incubators (ITBI) to attract foreign companies and R&D organizations to promote international linkages or R&D globalization and also sector specific incubators especially in high-tech areas including information technologies. The stated good practices include: strong and deep commitment of the promoters, well defined objectives and missions, recruitment of competent and dynamic management team and constitution of an advisory committee of members from promoting organizations and select experts; focus on cluster based technologies; selection of tenants according to ÒneedsÓ and ÒfitsÓ with set criterion including residency time, tailor and leverage existing services, build on local and international linkages, diversified sources of finances, shared experiences, and improved evaluation mechanisms. The various catalytic factors for supporting and expediting technology incubation for high technologybased enterprises include: well coordinated implementable national policies including S&T, industrial, trade & commerce, and finance policies; strong R&D institutions and capabilities including researchers and academia; larger investments in R&D including liberalized tax structure and grants; technical entrepreneur development programmes and incentives, innovative financing support system including venture capital, angel investors, specialized and liberalized stock exchange systems for high-tech enterprises; Intellectual property assistance and professional services including legal and technical consultancy services; development of S&T parks; establishment of strategic business alliances and networking; and support for standardization, quality management and marketing etc. The nature of these factors will, however, vary with the stage of development and national objectives. The TIs essentially assume the following: ◆

Strong R&D and technological capabilities in R&D and academic institutions and availabilities of R&D results/technologies for commercialization.

55

◆

Potential technopreneurs, including researchers, who are willing to translate their ideas/technologies into products and services, are available.

The resources, technological and industrial capacities and infrastructure are widely different in developed, industrializing, developing, least developed, island developing and transition economies, although the basic policies tend to be similar since most countries do not want to be marginalized in the process of globalization. The total R&D expenditures range from about 0.1 per cent to 3 per cent or even more, of GNP in different groups of countries. The absolute amounts of national R&D expenditure are subcritical in several countries and may some times be less than R&D expenditures of a TNC in advanced countries. Further, the corporate R&D expenditures are much lesser (about 20 per cent) than those of the governments (about 80 per cent) in most of the developing countries. Also, the quality of support infrastructural facilities such as communications, transport, roads, education, financing institutions, etc. vary widely among various groups of economies, and influence the technology incubator activities as well as the quality and levels of technopreneurs or technology-based enterprises. Thus, the models of incubators in different groups of economies have to be necessarily different. Besides development of high-tech enterprises in areas such as information technology, computer software, internet and e-commerce, biotechnology, microelectronics, etc. it is necessary to apply new technologies to revitalize existing enterprises, including SMEs, in the traditional economic sectors and to promote new enterprises based on natural resources or comparative advantages. Also, the industrial clusters and industrial estates etc. which have come up over the years in various countries need to be vitalised or reoriented through appropriate models of technology incubators located therein, with their connectivity to the larger incubators or S&T parks. In many countries such as India, Republic of Korea or even Japan, old corporations are reorienting their strategies, including privatization of public sector companies, and adopting Voluntary Retirement Scheme (VRS), etc. to reduce the strength of their employees. This is creating unemployment in the society. Also, technopreneurs who have vast managerial and technical experience and capabilities, have worked in senior positions and are willing to start their own enterprises need initial support to become technopreneurs. At the same time, a new generation young technopreneurs are emerging whom also need to be encouraged and supported. Thus, the strategies for technology incubators would be different for different groups of economies and targets in the region.

B. Recommendations for technology incubation 1. Government (a) Development of Technology Incubators should be explicitly included as an objective in S&T policies to promote and nurture high technology-based enterprises and specific financial outlays. Presently, promotion of technology incubators is generally implicit. (b) In some countries such as Republic of Korea or Singapore or Malaysia, a number of ministries/ departments are involved in the promotion of technology incubation systems. There is a need for well-coordinated and united efforts, with clear distinctions and responsibilities for each agency. Similarly, various policies related to the incentives, tax structure, real estate development, operations, skill-development and education programmes, development of SMEs etc. should be evolved in consultation with the technology incubator promotion agencies. State governments and local bodies should be fully involved and should be stakeholders. Consortia approach should be useful. (c) In developed countries and also in newly industrializing economies, the focus should generally be on nurturing new technologies of generic nature through sector specific incubators mostly located in or near a university or an R&D institution, with the ultimate objective of developing new TNCs. The industrializing economies in transition and developing countries may, however, need to develop generalized technology incubators and sector specific incubators to support the restructuring of traditional economic sectors, including industrial clusters and estates, located at these places. In least developed and island developing countries initial focus may be on the development of simple business incubators with technology as a central theme and located in industrial estates and industrial clusters.

56

(d) Closed wall type of TIs equipped with integrated and sophisticated S&T facilities near a scientific/ academic institution or as an integral part of technology parks may be desirable in developed countries. In developing countries, open wall type or virtual incubators (figure 2.5) with access to R&D facilities and support services, including professional services, requiring minimum investments may also be desirable. In fact, with the availability of modern information technologies and communication facilities, virtual incubators may be suitable, even in developed or industrializing countries, and could be widely dispersed all over the country. In this connection, the concept of Incubator Management Companies (IMCs), as in case of Singapore, may be considered to nurture high technology-based enterprises (figure 2.6). (e) Once the objectives, location and models are defined, the government and the promoting partners should constitute an advisory committee and select a dynamic and professional expert as chief executive to implement best management practices. The deep and continuing commitment of the government and the management team is extremely necessary, besides ensuring adequate financial grants/support to the incubators and the incubatees for capital and recurring expenditures though the same may taper down over a period of time. The incubator management should be given to a private entity with freedom to operate and manage affairs, within certain parameters. (f) Incubatees and graduated enterprises should be given preference in R&D grants, government purchases, low cost loans, etc. New mechanisms should be evolved and encouraged for financing systems such as venture capital, angel investors, specialized stock markets and listing arrangements, patents and technology auctions, patent insurance, etc. Asia Monitoring Fund, with emphasis on high-tech enterprises, may be worth considering. Use of information tools such as Internet, websites, e-commerce, etc. should be encouraged. (g) The national R&D expenditures, both public and private, should be enhanced continuously so that R&D facilities and expertise in universities and R&D institutions are strengthened and researchers/academicians are encouraged to become entrepreneurs. Patentable R&D should be encouraged. At the same time, young technopreneurs should be trained and supported to nurture their technology-based businesses. Mechanisms need to be evolved to cover or share the risks in high-tech businesses. Some of the R&D institutions may be corporatized as in Japan. (h) International Technology Business Incubators (ITBI) should be encouraged to attract foreign R&D institutions and companies, including TNCs and local technopreneurs, should be encouraged to go abroad to globalize R&D and undertake contract research and also to enhance accessibility to international R&D systems. Collaborations and partnerships should be encouraged. (i) Government should support and encourage the setting up and networking of Technology Incubators Associations within the country and outside. Exchange of experiences, organizations of trade fairs and exhibitions for technologies and products of incubatees, at national and international levels, should be encouraged. Since incubatee and graduated companies are generally small and with limited resources, such activities would assist them in marketing and promoting cooperation. (j) Inward and Outward FDIs for SMEs with related technology transfers should be encouraged through TIs. TIs may even be technically involved in selection and acquisition of technology by large corporations in public and private sectors. (k) Concerted efforts should be made on a long-term basis to develop trained and skilled manpower and mobility of S&T personnel between industry and R&D institutions should be encouraged. There should be no disrespect to researchers who have been unsuccessful as technopreneurs. (l) Intellectual property systems including patent literacy, search and filing facilities should be encouraged through training etc. and financial support should be given to file patents abroad through the TIs. (m) Incubatees and graduated enterprises should be encouraged and supported for international certification such as for ISO-9000 and ISO-14000, quality management and energy conservation, etc. In fact, TIs themselves should be encouraged to obtain such certifications. (n) Technology Assessment and forecasting services, besides technology related information, etc. should be available to TIs and tenants. Also, TIs can advise the SMEs and corporations in legal and technical matters related to technology transfer and joint ventures or collaboration arrangements for development and acquisition of technologies.

57

(o) There is a need to evolve and promote widely dispersed TIs involving lesser capital and low cost of operations, meeting technological and professional services needs of tiny units, artisans and craftsmen etc. There are some specific clusters of niche areas in developing countries which are not covered by TNCs but have economic and social relevance and need modern technological inputs. For example, handicrafts, lock industry, glass industry, carpets, garments, etc. in India. Virtual incubators may help to promote and support such enterprises. Even simple business incubators may initially be useful in such cases and later, may be upgraded to technology incubators, specially in least developed and island developing countries. (p) Impact and performance evaluation of TIs should include technology related parameters such as number of technologies developed, commercialized and transferred; number of patents granted and used, the royalties and know-how fee earned, etc. besides the more popular parameters such as number of enterprises incubated and survived, employment generated and annual turnover achieved. The former parameters have long term and overall capability strengthening impact on economy. However, the evaluation procedures will also largely depend upon the objectives. (q) TIs in low cost new buildings which are small and compact and specifically designed should be preferred rather than renovating old buildings. Location is an important criterion to attract good tenants. The TIs may be housed in intelligent buildings with efficient business and office facilities including communication services and provision of external expert professional services such as technical consultancy, legal, marketing support, etc. The R&D and technical facilities available elsewhere should be networked rather than creating expensive facilities in TI itself. Such an approach will require minimum investments. (r) International collaborative arrangements and agreements at government level should identify opportunities for possible linkages with institutions and among TIs in different countries and seek expertise or technical assistance if necessary. (s) Each government should develop its own models as per objectives and available resources, after careful assessments of needs and planning. Perhaps a combination of physical technology incubators with large investments and virtual incubators with minimum investments may be appropriate for most of the developing countries. Technology incubators should aim towards technological capability-building for capability exploitation in the country. Also, TIs should be proactive rather than reactive.

2. Private Sector (a) Large Corporations, private universities, training institutions, R&D institutions, industrial associations, export promotion councils and trade development agencies etc. should also promote technology incubators independently or jointly with government agencies with focus in their respective areas of operations. Private financial support agencies and investors etc. should also actively associate themselves with the government supported or privately promoted incubators. (b) Foreign companies and TNCs should support TIs in specific areas to augment their R&D and technological capabilities, as is being done by Oracle in Singapore. TNCs can also set up R&D centres or centres of excellence in developing countries, as in India, which can be linked to TIs. R&D costs in developing countries are usually much lower than those in developed ones. However, generation of knowledge and skills is important to attract TNCs. (c) Large corporations and SMEs should seek the services of TIs during technology transfers and while going for inward or outward FDIs. (d) Large corporations can subcontract their R&D or technology development projects to TI companies and also source their requirement of goods and services from TIs or their graduates. (e) Private agencies can promote and manage real estate or property development driven TIs and technology parks as in case of some developed and industrializing countries. (f) International Technology Incubators may be promoted by large corporations or TNCs in their home countries or abroad to attract the best of talents and services or residents abroad.

58

(g) Exchange of R&D personnel and professionals between the TIs and manufacturing companies and also training arrangements may be encouraged by industrial associations. (h) Private corporations as well as SMEs should increase their R&D expenditures in developing countries. At the same time, private corporations in developed countries should enhance their R&D efforts in basic sciences or generic technologies, besides setting up universities and specialized research centres especially in thrust areas identified by the government. (i) Industrial associations should actively interact with TI associations and networks and support their activities in mutual interest. (j) vice-versa.

Private bodies should be on the management committees of government supported TIs and

3. Regional/Subregional (a) ESCAP and other international promotional agencies should assist national governments in developing trained managers and human resources or establishing and operating technology business incubators so as to adopt best practices or to enable them to evolve their own practices and models. Workshops and training programmes may be organized towards this objective besides supporting exchange of experts or deputing experts from countries having experiences in technology incubators to those desiring to promote such incubators. (b) ESCAP may document experiences in developing countries and prepare guidelines for promoting technology incubators in developing and least developed and island developing countries as well as for economics in transition. (c) ESCAP should support establishment, strengthening and networking of national and regional association of incubators including Asian Association of Incubators. It should also support the exhibition of products and technologies of incubatorÕs enterprises for possible international technology trade and cooperation among SMEs in the region. This would encourage internationalization of R&D and technology transfer, with or without FDI in the region. (d) Asia and Pacific Centre for Transfer of Technology (APCTT), New Delhi, is already implementing an UNDP funded project on ÒNurturing Technological Entrepreneurship through Science and Technology Entrepreneurs Parks and Technology Business IncubatorsÓ, with an aim of creating two first ever technology business incubators (TBIs) in India to promote linkages with R&D institutions and industries. Such projects may also be implemented in other developing countries. APCTT can play an important role in identifying R&D projects which can be implemented through partnership arrangements among the TIs in various countries, having mutual complimentarities and supplementaries. (e)

A revolving fund may be considered to promote technology incubators in various economies of the

region. (f) ESCAP and APCTT should support technopreneurship training programmes particularly in areas such as technology management, patents and intellectual property systems, International Standards such as ISO-9000 and ISO-14000, technology transfer arrangements and issues, and awareness about the laws, rules and regulations in various countries including WTO agreements and implications therein. For example, information about Technical Barriers to Trade (TBT) is an important issue and may need R&D or technology development activities for enhancing exports. (g) ESCAP should support and facilitate the development of innovative financing support systems, especially to meet the expenditures till venture capitalists or angel investors become interested. Technology auction, patent auction and patent insurance are some of the new mechanisms emerging in developed countries. There is a need to examine and create awareness about such mechanisms. (h) ESCAP should support and facilitate technical capability-building of institutional organizations to create intellectual property and related expertise for technology-based enterprises. For example, researchers and technopreneurs should be supported to further undertake development work on Ph.D. thesis projects in various universities through technology incubators, after careful screening and assessment of possible industrial potential.

59

(i) Establishment of virtual incubators in industrial clusters and in niche areas for craftsmen, artisans, and women, relevant for rural development and needing technological upgradation or development of new technologies for specific requirements etc. in developing, least developed and island developing countries should be supported. Expert services should also be made available in select areas. (j) ESCAP may support and facilitate capacity building for formulating national policies in science, technology and industry and national R&D programmes to expedite business and technology incubation. Deputation of experts to national governments/institutions and exchange of researchers may be supported.

C. Action Programmes The long-term and short-term action programmes to implement the recommendations made in paragraph 4. (b) would necessarily be interactive and multidisciplinary involving various ministries/departments and other organizations, including R&D and academic institutions, in the public and private sectors and would vary from country to country. However, an attempt has been made here to outline some generic type of action programmes which may be appropriately modified to suit specific requirements.

(a)

National

1. The government may set up a specific division in the Ministry of Science and Technology or the Ministry responsible for S&T developments, with specific financial budgetary outlay, for the development of technology incubators to promote and support high-tech enterprises in chosen areas. 2. An interagency Task Force or a high level committee may be constituted by the office of Prime Minister/President and may be serviced by MOST, with members from the various economic Ministries and development organizations, R&D institutions, financial institutions, industry, and consultants etc. at the central and state levels. This committee should be charged with the sole responsibility and authority to evolve and implement technology incubation programmes in the country. 3. Technology Incubation promotion divisions may also be set up in key economic ministries/ departments such as industry, commerce, and education, in coordination with MOST. 4. A survey should be carried out to identify the strengths of important R&D and academic institutions in the country, including the commercializable technologies, advanced or specialized S&T facilities and expertise available, and the scientists/engineers/professors interested in becoming technopreneurs. This should be widely publicized within the country and abroad. 5. Efforts should be made to identify technopreneurs needing the facilities/expertise available in national or private R&D and academic institutions. Interactions with industrial associations, industrial clusters of SMEs, etc. would be helpful, besides inviting proposals through advertisements in various modes including websites, Internet, etc. 6. Officials responsible for technology incubator promotion programme should be trained and exposed to the technology incubation systems in developed countries such as the United States of America and Germany, or advanced developing countries such as Republic of Korea, Malaysia and Singapore. Also, experts from these countries may be invited for training and creating awareness about the role of technology incubators in developing countries. At the same time, entrepreneurship training programmes should be implemented. 7. Large corporations including TNCs and small enterprises from other countries may be invited and encouraged to set up their R&D facilities or new enterprises in the incubators and also R&D collaborations and contract R&D may be encouraged at institutional and enterprise levels. Domestic technopreneurs may be encouraged to undertake technology related subcontracting or partnerships with foreign enterprises. Quality foreign direct investments in high-tech enterprises should be encouraged, preferably involving export-oriented products and services. 8. Technology related new products and services from the incubatee enterprises should be given preferential treatment in government purchases, besides better tax incentives and other concessions and more financial grants in the developmental phase, through incubators. All incubators should be encouraged to obtain

60

ISO-9000 and other relevant certifications and have their own websites etc. Patenting services and consultancy services should be freely and easily available to high-tech incubatee enterprises. 9. Liberalized and innovative financial facilities should be evolved and made available to the incubatee enterprises, starting from early phase of their commercial activities. These may include interest free loans, venture capital, angel investors, technology mortgage and insurance, SWEAT Capital, employees shares option programme, etc. 10. Advanced developing economies may predominantly promote new and emerging sophisticated technology-based enterprises while other developing economies may promote relatively simple technology-based enterprises. That is, integrated technology incubators, mostly sector specific, may be encouraged in advanced developing economies and simple business incubators or technology business incubators in other developing countries which may be integrated or upgraded later. Particular attention may be given to the technological needs of SMEs and simple business incubators may be set up in industrial clusters in cooperation with industrial associations and regional development agencies. Business plans need to be prepared in each case. 11. In the long-term, policy initiatives should be taken to strengthen S&T infrastructural facilities increasing national R&D expenditures through increased government and private R&D initiatives and to develop skilled and specialized S&T personnel. Networking and strategic alliances of incubators, including association of incubators and incubatees, should be encouraged and supported. Incubators should promote venture capital enterprises or other forms of technology financing.

(b)

Regional/subregional

1. International developmental and promotional organizations such as ESCAP should evolve and undertake projects to promote and support the capability-building for establishment of technology incubators in developing countries, particularly in less developed and transition economies. These activities may include support for training, services of experts, exchange of experiences through workshops and seminars, organization of exhibition of technologies, products and services from incubators in various countries, etc. 2. The technologies and technological capabilities available in member countries of ESCAP should be assessed and documented for possible technological cooperation among the incubators and incubatees. Manuals and guidelines may be prepared for the establishment, operation and practices etc. for technology incubators in different groups of economies in the region. A revolving fund may be considered for the incubators, which may be operationalized through APCTT. 3. ESCAP may commission a study relating to various innovative financing systems for the guidance and benefits of high-tech enterprises. 4. APCTT should play a pivotal role in the formulation and implementation of the above-mentioned activities including setting up of incubators and information sharing and networking of incubators in the region. A periodical or a magazine may be brought out by APCTT on technology incubators and related activities in various countries. It may also interact with organizations such as UNDP, UNIDO and UNFSTD etc. which are actively engaged in the development and promotion of technology incubators in developing countries all over the world. 5. ESCAP should support and encourage the setting up of national and regional associations of incubators and promote cooperation at policy-making and operational levels among the member countries, besides strengthening their technology related capabilities.

V. CONCLUSIONS The main concern of technology incubators is to bolster the technological development stage and to complete technological ideas for technologies currently under development. However, the technology incubators are commonly known to include concepts of technology business incubators and innovation centres. The goal of technology incubators is also to promote the development of technology-based firms, and to address regional or local developmental issues through applications of S&T. These are usually located at or near universities and

61

science and technology parks. They are characteristized by instutionalized links to knowledge sources including universities, technology transfer agencies, research centres, national laboratories and skilled R&D personnel. Technology incubators promote technology transfer and diffusion while encouraging entrepreneurship among researchers and academics. TIs are long-term investment towards S&T and industrial capability building and not merely a commercial entity. A technology incubator is a managed workspace with low cost office facilities and business and professional services necessary for nurturing and supporting early stage growth of technologies and technology-based enterprises. The services may include modern communication and information services and access to the R&D, testing, design and engineering etc., facilities and services. The objective is to cover some of the risks involved in the early stages of incubation of technologies and technopreneurs particularly in case of high-technologies such as information technologies and telecommunications, computers and microelectronics, biotechnologies, etc. In developed countries having strong scientific and technological capabilities in public and private sector, there could be a large number of R&D results or ideas or infant technologies in universities or R&D institutions, which may have high potential for growth into multinational corporations and need to be nurtured in their early stages. These countries spend large amount on national R&D, about 2-3 per cent of GNP, out of which 50-80 per cent is contributed by the industry. On the other hand, in developing countries the total R&D expenditure is generally in the range of 0.1 per cent to 1.0 per cent. In absolute terms, these expenditures are even at subcritical levels for meaningful R&D. In most of such cases the total R&D expenditure is even less than the R&D expenditure of a major transnational corporation in the United States of America or Germany. However, some of the industrializing developing countries have invested considerably in R&D, as about 3-4 per cent in Republic of Korea and planned to be increased to 5 per cent of its governmentÕs total budget in next few years. Similarly, Singapore has planned to raise its R&D expenditure to more than 2 per cent of GNP. China, India, and Malaysia have also planned to raise their R&D expenditures substantially in near future. Also, it may be better to identify new and specific areas where TNCs or large foreign companies may not have much interest and are essential for local development or even relevant to other countries. Also, in most of the developing countries, the R&D expenditures by industry (about 20 per cent) are much smaller compared to government expenditure (about 80 per cent) while in developed countries and industrializing countries such as Republic of Korea, this ratio is reversed. In view of diversified scientific and technological capabilities, the availability of commercializable R&D results varies widely being very small in most of the developing countries. In such situations, the models of incubators will also vary and so will the best practices, objectives and evaluation criterion. In developed countries, technology incubators are capital intensive, equipped with simple to sophisticated S&T facilities and mostly property development driven activities. The governments provide financial grants to incubators almost on a recurring basis while incubatees are given preferential treatment for R&D grants, tax incentives, soft loans, relaxation in various rules and procedures etc. The incubators are usually integral to S&T parks which are huge self-contained areas with all facilities to attract large corporations and TNCs. In developing countries, resources are limited and problems are of different nature and, hence, the incubator models also have to be different. The globalizations of economics and internationalisation of trade and competition, faster technological developments and the emergence of new information tools and techniques such as e-commerce and internet, have led various countries, particularly developing ones, to reorient or restructure their industrial and economic policies and to develop stronger S&T capabilities. No country wants to be marginalized in this technology and knowledge driven society but resources and capabilities are limited. Foreign Direct Investment and related technology transfers, globalizations of R&D and various agreements of World Trade Organization (WTO), etc. are offering challenges and opportunities to the developing countries, especially to knowledge based and high-tech industries. At the same time, issues such as unemployment, revitalization of core economic sectors and industrial clusters of SMEs and also the tiny sector and rural development etc. need to be addressed in the changed scenario where acquisitions and mergers, Òcompete and cooperateÓ and increasing R&D costs are the order of the day. The range of services provided by technology incubators aim to help small firms exploit and commercialize research knowledge. These services include: physical infrastructure, management support, technical support, access to finance, legal services and networking. The good practices for promotion and operation of technology incubators include: defined objectives and mission; recruitment and training of entrepreneurial managers; dynamic and competent chief executives and deeply committed promoters and advisory committee; assured adequate

62

financial support; focus on cluster-based technologies; selection of tenants on needs and merits; tailor and leverage existing services including networking; build on local and international linkages; diversified sources of finance including venture capital, angel investors; patent auction, technology auction, patent insurance; liberalized norms for stock exchanges; sharing of experiences; improved evaluation mechanisms and training and skill upgradation for the tenants. The catalytic factors for supporting and expediting technology incubation for high-technology-based enterprises may include: conducive and coordinated national policies (S&T and others), strong R&D institutions and research oriented academic institutions, technical entrepreneurs development and support measures, innovative financing system, intellectual property assistance/technical consultancy assistance, establishment of science and technology parks, strategic business alliances and networking, technology incubator associations, standardization, quality control, marketing support, etc. National and local governments, with or without private participation, are usually the promoters of technology incubators. In some cases, private corporations have also taken initiatives to promote technology incubators, including those around private universities. Private and independent management, even for government promoted incubators, is preferred. Real Estate development driven technology incubators attract better and more prestigious corporations and TNCs, besides good technopreneurs. TIs can be general as well as sector specific. The trend is to develop TIs in high-tech sectors such as information technology, e-commerce, microelectronics, computers, biotechnology, drugs and pharmaceuticals, etc. even in developing countries such as Malaysia and Singapore. Keeping in view the S&T capabilities, financial resources and the needs arising out of the globalizations of economies and internationalization of trade and R&D, to revitalize the core sector capabilities already built, to provide employment and assist industrial and tiny sector clusters, etc. in industrializing and developing countries, least developed countries, island developing countries, and transition economies, the following models of technological incubators are suggested: 1. Well-equipped technology incubators at or near universities/R&D institutions as an independent but closely networked with knowledge sources. They could be ÒgeneralÓ or specific to the expertise of the concerned university/R&D institution, and integral to S&T parks. 2. Virtual incubators or Òopen wallÓ type incubators located at or near industrial clusters of SMEs or at the concentration of tiny sectors or in rural areas. 3. Incubator Management Companies identified by the government and interested in technology incubation programmes, with R&D grants and venture capital, etc. from the government or jointly with private corporations. 4. International technology incubators to globalize and internationalize the R&D and encourage transfer of technology with or without foreign direct investments. Based on a survey of a large number of companies in the United States of America and other countries by Arthur D. Little, it was found that most companies globalize generally to acquire new knowledge, to be close to external customers or to accelerate deployment of technology. 5. Each country will, however, have to evolve its own model/models depending upon the need, capabilities and resources. 6. Recommendations have been made and an action plan is suggested to implement these recommendations to promote and strengthen the technology incubation systems for development of technology-based enterprises in developing countries on short-term and long-term basis. These relate to the national and local governments, private sector, and regional and subregional developmental agencies such as ESCAP and UNDP.

63

REFERENCES 1

R. Lalkaka, ÒLessons from international experience for the promotion of business incubation systems in emerging economiesÓ, paper commissioned by the Small and medium Industries Branch (UNIDO Small and Medium Enterprises Programme, November 1997), No. 3.

2

R. Lalkaka and J. Bishop, Business in Economic Development: An Industrial Assessment in Industrializing Countries (New York, UNDP, 1996).

3

R. Lalkaka, ÒTechnology business incubators; cricitial determinants of success; science based economic developmentÓ,Annals of the New York Academy of Sciences, vol. 798, (18 December 1996).

4

OECD, Business Incubation: International Case Studies, 658(100) (1999).

5

J. Yoshizawa and others, Comparative Studies on Science and Technology Parks for Regional Innovation throughout the World (Japan, National Institute of Science and Technology Policy (NISTEP), Science and Technology Agency, February 1995).

6

S.P. Agarwal and A. Parthasarathi, ÒReview of National Policies for the Promotion of Technology Transfer”, in Technology Transfer and Technological Capabilities Building in Asia and the Pacific (vol. 4): Emerging Issues in Regional Technological Capability Building and Technology Transfer (ST/ESCAP/1951), pp. 9-99.

7

R.A. Mashelkar, ÒIndiaÕs emergence as a global R&D platform: the new challenges and opportunitiesÓ, in Lala Karam Chand Tha per Centenary Memorial Lecture (India, Instituted by Patiala Technical Education Trust, 4 March 1995), pp. 1-23.

8

A. Boghani and others, ÒProgrammes of R&DÓ,International Journal of Technology Management, vol. 17, No. 6 (1999), pp. 696-710.

9

T. Nakahara, ÒTechnology Strategy in a Borderless Economy”, International Journal of Technology Management, vol. 17, No. 6 (1999), pp. 711-724.

10

World Investment Report 1999: Foreign Direct Investment and the Challenge of Development (United Nations publication, Sales No. E.99.II.D.3), pp. 215-218.

11

Lee Dal Hwan, Korea’s System and Policy Towards Technology Incubators (Seoul, Science and Technology Policy Institute (STEPI), OECD, 1999), pp. 98-105.

12

Karl Fooks, ÒA Brand New Breed Revamps Japan Inc.Ó,The Straits Times (Tokyo), 26 April 2000.

13

L.J. Le Blanc and others, ÒA comparison of United States and Japanese technology management and innovationÓ,International Journal of Technology Management, vol. 3, No. 5/6 (1997), pp. 601-614.

14

J. Shibata, Creation of New Industries and Technological Innovation in Japan (Tokyo, National Institute of Science and Technology Policy (NISTEP), 2000).

15

ÒKanagawa Science ParkÓ, brochure ofIndustrial Policy Division, Commerce and Industry Department, Kanagawa Prefectural Government, Japan.

16

ÒPolices for an increasingly globalized economyÓ, brochure of Ministry of International Trade and Industry, Tokyo.

17

White Paper on Science and Technology (Tokyo, Science and Technology Agency, 1999), pp. 368-378.

18

Sakakibara, E., ÒAsia in the 21st century: the role of India and JapanÓ, prepared for the Exim Bank Commencement Day Annual Lecture 2000, Mumbai, India, 29 March, 2000.

19

ÒThe multimedia super corridor and youÓ, brochure of Multimedia Development Corporation Ltd. (Cyberjaya, Malaysia, September 1999).

20

ÒTechnology Park MalaysiaÓ, brochure of Technology Park Malaysia Corporation Ltd. (Kuala Lumpur, 1999).

21

DatoÕ Anuar Md Nor, ÒTechnology Development Cluster Programme Ð the Malaysian experienceÓ, paper presented at the International Conference on Business Incubation and Technology Innovation, Shanghai, China, 18-19 April 2000.

64

22

ÒNurturing tomorrows Malaysian technopreneurs today: Multimedia Super Corridor Central IncubatorÓ, brochure of MSC Central Incubator (Malaysia, Selangor, Cyberjaya).

23

Annual Report (Ministry of Science, Technology and the Environment, Government of Malaysia, Malaysia, 1998).

24

Annual Report (Malaysia, National Council for Scientific Research and Development, MOSTE, 1998).

25

Woo-Geun Song, ÒEntrepreneurship development and small venture business: experience of the Republic of KoreaÓ, background document for ESCAP, 1March 2000.

26

Zang-Tae Bae, Planning and Principles for the Construction of S&T Industrial Parks: the Korean Approaches (Republic of Korea, KAIST, 1999).

27

Jong-Duk Kim, ÒA new wave: creating technology based business at Taeduk Science TownÓ, paper presented at the 3 rd Annual Conference of East Asia Science Parks, Hsinchu, Taiwan Province of China, 20-21 October 1999, pp. 162-180.

28

R. Sawhney, ÒBusiness incubation through technology support from SMEs in Asia and the PacificÓ, paper presented at the International Conference on Business Incubation and Technology Innovation, Shanghai, China, 18-19 April 2000.

29

ÒHigh-Tech Venture Centre (HTVC)Ó, brochure of KAIST (Republic of Korea, Taejon).

30

Lee, Man-Ki, The Science and Technology Policy in Korea – Vision and Strategies for the 21st Century (Republic of Korea, Ministry of Science and Technology, 2000).

31

Report on MOST: Its Role and Activities (Republic of Korea, Ministry of Science and Technology, June 1999).

32

ÒScience Park SingaporeÓ, < http://www.sciencepark.com.sg/abtscipk/abtscipk.htm>.

33

ÒTechnology Incubator Programme (TIP)Ó, brochure of National Science and Technology Board (Singapore).

34

ÒS.A.I.L Port Asia PacificÓ, brochure of National Science and Technology Board (Singapore).

35

Toh Han Shih, ÒOracle launches $ 55 m incubator initiativeÓ,The Business Times (Singapore), 27 April 2000.

36

ÒPSB Incubator ProgrammeÓ, brochure of Singapore Productivity and Standards Board, (Singapore).

37

ÒBuona Vista to be Science HubÓ,The Strait Times Interactive: Parliament Reports (Singapore), 11 May 2000.

38

ÒJTC hatches plans for more incubation centresÓ,News Letter – Singapore Enterprise, April 2000, p. 2.

39

ÒTechnopark at Chai CheeÓ, brochure of Wan Tien Realty (Singapore).

40

Annual Report 1998-99 (Singapore, National Science and Technology Board).

41

ÒTechnology in Singapore: a window of opportunitiesÓ, brochure of National Science and Technology Board (Singapore).

42

PSB Annual Report 1998/99 (Singapore).

43

ÒInfocomm 21: Manpower DevelopmentÓ, < http://www.ida.gov.sg/Website/IDAhome.nsf/Home? OpenForm>.

44

ÒRisk capital in EU communication from the European Commission”, Import-Export Bulletin, 3-9 June 2000 (New Delhi, India Trade Promotion Organization), pp. 16-18.

45

OECD, 1997.

46

Rustam Lalkaka, ÒRapid growth of business incubation in ChinaÓ, paper presented at the International Conference on Business Incubation and Technology Incubation, Shanghai, China, 18-19 April 2000.

47

ÒSoftware technology parks in IndiaÓ, brochure of Ministry of Information Technology (New Delhi).

48

Woo-Geun Song, ÒTechnology incubator for creating new technology-based enterprisesÓ, project paper for ESCAP International Trade and Industry Division, January 2000.

65

49

ÒScience and technology entrepreneurs parks (STEP)Ó,Status Report (New Delhi, Department of Science and Technology, August 1999).

50

ÒTechnology business incubatorsÓ,Report, (New Delhi Department of Scientific and Industrial Research, April 1992).

51

S.P. Agarwal and Ram Khilari, ÒRole of consultants in development and promotion of R&D businessÓ, paper presented at the 1999 R&D Management Conference on R&D as a Business, organized by the R&D Management Association, New Delhi, 6-8 December 1999, pp. 1-6.

52

S.P. Agarwal and Ram Khilari, ÒStatus and development of consultancy services in IndiaÓ, paper presented at the TCDPAP International Conference on Technical Consultancy Services: Strategies for Globalizations, organized by the Association of Consulting Engineers Malaysia, Kuala Lumpur, 10-12 April 2000.

66

Appendix 1.1. Visit details of study mission Date

Important organizations visited

Chief contacted

24 April 2000

ESCAP, Bangkok

International Trade and Industry Division

25 April 2000

Technology Park, Malaysia

Dr Datuk Salleh Ismail, President/Chief Executive Officer

26 April 2000

UPM-MTDC Technology Incubator

Mr Shahrul Mubin b. Yaa Kub, General Manager

Malaysian Technology Centre, University Research Park, Serdang (MTDC) Malaysia

MUHD Shaman Bakar, Executive Director

MSC Central Incubator Multimedia Development Corporation Ltd., Malaysia

Dr Norsaidatul Akmar Mazlan, head of MSC Central Incubator

Pusat Teknologi Puntar UKM-MTDC, Malaysia

Mr Tang Chee Kwan, manager

Chembell Technology Ltd., Malaysia

Mr Kenny Ng Kuan Chong, Regional manager

Skali. Net UPM-MTDC, Malaysia

Mr Mohd. Fadilah halim, Business manager

National Science & Technology Board, Singapore

Mr Francis Yeob Asstt. Managing Director

Confederation of Indian Industries, South East Asian Regional Rep. Office, Singapore

Mr Amitabh Khosla, Deputy Director

Asia Pathways P. Ltd., Singapore

Mr Jim Obendorf, Vice President Mr Anthony Koh, Vice President

Singapore Productivity and Standard Board

Ms Mally Teo, Senior Officer

Technopark Chai Chee, Singapore

Mrs Tan Sea Hoon, Executive Mr Jason Chew, Asstt. Manager

M/s. National Computers Systems P. Ltd., Technopark Chai Chee, Singapore

Mr Quek-Chang Noi kee, Catherine, Senior Manager Mr Tan Kim Leng, Senior Manager

M/s. 1-Net Singapore P. Ltd., Technopark Chai-Chee, Singapore

Mr Amos Jen Kim Fei, Senior Consultant Mr Cherry Choo, Manager

International Video Conferencing Centre Technopark Chai-Chee, Singapore

Mr Alan Go, Director

1 May 2000

KSP, Tokyo

Mr Kei Iznuma

2 May 2000

National Institute of Science and Technology Policy, S&T Agency of Japan, Tokyo

Dr Kinjz Gonda, Senior Director

Embassy of India Tokyo

Dr U.S. Tandon Counsellor (S&T)

Embassy of Republic of Korea, Tokyo

Counsellor (S&T)

Taejon Science City, HTVC, etc., Republic of Korea

Prof Kim Jong Duk, Director and Chief Executive HTIC

Small and Medium Business Administration, Venture Businesses

Mr Changsoo Suh, Director

5 May 2000

KAIST, Innovation Centre, etc. Taejon Science City Republic of Korea

Prof Kim

6 May 2000

Ministry of Science and Technology, Seoul

Dr Yoo-Hyun, Moon, Director General Mr Choi Kwang-Yun, Director

8-9 May 2000

ESCAP, Bangkok

International Trade and Industry Division

27 April 2000

28 April 2000

4 May 2000

67

II. STRENGTHENING TECHNOLOGY INCUBATION SYSTEM FOR CREATING HIGH TECHNOLOGY-BASED ENTERPRISES IN JAPAN BY

ESCAP RESOURCE PERSON, MR SHIGEKI SADATO PROJECT DIRECTOR OF VENTURE INCUBATOR KYOTO RESEARCH PARK CO., LTD., JAPAN

69

Research shows that the number of public Japanese incubators had reached 120 early this year. The number of private incubators is estimated to grow approaching 50-60 in the near future. These figures support research that indicates the number of incubators has increased rapidly in the past five years.

I. JAPAN ASSOCIATION OF NEW BUSINESS INCUBATION ORGANIZATIONS (JANBO) Japan Association of New Business Incubation Organizations (JANBO) was established in June 1999 as Japan’s first nationwide network to support new businesses through enhancing the business incubators operations. JANBO activities are summarized as follows: ◆

Holding annual meetings and seminars related to business incubation

◆

Carrying out training programmes for incubation managers

◆

Developing a network for information exchange among members

◆

Offering an electronic BBS for queries from members

◆

Serving as a Japan-wide point of contact for incubation-related inquiries

◆

Selecting and honoring the best incubators and managers.

A. JANBO members and structure of the regional platforms As of 1 May 2000, JANBO had 50 Core members and 1,000 supporting members. These members organize the structure of regional platforms to support start-up enterprises. Through transregional partnerships with core member institutions and other groups, they provide one-stop service for fledgling entrepreneurs. The groups include the following organizations and individuals: ◆

Incubators and Rental Laboratories

◆

Universities and R&D Institutions

◆

Venture Capitals and Bankers

◆

Technology Transfer Agencies

◆

Business Circles

◆

Supporting Professionals such as Accountants, Lawyers and so on.

In collaboration with supporting groups, the core institutions are able to provide the start-ups with one-stop services covering business and technology fields.

B. Industry type of tenant enterprises Industry type of tenant enterprises in incubations are shown as follows: ◆

The largest ratio of 31 per cent indicates the software industry

◆

The second largest ratio of 19 per cent means the processing and assembly industry

◆

Material, consumer-related, machinery design, research laboratory and consulting industry respectively range from 2-3 per cent.

C. Incubation case studies JANBO tentatively categorizes the incubations into three types: ◆

R&D type

◆

Rural type

◆

Private-sector-led type

71

KAP (Kazusa Academia Park) KAP is categorized as R&D type. It is located in the suburb of Chiba Prefecture, and managed mainly by the prefecture government. KAP consists of 3 key facilities:

(a)

DNA Research Institute The institute completed the world’s first structural analysis of a complete genome.

(b)

Incubation Centre It consists of 8 laboratories with now full occupancy.

(c)

Kazusa Ark

Ark facilities include a convention centre, first class hotel and some sports facilities. These facilities promote academic information exchange and communication.

HIC (Hanamaki Incubation Centre) HIC is categorized as a rural type. It is located in Hanamaki City in the northern part of Japan. Hanamaki is a beautiful garden city with population of 72,000. HIC was founded and is managed by the city government. The total floor space amounts to 1,500 sq m Rental laboratories and test equipment are available at low cost for the tenant companies. HIC utilizes resources such as agricultural products and, for example, succeeded in developing food products using bean curd residue such as a high-protein, low-calorie ice cream. It has a broad supporting network with Iwate University, companies in newly developed industrial parks and other public organizations.

KRP (Kyoto Research Park) KRP is one of private-sector-led-type incubations. It began its operations in 1989. Outline of KRP is as follows: ◆

Total floor space: 106,000 sq m

◆

Tenant companies: 125 companies and 7 institutions

◆

Occupancy rate: 98.5 per cent

KRP has double functions as a member of regional platform and as an independent incubation.

II. A KYOTO RESEARCH PARK (KRP) CASE STUDY KRP has now 10 buildings in the area of 5.1 ha in the west central part of Kyoto City. Osaka Gas Co., which formerly used this area as gas production site for over 50 years, closed down in 1978. After much consideration on how to use this area for new business development, Osaka Gas decided to redevelop the area as an urban-type, profit-based and privately-owned research park modeling after UCSC (University City Science Centre) of Philadelphia, Pennsylvania in the United States of America. UCSC is a non-profit organization and managed by a consortium of universities and local governments such as University of Pennsylvania, Drexel, Temple, Delaware State University and so on.

72

A. KRP overseas networks KRP began its operations in October of 1989. Up to now, the total rental floor space amounts to 1.1 million sq m. The number of tenants is now 132, including 7 institutions and 125 companies. Occupancy rate is at a record high of 98 per cent. Annual revenue has reached $US 42 million and pretax income is 2 million. It became profitable in FY 1996 and we recovered all accumulated losses in 1999. KRP has a global network among overseas research parks such as USCS, Australia Technology Park, Oxford Science Park, Tianjin Science Park as well as a domestic alliance with Yokosuka Research Park. KRP established the overseas subsidiary jointly with UCSC, and through its subsidiary, KRP owns and operates the rental office space in Science Centre in Philadelphia.

B. Background of KRP Why did Osaka Gas Co. decide to redevelop the former production site as a research park, an innovation centre of high-tech industry and IT businesses in Kyoto? Business Week of June 1999 picked up Kyoto as Japan’s High-Tech Hope and described Kyoto as Silicon Valley in Japan. On the cover of this magazine, the famous Kinkakuji Temple is not made of wood but of state of the art of semiconductors. Kyoto City is well known throughout the world as the ancient Japanese capital from 8th century to 19th century for more than 1,000 years. But now, it has a reputation as the capital of new venture economy in Japan. Utilizing the following resources cultivated in Kyoto City, Osaka Gas Co. started a research park business in 1989.

Entrepreneurial spirit After World War II, independent and entrepreneur-driven companies were founded in high-tech business areas in Kyoto. They have grown up into global high-tech companies.

Kyocera Manufacturer of ceramics for semiconductors, cellar phones, and electronic devices. It was founded in 1959 by Mr Inamori and went public in 1971.

Omron Manufacturer of factory-automation machines. It was founded in 1948 by Mr Tateishi.

Rohm Manufacturer of customized semiconductor. It was founded in 1958 by Mr Satoh and went public in 1983.

Nintendo Video game software manufacturer and distributor. The product of ”Pokemon” is well known to children around the world. Mr Yamanouchi, president of Nintendo, has developed this new product-line of video game software since the 1980s. For more examples of entrepreneur-driven high-tech companies, we can refer to Murata, Hiroba, NIDEC and so on. In the current recession of the Japanese economy, huge companies, mainly based in Tokyo, are suffering. However, entrepreneur-driven companies in Kyoto are increasing revenues and profits through original product and technology, flexible and effective management system, global operation, strong leadership and the charismatic character of entrepreneurs.

73

Traditional skills and workmanship Traditional skills and workmanship have been carefully cultivated in Kyoto for over thousand years. A sense of beauty and refined skills were fostered and improved in the traditional industries such as textile, ceramic and industrial art handicrafts. The originality and creativity of products essential to new venture start-ups are nurtured by the legacy of these industries.

Advanced science and technology Advanced Science and Technology are present in academic sectors. Nearly 40 universities and colleges reside in Kyoto City. Kyoto University is sending out globally renowned scholars including 4 Nobel Award recipients in high-tech fields. Doshisha University, Ritsumei University and other colleges also contribute greatly to the development of science and technology and also supply the industry with well-trained and educated people. Taking advantage of these resources nurtured in Kyoto, Osaka Gas Co. has started research park business and developed it successfully for ten years through KRP.

C. Tenants of KRP KRP tenants can be categorized into two types such as institutions and private companies. As to the first category, seven institutions have missions and operations to support new ventures and SMEs from a variety of aspects such as technology, management and financing. As to the second category, 125 private companies have a wide variety ranging from branch offices or R&D centres of big companies to small start-up companies.

Institutions Kyoto City Government operates ASTEM (Advanced Software Technology & Mechatronics Research Institution and KYSA (Kyoto Software Application). ASTEM focuses on the technology of computer-controlled machines and IT software development. KYSA focuses on human-resource development for the computer software industry. Both of them have very close research and human relationship with Kyoto University and also serve as Internet provider to Kyoto citizens at a very low cost. Kyoto Prefecture Government operates the Service Centre for SMEs. It dispatches consultants of management & technology to SMEs on their demand and supplies financial support to new ventures and SMEs. Invention and Innovation Centre helps new ventures consult intellectual property rights at free or cheap expense. Kansai Technology Licensing Organization (Kansai TLO) has the missions to transfer university-developed technologies to companies and to distribute licensing revenues to inventors, universities and Kansai TLO itself. Research Centre of Nation’s Law supports SMEs by providing information about commercial laws of nations. KRP is able to utilize this kind of systematic services provided by the city, prefecture and private institutions in order to incubate the tenant companies.

Private companies The ratio of tenants by industry category shows that IT-related new ventures constitutes the largest number of 40 per cent. Sales and service business and consulting business follow respectively at about 10 per cent each. Chemistry and R&D related tenants amounts to 6 per cent.

74

D. Incubation programmes for new ventures Incubation programmes that KRP can provide is ranging from the start-up stage to IPO stage. 1. To educate the entrepreneurs, we are operating an entrepreneur school. About 50 people have attended this school in the past three years. In addition, the public sectors in KRP provide them with practical knowledge and skills necessary for operating new ventures through their seminars held in KRP. 2.

We can provide the start-ups and growing companies with the following original services. ◆

Economical small rental space (about 4 sq m) with plug-in facility only for the start-ups

◆

Consulting services regarding business model patent, technology transfer, management, financing and so on

◆

Marketing support service in order to complement the lack of credibility of new ventures.

We make a contract with big companies in the name of KRP and subcontract it to our tenants. These are good opportunities for the tenants to improve their skills and technology in response to strict demands from big companies. ◆

We have just structured an IPO support system in collaboration with 5 independent VCs. KRP will play a role in finding prospective entrepreneurs and introducing them to venture capital partnership. Jointly with VCs, KRP will also strongly support new ventures towards their IPO.

◆

KRP is a member of Kyoto City Platform for New Enterprise Promotion composed of 12 organizations. Seven members out of 12 organizations have their offices and operation bases within KRP. Utilizing this platform structure, we can incubate our tenants of start-ups in a more effective way.

E. KRP activities Multimedia Research Centre Inc. (MRC) MRC is one of our prospective tenants operating in IT business field and has the typical traits of a new venture. The KRP Consulting Team makes a contract with big companies in the name of KRP and subcontracts it to tenant companies, including MRC, that are specialized in original technologies and skills. ◆

Mr Sakata founded MRC in 1996 at KRP.

◆

He was then 36 years old and started his business with 3 of his friends.

◆

It specializes in planning and producing digital contents.

◆

Now it has 25 employees and its annual sale revenue reaches $2.5 million.

◆

Mr Sakata recruits his staff members through the Internet and encourages them to start their own company rather than expanding his own company.

◆

His style is typical of the young entrepreneur.

Kansai TLO KRP takes opportunities to enter into new business by itself. This chart shows the structure of Kansai TLO, a new institution for transferring university-developed technology to companies. ◆

Kansai TLO was founded in October 1998.

◆

KRP, Kyoto University, Ritsumei University and a government-based VC made investment to incorporate Kansai TLO.

◆

The Japanese Government supports TLO operations by financing it.

◆

It has now about 400 professors and 200 companies as its membership.

◆

Fifty five patent applications were made during the past year and a half.

75

◆

Three technologies out of 55 were successfully transferred to companies.

◆

Revenue comes from companies in the form of license fee.

◆

Kansai TLO distributes revenue to inventors, university and Kansai TLO.

This TLO scheme is expected to enhance technology transfer from universities and to promote founding new companies by professors and postdoctoral students.

A Case Study of Kyoto Instruments Co. Kyoto Instruments Co. is one of the successful technology transfers by Kansai TLO: ◆

Stable Frequency Detector for Dynamic Force Microscope was invented in Venture Business Laboratory of Kyoto University.

◆

The new technology was transferred into TLO from the inventors of Kyoto University.

◆

TLO applied patent right to the agency at its own expense.

◆

Postdoctoral student of Kyoto University formed a new company named Kyoto Instrument Inc., to start the production and sales promotion of new detector.

◆

TLO supported the foundation of new company and transferred the execution right of the patent to the new company.

◆

In collaboration with professors and TLO, KRP is supporting the operations of this new company that was established and managed by the post-doctoral student.

Centre for entrepreneurship education KRP tries to begin the new operations in collaboration with the institutions within KRP. This chart shows the set-up of Centre for Entrepreneurship Education jointly with the city-government organizations (ASTEM and KYSA). The greater KRP consortium is now developing the computer network system to spread this education to schools and colleges. The case of Centre for Entrepreneurship Education is as follows: ◆

Entrepreneurship Education for elementary and high school students is essential for enhancing new venture economy in Japan.

◆

A consortium was organized for this purpose in early last year in collaboration with ASTEM, KYSA and KRP.

◆

The consortium introduced Entrepreneurship Programme from the United States of America and is developing an original computer network system to spread this education. By the end of this year, several high schools and colleges are expected to join this education system.

◆

Students will set up the virtual companies and make transactions with other domestic virtual enterprises as well as with overseas virtual enterprises by using this computer education system.

III. KYOTO REGIONAL PLATFORM JANBO focuses on spreading this type of platform all over the prefectures and big cities in Japan in order to promote new venture creation. In Kyoto, ASTEM is the core support institution that promotes the platform operations. Seven institutions out of twelve members of the Kyoto platform have their offices and operation bases within KRP. We are proud that KRP plays an important role in the platform through conducting its own incubation programmes as well as providing the platform members with an effective environment for collaborations.

76

III. STRENGTHENING TECHNOLOGY INCUBATION SYSTEM FOR CREATING HIGH TECHNOLOGY-BASED ENTERPRISES IN GERMANY BY

ESCAP

RESOURCE PERSON,

MR GERHARD RAETZ ARBEITSGEMEINSCHAFT, DEUTSCHER TECHNOLOGIE UND GRÜNDERZENTREN ADTEV, BERLIN, GERMANY

77

1. INTRODUCTION The system of business incubation is now an important element of regional economic development and a solid part of economic policy in different regions and in the national sphere. In particular, business incubation in innovative and technology orientated fields has a special importance for the creation of new companies with new products and services for the market use of results of R&D. The incubators in Germany have an essential role in supporting entrepreneurs and young innovative technology orientated companies in their start-up and first development steps. 450 400 350 300 250 200 150 100 50 0 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Figure 1. Development of Innovation Centres in Germany The history of real business incubation in Germany started in 1983 in Berlin with the opening of the BIG, the Berlin Innovation and Business Incubation Centre. Since then, there has been a continuous growth in the number of Innovation Centres, Business Incubators, and Science and Technology Parks in Germany. Now, there are more than 350 Centres and parks in all Federal States of Germany. It is one of the largest networks of incubators in the world. The quantitative development of these Centres in Germany is not finished, but we think that dynamic of growth will be smaller in the future. More than 10,300 companies with about 70,000 employees started their work in these Centres or realized their start-up-development there. More than 2,300 companies left these centres to realize the extension of their company. The companies which started their development in Innovation Centres created about 140,000 jobs. This development and the collected experiences in Germany is one part of the background for this presentation. The other is the real work of ADT, the National Organization of these Centres and parks for more than 15 years. The third is the proper activity of the author in the field of creation and management of Innovation Centres and in the ADT for more than 10 years. The incubators themselves will be in the spotlight of this presentation, especially their role as instruments for regional economic development and as specific service companies for entrepreneurs, new and young innovative companies. Their characteristics, the special marks on their quality and their activities will be the central point. Frame conditions, the success factors and recommendations for future action will be discussed.

2. TECHNOLOGY INCUBATORS – INNOVATION CENTRES In Germany incubators are a result of a necessary change of economics. Under pressure to create new enterprise initiatives and in their consequence to create new jobs, the first incubators were established in the regions with the biggest problems in economic structure.

79

Figure 2. The network of Innovation Centres in Germany The German “Model” is characterized by the integration of start-up and development of new enterprises with the development of new technologies. The support of new enterprises with new products for the market is the basic task of Innovation Centres in Germany.

2.1. Main aims and definitions 2.1.1. Definition and different names The name “Innovation Centre” integrates different kind of centres and parks like Business Incubators, Technology Centres or Parks, Science Parks in Germany. In reality, you can find many different names for all of these centres and parks. These names refer to the regional identification and the general aims for the region. They characterize different potentials and regional or local aspects. The use of different names, in general, is unpractical. The important thing is that all kinds of centres and parks with their different names realize special activities to support new enterprises with new products and services. The Innovation Centres in Germany are based on the following concept (see figure 3). Innovation Centres have their working area in connection with their surrounding which is characterized by the potentials of industry, science and R&D institutions and service and trade businesses. In this frame, Innovation Centres integrate three components in general, the first one is a business incubation part, the second one a technology development part and the third one a transfer and information part. The business incubation component is characterized by all kind of support activities for entrepreneurs (see 3.3.1.1). This is not orientated to a special client like innovative or technology orientated start-up companies. In the foreground is here the development of new businesses in general.

80

Industry

Business Incubator

Technology Centre/Park

Innovation Centre/Park Science/ Research

Information & Communication Centre

Service & Trade Business

Figure 3. The concept of Innovation Centres The technology development component is characterized by support activities to develop special technologies directly (see 3.3.1.2). In the central point of view are here technologies on a high level and with a large importance for the future. You can find here special instruments and infrastructure for selected technologies. The different centres are concentrated to a concrete number of technology fields in connection to the regional potential especially in R&D. The transfer component characterized the technology and knowledge transfer between science institutions and enterprises or between enterprises themselves in all directions. This is an important component to create strategic alliances and to realize a practicable networking (see3.3.5). You can find all these components in all Innovation Centres, but in different scales. The conditions in the surrounding, the regional potential in industry, science and R&D and in the businesses and trade determine the target of an Innovation Centre. The concentration of different organizations with technology and economic development activities under the name “Innovation Centre” is a result of the experiences in Germany. It is more likely to summarize different experiences and to concentrate different potentials of synergy for support of new enterprises.

2.1.2. Aims in general Innovation Centres work in real regional conditions, in a concrete frame of industry, science and R&D and different businesses. Dependent on these facts they realize different tasks in business incubation, technology development and information and communication. They offer different kinds of support activities to realize their main tasks (see3.3) in dif ferent intensity. This depends on regional resources, the potentials of entrepreneurs, the location of science institutions and universities, the industrial potentials in the region etc. In summary, we say that Innovation Centres are an instrument to support the creation and development of companies and, especially, of innovative and technology-orientated companies, which are developing, realizing and selling new products and new services from results of R&D to the market. In this respect these centres are instruments of regional economic development and instruments to develop a regional economic structure. The general aims of Innovation Centres are based on five points. The first one is to advance the creation and the development of new enterprises. New enterprises pay new taxes for the government and create many jobs. The second one is to develop the innovation orientated economic structure in the region. To find out the innovative potentials in the region for creation of new products and services is the third one. In connection with

81

them is the qualification for innovation and management. And the fifth one is the creation of networks for innovation and economic development. In expectation of this you can realize different regional effects. The creation of new and attractive jobs is the most important. The establishment of new enterprises demonstrate that the region is healthy. More synergy for the development of companies and the improvement of a higher technological level into the regional enterprises is a sign for a modern economy. The region has to prevent experts from hearing and to support their comeback to show it is attractive for high-tech enterprise development. These are all quality marks of the economic structure and its quality of a concrete region. In summary, Innovation Centres are, on one hand, close community sites of start-up and young enterprises and, on the other hand, their management organizations are specialized service companies for their customers, who are the entrepreneurs and employees who establish and develop their enterprise in the centre. The specific services of Innovation Centres are offers and the realization of concrete support activities for their customers within the best frame conditions which facilitate the start and first development phase of the companies.

2.1.3. Relations between centres and parks New companies need a perspective for their prospective development. They mostly need it in the neighbourhood of the incubator. This is one of the reasons to create a park in the environment of an incubator. The neighbourhood of the support activities of centre, to the relations of cooperation with other companies or with research institutions etc. are very important for future steps in the development of these companies. Science & Education

Research Park

Business School

Science Park Creation innovative SME’s

Technology Centre

Technology Park

Development innovative SME’s

Innovation Centre Business Park

Business Incubator

Industry

Figure 4. Relations between Innovation Centre and Science Park

In general a “Centre” is a building or a smaller complex of buildings. A “Park” is a bigger area with more complexes of buildings. In a park, the company can buy its own building plot principally to construct its own building for its use. This relation between a centre and a park is very interesting for private profit orientated companies in the field of real estate development. They can create an incubator like an Innovation Centre as a nonprofit organization. For the developed companies which have to leave this centre after their first years, and for other interesting companies they construct the park and they can realize their profit in this field. In the relation between Innovation Centre and Science Park you can see that they have a large potential for cooperation. You find their different components of Innovation Centres and Science Parks and their effects in different directions to creation and to the development of innovative companies or to science and education or to an industrial development.

82

But Innovation Centres are not located only in the frame of a Science Park. You can find it as a stand-alone centre or as part in an industrial or technology park or in a science park. Within these possibilities, Innovation Centres realize their work but with different effects and aims. In a technology park, the companies find their cooperation partners in other enterprises or their customers more directly. But the input from science and R&D, the new ideas for the creation of new products and services is not so direct. But the contacts to scientists and the results of R&D are stronger if an Innovation Centre is located in a Science Park directly. The best location for an Innovation Centre is a combination between Science Park and Technology Park. You can find here potentials for cooperation and customers. The input with new results of R&D and the output in form of new products and services are very suitable for the companies. In this respect the effects for economic regional development are the best. In the following we will use for centres and parks the name “Innovation Centre” as a synonym.

2.2. Characteristics by different sites and ages Innovation Centres have different characteristics depending on their location and their age.

2.2.1. By different Sites The development of an Innovation Centre depends on the real local and regional conditions. It makes a difference if the centre is located near a university, in an industrial zone or in a rural area. In this respect you have several tasks and aims of the centre and you have different potentials of entrepreneurs, start-ups and new companies.

Technology Park

Innovation Centre

Innovation Centre

Technology Park

Innovation Centre

Science Park

Science Park

Figure 5. Innovation Centres in relation to their location

83

A centre in a science determined area will be more orientated to the development of new technologies by results of R&D. You will find here more developers of new technologies and companies which cooperate stronger with science institutions. In the foreground of the tasks and aims are the support of development of new technologies with new companies in this field. In an industrial or former industrial zone an Innovation Centre is more characterized by using and implementing technologies in real production processes. In these centres you will find a corresponding structure of companies. Here, the creation is new jobs is important.

Rural Area 28.2% Science Area 44.6%

In rural areas, the Innovation Centres are orientated to the creation of companies working in the service area on a higher level. The creation of new jobs is important too.

Industrial Area 27.1%

The different sites of Innovation Centres show that one cannot compare them in their different tasks and aims.

Figure 6. The shares of location of Innovation Centres in Germany

2.2.2. By different ages The age of an Innovation Centre is an important factor to value its efficiency. In the initial period during the first four years after the opening, the centre will concentrate on the construction of its internal structures and the external network. These are different work phases than you have in the following establishing period. In the period of the following five years the integration in different structures in the region, national and international, and the creation of cooperation networks are in the foreground. The older centres have to conform their offers and services to the new requirements. One cannot compare centres with different age. In Germany’s experience, the number of technology orientated companies is higher in elder centres.

2.3. Target groups Innovation Centres support the start-up and development of innovative and technology orientated companies. But the target group of Innovation Centres is very different. If we want to develop high technology companies, we need a wide base of different levels of technology and innovation. The concentration of innovation in general is important because the different technologies are a part of innovation, and innovation includes more than technologies only. We need innovative companies in different fields for the development of the economy not only in classic or actually important technology fields. Real new products and services for real necessities of the market are in central point. We say “technology orientated company”. That means that the companies can be a developer of new technologies which they offer for users. On the other hand, these companies can be a user of technologies and they buy them from the developer. In general, technology orientated companies develop new technologies and/or use new technologies or they have their work in direction of use of technologies in other companies. This is the main target group of Innovation Centres. But we need other clients in the Innovation Centres too. Those clients are companies which can support the development of the main target group like lawyers, tax advisors, transfer organizations, specialists of public relations etc. It is important for an Innovation Centre that it includes a different structure of companies in different ages, sizes and technology fields. In an optimal combination one will have a high potential of synergy and cooperation between the companies in the centre.

84

3. CATALYTIC FACTORS FOR TECHNOLOGY INCUBATION 3.1. Policies 3.1.1. National and state policies The national policy for business technology incubation is reflected by the federal structure of politics in Germany. The federal government creates general set-ups like legal frameworks and financial support for entrepreneurship and the development of young innovative companies. In addition the state governments offer different support programmes for enterprises in their respective federal states. The young companies have to integrate their activities in the general legal framework like any other enterprise. In Germany, special laws do not exist for them. The same applies to tax regulations. Another thing is the different financial and advisory support activities of the government for young innovative companies. Here you can find a large number of support programmes. You can summarize these programmes to: ◆

credit programmes with state-subsidized rates

◆

share programmes by governmental VC-companies

◆

grants of the government especially for investments of the company, for creation of new jobs and for the development of concrete technology fields, like e.g. multimedia, biotechnology, life sciences

◆

surety programmes by governmental surety organizations or in taking over a part of the risk of credit institutes of enterprises by the government

◆

advisory activities financed by governmental organizations.

These programmes are partly cofinanced by the European Commission. In reality you can find combinations between different programmes and a combination with private financing activities from credit institutions or private VC-companies. It is important for an entrepreneur and a young innovative company that all public financial programmes are coupled with a bureaucratic act for application and proof of use. All governmental support activities can give an additional help only in the first steps of development of enterprises, technologies, products or services. They cannot give real market potential and real customers for the new products and services. For high effectiveness, governmental support needs to realize a suitable infrastructure for development of new companies. In this field the federal and state government supported the construction of Innovation Centres as an instrument of regional economical development. All federal and state politics can support the activities of entrepreneurs and employers only in small parts. They cannot replace the entrepreneurial responsibility for their own enterprise and for their activities on the market. But all policy can create an atmosphere of creativity, and entrepreneurial activities are beginning in schools and universities.

3.1.2. Regional policy All Innovation Centres in Germany are created by initiative of regional protagonists and of regional policy. The establishment of Innovation Centres in the counties is an act for the development of regional infrastructure for economic development. The majority of innovation Centres in Germany have the local and/or county administration as their shareholder in the management company. Politicians of counties or representatives of administrative bodies have a place in their advisory board or in other committees of the centre management. This is, on one hand, an advantage. In this constellation you can realize the regional consensus between all protagonists in the region to support the activities of the centre and their companies. This regional consensus

85

of politicians of all different parties, of chambers of commerce, of regional economic development organizations, of financing institutions and of the county administration is the main base for creation, financing, construction and work of an Innovation Centre. On the other hand, this constellation is a disadvantage. In many cases the management of a centre is covered financially by its own entrepreneurial legal capacity. Innovation Centres are a part of regional infrastructure and a specific enterprise for support of new innovative companies. They have an ambivalence to the public administration and to their own entrepreneurial interests. Innovation Centres realize many tasks which are a part of regional administration like advisory of politicians, management of regional projects for economic development, technology transfer and advisory of entrepreneurs outside of innovative and technology orientated fields. With such activities, Innovation Centres can establish their contact network with many advantages for the companies in the centres. Innovation Centres have to form the frame for the economic activities and the global and international market activities for their companies and the companies in the region.

3.2. Frame conditions and infrastructure Outside of the influences of politics, Innovation Centres realize their work in different frame conditions and infrastructure more as hard facts.

3.2.1. Regional factors The character of surroundings of an Innovation Centre influence their kind of work and their aims. You can see the sharing of Innovation Centres in different surroundings in figure 5.

3.2.1.1. Science determined factors Innovation Centres on sites of science, R&D institutions and universities present the typical characteristics of an Innovation Centre at best. These centres have best conditions for creation and support of innovative technology orientated companies. The cooperation between scientists and young entrepreneurs is very close. You can find in these centres a higher-than-average number of innovative technology orientated companies in technology fields. In addition, these centres have a closer cooperation to research institutes of industry. Many companies in the surroundings of these centres realize research activities themselves. The universities and the industrial research institutes are an important source of entrepreneurs, who could be students and academic employees. A major characteristic of these centres side is their direct location in a Science Park or in the campus of a university directly. They realize a close cooperation with all organizations in this park especially in the identification of entrepreneurs and of cooperation potentials for the companies in the centre. On the other hand, you can find more centres with a focus to special technology fields in this frame.

3.2.1.2. Industrial determined factors Innovation Centres in industrial determined areas have more complicated conditions for their development and the realization of their tasks. The character of this area with an active industry or with a former industrial zone, influence the kind of activities of a centre. A success factor of these centres is the integration of the companies of the centre with the companies outside of the centre. These centres develop their own technology competence to influence the companies in the region with innovative aspects for their development. This is a chance for companies in these centres which are more users of new technologies. The location of centres in such a region are mostly in free old and reconstructed industrial buildings. Often these centres are located in a business or industrial park.

86

3.2.1.3. Rural determined factors Innovation Centres in rural determined areas have to realize a stronger work. The most important activity is the identification of new entrepreneurs and, step by step, the development of technology based companies. In these centres, the support of new businesses is in the foreground. Their chance is to develop the centre to a regional point for creation of new companies and to support their cooperation. The efficiency of these centres is coupled with the economic development in the region. The regional consensus is more important here than in other regions. But these centres have their chance. More and more young innovative companies and entrepreneurs go into a rural determined area with its healthy environment. Especially companies in informatics select this area for their location.

3.2.2. Locational factors of infrastructure Innovation Centres need a good infrastructure in their surrounding and in the structure of buildings in which they realize enterprises.

3.2.2.1. By surrounding Local factors have a fundamental importance for establishing an Innovation Centre and they influence its work and success. The main locational factors are a close connection to traffic components like public transport, roads with enough parking places, the connection to telecommunication and the internet and, last but not least, a healthy environment. To be easy to reach for employees and customers is an important factor of an Innovation Centre. The neighborhood to universities and science and R&D institutions or a close connection to them is an essential condition for the development of innovative and technology orientated companies in an Innovation Centre. To establish a centre on the green meadow in high distance to the real life is possible only for different technology fields which don’t need contacts to other institutions and companies. In general you have to avoid this. For the future development and growth of companies which have to leave the centre the possibility to establish a Technology Park in the close neighborhood is very important.

3.2.2.2. By buildings The building of an Innovation Centre and its structure inside is the essential factor to realize a site community of different innovative companies. This depends on the kind of target group and from technology fields which are developed in the centre. A clear internal structure of corridors, of entrances and elevators is one point of this. The second one is adequate possibilities for variable completion of spaces for the companies and their capable utilization in different functions like offices, workshops, laboratories, etc. Important is that you can extend different components of technical supply networks like energy, water and waste water, telecommunication, ventilation systems, etc. A building of an Innovation Centre is characterized by four functional zones: ◆

the entrance and service zone, with entrance hall, equipment for services like photocopiers, equipment for presentation like beamers, overhead projectors, etc.

◆

the zone of facilities for the community of companies, like conference rooms, cafeteria, meeting points for small talk, small kitchen, etc.

◆

the company spaces zone with rental room for different functions

◆

the zone of the centre management.

These functional zones are not closed areas in the centre. They are integrated components.

87

The character of the building and their facilities have to support the aims of an Innovation centre. For new Innovation Centres it is important that you have the possibility to construct it step by step in relation to the development of number of companies and their own development.

3.3. Support activities for enterprises Many organizations realize activities to support new enterprises especially in innovative and technology orientated fields. These are technology transfer organizations in universities or such organizations from the economy, advisory companies, chambers of commerce and trade, regional economic development organizations, employees in the regional administration, support banks which are in the ownership by a government and which give grants etc. These are all organizations in a network and they can realize only a part of support of young companies. Innovation Centres realize a closed package of support activities for entrepreneurs and young innovative companies. They realize it, in one hand, through their work and in different fields in cooperation with their partners in the network. The concentrate of all activities from consulting activities to technical, organizational assistance and renting activities to technology and marketing support and opening a large network for the companies is very important for the efficiency of support and the development of competency for the companies. In this direction, we have to concentrate on activities of the centre management in cooperation with its network. The support of the centre management in all fields cannot replace own activities and own responsibility of the enterprises and their employers. The centre management can identify the right doors and it can open these doors, but the employer has to go through this door alone. The centre management can prepare him for its way.

3.3.1. Consulting activities The consulting activities of a centre management are different to a professional work of consultants. Of course, the centre management integrates all its experiences and networks in its work but it realizes at first help to self-help as a partner of the companies in the centre. The centre management has big advantages in this field. It realizes its work in close proximity of its clients everyday. The centre management knows all details of the business plan and it knows the character of the key persons in the young companies and it can create an atmosphere of confidence and partnership. The aim of this work is not to make a profit. This work is, in general, a part of the basic services of the centre management for the companies and their costs are often integrated in the rental costs of spaces. In this respect, the consulting activities are activities of acquisition for new companies for the centre and also support activities for the companies in the centre. Consulting activities are, in general, an individual work of the centre management. Every enterprise has its own specific aspects and it needs an individual partnership.

3.3.1.1. Business consulting activities This includes all kinds of support for normal entrepreneurial activities like the creation of a concept for realization of an idea, creation of a business plan and all things in a real life of an enterprise. Enterprises, in general, have similar questions. Questions about the legal form of enterprises, about personal recruiting, about expansion strategies, about contacts to financing institutions, about the way to the market, about the tax system, about the possibilities of public grants, all these and more you can discuss with all enterprises. In general, the centre management can answer most questions. For other questions, the centre management integrates specialized external consultants. It is important that the centre management has good contacts to external experts like lawyers, specialized consultants, tax advisors, etc. The main results of this consultancy work of the centre management is that it helps the employers to create their own business plan and their own development strategy, etc. These are the first instruments to run their companies. And, also important are the company’s own experiences in this way.

88

In this field, the centre management has to develop its own experiences to support the companies. This includes the activities in the case of an insolvency of a company in the centre. The centre management can help to create a second chance for such employers.

3.3.1.2. Technical consulting activities Technical consulting activities need a special knowledge of the centre management and of external experts in its network in different technology fields. The Innovation Centre can help in the form of a large network of specialized experts. It can also realize an approach to documentation of standards and quality remarks. A close cooperation of centre management with universities, science and R&D institutions is very important in this field. It can realize a match-making between enterprises and scientists to initiate their cooperation and to transfer know-how. Centre management can realize and organize a brokering between enterprises in the same technology field to exchange experiences and for the creation of cooperative activities. In this field, the centre management can organize a different spectrum of possibilities for exchange experiences between the companies in different Innovation Centres and their regions. Innovation Centres which concentrate on particular technology fields can give more technical assistance. These centres have a specialized technical infrastructure and own experiences in these fields. In addition, they have close contacts to scientists to transfer the knowledge into the companies directly. These Centres develop to competence centres in technology fields like multimedia, biotechnologies, microelectronic, etc. These centres have often established a close partnership to large industrial companies, e.g. automobile industry, chemical industry, pharmaceutical industry, biotechnology. In this frame, a closer cooperation is possible but the degree of dependence can grow. The main task of the centre management in this field is the moderation of different interests and the identification of potentials for cooperation and for exchange of experiences.

3.3.1.3. Financing support activities The financial support activities of an Innovation Centre are realized in two directions. The first one is to offer best conditions in rent and costs of spaces, infrastructure and services in the centre. This will be possible if the conditions for building usage and infrastructure for the centre management are also the best. The experience is that the centre management has to account prices for different kind of support activities. But these are prices which help to realize a self-economic efficiency (see 3.5). The second one is the support of acquisition of finance like corporate financing, Business Angels, VC, credit financing and public subsidiaries. With different forms of financing we have different experiences in Germany. In the first view, public grants and subsidiaries are the best form of financial support. The second view shows that this form is coupled with a high bureaucracy for the company. In many cases one can use these grants only in selected fields and only in the pre-competition field, e.g. for the development of prototypes, etc. The entrance in the market with its high costs is not cofinanced. And grants need in regular complementary financing from the company itself in the volume of 30 to 70 per cent. Business Angels are a highly effective form of assistance and financing the companies. Between the employer and the Angel a close connection has to be developed which includes a personal component. The Business Angels want to support the development of the company. He integrates his network, his experiences and his money in the company. The problem here is to find the right angel for the right company. The centre management can use networks of business angels. This network is open for all kind of enterprises but, in most cases, will create an engagement between an Angel and an innovative new enterprise. An effective form is corporate financing. The corporate partner, mostly a potential customer, gives its money to develop new technologies or products. However, a drawback in this form maybe that it could develop a close dependency between the company and its corporate partner.

89

The classical credit financing is, in many cases, for young and innovative enterprise a problem. They cannot give the necessary securities in most cases. Another form is venture capital. VC is very attractive but it needs a special type of an employer and of an enterprise. Enterprises with a high-speed growth with 30 to 80 per cent per year are very interesting for VC-companies. You can find these enterprises especially in biotechnology, multimedia and informatics fields. We have to see that only about 5 per cent of all innovative companies are interesting for venture capital. But we need this financing form for lower growth of companies with 10 or 15 per cent per year. In reality, we find combinations between these forms. The centre management has to integrate in their network all financing institutions in all kinds of financing. In its work with the companies the management can offer different possibilities for financing a concrete case. There are also Innovation centres, which offer financing of enterprises from their own portfolio as investment or as loans. It must be considered here, however, whether through this, with the developing economical interest of the centre management in separate enterprises does not somewhat circumvent the basic principle of similar dealings with all enterprises in the centre. Finally this question is to be measured by the commercial requirements of the task of an Innovation Centre. It appears more expedient to preserve the basic principle of similar dealings, therefore generally not to approve financial and company-law type investments by the centre management and its employees to enterprises. On the other hand, however, it is necessary to support external financing situations in cooperation with the enterprises. But, in all activities in this field, we have to see that the main finance institution is the customer who needs the offered products and services or the development of new technologies. The best financing concept cannot replace him.

3.3.1.4. Intellectual property assistance The intellectual property and the necessary fast offer of new products and technologies are in many cases in a contradiction. To save the intellectual results is a long procedure with high costs. In many cases it is better if you concentrate all your activities to bring product in the market in a high speed and realize your business and profit. After that the competitors can realize their activities as a second step in the market. For the centre management, it is important to have a close relation to special lawyers in this field who can support the innovative companies in their way to the market with the necessary property of their knowledge.

3.3.1.5. International assistance Innovation Centres are a knot in a global network in the international sphere. The National Organizations of Innovation Centres work for creation of these international networks. The centre management can integrate its activities in this network. The goal is to find different partners in different countries, to organize activities, to identify and prepare cooperation potentials and activities. The centre management is, in this case, an agent or a negotiator. It can offer an international competency to its companies which to have to go to the international market. Innovation Centres can build up more acceptances in their region as an international central point for cooperation. In the international sphere you can see the creation of international business incubators, like the IBI in San Jose the United States of America or the East-West-Cooperation-Centre in Berlin-Adlershof (Germany). These are specialized centres for international cooperation.

3.3.2. Technical and organizational activities The goal of all technical and organizational activities of an Innovation Centre is to help the companies in their first steps of development, and to save their investments, time and money. These activities will be realized by the centre management in combination with its cooperative partners.

90

3.3.2.1. Basic services The basic services in the technical-organizational field of activities of an Innovation Centre are oriented to the pragmatic support of the enterprises in their startup and initial development phase. These services of the centre are offered to every enterprise equally. In this respect, the costs arising from this are mostly calculated as a component of the rental costs or are deducted directly according to demand. Among other things, the following are associated with these services: ◆

The reception service and the support of visitors

◆

The mail service, stamping and sending of mail dispatches

◆

The organization of events for enterprises

◆

Services in the catering field.

It is important that these activities depend on the needs of the enterprises. There should not be a utilization obligation for these services. Also their offer is open to competition. On the other hand, the centre management offers basic services and, therefore, stays in contact with the enterprises, which is important, particularly in the case of larger centres. For the feasibility of the basic services, the centre must have an appropriate infrastructure.

3.3.2.2. Infrastructure Infrastructure, in this connection, means the equipment, furnishings of an Innovation Centre, which enable the realization of the basic services and are directly available for use by the enterprises. The following are associated with the basic infrastructure equipment: ◆

The central reception

◆

The service area, mostly coupled with the reception

◆

Conference and seminar rooms, with corresponding equipment for presentations

◆

Cafeteria as a meeting place, with food catering, at least over the usual business hours

◆

Small kitchens for self-service

◆

Mail delivery system, as close as possible to reception

◆

Contact points in the centre, where employees of enterprises can meet in a free and easy way (smoking areas, waiting rooms, break areas)

◆

Photocopiers distributed in the centre at easily accessible locations

◆

Internet accessibility and networking, with high transmission performance

◆

Telecommunication facilities and networking

◆

Leased devices, e.g. presentation equipment, binding machines, mobile trade fair booths.

In total, the general infrastructure has a communication supporting character, that is of great importance for an Innovation Centre. In addition, those equipment furnishings, which support the work of the enterprises, with a corresponding profiling of the centre to specific technology fields, are to be linked here. In this respect, with an orientation to biotechnology, the corresponding systems for the supply and waste disposal of the laboratories and, where appropriate, specially equipped laboratory areas are to be provided within a specific framework. A concentration on computer science and multimedia presupposes a strong networking of the individual rental units. In the case of equipping the infrastructure, however, the costs arising from that are also to be considered. The equipment should be, if possible, equally usable for all enterprises, or, in case of use through individuals, the costs should be equitable. Experience shows that often the created infrastructure, e.g. community workshop or laboratory, high-grade large-scale equipment, have a longer life and thus have costs greater than the requirement

91

of the enterprises. In such cases the management centre remains tied to such costs or it must distribute them to other tenants in the centre. In this respect it should be strictly ensured, in the case of the establishment of specialized infrastructures, to what extent they satisfy an available requirement from the long-term viewpoint. It is important here, that, rather than create the prerequisites with the structural factors, the subsequent specific installations can be carried out by the individual enterprises at low-cost. Priority is to be given here to the corresponding multifunctional usability of the building with a specific flexibility. In this connection, economically self-supporting service providers (advertising agencies, illustrators, workshops, test laboratories, library, etc.) should rather be linked into the enterprise profile of the centre, since they can significantly expand the offer of the centre management.

3.3.3. Renting activities As a matter of course, Innovation Centres also make the corresponding premises available to the new enterprises for their enterprise startup and their development. It is just such a unique feature of Innovation Centres that they also create a spatially defined real location community of young, technologically innovative enterprises, in which communication and cooperation determine the synergy potentials. The rental activities make special demands on the centre management, that differs clearly from those of the commercial provider of non-residential space. These requirements are determined in particular through the fact that the rental represents not the objective but a resource for the completion of the objective of an Innovation Centre. It is part of the complex support package for young innovative enterprises and must also be adapted to their needs. These needs are particularly characterized by high flexibility, which corresponds to the development and to the growth of the enterprises. Flexibility means here: ◆

flexible short-term leases, flexible termination notice possibilities

◆

assurance of space options for future growth stages in defined periods

◆

rents which, on the one hand, pass on the advantage to the enterprises from governmental subsidizing of the investment during the construction of the centre and, on the other hand, take into account the degree of development of the enterprise (graduated rents).

The Innovation Centres, above all, offer temporary leases within a given time, since, with their know-how, they support only the first years of the development of an enterprise in agreement with their economical goals. Not only the requirements on the rental itself place special demands. The equipment and design of the rooms for the enterprises must also be taken into account. On the one hand, they are supposed to enable a multifunctional usability, on the other hand they have to also have an expansion standard, which enables an immediate take-up of the work of an enterprise, without, however, high inherent investment in the leased object. In this respect there cannot be any rigid orientations here. As basic features, however, the following can be mentioned: ◆

Differentiated room division, combinable smaller and larger rooms, combination capability and flexibility for growth of the enterprises

◆

Immediate utilization-capable rooms, finished walls and floors, basic package with regard to power supply, light, accessibility to telecommunication networks and optimally direct Internet accesses

◆

Multifunctional usability within a defined framework

◆

Change-capability of the rooms through low-cost, tenant-own expansion for functional adjustment within a defined framework (e.g. equipment furnishings of laboratories, workshops).

A corresponding support of the enterprises through centre management is, of course, provided. This has to ensure that, on the basis of framework agreements, corresponding low-cost services from craftsmen are integrated. It should be mentioned here that, on the one hand, through contracts for the maintenance of the technical systems in the buildings, their utilization capability is preserved and, on the other hand, economic advantages are achieved.

92

Of greater importance, however, is the fact that also the more mundane activities for the preservation of the premises, the house technicians and building administration, play an essential part in providing satisfaction for the customers, the young enterprises in the centre. Through their work, they determine the physical developmental conditions of the enterprises. In this respect, the realization of these tasks is an important part of the work of the centre management. Possibilities exist here, to be able to remain in contact with the enterprises, to find out how they are progressing, in order to provide corresponding support as quickly as possible.

3.3.4. Marketing activities The support of marketing activities is to be considered in two directions. One direction is the marketing for the centre itself, for its services and the other direction is the support of marketing activities for the enterprises.

3.3.4.1. For the centres In our experience, the marketing for the centre itself should not be implemented using the classical marketing instruments, in order not to openly question its economy-supporting and complex task setting functionality. In this respect, the marketing activities for the respective centre are to be adapted to the complex offer of support services for enterprise founders and young enterprises in the innovative and technological field. That basically means for the centre management: ◆

Contact support to key institutions in the network, such as Chambers of Industry and Commerce, banks, economy-improving institutes, public administration, materials handling providers, VC businesses, etc.

◆

Local presence in places where enterprise founders can arise in the corresponding target group; thus, in the universities, technical colleges and research facilities, business plan competitions, etc., in order to explain the range of facilities

◆

The use of the classical marketing instruments, such as displays, advertising spots, extensive brochures.

Just in the case of the latter, the expenditure often stands in no favourable relationship to the benefit. Ultimately, the marketing activities for the centre have two objectives. The first is the acquisition of new enterprise founders and young enterprises for the centre, which also want to use the service package of the centre. The second is the mobilization of appropriate founder potentials. The marketing instruments for an Innovation Centre are thus, in particular: ◆

a demand-appropriate support package for the target group with a very pragmatic and individuallytailored orientation

◆

high level of awareness about the centre and its services in the area. Also national and international awareness and the integration of the centre into corresponding networks

◆

multipliers in the area, not only in institutionalized form, e.g. Chambers of Industry and Commerce, but also in the informal field

◆

an active public relations facility, which places not the centre itself, but the development of the enterprises in the centre, in the foreground

◆

satisfied customers, that is, enterprises in the centre, that, through the use of the support package, could start their development and successfully expand.

The main canvassers for Innovation Centres are therefore their satisfied customers. But, those persons, that were well advised by the centre management in their initial concept phase, but who nevertheless could not decide on an establishment of an enterprise, should also be included. In this respect, the informal networks and the advised enterprises stand at the focal point of all marketing activities for Innovation Centres.

93

3.3.4.2. For enterprises The marketing activities for the centre also support the corresponding activities of the enterprises for their own development. Marketing activities for the enterprises have the predominant objective to increase the degree to which they are known about as enterprises and also publicise their products and services. Associated with that is the expectation to help open up cooperation potentials and markets for the enterprises. In this respect, Innovation Centres support this process through public relations work, which is directed to the enterprises, where they make journalists aware of the services of the enterprises and where they initiate corresponding reports, etc. For those unknown-enterprises, with their often no-name-products, this component is of supreme importance. The organization of the participation of several enterprises in national and international trade fairs is a further part of marketing activities, directed towards the enterprises by means of a low-cost grouping of the organizational work by the centre management. It helps, on the one hand, to lower the expenditure for the enterprises and, on the other hand, however, they organize a professional trade fair preparation and, of particular importance, a subsequent follow-up. Also, marketing activities for the enterprises, which are directed more internally, are helpful for their development. Associated with this is the fact that every enterprise is adequately informed about the products and activities of the other enterprises in the Innovation Centre and knows their main players. Enterprise meetings on specific universal subjects are used for enterprise management and development, with a subsequent free and easy presence, just the same as the reference to enterprises moving in, and to allow them to become informed locally about selected enterprises in the centre. Also, the organizations of specialist symposia, with regard to specific technological questions that are processed by enterprises in the centre, are an important part of the marketing activities. The participation of customers, scientists, cooperation partners and also competitions, at such events help to increase the degree to which the enterprise becomes known and helps to open up cooperation possibilities. The fact that the centre management is assigned only a supporting organizational function here, is understood. The organizers are the enterprises. The centre management can additionally guarantee correspondingly effective public relations. A further possibility in this field is the grouping of the marketing activities of the enterprises in the centre by the centre management. This can be directed to the marketing of concrete products, to the formation of purchase and sale communities and to the structuring of sales and marketing systems nationally, as well as internationally. However, in the case of such activities, it should be noted that this can develop into a commercial service of the centre management, with all its advantages and disadvantages, as well as liabilities and risks. Here, it must also be considered, as represented already in the case of the financing of the enterprises (see 3.3.1.3), whether entrepreneurial responsibility is not limited by such activities and commercial interest of the centre management develops in separate individual enterprises. In this case too, the integration of external competent organizations would be the alternative. Several Innovation Centres canvass and implement, in this area, the management of combined projects of enterprises from their house, with external enterprises and scientific institutions. What is involved here, in particular, is the development of new products, procedures, technologies and services that are also mostly financially supported from the public purse. The objective of such activities is the grouping of know-how from different enterprises and technology fields, for the development of new products and services with high market potentials. This develops into a specific service of the centre management, which, because it is financed from the participating enterprises, considerably reduces the expenditure for the organization of such projects for the enterprises. Such services are feasible for the centre management in the case of quantitatively and qualitatively adequate staff resources and without disregard of the “care obligations” for the non-participating enterprises in the centre. Particularly, in the case of support of the marketing activities of the enterprises, the importance of strategic alliances and a broad network becomes clear.

94

3.3.5. Strategic business alliances and networking Strategic alliances and networks are all the rage in the case of supporting young innovative and technology-based enterprises. In this case, references are made to their positive effects mostly for linked enterprises and equipment. However, with regard to the concrete structures of such networks, their organizational principles and their concrete effects, definitive information is less often to be had. The determining basics for the formation of alliances and networks are the agreed-upon situations of interest that pursue an objective at least partially and should reach this objective totally or partially either by the same path or by different paths. In this respect they are characterized, above all, by the interests of the players, be they legal or natural persons. An adequate transparency of the different interests of the participants is a prerequisite for the formation of networks and alliances. These are to be initially determined and the common interfaces are to be extracted, which should be pursued within the framework of a network or an alliance. The organization of networks, and also alliances, can be implemented both in an institutionalized form and in a rather private informal framework. Both formats have advantages and disadvantages. The institutionalized forms offer a certain security, contacts to other insiders and to information, as well as a certain protection against outsiders, which is not unimportant for young enterprises. On the other hand, however, the danger of the independence of this institution also exists, so that real life increasingly bypasses it. Furthermore, it can also be observed with such constellations, that individual members hide behind the competence of this organization and, instead of building up and ensuring their competence themselves, exploit the organization. The institutionalized form is also a prerequisite for the formation of strategic alliances. As a rule, the basis for such alliances is an unambiguous contractual agreement for the cooperation of several partners, who wish to target-develop or market a concrete product. Such alliances are directed mostly against the competition. In this respect such alliances arise from a more or less close cooperation and are based on an agreed-upon market launch of the partners. The centre management can offer support here only in the pre-contractual field. It can help in providing its own service or by using experts from its network, such that all risks and side effects become transparent and the involved enterprise is fully conscious about the consequences of such an alliance in a positive as well as also in a possibly negative way. Informal networks, in contrast to formal structures which tend to develop rigidity, sometimes have the advantage of a high level of dynamics and flexibility. Here, partners do not cooperate on the basis of an institutionally characterized “compulsion”, but by virtue of their own competence and voluntary decision. They would like to work with each other in order to reach common objectives more efficiently. And, it is possible, if the objective has been achieved and the interest and objectives have changed, to exit from this network without damage or to realign it quite differently, without having to take regard of structures which have grown up. Networks and alliances are effective and efficient only for so long as the mutual interests and objectives of the participants continue to exist. They are, therefore, fundamentally temporary affairs. It is the task of the centre management, to open up such available networks for their enterprises and, where appropriate, to initiate new networks for their enterprises. This is because the new enterprises often have quite a difficult time with access at this point. A component of this is that the Centre management itself builds up a strong network of external experts and that it supports this and continuously extends and reshapes it. Here especially, the informal structures have proved themselves, that in particular enable it, the one hand, to continuously integrate new partners, according to the requirements of the enterprises, however, also in the case of disappointing performance, to separate from partners in a simple way. A broad spectrum of experts and institutions, which are all important for the development of innovative and technology-based young enterprises, are part of this network of Innovation Centres. This spectrum extends from scientific equipment and furnishings, through lawyers, tax accountant, expert evaluators, governmental supply institutions, VC business banks, chambers and associations, up to governmental administrations and authorities from the local or extended environment of the Innovation Centre.

95

In this networking, on the one hand, the task of the Centre management is one of structuring, while on the other hand, it has a moderating function. The structuring function refers to the continuous expansion of the network that will never be completed. The moderating function refers to the opening up of the network for the enterprises in the Centre. It is just this part that is, in its effect, directly meaningful for the enterprises. By this means they can get concrete help for their concrete problem from identified experts. The responsibility of the centre management is restricted in this process only to the procurement of the experts, not their service. That is especially important if liability questions arise. The centre management provides the possibility of a concrete service provision. The company cannot and must not purchase and evaluate this service on the basis of its own decision and responsibility. Of course it still remains unchanged however, that the centre management will note the quality of their external partners and that it arranges possibly advantageous conditions for their enterprises with these partners. The centre management can only locate the suitable doors for the path an enterprise must take and open these doors for the enterprise. The enterprise must or can pass through on the basis of its own decision and responsibility and in full consciousness of the consequences possibly combined with that. In total, the networking of an Innovation Centre is an essential component of its work and supplies concrete benefit for the development of the enterprises in the centre. In this respect, the Innovation Centres are interesting, from the different points of view, as attractive partners in varied networks. The centres, as a rule, have available enterprises which are developing in a stable way, that are themselves also directly economically interesting for different network partners. In this respect, networking is never unilateral and is always current and dynamic.

3.4. Management of centres An Innovation Centre in itself represents only a real estate company, with corresponding equipment and a philosophy extending to the external, as an instrument of regional promotion of economic development. The life in an Innovation Centre is determined, in the first place, by the enterprises which move in and is organized by the centre management. In this respect, comprehensive demands are placed on the management of Innovation Centres, that result from the specific task of such centres. These have influence on the organization of the centre management and also on its required competencies. The management of an Innovation Centre must be implemented according to the same entrepreneurial and economical principles, whose implementation is expected from the enterprises in the centre.

3.4.1. Kind of organization The entrepreneurial handling capability of the centre management is determined, to an important degree, by the organization of the structure of the owners as well as the selected legal form. The owners of an Innovation Centre in Germany are, for the most part, a corporation of public right or a combination of public and private institutions in a public private partnership. It results mostly from the initiators of an Innovation Centre. For the realization of the daily tasks of a centre, the owners, as a rule, set up a management company, that, for the most part, is organized as a private-enterprise solution in Germany as a “Business with limited liability” (GmbH). Of decisive importance here is that entrepreneurial commercial spaces are actually made available to the operating business and that it does not remain under the continuous influence of the public sector, with their rather administrative viewpoints. The control of the completion of the task, as defined by the statutes, is, as a rule, the obligation of a supervisory board in accordance with the legal determinations. Further controlling or advising committees are possible. In the case of setting up some, it must be noted, however, that the main subjects of the attention of the management company are not its committees but the enterprises in the centre. In addition, other forms are also to be encountered in Germany, e.g. as part of a public administration or part of a corporation of public right, such as the Chamber of Industry and Commerce.

96

Figure 7. The organization of management of Innovation Centres

3.4.2. Competencies The tasks of the management company of an Innovation Centre are very complex. On the one hand, it has an obligation to structure a complex support package for the enterprises and to apply it in the routine daily work and to continue to develop it. In addition, it has to provide for a continuous infusion of young blood into the new enterprises, to select the tenants and to advise in their concepts. In addition, the routine tasks of the operation, the administration and preservation of the building, the accounting etc. are also to be dealt with. In order to complete all these tasks, comprehensive professional and social competencies of the employees are important. The following, in particular, are associated with that: ◆

financial capabilities for economic business practice

◆

technical understanding and corresponding intelligence

◆

entrepreneurial thinking and action

◆

social competence

◆

enjoyment of contact, knowledge of human nature

◆

team capability, reliability, integration capability

◆

knowledge and intuition with regard to regional requirements.

The social competencies are especially important here. In the course of cooperation with the enterprises, close confidential relationships arise that provide intimate knowledge of the enterprise development with respect to their strengths and weaknesses. These are an indispensable prerequisite, in order to offer targeted support services and to provide contacts. The confidence bonus combined with this, however, works only for as long as continuity exists in the occupation of the personnel of the operating business. Every new employee, and particularly management employees, must continue to build

97

up this relationship, which is based on confidence. With this, loss of information or even breaks in communication with the enterprises arise. That can be absolutely represented as a serious hindrance in the development of the Innovation Centre. In this respect, what is important is ensuring the continuity of the qualified personnel of the management company through careful selection.

3.4.3. Staff and working methods The requirement and the structure of the personnel in a management company of an Innovation Centre depend particularly on its size and the stage of development of the centre. Also having an influence is the degree to which the management company has responsibility for the building and the grounds, e.g. as proprietors, lease-holders or tenants, or also for a tied park. The minimum configuration for a management company is the manager and one assistant. This is mostly the setup at the beginning of a centre, when it still in the startup phase and when it is possibly located in temporary buildings. With the growth of the centre and thus also its tasks, employees are acquired for house-technical service, services, projects and accounting. On the average, the management companies of German Innovation Centres have one employee, including company manager, for each 1,000sq m rental area for the enterprises. Smaller centres have relatively more in this case and larger centres correspondingly less. In the case of 20,000sq m there are, e.g. only 10 employees. Here, the question arises as to whether in fact all tasks of the employees of the management company itself are realizable. The answer to that will be given in the weighting of the costs and the effects for the centre and its enterprises in each case, according to the concrete possibilities. There cannot be a universal guideline for that. However, there are some approaches to be considered, which would have to be included. All the tasks, which are to be completed in direct contact with the enterprises, which presuppose communication with it, should be implemented by the personnel of the management company. Everything that follows, can be on the basis of cooperation. For example, the house technician should be an employee of the management company. He negotiates with the enterprises about the necessary repairs or tenant-sided expansion. The craftsmen themselves, who carry out repairs, are employees of the cooperation partner. The case is similar with the service employees, which have the closest contact to the enterprises. In the case of selection of the employees and management, their prerequisites for a long-standing activity should be thoroughly tested in the centre management. It is of little use to the development of the centre if the personnel change continuously or if the locations are engaged with persons on full earnings and who are at a stage immediately before retirement. Entrepreneurial spirit and commitment is demanded from the employees. Here, the corresponding flexibility in the method of operation is placed in the foreground. The management company is finally a dynamic company and not a public authority. In this respect also, dealings with the enterprises in the centre are to be equated with handling valuable customers. Here, a cooperative, open and communicative relationship has a particularly positive effect. Restrictive and formal behavior of the centre management should remain limited only to those cases where it is unavoidable. Problem solution should be attempted in the first place through communication. The special feature of the centre management and in the work of its employees, is that they are “confronted” with their customers on a day-in, day-out basis. They cannot evade them and they cannot put them on the long finger. They are required to take account of the requests of the enterprises to the maximum extent, immediately, and to process them accordingly.

3.5. Financial conditions of Innovation Centres Innovation Centres are instruments of regional economic development. They have to realize best conditions for the development of new companies, especially in innovative and technology-orientated fields. In this sphere, these centres are public organizations. On the other hand, these centres and their management companies are specific service companies with entrepreneurial aspects within their work.

98

The basic of financial conditions of centres is the acceptance that their work is not orientated to realize profit directly. The profit will be realized by taxes and social deliveries of new companies and their employees which realize their first development in Innovation Centres and which will expand in the surrounding of these centres. In this respect, centres have a public and an entrepreneurial component as their financing base as well as in the investment part in the construction period of an Innovation Centre and in the daily economic working period. Public components The public components consist of financial subsidiaries in using regional, national or international financial support programmes. The engagements of public shareholders of the centres are integrated here. In the construction period these are, for example: ◆

subsidiaries for the investment in buildings, infrastructure and equipment

◆

capital contributions of public shareholders.

In the working period the public components are, for example: ◆

subsidiaries for compensation of any deficits in summary of proceeds and costs during the initial period

◆

financing different costs temporally like rent costs for the building, personal costs

◆

compensation of deficits by the shareholders and owners of the management companies in general.

All these public subsidiaries have to orientate to reduce the current costs and to create best frame conditions for the companies in the centres. The goal is that the current cost will be taken over step by step by the management companies of centres themselves. The claim for a high level of public financial promotion is established particularly on the basis of the economy-supporting task of the centres. They make available their services to several generations of enterprises, in each case in their initial development phase, and ensure a continuous status fluctuation through the developed enterprises moving out and new enterprises moving in.

3.5.2. Entrepreneurial components The entrepreneurial components are, on one hand, normal income and costs as a classical enterprise. On the other hand, they are determined by the specific aims of Innovation Centres and the specific tasks of their management companies. In this direction these components include in the construction period: ◆ ◆

credits from banks to complementary financing to public subsidiaries costs for own investments of the Centre management.

During the working period these are: ◆ ◆ ◆ ◆

◆ ◆ ◆ ◆ ◆

rental incomes from the companies for use of spaces and equipment incomes from the companies for use of water, energy and other expenses incomes from the companies for use of different services incomes from work out of different projects for companies and for public organizations and administrations costs of buildings (e.g. rental costs or financing costs, costs for maintenance) costs for energy, water etc. and public tributes general costs of management companies like personnel costs, office costs, travel costs, etc. costs for the offer of services costs for realization of projects.

99

The general aim is that the balance of income and costs will be a black zero to establish a financial independence from public partners.

3.5.3. Economic efficiency The economic efficiency of Innovation Centres one can be assessed in two directions. The first one is the economic efficiency of management companies themselves. The other one is the economic efficiency of Innovation Centres in the general economy. Economic efficiency of these management companies requires an own entrepreneurial freedom of action to realize their specific work. The basic direction of economic work of the management companies is breaking even, not making profit. In German we say realization of a self-economic efficiency of an Innovation Centre and its centre management. This self-economic efficiency is depended from different aspects: ◆

the volume of public financing for investments in the construction phase of an Innovation Centre

◆

the financial modalities of use of centre buildings by the centre management like small costs without profit, the establishment and use of buildings step by step with corresponding costs

◆

the size and quality of the rental area for companies, minimum 3,000 to 5,000sq m and an adequate potential of entrepreneurs and start-up companies

◆

the use of service offers of the centre management

◆

the acceptance of centre management and its competency in the region and its integration in regional economic development projects.

Continuous subsidiaries from public organizations or administrations for compensations of deficits of an concrete Innovation Centre is, in general, not a mark for missing efficiency. The effects of a centre in the region, the creation of new enterprises and jobs realize an income for the government and fix the economic efficiency of Innovation Centres in a general economy. This efficiency is determined by different government-incomes and state effects because of activities of the new companies. These incomes integrate: ◆

the corporation tax of the companies in the centres

◆

the income tax of employees of the companies

◆

the tax on different products as oil for consumption of the companies

◆

the realization of value-added tax

◆

the contribution of the companies and their employees in public social insurance and pension funds

◆

the reduction of social governmental costs for unemployed because of creation of new jobs.

But these incomes are not only realized by the work of companies in the centres directly. These companies cooperate in different fields with other companies and contribute in this way to a stabilization of employment in these companies with the named effects for the government. If you look at this global economy, then you can see that Innovation Centres are very viable for the government and for the economic development. In Germany some centres exist which amortize the public investment in four to five years in this way.

3.6. Assessment of success of Innovation Centres The consideration of its concrete conditions, tasks and objectives is a prerequisite for the effective success evaluation of an Innovation Centre. These are to be derived from the respective regional factors and the expectations on the corresponding centre, based on those factors. An overall comparability of the centres is not possible in our opinion (see 2.2). As already represented at the beginning, we understand every centre in its concrete structuring, as an unique entity according to the respective definitive potentials, resources and general conditions in the respective concrete area.

100

Despite this however, there are factors that can be used for a determination of success. Against this background, success factors with different effects will result. These are factors that refer to the internal functions of a centre; those with a regional reference and, in addition, with a national economic effect. No definite boundaries can be drawn in this case however. The following in particular are associated with the internal success factors: ◆

the fluctuation, the moving in and moving out of successful enterprises, the stay period of the enterprises

◆

the number or share of newly set up enterprises in the centre

◆

the share of innovative technology-based enterprises

◆

the degree and the quality of the infrastructure and the equipment of the centre

◆

the intensity of the communication between the enterprises and with the centre management (climate, atmosphere)

◆

the acceptance and utilization of the range of facilities of the centre management by the enterprises

◆

the volume of cooperation of the enterprises with each other in the centre

◆

the expenditure for the acquisition of new enterprises for the centre

◆

the insolvency rate of the enterprises in the centre and the survival probability after they have moved out

◆

the utilization of the rentable surfaces

◆

the self-economic efficiency of the management company of the entre.

This overview also represents a certain weighting of the individual criteria in regard to their precedence as listed. In this respect, those criteria that are oriented to the enterprises and their development have a more heightened importance for the evaluation of the internal capability of a centre than the questions about the space utilization and the self-economic efficiency of the management company. This weighting also gives expression to the specific task setting of an Innovation centre. The regional success factors represent the relationships of the centre, and its enterprises to the direct regional environment. The following are associated with these factors: ◆

the acceptance of the centre in the area

◆

the settling of the enterprises, which leave the centre, in its direct neighborhood

◆

the intensity of cooperative relationships of the centre enterprises with enterprises in the area

◆

the contribution of the enterprises in the creation of jobs in the own enterprise but also in enterprises in the area

◆

the contribution of the enterprises to the amount of regional taxes

◆

the use of the services of the centre by enterprises in the area

◆

the settling of “external” enterprises in the environment of the centre, because of its range of facilities or the cooperation potential with the centre enterprises

◆

the extent of recurring subsidies from the public purse to ensure the current operation of the centre.

Also, in this overview, it was attempted to carry out a certain weighting with the precedence given in the list. However, at this level, it is very difficult to establish this as a whole, due to the dependence on the respective regional conditions. The recurring subsidizing of centres is, however, placed consciously at the bottom as a success criterion. The effects for the area, which are achieved through the newly created enterprises, are decisive. In the case of many permanently subsidized centres in Germany, due to their size, situation and specific task setting, these are often a lot higher than the annual financial subsidy (see 3.5). The economic success factors basically describe overlapping effects, where universal weighting of those items listed should not be performed anymore because of their mutual influencing effects. Nevertheless, the factors must be clarified more strongly in their economic effects.

101

The following are associated with this: ◆

the tax payments made by the enterprises in the centres and their employees (corporation tax, income tax)

◆

the jobs directly and indirectly provided or ensured due to cooperation

◆

the social charges paid

◆

the amount generated in VAT sales tax by the implemented sales

◆

technology development

◆

the economic efficiency of the Innovation centres (see 3.5.3).

Of course, associated with that is also the development of new technologies and new products that influence many areas of social life. Their effectiveness in the success evaluation results in jobs, sales and taxable capacity of the enterprises, so that this is the quantifiable measure for success. With these factors, in their different effect levels, starting points for a success evaluation are given, even if they themselves are not always exactly quantifiable. The evaluation of the actual effects is important in relation to the realistic expectations which are linked to the centre. In this case also, a stable regional consensus proves to be effective for the operation of an Innovation centre. It should be underlined, however, once again, that these factors are unsuitable for overall comparisons of different centres. They provide only clues about a success evaluation, tailored to the concrete centre in each case. A comparison of Innovation Centres, from an external viewpoint, using overall generalizing key points, adds little to the development and the characterization of quality features of the centres. Essentially of more help is the organization of the cooperation of the Innovation Centres, the exchange of experience for best practice in the management of centres and in the support of the enterprises.

4. RECOMMENDATIONS FOR FUTURE ACTION Recommendations for future activities in the structuring and the development of Innovation Centres are very multilayered. They are aligned with policy at the most varied levels, but also with national organizations of Innovation Centres, including their international associations. However, recommendations are to be addressed also to the management companies of existing Innovation Centres for the further development of their centres, because Innovation Centres represent a dynamic instrument for the promotion of economic development, which must be set up and adapted to take account of continuously changing requirements. These recommendations must not be directed towards short-lived actions, but must be based on a strategically dominated development.

4.1. To politics Initially, some recommendations, to be generalized with regard to politics, result from the viewpoint of experiences in Germany. These are particularly oriented to the creation of positive general conditions for innovative enterprises, which are of essential importance for the preservation of the competitive capacity in international local competition. In the foreground is the revaluation of independence and entrepreneurship for the effectiveness of the national economy. Within this framework, an improvement of the business climate for enterprise founders is needed for the provision of positive general conditions for enterprise foundation and development, in particular through: ◆

Revaluation and reevaluation of entrepreneurial independence in science, in the media and in politics A differentiated form, which represents service and function of the medium-sized economy according to their economical and social importance, must be built up by entrepreneurs and contractors.

102

◆

Creation of a positive image for the job description “Entrepreneur” The term “entrepreneur” is still characterized strongly on the basis of old cliché thinking. The term “entrepreneur” must be newly defined and independence profiled as a life objective. The school is an ideal environment for characterizing the job description of the “entrepreneur” as a successful, imaginative self-employed person, with responsibility for financial risks, economic growth and industrial capacity with social competence.

◆

Modification in the mentality thinking – from dependent occupation to independence Entrepreneurial qualified people, who identify opportunities in independence and are able to apply these and are ready to take risks and to bear social responsibility, are to be supported. Such commitment earns social acknowledgement. The mentality, which is still characterized by thinking that a secure place of work is guaranteed only through a dependent employment relationship, does not belong anymore in our contemporary economy and social structure. All three occupational possibilities (independence, dependent work, unemployment) are to be brought into the consciousness of the people, instead of only discussing the alternative between dependent work and unemployment.

◆

Promotion and awarding of independence and entrepreneurial commitment in existing enterprises Where unexploited innovation potential can be used by new or established foundations, as well as by enterprise expansions, and jobs can be ensured, this should be supported. Suitable employees are to be encouraged to take the step to independence. A stimulus, to dare to take the step to the independence, is the possibility to control the success and the net yield of the enterprise through one own labour.

◆

Anchoring of the topic “Entrepreneurial independence” in the education policy Sensitization for an entrepreneurial independence through stronger integration of questions regarding the establishment of an enterprise into the contents of training, into curricula and continued and advanced training measures at schools and universities.

◆

Sensitization for the entrepreneurial reality In order to increase the practical value, operating practical training sessions should be carried out more intensively in the schools. These should be brought to the awareness not only of pupils, but also of the teaching personnel. The employment of liaison teachers between school and business increases the relationship to the reality of the business economy. In order to confront the pupil/student with the entrepreneurial reality directly, to the maximum extent, it would be a meaningful step to bring entrepreneurs into the school/university.

◆

Integration of the professional sector “independence” into vocational guidance The classical vocational guidance is aligned towards becoming a dependent employee. The path to independence still receives scant attention in vocational guidance.

◆

Comprehensive points for persons willing to found enterprises For the deregulation of the foundation process, concentrated support measures contribute as nodal points of a network, such as concentration in one authority of all formal obligations required for the foundation, transparent publicizing of the networks.

◆

Reinforced publicizing of entrepreneurial success stories Entrepreneurial success stories are publicized only seldom. Successful entrepreneurs perform a model function. They increase the degree of motivation of those persons willing to found an enterprise to take the first step to independence.

With these highlights it becomes clear that the most important prerequisite for the structuring of new Innovation Centres is represented by the development of enterprise foundation potentials – particularly in the technological and innovative field.

103

For the structuring of Innovation Centres, the bottom-up development should be given preference. Thus, the development of a corresponding concept, with the concrete regional requirements as starting point should be preferred. This can also be fully supported from programmes of the central government, however, it should not be excessively regimented and the structuring of Innovation Centres should not be centrally regulated. Despite the regional integration of the centres and the regional initiatives for the improvement of their economic structures, central governmental attention should nevertheless be paid to the initiation and, to a limited degree, to the coordination of such activities. This is useful for the meaningful employment of governmental support, which, as well as the appropriation of financial resources, can also consist of the low-cost provision of real estate, which is in the possession of the government and is no longer used, for the construction of Innovation Centres. In particular, at the regional political levels, it should be carefully considered whether the determining prerequisites for an Innovation Centre are in existence, in order to achieve the expected effects. An important prerequisite for the construction of Innovation Centres is the financial promotion of their construction stage. Without this promotion, many centres would not have arisen in Germany. In addition, start-up financing will also be further required for the initial development phase of an Innovation Centre, because in many cases, due to the step-by-step development of the centres, deficits cannot be avoided. Despite this, more private initiatives should be involved in the establishment of new centres, however, than is the case up to now. With the concept of public private partnership, powerful Innovation Centres are developed, provided that the private sector, on the one hand, accepts the economy-supporting grounds described, however, on the other hand, the private interests can also be furthered in a net yield of invested capital, with the enterprise growing out from the centre in corresponding park concepts. The most important recommendations for the policies are: ◆

In the case of construction of Innovation Centres, consider your own national and regional special features;

◆

Do not copy any so-called “models” from other countries;

◆

Send experts to the developed countries so that they see for themselves, in situ, how the respective centres really work;

◆

Use the competence of national organizations of Innovation Centres for the exchange of experience and for support during the construction of the Innovation Centres in your country.

4.2. To national organizations The national organizations of Innovation Centres are an important link for the centres with each other, and also for the purposes of representation of their interests in public and governmental institutions. These organizations concentrate primarily on the support of the construction and operation of the Innovation Centres, organize the exchange of experience and the communication with each other and develop strategies and handling recommendations for the further development of the Innovation Centres. They can observe their role as interested representatives of the Innovation Centres most effectively, if their foundation is initiated by the management organizations of the Innovation Centres themselves, according to the bottom-up principle. Broadly diversified demands are placed on the national associations in the case of the development of Innovation Centres. The following are emphasized: ◆

In-depth analytical work, in order to derive handling recommendations and best practice for the further qualification of the work of the centres and to make them fit for the facing challenges.

104

◆

The development of quality parameters, considering respective regional special features, on the one hand, in order to develop further the level of the Innovation Centres and their support services for young enterprises and to profile them as specialist Centres for enterprise foundation and development in the innovative technology-based field. On the other hand, this is used for the derivation of strategies for the future development of the centres.

◆

The development of the communication between the centres, in order to support their cooperation with each other on this basis. In this case, in the practical work, very great value is placed on the avoidance of competition between centres and on the creation of overall favourable general conditions for innovative and technology-based enterprises.

◆

The internationalization of the centres, in order to develop them to nodal points in an international network for communication cooperation and to make this usable for the young enterprises and their development.

◆

Comprehensive public relations and lobbying work, in order to inform about the services of the Innovation Centres and to help the centres on site to strengthen their positions. On the other hand, the role of the national organizations is to be increased as the national interest representative of the Innovation Centres.

Overall, the work of the national organizations is directed towards the attaining of real added value for their members.

4.3. To centre management Handling recommendations to centre management have naturally a higher concreteness than those mentioned up to now. On the one hand, they are based on the direct work with regard to their customers, the enterprises to be supported, while, on the other hand, they are based on the work and the development of their respective centre itself. The recommendations in the development of their relationship to their customers can be paraphrased with six “More”: 1.

More added value and useful service for the companies

2.

More networking for the companies to find out external partners in financing, science

3.

More flexibility in infrastructure and spaces for the companies

4.

More activities to create steps to more cooperation between companies

5.

More quality in the centre management

6.

More atmosphere in communication and creativity in the centre.

However, in addition, new tasks increasingly come to the foreground, that requires the commitment of the centre management to a far greater extent. These concern basically: ◆

The development of their moderation capability, in order to integrate the enterprises into the process of regional service provision and international marketing, in the area of national as well as international enterprise cooperation and project work.

◆

The attention to a new type of founder personalities, who are oriented increasingly to fast-track enterprise development and to favoring management buy out and small stock corporations.

105

◆

The tireless development of the network, in order to enlarge it, particularly for pragmatic technology transfer, and also for the extension of the competencies of the centre management itself.

◆

The own profiling as service enterprises with specific economy-supporting tasks and corresponding entrepreneurial capability.

◆

The careful weighting of a professional profiling of the centre with inclusion of the regional prerequisites affecting sustainability.

◆

The grouping of competencies of the enterprises for the improvement of their market situation and for the profiling of individual areas of competence in the Innovation Centre.

◆

The development of an “old-boy network movement” of departed enterprises and their structuring to a global network of partners for the enterprises and the Innovation Centre.

The centre management must itself develop that same entrepreneurial flexibility and adaptability to new conditions in a highly dynamic way in its work, just as it expects from the innovative enterprises in the centre.

5. Conclusions Innovation Centres are dynamic instruments of regional economy promotion. They create particularly favourable general conditions for enterprise founders and young enterprises which are active in innovative and technology-orientated fields. These general conditions consist, in particular, of a complex offer of support services, which consider all aspects of the development of such an enterprise. With their services, the Innovation Centres submit an offer which is particularly aimed at those enterprises that do not use it to replace their own entrepreneurial initiative and responsibility. A system of technology incubation can create favourable general conditions for enterprise development. However, it cannot replace entrepreneurial initiative and markets. The Innovation Centres are part of the regional economy-supporting infrastructure. In this respect, their activity is aligned to the regional conditions, potentials and possibilities. These influence the type and manner, as well as the intensity of the concrete tasks. In this respect every Innovation Centre is a unique entity. There are no universal copy-capable models for that. There are also many different types of experience with the structuring and operation of Innovation Centres. These are available for use and concept development for new Innovation Centres. The national organizations of Innovation Centres can cooperate in this field. The national governments can create the frame conditions for these activities and can support these organizations. And we can cooperate between Innovation Centre to Innovation Centre in different countries. This is the best way to exchange experiences in the work of an Innovation Centre and to identify potentials for cooperation between companies of different centres in different countries and to help to open the market for them.

106

REFERENCES ADT E.V. (Hrsg.) (1998): Ausgründungen technologieorientierter Unternehmen aus Hochschulen und außeruniversitären Forschungseinrichtungen. WEIDLER Buchverlag Berlin. ADT E.V. (Hrsg.) unter Mitwirkung von: ISI Fraunhofer-Institut Systemtechnik und Innovationsforschung Forschungsstelle für Innovationsökonomik an der Fakultät Wirtschaftswissenschaften der TU Bergakademie Freiberg, FAB Forschungsagentur Berlin GmbH, Neuenhagen b. Bln., Dr. Peschke + Partner, Bad Homburg v.d.H., (Februar 2000): Abschlussbericht zum Projekt Minerva, Maßstäbe für Innovationszentren – Erfolgsstrategien durch vergleichende Analysen, Weidler Buchverlag, Berlin. ADT E.V. (Hrsg.) und ISI Fraunhofer-Institut Systemtechnik und Innovationsforschung Forschungsstelle für Innovationsökonomik an der Fakultät Wirtschaftswissenschaften der TU Bergakademie Freiberg unter Mitwirkung von: FAB Forschungsagentur Berlin GmbH, Neuenhagen b. Bln., Dr. Peschke + Partner, Bad Homburg v.d.H., (Februar 2000): Handbuch für das Management von Innovationszentren, Weidler Buchverlag, Berlin. BAIER, W. (Hrsg.), PLESCHAK, F. u. a. (1996): Marketing und Finanzierung junger Technologieunternehmen – Den Gründungserfolg sichern. Gabler Wiesbaden. BARANOWSKI, G.; RAETZ, G. (Hrsg.) (1998): Innovationszentren in Deutschland 1998/99. WEIDLER Buchverlag, Berlin. BEHRENDT, H. (1996): Wirkungsanalyse von Technologie- und Gründerzentren in Westdeutschland. Heidelberg: Physica-Verlag. CHEF, J.; M†LLER -MERBACH, H. (Hrsg.) (1999): Unternehmensgründungen aus Hochschulen – Europäisches Handbuch. Dt. Ausgabe: Universität Kaiserslautern. DEUTSCH-JAPANISCHER KOOPERATIONSRAT F†R HOCHTECHNOLOGIE UND UMWELTTECHNIK: Zusammenfassung der Ergebnisse des deutsch-japanischen Workshops am 12. und 13. Oktober 1999 zum Thema: “Der Beitrag der Industrie, der Universitäten und Forschungseinrichtungen zur Förderung von Existenzgründungen in Hochtechnologie und Umwelttechnik”. ELLE, H.-D. U.A. (1997): Technologiezentren in Nordrhein-Westfalen – Ergebnisse einer Studie zu Entwicklung, Leistungen und Perspektiven. Ministerium für Mittelstand, Technologie und Verkehr des Landes NordrheinWestfalen, Referat Öffentlichkeitsarbeit (Hrsg.). Düsseldorf. FINNISCHES INDUSTRIEMINISTERIUM (Hrsg.) (1999): Finnish Incubators in a Global Context, Turku. GEFIZ (1998): Analyse der Mieterkontakte und Dienstleistungen des FIDT, Technologie- und Gründerzentrum Kassel. Gesellschaft für interdisziplinäre Zusammenarbeit e.V. Kassel. GROSS, B. (1997): Technologie- und Gründerzentren in Deutschland und ihr Beitrag zur Entwicklung technologieorientierter Unternehmen. ADT e.V. Berlin. GROSS, B.; PLESCHAK, F. (1999): Technologie- und Gründerzentren im Freistaat Thüringen – Untersuchungen zur Leistungsfähigkeit. Kurzfassung einer Studie für das Thüringer Ministerium für Wirtschaft und Infrastruktur, Stuttgart: Fraunhofer IRB Verlag. HEERING, W.; PFIRRMANN, O.; SCHROEDER, K. (1999): Endbericht zum Forschungsprojekt “Technologie- und Gründerzentren in Mittel- und Osteuropa als Instrument einer wettbewerbsorientierten Strukturpolitik”. Freie Universität Berlin. HERR, T. (2000): Innovationszentren als Gebäudetyp für die Unterbringung von Wissensunternehmen – Entwicklungsstand und Perspektiven. Berlin 2000. HOFFMANN, H. (1999): BEST – Benchmarking of European Science Parks and Technology Centres, Kurzfassung des Abschlußberichtes. Karlsruhe. HOFFMANN, H. (1999): Stolpersteine für die Wissenschaft. Beitrag in ADT-INFO III/99, Berlin. IHK-UNTERNEHMENS- UND TECHNOLOGIE-BERATUNG KARLSRUHE GMBH (Hrsg.) (1998): BEST – Benchmarking of European Science Parks and Technology Centres. Karlsruhe.

107

KAGANOV, V. SH. (1999): Vortrag über die russischen Innovationszentren anlässlich der Internationalen Konferenz “Innovationspolitik Russlands an der Jahrtausendwende: Wesen, Personal, internationale Zusammenarbeit im Unternehmensbereich” vom 10.-13.09.99 in Nishny Novgorod. Der Vortrag liegt der ADT-Geschäftsstelle als e-mail-Fassung vor. KOSCHATZKY, K. (1997): Technologieunternehmen im Innovationsprozeß. Heidelberg: Physica-Verlag. KULICKE, M. u.a. (1993): Chancen und Risiken junger Technologieunternehmen. Heidelberg: Physica-Verlag. LESSAT, V. u.a . (1999): Beteiligungskapital und technologieorientierte Unternehmensgründung: Finanzierung – Rahmenbedingungen. Gabler Wiesbaden.

Markt –

LIETZMANN, S.; MENZEL, J.; ROBBE, G. (1998): Probleme und Lösungen der TGZ’s im Land Brandenburg. Vorgestellt auf der Beratung des Ministeriums für Wirtschaft, Mittelstand und Technologie des Landes Brandenburg am 8. September. MATUSIAK, K. B. (1998): Innovativeness of the Sector of small and medium-sized enterprises in Poland, University of Lodz. MAYER, M. (1988): Gründer- und Technologiezentren in der Bundesrepublik Deutschland. In: DOSE, N.; DREXLER, A. (Hrsg.): Technologieparks, Voraussetzungen, Bestandsaufnahme und Kritik, S. 32-46. Westdeutscher Verlag Opladen. MEYER, J.-A.; IMBERG, A. (1999): Kundenzufriedenheit in Technologiezentren. Berlin Verlag A. Spitz, Berlin. MILANETTŠ, J. (1999): The financing of innovative companies in US, Presentation in Tallinn. June 1999. MIT (1996): The Impact of Innovation – A Special Report of the Bank Boston Economics Department, Boston. PATT, P. J. (1988): Strategische Erfolgsfaktoren im Einzelhandel. Campus, Frankfurt/M. PETT, A. (1994): Technologie- und Gründerzentren – Empirische Analyse eines Instruments zur Schaffung hochwertiger Arbeitsplätze. Frankfurt am Main u.a.: Peter Lang Verlag. PLESCHAK, F. (1995): Technologiezentren in den neuen Bundesländern – Wissenschaftliche Analyse und Begleitung des Modellversuchs “Auf- und Ausbau von Technologie- und Gründerzentren in den neuen Bundesländern” des Bundesforschungsministeriums. Heidelberg: Physica-Verlag. PLESCHAK, F. (1997): Technologie- und Gründerzentren als Instrument der regionalen Wirtschaftsförderung. In: KOSCHATZKY, K. (Hrsg.): Technologieunternehmen im Innovationsprozess. Heidelberg: Physica-Verlag, S. 229-246. PLESCHAK, F.; SABISCH, H. (1996): Innovationsmanagement. Stuttgart: Schäffer-Poeschel Verlag. PLESCHAK, F.; SCHISCHKE, D.; WERNER, H. (1999): Gründung und Finanzierung technologieorientierter Unternehmen über das Business Development Centre Sachsen (BDCS). In: SABISCH, H. (Hrsg.): Management technologieorientierter Unternehmensgründungen. Stuttgart: Schäffer Poeschel Verlag und in: KOSCHATZKY, K.; KULICKE, M.; NELLEN, O.; PLESCHAK, F. (Hrsg.): Finanzierung von KMU im Innovationsprozeß – Akteure, Strategien, Probleme. Stuttgart: Fraunhofer IRB Verlag. PLESCHAK, F.; WERNER, H. (1998): Technologieorientierte Unternehmensgründungen in den neuen Bundesländern. Heidelberg: Physica-Verlag. PLESCHAK, F.; WERNER, H. (1999): Fraunhofer IRB Verlag.

Junge Technologieunternehmen in den neuen Bundesländern. Stuttgart:

QUƒRƒ , M. (Hrsg.) (1998): Les Technopoles en Europe – Enjeux et Atouts de la Diversité. Orléans. RAETZ, G.; SCHIRMEISTER, C. (1992): Kriterienkatalog zur Förderung von Technologiezentren im Land Brandenburg. ADT e.V., Brandenburgisches Wirtschaftsinstitut 1992. RAETZ G. (1993): Technologie- und Gründerzentren in Deutschland, Konrad-Adenauer-Stiftung (1993). RAETZ, G. (1999): Konzept, Planung. Aufbau und Betrieb von Innovationszentren. Presentation in ITIC, Inchon, Republic of Korea, April 1999. RAETZ, G. (1999): Finanzierung von Innovationszentren, Dokumentation Frühjahrstagung der ADT, Wernigerode, Mai 1999.

108

RAETZ, G. (1999): Re-engineering of Science Parks: German Experiences and the role of National Associations of Science and Technology Parks, Presentation at the IASP European Conference in Malaga, Spain, June 1999. RAETZ, G. (1999): Innovation Centres in Germany – Support for International Business. Presentation at the Workshop for International Business Co-operation Instruments for supporting efficient business-to business contacts at the international conference BALTIC DYNAMICS ’99, Tallinn, Estonia, June 1999. RAETZ, G. (1999): ADT and new steps in the development of Innovation Centres in Germany, Presentation at Baltic Dynamics, Tallinn, Estonia, June 1999. RAETZ, G. (1999): Innovationsnetzwerke – Möglichkeiten für die Unterstützung innovativer Ost-West-Kooperation. Präsentation auf dem Ost-West-Kooperationsforum der AiF, Berlin, Deutschland, November 1999. RAETZ, G. (2000): Innovation Centres in Germany – at present and in future, Presentation at the International Conference on Business Incubation & Technology Innovation, Shanghai, PR China, April 2000. RAETZ, G. (2000): Qualitätsmerkmale und Ziele für die Entwicklung von Innovationszentren, zusammenfassende Übersicht, Dokumentation der Frühjahrstagung der ADT, Mai 2000. REYNOLDS, P. D.; HAY, M.; CAMP, S. M. (1999): Global Entrepreneurship Monitor – 1999 Executive Report. Kauffman Centre for Entrepreneurial Leadership at the Ewing Marion Kauffman Foundation. ROBERTS, E. B. (1991): Entrepreneurs in High Technology: Lessons from MIT and Beyond, Oxford University Press, New York. R OSENFELD, B. (1999): Erfolgsfaktoren von Technologie- und Gründerzentren. In: Westdeutsche ImmobilienHolding GmbH (Hrsg.): Vom Technologie- und Gründerzentrum zum Technologie- und Gewerbepark – Wachstum junger Firmen und Perspektiven für die Immobilienwirtschaft, Marktbericht IX, S. 9 ff. Westdeutsche ImmobilienBank Gruppe, Düsseldorf. SABISCH, H.; TINTELNOT, C. (1997): Integriertes Benchmarking für Produkte und Produktentwicklungsprozesse. Berlin, Heidelberg, New York: Springer Verlag. SCHULZKI-HADDONTI, C. (1999): Fraunhofer-Institut gründet Stiftung für Spinn-Offs. In: VDI-Nachrichten, Nr. 30 vom 30. Juli 1999. SHEA, T. (1998): Community economic adjustment programmem (Vortrag auf der ADT-Jahreskonferenz 1998). Enthalten in: ADT E.V. (Hrsg.): ADT-Jahreskonferenz 1998, Die Welten innovativer Unternehmer – Erfolg durch Veränderung – 10 Jahre ADT & Challenges for the Concept of Business Incubation. Berlin. STATE OF ISRAEL, MINISTRY OF INDUSTRY “Incubators” in Israel, Tel Aviv.

AND

TRADE – Office of the Chief Scientist (Hrsg.) (1997): Technological

STEINK†HLER , R.-H. (1994): Technologiezentren und Erfolg von Unternehmensgründungen. Betriebswirtschaftslehre für Technologie und Innovation, 9, Wiesbaden: Deutscher Universitätsverlag. STERNBERG, R. (1988): Dortmund.

Technologie- und Gründerzentren als Instrument kommunaler Wirtschaftförderung.

STERNBERG, R.; BEHRENDT, H.; SEEGER, H.; TAMçSY , CHR. (1996): Bilanz eines Booms – Wirkungsanalyse von Technologie- und Gründerzentren in Deutschland. Dortmunder Vertrieb für Bau- und Planungsliteratur, Dortmund. TAMçSY , CH. (1996): Technologie- und Gründerzentren in Ostdeutschland – Eine regionalwirtschaftliche Analyse. Wirtschaftsgeographie, 10, Münster: LIT Verlag. TURNER, J. R. (Hrsg.) (1998): Best Practice for Business Incubators in Science Parks. Birmingham. UNTERREINER, P. (1999): Mehr Aufmerksamkeit und Hilfe für Existenzgründer. In: Frankfurter Allgemeine Zeitung vom 11. Juni 1999, S. V7. VON

SCHUTTENBACH, L. (1998): Die Entwicklung polnischer Technologie- und Gründerzentren. In: Informationen aus dem Institut für Mittelstandsforschung, Nr. 15. Mannheim.

VON

WALDKIRCH, TH. (1999): Erfolgsfaktoren des Technoparks Zürich (Vortrag auf der ADT-Jahreskonferenz 1999, Karlsruhe.

109

Recommendations to future contacts Arbeitsgemeinschaft Deutscher Technologie- und Gründerzentren, ADT e.V. (Association of German Technology and Business Incubation Centres) Dr Uwe Heukeroth, Ms Kathrin Bodin, Rudower Chaussee 29 12489 Berlin-Adlershof Germany Phone: +49-30/6392-6221 Fax: +49-30/6392-6222 Mail: Web: <www.adt-online.de> Innovations-Zentrum Berlin Management GmbH (Innovation Centre Berlin Management Company Ltd.) Dr Gerhard Raetz Rudower Chaussee 29 12489 Berlin-Adlershof Germany Phone: +49-30/6392-6000 Fax: +49-30/6392-6010 Mail: Web: <www.izbm.de>

110

IV. STRENGTHENING TECHNOLOGY INCUBATION SYSTEM FOR CREATING HIGH TECHNOLOGY-BASED ENTERPRISES IN THE UNITED STATES OF AMERICA BY

BUSINESS

ESCAP RESOURCE PERSON, MR DINYAR LALKAKA AND TECHNOLOGY DEPARTMENT STRATEGIES, NEW YORK, U.S.A.

Abstract In order to mobilize the opportunities of the technological revolution and cope with the challenges of globalization now upon us, the countries of Asia have to develop new strategies to stimulate innovation and entrepreneurship. Technology business incubators can help address some of these problems. The number of incubators is now growing at a more rapid rate in developing and restructuring countries, albeit over a smaller base, than in the industrial nations. This paper outlines the progress of business incubation in the United States of America in comparison with developments in the Peoples Republic of China. It reviews its effectiveness as an economic development tool, its strengths and weaknesses, and points to some lessons emerging for practitioners operating under difficult business infrastructure conditions.

111

TECHNOLOGY INCUBATORS IN THE UNITED STATES OF AMERICA As we enter the 21st century, both industrialized and industrializing countries are arguably poised on the threshold of a major economic transition from manufacturing-based economies to information-based economies. Simultaneously, nations around the world are showing renewed interest in entrepreneurship and technological innovation. Whereas “big” was typically perceived to be beautiful in the old industrial order, “small” and “entrepreneurial” firms are often seen as better in the new one. It is increasingly recognized by both industrialized and industrializing nations that entrepreneurial start-ups have important contributions to make to technological innovation, economic growth, employment and social equity. Technological entrepreneurship is widely acknowledged as one of the major strengths of the economy of the United States of America. Silicon Valley provides an example that policymakers in many countries seek to emulate. Culture and history are not easily replicable, but some of the institutions that have contributed to technological innovation in the United States of America, can and have been partially replicated in other countries and are worthy of examination.

Business incubators in the United States of America Business incubators are one such institutional mechanism for the support of entrepreneurial start-ups. They originated in the United States of America and have proliferated most rapidly there. It is generally acknowledged that the origins of the idea can be traced to 1942, when Student Agencies Inc., in Ithaca, NY, began incubating student companies. In 1946, the first incubator outside the student community was created by American Research Development (ARD), started by several MIT alumni to supply risk capital to New England entrepreneurs. In 1959, Charles Mancuso and his family purchased the Batavia Industrial Center (BIC) in New York state and used this former factory warehouse to create jobs in an economically depressed small town. BIC is still in operation and has been instrumental in the creation of more than 1,000 businesses. Despite these pioneering efforts dating from the 1940s, it was only in the 1960s that incubators began to develop. Growth accelerated in the 1970s and 1980s, largely as a result of the need to revitalize regions suffering from job losses in basic industries. The belief that business formation was a major factor differentiating growing areas from declining areas led to increased government support of incubators, primarily in smaller towns and distressed urban areas. The 1990s have witnessed further development of incubators throughout the country. Starting in 1996 and gathering momentum in 1998, a new kind of incubator, variously called an “Internet incubator”, “accelerator” or “venture catalyst”, made its appearance. Recent growth in the American incubator industry has been driven largely by these Internet incubators. After two decades of rapid growth, the American business incubation industry has reached a level of maturity and can look back with satisfaction on its accomplishments. The network of 800 incubators (including about 550 traditional incubators and 250 Internet incubators) is up from 12 in 1980 and is the largest in the world. Internet incubators are driving new growth with more than a hundred established in 1999 and early 2000 alone. According to the United States National Business Incubator Association’s (NBIA) survey of their member firms: ◆

40 per cent of incubators are technology focused; 30 per cent are mixed use, accepting a wide variety of clients; and the remainder focus on service, light industrial and niche markets or on assisting targeted populations.

◆

75 per cent of incubators are nonprofit and 25 per cent are for-profit.

◆

45 per cent are urban, 36 per cent are rural and 19 per cent are suburban.

(Source: )

113

Special characteristics of the United States of America technology incubators In the technology field, small firms are major sources of innovation, economic growth and employment. More than 90 per cent of high technology firms in the United States of America have less than 500 employees and about 70 per cent have less than 20 employees (see United States Small Business Administration web site, ). Despite recent layoffs, the Internet has been one of the fastest growing sources of employment growth in many parts of the United States. The immediate objective of technology incubators is to help small firms exploit and commercialize research results. Currently, about 40 per cent of incubators in the United States of America are technology focused. This percentage has risen rapidly in the last three years due to the rapid development of Internet incubators, more than 200 of which have been established since 1997 (about 100 in 1999 and early 2000 alone). The discussion in this section focuses primarily on conventional technology incubators. Many American technology incubators are associated with universities and/or science parks. Due to the success of the Stanford Research Park in 1951 and the Research Triangle Park in North Carolina in 1959, many state and local economic development programmes have sought to create public-private partnerships to replicate these hubs of technological innovation. The need for universities to commercialize their research results has been an important factor driving this trend.

Typical services offered by technology incubators The typical services provided by conventional technology incubators in the United States of America are not unlike those provided by other conventional incubators. Commonly provided services include: workspace, shared physical facilities, management support, technical support and networking assistance. Access to other professional services (such as legal and accounting/financial) and access to capital are important additional services that are frequently provided.

Workspace: Small technology firms need space that is flexibly configurable and is available on flexible lease terms. The ability for a tenant firm to move in and start work quickly, without spending much time and money on renovation, has also proved important. For the same reason, some incubators provide workspace that is already furnished with basics such as partitions, desks, chairs and filing cabinets.

Shared facilities: In addition to the shared facilities such as administrative services, conference rooms, provided by incubators of all types, technology incubators often provide specialized laboratories and equipment. This is especially true of “targeted” technology incubators, which cater to the needs of a particular industry. In many cases, access to laboratories and equipment is provided by linkages to universities or, in some cases, outside private firms. A new trend is to provide all tenant firms with access to a common “IT infrastructure”, where not only Internet access but services such as accounting, payroll, etc., are provided centrally to all tenant firms.

Management Support: Technology startups are typically founded by people with strong technology skills but weak management skills. This increases the need for management support from the incubator. This support typically begins with the business plan. Even before a tenant is admitted to an incubator, some form of business plan is usually a requirement for admission. The initial evaluation of the business plan is often followed by further assistance to test the assumptions of the business plan and refine the business model. Marketing is the second most common area where new technology businesses need assistance.

114

The primary responsibility to provide management support to tenant firms typically rests on the incubator manager and his or her staff. This is one reason why incubator managers are usually people with previous entrepreneurial experience. Training services in areas such as entrepreneurial skills and business and market planning have proven to be a valuable means of helping technology businesses improve their internal management skills. Incubators have also served as bridges to link entrepreneurs to training services outside the incubator. Advisory boards of outside technical experts have proven to be a good strategy to assist both the incubator to evaluate applicant firms and to provide some guidance to these firms after admission.

Technical Support: The technology spillovers and favourable technology transfer environment associated with universities and research institutes have proven to be major success factor for technology incubators. Links to university research, grants, libraries and databases, faculty and students are also important.

Networking assistance: No incubator can provide all the resources relevant to its client firms. Therefore, establishing links with outside resources is a critical task. Such links can include many forms. Examples include: ◆

Links with potential investors such as venture capital firms

◆

Links with professional services firms such as lawyers, accountants, advertising firms, etc.

◆

Links with established businesses, including incubator graduates

◆

Links with experienced entrepreneurs

◆

Links to other incubators.

Another form of networking – that between tenant firms within the incubator – can also be an important source of cross-fertilization of ideas and mutual help. Successful incubators in the United States of America have made special efforts to create an environment where tenants have plentiful opportunities to interact with one another.

Access to finance: One of the important advantages that an incubator can confer on tenant firms is a cachet of legitimacy. By selecting firms that meet selective admission standards, providing these firms with a favourable growth environment and ensuring that they are well prepared when they search for financing, incubators can help their tenant firms be taken more seriously by potential investors. In recent years there has been a growing trend for conventional incubators to assist their tenants through innovative financing arrangements, such as using its superior credit and resources to serve as a guarantor in leasing arrangements or to make bulk purchases on behalf of several tenants. Another important trend is for conventional incubators to take small equity stakes in their tenant firms. This is often a symbolic two to five per cent, but can be considerably higher. This practice underlies the business model of the Internet incubator, the most rapidly growing segment of the technology incubation field.

The impact of conventional business and technology incubators Relatively few studies have been conducted on the national level of the impact of technology incubators alone. Therefore, the impact of technology incubators is best understood in the context of the impact of conventional incubation in general. The NBIA conducts periodic surveys of their member incubators. These studies show that: ◆

Eighty seven per cent of all firms that graduated from NBIA member incubators are still in business.

◆

The average number of employees for graduate firms of each incubator is 251.

◆

Startup firms served by member incubators annually increased sales by an average of US$ 240,000 each and added an average of 3.7 full- and part-time jobs per firm.

115

◆

For every US$ 1 of annual public operating subsidy received by the incubator, clients and graduates of incubators generated about US$ 45 in local tax revenue alone.

◆

Eighty four per cent of incubator graduates stay in their communities and continue to provide a return to their investors.

◆

Publicly supported incubators create jobs at a cost of about US$ 1,100 each whereas other publicly supported job creation mechanisms commonly cost more than US$ 10,000 per job created.

◆

Incubator tenants employ an average of 85 people.

◆

Every 50 jobs created by an incubator client generate another 25 jobs in the community.

◆

North American incubator clients and graduates have created approximately half a million jobs since 1980.

◆

Conventional incubators have an average full-time staff of 2.8 persons.

(Source: )

Other studies (Rice and Matthews 1995, Tornatsky and others, 1995) have concluded that: ◆

The estimated public subsidy cost per job created was only US$ 1,109 over a seven-year period. This compares well with other business development services.

◆

Local, state and federal subsidies for incubators may be considered as investments for generating tax revenues. For a sample of 23 incubator firms, the return as tax revenues was almost five dollars for every dollar invested.

◆

By 1996, firms in incubators had grown by over 400 per cent per year, with average annual sales growth of US$ 1,240,000 and employment growth of 3.7 jobs per year.

◆

While the survival rate of new companies after 4 years has been around 40 per cent, 87 per cent of firms graduated from incubators were still in operation in 1996.

◆

These are difficult to quantify but are nevertheless real, in transferring technologies, strengthening research-university-business relations, creating an entrepreneurial culture, and developing self-esteem in disadvantaged groups.

Given the high economic and social costs of unemployment, business bankruptcies, and plant closings, it may be concluded that in the United States of America well-planned and managed incubators represent a cost-effective modality for creating and sustaining high value-added jobs and tax revenues, together with technology commercialization and social benefits more difficult to quantify.

Public support for incubation The rationale for the incubator as economic development tool in the United States of America is generally as follows: ◆

Mechanism to promote technology commercialization

◆

Promoting synergy within and among businesses

◆

Reducing costs and consequences of business failures

◆

Helping reduce market failures, e.g. the lack of affordable, divisible work space, facilities, services, of access to finance, information and other resources.

Government support makes sense in specific conditions: ◆

When it helps overcome market constraints, improves access to information not freely available, reduces proportion of failed firms

◆

Becomes a visible symbol of the state’s commitment to SMEs

◆

Is limited to initiate the incubator-establishment process: ❏

not new building construction but a renovated or rented space

❏

not a continual subsidy but until operations are stabilized

116

◆

When an incubator is an extension of the state’s role in providing public goods, i.e. knowledge, research, technology-transfer and infrastructure.

The justification for public investment is as follows: ◆

Creation of jobs (direct & indirect) per net $ public subsidy

◆

Taxes paid by corporations & workers per net $ subsidy

◆

Income, sales and exports generated for community and country

◆

Disadvantaged groups empowered

◆

Client (incubator tenant) satisfaction at services received, common costs saved, faster time to market

◆

Public satisfaction at demonstration of commitment

◆

Partner (private) satisfaction at return on investment to market

◆

Promote innovation and entrepreneurship as prime forces in new economy.

Why incubators fail to perform: ◆

Measures of success and failure vary depending on context and objectives. Incubators fail to perform according to expectations for a variety of reasons, starting in the planning stage and including the following: ❏

No feasibility/business plan, inadequate demand

❏

Poor governance, inactive board

❏

Location with poor infrastructure, weak entrepreneurial culture

❏

Inappropriate building layout/limited space

❏

Manager without business experience/skills

❏

High investment and operating costs

❏

Insufficient professional/university linkages

❏

Inadequate government policies, support, taxes.

The experience of the last 15 years in starting, operating and evaluating business incubators indicates that they can become small but significant components of a national enterprise promotion programme. But they need initial government support, a community consensus on objectives, and realistic understanding of constraints. The factors contributing to success are outlined below: ◆

Technocratic leadership and national vision on the creation of knowledge-based enterprises should be boldly articulated with incentives for innovation and risk-taking.

◆

The microeconomic framework should stimulate innovation and markets for new goods and services, together with a master plan prepared in consultation with local communities, entrepreneurs and stakeholders.

◆

Commensurate investments are required in scientific research and technology development, engineering and management consultancy, technical education and continuous learning, entrepreneurship development, quality assurance and environmental preservation, transport and communications infrastructure.

◆

Long-term plans should be formulated for developing the convergent enterprise support systems encompassing the full range of small business development services, anchored possibly in a business incubator and technology park.

◆

A proactive supervisory board and carefully selected and trained management team are critical to success. They, in turn, have to mobilize broad community support and networks of external professional’s service providers.

◆

The incubator is not just bricks-and-mortar but a coherent system for providing focused assistance to its members for survival and success. Rents and fees have to be affordable but also structured to become sources of revenue for the incubator and move it towards sustainability.

117

◆

Locations for these support complexes should be environmentally attractive and well connected to technical universities and research laboratories, cultural and recreational facilities. While it is easier to start in a developed urban environment, political wisdom may call for balanced expansion to peripheral regions.

◆

Good governance starts with the selection of proactive sponsors and sound organizational structure with responsibilities moving progressively to knowledge institutions, private sector, non-governmental agencies and national associations.

◆

Governments should solicit carefully prepared technical assistance from multi/bilateral organizations, such as the United Nations development system and development banks, to initiate innovative concepts and support local initiatives, within frameworks of national priorities and local culture.

◆

Programmes are required for kindling nascent entrepreneurship from school onwards and structured efforts to search for new tenant businesses, their selection and graduation.

◆

Capital markets have to be structured to provide access to investment and working capital for the incubator as well as sources of credit and risk capital for the tenants.

◆

Networks should be developed with agents at the regional and national levels, particularly consulting, manufacturing and service sectors, venture capital, banking, legal and accounting services, business associations and chambers, together with firm linkages to the international community.

◆

The performances of the incubator and its tenants have to be monitored continuously and remedial actions taken. Objective evaluations of effectiveness require a sound management information system that compiles, analyzes and disseminates data.

New incubators for the new economy The first generation of business incubators in the 1980s were essentially offering good, affordable space. In the 1990s the need was recognized for counselling, skills enhancement and networking service, for tenants in the facility and affiliates outside. Starting in 1999, with the maturing of the Computing and Communications Revolution, new third generation incubation models have emerged. These are intended to mobilize ICT and serve the New Economy towards creating livelihoods and economic growth. In the context of venture creation, the distinctive features of the New Economy have been defined as follows: The old economy, you learn a skill. The New Economy is lifelong learning. The old economy is concerned with security; the new is risk-taking. The New Economy is job creation; the old is job preservation. The old economy is capital equipment. In the new, it’s intellectual property that matters. The old economy is about the status quo. The New Economy embraces speed and change. The old economy is top down and highly regulated, and tends to be a zero-sum game: You win, I lose. The New Economy is distributed and instead of being highly regulated, we form public/private partnerships. If the old economy is zero sum, the New Economy is win-win. – John Doerr, Kleiner Perkins Caufield & Byers1 Do the New Economy and ICT really empower? With near-costless computing and real-time communications in the globalizing economy, disadvantaged groups (such as small enterprises, backward regions and poor countries) are expected to overcome the lack of access to needed resources. Nevertheless, there are serious concerns in the international community regarding the ‘digital divide’ which may well widen the income gap between the IT-haves and have-nots. Further, there are the troubling issues of privacy, the toxic chemicals used by high-tech industries, the problems of sustaining high productivity and raising employment. But it can be argued that throughout the history of human endeavour serious social and economic consequences have accompanied every radical shift caused by emerging technologies. Technical change is often odious but almost always for the better in the long-term. 1

Quoted in O.M. Chinsboom, Incubators in the New Economy (MIT, June 2000).

118

The Internet incubator We are now experiencing an exponential growth in for-profit incubation systems for accelerating the start and growth of ICT-enabled ventures. The Harvard Business School in its recent survey2 identified 348 such New-Economy incubators around the world. Of these 214 are in the United States of America (that is, about 25 per cent of the total United States of America incubators). The others include Canada (14), United Kingdom of Great Britain and Northern Ireland (10). A force driving innovation and entrepreneurship in the United States of America today has been the rapid growth of venture capital. From a level of US$ 3 to 4 billion in the early 1990s, the VC funds have risen more than 10-fold to US$ 46 billion in 1999. The distinctive feature of the venture creation process in this millennium is the speed at which it has to move. Typically, the preferred growth plan comprises: Develop e-business concept (possibly in an incubator) Sell to potential partners Attract US$ 20 million + in VC to build brand awareness Enter market and develop an income stream IPO in 12 to 15 months Target growth of 200 per cent plus every year The overall purposes are to achieve compression of time to market to realize the first mover advantage, time to value by raising market share, time to liquidity measured in many millions and in months not years. To cater to the above start-up scheme, the Internet Incubator has to provide three essential inputs to its portfolio of ventures: ◆

Hi-tech space and equipment with shared administrative, accounting, legal support

◆

Management, marketing expertise and networking

◆

Seed capital and rapid access to larger venture capital, usually in exchange for equity.

Examples of Internet Incubators in the United States of America are noted below. ◆

eHatchery, Atlanta: Funded by idealab. High tech, plug-’n-play building, staff of 45. Uses special software tools (e.g. Celeration, hatchware). Takes equity up-front (30 per cent average, US$ 250,000 to 2 million) in tech-enabled businesses to IPO in short time-frame.

◆

Cambridge Incubator, Boston: Partners include Draper Fisher Jurvetson (a major VC firm), Boston Consulting Group, Sun Microsystems and Pricewaterhouse Coopers. High-tech building, staff of 40 + students. Space & services at cost. Has invested since US$ 12 million in 7 ventures in 2 rounds since June 1999.

◆

Intelligent Systems Incubator, Atlanta: Publicly-traded. Small staff (3 partners + 5 support staff). Incubates companies without making investment, charges monthly fee for services. Mostly invests in early-stage companies outside incubator (50 in last 10 years, average of 25 per cent of total equity).

The Harvard survey cited earlier reached the following conclusions:

2

◆

The bulk (92 per cent are focused on Internet specific, mainly B2B, software, telecom and content).

◆

A small proportion is run by Venture Capital firms (31 per cent), and most are focused on early-stage companies. The average equity taken in the companies being incubated is 35 per cent.

◆

While 44 per cent flip the companies as soon as their equity stake can be sold for a good profit, the others hold their equity stakes to create a large portfolio of successful companies.

Hansen, Nohria, Berger, The State of the Incubator Marketspace (June 2000).

119

◆

As most of these for-profit incubators are very young, the model is as yet unproven. Only 38 per cent have produced ‘graduates’ and only 16 per cent have had a liquidity event (for instance, sold or had an IPO).

◆

Revenue sources for these incubators comprise equity only (55 per cent) and fee only (4 per cent), with the balance taking a mix of equity and fees. In return for the equity given up-front, the average seed capital provided is US$ 1.1 million.

◆

In addition to space with IT infrastructure, most incubators provide administrative services, group buying programmes, accounting, PR legal and staff recruitment assistance.

◆

The median number of staff per incubated company is 6.7.

◆

Most of the networking opportunities among the tenants were informal with some idea-sharing, scheduled meetings, cross board memberships and sales partnerships.

◆

In future, there will be a shake-out. Many incubators will seek a wider geographical range, to lower their costs, improve services and increase the graduation rates.

Internet incubators in developing countries The Internet is coming fast to Latin America and Asia. For instance, two years ago there were two million Internet users in China, this year there will be 20 million (almost one-fifth of the current United States of America). For such Internet accelerators to succeed, the current state policies and regulations for joint ventures in the Internet arena should progressively become more supportive and liberal. Venture capital from the United States of America is now entering the Chinese Internet market and many millions more would follow. But this requires the easing of the serious obstacles being encountered by young Chinese entrepreneurs in the Internet sector with regard to bureaucratic procedures, joint-venture restrictions and financing constraints to going public. With entry of China in to the World Trade Organization and the opening of its markets to international competition, the entrepreneurial energy of educated youth (and their ability to attract venture capital for ICT-enabled ventures) offers the opportunities of transforming the economy and creating new employment. Examples of this ferment are to be found in the university-affiliated technology incubators such as Tsinghua, Tianjin, Wit-hub and Xian as well as the new Internet Incubators such as Shanghai Dakang Business Accelerator. Box: Shanghai Dakang business accelerator Shanghai Dakang Business Accelerator is a partnership between Shanghai Jiaotong University, the pioneering Tianjin Innovation Center, and Business & Technology Development Strategies (BTDS), New York. The company targets Chinese early-stage, Internet ventures, and western firms seeking to enter the Chinese market. The strategic anchor-partners resident in the facilty are Bexcel, nationwide new venture consulting specialists, and AllBright Law, a leading law firm specializing in new ventures. DCBA has 6,000 sq m space in the heart of Shanghai’s business district with high-speed Internet access. Part of this will be used for nurturing Internet companies, and the balance rented out to other start-up firms, anchor tenants and service providers. WitHub Venture Capital is a founder investor while intensive management support will be provided by Jiatong University, Tianjin Innovation Center and BTDS.

While there has been a shake-down in dot-com ventures in early-2000 and some slowing in the pace of growth in ’net-related incubators, this model can be expected to continue to grow in the coming years.

120

The virtual incubator ICT also makes possible a variant – the Virtual or Cyber Incubator – which enables a variety of businesses to start and grow in their own premises. Advisory and networking support can be provided from a distance, in a cost-effective manner, at rapid speed and from a variety of sources worldwide. With the spread of “always on” broadband connectivity, small businesses can look forward to the Internet providing a seamless virtual extension of their capabilities and reach. The United Nations Development Programme initiative3 to launch such virtual incubators on a pilot scale comprises: ◆

national web-based portals for small business support initially in, say, three countries in different regions of the world

◆

an inter-regional portal to support, link and create synergies among these national portals and their business clients.

The portals would be well-organized, extensive web sites that serve as entry points to a range of resources, tools, expertise, business opportunities, etc. The national portals would provide early-stage and start-up businesses with (1) relevant information, resources and tools, (2) access to various business services, particularly skills enhancement and counseling in management and marketing, (3) facilitated access to resources including seed equity capital, (4) a platform for entrepreneurs to learn from each other and (5) the ability to connect business-to-business. In addition to developing vibrant networks of small businesses, the national portals would help create a virtual community of business support organizations and service providers in the country. The interregional service portal would focus on serving the national portals and other small business related institutions by (1) providing relevant generic resources and useful tools, (2) promoting interactions, experience-exchanges and bench-marking opportunities among practitioners under different economic situations, to arrive at good practices for adaptation to their own conditions and (3) creating a global community for such organizations. Eventually, the global portal would facilitate international e-commerce and the formation of business partnerships among small businesses and with large firms from developing and developed countries.

TECHNOLOGY INCUBATORS IN CHINA Since its start twelve years ago with assistance from the United Nations and strong support from China State Science and Technology Commission, incubators have developed rapidly, both in quantity and quality. Today, this programme is the largest in the developing world and the third largest worldwide, after the United States of America and Germany. It has significant achievements (and some shortcomings) from which others can benefit. While the vitality of collectively owned township and village enterprises has been the force behind China’s fast economic growth over the last twenty years, entrepreneurship received official sanction and encouragement from the government only recently. Starting in 1998, the government has implemented measures to foster small enterprises. Today there are some 127 incubators in China located in every province, autonomous region and major city except Tibet and Qinghai. In addition, there are another 64 organizations such as “software parks” that function much like incubators. Incubators have become an established feature of the technical and business infrastructure and continue to increase in number at the rate of one to two each month. As of end 1998, the 77 incubators included in the Torch Programme, mostly representative of the first generation of incubators and almost all with a general technology focus, had a total floor area of 884,000 sq m with 33 having space of over 10,000 sq m each. There are 4,138 tenant firms in incubation and 1,316 graduate firms. Tenants and graduates together had total sales of some 10.1 billion yuan (about US$ 1.2 billion) and employed some 140,000 people.

3

UNDP-assisted Virtual Business Incubators (UNDP, July 2000).

121

Some characteristics of three incubators studied recently, including the oldest and newest, are summarized below. Tianjin Technology Incubator, among the oldest, is at the port city of Beijing, 100 km away; Tsinghua Pioneer Park (actually an incubator) is linked to the foremost technical university in China at Beijing; and Hefei is a provincial capital. Characteristics of three Chinese incubators Tianjin 1991 11 000 84 1 035 100 565 3 571 37 949 110 878

Year started Area gross, sq m No. of enterprises Enterprise employees Revenues, RMB ’000 Taxes paid Graduates – No. Graduates – jobs Graduates – revenues, RMB ’000

Hefei 1992 33 000 121 120 000 2 400 40 28 000 255 000

Tsinghua 1999 2 500 12 200 – – – –

US$ 1 = approx. RMB 8.4

Tsinghua is only one year old, already fully occupied by high-tech companies, and expanding. It may be noted that while Hefei has a large area under management, only half is leasable for incubation as the balance is used to earn income as rents from commercial users.

Types of incubators Based on our research, some 127 incubators and another 64 incubator-like organizations can be identified, for a total of 191 such entities as of year-end 1999. Incubators Torch Incubators New Incubators (not included in Torch statistics) Sub-total Incubator-like entities Overseas Chinese Scholars’ Parks University S & T Parks Software parks Total

77 50 127 17 34 13 191

General technology incubators Technology business-focused incubators are the most common types in China. According to the Torch regulations, priority technologies include new materials, environmental technologies, electro-mechanical technologies, biotechnology, aerospace and information technologies (with 13 software parks as part of China’s recent stress on IT). Tenant companies are mostly spin-offs from universities, research institutes and state-owned enterprises. Ownership of the spin-offs typically remains with the parent institutions which also provide the finance. However, in recent years there has been a slow but steady increase in the number of privately-owned tenant firms, drawn from various sectors of society including scientists leaving the state research institutions; they must raise financing

122

from their own sources. As of year-end 1998, 111 of 127 (87 per cent) incubators in China had a general technology focus while some focused on sectors such as biotechnology, pharmaceuticals, materials science and oceanography. In contrast, in the United States of America with about 600 incubators, only about one-fourth had a technology focus (1998) although this proportion is rising in recent months.4 A good example is the Tianjin High Technology Innovation Center, located in the Technology Park 110 km south-east of Beijing. Of 96 tenants (January 2000), 57 per cent are in computing/electronics, 18 per cent electro-mechanical, 11 per cent materials, 11 per cent biotechnology and 3 5 others. The incubator has contributed to the commercialization of approximately 300 research results equivalent to almost 40 per year.

Special market segment incubators China has pioneered in establishing a network of “International Business Incubators” (IBIs). These are designed to assist both international and Chinese startup firms enter the Chinese and international markets respectively and to promote cooperation between the two. While the traditional incubator serves only national ventures, the IBI is intended to facilitate small companies with significant technical products but with limited resources to enter a complex market such as China. The feasibility study prepared in March 19975 evaluated and selected eight existing technology incubation centers in order to transform these for mixed Chinese – foreign company use. The IBI Programme expects to attract high-potential international and Chinese firms to facilitate domestic and international networking. ◆

University Incubators are among the most promising and fastest growing new segment in the industry. Eight have been established to date including some by China’s best-known universities such as Tsinghua University in Beijing. During our visit to Tsinghua in October 1999, we were impressed by the management arrangements and the high scientific capabilities of the tenant businesses. These are headed by faculty and students alike. Most are in IT-related businesses. The best of China’s university-affiliated incubators (such as at Tsinghua and Jiaoda) provide a calibre of support and an entrepreneurial environment comparable to that of the best university incubators in developed countries.

◆

University Science & Technology Parks have also been increasing rapidly. Unlike university incubators, they cater to larger enterprises and provide modular manufacturing space. 34 have been established in 1998 and 1999. Sponsorship of the university S&T parks is by a combination of the universities, local governments, MoST and MoE.

◆

“Overseas Chinese Scholars’ Parks” are incubator-like institutions which provide a supportive environment for Chinese students returning home after advanced technical education. 28 Overseas Chinese Scholars’ Parks have been established in the late 1990s; 11 of these were established by and share personnel and facilities with established incubators while 17 are new facilities. Preliminary results in terms of quality of technologies commercialized, enterprise growth, etc. have been promising.

While the earlier incubators were predominantly for commercializing innovations, this is changing. Now, an incubator in Tianjin focusing on enterprise creation by laid-off female factory workers and sponsored by UNDP, AusAid and the Tianjin Women’s Federation, is presently in the implementation stages6. A second project sponsored by the Zhenjiang Economic Commission and focused on the creation of family businesses by laid-off factory workers is still in the planning stages7. In the context of the government’s push to “develop Western China”, it is now essential to develop a Chinese model for an ‘empowerment incubator’ to create livelihoods through mixed enterprises, including such recent developments as ‘kitchen incubators’ and ‘arts incubators’. Such a model would also help retrenched

4 5 6 7

1998 State of the Business Incubation Industry, (Ohio, Athens, NBIA). R. Lalkaka in cooperation with TORCH expert team, 1997. Ma Feng-Ling and Peter Strong, “City of Tianjin laid off women workers business incubator feasibility study” (June 1999). D. Lalkaka, “Zhenjiang business incubator inception report” (December 1999).

123

workers from the State-Owned Enterprises to start their own spin-off businesses. re-invigorate the Township and Village enterprises.

This would also help

Incubator networks composed of incubators in the same region or with the same focus are a new and flourishing phenomenon. To date, eight have been established and are a useful means of mutual help.

Typology of sponsors Incubator sponsorship in China is undergoing an evolution, from exclusive sponsorship by the MoST’s Torch Programme to a more pluralistic pattern. In the initial stage (1987-1994), direct sponsors were mainly (1) the Provincial and Municipal Science & Technology Commissions (which are part of the MOST structure) and (2) the High Technology Enterprise Zones (also part of the MoST structure). After 1997, institutions such as universities also became sponsors of Torch incubators. Sponsorship pattern of torch incubators Sponsors Provincial/Municipal STCs High Tech Enterprise Zones Jointly by STC and Tech Zone (1 & 2) State-Owned Enterprises Universities Economic Zones Jointly by University and Economic Zone (5 & 6) Total

Number 24 47 1 2 2 1 1 78

Sponsorship has moved down to lower administrative levels. Instead of Provincial and Municipal S&T Commissions, incubators are increasingly sponsored by County and District S&T Commissions. The university incubators and university S&T parks come under the purview of MoE. The Returned Student Parks are under the aegis of the Ministry of Personnel. The Tianjin and Zhenjiang incubators for laid-off workers are sponsored by the Tianjin Women’s Federation and the Zhenjiang Economic Commission respectively, breaking completely with the conventional model of Chinese technology incubators and independent of the Torch programme. Two incubators sponsored by a public-private partnership of local government and private enterprises were established in 1999. One is the Nanjing Private Technology Innovation Center, organized by local government but funded by private enterprises, and run on a for-profit basis. Other signs of diversification of sponsorship include incubators sponsored solely by a private company in Tianjin, a state-owned enterprise in Beijing and a private Hong Kong, China company in Beijing.

Financing of China incubators Current and emerging forms of incubator sponsorship and financing are as follows: ◆

Government-sponsored, fully subsidized or self-financing: Fully sponsored and financed by the government. Token fees or no fees collected from tenants. The incubator is expected to become self-sustaining after an initial period of around two to five years.

◆

University-sponsored, self financing: University-sponsored incubators typically charge relatively low fees which cover only a portion of their operating costs, with ongoing subsidization by the university.

124

◆

State Owned Enterprise-sponsored: These are established by SOEs with an economic development mandate. The incubators are expected to perform a social function but also be economically viable.

◆

Public-private, self-financing: Typically sponsored and funded by both government and private firms. Some privately sponsored incubators are run as for-profit businesses.

Objectives of incubator programme As with sponsors, the objectives of China’s incubators have changed and diversified over time. The primary objective has been to commercialize technical innovations. Prior to China’s economic reforms starting in the late 1970s, there were few structural mechanisms to move S&T research results out of the laboratory. In the absence of a market economy, enterprises were not market-driven and had little incentive to innovate or utilize new technologies. Likewise, in the absence of intellectual property rights, research institutes had little to gain by transforming research into marketable products. With the transition to a market economy, this situation was no longer acceptable. By 1987, incubators were seen as an important means of bridging the gap between R&D and of creating favorable microenvironments in the face of the earlier unfavorable macro-environment. There is arguably a better justification for investing in incubators in a transitional economy until such time as the evolution to a market economy is completed.

Organization The Torch Programme Office of MOST is responsible for organizing, developing, financing and guiding China’s official technology incubator programme. Provincial, county, municipal and district Science and Technology Commissions are responsible for implementing the programme and establishing incubators in their local jurisdiction. In addition, National-Level High Technology Development Zones are also promoting technology incubators. Sponsors do not play an active role in the governance of incubators. As a result, the concept of a fiduciary Board of Directors, bringing together various sponsors/investors and actively overseeing the work of the incubator management, is largely absent. Again, signs of change have begun to appear. The public-private partnerships at the new Nanjing and Chengdu incubators have established fiduciary Boards that participate actively in supervising operations. The Tianjin incubator for laid-off women workers is establishing an advisory board which will include representatives from a variety of organizations. Given their typically large size, Chinese incubators are generally lightly staffed with an average of staff per incubator. Around 36 incubators had a staff of 10 or less, 9 had staff between 11 and 20, 9 between 21 and 30 and only 5 had a staff of 31 or more. The organizational structures of Chinese incubators vary but they are typically headed by a Director and include an Enterprise Department responsible for services to tenant enterprises, a Real Estate Management Department responsible for routine management of services in the main building, a Finance Department responsible for bookkeeping and financial services for both the incubator and its tenants and a General Office responsible for office and secretarial services.

Effectiveness as an economic development tool How does one judge the quantitative economic and financial effectiveness of Chinese incubators? What has been the government’s return on its investment in the programme? While detailed statistics for all Chinese incubators are not available, we do have good data for 77 incubators tracked by the Torch Programme. In 1998, these incubators had an average floor space of 11,475 sq m, 54 tenants and 896 employees. Each had an average of 17 graduate companies, that employed 612 persons (at graduation). Tenant sales amounted to equivalent of about US$ 9.5 million average with profits of about US$ 625,000.

125

Performance of torch programme incubators, 1998 Gross floor space Tenants Tenant employees Tenant sales Tenant profits Tenant taxes Cumulative No. of Graduates Graduates’ employees Total Seed Capital Funds

883 620 sq m 4 138 68 975 RMB 6 066 798 000 RMB 396 535 000 RMB 264 106 000 1 316 47 134 RMB 259 819 000

US$ 735 400 000 US$ 48 100 000 US$ 32 000 000

US$ 31 500 000

Data on the investment (subsidy) by government in these 77 incubators through 1998 is imperfect but the information available indicates that this figure is over RMB 1.3 billion, equivalent to about US$ 150 million. On a static basis (i.e. lacking in time series data on taxes paid by tenants and abstracting from the present value of that income stream), government tax receipts from incubated enterprises would pay for the entire investment through 1998 in the 77 incubators in about five years. This excludes the additional value of the social benefits, for example, the number of direct and indirect jobs created, the induced increase in taxes paid by suppliers and customers, the promotion of an innovation culture and the value of the technological products and services brought to market. Surveys of limited samples of sponsors and tenants at Tianjin, Tsinghua and Hefei indicated overall satisfaction at their performance.

Strengths and weaknesses Strong government leadership in an era when market forces were still in the early stages of development has been the main determinant of the performance of China’s incubation programme. This has been both the source of many its strengths and some of its weaknesses.

Strengths The size of the incubation programme is impressive. No other developing country has been able to marshal the commitment and resources necessary to develop such a large network in the relatively short span of a dozen years. ◆

Significant numbers of enterprises, sales and jobs have been created, technologies commercialized and taxes generated. This is due in part to the heritage of centuries of scientific prowess and entrepreneurial energy. Further, after initial subsidy, Chinese incubators are generally required to become self sufficient on an operating basis.

◆

Chinese incubators have also been a means of creating cultural change due, in large measure, to the commitment of pioneers8. Incubators have also made contributions to bridging the gap between publicly funded research and the marketplace, fostering entrepreneurial attitudes and facilitating the re-entry of scholars from abroad.

◆

CASTIP, the incubator association, has been effective in promoting continuous interaction and learning opportunities among the managers of Chinese incubators. It has been active in promoting regular exchanges with incubator associations and professionals internationally. Some of the best incubators such as Xian, Tsinghua and Beijing-Fengtai now have women as managers.

◆

The programme has been dynamic and continues to evolve. There has been a willingness to learn from mistakes and from the experience of other countries. It is changing its operating style from a ‘socialist incubator’ to a ‘market incubator with Chinese characteristics’. It has pioneered in such

8

The incubator pioneers include Professor Song Jian, Madame Dong Guilan and Mr Wu Yikang and the Torch Office led by Director Zhang Jing’an, Mr Zhang Chaoying and Ms Luo Hui.

126

fields as the IBI and equity in tenant companies and is now moving into the NEW Economy with Information Technology and Internet Incubators.

Weaknesses ◆

The programme has had a narrow organizational base in the MOST’s Torch Programme. Little effort was made to create “ownership” by the communities in which incubators are located. Governance continues to be a weak link. Now, the imperative of economic development of the Western Region requires special measures to develop incubation for sustainable livelihoods where the business infrastructure is still weak.

◆

It has had a near-exclusive concentration on technology enterprises because the programme is “owned” by the Torch (high technology) Programme. As noted, the potential of incubators to address other social and economic issues has not yet been explored. The scope of the programme should now be extended rapidly to new target groups such as, the disadvantaged regions of China.

◆

Women and minorities are poorly represented. For the average person in the street with a bright entrepreneurial idea, it is generally still difficult to gain admission to an incubator simply on the strength of a good business plan.

◆

Again, the programme is heavily focused on the “hardware” aspects of incubators. Physical space and facilities have had priority to the detriment of the “software”, i.e. quality business support. Importance of soft services is only now being recognized.

◆

The programme has not been immune from the dynamics of politics. Local “empire building” is an important driver of the programme. This skews the effectiveness of investment in the programme, for example, by reinforcing the emphasis on bricks and mortar (from which empires can be built) and the relative neglect of services (less suited to the demonstration of local clout).

◆

Incubator management is generally composed of civil servants who have little or no entrepreneurial experience. This further limits the quality of the “soft” business support services they can provide to their tenants.

◆

The services that are provided in-house are typically not on a cost-recovery basis. This limits their quality and sustainability. This of course is true in many developing countries where entrepreneurs have no personal savings and where they expect that all support from a government sponsored programme must come free of charge.

◆

There is as yet no coherent national policy framework for incubator development and for linking this to entrepreneurship development. The policy treatment of incubators by local governments in terms of legal status, taxation, etc. varies widely. Few guidelines in terms of feasibility study templates, operations manuals, evaluation criteria, etc. exist. As in some other countries, incubators are launched and operated primarily on the basis of “intuition”.

In China, the first phase of the transition to a market economy is largely over. The incubator programme has served as a means of facilitating this. It now needs to re-position itself to meet the changing needs of the new global environment. Whatever that role is, Chinese incubators a decade from now, like China itself, will be more diverse and decentralized than they are today. Moreover, given the strong base that now exists, this incubation programme can be expected to continue to serve as a reasonably effective tool of technological innovation and economic development.

127

OVERALL COMPARISON Framework for performance assessment The majority of incubation programmes worldwide can be characterized as “public-private partnerships” in which initial financial support is received from the state bodies. Many governments consider them as part of the business infrastructure and the evidence indicates that the annual taxes and other benefits from regional economic development more than offset the initial subsidy. Private sector participates when it sees that the programme will lead to greater business opportunities and promote spin-offs. Good measures of performance of an incubation system are the medium-term benefits accruing to small businesses, sponsors, local community, region and nation.

Guiding principles New venture creation at business incubators is based on three fundamental principles summarized below: 1.

Focus the energy and resources of the TBI on developing the businesses within it and enable them to learn from each other. New jobs and economic growth are created by the resident companies not by the workspace itself. Further, small enterprises can be their own most effective service providers. In some countries, the tendency is to spend much effort on preparing perfect plans rather than on developing the human resources and providing real services for enhancing firm-level productivity.

2.

Manage the incubator as an entrepreneurial business operation while developing networks of state, university, financing and community support and a ‘champion’. The managements of incubation centers supporting the constituents have to be entrepreneurial with business experience. Government involvement is necessary to create the business infrastructure and to provide initial funding. But corporate sponsors, regional and city agencies, associations and universities have to get involved to move towards sustainability.

3.

An outward looking, export-oriented incubator is forced by the competition to become more dynamic and more efficient. The skills and structures for marketing are generally the most critical. Changing markets require continuous innovation and this comes best from an environment which encourages risk-taking and competition.

Operations in both industrial and industrializing countries can now benefit from linkages between them, both south-south and south-north. In the southern Asian context, good experiences are available from China and are emerging in the Republic of Korea and Japan. ESCAP has a special responsibility of transferring these incubation experiences to neighboring countries.

LESSONS (TO BE) LEARNED The strengths and weaknesses outlined above indicate some of the reasons why incubation works (and how it might work even better). They also offer some guidelines for decision-making on starting and operating business incubator programmes in other developing and restructuring countries. The lessons emerging (but yet to be fully learned and applied) are summarized below: 1.

Commit to the core principles of venture creation with business incubation as one catalytic component of a national small enterprise and entrepreneurship development strategy. Enterprises (and employment) are created by companies, mainly through individual initiatives; the appropriate role for governments is to develop the business infrastructure, implement supportive policies, trouble-free regulations and the requisite demand for this to happen. Incubation is often more successful in the restructuring countries as it helps overcome market failures. In China (unlike many other developing countries), the government at all levels has committed continuing ‘patient’ resources and is generally satisfied with the results.

128

2.

Adapt business incubation to a new empowerment model to address social and economic problems (as well as technology commercialization). Better use has to be made of incubators for economic development in the western region of China, regional and rural development, alternative livelihoods for workers from the State Owned Enterprises and for other special purposes. But while the state-as-sponsor considers employment creation as an essential purpose, the incubator-as-enterprise must give priority to venture creation, survival and growth.

3.

Recognize that traditional business incubators – like other development services in developing and OECD countries – require initial state support/subsidy with the prospect of becoming reasonably self-sustaining at maturity. In turn, incubators do provide a variety of benefits such as nurturing early-stage ventures to survival and success, diversifying the regional economy and taking innovations to the market with consequent direct and indirect employment, taxes, exports and economic growth. Benefits not readily quantifiable include promotion of entrepreneurship and networking cultures. In the restructuring countries, private sector providers of services for small businesses are not yet developed and the state has a bigger role to play. But this should be limited to an initial period of around 5 to 6 years until the facility demonstrates its effectiveness and the private sector begins to participate. Public intervention can be justified when it addresses market failures and provides public goods.

4.

Do the homework, starting with survey of the demand for incubation services, analysis of the feasibility and business plan, identification of committed sponsors and realistic objectives, choice of the type of incubation facility needed and mobilization of stakeholders and community consensus. This preparatory work then offers the best chances for future success as in the case of the Tsinghua incubator. Without structuring operations for future sustainability, an incubator would continue to struggle and perhaps fail when the public subsidy inevitably declines in future. Ideally, such a study should also consider options other than incubators.

5.

Choose a location and building that will facilitate the incubation process and enable the incubator to generate sufficient revenues. Recognize also that an incubator is not a real estate operation with big buildings and hardware but essentially a nurturing environment. In most countries, it is difficult to find a vacant space or finance to construct a new building. In China, on the other hand, the political and prestige considerations have resulted in vast buildings which create commercial revenues but often at the sacrifice of value adding support services for tenants. While larger scale of operations may offer lower costs, the new breed of entrepreneurs require quality space and service. In future the focus must shift from constructing bigger buildings towards providing better services.

6.

Structure the incubator governance and organization to minimize interference and maximize assistance to the tenant companies. This in turn requires the careful selection of managers with entrepreneurial experience, their hands-on training at home and abroad, remuneration (and incentives) that reward performance. Researchers, professors or government officials do not usually make good incubator managers. Entrepreneurs especially women entrepreneurs, do. The Chinese managers have come mostly from local governments partly because private business has emerged only recently and because massive state support comes with some strings attached. To meet the needs of qualified managers, a structured training system is now required which accredits the incubator managers who meet professional standards.

7.

Select early-stage companies with the potential to grow and create good jobs and organize services specific to their needs. In developing country situations, potential ‘incubatees’ have poor business management/marketing skills and limited finances. This requires that incubator managements take special pre-incubation/probation/post-graduation measures as well as consider variants of franchising of business concepts and vouchers for services. Some Chinese incubators now take equity in selected tenant companies and plan future venture capital operations.

8.

Re-engineer the incubation process to take advantage of the exponential growth of Internet applications. In the United States of America, Internet and New-media incubators have emerged recently where venture capital and consulting companies identify innovations and rush them rapidly to the capital markets, not in 2 to 3 years as in the traditional incubators but in 6 to 12 months in the new “accelerators”. Essentially,

129

the accelerator is a convergence of venture capital + strong management consultancy support + a hightech building. Internet is coming fast to Asia. For instance, two years ago there were two million Internet users in China, this year there will be 20 million (almost one-fifth of the current number of users in the United States of America). For such Internet accelerators to succeed, the current state policies and regulations for joint ventures in the Internet arena should progressively become more supportive and liberal. The advanced developing countries (China, India, Brazil, Malaysia, Egypt included) need to adapt some of these revolutionary trends. In this context, one of the first such facilities in China is the Shanghai DotCom Business Accelerator. This is a China-United States of America joint venture with strong partners, namely, the Jiaotong University (China’s premier technical institution) Withub Incubator, the Tianjin High Technology Innovation Center, Shanghai Webb Consulting, and Business & Technology Development Strategies LLC, New York. 9.

Accelerating the venture creation process in turn calls for special measures to promote the expansion of Venture Capital firms linked to technology incubators. The on-going boom in the economy of the United States of America is due to a culture of risk-taking and the strong drive to create entrepreneurial, knowledgebased ventures backed by venture capital and concomitant management support. The VC commitments have risen ten-fold in ten years, to the level of US$ 47 billion in 1999. The bulk of this (about 75 per cent) has been in Internet related businesses.

10.

Develop a range of counseling services, capacity-building and entrepreneurship development programmes and networking opportunities targeted to the needs of the tenants and affiliates. The success of the incubator has to be measured by the success of its companies and the key to success is good services. Importantly, these services must be paid for through affordable fees, if they are to be efficient and sustainable. In China – and most restructuring/developing countries – it is expected that such services from government or donor-sponsored agencies must come free, without fee. This mentality is changing but slowly. Further, more out-sourcing should be encouraged for advisory, training and accounting services by developing networks of service providers.

11.

Promote the convergence of support for new venture creation with the incubator serving as a platform where university, technology park, venture capital, private business and publicly funded research come together, all reinforcing each other. Good examples of such synergy are the Technology Park Malaysia (which started operations with an innovation/incubation/enterprise center as the core and provision for tech-based enterprises clustering around it).

12.

Create associations, chambers, clubs and other structures which can play an advocacy role in promoting the interests of incubators and their members among decision-makers as well as provide a platform for exchanges of experiences, expertise, training and trade opportunities, both within the country and with counterparts internationally. CASTIP performs these functions well in China and abroad. Informal networks and NGOs, with some initial, external support, can be strengthened to help entrepreneurs learn from each other and help themselves. Finally, engage in continuous monitoring and evaluation of incubator programmes with actions to improve performance and better serve the members as their needs change. The increasing emphasis from donors and sponsors on effectiveness, impact and sustainability calls for serious efforts to collect and analyze data on incubators and their tenants/graduates in order to enhance operations and justify the state subsidy provided. Components of such monitoring should be the bench-marking of performance (especially for a large programme such as China’s), surveys of the changing needs of tenants, and their opinions on services provided.

130

FUTURE TRENDS The problems for further research are essentially in the areas of information gathering and defining the metrics, both the quantification and interpretation of costs and benefits, at the micro- and macro-economic levels. Few programmes have adequately built into their management systems the routine accumulation and analyses of data on the success or failure of their graduates and, indeed, of the service facility itself. Yet it is precisely these longer-term outcomes that validate (or invalidate) the usefulness, impact and sustainability of business incubation and other SME development programmes.

REFERENCES Abetti, P.A. and M.P. Rice, 1995. “Planning and building the infrastructure for technological entrepreneurship”, in Frontiers of Entrepreneurship Research, pp. 248-260. Lalkaka, R., 1997. Supporting the Start and Growth of New Enterprises. (New York, United Nations Development Programme). Lalkaka, R., 1997. “Convergence of enterprise support systems: emerging approaches at Asia’s technology parks and incubators”, paper presented at the AURRP 12th International Conference, Monterey, California. Lalkaka, R. and P. Abetti, 1998. “Business incubation and enterprise support systems in restructuring countries”, paper presented at the Babson College – Kauffman Foundation Entrepreneurship Research Conference, Ghent, May 1998. Lalkaka, R. and J. Bishop, 1995. “Technology parks and business incubators: the potential of synergy”, paper presented at the 4th World Conference on Science Parks, Beijing, September 1995. Lalkaka, R. and J. Bishop, 1996. Business Incubators in Economic Development: An Initial Assessment in Industrializing Countries (New York, UNDP-UNIDO-OAS). Luger, M. and H. Goldstein, 1991. Technology in the Garden: Development (The University of North Carolina Press). McMuillan, W.E., 1988. “Entrepreneurial Support Systems: Development Planning, 18, Winter, pp. 31-38.

Research Parks and Regional Economic

an emerging scientific frontier”, Journal of

Molnar, L.A. and others, 1997. Business Incubation Works (Ohio, Athens, NBIA Publications). National Business Incubator Association, 1996a. 10th Annual Survey Report (Ohio, Athens, NBIA). National Business Incubator Association, 1996b. A Comprehensive Guide to Business Incubators (Ohio, Athens, NBIA). Rice, M.P. and J.B. Matthews, 1995. Growing New Ventures, Creating New Jobs (Connecticut, Westport, Quorum Books). Tornatsky, L.G. and others, 1995. The Art and Craft of Technology Business Incubation (Ohio, Athens, NBIA Publications).

131

V. PROJECT SELECTION, MONITORING AND EVALUATION FOR TECHNOLOGY INCUBATION IN DEVELOPING COUNTRIES BY

ASIAN

AND

MR JÜRGEN BISCHOFF, DIRECTOR PACIFIC CENTRE FOR TRANSFER OF TECHNOLOGY (APCTT) NEW DELHI, INDIA

Abstract Today, knowledge economy “innovation” has come to occupy a central place in the competitive advantage of nations to attain technological leadership in international markets. In this process, the role of Technology Incubators as part of the system of innovation has become all the more important to transform technological ideas into commercial benefits. While developed countries have already taken a lead in this direction, developing countries have yet to fully exploit this system particularly to invigorate SMEs which are a crucial part of their economy in terms of employment as well as growth. After a brief introduction to incubators, a description of the efforts of developing countries to use Technology Incubators for innovations and commercialization of technologies is given. It is emphasized that technology project selection and evaluation is crucial for success at the incubation stage. This needs particular attention apart from proper linkages with academia and venture capital firms.

133

I. INTRODUCTION The process of globalization, establishment of the World Trade Organization (WTO), rapid scientific and technological advancements, newer developments and applications of information technologies, emergence of knowledge based and capital intensive industries, stricter quality standards and systems including ISO 9000 and ISO 14000 systems, environment and pollution control and energy considerations, direct and indirect trade barriers by advanced countries, etc. are eroding the traditional competitive advantages of industries in developing countries particularly small and medium enterprises (SMEs) which significantly contribute to overall industrial and economic development at the national level. Industrial restructuring including privatization is creating the need for retraining and redeployment of the workforce in order to increase employment, besides increase in efficiency and productivity in traditional manufacturing sectors through development and use of high technologies and methods including techniques of biotechnology, application of computers and information systems for competitive advantages. The globalization process is moving up the Research and Development (R&D) value chain (Boghani 1999). In this direction, the present objective is to encourage higher value addition activities and preservation of natural resources through the development and application of high technologies such as biotechnology, new materials; computers, telecommunications and information techniques and systems, microelectronics, etc. Creation of completely new industries requires the application of knowledge intensive innovative technologies.

Innovation Management: Changing Global Scenario New realities the companies should take into account to be competitive: • • • •

Shortening life cycle of products Globalisation of world economies Globalisation of technologies Shift of emphasis from manufacturing to knowledge-based economies

Figure 1. To apply innovative technologies, the results of original basic research need to be properly nurtured in a conducive environment. To facilitate basic research covering a wide range of fields, it is desirable that laboratories specialized in various technical areas gather in a research park where they can share their expertise and conduct joint research. Basic research that focuses solely on the discovery of unknown areas does not result in new industries automatically. As a next step, the “incubation” stage should follow where potentials of new industries are studied. Preferably, a research park should have an incubation town in it to facilitate research at the “incubation stage”. Then should follow an “innovation stage”, which helps new industries to grow on a larger commercial scale. In this “innovation” process, focus is given to specific new high tech industries. In developing new products in the established industries, manufacturers will have to manage the process starting from technology research projects and ending with the creation of new enterprises in a manner totally different from a conventional one (Nakahara 1999). In this direction, the “Technology Incubator” has come to play crucial role.

II. BASIC CONSIDERATIONS Besides development of high tech enterprises in areas such as information technology, computer software, internet and e-commerce, biotechnology, microelectronics, etc. it is necessary to apply new and high technologies to revitalize existing enterprises including SMEs in the traditional economical sectors and to promote new

135

What is technology business incubation? Business incubation is a dynamic process of business enterprise development. Incubators nurture young firms, helping them to survive and grow during the startup period when they are most vulnerable.

Incubators provide: • • • •

hands-on management assistance access to financing business and technical support services shared office space, access to equipment

Figure 2. enterprises based on natural resources or comparative advantages. The industrial clusters and industrial estates etc. that have come up over the years in various countries need to be vitalized or reoriented through appropriate models of technology incubators located therein, with their connectivity to the larger incubators or science and technology (S&T) parks. These play a crucial role to bolster the technology development stage and aim to transform technological ideas or concepts into technologies for commercial exploitation. In practice, the primary goal of the technology incubator is to promote the development of technology-based firm, and assist in completion of the technologies under development. These are located in or near universities, R&D institutions, and Science and Technology Parks (STPs). They are characterized by institutionalized linkages with knowledge generating sources including universities, technology transfer agencies, research centres, national laboratories and skilled R&D personnel. The aim is to promote technology transfer and diffusion while encouraging entrepreneurship among researchers and academics. The Technology Incubator (TI) in practice is a variant of business incubator and, in fact, combines broadly the functions of technology business incubator and an innovation centre. In the long-term perspective, TIs, in the broadest sense, may be looked upon as a mechanism for technological capability building for regional or local development. TIs are usually a part of the Research Park or S&T Park or linked organically and are capital intensive. Research Parks and S&T Parks are integrated large facilities, mostly real estate development driven and located in or near the major universities or R&D institutions. They are mostly promoted and supported by the national

For profit • Strong financial support • Rigorous screening • Large equity share

∇

∇

Types of incubators

Not for profit

• Moderate financial support • Open entry or simple screening • No or small equity share

Figure 3.

136

governments along with regional or local development agencies, easier availability of financial grants and investments. A loan on soft terms or venture capital is a major attraction to the tenant enterprises or organizations which may also be TNCs or other foreign companies. At present, there are about 3,000 incubators, both for profit and not for profit, of various types in the world. More than 50 per cent of these are located in the United States of America and Europe – about 800 in the United States of America and 1,000 in Europe including 300 in Germany. Among developing countries, China leads with about 130 incubators. Among industrializing countries, Republic of Korea is reported to have about 300 incubators. Japan and Singapore are also making serious efforts to promote techno entrepreneurship in high-tech business through technology incubators.

Number of Business Incubators (2000) Egypt Israel Australia Finland Brazil Japan China Korea Germany USA 0

100

200

300

400

500

600

700

800

900

Figure 4.

Resources, technological and industrial capacities and infrastructure are widely different in developed, industrializing, developing, least developed and transition economies, although the basic policies tend to be similar. Thus the models of incubators in different groups of economies have to be necessarily different. As such the objectives, models, practices and impact of TIs appear to vary widely. Some countries such as the United States of America, Germany and the Republic of Korea have reported much better success rates for graduating and graduated enterprises during the last two decades. For example in the United States of America, the success rate of small graduated enterprises is about 80 per cent compared to about 30-40 per cent outside the incubators. But in most developing countries, any meaningful conclusions are yet to be drawn (Agarwal 2000). In Japan, there are about 140 science parks and 120 incubators. Japanese incubators do not function to hatch new corporations but rather nurture-hatched corporations and also to enable SMEs that have been nurtured to develop new businesses. Both the purpose and function of a Japanese incubator differ greatly from those of European and the American type of incubators, which are intended for entrepreneurs establishing new ventures. However, recent initiatives are towards new SMEs, employment creation and also industrial restructuring, besides creating new credit and financing mechanisms including venture capital and new stock exchange systems.

A. Characteristics and catalytic factors TIs essentially assume: ◆

Strong R&D and technological capabilities in academic institutions and R&D organizations, thereby associating R&D results with commercial potential and encouraging potential entrepreneurship in research scientists

◆

Potential technopreneurs including researchers who are willing to translate their ideas/high technology into products and services are available

◆

Strong linkages with academic and financial institutions.

137

The various catalytic factors for supporting and expediting technology incubation for high technology based enterprises include well coordinated implementable national policies including S&T, industrial, trade & commerce, and finance policies; strong R&D including liberalized tax structure and grants; technical entrepreneurship development programmes and incentives; innovative financing support system including venture capital, angel investors, specialized and liberalized stock exchange systems for high tech enterprises; intellectual property assistance and professional services including legal and technical consultancy services; establishment of strategic business alliances and networking; and support for standardization, quality management and marketing etc. The nature of these factors will, however, vary with the stage of development and national objectives and priorities.

B. The need and scope The new rules of international trade, investment and the protection of intellectual property rights have rendered many instruments used in the past by the then newly industrializing economies difficult to apply. As regards industrial policy, for instance, it is becoming harder to impose local content rules, give infant industry protection or subsidize targeted activities. Nevertheless, with regard to technology policy, there is some scope for developing countries to provide technology support services and finance for innovation. Also, a number of policy options remain to strengthen the “supply side”. One possible mechanism for effective transfer of technology infrastructure is to attract high technology investors. Governments can also enter the pre-production stage by fostering high technology entrepreneurs in technology incubators located in universities or technological institutes in an industrial park (UNCATD 1999). The suggestions for encouraging local R&D include contract R&D with local research institutions and universities, developing human resources for R&D in specialized disciplines, developing local enterprises including clusters and network of high technology firms and enterprises active in niche markets to attract knowledge intensive FDI. According to Lalkaka, the incubator combines a variety of Small Enterprises (SE) support elements in one integrated affordable package. It has Business Incubators (BIs) which aim to assist small entrepreneurs with enterprise start-ups and development, a special niche, i.e. nurturing early stage, growth oriented ventures, through focused assistance within a supportive environment. In the Republic of Korea, BIs host start ups and provide various benefits and services for promoting and supporting SMEs (Lee 1999). They promote the survival rate of newly started small and medium enterprises, reinforce the application of technological innovations, create new business and employment, re-vitalize economies and the research functions of universities and research institutes and finally, foster technical manpower. Thus, the business and technology incubation concepts are at the convergence of two global movements i.e. the emergence of small and medium scale enterprises (SMEs) as instruments of economic growth and accelerated pace of technological change and innovation. According to OECD studies, TIs take a range of institutional forms, operating as integrated, or sometimes separate, organizations within science parks, universities, and innovation centres. TIs present a technology-oriented variant of the BI theme. TIs, as a system, more frequently provide technology-related services and support on issues of intellectual property and support from law schools and local legal firms. These help tackle many of the problems such as capital requirements including venture capital, linkages to sources of knowledge, strengthening research capacities with appropriate interface mechanisms, supplementing business management and marketing skills of technopreneurs, technology acquisition skills, market intelligence, strategic planning, etc.

C. Technology incubation systems As stated above, the objectives, model and practices for TIs have to be flexible and varying to meet specific needs ranging from simple business incubators in least developed countries, transition economies countries or in developing countries to most sophisticated stand alone TIs or as an integral part of a technology park in industrially advanced countries. The selection of technology projects for incubation shall vary accordingly, ascending to the degree of sophistication, specialization and the needs of the industry. They may be of general type as in least developed or some of the developing countries and highly focused sectorwise in developed countries and in industrializing countries or a mix of above models. It is unlikely that there would be many researchers or researchers/academia needing sophisticated technology incubators in least developed or some of the developing countries. Industrializing countries are attempting to create such capabilities in their R&D and

138

university systems. Industrially advanced countries and industrializing countries are focusing on establishing their technological leadership in select sectors and consequently promoting high tech corporations through technology incubation systems on a global basis. On the other hand, the immediate problem in many of the developing countries is to revitalize and restructure the local industries including SMEs and create employment through development and applications of new and high technologies in traditional sectors, besides taking advantage of the opportunities for developing high tech enterprises in computer software, biotechnology, and information technologies, etc. There is need to evolve and promote widely dispersed TIs involving technological projects with lesser capital and low cost of operations, meeting technological and professional services needs of tiny units, artisans and craftsmen, etc.

Innovation Development Stages Grow Original Concept Proof Product Partner- VC Product develop- of and idea developships funding launch launch generation ment concept ment

“Concept” stage

“Seed” stage

IPO or sale

First round, second round, etc.

Incubation period

Figure 5. There are some specific clusters of niche areas in developing countries which are not covered by TNCs but have economic and social relevance and need modern, high technological inputs. For example, handicrafts, the lock industry, the glass industry, carpets, garments, etc. in India. Virtual incubators may also help to promote and support such enterprises. Even simple business incubators may be initially useful in such cases, which may be upgraded to TIs, especially in least developed and island developing countries. The incubation systems ranging from simple business incubators to highly complex establishments in the form of science parks/research parks or industrial parks seem to have met with mixed results, subjective to successes and failures, and are considered to be still in an evolutionary stage. The definitions, models, objectives, operations and best practices, physical structures, modes of financing and assessment and evaluation methods for incubators, etc. vary from country to country and even within the same country, and seem to lack clarity at many instances. As such, TI systems may take various forms as under:

1. Technology innovation centres (TIC) The TIC conducts research and development (R&D) and technology innovations required by the industrial field and aims to jointly invest resources into university campuses or research institutions and achieve commercialization with support from business enterprises or public institutions. As a concept, the TIC is similar to that of the Technology Park working from an R&D stage to technology incubation and innovation for commercialization.

2. 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 commercialization of a previously developed technology; that is, the start up activities of an enterprise. It differs from general BIs in that it concerns technology-intensive or high tech business. Two thirds of business incubators in industrializing countries focus on technology-based activities, compared to one-third in the United States of America.

139

3. Science parks Science parks have comparatively large areas of land at their disposal to allow space for concentrations of research facilities and R&D enterprises as well as room for enterprises that originated in incubators to expand into. They are often located next to concentrations of universities and other research facilities. They aim to promote the creation of enterprises to exploit the results of R&D work as well technological innovation within existing enterprises. Lacking incubation facilities to promote the creation of enterprises to exploit S&T resources, these research parks in Japan were built to encourage the accumulation of research facilities such as universities and public testing research facilities in one area. Naturally, the set-up conditions and infrastructure provided differ from those of industrial parks. In addition to considerations such as access to transportation facilities, residential environment, living environment, and natural environment, easy access to urban functions is also important. One of the key elements is the foundation of social services to support human intellectual productivity. Others names such as Business Innovation Centres (BICs), Industrial Parks, Business Parks, S&T Parks are also loosely used to include the concept of TBIs. BICs and S&T Parks in the United Kingdom of Great Britain and Northern Ireland are essentially property-based initiatives with strong financing facilities/linkages. S&T Parks are somewhat similar to science parks/R&D parks in most of the countries including the United States of America and industrializing countries. The Incubation System thus provides rental offices, rental research rooms and shared services at a low fee, consulting services for management and business planning and marketing and also financial support, for persons who are trying to establish an enterprise, corporations that have recently been established and also small and medium sized corporations that are attempting to advance into new fields. Incubators are a part of the main infrastructure of innovation centres and S&T parks and act as important facilities with functions for bringing about innovation (Agarwal and Parthasarathi 1999). It may be seen from the above that a variety of incubation systems are in practice in developed and developing economics and also in transition economics with the primary objective of promoting regional and interregional economic developments, providing employment, development and commercialization of high technologies as well as better utilization of R&D capabilities and facilities in public research/academic institutions, through nurturing technology-based enterprises, specially SMEs, in start up or development stages. The levels of investments, sophistications and practices may vary form country to country or place to place. In view of the faster technological developments and new rules for international trade and other issues including developments in information technology coming in, it is necessary that appropriate incubating systems are evolved for promoting high-tech enterprises. These may vary from country to country depending on their resources, stage of development and national policies, etc.

III. TECHNOLOGY PROJECT SELECTION, MONITORING AND EVALUATION Looking at the diversified requirements of the countries, each government should develop its own models of TIs as per objectives and available resources after careful assessment of needs and planning. Technology projects need to be selected and monitored for successful communication and take off in the TIs. Perhaps a combination of physical technology incubators with large investments and virtual incubators with minimum investments may be appropriate for most of the developing countries.

A. The need Incubator programmes are implemented to satisfy a wide range of development objectives: South Africa, for example, has special programmes where incubation is used for empowerment of the previously disadvantaged groups in the country and incubation programmes in Israel were primarily to integrate immigrants (scientists and engineers mainly from Russia) in the mainstream and to absorb new technologies or ideas that they brought. Moreover, they also created a climate to prevent brain drain from Israel. The endeavour bolstered the technological ability of the Israeli industry, created new jobs and improved standards of living. These TIs were geared to absorb any project that suited their structure and aims. It enabled technical entrepreneurs to conduct their R&D

140

programmes in a professional, friendly, supportive atmosphere, while receiving the guidance they need in the starting phase. Most of SMEs in developing countries lack the technological requirements for sustainable competitiveness. Usually their technological needs relate only to straightforward gradual improvements in product quality and productivity or machinery upgrading. This inhibits strategic breakthrough innovations and turns companies blind to new business opportunities presented by market and technological discontinuities. The related capability required to diagnose the technological competitive position of the company, to define technological strategies and to effectively implement related technological innovation projects does not exist in the great majority of enterprises. This often leads to a situation where SMEs do not succeed in obtaining the required finance for new technology projects. This is further aggravated for start-up companies.

New Technology Financing – Success Rates 6 in 1,000 business plans get funded on average The No. 1 reason a start-up’s valuation is cut due to incomplete executive teams 10% of start up in a given venture capital portfolio will succeed 6 out of 1,000,000 of technology ideas will result in IPO Source:

Andrew Olmsted, Co-founder, The Cambridge Incubator

Figure 6. In order to harness the power of strategic innovation a company must act on foresight (into the future) and on insight into current and future customers’ needs. The leveraging of foresight and insight allow it to conceptualize a desired future and to create new products and businesses. Therefore, breakthrough strategic innovations require prospective analysis of technologies prioritized by their impact on existing and future competitive factors, the detection of opportunities and threats to existing and new businesses created by market and technology discontinuities it involves, the precise identification and leveraging of the enterprises core competencies, diagnosis of the technologically competitive position of the company, definition of respective risks of technological strategies, balanced project portfolios and innovation partner’s

Lifecycle for Products and Services

revenue

Maturity

Asset-based Financing Private Investors Venture Capital Idea

Start selling

R&D Prototype Private Investors

IPO, Acquisition

Rapid growth and ramp-up

Venture Capital

Start mfg. & selling Incubators, Dev’t Funds, Business Angels

New Product

New Service

Figure 7.

141

time

roles. In the scenario of globalized markets and increased international competition, these enterprises require more and more Technology Management skills for technology projects selection and evaluation for successful incubation.

B. The process It is very difficult to predict whether a technology will be successful in industry. Market forces play a major role in determining the success and apart, from these forces being unknown until the technology has been released into the market, they also change regularly. The functions of technology evaluation and selection are, therefore, not a single event but rather a process during which several evaluations are made before a technology may finally be selected to enter into the incubator facility.

Selection of Applicants for Technology Incubator: Idea Screening

MARKET • IS IT REAL?

MARKET • CAN WE WIN?

MARKET • IS WINNING WORTH IT?

Figure 8. Incubation is an extremely powerful process in the sense that it manages the risks of new technology-based enterprises by creating a virtual business environment for development but is not a guarantee of market success. The final filter before entering into incubation is, therefore, a more formal filter than any of the preceding ones, and is applied strictly. The following criteria are often used: ◆

Market potential

A business plan is prerequisite for any incubation. This plan must consider the risks and uncertainties, including the present and future market size, the distinguishing factors of the products, potential competition from rivals and substitute technologies and the learning curve pertaining to the manufacturing and development costs for new product generations. Two critical factors which are often misjudged and viewed over-optimistically are the future development costs and growth in sales. There should be an immediate export potential. ◆

Competitive edge and sustainability of the technology

Technologies must be in the growth or mature phase of the development cycle to be selected for incubation. If a technology is aging or easily replicable, it is obvious that the company will not be sustainable for long. The ideal technology for an existing SME is one which is founded in a core competence of the SME. This will allow a range of products to be developed and will be more difficult for competitors to imitate. ◆

The personality of the entrepreneur

It is difficult to separate the selection of the technology and the person who will develop and exploit it in the SME. Emanating entrepreneurs are usually excited about the prospect of owning their own businesses. The first and rigorous test comes when financial commitment is required. Secondly, the entrepreneur must prove his/her ability and dedication to perform on time.

142

It is often found that the technology is described in terms of its capability to generate various high-technology products and to solve complex problems. It is, therefore, captured in people’s minds and not so much on paper or in data packs. The scrutiny of the potential of the leader of the new SME is, therefore, important. Three attributes appear to be important in the selection of the leader or entrepreneur. Firstly, he or she must be trustworthy. This can usually be verified by looking at the career history of the person. Secondly, the person must be willing to learn, endure and accept accountability. This is not easy to ascertain although personal references may help in this regard. The third attribute is ability. This is normally established through previous work. In most cases, ability can be enhanced as long as the willingness is present while very little can be done to build trustworthiness and willingness. Technology, when effectively utilized, is a powerful instrument for starting a new venture or to enhance enterprise competitiveness. Therefore, technology project selection for incubation requires the application of those managerial techniques ensuring that the technological factor is properly utilized to achieve the enterprise goals. A critical part of this approach lies in the correct monitoring and implementation of appropriate practices related to technology and innovation management. Within this process, an indispensable pre-requisite to improve enterprises’ competitiveness is the identification and choice of critical technologies and project options. It is a prerequisite for successful incubation of technology management strategy which must take in due consideration: ❏

how technology supports the business strategy or vice versa;

❏

if and in what ways technology can be utilized as a source of competitive advantage;

❏

actions in technology development and acquisition to be undertaken in order to achieve the identified enterprise objectives.

Criteria for Selection of Applicants for Technology Incubator • Advanced technology within the focus area • Business viability • University relationships • Economic impact • Ability to benefit from the incubator

Figure 9. This provides a structural framework for assessing and analyzing information to define a technology choice strategy for incubation. For many established enterprises, technology selection means mainly to decide which kind of improvements should be made in the manufacturing process and/or which kind of equipment should be developed/incubated to satisfy their needs. In these cases, a technology project boils down to the purchase of a new machine along the related engineering project. Sometimes, engineering projects must be executed to insure the implementation of the new machine. When the enterprise is technologically more advanced, development projects may then be envisaged. In these cases, the technological choice decisions are more complex and involve evaluation of different approaches to technology acquisition and to management of technical projects portfolio. The process of technology selection thus involves the following steps: ◆

Technology Survey (Technical)

143

◆

Developing a Business Strategy (Commercial, Financial, Human Resources)

◆

Technology Strategy.

Selection of Tenants: Auditing Types of Auditing • Technical • Commercial • Financial • Human resources

Figure 10. Examples for selection of tenants by selected incumbents, both for profit and not for profit, are shown in figures 11, 12 and 13.

Example: Criteria for Selection of Tenants by Non-Profit Cyberincubator (China) • A small young HK registered technology company with limited liabilities • At least 2 full time persons, one of whom is a shareholder • US$ 40,000 paid-up working capital • Majority of R&D must be conducted at the Tech Centre (host) • A competent, balanced management team • A viable business plan

Figure 11.

Example: Selection of Tenants by Red-Ramot Hi-Tech Incubator (Israel) – provides an initial home, necessary services and seed capital for entrepreneurs with the ideas, vision and determination to create a viable business in the field of biomedical technology.

Project screening elements: • • • •

Business potential Scientific and technological merits Personal qualities of the entrepreneur (especially marketing and business skills)

Figure 12.

144

Example: Evaluation of Candidates by a For-Profit Incubator NetStrategy (USA) Evaluation: three steps Screening

Management Market Competition

Analysis

Business model Revenue potential Potential value

Presentation

Meet with management Capital requirements Scalability Exit strategy

Figure 13. Procedures for evaluation of start-up companies include several risk assessments: ◆

Team risk

◆

Business strategy risk

◆

Product/technology risk

◆

Market risk

◆

Operations risk

◆

Financial risk

◆

Marketability/PO risk

In general, as soon as the technical idea of the potential incubator tenant passed the evaluation procedure, further start-up business valuations can use a combination of three general approaches: ◆

Cost approach

◆

Market approach

◆

Income approach

The cost approach uses the valuation information to restate the asset at fair market value. The market approach gathers data due to value developing assets. And finally, the income approach connects data to value of developing assets.

1. Technology auditing survey This provides an instrument to audit the enterprise’s technological capabilities and its awareness of technology as a mean to better compete. This can be used as an instrument to assess either the enterprise management has the appropriate level of understanding of technology and technology management and whether the required climate to use technology is in place. The basic purpose of this survey is to increase general awareness among managers of R&D, marketing, production, finance and general management about the need to design a technology plan and to improve the management of technology capability of the company. A secondary purpose of this audit is to help bring the managers of the several areas of the company into the technology planning process. It has been frequently commented that a principal problem in technology project selection and appraisal is the absence of communication between different corporate functions that is required for integration. The third objective is to generate information to complement the auditing process. The survey involves participation of a consultant, top management and a sample of people involved with technology. The consultant explains the purpose of the technology needs identification process with a focus on:

145

◆

Innovation and competitiveness of the firm

◆

Strategy

◆

What is technology management?

◆

What is technology planning and what are technology needs?

This is followed by a survey with the help of a questionnaire (table 1) to get feedback regarding the reality of the company. Each statement in the questionnaire is to be answered on a graded scale from 1 (low) to 10 (high) regarding the agreement with each statement. Then small groups are formed to discuss individual results and identify strengths and weaknesses of the company. Finally, presentations are made by each group. Table 1. Technology auditing survey for a high tech company Statements

Rate

People, in general will, support the necessary changes that will have to be made to implement a better management of technology Top Management demand information about the status of the main technological projects at least twice a year The several areas of the enterprise understand clearly the relevance of technology for competitiveness The enterprise strategy is clearly defined Technological activities are consistent with the enterprises overall strategy The technology sources utilized (internal R&D), licensing, R&D contracting, joint ventures, research consortiums) are consistent with the deadlines demanded by the strategic guidelines There is a clear identification of the strategic technological areas There is a clear definition about the strengths and weaknesses of the enterprise regarding the strategic technological areas There is an adequate balance between short term and long term orientation in technological projects There is an adequate level of consensus regarding the trends of the life-cycle of the strategic technologies for the enterprise The authority and responsibilities of the project managers are clearly defined and they are adequate to the needs of the enterprise There is sufficient information about the status of each project regarding budgets and deadlines The enterprise protects intellectual property when necessary There is an adequate evaluation system to assess the contribution of technology to the enterprise goals There is an adequate monitoring and information system to identify technological threats and opportunities There is adequate integration between the several areas of the enterprise regarding innovation of products and processes There is an adequate use of technological alliances There is adequate information about research teams in universities and research institutes developing activities related to the enterprise’s strategic technologies The R&D budget in percentage of the total sales is consistent with the expenditures of the competitors Agreement with the statement regarding the reality of the enterprise: Low = 0, High = 10 (0 = the statement does not apply to the enterprise, 10 = the statement mirrors the status of the enterprise)

However, technical auditing is only the first step of the auditing process. Figure 14 shows an example from Australia that only 6 per cent of the applicants that passed the technical audit get seed capital from the incubator.

2. Development of technology business strategy A correct technology business strategy is a basic requirement for the choice of technological needs. The essence of this strategy is to define the business actions so as to respond effectively to a customer need in a superior way to the competitors’ offering.

146

Example: Auditing of Candidates by ICT, Australia for Seed Capital Investment Technical

Commercial

Passed Dropped out

Financial Human Resources 0

20

60

40

80

100

Figure 14.

Selection of Tenants: Approved Business Plan is often Mandatory Essentials to the Business Plan: The business concept Market research & analysis Operational plan Financial plan

Figure 15. Here the main actions to be considered are:

(a)

Corporate Strategies, involving broad, long term decisions regarding: ◆

New markets: This option involves the search for new customers in the same areas or in new geographical locations for the same products. Alliances with companies can be an effective way of using existing contacts with clients and distribution channels.

Business Plan Review: Main Parameters A.

Reality check

B.

Market opportunity

C.

Management

D.

Technology issues

E.

Resources

F.

Commercialisation programme

Figure 16.

147

◆

New products: This strategic action is based on the capability of the company to innovate. The goal is to sell products that are new to the company, to the country or, in some cases, to the world. An alliance can be a fast and cheap way of acquiring the technology to implement this strategy.

◆

Withdrawing from products or markets: In some situations, the firm will profit by dropping some products or markets. This will allow more resources to the products and markets in which the firm has competitive advantages.

◆

Increase of Production Capacity: This option demands an expansion of the manufacturing capacity and it will generate economies of scale and its benefits.

Business Plan Review: A. Reality Check 1. 2. 3. 4. 5. 6. 7. 8.

Is there a written and fully current business plan? Are there current financial statements and cash-flow projections prepared and reveiwed by an outside consultant? Does the business concept appear to be based on sound technical and business principles? Is the time needed to reach positive cash-flow longer than the ideal term for a tenant in this facility? Are adequate financial resources available? Is the business opportunity is based on proprietary technology, is the proprietary position adequately protected? Is there good personal chemistry among the principals? Do the personal financial needs of the principals match the capacity of the business? Source: Terry Collision, Blue Rock Capital

Figure 17.

“Reality Check” for a New Business Idea When you are thinking up a business, you do not decide what the business will be and how it will do.

Your marketplace decides that for you!

A Reality Check is Called When: – You come up with a great new invention, but you think you should put off doing any marketing research until you have built a detailed prototype.

Figure 18. For a young company, the technology business strategy varies at different phases of the company’s growth:

148

Development phase

Technology development tasks

Start-up

◆

Figure out technology, product and concept

Initial growth

◆

Introduce new technologies and launch differentiated produce Capture market share Grow revenues

◆ ◆

Rapid growth

◆ ◆ ◆ ◆

Continuous growth

◆ ◆ ◆ ◆ ◆

(b)

Become market leader Ward of competitors, develop continuous innovation mechanisms Build management team Hire and integrate lots of people Dominate the industry Reinvent growth strategy Introduce new technologies and add products and services Expand to new markets Brand company and profile

Competitive strategies

This involves decisions related to beat the competitors in the markets selected by the corporate strategy. Examples of such decisions are as below:

Business Plan Review: B. Market Opportunity Every good business begins with a great idea, but not every great idea makes a good business. M. Spenser & C/Ennico “Money Hunt” 1. 2. 3.

Evaluate the company’s belief that it has a significant and credible market opportunity Assess the company’s market approach including strategies for dealing effectively with customer indifference Evaluate the company’s ability, as a new entrant in this market niche, to survive long enough to succeed Source: Terry Collision, Blue Rock Capital

Figure 19.

◆

Lower prices: This strategy involves measures to increase the firm’s efficiency and it will lead to conquer new clients by selling the products at lower prices. An alliance with a company with critical process technologies can be an interesting option to be considered.

◆

Product Characteristics: Client needs, technology trends and what the competitor is doing are the basis for this strategy. The goal is to increase the product performance gaining new customers as a consequence of the product differentiation. Examples of aspects related to this strategy are – product performance, durability, guarantee, product integration compatibility and quickness of repair.

◆

Other measures to add value to the customer: Services, distribution, delivery time reduction, flexibility to respond to customer needs in terms of changes in product orders are examples of such measures.

The company may have to choose one or more of the above strategies to select which is more adequate for each product line and sometimes for each product.

149

The strengths and weaknesses of the company and the opportunities and threats of the environment are important factors to be considered in this decision. Another critical aspect is the return on the investment in each option. The process of strategic planning should be flexible to allow quick changes and adaptations to new threats and opportunities. A simplified procedure for strategy formulation has 5 basic steps: (i) Information about the present product lines; (ii) Product-Market Analysis; (iii) Strategic Trends, Threats and Opportunities; (iv) Evaluation of the Market Competitive Factors; and (v) Strategic Priorities and Actions. Chart 1 shows the sequence of strategy formulation.

Information about the product lines Product Market Analyses Strategic Trends Threats and Opportunities

Evaluation of the Market Competitive Factors

Strategic Priorities and Actions

Chart 1. One should be aware that the strategy design does not follow the sequence above, because there are many loops which will change the previous steps.

Investment in Product Marketing 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Established company & Known product

New company & New product

Established company & New product Investment in product marketing

Targeted sales

Figure 20.

3. Technology strategy This addresses the issue of how to identify the critical technological needs and identifies the basic dimensions of technology choice and project options. It consists of two steps: (i) technology evaluation; (ii) technological project portfolio.

(a)

Technology evaluation

The process of technology evaluation is aimed to collect information on the current and future state of technology development, to evaluate the importance of each technology in the competitive arena and the strength of the firm in each technology. The key tasks encompassed in the technology evaluation are presented in Chart 2.

150

Business Plan Review: C. Management 1. 2. 3. 4. 5.

Is there at least one member of the management team qualified to undertake the work? Is the management team complete and appropriate for the work that is to be done? Is there a willingness to bring in additional management and outside directors? Is there an appropriate group of outside professional advisors? Does management have the ability and experience to leverage scarce resources? Source: Terry Collision, Blue Rock Capital

Figure 21.

IDENTIFICATION OF THE TECHNOLOGIES INVOLVED IDENTIFICATION OF THE CRITICAL TECHNOLOGIES TECHNOLOGICAL CAPABILITY ASSESSMENT

Chart 2. Technology evaluation tasks

(b)

Identification of the technologies involved

The identification of technologies involves a set of technological knowledge and skills, which has an impact on the overall competitive position of the firm in the marketplace currently and in the future. Criteria to be followed in order to identify the technologies are as follows: ◆

Start from a detailed analysis of firm’s technological structure including product technologies, which means to identify the technologies embodied into the product, including the tools used to develop a new product

◆

Production process technologies, which means to analyze the production process and to identify the technologies used

◆

Support technologies, i.e. those technologies used to perform a certain activity of the firm and not embodied into the firms’ product or production process (typical support technologies are Information Technology tools, software packages, networks)

◆

Be broad enough to including also those technologies which may have a potential impact in the future needs such as emerging technologies, i.e. technologies not yet in use but whose potential is significant.

These steps lead to identification of the technologies for successful incubation and innovation.

151

(c)

Identification of the critical technologies

This task aims to evaluate the competitive importance of each technology involved. This means to evaluate: ◆

the extent to which the technologies are relevant to sustain the firms’ competitive factors

◆

the importance for future competition, i.e. to what extent that competence will be critical in future competition.

This can be done using a matrix, which shows the market competitive factors associated to the product line and the technology involved. In the cells of the matrix, a score is reported which mirrors the impact of that technology (T) on that competitive factor. It can be used as a scale from 1 to 4 where 1 means that the T has no impact on the competitive factor and 4 that is the critical aspect to meet that factor (table 2). Table 2. Impact of the involved technologies on the critical competitive factors technology involved Competitive factors

TI-1

TI-2

TI-3

TI-4

TI-5

high impact = 4; low impact = 1

In this phase, it is a critical aspect to involve people from different functions (sales, technical assistance people, technicians, engineers, production people, etc.) and, if possible, suppliers and customers. The technologies which have the strongest impact (grades 3 and 4) on the critical competitive factors are identified as the critical technologies (CTs). This figure provides an overall evaluation of the competitive importance of each technology involved and supports the choice of the critical technologies for each critical competitive factor.

(d)

Technology projects portfolio Technology projects can be classified in two main types: ◆

R&D&E projects (research, development and engineering related to product and process) Process should be understood in a broad sense involving the production chain as a whole and not only manufacturing. Raw materials and components development, supplier’s development and services to the client should be included.

◆

Capital investment projects (purchasing of manufacturing and laboratory equipment).

The design of an R&D project portfolio has three phases:

I.

Technology Innovation Projects

Technological project generation is both a strategy pull and technology push process. As a matter of fact, project generation is the result of two processes. On the one hand, projects can be generated under the pressure of the strategic analysis which has indicated that a certain technology is relevant to support the firm’s strategy. Technology projects can also be generated by technical people who submit their project proposals. The main question is: “How can technology help in achieving the set goal?” For example, if the main strategy for product A is to compete with a low price, possible technological projects should be listed to obtain cost reduction. This can include process improvements, raw material substitution, equipment purchasing, etc.

152

Business Plan Review: E. Resources 1.

Evaluate the adequacy of the company’s budget in comparison to the work that is outlined

2.

Evaluate the possibility of raising additional funds to carry out the project

3.

Evaluate the adequacy of the facility against the needs of the tenant company Source: Terry Collision, Blue Rock Capital

Figure 22.

II.

Selection of R&D projects

At this stage, it may occur that a selection among R&D projects has to be done as the amount available to spend is smaller than the money required for the whole set of projects generated. Therefore, a portfolio of projects has to be appropriately selected. Benefits and costs should not be limited to financial aspects but should include subjective and non-quantitative factors as well.

III.

Evaluates each project After the potential projects are identified, the next phase evaluates each project against a set of criteria: ◆

Probability of technical success

◆

Probability of commercial success

◆

Return for the firm, considering the cost of the project

◆

Consistency with the priority product – market pairs

◆

Consistency with marketing strategy

◆

Consistency with core technologies

◆

Extent to which the technology can be patented

◆

Consistency with technological threats and opportunities

A matrix figure for each project can be constructed assigning each criterion a weight (as shown by table 3), evaluating each project against each criterion, and multiplying weights by score. Therefore, projects are prioritized according to the matrix figures obtained. Thus, technological auditing is an important stage to make a strategy plan of technology selection and project options for incubators. The objective is to evaluate how much the enterprise is really using technology as a technological competitiveness instrument. Finally, the effective use of technological auditing depends on some pre-requirements: ◆

Top management support and participation

◆

Task force formed by people from the several areas of the company to coordinate the process

◆

Appoint a trained consultant

◆

Guarantee the implementation of the recommendations of the technological auditing that contribute to the firm’s success

◆

Repeat the process periodically.

153

Table 3. R&D Projects Selection Matrix CRITERIA FOR SELECTION

WEIGHT

1.

probability of technical success

2.

probability of commercial success

3.

return for the firm, considering the cost of the project

4.

consistency with priority product market pairs

5.

consistency with marketing strategy

6.

consistency with core technologies

7.

extent to which the technology can be patented

8.

consistency with technological threats and opportunities

A

B

C

D

E

F

G

H

I

J

K

L

M

4 – high and 1 – low with the exception of criterion number 3. In this case the actual values would be more adequate when available. The weights reflect the relevance of the criteria and range from 1 – low to 3 – high.

Business Plan Review: F. Commercialisation Programme 1.

2. 3. 4. 5. 6.

Assess proposed commercialisation timetable (R&D, protecting property rights, marketing, manufacturing, regulatory factors) Comment on the company’s sales function and its ability to compete in the marketplace Evaluate the company’s methods of distribution Evaluate the company’s approach to customer support Evaluate the company’s financial control, management, and strategic planning capabilities Evaluate the feasibility of the company’s commercialisation milestones Source: Terry Collision, Blue Rock Capital

Figure 23.

C. Role of databases for technology project selection Easy access to technology information is an important prerequisite for access to new technologies. Efficient national information services and networks are essential. Enterprises are not only interested in technology sources but are keen to know the techno-economic details of specific technologies available for transfer. In order to ensure proper availability of the information, it is necessary to enhance national capabilities and institutional mechanisms in this direction. APCTT, as a regional institution, is actively involved in evolving suitable technology transfer mechanisms, including strategic alliances to create synergies, with a view to accelerating the process and increasing technological excellence particularly in SMEs. APCTT has implemented a project “Mechanism for Exchange of Technology Information” (METI) with the active participation of 12 member countries in the region. There is also a definite

154

need to create awareness of the need for such information and to strengthen networking at the enterprise level, especially among promotional agencies, small-scale industries and financial institutions. In order to bridge the existing gaps, APCTT has evolved an “International Network for Transfer of Environment – Friendly Technologies” (INTET), for the exchange of technology information on environment-friendly technologies available worldwide. The catalytic role played by APCTT in promoting flows of technologies and facilitating access to them on favourable terms needs to be further strengthened. APCTT is now issuing a bimonthly publication, “Value Added Technology Information Service” (VATIS) with updated information on priority sectors such as food-processing; waste management; sources of non-conventional energy; ozone layer protection and biotechnology. It is proposed to cover more sectors and areas depending on the needs of the member countries. APCTT also organizes business meetings and promotes technology market forums such as “Techmarts” to bring together buyers and sellers of technology in specialized and high-tech areas. In addition, it disseminates information on technology offers and requests and on available consultants through its bimonthly publication “Asia Pacific Tech Monitor” and through exhibitions and workshops. In 1999, APCTT implemented its technology transfer programmes in close cooperation with 54 organization, agencies and associations in Armenia, Bangladesh, China, India, Indonesia, Islamic Republic of Iran, Kazakhstan, Nepal, Pakistan, The Philippines, Republic of Korea, Tajikistan, Thailand and Viet Nam. The centre has also undertaken studies and needs assessment surveys in cooperation with various institutions. The absence of a platform where small enterprises can tap opportunities at the global level for acquisition of technology or establish business collaborations/partnerships has been compounding the problem. The Technology Bureau for Small Enterprises is an endeavor to bridge the technology gap and to assist small-scale industries in technology-transfer-related problems. Resulting from the collaboration between the United Nations’ Asian and Pacific Centre for Transfer for Technology (APCTT) and the Small Industries Development Bank of India (SIDBI) it represents, under one roof, synergy of technology and finance. The important features of its activities are: ◆

Offers a professionally managed system for partner search

◆

Helps in building up confidence between prospective partners

◆

Lends a friendly hand in the intricate task of negotiations and matching of perceptions

◆

Provides a gateway to global technology market through internet and other channels

◆

Unique mechanism for arranging technology and finance

◆

Renders customized service and has wide affiliations

◆

Takes up project and preparation of business plans.

In cooperation with UNCTAD, it organized a regional workshop on R&D Community-enterprise cooperation during 1994. One of the main recommendations of this Workshop was the establishment of a “Regional Association for the Commercialization and Application of R&D Results (RACORD)”. The principal objective of RACORD is to enable R&D institutions to synergise their resources for optimal utilization of their outputs and assist enterprises, especially SMEs, and government entities in technology acquisition, evaluation and assessment, technology adoption, upgradation and modernization and hence build up Indigenous Technology Capabilities.

IV. INTELLECTUAL PROPERTY Intellectual property is a key legal issue for technology-based enterprises, particularly for new and high technologies, in areas such as drugs and pharmaceuticals, biotechnology, microelectronics and computer software and agriculture. Often the key to business success is the ability of a company to protect legally its core technology besides the national policies and efforts to provide appropriate support systems and patent related services. An incubator facilitates access to legal assistance in this area. With the establishment of the World Trade Organization (WTO) and its Trade Related Intellectual Property System (TRIPS) Agreement, member nations are trying to harmonize their intellectual property laws including patent laws. Several countries have undertaken modernization and upgradation of their patent-related organizations and launched patent literacy among researchers and entrepreneurs. As a result, it has been noted that the number

155

of patents filed and granted to researcher/companies in various countries in the region has dramatically increased particularly in developing countries after 1995. The number of patents granted and used is an indication of the technological capabilities in a country as well of the patenting companies. However, the data/information related to the patents obtained by the incubate companies in various countries, as yet, are not readily available or reported, though many of the incubators are providing patent-facilitating services to their tenant companies. This needs a review of the R&D projects on the technology development activities being taken up in incubators and necessary measures taken to encourage patentable developments for creation of awareness among the technopreneurs as well as the management of the incubators.

V. TECHNICAL CONSULTANCY SERVICES Technology based start-ups in particular have need for more specialized expertise. One way of brokering this type of help is to bring specialized service providers to the companies in the incubator facility. Incubators usually arrange to provide external technical consultancy/professional services to their tenant companies as per requirements. These services may relate to preparation of feasibility and project reports, market requirements, field trials, detail design and engineering or upscaling of processes, drawing technical specifications, and identifying commercial sources of supply of plant and machinery, raw materials, components, mode of financing and so on. Special issues such as those related to environment, energy, safety and international trade practices and laws of other countries may also need external professional services through specialized consultancy agencies. With this in mind, ESCAP and APCTT have been supporting a Technical Consultancy Development Programme for Asia and Pacific (TACDPAP) with its Secretariat facilities at the Consultancy Development Centre at New Delhi.

VI. ROLE OF INTERNATIONAL ORGANIZATIONS To strengthen technological and industrial capabilities towards integrated developments at national and regional/subregional levels and promote cooperation among the economies of the region, initiatives relating to promotion and strengthening technology incubation systems including Technology Business Incubators (TBIs) for creating high technology-based enterprises in developing countries (particularly in Japan, Malaysia, Republic of Korea and Singapore and India), have been taken since the 1980s by United Nations agencies like the United Nations Fund for Science and Technology Development (UNFSTD)(1-3), UNIDO UNDP, ESCAP and other promotional organizations.

Economic and Social Commission for Asia Pacific (ESCAP) ESCAP and other international promotional agencies assist national governments in developing trained managers and human resources or establishing and operating technology business incubators so as to adopt best practices or to enable them to evolve their own practices and models. In this venture, ESCAP may document experiences in developing countries and prepare guidelines for promoting technology incubators in developing and least developed and island developing countries as well as for economies in transition. It should support establishment, strengthening and networking of national and regional associations of incubators including the Asian Association of Incubators. ESCAP also supports and facilitates technical capability building of institutional organizations to create intellectual property and related expertise for technology based enterprises. ESCAP and APCTT should continue to support technopreneurship training programmes particularly in areas such as technology management, patents and intellectual property systems, International Standards such as ISO 9000 and ISO 14000, technology transfer arrangements and issues and awareness about the laws, rules and regulations in various countries including WTO agreements and implications therein.

Asia and Pacific Centre for Transfer of Technology (APCTT) APCTT is implementing a UNDP-funded project on “Nurturing Technological Entrepreneurship through Science & Technology Entrepreneurs Parks and Technology Business Incubators” with the aim of creating two first-ever technology business incubators (TBIs) in India and to promote linkages with R&D institutions and

156

industries. Based on these experiences, similar projects could be implemented for the benefit of other developing countries. APCTT could also play an important role in identifying cross border R&D projects which could be implemented through partnership arrangements among various national TIs having mutual complimentaries and supplementaries.

VII. CONCLUSIONS In developing counties, the open wall type or “virtual incubators” with access to R&D facilities and support services including professional services, requiring minimum investments are desirable and need to be promoted to speed up innovations. According to Nowak and Grantham (2000), the competitive advantage for an enterprise is blind to geographic and resource constraints and focuses solely on pooling resources to optimize the strategic team’s chances of success. Pooling technical and business talent across all frontiers, providing a clear focus on wealth creation and a strategy to meet the business opportunities at hand is the main goal of “virtual incubators” What is also now emerging is the “third generation” system, more appropriately called an “International Enterprises Centre”, which will bring under a single aegis the full range of support services for the development of knowledge-based business with linkages to universities, research institutes, venture capital and international joint ventures. This trend is already evident at the convergence of support mechanisms at business incubators/technoparks in South-East Asia. The trend is now towards International Technology Business Incubators (ITBIs) to attract foreign companies and R&D organizations to promote international linkages or R&D globalization and also sector specific incubators especially in high tech areas including information technologies and biotechnologies. Technology incubators should, therefore, develop strategic business alliances with the relevant organizations/agencies including large corporations and R&D institutions. They should also network with the technology incubators in other countries, besides developing networking and creating associations of incubators in their home country. Exchange of experiences and visits of specialists from the incubators in developing and developed countries would be useful for all concerned. Also, organization of exhibitions, trade fairs and workshops etc. for the technologies and products from the incubators in various countries would enhance business prospects and cooperation in the region. International organizations such as UNDP, UNIDO, ESCAP and ADB should support such activities. Developed countries such as Japan are reorienting the strategies of TIs to ensure their technology leadership. The Republic of Korea is also fast changing to build its technological and industrial strengths in select sectors through TIs as one of the measures including revitalization of industrial clusters and industrial estates. Other countries such as Malaysia do not seem to be addressing existing and traditional industries but concentrating on electronics, information technology, multimedia technology development and biotechnology. Many developing countries, economies in transition and least developed countries are yet to evolve any meaningful TI strategies and take action to set up the same. Technology Incubators are a part of the System of Innovation dealing with the specific needs of industry in the country. These needs have to be promoted and nurtured through definite policy measures particularly involving SMEs. Development of Technology Incubators should be explicitly included as an objective in S&T policies, to promote and nurture high technology based enterprises and specific financial outlays may be indicated. Presently, the promotion of technology incubators is generally implicit. However, technology project selection and evaluation is of crucial importance in view of the specific requirements and success for incubation. Concerning this, the quality and deep commitment of the management team and the chief executive is crucial. It is better to have an independent or private management with an advisory committee of the members representing different interests in the TI.

157

REFERENCES Agarwal, S.P. and Parthasarathi, A., 1999. “Review of national policies for the promotion of technology transfer”, in Technology Transfer and Technological Capabilities Building in Asia and the Pacific (vol. 4): Emerging Issues in Regional Technological Capability Building and Technology Transfer, (ST/ESCAP/1951), pp. 9-99. Agarwal, S.P., 2000. “Strengthening technology incubation system for creating high technology based enterprises in selected countries”, draft report for ESCAP, 2000, 126 p. Bae, Zang-Tae, 1999. Planning and Principles for the construction of S&T Industrial parks: Approaches (Republic of Korea, KAIST).

The Korean

Boghani A. and others, 1999. “Globalization of R&D”, International Journal of Technology Management, 17 (6), pp. 696-710. Brochure on “The multimedia super corridor and you”, Multimedia Development Corporation Ltd. (Cyberjaya, Malaysia, Sept. 1999). Brochure on “PSB Incubator Programme”, Singapore Productivity and Standards Board (Singapore). Brochure on “Technopark at Chai Chee”, Wan Tien Realty (Singapore). “Buona Vista to be Science Hub”, The Strait Times Interactive: Parliament Reports (Singapore), 11 May 2000. IIT debates presence of firms on campus (TOI), 17 August 2000, pp. 3. “JTC hatches plans for more incubation centres”, News Letter: Singapore Enterprise, April 2000, pp. 2. Kharbanda, V.P., 2000. “Academia-industry symbiosis: Need for technological competitiveness in India and China”, China Report, 36 (1), pp. 43-72. Lalkaka, Rustam, 2000. “Rapid growth of business incubation in China”, paper presented at the 2000 International Conference on Business Incubation and Technology Incubation, Shanghai, China, 18-19 April 2000. Lalkaka, Rustam, 1997. “Lessons from international experience for the promotion of business incubation systems in emerging economies”, paper commissioned by the Small and Medium Industries Branch, No. 3, UNIDO Small and Medium Enterprises Programme, November 1997. Lalkaka, R. and J. Bishop, 1996. Business in Economic Development: An industrial Assessment in Industrializing Countries (UNDP, New York). Lalkaka, Rustam, 1995. “Applying technology for enhancing competitiveness”, paper presented at the International Seminar on Human Resource Needs for Change in R&D Institute, New Delhi, 15-17 February 1995, pp. 31. Lee, Dal Hwan, 1999. Korea’s System and Policy Towards Technology Incubators (Seoul, OECD, Science and Technology Policy Institute (STEPI), pp. 98-105. Nakahara, T., 1999. “Technology strategy in a borderless economy”, International Journal of Technology Management, 17(6), pp. 711-724. Nowak, Michael J. and Charles E. Grantham, 2000. “The virtual incubator: managing human capital in the software industry”, Research Policy, No. 29, pp. 125-134. OECD, 1999. Business Incubation: International Case Studies, 658(100). Shanghai Technology Innovation Centre, Shanghai. (Mimeo) “Science and Technology Entrepreneurs Parks (STEP)”, status report, Department of Science and Technology, New Delhi, August 1999. Toh Han Shih, 2000. “Oracle Launches $ 55m Incubator Initiative”, The Business Times (Singapore) 27 April 2000. UNCATD, 1999. World Investment Report 1999: Foreign Direct Investment and the Challenge of Development (United Nations publication, Sales No. E.99.II.D.3), pp. 224. “Zhongguancun Science and Technology Park”, Beijing Review, 31 January 2000, pp. 23-25.

158

PART THREE COUNTRY PRESENTATIONS I. STRENGTHENING TECHNOLOGY INCUBATION SYSTEM FOR CREATING HIGH TECHNOLOGY-BASED ENTERPRISES IN CAMBODIA

159

I. GENERAL BACKGROUND A. Territory and population Cambodia is located in South-East Asia, bordered by Thailand, Gulf of Thailand, Lao People’s Democratic Republic and Viet Nam. Cambodia occupies an area of 181,035 sq km adjusted at latitude from 10 to 15 to the North, and longitude from 102 to 108 to the East. Cambodia’s population is around of 11 million in the year 2000, of which about 1 million live in the capital city (Phnom Penh) and the growth rate is 2.8 to 3.0 per cent per year. Per capita income, US$ 249 (1998), is low compare with some neighbouring countries. The official language is Khmer. With regard to foreign language, some of the older generation speaks French and the use of English is now widespread among the younger generation. English is also the main foreign language used by government offices.

B. Socio-economic background Economic and social development in Cambodia is based on agricultural production including rice, crops, fishes, wood and non-wood products. Official data show that agriculture share of agro-based industry of the total GDP is about 40 per cent (1998). Agriculture contributes to half of the country’s GDP and employs 85 per cent of the population. Rice production has increased dramatically and the country is approaching self-sufficiency. Livestock production, which accounted for nearly 13.1 per cent of the GDP in 1997, is also carried out by small-scale farming units and is showing strong growth.

C. Report on industrial areas The story of industrial development in Cambodia to date is one of alternating periods of expansion and regression. Vigorous promotion of state-owned enterprises followed independence in 1953, under a strategy for accelerated industrial development through medium and large-scale production. After the nationalization of the banking system in 1963, the direction of credit towards state-owned enterprises produced a further expansion of industry during the remainder of the 1960s. Cambodia’s industrial sector in the late 1960s was thus relatively advanced. The development of the sector was disrupted by the civil war and no significant further expansion in industrial capacity took place during 1970-1975. Between 1975 and 1979, however, many of the large factories were destroyed and much of the remaining industrial capacity fell into disrepair. During the 1980s, industrial production remained at below pre-war levels with more than 40 per cent of the country’s pre-1975 industrial capacity remaining idle in 1986. While the private large-scale sector began to revive slowly, efforts were made by the Ministry of Industry and some provincial authorities to reactivate those medium and large-scale state enterprises, which were considered viable, restoring many of these by 1989. However, in 1991, a privatization policy was introduced and implemented fairly rapidly over the period to late 1995, leading to further changes in industrial structure. The industrial sector in Cambodia now is small, highly dualistic (a small number of large formal enterprises contrasting with a vast number of informal cottage and microindustries), generally inefficient and operating with outdated equipment at low capacity utilization rates. Today, Cambodia’ industrial sector is highly fragmented with individual production units existing in isolation from each other. There is a serious lack of communication and exchange between the industrial companies. So far, public and private industries, large-scale and small-scale industries, urban and rural industries have been operating without substantial linkages. Enterprises themselves are not actively searching for new opportunities to exchange final products, parts and components and services. Many of the larger companies are being closed, while at the same time there is a mushrooming growth of small private industrial activities. Most of the larger industrial enterprises come under the supervision of the Ministry of Industry, Mines and Energy (MIME): 53 establishments (privatized, leased or being leased). In addition, some state-owned industrial companies

161

were controlled by other ministries, e.g. three drug-processing factories under the Ministry of Health, a number of rice mills under the Ministry of Commerce, as well as four large rubber-processing plants under the Directorate of Rubber Plantations. Furthermore about 24,740 small-scale industries employ approximately 70,000 persons.

II. TECHNOLOGY AND BUSINESS INCUBATION SYSTEM FOR CREATING HIGH TECHNOLOGY-BASED ENTERPRISES Technology Incubation System in Cambodia is not yet established. However, we have a Royal University of Agriculture, Cambodia Institute of Technology and laboratories, but we lack National and Public Science Industrial Research Institutes, lack of private research institutes and industrial research associations, and also lack updated national laboratories, industrial R&D institutes and skilled R&D personnel for this purpose due to lack of funding. But, in the near future, we need to promote technology transfer and diffusion, while encouraging entrepreneurship among researchers.

A. Medium and large-scale industries Up to now, there are 36 new medium and large-scale industries being created, after the formation of the new government at the end of 1998. The increase of the factories caused manufacturing number to jump up to 283 registered with the Ministry of Industry, Mines and Energy. Most of them are garment establishments producing clothes. Table 1. Factory numbers registered at the Ministry No. 1

2

3

Type of Factories ◆

Food

◆

Beverage

9

◆

Tabacco

10

5

6

7

13

Textile, apparel and leathers ◆

Textile

◆

Apparel

180

◆

Leather

5 18

Wood production ◆

4

Number of Factories

Food, beverage and tobacco

Wood furniture

13

Paper production ◆

Paper

2

◆

Carton packing

2

Chemical, oil, rubber and plastic ◆

Chemical

5

◆

Rubber

1

◆

Plastic

6

Non-metallic ◆

Cement

4

◆

Ceramic

5

◆

Precious crystal (glass)

1

Processing metallic industries ◆

From metallic

6

◆

Electricity equipment

2

◆

Incense stick

1

Total

283

162

So far, 47 factories have stopped their activities: ◆

Food, beverage and tobacco

10 factories

◆

Textile, apparel and leather

17 factories

◆

Wood production

8 factories

◆

Paper production

1 factories

◆

Chemical

3 factories

◆

Non-metallic

6 factories

◆

Metallic

2 factories

The number of the above mentioned factories could be variable, because some stopped just for a short period, and others for a longer period and their resumed operation. There are many reasons which cause these industries to stop their business:

(a)

(b)

Industries to export: ◆

Factories have not received buying orders or buying orders are late coming in

◆

Some factories got quotas not in line with their production capacity and other factories cannot find another market for replacement

◆

Company internal conflicts

◆

Factories’ locations were removed

◆

Transfer of factories from one ownership to another

◆

Quality of products is not justified to buying order condition because of a lack of skills and experiences.

Industries for local demands:

After operating for a short period, some factories stopped commissioning and others were already built and some are not built, even though they received permission in principal. The main factors are: ◆

Price of imported products is cheaper than local products.

◆

Economic crisis in Asia caused exchange rate to decline dramatically, resulting in neighbouring countries’ products being low priced.

◆

Expenditure on electricity power, transportation and other services is high compared to neighbouring countries.

◆

Local products’ quality cannot compete with imported products’quality.

B. Small-scale industries Small-Scale industries in Cambodia are defined as manufacturing enterprises with shareholders’ fund below US$ 200,000. They are, however, required to have manufacturing licenses under the Industrial Sub-decree No. 12, 1991, approved by the Council of the Minister. In the Sub-decree, we do not provide for labour forces working in each factory. The 1999 Industrial survey indicates that there were 24,938 manufacturing establishments in Cambodia, of which 24,740 (99 per cent) were small-scale industries. Their contribution to the economy is quite significant. The Ministry’s survey of 24,740 small-scale industries indicates that about 70 per cent are organized as family or sole proprietors. In term of capitalization, 75 per cent registered capital level of US$ 5,000 and less and another 15 per cent had capitalization level between US$ 5,000 and US$ 50,000. The rest had capitalization of among US$ 50,000 and US$ 200,000 each.

163

The result of another survey in 1999, conducted by Small-Scale Industry and Handicraft Office on Small-Scale Industries shows that most of them were in the sectors of food, beverage and tobacco; textile, apparel and leathers; wood and wood products; fabricated metal and others. Among the small-scale industries, 74 per cent of the production was in food processing industries, 13 per cent in fabricated metal and services, 4 per cent in construction materials, 3 per cent in wood processing, 3 per cent in electrical and electronic, 2 per cent in ceramic and craft production, 1 per cent in textiles/garments. About 75-80 per cent of food factories is rice mills. Their locations are in the rural areas. Beside rice mills, there are beverage, backer, sugar, noodle, syrup, candies, fish sauce, soybean, soy sauce factories and others. The handicraft sector has been strongly supported by both government and NGOs on technical improvement and credit, especially in the field of weaving (silk and cotton thread) and sculpture (wood and marble). Most of them run their business as a family business and/or subcontractors with wholesalers/NGOs. The silk products and sculpture have export potential. Because handicraft shops operate in small-scale, the MIME lets them run businesses without licenses. Small-scale industries are considered as one of the major outlets for absorption of unskilled workers, where they will be trained in entrepreneurial and a certain level of managerial and technical skills.

III. CATALYTIC FACTORS FOR SUPPORTING INDUSTRIAL DEVELOPMENT A. Major policies to foster industrial development The most significant changes in industrial policy since 1988 have been the privatization policy and the policy towards the private sector, particularly towards private foreign investment. The process of privatization started in late 1989, when a new system of financial autonomy for state enterprises was initiated, although, because of the need to limit the immediate impact on government budget revenues, this policy was not fully implemented for some time. In 1991, however, a full-scale privatization programme was put in place, such that a large proportion of existing state enterprises had been either sold or (mostly) leased or identified for leasing by April 1992. By September 1995, the process was essentially complete: 16 enterprises had been sold and 51 leased, while 5 other enterprises were non-operational awaiting possible purchase. A central feature of the new industrial development policy, affecting other sectors also, is the Law on Investment, promulgated by the Royal Decree of 5 August 1994. Subsequent to this, the Council for Development of Cambodia (CDC) was established, supported by the Cambodian Investment Board (CIB) and the Cambodian Rehabilitation and Development Board (CRDB). The Law on Investment provides generous tax and other incentives and guarantees, which will be maintained. These include corporate income tax of 9 per cent; corporate tax exemption for periods of up to a maximum of eight years and determined on a project-by-project basis depending on the relation of the project to identified favourable characteristics; losses carried forward up to five years; no withholding tax on dividends; free repatriation of profits; and full import duty exemptions for export industries. In addition, land leases may be granted up to 70 years and guarantees are given against nationalization or the imposition of price controls.

B. Problems encountered in investment decision-making The main constraints faced by the industrial sector are related to the lack of appropriate policies, human resources, raw materials and deficient financial and physical infrastructure. Cambodian industry operates in a region of relatively low cost, efficient producers of manufactured goods and as a consequence, can expect to face strong competition in export markets and its own domestic market, the latter competition increased by its process borders and the extent of unofficial trade across them. Cambodia must adopt industrial policies, therefore, which will encourage industrial establishments to operate successfully within a highly competitive market environment. Policies of protection, even if desirable, would not work.

164

The extreme shortage of skilled workers, technicians, managers and the absence of full productivity in all branches of industry are critical constraints for future industrial development. There is no way which gives access to increase productivity and accelerate the economic development of the nation. The high cost of power is a serious development constraint. Furthermore, much of existing machinery is too old for reconditioning and productivity cannot be increased rapidly. The lack of industrial finance is a serious obstacle to industrial expansion and will soon require priority attention. Only one commercial credit provider exists in Cambodia, which focuses on the provision of short-term credits. There is no source of long-term capital for industrial investments rural credit schemes for the benefit of small-scale enterprises in the various provinces. The physical infrastructure is not able to support Cambodia’s rehabilitation and development. An inadequate transport network, dependence on foreign fuel and insufficient power supplies and water supplies are some of the problems that need to be solved.

C. Economic cooperation with foreign countries Cambodia has broad cooperation in the economic field. It has signed investment protection agreements with various countries, such as Thailand, Malaysia, Singapore, France, Germany, etc. The government is eager to sign such agreement with other countries with potential investors. Cambodia has also got most favoured nation (MFN) and general system of preferences (GSP) from various countries with very important export markets. Through such preferential treatment, the garment industry has developed rapidly in the past five years.

D. The profile of MIME 1. Mission The central mission of MIME is to encourage and support the emergence of a competitive industrial base to create jobs, stimulate investment and narrow the trade gap through production for export. In short, the mission is to contribute to the overall government objective of poverty alleviation through generation of industrial employment and income opportunities for Cambodians.

2. Principal objectives The principal objective of MIME are twofold: to act as a catalyst for industrial development by the private sector through implementation of industrial policies and to regulate industry to safeguard the welfare of the people and their environment in accordance with law.

3. The industrial policy framework Cambodia’s First Socioeconomic Development Strategy, along with that of the MIME 1996-2000 sets out a framework of nine guiding principles for industrial policymaking. Some important components of this framework, together with comment, are as follows:

(a)

The Promotion of export oriented policies:

It is argued that because of the relatively small domestic market, import substitution for industrial development (such as support of infant industries supplying the domestic markets or protectionism) will not work. Experience has shown that the protectionism inherent in an import substitution policy does not nurture the creation of competitive industries. Industries that were grown up behind tariff walls because of import substitution policies do not have a record of accomplishment that fares well in a competitive world. Furthermore, export opportunities afforded by the granting of MFN status and GSP entitlements augur well for the future of

165

export-oriented policies and for rapid industrial growth in Cambodia. The growth of garment industries is just one example of how successful an export-oriented policy can be. The policy is consistent with the export-oriented policies of countries in the region and will facilitate Cambodia’s integration into the regional and global economies.

(b)

The Promotion of labour intensive industries:

With other countries in the ASEAN region experiencing rising industrial wage levels and quotas on their labour intensive exports, pressure is mounting on firms to relocate to countries with lower wages and whose labour intensive exports are not subject to quotas. Cambodia stands to gain from this pressure. Nowhere is this truer than in the garment industry, which is now the fastest growing manufacturing sector in Cambodia. This industry now employs the largest number of workers engaged in the manufacturing. The challenge now is to attract more such labour-intensive industries such as assembly of electronic goods, to create yet more employment opportunities. The history of industrial development has shown that countries often start out with simple assembly operations for export and gradually move to higher technology-oriented operations as the countries physical infrastructure and human capital evolve to higher standards.

(c)

The Promotion of natural resource based industries:

Industries based on natural resources such as forestry, agriculture, fisheries, mineral deposits, nonmetallic mineral, oil and gas offer high potential for developing industries of high added value. Natural resource-based industries are generally located in regions and provinces outside the more built-up areas. They are a good way of stimulating regional development. It is also useful to examine the constraints to industrial development from a broader and more generic perspective. The First Socioeconomic Development Plan, 1996-2000 identified the following constraints:

(d)

◆

Lack of basic educational and vocational skills

◆

The cost of power is too high, absolutely and relatively, in comparison to neighbouring countries

◆

The inadequacy of the transportation and communication networks in Cambodia is a major constraint to industrial development

◆

Cambodian entrepreneurs lack access to information regarding markets

◆

Scarcity of credit from the financial sector for rural and urban small-scale industry is an evident constraint.

Large-scale versus small-scale industry:

In the past, the emphasis in industrial development promotion was clearly on large-scale manufacturing establishments. In the new phase, close consideration will be given to the many area of choice which exist in the matter of scale in different industries, for instance in rice milling, vegetable oil processing, animal feed production, furniture-making and brick and tile manufacture.

(e)

Rural industry:

Related to this, increased weight will be given to the promotion of rural industry and to rural enterprises promotion, as a whole, particularly through technical and business advice, vocational training and increasing the availability of credit, with the assistance of independent agencies.

(f)

Urban informal sector employment promotion:

The counterpart of rural small-scale industry promotion is the development of industrial activities alongside other activities in the urban informal sector. While the rate at which new large-scale manufacturing establishments are being set up in Cambodia is highly encouraging, the number which will be absorbed into such employment, and into other formal sector employment including public services, will not be sufficient to absorb more than a portion of the rapidly-increasing urban population in Phnom Penh and other centres, where there is already

166

significant unemployment. The overwhelming majority of present urban manufacturing establishments are small-scale and labour-intensive and positive measures will, therefore, be taken to encourage the development of the small-scale sector in urban areas.

IV. RECOMMENDATIONS FOR FUTURE ACTION The development of SMEs is an essential ingredient to the government’s economic policies for enhancing the transformation of Cambodia to a market economy through reliance on private sector growth. The ability to obtain funding to finance various investment projects depends on the know-how to prepare and present viable projects to various domestic and international financial institutions. SMEs must learn how to prepare and present technical and business plans and other feasibility studies that are acceptable to domestic and foreign financial institution.

V. CONCLUSIONS In particular, this Regional Consultative Meeting can offer new opportunities for the development of Cambodia’s private sector. This sector is extremely important because the public sector alone does not and cannot provide enough resources for development. In a market economy, large enterprises and SMEs play a critical role in economic development and employment creation. In most countries, and especially in Cambodia, SMEs are a very important for job creation. Therefore the Regional Consultative Meeting to assist SMEs is of critical importance for Cambodia to implement its economic development programme.

167

II. STRENGTHENING TECHNOLOGY INCUBATION SYSTEM FOR CREATING HIGH TECHNOLOGY-BASED ENTERPRISES IN CHINA

169

PREFACE Business incubator as mentioned in this report, is an institution of public service engaged in cultivating and supporting small-sized start-up firms. Most of the present business incubators in China aim at cultivating small and medium-sized hi-tech enterprises, so they are generally called hi-tech incubators. At present, various types of hi-tech incubators, such as Hi-tech Innovation Centre, university-based incubator, and Innovation Park for overseas Chinese, international business incubator and business incubators network, have already been established in China. This report, by analyzing the background, present situation and future trend of China’s economic and S&T development, attempts to identify the roles of business incubator in China’s economic and social development. In the meantime, taking the innovation centres as the object of study, this report makes a preliminary analysis on the functions, features, advantages and results of business incubators in China in an effort to develop a comprehensive understanding of the business incubators of China.

171

I. INTRODUCTION A. Background Business incubator in China started in the late 1980s. In 1985, a programme for restructuring S&T institutions, which was aimed at integrating R&D with economic activity, was approved by the State Council. The implementation of this programme has built the foundation for the subsequent birth of the incubator concept in China. In May 1987, Rustam Lalkaka, Chairman of United Nations Fund for Science and Technology Development (UNFSTD) proposed to Mr Song Jian, State Councilor and Minister-in-charge of State Science and Technology Commission (Now Ministry of Science and Technology, referred as MOST hereinafter), that it was feasible to establish business incubators in China. This proposal received a warm response. The first incubator – Wuhan Donghu Innovation Centre – was then founded in the central area of China in June 1987. With the support of MOST and based on the real conditions of China, local governments began to build hi-tech incubators and named them Hi-Tech Innovation Centre, a name with Chinese characteristics. Torch Programme is a market-oriented programme for accelerating hi-tech development and promoting the commercialization, industrialization and internationalization of hi-tech research results. China’s overall hi-tech development strategy is implemented mainly by means of the Programme. In August 1988, innovation centre was included into Torch Programme. Since then, the development of hi-tech innovation centre has becomes an indispensable job for deepening reform and promoting hi-tech development in China. The implementation of the Torch Programme and the emergence of innovation centres and hi-tech development zones started a new era for the industrialization of hi-tech research results in China.

B. Purposes and functions According to the definition by MOST, Hi-tech Innovation Centre (IC) is an institution of public service, aimed at promoting the transformation of hi-tech research results into marketable products and cultivating hi-tech enterprises and entrepreneurs. IC functions as the hi-tech innovation base in hi-tech development zone, as the core of the hi-tech innovation supporting system, and as a school to cultivate hi-tech enterprises and entrepreneurs as well as being an effective way of combining S&T with economic activity and generating new sources of economic growth.

C. Overall performance Over the last 12 years, IC has achieved breakthroughs in quantity, scale, infrastructure, social networking, variety and quality of services and incubation effect. Specialization, standardization, socialization and internationalization of IC have improved continuously. Up to the present, more than 110 innovation centres of various types have been established all over China. IC has achieved steady progress in serving hi-tech innovation and start-up firms. It has gradually grown into a specialized organization, with improvement in space offering, information networking and venture capital consulting. By providing the incubated enterprises with all-around services, IC has turned out a large quantity of hi-tech entrepreneurs and enterprises with flexible structure, strong innovative capability and grand future. Furthermore, IC creates new taxation sources and regular employment opportunities for the society. In the meantime, a variety of models of incubator have been developed in the process of its specialization, networking and internationalization. Based on general hi-tech incubator, specialized hi-tech incubator, Software Park, international business incubator, Innovation Park for overseas Chinese and university-based incubator have also been established and developed rapidly. IC has made great contributions to the S&T progress and the development of local economy. It has become the base for the transformation of hi-tech research results, the incubator for hi-tech enterprises, the school for modern entrepreneurs, the core of the innovation service system in hi-tech development zone and the main component of the supporting system for hi-tech industries. IC is and will be playing more and more important role in hi-tech industrialization and local economic development.

172

Table 1. Main index of hi-tech innovation centres, 1989-1999 Year

Number of IC

Incubation space (10,000 sq m)

Number of the incubated

Employment Gross in the revenue of incubated the incubated (billion yuan)

1989

10

---

---

---

---

---

---

---

1990

15

---

---

---

---

---

---

---

---

1991

43

6.2

500

---

---

1992

61

18.5

1 013

---

---

Number of graduates

45

Gross Incubation revenue of fund graduates (billion yuan) (billion yuan)

---

---

---

---

1993

61

16.3

1 500

---

1.08

---

---

---

1994

73

27.6

1 390

---

1.48

190

---

---

1995

73

40.2

1 854

---

2.40

364

---

---

1996

80

56.6

2 476

37 810

3.66

648

2.49

1.0

1997

90

77.5

2 670

45 600

4.08

825

41.60

1.3

1998

100

88.4

4 138

68 975

6.07

1 316

99.70

2.4

1999

110

188.8

5 293

91 600

9.58

1 934

122.00

5.0

II. MAIN FEATURES OF BUSINESS INCUBATOR IN CHINA A. Models of business incubator Business incubator in China aims at developing hi-tech industries, most of which are called Hi-tech Innovation Centre (IC), namely technology-based incubator. IC includes general hi-tech incubator, specialized hi-tech incubator, international business incubator, Innovation Park for overseas Chinese and business Incubators network.

1. General hi-tech incubator General hi-tech incubator takes hi-tech industrialization as its mission. According to Torch Programme, new materials, environmental technologies, electromechanical technologies, information technologies, biotechnology and aerospace are included in the list of its priorities. The incubators of this type provide facilities and space for general use and other general services to the start-ups. Most of the start-ups come from universities, research institutes and state-owned enterprises, etc. These incubators involve a variety of technology fields without a focus on one particular field. They represent the first generation of incubators in China.

2. Specialized hi-tech incubators Specialized hi-tech incubator intends to, in some specific field, specialize the incubated firms, facilities, services and management team, and is aimed at incubating enterprises with technological advantages in this specific field. At present, many specialized hi-tech incubators in various fields have been built in China, including software incubator, biomedicine incubator, integrated circuit designing incubator, new materials incubator, agriculture hi-tech incubator and ocean hi-tech incubator. Specialized hi-tech incubators have developed at a faster pace in recent years and account for 10 per cent of the total number of incubators in China.

3. Innovation park for overseas Chinese Innovation Park for overseas Chinese is an institution for supporting overseas Chinese students or experts to set up hi-tech firms in China. With the growing attention paid by the government to attracting overseas talents back home, it has experienced rapid growth in recent years. Over the past 20 years, more than 300,000 Chinese students went abroad to pursue further studies and nearly one-third returned. They are the precious resources for hi-tech development in China. Up to now, 28 innovation parks for overseas Chinese have been established in Suzhou, Beijing, Shanghai and Tianjin and welcome nearly 1,000 overseas Chinese to start their innovative career there.

173

4. International business incubator International business incubator is an innovation incubator that is global-market-oriented, aimed at creating an optimized environment for international cooperation. At present, MOST, with the support of UNDP, started eight pilot projects of international business incubator respectively in Beijing, Xi’en, Suzhou, Shanghai, Wuhan, Tianjin, Chengdu and Chongqing. These incubators are equipped with space and facilities of world standard and have qualified management teams. They have developed cooperative relationships with business incubators or science parks of the United States of America, United Kingdom of Great Britain and Northern Ireland, Finland, Italy, Canada and many other countries.

5. University-based incubator Relying on the intellectual resources, information resources and research facilities of universities and taking advantages of the preferential policies and favourable environment in science parks, university-based incubator intends to promote the commercialization and industrialization of hi-tech research results in universities and to incubate start-ups. Up to the present, 8 university-based incubators, including Tsinghua University Technology Park, Shanghai Jiaotong University Huigu Incubator, Beijing Space and Aeronautical Engineering University New Materials Incubator have been established to support young students and faculties to set up hi-tech start-ups.

6. Business incubators network Business incubators network is a coordinating organization that facilitates effective communication and cooperation among innovation centres located in the same cities or regions and, thus, helps to build an integrated innovation supporting system. There are 8 business incubators networks of scale, including Beijing Business Incubators Network, Tianjin Business Incubators Network, Shanghai Business Incubators Network, Jiangsu Innovation Centres Network, China International Business Incubators Network, Network for Innovation Centres in Five Provinces of North China, China Western Innovation Centres Network and Overseas Chinese Innovation Parks Network. Association of China Hi-Tech Development Zones has also set up Professional Committee for Innovation Centres. With growing influence of business incubators on China’s economy, non-technology business incubators have also been emerging. On the basis of the experience of MOST, Ministry of Economy and Foreign Trade is making great efforts to initiate service centres for small-sized firms so as to support small-sized start-ups and reduce employment pressure.

B. Operational system 1. Investors or sponsors Incubator sponsorship in China is undergoing an evolution, from exclusive sponsorship by the MOST’s Torch Programme to a more pluralistic pattern. Up to now, most of business incubators in China had investment from government agencies, such as local-level S&T Commissions and hi-tech development zones. These incubators account for 90 per cent of the total number of incubators in China. Governments assume all of the initial expenses and cover all or part of the operational cost. Only 5 per cent are invested in by universities and others by enterprises. With the development of venture capital in China, enterprises will become the main investors in the emerging incubators.

2. Profit or non-profit Due to the limitations on the missions and functions of business incubators, most of the incubators, about 95 per cent, are institutions of public service. With public service, not profit, as their purpose, they charge only a small fee to the incubated enterprises, just for covering their operational costs. The items chargeable focus on space offering and facilities and the fee is 10 per cent-30 per cent lower than the market price to accord with the

174

principle of Service First. Besides, some incubators adopt more favourable policies in order to attract more start-ups. They would charge nothing for the first year, 30 per cent for the second year, 70 per cent for the third year and full rent the fourth. The other 5 per cent business incubators are profit-driven and enjoy return that comes from their investment in the firms inside incubators.

3. Nature of organization Most of the government-sponsored business incubators are public institutions, similar to nonprofit organizations in the world. They enjoy preferential policies of income tax (income tax for enterprises is about 33 per cent). Other few incubators bear the nature of enterprise and pay income tax by the tax rate for hi-tech enterprises tax-free for the first two years, 7.5 per cent for the third year and 15 per cent later on.

4. Promotion by Government China Torch High Technology Development Centre, led by MOST, is responsible for organizing, developing, financing and supervising hi-tech innovation centres nationwide. S&T Commissions at local levels, under the guidance of MOST, are responsible for organizing, developing, financing and supervising local hi-tech innovation centres and have already established incubators under their jurisdiction. 53 state-level hi-tech development zones are assigned to implement this strategy, most of which have already set up innovation centres in their zones. In addition, Professional Committee for Innovation Centres at Association of China Hi-Tech Development Zones is a coordinating organization for IC and plays an active role in training, sharing experience/information and developing relationships with counterparts at home and abroad. Local and specialized incubators networks also play an active role in these aspects. MOST adopted standard qualifications for state-level IC. An innovation centre, which is qualified, will be identified as state-level IC. The qualifications are as the follows: ◆

Support from local government, with financial input of more than 5 million yuan

◆

Hi-tech related preferential policies for IC and for the incubated enterprise

◆

Clear vision for development and a quality management team at least 70 per cent of managers with background of higher education

◆

Floor area of more than 80 million sq m, at least 2/3 available to the incubated firms

◆

Complete facilities and integrated services involving business operation, financing, information, consulting, marketing, training, R&D, PR and international cooperation

◆

More than 80 incubated firms, of which 60 per cent is located in the incubation area

◆

In aggregate, there are more than 25 graduates. Annually, at least 5 per cent of the incubated, and 1,000 or more new job opportunities created by the graduates and the incubated

◆

Operation of more than 3 years and good performance.

Up to now, there are 38 hi-tech innovation centres which have been identified by MOST as qualified state-level IC.

C. Management The structure of organization and management of incubators varies due to different local conditions, but they have the same basic departments such as Business Development Department, Finance and Investment Department, PR and Training Department, Real Estate Management Department and Administrative Office, etc. The typical structure is as follows:

175

Table 2. Typical organizational structure Director

Business Development

Finance and Investment

Real Estate Management

PR and Training

Administrative Office

The Incubated Employment is based on recruitment, 18 employees per incubator.

D. Conditions for incubation 1. Facilities Most of innovation centres are located in modern-style buildings specifically designed for IC. These buildings have wide space for R&D, state-of art conference rooms, telephone, fax, post office, photocopying, water, electricity, gas and air-conditioning, etc. Many of them also offer Internet access, public lab, cafeteria and retail shopping. For the 110 incubators covered by official statistics, the total area available for incubation in 1999 was 1.89 million sq m, an average of 17,000 sq m per centre, large-scale by world standard.

2. Services Service menu for start-ups’ incubation: ◆

Assistance with registration and annual auditing and in setting up branches and joint ventures

◆

Assistance with taxation registration and application for tax-reductions or tax-exemptions

◆

Floor area and conference room

◆

Typing and copying

◆

Traffic and telecommunication facilities

◆

Security

◆

PR and promotion

◆

Telephone, fax and Internet access

◆

CI designing

◆

Assistance in developing regulations and marketing strategies

◆

Other public services

Menu for entrepreneurs: ◆

Assistance in developing management systems

◆

Assistance with recruitment

◆

Training in technical skills

◆

Training in marketing and sales, finance and taxation

◆

Training in management, law and intellectual property protection

◆

Consulting in labour, employment and insurance

◆

Organizing visit tours and business trips in China and abroad

Menu for project promotion: ◆

Assistance with project evaluation business planning technology appraisal, application for government projects and assessment on research results

176

◆

Consulting in patent application, trademark registration and intangible asset evaluation

◆

Guarantee for loan and credit and financing

◆

Consulting in economic contract of technology

◆

Product Exhibitions and advertisement

◆

Other services required

3. Services for investment and financing (1)

Development of business plan

(2)

Seed Fund (Incubation Fund)

(3)

Venture capital

(4)

Bank loan for small and medium-sized firms

(5)

Innovation fund for small and medium-sized firms

(6)

Specific fund from government for small firms and hi-tech innovation

E. The incubated and graduates 1. The incubated The requirements for the incubated are as below: ◆

A start-up company within 2 years of operation, or a company whose gross revenue is less than 0.5 million yuan;

◆

Engaged in hi-tech R&D and production;

◆

Strong R&D capability, basically on its own, advanced technologies and research results with great potential in the marketplace;

◆

Persons in charge must be scientific researchers with management capability;

◆

Clear ownership, self-management solely responsible for its profit or loss, and effective operational system.

At the same time, the incubated firms are required to conduct production instead of just doing trade business. In order to get license to enter the incubator, the incubated firms are required to go through the following evaluation process: ◆

Economic evaluation

◆

Technology evaluation

◆

Market evaluation

◆

Corporate evaluation

◆

Qualification check up

In 1999, 1,711 new firms entered the 110 innovation centres, averaged 16 new for one centre, about 32 per cent among all the 4,138 incubated firms.

2. Graduates The incubatee will be qualified for graduation when: ◆

It is identified as hi-tech enterprises by S&T commissions at levels of province, autonomous region and municipal.

◆

It has more than two years of successful operation and the main product has achieved a critical scale and market share.

177

◆

It has generated annual gross revenue of more than two million yuan, of which 500,000 yuan or above is attributed to fixed assets and self-owned fund.

◆

The managers are equipped with strong management and marketing capabilities.

According to the statistics, there were total of 1934 graduates in 1999, with 70,000 staff members and annual gross revenue of 12.2 billion yuan. Among the graduates, there were more than 30 firms whose annual gross revenue exceeded 100 million yuan. The firms, with poor performance, not qualified for graduation will also leave IC some day, not as a graduate. These firms account for 20 per cent of the graduates.

III. FINANCIAL SITUATION A. Construction fund At the initial stage of IC history, the construction fund came from Torch Programme and local financial support, with the latter as the main source. Local financial support mainly came from local government budget, budget from S&T Commissions at local levels and hi-tech development zones. Some of the funds are the loans from financial institutions such as banks. These funds were mainly used for the construction of housing, facilities, salaries and office expenses while part of them were used to assist the incubated firms with project development and production. Table 3. Percentage of investment Investors

Percentage

Allocated funds by central or provincial government

42.2

Bank loan

39.3

Others (including accumulated reinvestment)

15.3

Total

100

Table 4. Expenditure Expenditure

Percentage

Construction

67.7

Project incubation

26.8

Office expenses

5.5

Total

100

From 1998 to the end of 1999, the accumulated direct investment by Torch Programme reached 43 million yuan, driving local investment of nearly 1 billion yuan in the construction and development of innovation centres. According to the MOST’s statistics on the 110 hi-tech innovation centres nationwide, the net fixed assets at the end of 1999 reached 950 million yuan.

B. Financial Situations Most of innovation centres in China adopt a system of “self-sufficient institutions”, that is to say, the sponsors of incubators, after providing necessary buildings and facilities, will provide financial support on annual basis or only for two or three years. Incubators have to charge service fees as the financial sources, in order to support their own operation. According to the statistics in 1999, average area for the 110 innovation centres is 17,000 sq m per centre, larger than the break-even scale (normally 6,000-7,000 sq m). Annual revenue based on rent, reached 220 million yuan, averaged 2 million yuan per centre. They have achieved the goal of self-sufficiency.

178

C. Incubation fund (seed fund) With an exploring experience of more than 10 years in business incubation, IC came to know the importance of seed fund for start-ups, especially the small or medium-sized ones. According to the statistics in 1998, there were 34 innovation centres that had founded incubation funds, with a total amount of 237.32 million yuan, averaged 7 million yuan. By means of incubation funds and guarantor companies, etc., these innovation centres provide various types of financing services such as investment, low interest loan and guarantee for the incubated. In recent years, professional teams for managing innovation investment have been growing, especially in Wuhan, Chengdu, Shanghai, Shanxi and Xi’en innovation centres. Innovation centres in Wuhan, Suzhou and Ha’erbing, Tsinghua Pioneer Park and Peking University Science and Technology Park, jointly founded GuoChuang Hi-tech Investment Company Ltd. and are preparing for China Torch High Tech Investment Fund.

IV. FUNCTIONS AND EFFECTS In the view of Chinese government, IC has very important strategic influence on the economy of China in the aspects as the follows: (1)

Enterprises with innovative capability and marketing potential are the main strength in market economy. Most of the firms that have graduated from incubators are market-oriented and creative, with flexible structure, clear ownership, and standardized operation and information disclosure. The goal of IC is to incubate and produce these firms.

(2)

Small and medium-sized enterprises play an unreplaceable role in the development of the national economy. Effective innovation services directly contribute to the following goals: developing small and medium-sized enterprises, increasing employment opportunities, promoting S&T progress, generating new sources of economic growth and improving competitiveness.

(3)

Innovation services are one of the important jobs for improving innovation system at all levels. Many tasks, such as industrializing hi-tech research results, developing hi-tech zones, improving local innovation system, attracting talents, developing local economy and assisting with the further reform of research institutes and universities, are deeply influenced by IC.

A. Incubating start-ups In 1999, there were 5,293 incubated firms in the 110 innovation centres, among which about 1,711 were newcomers.

B. Creating job opportunities Up to now, a total of 1,711 incubated new firms have 91,600 employees. The 1,934 graduates had a total of 73,752 employees (at the time of graduation). The total number of new jobs directly created exceeded 160,000. According to international practice that direct job creation times 2 will result in indirect job creation, the indirect job creation in 1999 reached 320,000, and the total number of job creation in these incubators was nearly half million.

C. Commercializing hi-tech research results The primary objective of IC is to transform hi-tech research results into marketable products and commodities. Because of the favourable environment in innovation centres, more than 80 per cent of the research results have been commercialized.

179

180

84

Tianjin Science & Technology Innovation Centre

73

Nanjing Science & Technology Innovation Centre

Xi’en Hi-tech Incubation Centre 196

97

Kunming Hi-tech Innovation Centre

884

70

1 250

83 115

Guangzhou Hi-tech Innovation Centre

Guilin Science & Technology Innovation Centre 217

1 666

44

Wuhan Donghu Hi-tech Innovation Centre

Chengdu Hi-tech Innovation Centre

856

51

Chongqing Hi-tech Innovation Centre

2 050

62

Jinan Hi-tech Innovation Centre

Weihai Hi-tech Innovation Centre

1 756

2 502

3 115

890

2 220

438

1 605

2 585

1 890

151

Jiangxi Ganchang Hi-tech Innovation Centre

115

Suzhou Hi-tech Innovation Centre

72

Daqing Hi-tech Innovation Centre 126

91

Ha Erbin Hi-tech Innovation Centre

1 200

85

Shenyang Hi-tech Innovation Centre

Changchun Science & Technology Innovation Centre 2 140

2 560

1 035

965

Number of employee

121

Shi Jiazhuang Hi-tech Innovation Centre

81

Number of the incubated

Beijing Hi-tech Innovation Centre

Name

230 960

93 400

201 500

198 110

68 500

148 180

39 468

59 780

105 000

302 000

26 505

280 000

12 540

90 000

237 180

97 000

120 000

100 565

145 213

Total avenue

5 983

8 620

7 200

37 100

17 125

7 409

2 656

1 932

5 090

7 800

1 232

5 450

-4 100

16 380

22 300

19 400

13 000

2 225

2 474

Net profit

3 148

4 290

18 900

15 900

2 100

5 927

934

648

2 100

5 033

942

9 490

8 979

4 160

5 020

11 600

2 400

3 571

6 288

Tax

A brief introduction to innovation centres with operation experience of 5-years (Thousand Yuan/number of persons)

50

34

81

45

47

36

34

31

26

41

61

36

41

34

35

43

40

37

45

Number of accumulated graduates

1 465

789

2 280

2 171

800

1 623

2 015

520

740

1 400

751

1 055

1 044

2 058

896

540

2 800

949

2 390

Number of employees

806 000

71 500

2 500 000

408 900

9 000

630 000

600 000

24 600

78 000

27 400

25 597

140 000

391 304

188 670

72 900

45 330

255 000

110 878

289 000

Total avenue

Case study (by the end of 1996) Wuhan Innovation Centre

Name Total investment (10,000 yuan) Number of invested firms Rate of successful investment (by number)

700

2 000

19

13

14

63 per cent

92 per cent

85.70 per cent

4

5

4 3 400

Cash dividend (10,000 yuan)

67.94

535

Total net asset (10,000 yuan)

2 366.6101

3 167

Total income (10,000 yuan) Return on investment (ROI) Average annual ROI Note

Shanghai Technology Innovation Centre

1 125

Average period of investment Income

Chengdu Innovation Centre

1 463.6101

3 002

124.80 per cent

428.80 per cent

70 per cent

31.26 per cent

85.76 per cent

18 per cent

One public company

Three public companies

Invested firms were acquired by a public company

D. Promoting local economic development IC provides hi-tech development zones with high-quality graduates. In 1999, the gross revenue of the incubated enterprises reached 9.58 billion yuan, 12.2 billion yuan for the graduates, and the total revenue was 21.78 billion yuan. By now, there are more than 30 graduates whose annual revenue exceeds 100 million. Among these graduates, Dikong Pharmaceutical from Chengdu innovation centre, Kaidi from Wuhan innovation centre and Yunda 120 from Kunming innovation centre became the first public companies. IC and its graduates actively promote the construction and development of hi-tech development zones. It has grown into the main strength of technology innovation and the flag of hi-tech development zones.

E. Creating favourable environment for start-ups During the period of planning economy, the government takes the responsibilities of planning economic activities, such as what kind of business should be conducted, which products or services should be provided to the consumers, etc. Private enterprise was not mentioned at all, let alone entrepreneurship. IC was founded along with economic reform. It encourages technological talents in universities and research institutes to set up firms in IC and transform their research results into marketable products. Enthusiasm for innovation has pushed many young university students to be engaged in innovative activities. Some students start up firms right after graduation or during the period of study in school. University students have become a new source of innovation and start-ups. It will turn the idea of I Choose into I Start Up.

F. Attracting overseas Chinese to return home At present, innovation centres for oversea Chinese in Beijing, Shanghai, Suzhou, Xi’en Tanjing, Chengdu and Wuxi are moving forward. In Beijing Haidan Innovation Centre for Overseas Chinese, 48 incubation units are occupied. There are more than 40 start-ups respectively in the overseas Chinese innovation centres in Suzhou and Shanghai. According to the statistics on the 23 out of 28 overseas Chinese innovation centre, there is a large incubation area of above 364,000 sq m, with 504 incubated firms and more than 1,000 overseas Chinese, of whom 90 per cent have a Ph.D. or a masters degree.

G. Positive international influence With the development of business incubator in China, relationship and cooperation with foreign counterparts have been developed. Cooperative relationships, including training, staff exchanging and partnership, etc., have been developed with incubators and science parks in the United States of America, United Kingdom of Great

181

Britain and Northern Ireland, Italy, Canada, Finland and other countries. The International Business Incubator Management Training Programme was designed for incubator managers from developing countries. Two sessions of the programme have been conducted for 29 participants from these countries. All efforts have built up high reputation in the world.

V. ADVANTAGES AND PROBLEMS A. Advantage analysis China’s High-tech Innovation Centre is the result of restructuring S&T system. From the beginning, it has been supported by the government through the Torch Programme. It is a new kind of service institution for hi-tech enterprises. At present, more than 90 per cent of innovation centres have been established with the support of governments and supervised by MOST. MOST asks local-level S&T Commissions and high-tech development zones to set up and promote hi-tech innovation centres in their jurisdiction. A special fund has been set up by MOST for this and many efforts been made, including regular working conference nationwide, training courses, visits and seminars, favourable policies and financial support, etc. S&T Commissions at local levels have done the same jobs as done by MOST. After all the efforts, China’s innovation centres have developed at a good pace. Local governments greatly support IC in the aspects of financial resources and space offering, etc. Local leaders are very concerned with the development of IC. Moreover, central government leaders also pay high attention to it. Most of the standing members of the Political Bureau of the Central Committee, including Premier Zhu Rongji and Vice President Li Lanqing, have visited the incubator centres and warmly praised their achievements. This greatly encourages the development of IC in China. From 1988 to the end of 1999, the direct input by the Torch Programme accumulated 43 million yuan, driving local investment of nearly 1 billion yuan in the construction and development of IC. The investment is and will be increasing along with the continuous development of IC. With the support of preferential policies, the quantity and scale of China’s innovation centres have taken a good jump. The policies include: (a) Construction fund for IC can be raised from R&D fund of MOST; (b) The coordination of tax for investment in capital construction is zero; (c) According to the regulations by MOST, the taxes paid by IC should be returned by local governments to IC for the improvement of incubation conditions and services; (d) Local-retained taxes paid by the incubated enterprises should be returned to IC for the same purposes as above. At present, the policies mentioned above are implemented in most of provinces and cities. Local governments, including Shanghai, Guangzhou and Beijing, have worked out the relevant policies and achieved good results. In April 1999, the State Council approved and issued Regulations on Promoting the Transformation of S&T Research Results, saying that local governments should support the construction and development of hi-tech innovation centres by means of financial support and preferential policies. In January 2000, the Ministry of Education submitted proposals on the implementation of Decisions on Strengthening Technology Innovation, Developing Hi-tech R&D and Realizing Its Industrialization issued by the Central Committee and the State Council. The Ministry of Education stated that it would make more efforts to promote the construction of university science park and to cooperate with MOST for creating a favourable environment for the further development of university science park and innovation park for overseas Chinese. The Ministry also encourages teachers, S&T researchers and students in universities and research institutes and overseas Chinese to set up start-ups in the parks. Innovation Fund (Innofund) for Small and Medium-sized Hi-tech Enterprises was founded in November 1999. It is a special government fund approved by the State Council, which is aimed at supporting hi-tech innovative activities of small and medium-sized firms, facilitating the transformation of research results, increasing tax income and creating more job opportunities. By means of financial aid, loan discount and capital investment, Innofund is oriented to small and medium-sized firms of all kinds of ownership, which are registered in China and engaged in hi-tech R&D, production and service. Generally, the volume of financial aid and loan discount is below 1 million yuan, no more than 2 million yuan even for a key project. The volume of capital investment is

182

generally below 20 per cent of the registered capital and required to be called back within a time limit. The volume of the Innofund is 1 billion yuan annually. Innofund started operation since the latter half of 1999 and granted nearly 400 million yuan, more than 10 per cent of which is for incubating start-ups in incubators.

B. Problems The main problems facing IC in China include:

1. Environment for innovation needs further improvement During the transition period from traditional planning economy to market economy, organizations that could support and facilitate the development of small and medium-sized firms are urgently needed, and so is a corresponding service system. Although many far-sighted persons are aware of the important roles of small and medium-sized firms in social development, and government leaders have paid high attention to technology-based small and medium-sized enterprises, the overall policy environment for their development still needs to be improved. The venture capital market for supporting hi-tech innovation has not yet been shaped up completely and it is still impossible to extend the local optimized environment created by IC. All these problems need to be solved as quickly as possible.

2. The operational structure needs reform At present, most of the innovation centres are established by the government. Some of the local governments regard IC as a government agency, endowing it with powers and authorities as well as responsibilities. Some of the innovation centres have not escaped from the model of government agencies. These operate without any attention to the performance results. Professional service level is also waiting be improved.

3. The quality of management team needs improvement Due to historical causes, China is short of top-quality professional and experienced managers and consultants. It is another urgency for the development of IC.

C. The future trend of the development of IC in China 1. The development of incubators of various models General technology-based incubator: In the past, general technology-based incubator was the main model of IC in China. At present, along with the emergence of incubator of different models, the percentage of general incubator has slightly decreased. However, with its advantage of general applicability, it will continue to increase in its number and play a leading role in the development of IC in China.

Specialized technology incubator: With the specialized incubation conditions, services and management teams, and by taking full advantage of the specialized resources and technologies, specialized technology incubator has advantages in market expansion and scale development, which will greatly attribute to its rapid development. The increasing number of specialized technology incubator shows its potential for continuous growth.

International business incubator: MOST appoints some of the well-established incubators as pilot international incubators. With the development of China’s market economy, especially its future entrance into WTO, China’s economy will be more and more global-oriented. So the number of international business incubator will be increasing.

183

Overseas Chinese innovation park: Promoted by MOST, Ministry of Education, Ministry of Personnel and other related departments, overseas Chinese innovation park will play an active role in attracting 300,000 overseas Chinese with hi-tech research results or expertise to come back and set up businesses. The participation of overseas Chinese will make considerable contributions to economic development and quality improvement of labour forces.

University-based incubator and university Science Park: As the source of new knowledge and technology, university will take full advantage of itself by way of combining itself with economic activity. Moreover, the positive attitude of local governments toward university-based incubators and university Science Park will also accelerate their development. The increasing number of younger students engaged in start-up activity results in large demand for university-based incubator and university Science Park. At present, MOST and Ministry of Education is making great efforts to promote its development so as for more university students can be incubated as start-ups in the parks. University-based incubator and university Science Park will produce more and more prominent young entrepreneurs.

Non-technology incubator: Non-technology incubator is aimed at stimulating local economy, creating job opportunities and encouraging certain people to start up a business. It will be developed in China as an efficient economic entity. It is expected that non-technology incubators will also be developing rapidly in China.

2. Multiple Investors for incubator Today, the positive role of the incubator has been recognized by the society. Most of China’s incubators are set up by S&T authoritative agencies or high-tech development zones. Government agencies in other sectors also initiate the incubator and encourage its development, regarding it as an effective way to a specific goal, e.g. State Economic and Trade Commission for the purpose of stimulating the development of small and medium-sized firms, labour departments for creating job opportunities, local governments for the booming local economy, educational departments for accelerating the transformation of research results of universities, personnel department for attracting oversea Chinese to go back home, etc. At present, the National Women’s Federation is setting up incubators for unemployed women workers in Tianjin. With the growing interest of enterprises in incubators, some of the incubators in Beijing have investments by enterprises. Besides, along with the emerging of venture capital and the speeding up of the internationalization of incubators, incubators invested by enterprises and those of joint venture have started operation.

3. The market-oriented development of incubators In the process of the development of socialist market economy with Chinese characteristics, the tertiary industry has gained ground. Technology-related intermediary institutions, such as S&T consulting services and market for technology transfer, have been developed. As a key component of the S&T service system, incubator will inevitably, following the law of market economy, turn to be market-oriented. Incubators at the stage of market-oriented development take on the following features: (a) services specialized; (b) development standardized; (c) services chargeable; (d) running as an enterprise. With diminishing intervention of local governments, incubators will assume more social responsibilities. They will be self-sufficient and some of them will achieve good performance results.

4. The industrialized development of incubators Technology-based business incubator, as a part of service system for S&T socialization, is a professional service institution for providing services to small and medium-sized hi-tech start-ups. The rapid development of incubators in China has gained recognition from the society, and China’s economic development has raised demand for more quality incubators. In contrast to the initial stage of incubator history when incubators were set up by the government, more and more incubators will be set up by entrepreneurs or enterprises and the new trend

184

for incubator is to be industrialized. The industrialized incubators will be widely open to society and will develop into a social network. With the growing demand for incubators, incubators will be more active and effective. Highly industrialized incubators will achieve complete socialization and networking. The development of China’s socialist market economy and socialized services will make it possible for incubators to be further industrialized and market-oriented.

VI. CONCLUSIONS Business incubators of China have experienced development of 12 years and have great potential for growth. The remarkable contributions made by business incubator have attracted wide attention from the society. The process of commercialization, industrialization and internationalization of hi-tech research results is speeding up. A bridge between scientific research and economic activity has been built up. Entrepreneurship is encouraged in China. Under the guidance of Torch Programme, hi-tech business incubators have been growing rapidly and accelerating the transformation of hi-tech research results into marketable products. With the commercialization, industrialization and internationalization of hi-tech research results as their goals, incubators will be playing a more important role in the economic development of China. Moreover, hi-tech business incubator will stimulate further development of incubators in other fields. If incubator supported by the government are regarded as the first stages of development, commercialization and industrialization of incubator itself, as required by socialist market economy, will be the trend in the future. The time for China to enter the WTO is approaching. China will open to the world its wide market with a large population of more than 1.2 billion, and the world market will be opened to China. Business incubators in China will take the challenge and be ready to create a very bright future. Business incubators in China are willing to, together with the counterparts in other countries, contribute more to the development of business incubator itself, small and medium-sized enterprises and the regional economy.

185

III. STRENGTHENING TECHNOLOGY INCUBATION SYSTEM FOR CREATING HIGH TECHNOLOGY-BASED ENTERPRISES IN INDIA

187

I. INTRODUCTION The scientific and technical dynamism of a country is determined by the time lag between a major discovery/invention and its translation to an innovation. Technological innovation is generally a dynamic and complex process involving a wide range of activities. Broadly, it includes the basic research, focused design and targeted development. Software development, costing and marketing are also inevitable components of successful innovations. The process of technical change, to a significant extent, is based on the cumulative and incremental effect of small innovations. New technologies are selected through a complex of interaction between economic factors, industry demands and the effect of government policies. The important areas in the successful innovation process include: understanding and meeting the need of the user, effective internal coupling between R&D and market needs, effective linkage with external sources S&T expertise, committed entrepreneurs, efficient after sales service and training of the user. The most radical form of innovation, the creation of new products using new technologies, often requires new organizational structure. The Technology Business Incubators and similar initiatives are the latest in the evolutionary line to provide advisory, training and information services, management and marketing support, linkages to research faculty and facilities, access to capital, thereby greatly enhancing the chances of success of the early stage technopreneur (Lalkaka, 1996). It is a cost-effective instrument for technology transfer and the development of knowledge-based an high-tech enterprises. The Government of India has set up a National Science and Technology Entrepreneurship Development Board (NSTEDB), under the Ministry of Science and Technology (MOST) to promote technical entrepreneurship in the country. The major objectives of NSTEDB are: ◆

To promote and develop entrepreneurship among S&T persons

◆

To facilitate and conduct various informational services relating to the entrepreneurship development

◆

To network various government agencies and non-governmental agencies in entrepreneurship and self employment development, and

◆

To act as a policy advisory body to government in regarding entrepreneurship development

The Board has designed a series of programmes and activities ranging from the creation of awareness, training, creation of institutional mechanisms for innovation based entrepreneurship, opportunity identification, information systems, and other areas relevant for the development of technical entrepreneurship. One of the mechanisms identified by the Board in encouraging technical entrepreneurship and creation of technology-based enterprises is the Science and Technology Entrepreneurs Park (STEP).

II. TECHNOLOGY INCUBATORS FOR CREATING HIGH TECHNOLOGY-BASED ENTERPRISES A. The Concept of Step The STEP programme was initiated with the following major objectives: ◆

To forge a close linkage between university/academic institutions on the one hand and industry on the other

◆

To promote entrepreneurship among S&T persons

◆

To provide R&D support and other facilities to small scale industries.

STEP provides a re-orientation approach to innovation and entrepreneurship involving education, research, finance, management and government. It creates the necessary climate for innovation; for sharing of ideas, experience and facilities and opens up avenues for students, teachers, researchers and industrial managers to grow in a common transdisciplinary culture, each understanding and depending on others inputs for starting a successful economic venture.

189

The task, therefore, is to create an “employer culture” where increasingly S&T people will seek to create their own employment. It also involves changing the existing attitude of seeking wage employment to look for a career in small business. To create an impact on this situation requires changes in the educational curriculum, in the way in which occupational choice is developed, in the way in which career advice is given and ultimately the role of small scale sector in the wealth generation. The STEP has a primary mission of ushering in a technocrat industrial society through HRD inputs enhancing the managerial and technical capabilities in particular and providing infrastructure and expertise support for enhancing productivity, quality, finance, R&D, personnel management capabilities etc. during the establishment, sustenance, and growth of the incubating enterprise in general. However, the STEP should reach a financial self-sufficiency with out loosing focus on the development, which has an impact on the economic activity in the region. The STEP model, therefore, has been designed in striking a balance between development and self-sustenance. The areas of activities such as entrepreneurship training, product development, database, information, servicing, consultancy, quality assurance, business felicitation, continuing education and skill development training etc. are grouped under three categories as follows: Promotional, cost and profit activities. The deficit arriving out of the promotional and cost activities will have to be augmented through the profit activities in due course of time. Promotional and cost activities are aimed at aspiring entrepreneurs and start-up companies covering entrepreneurship development, business facilitation, skill development, etc.

B. Selection of STEP locations The criteria for selection of STEP locations are based on the following: ◆

The presence of a strong S&T orientation and a nucleus of R&D activity in the host institution

◆

The development of a comprehensive well thought out plan

◆

Compatibility among the industrial operations included in the STEP

◆

Compatibility between STEP and the host institution activities

◆

Shared central services

◆

Easy access to host institution facilities

◆

The existing relationship between the academic institution and industry.

C. Present status of STEPs The NSTEDB, jointly with the all India Financial Institutions (Industrial Development Bank of India, Industrial Finance corporation of India, Industrial Credit and Investment Corporation of India) have so far established 15 STEPs in different parts of the country. Each STEP has been established as an autonomous registered society having an independent legal status, which is external to the administrative structure of the host institution. Each STEP also follows its own particular model depending on the local environment and needs. Thrust areas in technology development and commercialization have also been identified, based on the strength of the host institution and the industrial milieu existing in the vicinity. The number of start-up units, technologies developed and employment generated by the STEPs are given below: (As on March 1999)*

190

SL No.

Step location

Number of units

Technologies developed

Employment

1

Mysore

95

17

800

2

Trichy

106

26

1 100

3

Kharagpur

31

59

313

4

Ranchi

60

60

695

5

Pune

25

60

160

6

Roorkee

14

40

150

7

Ludhiana

95

53

680

8

Kanpur

31

10

200

9

Mumbai

45

0

200

10

Bhopal

46

8

148

11

Suratkal

50

4

450

12

Coimbatore

6

3

18

13

Patiala

1

0

5

* 2 STEPs are new

The facilities available in the STEP for use by the entrepreneurs and the services offered are as follows: Facilities available

Services offered

Incubation space Testing and calibration Central workshop Prototype development Computing Data bank Library & documentation Seminar hall/conference room Common facilities such as telephone, fax, telex, e-mail, reprography, etc. Pollution control laboratory Pilot plant facility Quality assurance centre

Testing and calibration Consultancy Research Training Software Product development Process development Human resources Technical support Business facilitation Common utility Bureau of Indian Standards Ext. Escorting to ISO Patent facility centre

D. Profiles of STEP enterpreneurs The programme was initiated to promote entrepreneurship among the S&T persons so that a new breed of technology oriented and quality conscious entrepreneurs could be developed. Therefore, it is expected that a large number of the entrepreneurs come from the S&T background. An analysis of the STEP entrepreneurs’ educational qualification indicates that majority of them has a degree in engineering (47 per cent), followed by graduates in science (21 per cent), diploma holders in engineering (21 per cent) and others (11 per cent). The industry wise distribution shows that a majority entered into engineering related business (42 per cent), followed by electronics and IT (18 per cent), chemicals & pharmaceuticals (18 per cent), services (10 per cent) and others (12 per cent).

E. Software Technology Parks The Software Technology Park (STP) scheme was initiated by the Government of India to boost software exports from the country. To meet this objective, suitable framework was formulated covering aspects like simplification/rationalization of procedures, providing single point contact services to the industry, providing basic amenities needed for export operations with a very short gestation period and share captive infrastructure

191

facilities like computing resources and data communication services in a cost effective manner. STPs act as a “single windows” in providing services to the software exporters. Some of the STPs provide incubation infrastructure to small and medium enterprises, enabling them to commence operation with out any delay. The STPs are equipped with basic facilities like back-up power, EPABX, security, training aids, library, photocopier, fax etc. with a built up space of 200,000 sq ft all over India. Due to the weak capital market for the Indian software industry, lending institutions including banks are reluctant in taking risks especially for new entrepreneurs. The STPs give an indirect short-term shelter to start-up companies to establish themselves in the market by reducing the investment required. The Government has set up 18 STPs in the last nine years in the following places: SL No. 1 2 3 4 5 6 7 8 9

Location

SL No.

Bangalore Pune Bhubaneswar Hyderabad Noida Gandhinagar Thiruvananthapuram Chennai Mohali

10 11 12 13 14 15 16 17 18

Location Jaipur Mumbai Coimbatore Manipal Mysore Guwahati* Vizag* Indore* Calcutta**

* Under implementation ** Under the State Government

The highlights of STP scheme are as follows: ◆

Approval under single window clearance mechanism

◆

100 per cent foreign equity permitted

◆

Imports in the STP units are completely duty free

◆

Second hand capital goods may also be imported

◆

Custom bonding period shall be 5 years, but may be extended to 10 years in case of products requiring significant capital investment and infrastructure

◆

Exemption of local taxes for domestic purchases

◆

The sales in the domestic market are permissible up to 50 per cent of the exports

◆

Exemption from corporate income tax for a block of 10 years

◆

The export obligation on net foreign exchange should be US$ 0.25 million or 5 times the CIF value of the goods imported, whichever is more, to be fulfilled over a period of 5 years.

The most important contribution of STP to the companies is that of providing High Speed Data Communication (HSDC) services. STP has designed and developed state-of-the-art HSDC Network called SoftNet, which is available to software exporters at internationally competitive prices. The following services are provided through the network: ◆

International Private Leased Circuits (IPLCs) in the bandwidth of 64 Kbps to 2 Mbps

◆

Shared Internet services which include: ❏

E-mail

❏

Remote computing

❏

File transfer

❏

Data base access

❏

World Wide Web

◆

International video conferencing service

◆

Web/Home pages-hosting, authoring and maintenance

192

The STP operates through practically all International Telecom Administrations for worldwide connectivity and is radiating around 53 Mbps and is operating with around 57 carriers from its earth stations for various destinations.

F. Performance of STP units The STP scheme has attracted many entrepreneurs in the area of software and services. 1,198 units have been established so far. Member units have exported software of over US$ 1,430 million during the year 1998-1999, which is about 84 per cent higher than the previous year. The total export figure from the STPs represents approximately 60 per cent of the national software exports. The success of STPs in promoting software exports is being extended to other theme parks such as the Bio-tech Park, leather Park etc. with specialized infrastructure, technology back-up and escort services. The Ministry of Industry, Government of India, has also assumed the responsibility of setting up industrial parks for the development of high-tech industries.

III. CATALYTIC FACTORS FOR SUPPORTING AND EXPEDITING INCUBATION FOR HIGH TECHNOLOGY-BASED ENTERPRISES A. National policies in industry, science and technology Some of the special characteristics of the Small Scale Industries (SSI) sector make them unique in the Indian industrial scenario. These characteristics include the decentralized nature of the sector, small size, greater reliance on local raw material and indigenous technology, employment intensity and its sustainability in rural areas with limited use of techno-economic infrastructure. In order to promote industrial growth as also to determine the patterns of assistance to small industries for fulfilling socio-economic objectives, the Government of India had issued a series of six Industrial Policy Resolutions/Statements in the last five decades. The type of incentives extended to the SSIs related to financial, fiscal infrastructural and developmental. These were targeted at achieving sustainable growth. Incentives were extended either on a “one time” basis or in the form of “sustained support” for a specific period. While some of the incentives were made applicable to all industrial units including the large-scale sector, others were available exclusively for the SSIs. The major policy initiatives taken during the year 1999 include enhancement of loan limit under SIDBI’s Composite Loan Scheme, increase in turnover ceiling for computation of Working Capital limit, excise duty exceptions, simplification of systems and procedures, revision in the investment ceiling in plant and machinery for SSI definition and a provision for launching of a Credit Guarantee Scheme to increase the flow of credit to SSI sector and to resolve the problems of collaterals. In order to give a boost to the development of small-scale industries sector in India, the Government announced a Millennium Mission in December 1999. The main features of the Mission include, amongst others, the creation of a sound policy environment to enable the SSI sector to cope with the emerging challenges of globalization. The inflow of Foreign Direct Investment has been taken as a means of infuse additional resources, technology and modern management practices to make the SSI sector internationally competitive. In the direction of simplification of complex rules and regulations, it has been proposed to set up a High Powered Committee for recommending a single comprehensive legislation for the SSI units. To create an appropriate fiscal environment conducive to the growth of the SSI sector, rationalization of taxes and tariffs has been considered essential. In addition, the rationalization of subsidies has become necessary to make them WTO compatible looking into the broader interests of the SSI sector. In order to boost SSI units in the Information Technology sector and exports, the Government established a separate Ministry of Information Technology for the promotion of knowledge-based enterprises, Internet, e-commerce and IT related education in the country. It is also pertinent to mention here that in the Union Budget 2000-2001, a number of incentives have been provided to knowledge-based industries including the IT sector. The Budget has proposed a reduction of custom duties on several items for the IT sector, which include computers, mother boards, floppy disks, specified capital goods for manufacture of semi conductors and ICs, micro processors

193

for computers, memory storage services, CD ROMs and micro assemblies. With regard to the tax treatment of Venture Capital Funds, some changes have been proposed in the Union Budget 2000-2001. The principle of “pass through” has been proposed to be applied in the tax treatment of Venture Capital Funds and the specified tax rate (since withdrawn) would apply to undistributed income except for the period prescribed in the Security and Exchange Board of India guidelines. SEBI has been made the single point nodal agency for the registration and regulation of both domestic and overseas VCFs. A number of policy decisions and incentives have been taken by the government to promote R&D in industry. Some of the important decisions are as follows: (i)

A Technology Development Board has been constituted to provide financial assistance to industrial concerns and other agencies attempting development and commercial application of indigenous technology or adapting imported technology to wider domestic application. The Board has the following objectives: ◆

To provide equity capital, subject to such conditions as may be determined by regulations, or any other financial assistance to industrial concerns and other agencies attempting commercial application of indigenous technology or adapting imported technology for wider domestic applications, and

◆

Provide financial assistance to such research and development institutions engaged in developing indigenous technology or adaptation of imported technology for commercial application.

(ii)

Exemption from excise duty on goods manufactured, based on an indigenously developed know-how and patented in any country of the European Union, Japan or US. This exemption is valid for three years from the date of commencement of commercial production.

(iii)

Zero customs duty for specified goods imported for use in R&D projects by companies having a recognized in-house R&D unit and the project partially financed by any government department or agency.

(iv)

Commercial R&D companies, which will undertake industrial research as a business, can avail of a five-year tax holiday under Section 80(1) (A) of the Income Tax Act. The companies, however, will have to get DSIR approval.

(v)

A weighted tax reduction of 125 per cent is admissible to companies for sponsoring research in national R&D labs, the Indian Institute of Technology (IIT) and universities.

(vi)

An accelerated depreciation of 40 per cent on new plant and machinery for manufacturing goods from indigenous know-how is also admissible.

(vii)

Patent Facilitating Cell set up to train scientists and lawyers to obtain global patents on innovations.

(viii)

Excise duty waiver on indigenous equipment, spare parts, consumables, and prototypes procured by non-commercial scientific and industrial research organizations.

(ix)

Price control exemption on domestic R&D based bulk drugs.

(x)

Promotion of international R&D collaborations at the enterprise/institutional levels.

(xi)

Direct funding of R&D projects in industry by governmental departments.

(xii)

Incremental rupee incentive for private investment in governmental R&D institution.

B. S&T infrastructure Since independence, science and technology have received considerable attention and occupied a notable position in the management structure at the highest level. The Science Policy Resolution (1958) was the first step towards a commitment for using S&T for the economic development of the country. The announcement of a technology policy in 1983 was another landmark towards developing indigenous capabilities in S&T in the country. The major outcome of the efforts of the government is the establishment and evolution of an institutional framework for science and technology education and R&D. In 1947, there were just 20 universities and 60 national laboratories in India. Today, there are more than 200 universities, 400 national laboratories as well as 1,300 in-house R&D institutions of the industry and over 200 voluntary organizations with S&T involvement. India possesses competent manpower in all major disciplines of R&D. Six Science Departments have been created to focus development in the respective areas. In addition, various socio-economic ministries/departments have separate outlays for S&T.

194

An important recent development has been the rapid growth of consultancy organization providing engineering, design, construction and consultancy services and which act as an interface between R&D institutions and industry. The Indian Institutes of Technology (6), the Indian Institute of Science, the Regional Engineering Colleges (15) also provides consultancy services to industry. The IITs have set up Foundation for Innovation and Technology Transfer (FITT) for assisting industry in the requirements innovative technologies. Some of the CSIR laboratories have taken initiatives to launch subsidiary companies to take up equity in companies where technology transfer is taking place and also nominate the technology developer on the board of the company to facilitate the technology transfer process. The Defence Research Development Organisation (DRDO) and the Department of Space have also set up companies to help commercialization of civilian technologies. To encourage technology transfer from research laboratories to industry, a National Research and Development Corporation was set up in 1953 with the following activities: ◆

Know-how licensing and transfer of technology

◆

Industrial collaboration and venture capital assistance

◆

Encouraging inventive talent

◆

Technology export

The NRDC acts as a repository of technological innovations, technical guide to entrepreneurs in industrial pursuits and catalyst for meaningful transfer of need-based technology. For technology development, the Government of India has mounted vigorous efforts to develop joint R&D projects with industry and other user agencies. As a result, a number of multi-institutional research programmes have been initiated in the emerging areas of technology. Some of the selected examples are given below: SL No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

Technology

Agencies

Building materials-wood substitute Orthopedic devices Mini-micro hydel power Robotics Compressed natural gas Geotech centrifuge CFC substitute 64-bit Parallel computer CO based chemicals High energy magnets Cobalt recovery Carbon fiber for braiding applications Column floatation Biofertilizer Rapid diagnostic kits Membrane technology for chlor-alkali Air pollution control catalysts Ore separators Water jet technology manufacturing Titanium and magnesium production Laser processing materials Catalytic converters

DST, MUD, CSIR DST, MOW, DRDO, TIFAC DST, MNES, STATE DST, DRDO DST, IIT, INDUSTRY DST, DRDO, MHRD DST, IICT, INDUSTRY, TIFAC DST, NAL, WIPRO, TIFAC DST, IICT, INDUSTRY, TIFAC DST, NFTDC, DMRL, TIFAC DST, HZL, TIFAC DST, TIFAC, NPL, NRDC DST, TIFAC, NPL, NRDC DST, MOM, TIFAC DST, MOM, TIFAC DST, BAIF, TIFAC DST, BAIF, TIFAC DST, CECRI, TIFAC DST, ACC, TIFAC DST, BHEL, IIP DST, DAE, TML DST, DRDO, DMRL

DST: Department of Science and Technology, MUD: Ministry of Urban Development, CSIR: Council of Scientific and Industrial Research, MOW: Ministry of Welfare, DRDO: Defence Research Development Organisation, TIFAC: Technology, Information, Forecast and Assessment Council, MNES: Ministry of Non-conventional Energy Sources, IIT: Indian Institute of Technology, MHRD: Ministry of Human Resources Development, IICT: Indian Institute of Chemical Technology, NAL: National Aeronautical Laboratory, NFTDC: Non-Ferrous Technology Development Council, DMRL: Defence Metallurgical Research Laboratory, HZL: Hindustan Zinc Limited, NPL: National Physical Laboratory, MOM: Ministry of Mines, BAIF: Bharatiya Agro Industries Foundation, CECRI: Central Electro Chemical Research Institute, ACC: Associate Cement Company, BHEL: Bharat Heavy Electrical Limited, IIP: Indian Institute of Petroleum, DAE: Department of Atomic Energy, TML: Tamilnadu Minerals Limited.

195

C. Innovative Financing Support System 1. Venture capital Investment capital is a crucial fuel of the innovation process. Finance is a necessary early input to any substantial product development. Financial investment in the innovation process consists of three phases: investment on R&D, design and development; on industrial production; and in marketing. The success of all the three phases depends upon the availability financial back up. The Indian venture capital industry is very young. Government of India Guidelines for Venture Capital Funds (VCF) was first issued in 1988. Guidelines for overseas investors were issued in 1995. The Securities and Exchange Board of India (SEBI) VCF regulations were issued in 1996. Though young by international comparison, the Indian venture capital industry has matured fast as a result of the liberalisation processes initiated by the Government of India in the early 1999’s. Today, there are about 40 VCFs out of which about 20 are members of the Indian Venture Capital Association. The members of the venture capital association raised US$ 664 million and invested US$ 279 million in 728 companies. Total venture capital fund corpus in India is expected to touch US$ 1 billion mark during the year 2000 (Report by Centre for Technology Development). The venture capital activity in India is mainly concentrated in a few places like Bangalore, Chennai, Mumbai and Delhi and is restricted to the IT industry. Three Financial Institutions mainly drove the Venture Capital industry, when it started in India, viz. Industrial Development Bank of India (IDBI), Industrial Credit and Investment Corporation of India (ICICI) and Industrial Finance Corporation of India (IFCI). More recently the Small Industries Development Bank of India (SIDBI) has launched a national IT fund of US$ 25 million. In the early 1980’s as a measure of promoting indigenous technologies and to accelerate R&D efforts within the country the R&D Cess Act started collecting a Cess on all foreign exchange payments made for technology imports. The Venture Capital Fund, which was operated by IDBI unto 1994, has assisted 85 enterprises and invested about US$ 15 million in these ventures.

2. Technology Development Board The Government of India constituted the Technology Development Board in 1996 to encourage development and commercialization of indigenous technologies and adaptation of imported technologies for wider applications. The Board provides equity capital or other financial assistance to industrial concerns and other agencies. The loan from TDB carries a simple interest of 6 per cent per annum, to be repaid in 5 annual installments starting a year after the successful completion of the project. In the three years that has been existence, the Board has signed 65 agreements, adding up to a total project costs of US$ 168 million, covering a wide spectrum of technologies.

3. Programme Aimed at Technological Self Reliance (PATSER) PATSER is a programme, which aims at promoting and supporting the industry’s efforts in development of indigenous technologies and absorption of imported technologies. It provides partial financial support to research, design, and engineering projects undertaken jointly by industry and R&D organizations and academic institutions. This programme has so far supported more than 100 R&D projects of industrial units. These projects cover products and processes in various important industries such as metallurgy, electrical, electronics, instrumentation, mechanical engineering, earth moving and industrial machinery, chemicals and explosives.

4. Technopreneur Promotion Programme (TEPP) Realizing the importance of innovative and inventive minds to meet the challenges of changing industrial and technological requirements of the country, the Ministry of Science and Technology, Government of India, initiated a programme title “Technopreneur Promotion Programme”. TEPP aims to assist and promote individual innovators/investors in the categories like farmers, students, scientists, engineers, doctors, and technicians etc. to translate their innovative ideas for the development of working prototypes/processes. TEPP is crucial for individual innovators to become technology-based entrepreneurs. It also acts as an interface to enable innovators to avail of the other support mechanisms to scale up their successful development further. Thus, the basic philosophy of TEPP is being one of turning grassroots innovators into technology-based entrepreneurs.

196

Financial support under the scheme is limited to the maximum of 90 per cent of the project cost. The remaining 10 per cent is to be borne by the entrepreneur. Apart from this, TEPP also provides assistance in patent support and guidance, scientific and technical consultancy, fabrication assistance, market information and networking with research laboratories etc. in specific areas and needs.

5. Home Grown Technology Programme The Home Grown Technology (HGT) Programme is a major mechanism for supporting the commercialization of technologies developed by indigenous R&D. HGT programme assists to reach technologies from bench scale level to pilot scale or semi commercial level. In the process, it catalyses research and development efforts in the country and fosters closer linkages between R&D/technology institutions and the Indian industry. It also encourages multi-institutional funding for the technology projects, so that at various stages of the innovation chain, the entrepreneur may avail of assistance from more than one agency. HGT also provides financial, techno-managerial and patent related support to deserving technology development projects. The financial support under this scheme is limited to 50 per cent of the project cost. The support is available for the technology development component, and the expenditure for infrastructure on civil works is not considered as part of the HGT project cost. It is necessary that the industrial partner or a major user must contribute 25 per cent of the total project cost. The rest, he may arrange from the financial institutions. The HGT programme has been successful in spawning a new confidence in Indian entrepreneurs and R&D laboratories to develop modern technological innovations and implement them on commercial scale.

D. Intellectual Property Assistance Being a member of the World Trade Organisation (WTO), India considers patents, copyright, trademark, industrial design, geographical indications, and protection of IC layout designs and undisclosed information as the constituents of the term intellectual property rights. India has its intellectual property laws in place in respect of patents, copyrights, industrial designs and trademarks. The laws are equally applicable to all those who seek protection under these laws irrespective of the countries they belong to. The Parliament of India has approved new laws in respect of trademarks and geographical indications. Draft legislation for protecting IC layout designs is under consideration of the government. However, it may be mentioned here that the Indian courts do examine issues related to wrongful disclosure of information under the common law. India is availing itself of the transition periods due, under Article 65 of the TRIPS Agreement to meet obligations under the seven areas covered by the Agreement. A Patent Facilitating Centre has been set up under the Ministry of Science and Technology to assist scientists, engineers and other inventors on all matters related to patents. The major objectives of the PFC are as follows: ◆

Introducing patent information as a vital input in the process of promotion of R&D programmes;

◆

Providing patent facilities to scientists and technologists in the country for Indian and foreign patents on a sustained basis;

◆

Keep a watch on developments in the area of IPR and make important issues known to policy makers, scientists, industry, etc;

◆

Creating awareness and understanding relating to patents and the challenges and opportunities in this area including arranging workshops, seminars, conference, etc.

A number of facilities have been created under the PFC, which include, among others, patent search facilities for Indian, The United States of America and European patents, data bases on Indian patent applications, mechanism for obtaining full text patent documents and patent searching elsewhere, panel of patent attorneys, panel of expert faculty for patent awareness work shops, and a free of cost bulletin on IPR. Similar facilitating mechanisms are available in other scientific departments of the Government of India such as the Department of Industrial and Scientific Research (DSIR), Department of Biotechnology (DBT), Department of Atomic Energy (DAE), Department of Space (DOS), and the Department of Agriculture.

197

IV. FUTURE PLANS FOR INDIA India has formulated a scheme under the aegis of the National Science and Technology Entrepreneurship Development Board to set up Technology Business Incubators in the country. One project has already been approved to be located in NOIDA, close to New Delhi. Under support from UNDP sponsored programme on Technology Management, it is proposed to set up two TBIs (one attached to IIT, New Delhi on IT and another in the Southern part of India on biotechnology). In addition, several privately managed incubators are being set up in different parts of India.

V. CONCLUSIONS Effective Planning and execution alone would not make TBIs a success. The presence of an outstanding R&D institution alone does not cause the development of high technology industries. The TBIs and the host institution are envisaged as a service function that can strengthen the trend towards high technology business and entrepreneurship, but they cannot create the trend. If TBIs are to be of significant value in promoting industries and generating jobs, the economic and cultural seedbeds need careful preparation to receive the entrepreneurial seed. The three important factors that can affect TBI movement are: ◆

Freedom given to the S&T community to enter into this activity

◆

Availability of financial support

◆

An industrial cultural milieu.

The government, financial institutions and university all have a significant role to play in creating an environment conducive to the growth of TBIs and high technology industries. At the same time, TBIs alone are not sufficient to stimulate advanced technology development. Rather, TBIs are one of the services that the community possesses to create a growing, advanced technology industry. Various other complementary methods of university – industry linkages have also to be developed.

REFERENCES Lalkaka, Rustam, 1996. Technology Business Incubators: Critical Determinants of Success (The New York Academy of Science). UNDP, 1996. Business Incubators in Economic Development. SIDBI, 2000. SIDBI Report on Small Scale Industries Sector. Menon, P.K.B., 1995. The Role of STEPs in Technology Development, Technical Entrepreneurship (New Delhi, Allied Publishers Ltd.). India, Department of Scientific and Industrial Research, Annual Report: 1999-2000 (New Delhi). Centre for Technology Development, 2000. Technology Financing in India: A Discussion Paper (Bangalore). India, Ministry of Information Technology, 2000. “Software Technology Parks of India”, STPI Update.

198

IV. STRENGTHENING TECHNOLOGY INCUBATION SYSTEM FOR CREATING HIGH TECHNOLOGY-BASED ENTERPRISES IN MALAYSIA

199

I. INTRODUCTION This document describes the technology incubator programmes in Malaysia, the overall Government framework under which they are coordinated, their strategic direction and objectives, the industries to which they are targeted, funding and support, their performance benchmarks, and the results achieved to date. The document is intended to provide the Regional Consultative Meeting with an overview of the successful implementation of the incubator enterprises in Malaysia as a contribution to the regional development of similar programmes in countries with developing economies. The need for technology incubator programme is created by two fundamental forces: ◆

Demand from industry for skilled human resources to enable it to become more competitive in a world where technological competence is often a critical success factor.

◆

Strategic direction from Government to improve technology industries as the key to national economic development.

The pre requisites for a successful national incubation programme are: (a)

Government Strategy

(b)

Capital Support

(c)

Graduate Source

(d)

Technology Facilities

The drawing below illustrates the pre requisites for a successful national incubation programme. Government strategy and active support are essential if there is to be a coordinated and committed nationwide effort to stimulate and sustain the growth of technology industries. The Government can provide land and money in terms of development funds to establish science parks. They also provide an important source of financial support in terms of grants and funds to promote enterpreneurship. The government’s role also includes establishing policy, industry liaison and monitoring the performance of the various incubator activities set up. The incubators will require access to investment funds and should basically be non-profit making bodies, although they may also generate revenue by taking equity positions in start-up companies that they have incubated. Funding may come from several sources from private venture capital to direct subsidy by government.

GOVERNMENT STRATEGY CAPITAL SUPPORT

GRADUATE SOURCE

INCUBATORS

TECHNOLOGY INDUSTRIES

TECHNOLOGY/ SCIENCE PARKS

Diagram 1. Pre-requisites of successful national incubation programme

201

There should be a clear and well-established linkage between the incubators and the technology universities or research institutes since a ready supply of well-qualified graduates is essential to seed the incubator programme. The universities and research institutes provide R&D facilities and source of knowledge, knowledge workers and spin-offs. Physically locating the incubator facilities adjacent to universities facilitates this. Incubators with state-of-the-art R&D facilities or technology infrastructure including access to research data, computer and high-bandwidth Internet connectivity, communications, physical space, and convenient facilities are also essential for the programme. The way in which Malaysia addresses these requirements are described in this paper.

II. GOALS OF TECHNOLOGY INCUBATORS AND BUSINESS INCUBATORS IN MALAYSIA In Malaysia, Small to Medium Enterprises (SMEs) constitute about 91 per cent of the total establishments in the manufacturing sector. They play a vital role in overall economic development, contributing significantly to the employment, added value and output of the manufacturing sector. The SMEs are defined by the Ministry of International Trade and Industry, Malaysia as companies with not more than 150 full-time employees and with an annual sales turnover not exceeding RM 25 million (1 US$ = RM 3.8). The contribution from the SMEs in the manufacturing sector’s output was 15.8 per cent in 1998 with the highest concentration in food processing (17.4 per cent), apparels (16 per cent), fabricated metal products (12 per cent), furniture and fixtures (8.4 per cent), wood and wood products (6.7 per cent) and industrial machinery (4.8 per cent). Although SMEs represented the majority of the manufacturing establishments, their contribution to total value-added and employment was 20.1 per cent and 29.9 per cent respectively. This indicated that they were relatively less effective due to the smallness of their size, which constrained them from adopting advanced technology, employing higher skilled workers, increasing their production capacity, expanding their market and achieving economies of scale. There are many opportunities to develop SMEs. The development strategies for SMEs during the Seventh Malaysia Plan (1996-2000) period emphasized the development of domestic market-oriented, small-scale industries. During this period particular support was given to the development of SMEs which exhibited strong growth potential by promoting production efficiency and consolidating, strengthening and extending their outreach. Additional funding was also provided to promote medium-scale industries exhibiting strong growth potential. The Second Industrial Master Plan for the period 1996-2005 adopted a cluster-based industrial development approach to sustain and enhance the growth momentum of the manufacturing sector and to develop a broad-based, resilient and internationally competitive industrial sector. The cluster-based concept not only emphasizes the growth of the manufacturing sector but, more importantly, the concomitant growth of the supporting industries, including those in the services sector, which will fuel the engine of growth for the economy. The cluster-based industrial development provides for the full integration of operations along the manufacturing value chain with a deepening and broadening of industrial linkages based on a comprehensive and integrated network of activities. The manufacturing orientation emphasizes full integration of manufacturing operations through the value chain in order to enhance industrial linkages, increase productivity and expand the range of business activities. This approach enables SMEs to achieve economies of scale to improve their efficiency and competitiveness, to become key suppliers to locally based larger firms and the export market and to fulfil a wide range of needs in the industrial spectrum. Economic planning in Malaysia has therefore recognized the critical importance of encouraging the establishment of SMEs and sustaining their growth from fledgling start-ups to profitable businesses playing a leading role in the nation’s industrialization. The Government is committed to an integrated and comprehensive programme to incubate the SMEs through: ◆

Measures and programmes to enhance the supply and the quality of the requisite human resources

◆

Development of indigenous research and development (R&D) capability and technology

◆

Access to new processes and technology existing in the market

202

◆

Adequate supply of both hard and soft infrastructure

◆

Efficient administrative and business support services.

The specific objectives of the incubator programme are to: ◆

Support and sustain university research and development programmes directed towards knowledge based disciplines

◆

To encourage and facilitate the formation and growth of the new businesses based upon the research knowledge and expertise available within a university or other centre of research

◆

Assist and support start-up companies meeting the technological criteria to achieve financial break-even within 3 years of engagement with the incubator

◆

Provide business management training for selected entrepreneurs

◆

Establish knowledge-sharing networks between universities, incubators, and established technological industries.

To achieve these objectives, the incubators share the following roles and responsibilities: ◆

Define their technological sphere of interest under the aegis of the seven critical national development plans

◆

Screen business plans for candidate businesses and select the businesses meeting development criteria of originality, practicality and financial credibility

◆

Provide incubator accommodation, including computer facilities, research access, Internet access and communications on a flexible, affordable and temporary basis

◆

Provide common services, including secretarial support and shared use of office equipment and machinery

◆

Make funding available on a commercial basis, such as convertible loans, venture capital and equity investment, linked to business performance objectives

◆

Provide business management training, including planning, financial control, project management, sales and marketing

◆

Assist with the preparation of detailed business plans

◆

Assist with identification of markets and distribution channels

◆

After-care and outreach services, providing assistance to tenants after they graduate.

III. CATALYTIC FACTORS FOR SUPPORTING AND EXPEDITING TECHNOLOGY INCUBATION FOR HIGH TECHNOLOGY-BASED ENTERPRISES A. National policy supporting incubators In the late 1970’s and early 1980’s the Malaysian Government decided to introduce structural changes to the economy with the intention of transforming it from an agricultural base to a manufacturing base. The changes would progressively introduce industrialization, shifting the economy from import-substitution emphasis and expansion of light industries to export-orientated development strategies through investment in medium scale industrial enterprises. The changes would be followed by increasing the focus on high-technology, labour-saving industries. A key element of this strategic change was the development in 1986 of the First National Science and Technology Policy, outlining a framework for science and technology (S&T) development in Malaysia. The goals were to ensure achievement of continuous scientific and technological developments that support and expedite economic growth, to accelerate industrial development and to promote a scientifically and technologically advanced society.

203

The National Science and Technology Policy was then incorporated into the Fifth Malaysia Plan (1986-1990) in which the role of science and technology was to increase the productivity in the agricultural sector, to enhance resource-based industries and to progressively expand the manufacturing base to include heavy and high-tech industries. During this time a number of institutions were established to stimulate technology-oriented activities. These included Malaysian Technology Development Corporation (MTDC), Technology Park Malaysia (TPM) and university incubators. Various committees and groups as well as funds such as Industry Research and Development Grant Schemes (IGS), Intensification of Research in Priority Areas Fund (IRPA), Technology Acquisition Fund (TAF), Multimedia Super Corridor Research and Development Grant Scheme (MGS), Demonstrator Application Grant Scheme (DAGS), Malaysian Exchange of Securities Dealing & Automated Quotation (MESDAQ) were also set up to support the commercialization of research and technology. The Government also established committees and working bodies to encourage cooperation between the public and private sectors to promote technology management, private sector partnerships (national and international) for technology acquisition and transfer and for business development. In 1991, the National Action Plan for Industrial Technology Development was launched. This plan outlined the strategies for strengthening science and technology capabilities to overcome the structural weakness that have been associated with the national industrial development. During the Sixth Malaysia Plan (1991-1995) the goals set for science and technology were to obtain a continuous scientific and technology development in Malaysia by providing the basic infrastructure incentives and supporting services to science and technology. Emphasis was made to ensure that public R&D programmes become more market-oriented by exploiting the commercialization of research and technology. The private sector, on the other hand, is expected to complement the Government in expanding the R&D and science and technology using appropriate technology assimilation, diffusion and application. The launching of Vision 2020 in 1990 provided a broad framework for the incorporation of science and technology into the other sector bodies. The diagram 2 provides a schematic view of the Government’s strategy and direction towards driving the nation’s emphasis on science and technology. In an effort to further coordinate science and technology development, several major industrial technology institutes such as Malaysian Institute of Microelectronic Systems (MIMOS), Standards and Industrial Research Institute of Malaysia (SIRIM), Malaysian Institute for Nuclear Technology (MINT) and Technology Park Malaysia (TPM) were placed under the supervision of the Ministry of Science, Technology and the Environment. The National Council for Scientific Research and Development established in 1975 was then reformed to include more private sector representatives. The new policy-making bodies such as Malaysian Industry Government Group for High-Technology (MIGHT) and the Malaysian Business Council were also created. During the period of the Seventh Malaysia Plan (1996-2000) the focus was for development was on achieving economic growth and competitiveness by increasing productivity. It was recognized that Malaysia needed to develop its technology infrastructure further and expand its capacity for technology adoption and assimilation. The principal objectives in the Plan for upgrading science and technology activities are: ◆

Implementation of appropriate policies and institutional reforms

◆

Optimizing the use of skills and capital

◆

Increasing investments in R&D

◆

Building domestic technological capability in new enabling technologies

◆

Cooperation in R&D and technology development between universities, research institutions and industries.

The initiatives undertaken to achieve these objectives are the principal catalytic factors supporting and expediting technology incubation for high technology based enterprises in Malaysia.

204

B. Science and technology infrastructure, R&D institutions and parks The First National Science and Technology Policy, introduced in 1986, created the framework for a coherent and integrated national infrastructure for the incubator programme. Since then, through the inclusion of science and technology infrastructure in all national development planning, (Fifth Malaysia Plan, Sixth Malaysia Plan, Seventh Malaysia Plan, Vision 2020), the Government has successfully achieved the following: ◆

Establishment of a formal Science and Technology Advisory System, providing a flow of information between science and technology sector and other sectors

◆

High level coordination of the planning and implementation of infrastructure development through Government agencies

◆

Implementation of soft and hard infrastructure, including popularization of science

◆

Combined funding and management programmes for R&D through IRPA and industry groups

◆

Introduction of a process for the commercialization of research and technology

◆

The integration of human resource development through education, training and skill acquisition by various ministries, agencies and international institutions.

VISION 2020

NATIONAL POLICY FOR SCIENCE AND TECHNOLOGY

MAJOR THEMES COMPETITIVENESS

WEALTH CREATION

KNOWLEDGE ACCUMULATION

LIFE QUALITY

KEY DEVELOPMENT PLANS BIOTECHNOLOGY

INFORMATION TECHNOLOGY

ADVANCED MANUFACT.

ADVANCED MATERIALS

EDUCATION

PHARMACEUTICALS

MICROELECTRONICS

AEROSPACE

INCUBATORS

INVESTMENT

KEY DRIVERS

Diagram 2. Malaysian Government’s strategy and direction towards driving the nations’ emphasis on science and technology

205

1. Incubators in Malaysia There are now many well-established incubators operating in Malaysia at technology parks and university campuses. These bodies provide support to nurture new start-up technology-based companies. As part of this strategy, collaborative activities through smart partnerships between the government, research institutions, universities and incubator owners help to promote and further accelerate the growth of technology-based companies. Smart partnerships through technology business incubators have emerged as useful instruments that will contribute towards increasing the local content in industry and the development of innovative products, processes and services, particularly in the knowledge economy. The various incubators found in Malaysia include:

(a)

Technology Park Malaysia Corporation (TPM)

This was the first science-park established in Malaysia, with the objective of being the best in providing a first class infrastructure and services for technological innovation and R&D to enable high-tech enterprises to grow and compete in the global market. TPM focuses on three broad areas: manufacturing and industrial engineering, information technology, and multimedia and biotechnology, with emphasis on R&D commercialization and human resource development. The incubator concept in TPM are categorized into three categories:

(b)

(i)

Innovation House (for individual entrepreneurs, scientists, software writers, innovators and start-up entities at pre-production stage)

(ii)

Incubator Centres (for individuals and companies expanding from the prototype and pre-production stage through to market testing and production)

(iii)

Enterprise House (for medium-sized companies or R&D wings of large companies or enterprise expanding from the other TPM facilities)

MTDC Incubation Centres

In line with MTDC’s objectives, MTDC Incubation Centres were set-up to enhance the technology development activities through collaboration with universities. This will provide the universities with source of recurring income, further streamline the activities of MTDC/universities spin-off companies within the university campuses and provide closer relation with the host-universities.

(c)

SIRIM Industrial Incubator

SIRIM’s Industrial Incubator’s areas of focus are Advanced Manufacturing Technology (Industrial Automation/Mechatronic, Industrial & Engineering Design, CAD/CAM, Industrial Instrumentation & Electronic and Artificial Intelligence System, Process Technology and Advanced Materials.

(d)

MSC Central Incubator (MCI)

MCI began operation in mid-1999. It offers 40 cubicles and 20 executive offices, 29,000 sq ft of general office space and 10,000 sq ft of laboratory office space, all designed to assist in R&D while providing market exposure to tenants. Because of its unique position within the MSC, the Central Incubator Programme is also expected to attract investors interested in new, innovative, commercially viable products. The Incubator aims to create over 1,000 technopreneurs in IT and multimedia by 2003.

(e)

Kulim Hi-Tech Park

Officially opened in 1993, Kulim Hi-Tech Park is a state-owned technology park. It incorporates several functions: industrial, research and development facilities, new township concept with shopping centres, medical and educational institutions and recreational facilities.

206

C. Technical entrepreneur development The Government sponsored incubators in Malaysia all include entrepreneurial training in some form primarily in the areas of enhancement of technical skills and upgrading of business and financial knowledge, arrangement of seminars, workshops and forums. In general young entrepreneurs are technologically aware and qualified but lack the experience required to plan and build business operations around the technological concept of design they wish to develop. Training courses for young entrepreneurs include: ◆

Preparation for business justification

◆

Estimating the financial performance and investment required

◆

Creating functional organizations and defining their performance objectives

◆

Recruiting, focussing and motivating people

◆

Supply and demand contracting

◆

Working with shareholders and stakeholders.

A typical example is the support to incubator start-ups provided by the SIRIM Industrial Incubation facility. The facility offers courses in Entrepreneur Development to help entrepreneurs develop innovative concepts, build competence and enhance their knowledge. It also has “SMI Development” such as providing hands-on technical training to help clients with the development of technological skills and to build quality assurance into production processes. These are supported by advisory services on technology, quality, management, financial, marketing, intellectual property advice and patent search. At Technology Park Malaysia (TPM) such technical entrepreneur development is provided through TPM Academy, the training arm of TPM through its ‘Teaching Factory Concept’. The Academy offers hands-on technical courses in Robotics, CAD/CAM, CNC and Flexible Manufacturing Systems. Other courses in Business Skills and Project Management are also available with workshops on Commercialization of R&D, obtaining Venture Capital, and IT and Multimedia. TPM also provides financial support to its research officers to pursue postgraduate courses for Master degree and Ph.D. MSC Central Incubator’s support on technical entrepreneur development is in the form of free training and seminars/workshops by consultants to its resident incubator tenants through a membership programme.

D. Innovative financing support system 1. Financial support for incubating activities There are several fiscal and financial incentives provided by the Government to contribute to the successful development of science and technology, managed by the National Council for Scientific Research and Development. The following existing financial support schemes can be acquired by the start-up companies in the incubators in Malaysia. The following funds have been introduced:

(a)

Intensification of Research in Priority Areas Fund (IRPA Fund):

Initially the IRPA Programme was established to provide funds to support R&D in the public sector for improvements in the socio-economic fields. It has now evolved to focus on R&D activities that are in line with the national R&D Priority Areas. Public research institutions and universities are eligible to apply for these funds. Table 1 shows the amount allocated in the IRPA programme. At a later stage the programme was then extended to the private sector through various schemes known as Industry Research and Development Grant Scheme (IGS), Multimedia Super Corridor Research and Development Grant Scheme (MGS) and the Demonstrator Application Grant Scheme (DAGS).

207

Table 1. Amount allocated under the IRPA programme Amount allocated (US$ million)

Period Fifth Malaysia Plan (1986-1990)

173

Sixth Malaysia Plan (1991-1995)

245

Seventh Malaysia Plan (1996-2000)

417 000

Source: National Survey of Research and Development, Malaysia Science and Technology Information Centre (MASTIC)

(b)

Industry Research and Development Grant Scheme (IGS)

The purpose of IGS is to increase the private sector R&D and promote closer cooperation between the private sector and public sector institutions and public sector universities through collaborative linkage. The aim is to encourage Malaysian companies to be more innovative in pursuing and adopting existing technologies and in creating new technologies, products and processes to benefit the national economy. The key technology areas that are given priority are the ones that support the Industrial Plan to foster clusters of small companies in complementary industries with good prospects for commercialization.

(c)

Multimedia Super Corridor Research and Development Grant Scheme (MGS)

The purpose of the MGS is to help start-up and young local companies, including joint ventures, to develop multimedia technologies and applications that contribute to the overall development of the Multimedia Super Corridor.

(d)

Demonstrator Application Grant Scheme (DAGS)

The purpose of DAGS is to encourage Malaysians to adapt and customize existing IT and multimedia technologies in applications compatible with local culture and to promote the development of local software and content industries for greater competitiveness in the global market.

(e)

Technology Acquisition Fund (TAF)

This fund will provide partial grants ranging from 50-70 per cent to majority Malaysian owned companies which undertake technology acquisition activities as outlined in the List of Promoted Activities and Products for High Technology Companies under the Promotion of Investment Act 1986 and other strategic industries as approved by the Government. The technology activities eligible for partial funding includes purchase of high-tech equipment and machinery, technology licensing, acquisition of patent rights, prototypes and design, expert-sourcing programme.

(f)

Commercialization of R&D Fund (CRDF)

The fund will provide partial grants ranging form 50-70 per cent to majority Malaysia owned companies incorporated under the Companies Act 1965 to commercialize research results. The activities eligible under the partial funding include market survey and research, product or process design and development, standards and regulatory compliance, and intellectual property protection.

2. Funding for the development of human resource skill Additional Government funding is also provided for developing the human resource skill. This scheme is referred to as Human Resource Development Scheme. There are three types of funds available:

208

(a)

Science and Technology Development Fund (S&T HRD Fund)

The S&T HRD fund was set up to create a pool of skilled and trained S&T manpower among professional and supporting staffs of Government department, public research institutions, universities and Government research institutions.

(b)

National Science Fellowship (NSF)

The NSF scheme is intended to enhance the number of skilled and qualified R&D researchers in the selected fields and to create a pool of “critical mass” in less researched fields and to encourage bright graduates to be involved in S&T research.

(c)

Postgraduate and Post Doctoral Program (PPP)

The PPP scheme is intended to increase human resource skills and expertise in advanced technology areas to support and enhance R&D excellence of the public institutions of higher learning.

3. Tax incentives There are various fiscal incentive packages available to incubators that have been introduced by the Government to promote high technology and R&D activities. The tax incentives can be both direct and indirect and cover the manufacturing, agriculture and tourism sectors. These are provided under the Promotion of Investments Acts 1986, Income Tax Act 1967, Customs Act 1967, Sales Tax Act 1972 and Excise Act 1976. The direct incentives are designed to grant partial or total relief from payment of income tax for a limited period of time. Indirect tax incentives are given in the form of import duty, sales tax and excise duty. There are several categories of incentives provided: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) (m) (n) (o) (p) (q)

Manufacturing Sector High Technology Industries Strategic Projects Agricultural Sector Tourism R&D Software Development Use of Information Technology Multimedia Super Corridor (MSC) Acquiring Proprietary Rights Training Storage, Treatment and Disposal of Toxic and Hazardous Wastes Operational Headquarters (OHQ) International Procurement Centres Approved Service Projects Shipping Industry Tariff Related Incentives

For more details please refer to publication by Malaysian Industrial Development Authority (MIDA) – “Investment in The Manufacturing Sector-Policies, Incentives and Facilities Malaysia”.

4. Venture capital (VC) Venture capital began to take root in Malaysia in 1984, with the first being the establishment of Malaysian Ventures Berhad, with a fund of RM 14 million (US$ 6 million). The development of venture capital in Malaysia was initially slow with the second fund set only in 1989.

209

To enhance the growth of this industry, the Malaysian Government liberalized the requirements for venture capital companies, allowing them to invest 100 per cent of their funds in venture capital involved in the high-risk and new-technology projects. Later, the qualifying evolved to require 75 per cent of total funds to consist of holding shares in new ventures. Prudent macroeconomic management and specific tax incentives for the venture capital industry has helped the industry to register a steady and manageable growth. The fund sizes for some years are shown in the table below: Table 2. Fund sizes of venture capital in Malaysia for some years Year

No. of VC companies

1990

6

Fund size

1992

12

RM 350 million (US$ 146 million)

1996

na

RM 951 million (US$ 396 million)

1999

33

RM 1.7 billion (US$ 0.7 billion)

RM 93 million (US$ 39 million)

Source: Commerce Asset Ventures Malaysia

E. Technical consultant assistance 1. Search for expertise for technology and research Close links are established between the incubators and universities, research and innovation centres, faculties, tenants, Government agencies and research institutes and the Government Ministries. These links enable the incubators to notify these institutions when they require expert support in technology and research and to negotiate agreements on the means by which this support may be made available to them. There are also procedures to ensure that access to foreign technology expertise through trade missions, exhibitions, seminar, forums and Governmental links to Malaysia is available to the incubators. For example, in the case of visits from overseas, the procedures ensure that visitors meet the appropriate technology agencies to maximize the interchange of information and expertise.

2. Search for individual experts Incubators advertise to attract the attention of candidates and receive business plans for review. The prime role of the incubators is to identify entrepreneurs with a promising business proposition, support them to develop the proposition to the point of launching a product or service to the market, and to sustain their operations until they are financially viable. The key input to this process is a business plan outlining the proposition, describing the product or service and the market to which it will be sold, and a financial analysis estimating the revenues, the capital and operational expenditures and the potential profitability. If a plan offers good potential for implementation and the entrepreneurial sponsors are credible, competent and committed to it, incubators will commence the process of setting up the support environment. Key criteria used for this assessment are: ◆

Nature of the technology product or service, originality and functionality

◆

Customer base, potential demand, sales channels, pricing and promotion

◆

Degree of difficulty in developing concept, competencies required

◆

Suitability of business plan originators, experience, qualifications and commitment

◆

Development costs and funding required

◆

Duration of the incubation period

◆

Financial estimates of sales, revenues, expenditures, cash flow, profitability.

210

The process is shown below: REQUEST FOR BUSINESS PLANS

SUBMIT PLAN REVIEW PLAN

YES

YES

ARE SPONSORS CREDIBLE?

APPOINT PROG. MGR

IS PLAN COMMERCIALLY VIABLE?

DECLINE

NO

NO

ARRANGE FUNDING

PROVIDE ACCOMMODATION

Diagram 3. Process of identifying potential entrepreneurs

3. Establishment of cooperative research relationships with R&D institutions Through the various Government agencies and committees described in chapter III, the institutions that undertake R&D, including universities, established commercial enterprises, and Government corporations, contribute to the incubator programme by: ◆

Outlining their respective areas of interest and competence for R&D projects

◆

Circulating these profiles to the sponsoring organizations for incubators

◆

Assisting with the screening of incubator business plans to identify complementary opportunities with their spheres of influence

◆

Providing expertise and guidance to selected incubator projects.

The concept is to provide direct assistance to incubators supporting the commercial development of complementary businesses rather than to create joint research programmes.

4. Means of access to science and technology, expertise and facilities provided by the incubators A typical example of the facilities available to incubators for access to science and technology, expertise and facilities to start-ups is the incubator system in Technology Park Malaysia. TPM provides an advanced manufacturing automation technology facility referred to as the MASTERCentre. This state-of-the-art facility is also made available to other SMEs and large foreign multinationals. The services in the facility include design, manufacturing, rental of engineering facilities and equipment and customized training and technical consulting with their qualified professionals. The facilities range from CAD/CAM lab, Rapid Prototyping, Product Manufacturing, Robotics and FMS, Metrology/QC lab and storage.

211

A similar technology facility is also provided in SIRIM Industrial Incubator which includes full assistance and technical advice from a pool of experienced consultants. As an extension to that facility, SIRIM, through a collaboration efforts with other Government agencies, disburses grants known as the Industrial Technical Assistance Fund (ITAF) set up by the Government since 1990 to qualified SMEs as a means to enhance the development of SMEs and as well as start-up companies in their incubators.

F. Strategic business alliance, collaborations, networking and structural relationships 1. Business alliances and collaborations Collaborative efforts undertaken by incubators in Malaysia, such as SIRIM, TPM, MTDC and MCI all include establishing smart partnerships with research institutions and universities to develop technology-oriented SMEs with product development, designing and prototyping capabilities. This is accomplished through upgrading of knowledge and enhancing technical skills among SMEs in critical areas such as Advanced Materials (Ceramic, Ceramics and Metals), Chemical and Industrial Biotechnology, Advanced Manufacturing (Industrial Automation and Mechatronics, Industrial Instrumentation and Electronics, CAD/CAM, Artificial Intelligence and Engineering Services and IT and Multimedia. Additionally, collaborative efforts by incubators such as TPM, SIRIM and MTDC, working closely with supportive government ministries, State Economic Development Corporations (SEDCs) and international agencies such as Japanese Trade Organization (JETRO) and the Ministry of Entrepreneurial Development, establish a supportive framework for knowledge and resource sharing. This framework creates synergy in providing technology and expertise to start-ups. Some of the initiatives to disseminate technology and commercialization expertise are undertaken through forums, seminars and workshops. The general target groups are young graduates, retiring government officers, uniform groups, mentor-mentored and chamber of commerce. Product enhancement efforts are initiated through Value Engineering activities and product specification and standards development, which cater for export markets.

2. Networking and structural relationships Extensive networks at many levels operate in Malaysia to support the incubator programme, providing a strategic, political, financial, administrative and infrastructure framework within which they can operate efficiently. The primary networks and their contributors are shown in the diagram 4. These networks are enhanced by the creation of smart partnerships – a platform whereby technopreneurs with bright ideas can meet businessmen willing to invest in their ideas and business plans. Since incubators are, in most cases, sponsored and supported by the major science and technology organizations in Malaysia, such as TPM, MDC and the universities, this establishes structural relationships to ensure they receive appropriate level of support and investment. Most of the incubators are located in close proximity to research institutes, or within the campuses of universities, and have direct access to technology expertise, R&D programmes, advanced research facilities, management and administrative support. Many are also strategically located within the nation’s Multimedia Super Corridor (MSC) near the nation’s new administrative centre, Putrajaya, and numerous expressways giving easy access to the marketing network and distribution channel. There is also a national policy, sponsored and actively supported by the Government, to encourage “Smart Partnership” within public-private sector cooperation in promoting technology management best practice, partnerships (national and international) in technology acquisition and transfer and business development through such organizations as the Commonwealth Partnership for Technology Management (CPTM) and Malaysian Industry Government Group for High-Technology (MIGHT).

212

R&D COMPANIES

UNIVERSITIES

KNOWLEDGE NETWORK VENTURE CAPITALISTS

INCUBATORS

INVESTMENT NETWORK

BUSINESS FACILITIES

INFRASTRUCTURE NETWORK

GOVT. CORPS

GOVT. AGENCIES

STRATEGY & POLICY NETWORK

PLANNING CORPS

GOVERNMENT

Diagram 4. Networking and structural relationship between incubators, universities, Government and supporting services

G. Marketing arm or links with suppliers and customers Nearly all incubators are supported by a marketing function to help the incubating businesses create relationships with their suppliers and customers. This function performs the following services for incubators: access to supplier databases in each product category with product description, price ranges, delivery times and contact data. At the national level, on the other hand, the Government has taken steps to enable the Malaysian businesses to promote their products and services to the global market. This is achieved through the Government agency under the Multimedia Super Corridor initiatives (Multimedia Development Corporation). Under the programme known as the Malaysia Trade Electronic (MteX), a business to business electronic commerce site will be established and any Malaysian business can utilize this platform as an avenue to promote its products and services to the global market. This platform also allows electronic transaction to be performed between Malaysian businesses and their clients. These facilities can also be utilized by start-up companies in incubators to market their products and services at minimum cost.

IV. RECOMMENDATIONS FOR FUTURE ACTION In Malaysia, continuous improvements, new avenues and strategies to existing programmes are being pursued to positively reinforce successful technology business incubators. These are some of our recommendations for the success of incubator efforts: Continuing government support: For the maximum cumulative benefit from the incubator programmes, the Government must provide the appropriate degree of strategic, legal, financial and administrative support. University involvement: The success of the incubator programmes depends to a great extent on the availability of graduates, access to research and development facilities and an environment of intellectual creativity. Close proximity to university premises is therefore, essential to satisfy these requirements.

213

Collaboration and networking: There should be a mechanism for reinforcement of formal and informal networking between industries, universities, research institutions and the incubators to maximize the productive flow of ideas, share research, provide mutual support and encouragement and to assist with the evolution of the incubating businesses from start-up mode to sustainable profitability. Experienced incubator management: A team of experienced and well-trained incubator managers available full-time to render continuous support, coaching, mentoring and motivation to start-up companies. Tenant entry and exit criteria to be clearly defined: This is to ensure transparency and regular evaluation of the performance of both incubator candidates and incubator operator’s effectiveness. Establish well-defined targets: Incubators need to establish clear define targets in specific focused technology areas, usually included in the initial business proposal. Benchmarking of incubator performance should also be established to ensure that progress to the targets is measured and reported. Conducive business environment: Incubators to function not as landlord or as property management but create conducive business environment to tenant companies. Linking business and technology: The combination of these elements and the linking of business and technology constitute important channels for the distribution of knowledge and tools for business success.

REFERENCE “Commerce asset ventures”, . “Malaysian exchange of securities dealing and automated system”, . “Malaysian Science and Technology Information Centre (MASTIC)”, . Manan, Haji Abdul Aziz Abdul, 2000. “Technology Business Incubators – Bringing Technology to the Market Place”, paper presented at the International Conference on Business Incubation and Technology Innovation, Shanghai, 2000 ().

214

V. STRENGTHENING TECHNOLOGY INCUBATION SYSTEM FOR CREATING HIGH TECHNOLOGY-BASED ENTERPRISES IN NEPAL

215

I. INTRODUCTION Even though the share of agriculture to the national gross domestic product is decreasing over the years in favour of manufacturing and service sector, agricultural sector remains the source of principle and/or additional employment for almost 90 per cent of the population in Nepal. The growth in agriculture has been almost a standstill at 2.3 per cent (average annual growth) during the period 1990-1998. The manufacturing sector also has not grown as desired, contributing about 12 per cent (1999) to GDP of which SMEs alone contribute around 9.3 per cent. So the creation and growth of enterprises is paramount, not only from income generation point of view, but is crucial in the context of employment for additional 0.3 million people entering job market each year. A report on registered industrial units during 1991 to 1998 shows that 98 per cent of the total industrial establishment fall under SME sector alone signifying its overall role in the national economy in terms of income generation and employment. As almost all of these SMEs are private sector initiatives, enterprise development and private sector promotion can be taken as two sides of a coin. Private sector promotion in Nepal, therefore, should necessarily mean enhancing their competitiveness to attain (a) increase in non-agriculture value-addition (b) improvement in trade balance and (c) increase in non-traditional export. The private sector led economic development through increased investment and production, employment promotion and income generation has become the basic policy thrust in Nepal. This is evidenced by deeper domestic macroeconomic adjustments since the 1990s, in Nepal, resulting mainly due to rapid pace of globalization. One of the opportunities provided by globalization has been the unrestricted flow of capital and technology, mainly on private sector initiative. In order for the domestic private sector to become more effective in making the industrial sector vibrant and also to attract foreign direct investment (FDI), it is necessary to have strong domestic entrepreneurial capacities along with efficient technicians, managers, accountants and a disciplined labour force. Apart from sound macroeconomic measures and facilitation in creating conducive industrial and business environment by the government, it has to take the lead in human resource development and updating, leading to overall competence enhancement with active private sector participation. The networking of various agencies in effective imparting of competitive and sustainable promotional activities and business development services (BDS) needs to be accorded immediate attention in Nepal. At the backdrop of the above, the following sections with deal in BDS and Business/Technology Incubation, Policy and Measures, Institutions that are supposed to play contributory role in the field of technology development, transfer and commercialization of innovations and R&D activities in Nepal.

II. BUSINESS DEVELOPMENT SERVICE AND BUSINESS/TECHNOLOGY INCUBATION IN NEPAL The supply of BDS and access to them, particularly by SMEs, can be regarded as one of the determinants for the overall enterprise development in a country. The number of BDS providers in public and private sector and the availability of quality BDS products, their outreach and periodical attempt to assess their impact together with their sustainability determine the state of enterprise start-ups and growth in Nepal. Evidences elsewhere suggest that there is a positive correlation between usage and volume of quality BDS products consumed and industrial development. There is no reason why it should not hold true in the case of Nepal too. Countries like Nepal with domination of SME sector may need business development as follows:1 (a)

Information: on technology, markets, regulations, sources of supplies, training facilities, etc.;

(b)

Training: in business creation and development and skills training;

(c)

Advice and consulting services: on choice of products and processes, finding new markets, improving quality, increasing productivity, business management, skills training, accessing financial services;

(d)

The provision of specialized services: product testing, technology upgrading, leasing of equipments, capacity to better organize and participate in trade fairs, advocacy/representation, information technology (computer), etc.; and

(e)

Incubation services: business, technology, etc.2

217

For simplicity purpose, technology incubation and business incubation are treated almost synonymously here in this paper. Incubation activities in the true sense of term are virtually negligible in the absence of integrated services under one roof/compound and proper networking among various organizations providing one or a set of services that make some sort of incubation activities. Lalkaka and Lalkaka3 have defined the development process of incubators as “the first generation of business incubators in the 1980s were essentially offering good, affordable space. In the 1990s the need was recognized for counseling, skills enhancement and networking services, for tenants in the facility and affiliates outside. Starting in 1998, with the maturing of the Computing and Communications Revolution, new third generation incubation models have emerged. These are intended to mobilize ICT and serve the New Economy, towards creating livelihoods and economic growth”. In this context, various industrial units operating in the government-sponsored industrial estates in Nepal can be considered as first generation type. The second-generation type is virtually non-existent while efforts are going out to have third generation type, particularly with the recent establishment of an IT Park in Nepal. The IT Park, a government initiative, has yet to take-off but has already acquired necessary land and envisaged a framework to link entrepreneurs (internet-based) with Kathmandu University and local governments and community in the true sense, this can be considered an information technology-based incubator in Nepal. From “The technology incubation process in the Republic of Korea”, paper presented by Mr Song4 during an ESCAP mission to IEDI, Nepal may serve as an indicative process for Nepal. It is presented below:

R&D activities

Technology incubation

Commercialization by technological entrepreneurs

Technology transfer

Like other BDS, incubators also need to be assessed in terms of their performance. But the desired outcomes to be assessed depend upon the motives of the leading sponsors, e.g. government, community, university/ research institutions, outward-looking sponsors, international donors, private/for-profit based, etc.5 Likewise, the main areas in which incubators performance needs to be assessed are impact, outreach, effectiveness and sustainability.

III. CATALYTIC FACTORS FOR SUPPORTING AND EXPEDITING TECHNOLOGY INCUBATION FOR HIGH TECHNOLOGY-BASED ENTERPRISES In this section, various national policies in industry and S&T as spelled out as specific policy and in national development plans and enactment in Nepal will be discussed.

A. National policies in industry and technology 1. National development plans The Eighth Plan (1992-1997) states the need of strengthening the economy based on agriculture and mobilization of labour, capital and natural resources available in the country. Similarly, it states the need of developing industries which can compete in the national and international markets with the promotion of competitive industries. Consequently, there is a need of deeper reform in the customs, trade, foreign exchange, industry and foreign investment. There is also a need to further develop infrastructure including human resource development and institutional strengthening together with the elimination of procedural hurdles. Similarly, in order to encourage

218

private sector participation in the economy, it identifies the need of open market and sound competition. The plan further states the need to develop and expand cottage and small-scale industries, taking into account the situation of limited market, low level of technical know-how, position of transportation and the overall geographical structure of the country. Consequently, the Eighth Plan has set the following three objectives relevant for the development of enterprises: 1.

To enhance interrelations between production oriented industrial sector and other economic activities in order to generate extra income and employment;

2.

To improve quality, productivity and production of exportable items in the industries;

3.

To improve cottage and small-scale industries which use locally available resources in order to fulfil internal demands.

Similarly, the Ninth plan (1997-2002) has the main objective of poverty alleviation. Therefore, the plan states that various industrial, commercial and tourism activities that are most suited the rural area and based on local raw materials, labour and skills should be emphasised to support employment generation and poverty alleviation. Economic activities that are related to industry, trade and tourism development should mainly be based on the principles of market economy and the private sector should play a lead role in such activities. Among other policies and strategies relating to small scale and cottage industry development, the current plan states the following direct policies and strategies: 1.

Integrated programme relating to manpower, production, loan and technical services required for cottage and small-scale industries will be developed and expanded.

2.

Weaknesses in the existing policies and laws will be overcome to protect the interest of national industries, consumers and small-scale industries and laws relating to anti-dumping, anti-trust/ monopoly and restrictive trade practices will be introduced and implemented.

3.

Special emphasis will be laid on the establishment of small scale and cottage industries in every village development committee on the basis of feasibility studies.

4.

A policy of giving a proper incentive to the large-scale national and multinational industries will be adopted if these industries involve small and cottage industries in their production process.

5.

Additional financial resources will be made available through the banking sector in order to increase the production, processing and exports of the identified export-oriented commodities and to develop cottage industries.

2. Industrial policy, 19928 This policy incorporated deeper liberalization of the economy as its main agenda. It states that the government will make no interference in fixing the price of industrial products in order to create an open and competitive business atmosphere. A policy of determining wages on the basis of productivity will be encouraged. The main characteristics of this policy are briefly outlined below: (i)

Emphasis to develop industries which use local labour, skill, and resources and which are of national significance;

(ii)

Increase the pace of the development of the economy through the export of industrial products;

(iii)

Attract foreign investment and lay emphasis on the transfer of higher technology and efficient management;

Some of the strategies enunciated to attain the above-mentioned policy objectives are outlined below: (i)

Make liberal and simple arrangements for the establishment, expansion and modernization of industries;

(ii)

Arrange all types of service to be provided to industries through a single-window system;

(iii)

Build up human resources required by industries within the country itself as far as possible and make necessary arrangements to operate related training and research programmes in an integrated manner;

219

(iv)

Make institutional arrangements in order to develop productivity by upgrading the level of technology and efficiency of industries so as to gradually make Nepali industrial products competitive in the world markets;

(v)

Operate skill-oriented programmes for the development of skilled manpower;

(vi)

Reserve cottage and small industries for Nepali nationals only but allow the transfer of foreign technology there in;

(vii)

Provision of Technology Development and Transfer Agency in order to make the process of development and transfer of technology more effective as well as to provide concrete help to the process of industrialization by regulating the import, development and management of technology.

The policy development also has identified 31 industrial activities regarded as priority industry for promotion.

3. The Foreign Investment and Technology Transfer Act, 19929 This Act has defined ‘foreign investment’ as investment made by a foreign investor in any industry in the form of equity, reinvestment of the earnings derived from earlier equity participation and loan or loan facilities. Whereas ‘technology transfer’ is described as any transfer of technology to be made to under an agreement between an industry and a foreign investor on the following: (i)

Use of any technological right, specialization, formula, process, patent or technical know-how of foreign origin;

(ii)

Use of any trademark of foreign ownership;

(iii)

Acquiring any foreign technical, consultancy, management and marketing services.

The feature of this Act, in terms of facilities and concessions provided to this process are as follows: (i)

No income tax shall be imposed on the interest income earned by a foreign investor from foreign loans. Income tax at the rate of 15 per cent only shall be imposed on the income earned by a foreign investor through foreign technical and management services fees and royalties.

(ii)

A foreign investor making investment in foreign currency shall be entitled to repatriate the following amount outside Nepal: The amount received by the sale of the share of foreign investment as a whole or any part thereof, the amount received as profit or dividend in lieu of the foreign investment, the amount received as the payment of principal and interest on any foreign loan.

(iii)

A foreign investor shall be entitled to repatriate outside Nepal the amount received under an agreement for the transfer of technology in such currency as set forth in concerned agreement.

In addition to the above, the Act has the provision for arbitration for the settlement of disputes that may arise during or after the agreement period.

4. National Science and Technology Policy, 198910 This policy document has recognized the insufficient acknowledgement of the S&T sector manifested by inadequate investment, inefficient usage and distribution of available resources and lack of vision in relation to the overall development of this sector. It has been envisaged through this policy that the following programmes are to be implemented: (i)

Resource and Development: assessment on utilization and development of domestically available technology, enhancement of capabilities to develop industrial technology, enhancement of level of S&T by utilizing available opportunities and modern technique in R&D activities.

(ii)

Technology Transfer: Encourage domestic technology, emphasis on software and intermediate hardware technology in case of importation, experiment on TT, evaluation, selection and regulation of transfer of technology in order to develop technology adaptation capacity.

220

(iii)

Quality Manpower Development: adequate investment in education and skill development, encourage human resources available with academic and scientific institution to involve in S&T research.

(iv)

Promotion and Extension: secure social participation in S&T development, create linkage between scientists/technicians and entrepreneurs/business community.

The policy document has given emphasis on integrating the process of development of science with that of technology and provision of a framework for smooth diffusion of information and knowledge. It has envisaged the National Planning Commission to take a lead role in the formulation of policy, preparation of programmes, monitoring and coordination of these activities by taking support and advice from National Science and Technology Council. Royal Nepal Academy of Science and Technology (RONAST) is to support the monitoring activities by taking into account updated knowledge and technology development achieved within and outside Nepal. Support from business communities, international communities, bilateral agencies is expected in the process of technology development and transfer.

5. National Policy on Technical Education and Vocational Training11, 1999 The policy to prepare a nationwide network of the technical education and vocational training (TEVT) centres, schools and polytechnics for the overall development of TEVT sector was highlighted in the Higher Education Commission Report – 1988. The purpose of this policy is to prepare human resources and infrastructure which would help alleviate poverty, unemployment, underemployment and promote economic development of the nation. In order to achieve these aims, different training related ministries and non-governmental organizations will be coordinated through supervision of skill instruction and quality assurance. The various objectives as mentioned in TEVT policy are as follows: (i)

Ensure justifiable returns from these investments in the both short and long run by meeting manpower needs in the country as well as cater the need of these human resources in the international market;

(ii)

Up to the extent possible, the involvement of government in the operation of TEVT institutions will be minimized while increasing the involvement of business sector, local governments and private sector in general;

(iii)

Ensure the TEVT services to poor and underprivileged segment of the population in the country.

B. S&T infrastructure (R&D institutions and parks) in Nepal Before going into the details of some of R&D institutions and parks, it is contextual to look at the investment done by the government in R&D activities in the field of science and technology. Table 1 shows that importance of investment in R&D is virtually not realized by the government despite all positive policy formulation. Table 1. Allocation of budget by HMG/N on R&D in science and technology Year

GNP (NRs million)

R&D (NRs million)

Per cent of GNP

1995/96

254 349

686

0.270

1996/97

204 899

655

0.327

1997/98

214 939

703

0.327

1998/99

225 894

752

0.333

1999/00

236 771

801

0.338

2000/01

247 573

851

0.347

2001/02

258 306

901

0.349

Source: RONAST, “R&D investment in Nepal, 1998” (Unpublished).

221

}

Projected

1. Research Centre for Applied Science and Technology (RECAST) RECAST is one of the research centres established by Tribhuvan University (TU), a pioneer university in Nepal, with a view to take academic/scientific findings to the application of it by the users for better and efficient production of goods and services. Though established in the mid 1970s, the centre is somehow in decline mainly due to a high turnover of trained manpower. However, it has done some encouraging work, particularly in the field of alternate energy, agro-processing etc. It gets its annual budget from TU and is still not in the forefront in terms of recovering expenses from the users (beneficiaries).

2. Royal Nepal Academy of Science and Technology (RONAST)12 RONAST was founded in 1982 and provided with autonomous status in 1992 when both houses of parliament passed RONAST Act. The main objectives of RONAST are as follows: (i)

Develop National Science and Technology Policy of Nepal and advise the government as a national S&T apex body in the country. It should act for the advancement of S&T for the all-round development of nation;

(ii)

Improvement and Promotion of indigenous technologies;

(iii)

Promotion of research in S&T;

(iv)

Identification and facilitation of appropriate technology transfer.

Various activities are being undertaken by RONAST to further the achievement of its objectives. Some research programmes currently undertaken are in the field of Biotechnology, Natural Products, Environment, Scientific Instrumentation, Radiation Monitoring, Alternate Energy, High Altitude S&T, etc. In collaboration with national and international agencies, it is providing some fellowship and research grants to individual and institutions, in addition to support services like Central Research Laboratory, Instrumentation Centre, Radiation Monitoring Unit, Computer Unit, Library and Documentation Centre, Electronic Database and Information Centre. Despite all these, RONAST is yet to generate interest in it from the business community. The research and development result has not sufficiently reached the workplace or production place.

3. Information Technology Park (IT Park) The initial responsibility to set up an IT Park in Nepal was entrusted to IEDI in 1996 basically for arranging the physical acquisition of land in cooperation with local government, municipality and community in the place called Dhulikhel/Banepa some 25 km east of Kathmandu. Now this is under Ministry of Science and Technology who is finalizing IT policy in Nepal in order to attract private entrepreneurs, both from Nepal and outside, to start their venture in the Park and enable the country to earn income from exporting software. The significant feature of the Park is the proximity to Kathmandu University, a private university which is a pioneer in providing Bachelor and Master level course in information technology. A framework has been designed by which the students will do their internship with enterprises to be established there. It is hoped that some of them can start their own enterprises in future. A seed money of around NRs 10 million is being provided by the Government each year. If implemented properly, this could well become an incubation centre in the field of information technology based business development.

C. Technical entrepreneur development In the field of technical entrepreneur development in Nepal there are few organizations which are involved in training and also in some cases in incubation activities. This section will highlight activities of some of these organizations.

1. Balaju Yantrashala (BYS) (Pvt. Ltd.)13 BYS was registered with HMG/N in 1960 as a joint venture project of Nepal Industrial Development Corporation (NIDC), an industrial development bank in the public sector, and Swiss Association for Technical

222

Assistance (SATA), now converted into HELVETAS, Nepal. The prime objective of establishing the company was to help industrialization of the country and to attract the private sector. It has now become a leading mechanical engineering Pvt. Ltd. Company of Nepal equipped with all the required machineries and other auxiliary service units. It has, at present, 147 employees including mechanical engineers and related technical staff. The turnover of this company, in 1999, was NRs 42 million from services rendered in the field of hydropower technology, steel construction, machine construction, sheet metal products and repair and maintenance. Due to the competitive price and quality, some of its products are also exported outside Nepal. Many of its past staff have become entrepreneurs themselves, especially in the field of production of turbine for micro hydro project, solar heater, etc.

2. Council for technical education and vocational training (CTEVT)14 CTEVT was formed legally under the Technical Education and Vocational Training (TEVT) Act in 1989 with a further amendment in 1993 as an apex body of TEVT sector which formulates policies, ensures quality control, coordinates all the technical education and vocational training related stakeholders and provides services to facilitate TEVT programmes in the preparation of basic and middle level skilled human resources for economic development of Nepal. The present contributor to its budget are HMG/N, the Japan Government and the Swiss Government CTEVT has under it 15 technical institutes in various parts of country and 165 affiliated training institute run in private sector. Since the inception, its own trade schools alone have produced about 870 personnel in the field of agriculture, construction, mechanical, electrical, sanitation, cooking, health assistant, assistant health worker, nursing, automobiles, electronics, refrigeration and air-conditioning and secretarial science.

D. Intellectual property assistance/Technical consultant assistance Department of Industry (DoI) under Ministry of Industry, Commerce and Supplies is the designated agency to look after foreign investment in terms of registration, monitoring and aspects related to intellectual property rights. It has been almost 10 years since Nepal became a WIPO member. Now, efforts are being made to become member of the Paris Convention of Protection of Intellectual Property. So far, it has 17 national and 27 international patent registered with DoI. In the case of registered design and mark registration, it is 5 and 10,063 for national while for international one, it is 24 and 4,724 respectively. The patent is registered in DoI after paying NRs 6,000 while renewal charge is NRs 4,000 per year. The rapid pace of globalization followed by deeper reforms in Nepal has attracted some foreign investment in different projects. The actual investment, however, is far below the initial interest/inquiry. The following tables show the categories of industry in which investment is made, and also the volume of investment and generation of employment from these investment projects along with the countrywise breakdown of these joint ventures. Table 2. Summary sheet of foreign investment projects in Nepal – categorywise from the beginning to July 2000 (NRs million) Types of industries 1. Agriculture 2. Manufacturing

No. of industries

Total project cost

Total fixed investment

Foreign investment

Total employment

11

341.54

304.46

79.48

811

295

26 831.42

20 808.34

5 976.29

50 171

3. Tourism

144

14 521.07

13 857.27

3 663.80

12 779

4. Service

122

10 017.04

8 437.48

3 792.60

8 753

5. Construction

5

293.59

262.06

93.42

570

6. Energy based

8

14 228.51

13 470.43

2 376.44

4 047

7. Mineral based

3

1 153.14

1 068.32

45.98

1 129

588

67 386.31

58 208.36

16 028.01

78 260

Total

Source: Department of Industry, HMG/N

223

Table 3. Summary Sheet of Joint Venture Industries in Nepal – Countrywise from the Beginning to July 2000 (NRs million) No. of Industries

Total Project Cost

Fixed Investment

Foreign Investment

1. Australia

7

134.70

105.43

89.56

348

2. Austria

6

149.79

112.90

30.09

337

Country

Employment

3. Bangladesh

9

328.27

174.04

98.92

3 401

4. Bermuda

6

195.25

1 694.03

118.27

1 474

5. Belgium

1

7.00

5.98

5.95

30

6. Bhutan

3

27.26

20.58

3.61

98

7. British Virgin Islands

3

2 739.78

2 636.19

961.42

1 018

8. Canada 9. China 10. Democratic People’s Republic of Korea (the) 11. Denmark 12. France

5

24.81

19.90

9.69

827

38

4 799.53

4 103.90

1 469.94

4 286

1

44.82

41.20

12.55

71

3

518.62

465.38

26.84

226

19

429.64

368.20

101.41

993

13. Germany

29

606.14

507.72

226.36

2 254

14. Hong Kong, China

12

1 357.03

1 155.09

495.62

2 085

201

23 441.35

19 332.86

5 407.27

31 554

1

5.00

1.00

1.50

40

17. Italy

10

1 223.77

1 112.97

183.48

268

18. Japan

65

2 606.31

2 245.73

810.94

4 390

3

25.76

24.04

12.34

40

20. Netherlands (the)

7

1 037.02

868.13

389.90

2 001

21. New Zealand

5

276.65

223.94

11.59

1 954

22. Norway

5

6 533.59

5 912.04

983.31

150

23. Pakistan

7

272.27

205.99

106.14

2 166

24. Panama

1

83.28

65.17

24.98

121

15. India 16. Ireland

19. Malaysia

25. Philippines (the)

3

932.23

859.02

49.58

1 329

26. Republic of Korea (the)

21

1 416.88

1 175.56

574.82

2 169

27. Russian Federation (the)

2

85.25

56.18

33.43

163

28. Singapore

5

1 565.99

1 520.06

309.78

1 104

29. Spain

1

13.72

12.98

13.72

25

30. Sri Lanka

2

66.15

45.04

25.06

22

14

442.18

389.96

99.85

219

32. Taiwan, Province of China

5

327.64

299.00

138.37

487

33. Thailand

7

950.22

810.68

90.64

1 106

34. United Arab Emirate

1

178.54

37.24

45.00

93

35. United Kingdom of Great Britain and Northern Ireland (the)

19

1 790.30

1 546.74

91.49

4 918

1

90.00

82.00

14.70

18

31. Switzerland

36. Ukraine 37. United States of America (the) Total

60

10 859.69

9 971.51

2 961.62

6 475

588

67 386.31

58 208.36

16 028.01

78 260

Source: Department of Industry, HMG/N

224

E. Strategic business alliances (SA) and networking “The term ‘SA’ refers to a situation in which an enterprise/company combines outstanding in-company management resources with external management resources with a view to: (a) expanding its business and market, (b) improving the efficiency and quality of product/services, (c) diversifying activities, and (d) developing new products.”15 Some of the illustration of SA practices in Nepal are as follows: (i)

Association for Craft Producers (ACP): Established in 1984 as an NGO, ACP is a local private/ professional group providing design, market management and technical services for low income primarily female craft producers. ACP has about 900 member producers with 19 to 20 groups, among them 85 per cent being women from 17 districts. The past year’s annual turnover was NRs 30.3 million.

(ii)

Women Entrepreneurs’ Association of Nepal (WEAN): Since its establishment, (some 8 years) WEAN has been engaged in forming alliances/linkages with micro and small entrepreneurs and supports them with capability enhancement training, information dissemination, counselling and advocacy.

(iii)

Bhaktapur Crafts Printers (BCP): Promoted by UNICEF, BCP is a manufacturing concern of allied products from handmade paper and supports and keeps alliance with small handmade paper producer and lokta collectors from some districts.

(iv)

Lotus Holdings (P) Ltd. (LH): LH promotes and supports small enterprises through alliance activities. This is a for-profit organization undertaking supply of raw materials, design information, management support and makes buyback arrangement and is involved in export. LH has alliance with various enterprises and community based units involved in producing herbal based products, handmade lokta paper, lotus paper, crafts, carpets, pashmina, etc.

Besides, there are other examples of SA like Knot-Craft, Fair Trade Group, Cottage Industry and Handicraft Emporium (in public sector). Alliance in the form of joint venture in larger enterprise sector, franchise, licensing is in hotels and restaurant, beverages and beer with multinational and regional large enterprise.

F. Standardization, metrology and quality control (SMQC) and marketing in Nepal The activities related with SMQC are regulated by Nepal Bureau of Standard and Metrology (NBSM) under Ministry of Industry, Commerce and Supplies. It also issues Nepal Standard (NS) to those who apply for it and fulfill all the quality requirement. By January 1999, NBSM has already awarded NS mark to 409 industries comprising food, chemical, construction materials, beverages, steel, paints etc. Apart from providing NS mark, various calibration services are provided by NBSM for the benefit of entrepreneurs and consumers. Regular quality assurance test is also conducted. This organization is the national focal point in the field of all ISO related activities. NBSM has been conducting regular workshops and awareness training on ISO.

IV. RECOMMENDATIONS FOR FUTURE ACTION The overall awareness on the role of technology in the development of industrial and other business activities has been quite low in Nepal. The entrepreneurs, until now, seem to be satisfied with the status quo and there is not much enthusiasm for future growth. The opening of markets and immediate threats from a vast range of products and services coming from India has compelled business people to seek cost-effective technology. In terms of policies and programmes, they are not properly implemented thus not producing tangible results. In view of the above and the general situation where there are virtually no technology incubation activities, some of the recommendations are outlined below: (1)

There is a need for constant review of policies adopted so far in the field of business development and technological development in order to position them with fast changing environment.

225

(2)

The proposed IT policy need to be immediately finalized and put into place so that potential investors no longer remains in confusion.

(3)

Certain mechanism needs to be in place in order to avoid contradictions among various sectoral policies. This asks for regular interactions between concerned agencies and beneficiaries or target groups.

(4)

The research activities and other R&D activities have not sufficiently been accessed by users, mainly business communities. A situation has to be created in which the business community becomes a stakeholder in related R&D institutions and their activities and partially invests in the development and commercialization of technology and skills.

(5)

In the context of SMES’ overwhelming role in the industrial development of Nepal, the technology development policy and programmes need to seriously address the requirement of this sector.

(6)

Some of the agencies could be developed as business/technology incubation centres in the true sense, by accessing other BDS, so that the efforts are more focused and coordinated.

(7)

Networking among various agencies is crucial so as to make BDS more demand driven and tailor-made. The tailor-made and demand driven services have better prospects of being paid.

(8)

In the context of many organizations becoming ‘white elephant’ and on the verge of closure once government withdraws financial support, any new initiative has to seriously take into account the factor of long-term sustainability.

(9)

The university/college classes and laboratory activities which are, at present, isolated from business and industrial communities have to be brought together. The industries encouraging internship to the business or technology student or trainee have to be compensated through policy measures of the government.

(10)

Some of the successful incubation cases outside Nepal need to be replicated here with some adaptation.

V. CONCLUDING REMARKS The above sections and discussion in highlight that the state of S&T, in general, and technology incubation, in particular, is still in its infancy in Nepal. The budgetary allocation in human resource development and, more specifically, in R&D activities are inadequate. This shows the hitherto low profile given to this sector in contrast to the need of the present environment. A serious matter of concern is the virtually non-existent interlinkage between S&T sector with the business community. The existing limited activities through various organizations, particularly government organizations have not been able to address the present needs of society, thus failing to utilize market opportunities. There are, however, smaller organizations run in the private sector like Lotus Energy (for solar panel, drier, solar energy operated vehicle and their commercialization), Centre for Rural Technology (in the field of development and commercialization of products related to alternate energy), etc. which are carrying out technology development activities in meaningful way. Like other BDS, some promotional activities need to be undertaken so that demands for these services are created. Not only this, the capabilities of these service providers need to be enhanced so that they can offer quality services in a sustainable manner.

226

REFERENCES 1

Maurice Allal, “Business development services for micro and small enterprises in Thailand”, in Gerry Finnegan, ed. series, Micro and Small Enterprise Development and Poverty Alleviation in Thailand, Working paper No. 1 (ILO, ISEP, UNDP, July 1999).

2

Jacob Levitsky, ed., Business Development Services: A Review of International Experience Intermediate Technology Publications (UK, London, 2000).

3

Rustam Lalkaka and Dinyar Lalkaka, “New incubators for the new economy”, paper presented at the Springfield Centre’s BDS-2000 Training Course, Glasgow, UK, July-August 2000.

4

Song Woo – Geung, “The technology incubation process in the Republic of Korea”, paper prepared for ESCAP during a mission to IEDI, Nepal, 1998.

5

Carl Tiedemann and Rustam Lalkaka, “Managing business incubation for financial sustainability: case example of Lexington Business Centre, USA”, paper presented at the International Conference on Business Incubation, Hong Kong, 18-19 November 1998.

6

Nepal, National Planning Commission (NPC), The Eighth Plan (1992-1997).

7

Nepal, National Planning Commission (NPC), The Ninth Plan (1997-2000).

8

Nepal, Ministry of Industry (MOI), Industrial Policy, 1992.

9

Nepal, Ministry of Industry (MOI), The Foreign Investment Technology Transfer Act, 1992.

10

“The National Science and Technology Policy, 1989”, Nepal Gazette, August 1989.

11

National Policy on TEVT (Kathmandu, CTEVT, 1999).

12

RONAST, “Science and technology policy of Nepal”, paper presented at the Third Asian Science and Technology Congress organized by the Science Society of Thailand, Chiang Mai, Thailand, 17-18 October 1997.

13

Balaju Yantrashala Private Ltd., Company Profile (Kathmandu).

14

Op. cit. 11

15

Institute for Integrated Development Studies (IIDS), Strategic Alliance in SME Sector in Nepal (February 2000).

227

VI. STRENGTHENING TECHNOLOGY INCUBATION SYSTEM FOR CREATING HIGH TECHNOLOGY-BASED ENTERPRISES IN PAKISTAN

229

I. INTRODUCTION A. Pakistan a wonderful country to visit Pakistan is the land for the lovers of adventure and culture and its appeal is universal. It is an inexpensive country especially for visitors from the developed world. It is the home for many great civilizations over a long period of history. The Indus valley civilization flourished here 5,000, years ago. The ruins of Moenjodaro in Sindh (one of the four provinces of Pakistan) and of Hrappa in the Punjab (province) tell the tales of highly cultured people dwelling in these areas around 3,000 to 5,000 BC. Then there is Taxila, a beautifully hilly area partly in Punjab and partly in NWFP (provinces). Taxila holds layers of various Gandhara kingdoms unsurpassed as a treasure house of the Greco-Buddhist sculpture and artefacts. This civilization flourished around 300 BC. Pakistan also homes Mughal (1500 AD to 1857 AD) monuments which are strewn all over the country. Pakistan has a varied landscape ranging from high mountains to low coastal planes. It is blessed with lush green mountains, planes, deserts and magnificent rivers. During all four seasons of the year the country always offers some place where one can have a pleasant holiday.

B. Brief review of economy Pakistan, like many other developing countries, has been deficient in domestic resources to finance the investment necessary to sustain rising per capita income and, thus, relied heavily on external economic assistance to bridge resource gap since the early 1950s. There has been a positive and significant contribution of foreign economic assistance in sustaining higher growth rate in Pakistan. It also helped in providing an established infrastructural base for growth. Power communications, education and healthcare sectors are reasonably developed. Agriculture forms the largest sector of economy contributing more than 24 per cent of the GNP. The country is facing severe balance of payment problems, which are caused by a narrow export base. The economy is heavily dependent on the agriculture sector. The conventional industrial base revolved mainly around textiles, cement, and sugar. Agriculture still has huge prospects for improvement. The country is fully capable of producing self-sufficient quantities of edible oil and tea, which presently form a considerable percentage of imports. This area, however, needs acquisition of and development of new methods for selection of crops, sowing practices and processing techniques. The manufacturing sector is passing through a turbulent and disruptive period, it is due to the shocks inflicted by economic sanctions, which weakened recovery in this sector since 1997-1998. During 1997-1998, large-scale manufacturing grew by 2.7 per cent as compared to 6.7 per cent growth in the previous year. The growth in small-scale manufacturing remained at 8.4 per cent. The government intensified its efforts to improve the investment environment in the country through various policy initiatives. These initiatives include creation of a better environment to provide access to capital market for SMEs and to improve and mobilize the country present research and development infrastructure in service of SMEs.

C. Relevance of incubation concept for Pakistan In modern times, rapid and unprecedented changes are taking place which determine productivity success of a business. Therefore, establishing a new competitive business is not only a matter of business skills. It has now become more like a science where an initial educational time can guarantee the success of the enterprise. This period is spent in specialized incubation centres where common infrastructure facilities are available on rent. It also saves a lot of expenditure on capital investments during the development phase and makes it less risky to start developing new ideas into marketable products. Incubators provide a conducive atmosphere to young firms helping them to survive and grow during the start-up period when they are most vulnerable. Incubators provide hands on management assistance, access to financing and orchestrated exposure to critical business or technical support service. They also offer entrepreneurial firms shared office services, access to equipment, flexible leases and expandable space all under one roof. According to studies on the impact of incubated investments (1997) carried by National Incubation Association (NBIA) about 87 per cent (Entrepreneurial Center, Birmingham, Alabama, ) of incubated businesses were rated as success.

231

The concept of incubation when seen in the perspective of Pakistan seems viable and practicable. This concept can help to achieve the desired goals of development in manufacturing and services sectors. In Pakistan, there is a pronounced gap in the interests of our educational and research sector and the activities and actual practices of manufacturing and services sectors which are shy to accept new concepts and ideas. It is necessary to break the monotony of conventional practices and introduce new concepts and technologies, broadening the scope of Pakistan’s economy. This requires the development of a strong partnership between the research community and a visibly more productive sectors of the national economy including manufacturing and service sectors. Having scarce resources, Pakistan needs to pool its resources in a more economical way and at a reduced risk factor. Incubation concept, therefore, suits Pakistan for a gradual conversion from conventional to a more dynamic and developing business society and to broaden the base of her economy. As a policy, the Pakistan Government, has decided to encourage small and medium scale manufacturing and to select areas where employment to investment ratio is higher. These include assembly and manufacturing of electronics products and systems. Software development and improvement of some conventional industries. The country has embarked upon the development of an information society in a short time. To achieve this, a comprehensive information technology policy and action plan has been designed and is being implemented. It is expected that this action plan will put pressure on the present communications infrastructure and may need manyfold expansion in the near future. Therefore, this will create a lot of opportunities in the business of software, electronics systems electronics components and materials and other related goods. In order to generate useful employment within the country, the government plans to increase these opportunities and to encourage the private sector to participate actively in these areas. In order to facilitate investors to grow against the odds of large risks in non-conventional high-tech areas of electronics and software industry, the following incubation centres have already been either approved or established.

II. TECHNOLOGY PARKS AND INCUBATION CENTRES A. Software Technology Park, Islamabad The Software Technology Park of Islamabad is now well established. A covered area of about 40,000 sq ft, with all infrastructural requirements is available on nominal rent. The Software Technology Parks provide conducive conditions for software stop shops. It provides a large band width communication with reliable power supplies, high flexibility buildings, minimized regulatory overheads and maximum flexibility in the choice and use of space. The Park management is developing similar Parks at Lahore and Karachi, the two largest cities of the country.

B. High-technology township (techtown) High-tech township was approved by the government in 1996 at a total cost of Pakistan Rupees (PRs) 1,396 million (US$ 24 million). The implementation of this scheme had been delayed due to financial constraints. Recently, the government has constituted a committee to consider early execution of the township. The scheme envisages the development of a whole town into a closely associated industrial community. The town will provide space to investors for setting up high tech industries based on electronic technologies. The township will provide centralized infrastructure facilities and also an incubation centre for new entrepreneurs. The capital development authority of Islamabad has been given the responsibility of handling this project. The authority is well versed with the development work of similar nature. The town plans to create 247 plots for SMEs and about 64 multistoried buildings for stop-shops type enterprises. It also includes 14 Blocks for incubation centres and electronics goods and component shops.

C. Electronics industries promotion centre The National Institute of Electronics (NIE) situated in Islamabad is involved in research and development of electronics systems and components. It has established an incubation centre for the development of its own lab prototypes into pilot production lines. The centre is supported by the research and development groups of the Institute and has the following main objectives:

232

(i)

Set up Pilot production lines for electronic and high technology products developed by NIE or any other interested entrepreneurs;

(ii)

Provide labs for the development of production techniques/processes, methodologies, materials and equipment suited for the local electronics manufacturing industry;

(iii)

Provide labs for development of materials/devices and boards, etc. for the training of manpower to enhance productivity;

(iv)

Prepare marketing strategies for local products;

(v)

Adaptive redesign, maintenance and manufacturing of electronics instruments;

(vi)

Provide consultancy in setting up electronics related industries.

D. Indus information technology park The Government of Sindh has recently started the establishment of an Information Technology Park at Karachi, the largest industrial city of the Country. The development work for the park is in progress, the park envisages the establishment of software houses, Incubation Centres, hardware manufacturing and setting up of other related facilities. The park would be declared an export free zone to encourage foreign investments and export of software. This would be the first complete IT Park in Pakistan providing all necessary facilities to the start up companies and entrepreneurs of IT business.

III. POLICY FRAMEWORK Pakistan has adopted a well-defined science and technology policy guided by a high level National Commission for Science and Technology. The government is committed to increase investment in science and technology from a meager 0.07 per cent to a 0.5 per cent of the GNP in three years. In the fiscal year 1999-2000 PRs 15.7 billion (US$ 270 million) are committed for science and technology. The Present Minister for Science and Technology is deeply interested in the promotion of research for economic development and is steering research to uplift the present state of industry, in particular, and the economy, in general. A detailed programme is under preparation to upgrade and revitalize educational and research institutions. The following science and technology policies are in practice.

A. IT Policy and action plan The vision of the policy is to harness the potential of information technology as a key contributor in development. The policy envisages participation of all stakeholders to achieve a sustainable information society in Pakistan. The policy strategies have been proposed under several focus areas. (i)

Establishment of technology parks and incubation centres

(ii)

Human resource development

(iii)

Infrastructure development

(iv)

Software industry development

(v)

Hardware industry development

(vi)

Internet services development

(vii)

Provision of incentives

(viii)

Promotion of awareness for efficient use of IT

(ix)

Development of legislative and regulatory systems

233

B. National Technology Policy and Action Plan The National Technology Policy envisages measures like, legislative and regulatory procedures, provision of incentives and development of R&D structures to facilitate exploitation of technology by all sectors of the national economy under market driven forces. Under the technology policy, the following strategies are being followed: (i)

Provide incubation opportunities for small and medium industries;

(ii)

Promote viable MSTQ Systems within the country;

(iii)

Development of efficient R&D structure responsible to industrial needs;

(iv)

Dissemination of techno-commercial information;

(v)

Promotion of foreign investments for technology transfer;

(vi)

Technical Manpower development;

(vii)

Dialogue between the private and public sector, where public sector participates as a catalyst to promote private sectors initiatives;

(viii)

Promote modern technologies in materials development biotechnologies, information and renewable energies.

C. Science and technology infrastructure 1. Research institute Pakistan has developed a broad-based infrastructure for research and development. There are 164 research institutes working in many fields of basic and applied research. The ministry of Science and Technology administers twelve of these institutes. These institute cover a vide range of modern disciplines and are mostly involved in basic research work. Until now there had been very little effort on their part to actually market their research. Some of these institutes tried to develop marketing sections and organized their programmes in accordance with market needs. Unfortunately, their efforts failed due to uneven development of administrative, marketing and research sections. All these institutes have the potential to contribute effectively in creating variety in the development of the national economy. These institutes can be used as problems-solving centres for new experiments and assist the end users in initiating new technologies. It would be great help for these institutions if they are fed with problems of industrial processes target-oriented development jobs, testing and standardization assignments, etc. Established incubation centre can utilize these institutes as a source for technology development by feeding them tasks on payment which will, in turn, strengthen their financial position and broaden the scope of their activities. A Combination of incubation centres and the research institute can work to create much needed diversity in the manufacturing sector.

2. Education With a literacy rate of 45 per cent and about 1.68 million students attending senior secondary level schooling, Pakistan has 26 universities, which provide access to higher knowledge for 3 per cent of its young citizens. There is an extended network of professional training college for engineering medical and other disciplines working under these universities. Enrolment in the secondary vocational institutions was 85,000 in 1999, in Arts and Sciences colleges 760,000, in professional colleges 135,680 and in universities 93,608. The overall participation rate at primary stage (Class I-V) is estimated at 77 per cent. At the middle stage (Class VI-VIII) it is estimated at 51 per cent and at higher secondary level (IX-X) it is 36 per cent.

Vocational training Presently Pakistan has training capacity of 46,452 persons per year in more conventional trades. A skill development council has been set-up recently which has a broad mandate. It will assess overall training needs of the country and will reorganize present training programme adding modern technology concepts wherever needed.

234

D. Financing of Projects In addition to above-stated schemes, which have technical orientation, the government has instituted following facilities, which cater for the access of an average entrepreneur to capital.

1. Small Business Finance Corporation The SBFC is a development financial institution established by the Government of Pakistan. It provides financial assistance on soft term loans to small business enterprises. The main objective of the project is to encourage development and promotion of small business enterprises in manufacturing as well as services areas. The SBFC has sanctioned loans of PRs 2,208.7 million (US$ 370) million against 11,435 cases upto March 1999.

2. PM’s Self-employment Scheme Under this scheme all the state owned banks and SBFS provide facility of loans ranging from PRs 500,000 to 54,000,000 for small industrial enterprises. They have disbursed PRs 3,820.8 million up to March 1999.

3. Small and Medium Enterprises Development Authority (SMEDA) A Small and Medium Enterprises Development Authority has also been set up for growth and development of SMEs in Pakistan SMEDA has started functioning recently and its programme includes, designing training programmes for fresh entrepreneurs, organizing workshops and seminars dissemination of knowledge in critical areas and development of project proposals in new areas such as fisheries. These areas include business skills development, product development, and the development of management skills for the utilization of technical advances in industries.

4. Scientific and Technological Development Centre STEDEC has been established to facilitate R&D Organization in commercialization of the R&D results. The STEDEC provides finances for matured projects by the R&D organizations for commercialization of their outcomes as soft loans with a comfortably long period of recovery. Another such scheme has been launched by the Ministry Science and Technology (MOST) under the name “Contractual Research”. Under this scheme, MOST funds private entrepreneurs for practicable ideas or initiate, schemes involving high priority commercial projects. The concept is to involve R&D infrastructure in the development of such commercially valued products which have definite sponsors.

5. Metrology, Standard, Testing and Quality Assurance System (MSTQ) Under the science and technology policy, Pakistan has initiated a comprehensive programme for strengthening of MSTQ infrastructure. The following measures are taken to make manufacturers more quality conscious and to build infrastructure for an effective quality assurance system: (i)

Ministry of Science and Technology (MOST) and sister organizations conducts countrywide training programmes for Auditors and Consultants in ISO-9000 and ISO-14000-quality system.

(ii)

Industries and institutions are given special incentives to go for ISO certification.

(iii)

A national accreditation body is in the final stage of operationalization. This body will initially work under the ministry of science and technology.

(iv)

An existing National Physical Standard laboratory is being upgraded for a National Metrology Centre. There are many other labs already working in various areas which can effectively provides in calibration testing services.

235

IV. RECOMMENDATIONS Pakistan has reasonably developed the basic infrastructure to embark upon a meaningful strategy for the promotion of high tech based small and medium scale industry. The present government had already launched a Technology Development programme in various sectors such as electronics engineering, textile, biotechnologies, etc. With a view to diversify economic base, the government has committed a hundred fold increase in the budget allocation for science and technology, in three years National Commission, for science and technology, a high level commission will be set up to implement government priorities. The commission has full powers to reorganize, update, redirect and utilize all present R&D infrastructure. Incubation centres for high-tech projects is one of the government’s priorities. However, a plan is still to be prepared with details. It would be highly desirable if a coordinated programme utilizing the existing research and development infrastructure is chalked out considering inputs from all other stakeholders.

(a)

(b)

Stress Areas (i)

Electronics (hardware development, automation)

(ii)

Information technology (software development)

(iii)

Medicines

(iv)

Upgrading of conventional industries

(v)

Agro bases industries

(vi)

Energy

(vii)

Biotechnology

(viii)

Textiles

(ix)

New materials

(x)

Engineering

(xi)

Ocean Resources

(xii)

Defence

Objectives

The programme should deal with the high risk factors involved in the implementation of innovative technological ideas by providing incubation centres for specific industries. It should provide: (i)

Technical help through all R&D resources available in that field throughout the country with Internet speed.

(ii)

Provide access to capital market as soft loans during incubation period and also provide access to loans after successful graduation of the project for its commercial implementation.

(iii)

It should provide special skills required for marketing of the product.

(iv)

It should provide space flexible enough for making changes and should be equipped with common infrastructure on a rental bases.

(v)

For electronics, the incubation centre should have following facilities available on a rental basis: ❏

Small scale PCB fabrication unit capable of economically producing PCBs in small numbers

❏

Small scale stuffing and soldiering stations on rent

❏

Test equipment and other instruments available for hiring

❏

Access to injection moulding and other plastic and metal casing fabrication on rent

❏

Electronic component shop within the facility premises.

A similar requirement is worked out for other stress areas.

236

V. CONCLUSIONS Pakistan has a reasonably developed R&D infrastructure. Despite of financial constraint the country is ready to increase investments in science and technology. Presently emphasis is being given to human resources development through training and to upgrading the existing R&D infrastructure. The programme of incubation of technical ideas into commercial products is carried out; by involving most of the R&D institutes in productive research. They can initially provide consultancies and even reorient their research programmes according to the requirements of industries. It will help the country to achieve its already-defined priorities and, also, make it more self-supporting.

237

VII. STRENGTHENING TECHNOLOGY INCUBATION SYSTEM FOR CREATING HIGH TECHNOLOGY-BASED ENTERPRISES IN PHILIPPINES

239

I. INTRODUCTION It is indeed a great opportunity for me to be here in the Republic of Korea to participate in this very important and timely meeting. Not only will we be able to know the developments and strategies pursued by other participating countries as far as creating high technology-based enterprises are concerned, we hope to be able to also assess how networking with other countries can further strengthen efforts in the Philippines towards this end. For this we are very thankful to ESCAP. In recent years, we have seen dramatic economic growth in the region brought about by rapidly expanding trade opportunities around the world matched by the high rate of growth of high-technology based enterprises in the area. For the most part, the development of science parks and business incubators has been considered as a catalytic factor in this rapid growth. In the Philippines, the same strategy has been pursued and, while probably relatively minimal, some positive impact could already be felt. The paper will, therefore, trace and discuss efforts of the country particularly the Department of Science and Technology (DOST) in this area.

II. TECHNOLOGY INCUBATORS AND BUSINESS INCUBATORS FOR CREATING HIGH TECHNOLOGY-BASED ENTERPRISES The root of science and technology parks in the Philippines can perhaps be traced from early efforts to establish science communities within the various campuses of the University of the Philippines and at DOST. It was in 1982 when the then National Science Development Board (NSDB), later the National Science and Technology Authority (NSTA) and now the DOST launched four science communities in three campuses of the University and at DOST with specific sectorial/scientific focus depending on the relative strength of the host campus in the field: (a)

Diliman Science Community hosted by the University of the Philippines (UP), Diliman for basic and engineering sciences;

(b)

Bicutan Science Community hosted by DOST for industrial technology;

(c)

Los Banos Science Community hosted by UP Los Banos for agriculture and biotechnology; and

(d)

Ermita Science Community hosted by UP Manila for health services.

The communities, which continue to exist at present with expanded membership to include other science-based institutions in the area, introduced the concept of concentrated S&T activities at least in the areas covered. In 1986, the idea of establishing S&T Parks at UP was broached with the participation of some professors in the first ASEAN S&T Week celebration in Kuala Lumpur, Malaysia. In 1987, the National Research Council of the Philippines (NRCP), another agency under DOST, provided funds for the conduct of a feasibility study on establishing S&TParks. DOST allocated funds in 1993 for the establishment of two S&T Parks, one in UP Diliman and another in UP Los Banos. An S&T Park was later established in UP Visayas focusing on Aquatic and Marine Resources. It was, however, only in 1990 when Secretary Ceferino L. Follosco took the helm of DOST that the Department pursued concerted effort towards the establishment of Technology Business Incubators vigorously. In 1991, a technology business incubator was launched in Bicutan with 30 tenants working very closely with two Research and Development Institutes of the Department. However, recognizing that while the government can initiate moves to help encourage the establishment of technology business incubators, it is the private sector which can sustain operation of the same. Thus, linkages with the private sector were pursued so that they can initiate and sustain investments in this area.

241

In 1991, through pure private initiative, the Laguna International Industrial Park (LIIP) was built adjacent to the South Expressway with a total land area of 117 hectares. Of this, 30 hectares is devoted for the export-processing zone and 87 hectares for the industrial zone. In 1999, an additional site was opened in Calamba, Laguna, a few kilometres from the original site. Among the incentives provided to locators are: (a)

investment liberalization Ð extending land lease to 75 years and allowing 100 per cent foreign ownership for selected investment areas;

(b)

fiscal incentives Ð include income tax holidays for 4-6 years, tax and duty free importation of capital equipment and spare parts, tax credit on domestic capital requirement and tax credit for duties and taxes on raw materials used in manufacturing and processing of export products;

(c)

non-fiscal incentives Ð simplified custom procedures, unrestricted use of consigned equipment, employment of foreign nationals, waiving of nationality requirement for regional ASEAN.

Managed by Starworld Corporation, LIIP focuses on: (1)

electric/electronics products manufacturing

(2)

chemical/machinery and components

(3)

computer software

(4)

Textile manufacturing

(5)

Packaging

Other parks and industrial zones have since opened in various parts of the country managed and operated by the private sector, the latest of which is the Ayala IT Park in Cebu where DOST has an existing collaborative project on the establishment of an IT learning hub.

III. CATALYTIC FACTORS FOR SUPPORTING AND EXPEDITING TECHNOLOGY INCUBATION FOR HIGH TECHNOLOGY-BASED ENTERPRISES A. National policies in industry, science and technology Science and technology has always been envisioned to play a catalytic role in supporting the countryÕs development efforts and in providing services that would enable it to contribute in uplifting the lives of every Filipino. This was initiated with Executive Order 128 passed in 1989 which reorganized NSTA and elevated the DOST into a cabinet level position playing a direct role in policy and decision making in the country. The S&T Master Plan (STMP), which was prepared in 1990, served as the framework for the development of S&T in the country. The plan specified three broad strategies to attain this goal: (a)

modernization of the production sector through technology transfer and commercialization;

(b)

upgrading of research and development capabilities; and

(c)

development of the S&T infrastructure.

To translate these broad strategies into specific activities, the Science and Technology Agenda (STAND) was formulated and subsequently approved by the President in 1993. STAND spells out the focal areas of national scientific and technological efforts for the plan period. As expected, the development and operation of Science Parks and Technology Business Incubators is one of the specific strategies laid out under STAND. The Medium-Term National Action Agenda for Productivity 2000-2004, that was just recently approved by the President, further reaffirms the need to sustain S&T efforts in the country. S&T shall be harnessed to improve overall productivity and competitiveness of industry. To achieve this goal, the following strategies will be pursued:

242

(a)

strengthen networking of innovation resources among private industry, academe, and government;

(b)

increase private sector investments in S&T;

(c)

upgrade S&T support service facilities, equipment, and product standards;

(d)

regionalize S&T services;

(e)

develop and maintain a critical pool of technology managers and R&D experts;

(f)

strengthen technology promotion and information dissemination; and

(g)

privatize the acquisition and installation of support services.

Consistent with this vision, the Department has launched various programmes aimed primarily at developing a competent and competitive science and technology community:

(a)

Comprehensive programme to enhance technology enterprises (COMPETE):

The programme hopes to catalyze R&D activities in the private sector by forging partnerships among private firms and government Research and Development Institutes through a mechanism called the Virtual Centre for Technology Incubation (VCTI) which will be established in three (3) areas Ð microelectronics, information technology and biotechnology.

(b)

Establishment of a packaging R&D Centre:

This includes the setting up of a common service facility on packaging accessible to industry particularly the small and medium scale enterprises. The centre now offers testing and related services for industry, conducts training programmes and information dissemination campaigns, facilitate technology transfer to industry, and develops and maintains a regional industry network on packaging technology and services particularly for SMEs.

(c)

Expansion of regional metrology centres:

Hopes to develop a pyramidal metrology infrastructure for the country and upgrade the capabilities of public and private calibration laboratories in the region to match the requirements of various users. The programme includes the development, through the upgrading and expansion of regional calibration laboratories, of a national measurement system; establishment of a metrology training centre; and the development and adoption of a laboratory proficiency evaluation programme.

(d)

Establishment of an integrated programme on clean technologies:

This hopes to promote sustainable development and strengthen competitiveness of Philippine industries by providing them with technical information and assistance in adopting clean production technologies, waste minimization techniques and solid waste management, among others.

(e)

Establishment of a technology clearinghouse: This will serve as a one-stop-shop for technology scanning, assessment, selection and forecasting.

In support of the pivotal role of private sector investment in the countryÕs growth, the government has developed and pursued several investment policies which can play a major role in ensuring the success of private sector initiated Technology Business Incubators.

(a)

Executive order No. 26 otherwise known as the omnibus investment code of 1987:

The Code defines the major incentives in establishing foreign investments in the Philippines. In addition to the basic rights and guarantees to foreign investments, the Code allows/provides the following: (i)

income tax holidays for four years for registered new non-pioneering firms and six years for registered new pioneering firms;

243

(ii)

tax and duty exemptions on imported capital equipment and its accompanying spare parts;

(iii)

tax credit on domestic capital requirement;

(iv)

tax credit for taxes and duties on raw materials used in the manufacture, processing or production of export products;

(v)

simplified custom procedures for import of raw materials, equipment, and spare parts;

(vi)

employment of foreign nationals in supervisory/technical positions for five years from registration;

(vii)

access to bonded manufacturing/trading warehouse system;

(viii)

(b)

tax and duty exemption on imported spare parts and supplies for export producers with custom-bonded warehouse exporting at least 70 per cent of their production.

Republic Act No. 7844 otherwise known as the Export Development Act

Among the incentives available to companies that export at least 50 per cent of their products are exemption from advance payment of custom duties, zero per cent duty on imported machinery and equipment and accompanying spare parts, tax credits on imported raw materials for a period of five years, tax credit for increase investments in current year, and tax credits of 25 per cent of duties on local raw materials and/or spare parts for a period of three years extendable for another three years.

(c)

Republic Act 7916 otherwise known as Special Economic Zone Act of 19951

Provided the legal framework and mechanisms for creating, operating, and managing Special Economic Zones (ECOZONES) in the Philippines and created the Philippine Economic Zone Authority (PEZA). ECOZONES offer the following incentives to developers/operators: (i)

Income tax holiday;

(ii)

Incentives under the Build-Operate-Transfer Law, which includes government support for accessing Official Development Assistance and other sources of financing;

(iii)

Provision of vital off-site infrastructure facilities;

(iv)

Option to pay a special 5 per cent Gross Income Tax in lieu of all national and local taxes;

(v)

Permanent resident status for foreign investors and immediate family members within the zone as long as the enterprise exists; and

(vi)

Employment of foreign nationals.

A separate set of incentives is also available to ecozone locators that include, among others, domestic sales allowance equivalent to 30 per cent of total sales, income tax holidays for four years, extendable to a maximum of eight years, exemption from wharfage dues and export taxes and fees.

B. S&T infrastructure (R&D institutions and parks) To a large extent, the success of Technology Business Incubators depend on how organized and efficient the R&D system is. For technologies to create impact and realize their full potential, technology adoption must also be at a level that is at par with technology development. In most cases, however, technology generators are beset with institutional rigidities that prevent them from transferring technologies most effectively and efficiently. Technology users or investors may also be a wary of the risks associated with new technologies. This predicament continuously feed the vicious cycle of irrelevance of S&T efforts, dependence of industry on imported technologies and very low, if not total lack of, private sector investments in S&T.

1

As cited in the paper of Mr Wilhelm G. Ortaliz, Deputy Director General for Policy and Planning, Philippine Economic Zone Authority entitled ÒIncentives and opportunities of IT/Park ZoneÓ presented at the Information and Communications Technology Conference, Cebu City, Philippines, 25-26 July 2000.

244

Sadly, this seems to be the situation for the Philippines which, according to the 1999 World Competitiveness Yearbook, slipped from 26th place in 1996 to 33rd in 1999 from among 47 countries assessed.

1. Inadequate R&D personnel In 1994, the Philippines had only 157 scientists and engineers directly involved in R&D per million population. Based on this ratio, the country ranked 73rd out of 91 countries surveyed. There is also a mismatch between the demand for science and engineering related graduates by local industries to the number of graduates produced by tertiary schools. To help address this problem the government, through DOST, borrowed funds from the World Bank to implement the Engineering and Science Education Programme (ESEP) which was aimed primarily to addressing this imbalance and upgrading the quality of science education in the country. To date the programme is completed and the country is currently negotiating for a second phase focusing on technology enterprise development making it safe to assume that there has been a significant improvement in the statistics compared with 1994.

2. Low R&D expenditures The Philippines normally spends less than 0.2 per cent of its GNP on R&D. Of this, the private sector accounted for only 21.8 per cent. This means that the government, with its limited resources, shoulders much of the burden of funding R&D activities in the country. The seeming lack of support from the private sector, however, can be traced to the countryÕs economic structure, which is dominated by small and medium scale enterprises with very limited funds for investment, especially for R&D. Like most developing countries, SMEs in the Philippines depend heavily on imported sources of technology. They, likewise, lack technical competence to undertake R&D and/or evaluate alternative technologies from foreign sources. This, often results in SMEs acquiring obsolete and/or inappropriate technologies further worsening their skepticism over new technologies. It is, therefore, towards this end that project COMPETE, discussed earlier, focuses its efforts, particularly for the three special areas mentioned. The challenge is to develop a competent, competitive and efficient S&T community that addresses industry needs adequately.

3. Weak R&D institutions There is a perceived weak linkage between users and suppliers of technologies. As a result, only few government R&D projects find commercial application. This is further compounded by the very limited financial and manpower resources available to the R&D institutes. The Department, therefore, has focused efforts not only in upgrading S&T services available but also in enhancing information dissemination and technology adoption all over the country. At present, there are five (5) sectorial councils attached to the Department handling the policy-making, monitoring and review of R&D activities as well as manpower development in the respective sectors.2 There are also seven Research and Development Institutes specializing on R&D in various fields like advanced science, food and nutrition, textile, forest products, industrial technologies, metals industry and nuclear research. There are about 61 ecozones/industrial estates/parks managed by either private or government owned corporations. While there are weaknesses, the government remains firm in strengthening these critical factors for developing high technology enterprises in the country. There is much to do but there has also been significant headway in the past few years. 2 The five sectoral councils attached to the Department are: the Philippine Council for Agriculture, Forestry and Natural Resources Research and Development; the Philippine Council for Aquatic and Marine Research and Development; the Philippine Council for Industry and Energy Research and Development; the Philippine Council for Advanced Science and Technology Development; and the Philippine Council for Health Research and Development.

245

C. Technical entrepreneur development In addition to improving science education, the country pays special attention to improving the skills and absorptive capacity of the labour force for new technologies. The Technical Education and Skills Development Authority (TESDA) created through Republic Act 7796 for example, shifted from simple manpower skills development to technological skills development to address the needs of industries. To address the mismatch between industry requirements and graduates of the educational system, the government has pursued efforts to strengthen linkages among TESDA, academic institutions, industry associations, the Department of Education Culture and Sports (DECS) and the Commission on Higher Education (CHED). Similarly, the Department through the Technology Application and Promotion Institute (TAPI) launched the DOST-Academe Technology Based Enterprise Development Programme (DATBED) to develop entrepreneurial competencies among students and young professionals from selected academic institutions while at the same time creating income-generating projects for the involved institutions. The programme provides funds to participating students so that they can start a technology-based enterprise while on their final year of studies. The funds, which come in the form of a soft loan, are payable to the school. The school, which upon submission of approved projects, can re-use the funds for new enterprises of other students. To date, the programme has graduated 361 students engaged in over 120 enterprises generating additional employment opportunities for some 197 personnel. In the long run, the DATBED hopes to improve the entrepreneurial courses offered by academic institutions. Recently, the academic institutions themselves have started entering into loan agreements with the Institute to maximize utilization of the available resources of the University.

D. Innovative financing support system There has been a significant change in the financing structure of the country in response to the increasing need of technology-based enterprises. This can be seen in terms of the increase in the number of active venture financing companies now operating in the country attesting to the relatively robust growth of high technology based enterprises. Even traditional commercial financing institutions have adopted measures to boost lending to a new breed of entrepreneurs. For example, the Development Bank of the Philippines (DBP) has opened its Window III programme to provide funding for companies engaged in commercializing technologies, especially those generated locally. Loans under this window charge preferred interest rates (6 per cent for R&D activities compared with 24 per cent commercial rates). While limited, the institute likewise strengthened efforts in bridging the gap between technology development and commercialization. Empowered by its mandate to provide venture financing and/or grants to emerging technologies, the Institute expanded financial assistance for:

1. Prototype development and testing Funds have been allocated by TAPI to facilitate the development of commercial prototypes that can best attract investors using the results obtained in the laboratories of research institutes and academic institutions.

2. Pilot plant assistance In addition, funds are made available to assist in the initial commercial operation of the technology. These are very soft loan packages that are non-interest bearing and are meant to prepare investors for the commercial loans available from financing institutions as the technology is being debugged.

246

3. Preparation of technology packages To expand the possibilities of technologies finding commercial operation in the shortest possible time, funds have also been set aside by the institute to facilitate the preparation of technology packages and/or business plans. The idea is to translate R&D results to investment portfolios that can attract private investors.

4. Investors forum We have likewise facilitated the dissemination of technologies as well as strengthened linkages with the private sector by sponsoring various investorsÕ forum in the country. The forum provides a venue for exchange of information among technology generators and potential investors or users of the technology providing significant input or feedback for improving the technology or directing future research efforts of the scientists.

E. Intellectual property assistance/technical consultancy services It is sometimes disappointing that lack of appreciation on the value of intellectual property protection prevents scientists from aggressively transferring technologies to target clients. Thus TAPI also initiated the provision of financial support to encourage scientists to secure intellectual property protection. This will not only give assurance to scientists that their efforts will be properly acknowledged, it can also give potential investors some level of confidence that the technology licensed/assigned to them will not be easily available to potential competitors. Two technical consultancy services were likewise launched by the institute with funding support from DOST. This includes the S&T Experts Volunteer Pool Programme (STEVPP) that provides SMEs access to expert services at no cost. The programme has enlisted more than 800 scientists and experts from the government and private sector that render technical services for free. If recommended, the stopgap solutions are followed up by a longer-term technical productivity consultancy service through the Manufacturing Productivity Extension Programme for Export Promotion (MPEX). The programme fields productivity consultants and specialized technical experts to assist the entrepreneur at the production floor. To date the programme has assisted more than 900 manufacturing companies including selected contract producers of these companies.

IV. RECOMMENDATIONS FOR FUTURE ACTION An analysis of the performance and growth of technology business incubators assisted by DOST indicate serious problems on sustainability particularly in terms of available funds to upgrade facilities and even continue day to day operation. It is, therefore, imperative that the following be pursued: (a)

Strengthen venture financing activities especially for high impact, high risk technology-based enterprises;

(b)

Plans to establish an IT Venture Fund to finance research activities such as development of proofof-concept and strategic technologies should be pushed to augment limited funding available for the development and commercialization of advanced technologies;

(c)

Certifiable training and advocacy can be pursued to receive critical political support and will to establish technology business incubators for promising areas;

(d)

Interest groups or clusters on areas such as distance education, e-commerce, convergence, information systems development and security shall be pushed to provide the support group to pursue and sustain efforts;

(e)

Continue to build a critical mass of S&T manpower which can be further enhanced through networking locally and internationally.

247

V. CONCLUSIONS The rapidly changing knowledge-based economy offers not only a wide range of opportunities but also challenges that no single agency in the government can handle. Recognizing the role of the private sector in this endeavour and the pivotal role of government, it has become critical that strategic alliances are established and sustained among all stakeholders to maximize benefits from rapid technological change. This depends on a strong commitment and focused vision in the sector complemented by a strong political will. We are hoping that this regional consultative meeting can help us shape our strategies together.

248

VIII. STRENGTHENING TECHNOLOGY INCUBATION SYSTEM FOR CREATING HIGH TECHNOLOGY-BASED ENTERPRISES IN THE REPUBLIC OF KOREA

Abstract High-tech start-ups of the Republic of Korea in 2000 form the third generation, characterized by creating a global business, since the first generation struggled for survival in 1980 and the second generation spin-offs from universities and research, institutes incubated in technology business incubators in late 1990s. Starting a new paradigm of research and business, researchers adjusted their goals to create profitable technologies. Such a change may not be self-motivated but commensurated by both of the government-driven venture policy and expected spin-offs. The major taskforces consisted of researchers and engineers, called ‘technopreneurs’, who were accommodated in the technology innovation centres and business incubators. The start-ups in incubators may have several advantages, such as access to management, marketing development and information flows, and incubators develop a successful service model for supporting these growing companies.

249

I. SIGNIFICANCE OF HIGH-TECH START-UPS Technology-based venture business is now recognized as the driving engine for the Korean economy after the from economic crisis in 1997. Also, social and economic sectors are undergoing major structural changes to increase efficiency of production and marketplace. The replacement of the old structures and customs by new global standards, and the creation of venture firms possessing unique technology as the core competence have just begun to improve international credit. In this respect, the revitalization policy of the Government of the Republic of Korea is to promote technology innovation with two primary goals in mind: in the short-term, to overcome economic difficulties through the commercialization of technology and, in long-term, to develop potential for long-term growth in the knowledge-based information society. Knowledge-based industries will contribute to most of the growth in national wealth in most countries in the 21st Century and high-tech firms are recognized as the nuclei of the industrial paradigm shift. The firms will be the building blocks for the shift. The venture requires new idea and technology for creating a new market, while venture capitals rated it as a risky project. For engineers venture is to create value from technology and knowledge and the creation of knowledge-based high tech firms is the most appropriate selection for up-grading the value of technology. Knowledge includes the method of creating values not simply additive but synergetic. Therefore, it is almost impossible to decrease the gap in technology between the developed and the undeveloped countries. In this century, it is believed, that the necessary key to be developed is to develop high-tech ventures from knowledge. Industries and the national economy, therefore, can be strengthened from the technology incubation system and by creating high-tech businesses. It is no wonder that the growth of the American economy is driven by the mobilization of high-tech companies grown in Silicon Valley. Another important factor is to cultivate entrepreneurship for creating venture and then triggering the 2nd growth. The young businessperson may develop a new core competence for growth and competitiveness. In fact, high-tech companies will drive the transformation of the industrial paradigm from labour and capital to knowledge. In this report, we focus on the trends and status of venture and incubation systems for nurturing venture and the effort of the government to initiate the revitalization programme.

A. Trends and growth of Korean venture 1. Growth of venture

The first generation (1980-) ◆ own technology ◆ qunix and the Sambo Computer, Medison

The second generation (1996-) Internet and information technology ◆ venture capitals, TBI, KOSDAQ ◆

The third generation (1999-) IPO through NASDAQ ◆ Thru-net and Mirae Industry ◆

Figure 1. Venture generations in the Republic of Korea

(a)

The first generation

The first generation of Korean venture started in early 1980 when the creation of high-tech companies were not in business-friendly environments. The pioneering engineers founded Qunix Computer and Sam Bo Computer after the launch of Apple Computer in the United States of America and, thereafter, Taeil Precision, Medison, Hangul, Duin Electronics and so on were founded. Even if these companies started with their own technology, they have weak competition compared to their competitors in the United States of America, and, therefore, the initial strategies focused to replace imports. Later, however, the accumulation of technology was successfully enabled to create new products and to meet the global market.

251

(b)

The second generation

The second generation of venture started in 1991-1992 and the firms were founded in two different ways: one started the companies according to the Silicon Valley model, if they had ideas and funds, while the other started at incubators in research centres or universities where the technologies were developed. The first incubator in the Republic of Korea started to operate at Korea Research Institute of Industrial Technology and KAIST started TIC/TBI in 1992. In 1997, after special articles for venture promotion, the Korean government initiated programmes to support the ventures and directly supported venture capitals, TBI, KOSDAQ, etc., which form the infrastructure for the creation and growth of venture. The Internet and information technology of so-called dotcom companies have been highlighted after Korean economic crisis. The companies also manage new strategy and cultures, different from the classical “jaebol” model.

(c)

The third generation

Now the technology and culture of venture are upgraded for a global standard and competitiveness. The companies having high-tech products and Internet solutions are now announcing IPO, not only at KOSDAQ but also NASDAQ. In 1999, Thru-net and Mirae Industry announced IPO through NASDAQ and several others are in preparation for IPO in the United States of America. At the same time, foreign capital companies are interested in directly investing in Korean venture companies.

2. Recent trends (a)

Number and human resources

Since 1997, the number of venture companies increased drastically at the rate of 250 per month and led the reengineering of social and economic structure of business. The total number of companies blessed by SMBA (Agency for Small and Medium-size Business) was 7,110 in May 2000; compared to 4,700 in Japan; 1,200 in Taiwan, Province of China and 1,000 in Israel. Table 1 shows the trend of the ratio of creation and failure of small and medium-size companies in the Republic of Korea. Table 1. Numbers of companies created and failed (Unit: number, ratio) Class

Monthly Average 1999

May 2000

Jun 2000

Monthly Average 2000

Created

2 498

3 757

3 948

3 875

Failed

207

211

223

219

Ratio

12.1

17.8

17.7

17.6

Table 2 shows the recent trend of creating venture companies and indicates more than 500 companies are founded every month that in every month. Table 3 shows the composition of venture by way of getting certification by SMBA (maybe the Republic of the Republic of Korea is the only country to count the number of venture companies) and Table 4 for business area. In the Republic of Korea, venture is defined by law as (1) companies invested by venture capital, (2) companies which have R&D investment over 5 per cent of total sales volume, (3) companies which commercialize products based on patents and newly-developed technology and (4) companies certified by evaluation institutes. However, there are about 3,000 seed companies, which have no certification from SMBA. Table 2. Recent trend of venture companies Class

1999

Jan-Feb 2000

Mar 2000

Apr 2000

May 2000

Number of venture

4 934

5 546

6 004

6 547

7 110

241

306

458

543

563

Monthly growth

252

Table 3. Composition of venture companies defined by law (Unit: number) Venture capital

Research

Patent & new technology

Certified

KOSDAQ

Total

Number

1 116

1 106

1 881

2 834

173

7 110

Per cent

15.7

15.5

26.5

39.9

2.4

100

Classification

Table 4. Business field of venture companies (Unit: number) Manufg.

Info. tech. & software

Res., service

Number

4 733

2 051

124

99

45

Per cent

66.6

28.9

1.7

1.4

0.6

Classification

Constr. & Transp.

Whole & Agr., fishery retail sales & mining

Others

Total

24

34

7 110

0.3

0.5

100

Recently, college graduates prefer to have job at venture companies rather than at conventional large companies. A survey of SMBA (1999.1) showed that the 53.8 per cent of college graduates in 37 Universities take the first priority in venture and 73.9 per cent in the field of information technology and software. This number does not represent the difficulty of taking a job as taking a job at a venture company is highly recognized as having a new opportunity for the future.

(b)

Venture capital

The 2nd Korean stock market, KOSDAQ was heated and the trade volume of stock soared up since February 1999. The heat of KOSDAQ initiated to fuel the venture and then angels. In the first half of 2000, 55 capital companies were founded, so that the number reached 141 as shown in table 5, and the number of investment associations increased to 101, and the total fund was US$ 6.9 billion. Another noticeable change is the investment of jaebol companies in venture and the increase of direct investments. Direct investment increased to 75 per cent in 1999, 63 per cent in 1998 and 51 per cent in 1997. Table 6 shows that the investment by venture capitals increased drastically in the past year, and 76.7 per cent of club investment was distributed to the young companies less than 3 years old. Also 16 angel clubs supplied US$ 3 billion to fund the initial stage of companies. This is expected to grow by 10 times by 2002. Table 5. Number of venture capitals (Unit: number, 100 million won) Classification

End of 1998

End of 1999

End of Jul 2000

Number (New)

72 (12)

87 (15)

141 (55)

Fund (Cumm)

21 747

27 918

42 777

Table 6. Investment by venture capital (Unit: number, 100 million won) Classification

1998

Jul-Dec 1999

Jan-May 2000

Number comp.

420

327

1 130

1 042

2 168

2 089

7 413

8 109

Investment

Jan-Jun 1999

Table 7 shows the number of companies and capital increased by public offering. KOSDAQ is now recognized as the outlet of investment. In spring 2000, the number of venture companies listed in the market as public companies was 173 out of a total of 538 KOSDAQ companies. However, this is only about 2.4 per cent of venture companies.

253

Table 7. Capital liquidized through KOSDAQ (Unit: number, 100 million won) Class

Average in 1999

Number registered

Jan 2000

Mar 2000

May 2000

Jun 2000

453

460

492

526

538

Capital increase with consideration

2 570

3 630

5 306

6 178

3 372

Public offering

1 771

1 072

641

1 678

9 546

Total

4 341

4 702

5 947

7 856

12 918

The investment of foreign capital drastically increases such as CDIB, H&Q, ADL, etc. plan to invest more than US$ 1 billion and Jadin Fleming Electra invest US$ 160 million to Locus. Thru-net and Mirae Ind. were listed at NASDAQ in 1999 and many others are in consideration.

(c)

Paradigm shift

Figure 1 indicated the motivation and phenomena of venture growth in the Republic of Korea. As the Silicon Valley model spread over the global economy, the flexibility and speed of enterprise management became highlighted and replaced the conventional management. Jeffrey Timmons of Harvard Business School was called this change as “Silent Revolution”. Now it becomes a global rule for new industry at Sinchu in Taiwan, Province of China, Bangalore in India, and Tel Aviv in Israel. The Republic of Korea has invested in technology development for more than 30 years and now it is the time to harvest high-tech and well-trained researchers, who will provide technology and manpower for creating venture, especially in information science and semiconductor industries. Universities such as KAIST, and research institutes such as ETRI and other institutes, trained high tech researchers in Taejon area. Spin-offs from large companies, such as Apel Telcom and the dongari, the venture club of college students, added to this parade. People believe that venture may provide a solution for unemployment and economic recession and promise high growth and employment. Presently, it was reported that employment in venture is already over 100,000 and the production volume over US$ 12 billion.

Influence of ventures (USA)

Increase of current capital Growth of venture

Paradigm shift Foundation of industry (technology, manpower)

Spread of success

Figure 2. Backgrounds of venture booming Another interesting feature is the flow of capital to venture and KOSDAQ. Government policy for cultivating venture triggered cash flow and venture was seen as “flower of 21 C”. Most of ventures listed in KOSDAQ have high income of average 10.2 times, while it is 24.3 for information and telecommunication, and 13.1 for electronics.

254

II. TECHNOLOGY BUSINESS INCUBATION SYSTEMS A. Incubators In the first generation period, there were no incubation systems established, but a new concept of incubating firms was introduced by Professor Lee Jin-Ju in KAIST. He proposed incubation systems as a tool of technology transfer and initiated the first incubation centre at Korea Research Institute of Industrial Technology (He was later appointed as the president of this institute) and Institute for the Promotion of Small and Medium Business in 1991 and Software Promotion centres as well. While in University, KAIST first decided to establish TIC/TBI (Technology Innovation Centre/Technology Business Incubator) in 1992. Darim Vision, the first company in KAIST, was housed in 1994 with 4 others. Later in 1996, Hoseo University founded the technology business incubator. In 1997, the Government of the Republic of Korea decided to support venture as a new paradigm of economy in the Republic of Korea and nominated incubators in University nationwide and 320 incubators in 2000. 223 incubators by SMBA, 40 by MOCIE, 20 by MIC, 17 by KOMS, and 1 by MOST are in operation at universities, research centres and private companies and the Korea Business Incubator Association (KOBIA) was established in 1999.

250

226

Number of Incubator

200

150

100 40

50

20

17 1

0 SMBA

MOCIE

MIC

KOMS

MOST

Figure 3. Business incubation in the Republic of Korea In addition to the incubators by universities and research centres, venture capital and service companies started to operate incubators for their member companies. Also, incubators of large companies started to service for their spin-offs. Hyundai constructed the Beijing incubator, Automobile incubator and Mokdong Incubator, Kosin Technology Incubator in Beijing by LG, Samsung SDS incubator, Socho, Ilsan Incubators by KT, IPP by Kolon, Taejon Incubator by Doosan, and SK global, Hanwha Incubator, etc. Ipark in Silicon valley is operated by Government.

B. Technopreneurs There are no data available about the number of spin-offs from the research labs but a survey of Taejon city and KAIST, showed more than 80 per cent of enterpreneurs have experiences in R&D, engineering backgrounds (figure 4). They are called “Technopreneurs”. However, spin-offs were slow and delayed, and the research activities of TST (Taeduk Science Town) faced some difficulties similar to the national economy. Therefore, nurturing ventures at TST has become a hot issue within provincial and national governments (Kang 1997). It was recognized, however, that spin-offs from research institutes start after 20-30 years of the science park construction (Lin 1996, Massey and others 1992).

255

12% 10%

R&D Engineers Private Companies

57%

Management Technician

8%

Students

4%

Figure 4. Work experiences of entrepreneurs Here, the trends of creating a venture at TST will be discussed by reviewing three branches: Taeduk 21st Century Club, ETRI spin-offs (EVA, ETRI venture association), and KAIST spin-offs. Taeduk 21st Century Club is a venture association working in Taejon and has increased its membership to 67 since 1988. The market volume of the club members was about 10 billion won in 1997. Most of them (except 10) are still seed companies and no one is estimated to be in steady state (Min 1999). The member companies of EVA have also increased to 104. The graduates of KAIST founded about 126 venture companies and the tenant companies of KAIST High Tech Venture Centre (HTVC) are now about 117 in number. The total number of high tech ventures working at TST is estimated to be about 350 in 2000. In KAIST, the first venture company, Qunix Computer, which now merged and acquisited to Microsoft Korea, was started in 1980 by Prof. B.C. Lee, a KAIST graduate and professor of KAIST. Medison, founded in 1985 by Dr. M.H. Lee, who is a KAIST Ph.D. and the president of Korea venture society, marketed ultrasonicators over US$ 100 million in sales volume in 1998. Dr. Y.D. Kim, founded Darim Vision in 1994, has the MPEG technology, which is rated as a top technology of the world by European consumers, and housed in HTVC, performed over US$ 5 million last year. From ETRI, the telephone for persons with hearing problems, was commercialized in 1997 and named as one of one hundred best products of the market in the United States of America in 1998.

C. Business area Figure 5 showed the results of a survey by the Taejon SMB centre and KAIST (1998). The types of firms consist of software and IT at 45 per cent, computer and multimedia at 15 per cent, fiber and chemicals at 10 per cent, medical and industrial instruments at 6 per cent, semiconductor at 5 per cent, mechines and metals at 3 per cent, and others at 16 per cent. Considering that IT industry gets more gain, it is no wonder for more than 60 per cent of firms are involved in information and communication.

16% Software & IT

3%

Computer & Multimedia

5% 6%

45%

Fiber & Chemistry Medical & Industrial Equipments

10%

Semiconductors

15%

Material & Machines Others

Figure 5. Business area of companies in incubators The high-tech businesses have the lowest rate of failure (Compbell 1988) and further, the rate of success can be expected to increase if the science park or incubator is in service. However, it may not be of enough size to predict the success rate but is expected to increase the success rate. A survey by Dun and Bradstreet (1986) in 1985 listed the failure of 57,067 companies; 14.5 per cent in the first year, 14.1 per cent in the second year, 11 per cent in the third year, 16.7 per cent in 4th-5th year and 23.5 per cent in 6th-10th year. Only 20.2 per cent

256

lasted more than ten years. The KAIST incubator offers an incubation period of three years and limits the maximum duration to five years. The main objective of such services is to reduce the failure rate.

III. CASE STUDY: INCUBATORS AT TST AND KAIST A. Service model It is meaningful to analyse the strength, weakness, opportunity and threats of venturing in order to observe the dynamics of the present state (Lee 1999). For increasing the success rate, the strategy should be focused on overcoming weaknesses and threats, and maximizing the strength and opportunity. Even if the needs of incubators are different from place to place, the areas of support to SME ranked in European countries are as follows (De Donong and others 1992) by (1) Technology development, (2) Facilitation of start-up enterprise, (3) Financing and exports, (4) Training, and (5) Information and counselling. The incubator should develop its own service model depending on the conditions provided by the environments such as university police, technology service, entrepreneurs, funding, marketing, staff training, management service, relationship with local government, and other special requirements. KAIST offers the companies free rental fee, minimal operating cost, management consulting and other support of creating companies while companies provide the research grant and donation within 1 per cent of their stocks. Figure 5 suggested a model for an undeveloped country, which is a guide for HTVC.

Figure 6. Technology business incubator model

B. Factors at TST 1. Resources and education Among all identifiable factors, Dominique Fache (1992) attributes the success of innovation to the cultural and human adaptabilities at a science park. Usually, however, there is little managerial experience on this radical change of the global transition economy, which leads to SMB and incubators suffering from the lack of competence. Most research institutes are in the field of science and technology, and the spin-offs lack management, financing, and marketing.

257

The four universities in TST take the initiative of cultivating technology and enterpreneurship for young students; KAIST, Chungnam National University, The Graduate School of Information and Telecommunication, and Taeduk University. Among them, KAIST runs the undergraduate programme for science-gifted students and the graduate programme for top-notched researchers. The total number of students is 2,500 for undergraduates and 4,000 for graduates. About 150 KAIST graduates founded venture companies nationwide and some of them have been successful. KAIST provides graduates with master and Ph.D. degree adequate to perform national projects. Some of Ph.D. holders in TST have relocated from the USA and other countries. Since enterpreneurs of high-tech start-ups, technopreneurs, are not educated as businessmen, they are required to have the education of management or the support of TBIs. The graduate school of management offers the Advanced Venture Mangement (AVM) programme (Bae 1998). This programme provides comprehensive information of start-ups and management including a field trip, and a one-week seminar and tour to the Silicon Valley. HTVC runs the venture school for start-up businessmen and holds a business plan competition for college students every year.

2. Technology and facilities In TST, sixteen national research institutes with their specialties and KAIST, a top-notched university, are ready to support technical services. In fact, national research institutes have registered 4,125 Korean patents and 623 international patents, and 1,178 projects have been commercialized with loyalties of about US$ 60 million, according to the report by Shul and others (1999). There is no doubt that the research assistance of TST is of the highest priority for high-tech venture businessmen relocated to TST. However, there are still some problems like mixing researchers and businessmen and having no room to develop coprojects. KAIST-HTVC operates a technical and managerial assistance programme for solving problems by linking venture companies and researchers. Taejon city plans to construct several new venture facilities in the Taejon Science and Industrial Park near TST and research institutes start to provide new spaces and build new incubators for their spin-offs. Such institute-affiliated incubators can provide the space and facilities, research project, and information for their tenants.

3. Financing and information Most of start-ups in Korea initially suffer financial problems because the traditional investors are not accustomed to high-risk projects. Even if it is a venture capital, the evaluation ability of projects is not sufficient for funding, requiring a security fund named ‘technology credit’. Most capital companies and angel groups do not have the evaluation ability of technology value, hindering technology transfer and cash flow to venture. SMBA established the venture license system providing some benefits to ventures and recently nominated 11 institutes, one of which is KAIST COTAC, the COmpetitive Technology Assessment Centre. Technology-based ventures, in some cases, require large capitals but the traditional banks do not want to take this perceived risk. Venture capitals can initiate funding by evaluating the merits of management, market, and innovation. Technology-based ventures are linked to the sources of knowledge, i.e. universities and laboratories. The KAIST library is one of the largest national libraries subscribing to 2,000 science and engineering journals, and KORDIC has developed a database for national researchers. National databases for academic research by KERIS, industrial technology and information by KINITI, and patent information KIPRIS are also in service. Most of research institutes have equipped their specialized collections in the individual libraries, which serve for guest users. Technopreneurs also lack technical and managerial skills, resulting in the delay of the growth of the company, and need to upgrade the skills of owner-managers, technicians, and supervisors. Not only financial partners but also management or marketing partners are required. Incubators regularly open the consulting sessions with lawyers, accountants, management consultants, and patent lawyers. Enterprise Forum of investments, and product shows and technology/management seminars are opened. The problems can be overcome by outsourcing or sharing of profits.

258

4. Networking and infrastructure A business incubator is one of the major instruments for stimulating enterpreneurship and venture in the science park. Business incubators provide facilities for new and small firms by providing affordable space, shared office services, financial service, management assistance, and local and national network. TST and the Taejon city have made special efforts for networking through World Technopolis Association. Since 1996, the Mayor of Taejon has organized a conference inviting the mayors of Technopolises around the world to discuss the cooperation of science parks every year and to promote academic and business linkage. A technomart, academic conferences, cultural mix and exhibitions follow the mayors’ meeting. There are several Venture Exhibitions by MOST, MITEE, and SMBA. Under SMBA, SME Service Centre has developed a one-stop service for creating a venture firm. KOSDAQ provides the funding and investment opportunity for ventures and investors, and The Korea Venture Association was founded. For an international link, an incubator is operating at the Silicon Valley to support the soft landing of software companies in the United States of America. The Taejon Expo Foundation and the Taeduk Science and Cultural Foundation provide the linkage between TST and the boundary organizations in services including marketplace, mass communication, and business association. Expo Foundation Co. operates the facilities of the expo, convention centre, and trade centre, while Science Cultural Foundation supports the athletic facilities, hotel, and cultural events. The SME Service Centre serves venture and SMEs for management and government policy, and Technology Credit Co. offers funding. The MOST supports the KAIST Electronic Library and KORDIC database for research information. Taeduk Angel Club and KAIST Angel club started to fund ventures and Taeduk venture families and plaza started in 2000.

C. TIC/TBI projects in KAIST KAIST established TIC/TBI to assist technological innovation and business incubation for small & medium-sized industries and to drive the spin-offs to success in the market place. Therefore, several projects were launched, such as TIC, to induce the technology innovation of small and medium-sized companies, TBI for technology business incubation, technology diffusion project, and technology assessment project at COTAC.

1. Strategy of incubator Now it is time to discuss the strategy for success at the Technology Business Incubator/Technology Innovaion Centre in KAIST. In figure 7, a strategic vision for success is illustrated, including ten strategic checking points to achieve technological innovation and market development for tenant companies.

(a)

Strategic vision

Successful companies start with a comprehensive review of their strategic vision and link business strategy to the process. Especially, the first impression of venture in market comes from strategic vision, which will provide the sales point of future values and potentials.

(b)

Synergy effect in technology development

The tenants of the incubator consist of companies related to software, electronics and telecommunication, mechanical and materials, energy/environment, and biotechnology. Technoprenuers are encouraged to participate in a variety of seminars and conferences, and to participate in possible joint project between companies of different areas.

(c)

Fund Raising

Technopreneurs usually have funding problems within 1-2 years because the start-up fund runs out but the companies still have no products to the market. Venture capitals or angels will seek to fund such companies with some risks, but with highly expected profits. The incubator helps the fund raising via R&D projects, investment forum, angel group, and technology accessment.

259

Technology Development

Networking Education & Management

Strategic Vision

Fund Raising

Intellectual Properties

Enterprise Information Flow

Marketing

COTAC

KOSDAQ

Figure 7. Strategic Vision Model

(d)

Networking and outsourcing

The know-how of operating a small firm is not different from that of the operation of a large company, but no venture company has manpower and specialty to support the top management. It is common to fulfill the needs of ventures with networking and outsourcing.

(e)

Marketing and brands

Since the products of ventures are not validated in quality, it is very difficult to develop credibility in the market. Incubator launch COTAC (COmpetitive Technology Assessment Centre) to evaluate the potentials of technology in the future market. The centre will select valuable technologies, nominate the CT mark as an advanced technology with high value and permit the use of the common brand.

(f)

Education and manpowers

The manpower of well-trained technicians is crucial for developing a new technology but hiring the people with right technology is extremely difficult. Therefore, the companies should train their own persons and give stock option for high-tech engineers.

(g)

KOSDAQ

As a venture gets market value, usually the company announces the IPO (Initial Public Offering), and its stock can be traded with high premium at the stock market. Timing is also very important to go for KOSDAQ.

(h)

Information flow

The input of information on technology, market, policy and management may revitalize the activity of a venture but a leak of information on technology and market may make serious problems for the immature

260

market of the company. However, it is sometime inevitable to raise fund and recruit. Incubators organize the Enterprise Forum for capital investment.

(i)

Intellectual properties

Usually a high-tech venture has some intellectual properties, i.e. patents, and the license and brand name for a venture. It is also important for tax and other support policies.

(j)

COTAC (COmpetitive technology assessment centre)

The centre evaluates the technology value for promoting technology transfer, funding of venture capitals, partnership, and marketplace. The centre reports technology innovation, market, and competitiveness as raw materials for decision-making.

2. Selection criteria KAIST has facilities of about 130 rooms at its campus and HTC (high-tech complex). Any potential tenants would be selected on the basis of open competition by reviewing its proposal and interviewing with the committee. The general criteria and evaluation items are listed in table 8. Table 8. Selection criteria A. Personal project performance (a)

Work experiences

Business area

(b)

Managing attitude

Strategy, R&D, training, trends sensitivity, driving forces, credit

(c)

Managing abilities

Managing workers, material flow, production, accounting

(d)

Financing abilities

Starting fund

B. Technology innovation (a)

R&D environments

Man powers, facilities, experiences

(b)

Innovativeness

Core technology, potential, and competitive technology, innovativeness and complexity

(c)

Adaptability

Importance of production, stability of process, life of technology, and sales, marketable technology

(d)

Effect of technology

Application and extension to other technology or product, impact of social transition, effect in trade

C. Marketability (a)

Prospect of market

Scale of market, potential of market, stability, growth prospect, exportability

(b)

Sales volume and planning

Sales volumes, planning, customer, sales strategy

(c)

Competitiveness of products

Quality of products, price and protection of right

D. Special considerations (a)

Special issues on manager

(b)

Government awards

(c)

License holders

(d)

Project Leaders physical conditions

(e)

Credit enterpreneur

Technology, and market

This may not add to the total but result in failure if not recommended. The competition points and remarks of Categories B (60 per cent) and C (40 per cent) are important for selection. If the evaluation committee recommends, the steering committee will accept the company as a successful would-be tenant. In this process, the most important one is the evaluation of Category B during the interview.

261

D. Incubation and graduation Since 1994, 150 companies were selected and incubated in KAIST incubators. Figure 8 showed the number of tenants selected and graduated or project drops at KAIST and 13 companies left KAIST in various reasons. Five companies cancelled the projects, four projects failed but five companies graduated in 19 August 1999. These included as MariTelecom, Darim Vision, Intersys, Setri and Intelligent Telecommunications.

Number of Tenants

120

114

90

81

60 39 23

30

24 17

15

0

4

10

5

8

2

1994

1995

8

6

2

1996

1997

1998

1999

Year Tenants

Graduated & Project drop

Resident

Figure 8. Incubation and graduation in KAIST Composition of 117 tenants companies appears in figure 9 as 14 per cent in software, 21 per cent in electronics and communication, 25 per cent in precision machine and materials, 30 per cent in environment and life science, 11 per cent in some supporting companies. For graduation, the committee reviews the activity of the company and the conditions; (1) the period of tenancy, 3-5 years, (2) sales volume of 5 billion won/year, (3) number of employee 50, (4) the credit of other agreements. Based on these categories, the committee evaluates the performance of company, whether it manages an independent business or not, because after graduation, HTVC offers the same software services if requested.

14

21

Software

11

Electronic & Communication 30

Precision machines & Materials

25

Environment & life science Others

Figure 9. Business area of tenant in KAIST (September 1999. Number in per cent) KAIST provides varieties of benefits for the tenant companies. First, the companies are permitted to relocate the office and working place to KAIST campus without requiring mortgage for space and facilities. They are charged only a part of the expense for running their office. They use the space for at least 3 years, extendable for an additional 2 years. Second, we support the direct funding for product developments. In 1999, 26 projects were selected and in 2000, 60 projects were supported. Third, we also provide a variety of services such as counseling, seminars and education. Fourth, we provide office facilities such as copy machine, common workplace, and seminar rooms.

262

IV. FACTORS OF SUCCESSFUL BUSINESS IN THE REPUBLIC OF KOREA Figure 10 summarized the success factors of venture in the Republic of Korea such as business item, start-up team, ledge market, outsourcing, and entrepreneurship.

A. Business item The successful companies must have the income and growth model of business. During the past few years, Internet, information and telecommunication, and semiconductor industries expanded their market volumes and, therefore, any related items got the better sales volume. Market entry of new technology provided a lot of opportunity for engineers or technopreneurs to reduce risks. In 2000, bioventure companies were attracted by venture investors.

B. Strong team of start-ups Start-up team must have not only business mind and professional attitude, but also unity and common goal. Entrepreneur should be open-minded, and may have a better distribution of benefits and maintain the partnerships.

C. Ledge market Ledge market, of which large companies cannot take the merit, is the main target of venture, but the stability and potential success of the initial stage would be increased if blessed by large companies.

D. Outsourcing All the venture companies also need to supply resources for products and employ them efficiently and cost-effectively. The small companies, however, cannot have all of necessary resources, but this can be supplied by outsourcing even all the human resources and facilities.

E. Entrepreneurship The entrepreneur must have the desire, leadership and vision of business as well as the technology foresight. The leadership is very important to make an uncertain project successful.

Successful Business

Item

Strong team

Market

OutSourcing

Figure 10. Factors for successful venture

263

Entrepreneurship

REFERENCES Bae, J.T., 1998. “Education programme of venture management and enterpreneurship”, Venture Management, 1, pp. 155-179. Campbell, C., 1988. Change agents in the new economy, business incubators and economic development (Mineapolis, University of Minnesota). De Donong, J. Snyder and J. Vianen, 1992. “SME policy in the European community”, Netherlands Outlook (Research Institute for Small and Medium-sized Businesses). Fache, Dominque, 1992. Cultural and enterprenuerial success: innovation in science park, the technopolis phenomena (Maryland, Rowman Littlefield Publishers, Inc.), p. 193. Kang, B.S. and P.W. Kim, 1997. “Nurturing venture business in Taeduk Science Park”, in Proceedings of the International Symposium on the Technopolis and Regional Economic Development Strategies, (Taejon, WTA), pp. 299-329. Kim, J.H., 1999. Science & Patent Forum (Spin-offs from research institutes, KAIST). Kim, J.D., I.S. Kim, and J. Namkung, 25 June 1999. “Role of research institutes for business incubators at TST”, A strategy for venture and TBIs in Korea (STEPI). Kim, J.D., “A new wave: creating technology-based businesses at TST”, paper presented at the 3rd Conference of East Asia Science parks, Hsinchu, Taiwan Province of China, 20-21 October 1999. Lalkaka, R., 1977. Supporting the start and growth of new enterprise (UNDP, N.Y.). Lalkaka, R., 1996. “Technology business incubators: critical determinants of success”, Annals of the New York Academy of Sciences, vol. 798, pp. 270-290. Lee, S.H., 1999. “Support policies for venture and technology-based SME”, in The 3rd Science and Patent Forum (KAIST), pp. 37-75. Lin, C., 1996. “Hsinchu Science Park and its impact on local development”, in Proceedings of the International Symposium on the Technopolis: its Vision and Future (Taejon), p. 87. Massey, D., P. Quintas and Wield, 1992. High-Tech Fantasies (Routledge). Min, W.K., 1999. “Trends of ventures in Taejon and their revitalization-Spin-offs from TST”, Bulletin of Society of Technology Innovation. Shul, S.S., W.K. Min, and D.H. Shin, 1999. “Long-term strategy for Taeduk Science Town”, STEPI, 99-3. Taejon SME Centre, a survey in 1998 12.24-1999 1.18, respondents 113 companies.

264

IX. STRENGTHENING TECHNOLOGY INCUBATION SYSTEM FOR CREATING HIGH TECHNOLOGY-BASED ENTERPRISES IN SRI LANKA

265

I. INTRODUCTION Sri Lanka, known as the pearl of the Indian Ocean is located 880 km north of the equator, adjacent to the southern tip of India. With an area of 65,610 sq km or 6.5 million hectares, the country is inhabited by 18.8 million people (1998)1 who speak several languages and profess four main religions. Sinhalese comprise of 74 per cent of the population and Buddhism is the religion of 69 per cent of the people (1981).1 The commercial capital of Sri Lanka, Colombo is situated in the western region of the country. With a per capita GNP of US$ 823 in 1998,1 Sri Lanka is gradually approaching the income level of a middle income country. The country ranks high on the Physical Quality of Life Index (PQLI) and the Human Development Index (HDI). In 1997, the HDI was 0.7211 (maximum of 1.0). Sri Lanka has a literacy rate of 91.8 per cent1 (1998), one of the highest in the south Asian region, a low infant mortality rate of 1.7 per cent1 (1996) and a high life expectancy of 72.5 years1 (1998). Sri Lanka is primarily an agricultural country with a wide range of crops ranging from tropical to semi-temperate grown on about one-third of the country. The chief crop is rice, which is the staple diet of the people. Tea, rubber, coconut and spices are important agricultural crops. The country has a reasonably well-developed economic infrastructure whilst continuing to be an export-import economy. Although the country has a limited industrial base, manufacturing industry has grown significantly over the last few years, and in 1999, approximately 16 per cent2 of Sri Lanka’s domestic output was derived from manufacturing (which consists of processing of tea, rubber and coconut and factory industry). Textiles, wearing apparel and leather products, constituting 44 per cent, accounted for the largest value of industrial production in 1999.3 SMIs in Sri Lanka operate in almost all areas of manufacturing industry other than in the area of petroleum-processing which is predominantly carried out by a large public sector enterprise. The major area of manufacturing4 is light engineering followed by textiles and apparel, food and beverages, rubber and plastics, wood and wood products and leather and leather products. The other major sectors in which SMIs contribute are in sectors of metal products, construction material (mineral based), printing and paper products, agri products, animal husbandry and horticulture and chemical products. Similar to other developing countries, Sri Lanka has reached the stage where the ability of SMIs to generate socio-economic benefits, add value to indigenous raw materials, generate employment and contribute towards the industrial development of the country has been recognized by successive Governments. However, there has never been any targeted development of this sector. Even though a large number of organizations that can provide services to SMIs are in existence in the country, there is no ‘one-stop’ shop for providing this assistance. Therefore SME entrepreneurs have to face difficulties arising from their inherent weaknesses in accessing finances, skills, information, business concepts and markets as well as from the lack of cost-effective business development services and well-managed workspaces, thereby leading to problems of survival. The incubator concept though well established in many neighbouring countries such as India, China, Hong Kong, China and Malaysia is yet in its infancy in Sri Lanka. Thus, start-up as well as existing SMIs have yet to get a competitive advantage from such a facility even though several catalytic factors are in existence for the setting up and support of such incubators. The targeted development and sustenance, therefore, of the incubator concept will no doubt assist in minimizing the many constraints that are faced by the SME entrepreneurs in Sri Lanka.

II. DEVELOPMENT SCENARIO OF INCUBATORS The concept of incubators probably originated in Sri Lanka in late 1998 when the Ministry of Industrial Development had discussions with officials of a visiting JICA (Japan International Cooperation Agency) team to obtain their observations and recommendations on their experiences on incubators in Japan. At this meeting it was suggested that Sri Lanka should study Incubator programmes in other countries and designs a programme suitable to local conditions to make this a successful activity.

267

A. Nawabima Company Ltd. The Ministry of Industrial Development (MOID) had simultaneously set up a Steering Committee on Incubators and also made arrangements to acquire a state owned building on a 30 year lease basis to set up an Incubator Centre in Moratuwa in the Western region of the country. The identification was done taking into consideration the availability of the abandoned building as well as the proximity to a University and a SME support institution. The Incubator centre was to be established on a private/public partnership with the private sector as well as NGOs providing the working capital. A Company named Nawabima Ltd., facilitated by MOID and launched by the Sri Lanka Chamber of Small Industry, was thus formed in early 1999 to run and manage the proposed Incubator centre. Stakeholders for this Incubator, though identified to a certain extent, have yet to make a definite commitment. The various other steps of the initial phase of the incubator development process such as (a) conducting a needs assessment, (b) estimating basic construction costs of renovation to suit the needs of the tenants, (c) evaluating organizational issues such as the legal structure of ownership, (d) evaluating potential sources of finance for development and operation, (e) determining the business support services necessary, (f) selection of a team and (g) finalizing a business plan have yet to be done. An initial advertisement calling for incubator tenants was made in early 1999, and seven responses had been received. However, since the concept of business incubators was fairly unknown in the country at that time it was felt that prior planning and awareness had not been sufficiently provided to attract the right entrepreneurs. Subsequently, in July 2000, the Chamber received assistance from an International Executive Service Corps (IESC) consultant from the USAID funded TIPS (Technology Initiative for the Private Sector) project to carry out a Feasibility study on Industrial incubators. This study reported5 on the suitability of the already identified location, provided a renovation estimate for the earmarked building, an economic and financial analysis for a three-year period and also provided guidelines for the recruitment of an incubator Manager. The report concluded that the incubator can succeed provided, of course, that the recommended criteria for a Manager, Boards of Directors, Business plan etc. were adhered to. The Consultant also emphasized that further assistance through TIPS during the latter part of 2000 would be forthcoming for training of the Manager and drawing up the Business plan, if funding has been received and other formalities finalized.

B. UNIDO funding In mid 1999, with the finalizing of the programme for the UNIDO funded Integrated Industrial Development Support programme for Sri Lanka, UNIDO funding of US$ 88,000 was committed for feasibility studies on setting up Business incubators. An International Consultant was to be thus commissioned for the preparation of an overall study on the feasibility and options for using business incubators as a tool for economic development of the country. The Terms of Reference of this Consultant included a study of the economic environment in the country, the size and characteristics and legal and policy framework for development of the private sector and the government strategy and existing planned programmes for private sector (especially SMIs) promotion and regulation. Through meetings with Chambers, Trade Associations, Banks, Universities and R&D organizations, the consultant was to identify problems facing entrepreneurs, including those interested in technology-based businesses. With this study, the consultant had the major responsibility of determining the possible types of incubators appropriate for the specific regions of Sri Lanka and for the preparation of an implementation work plan for the start-up of one pilot business incubator in the country. The UNIDO consultant arrived in the country in early May 2000 and his findings that were reported in July, emphasized that the incubator should be a public/private partnership. The study also provided findings of the assessment of four possible locations in the country and identified interested parties and sponsors, resources available for incubator development and factors affecting incubator feasibility. UNIDO has already committed financial assistance and will provide inputs for policy formulation and institutional and legislative framework to set up one business incubator in the Southern region of the country. The Southern province was identified because of the major development disparity in Sri Lanka due to the concentration of industrial activity in and around Colombo and neighbouring districts. Hopefully, this incubator will come into operation in 2001. UNIDO has indicated that funding from the Commonwealth Science Council (CSC) may be forthcoming for setting up of another incubator in the Central or North-western region of the country. 6

268

C. JICA recommendations In November 1999, the fieldwork of the Phase II study on the Japan International Cooperation Agency (JICA) Master Plan for Industrialization and Investment Promotion in Sri Lanka commenced. The Interim Report of January 2000 has recommended the establishment of two Incubator Centres as follows:

(a)

Electro Incubator Centre7

This Centre is considered very important for the development of the electric/electronic industry in Sri Lanka. The Centre is conceived to locate Plastic injection mold-making, Metal-processing and Dye-making companies and an office of ‘International Procurement Operation’ as joint venture companies and a ‘PCB (Printed Circuit Board) Design and Sample Centre’ and an ‘Electro Technology Centre’ as Government supported organizations. It is envisaged that the concentration and integration of these major functions would promote interactive and collaborative activities and would also provide the tenant companies with advanced infrastructure and some public assistance and incentives. In this public/private partnership, the government will be responsible for the setting up of basic infrastructure, purchasing major equipment and securing foreign experts for technical assistance while the private sector will be responsible for all other operational expenditure.

(b)

Software Business incubator8

This incubator is to be introduced to create new businesses in the IT industry. It is anticipated that the several bottlenecks in this sector of industry such as limited manpower resources and infrastructure, markets and organizations to promote the IT industry can be overcome by setting up such an incubator. The potential tenant organizations/individuals with small seed money and good ideas are expected to receive incubator support as well as experienced partner assistance with respect to merchandising, development, marketing and management of their technology.

D. IT incubator In the meantime, in July 2000, a business oriented Information Technology (‘IT’) incubator was launched in Colombo with the main objective of stimulating the growth and development of emerging IT companies. The incubator with the formal name Sri Lanka Technology Incubator (Pvt) Ltd. is a public/private partnership and has already received funding for an initial three-year initial period. One-third of this funding is being provided by the public organization, the Sri Lanka Institute of Information Technology (SLIIT), and the balance from a Venture Capital Company, a Software Development Company and a Holding Company, all operating in the Private sector. This incubator seems to have made a head start by advertising for the post of the Manager as well as by the appointment of a very progressive and active four-member Board of Directors. The incubator hopes to invite applications from entrepreneurs and start-up companies in the IT sector. Applications will be evaluated for innovation, marketability and, initially, up to 15 start-up companies will be selected as Resident Companies. The RC companies will have access to business and technical expertise, financial resources with access to venture capital funding and will also benefit from the network of local and international industry contacts brought to the fore by the promoters. The RCs will also be provided office facilities inclusive of a high speed Internet connection. This incubator hopes to grow and nourish IT start-ups to keep pace with the rapid growth of the IT industry around the world.

E. Young Entrepreneurs Incubator The Young Entrepreneurs of Sri Lanka (YESL) who were also assisted for a feasibility study by the same USAID consultant as earlier are expected to receive a state building in the suburbs of Colombo for setting up of a business incubator. The YESL has already received a commitment of US$ 450,000 distributed over a period of three years from USAID to set up the above incubator as well as five other sectorial incubators that will hopefully be distributed throughout the country. This, once again, is a public/private partnership and is anticipated to mainly assist young entrepreneurs of Sri Lanka.

269

F. Sabaragumuwa Incubator The Sabaragamuwa Chamber of Industry (SCI) is planning to set up a business incubator in a new building, which the Chamber hopes to build in the near future. A feasibility study will be carried out by the Small and Medium Enterprise Developers (SMED) mainly to assess the needs of the area. This Chamber even now assists entrepreneurs with training, drawing up of business plans and providing Internet and e-mail facilities. SCI also expects to set up an incubator in collaboration with the Gem and Jewellery Authority of Sri Lanka to assist start-up entrepreneurs in the field of gemstone setting by providing building space and basic facilities. Yet another incubator is planned by this Chamber for the leather-based industries in the area.

III. CATALYTIC FACTORS AVAILABLE FOR SETTING UP AND SUPPORTING INCUBATORS As incubators will necessarily support SMIs in the country, this section of the paper will concentrate on SMIs as well as policies and facilities available to this sector in anticipation that these policies and facilities will be afforded to the SMI tenants of the proposed incubators.

A. National policies 1. National Industrial policy There is no cleary-stated policy for the development of SMIs in the country, neither is there an authority with statutory powers to assume responsibility to coordinate the development of this sector. However, the Government’s “New Industrialization Strategy for Sri Lanka”,9 set out by the Ministry of Industrial Development in November 1995, recognized that Small and Medium industries need development. Some of the areas that were identified for attention were facilitating expansion, access to funds, infusion of new technology, improving products, skills training, local and export marketing, promoting linkages with large firms and improving productivity. However these ideas were not translated to action due to the non-availability of any organization to coordinate the needs and develop the SMI sector. In 1997, Sri Lanka’s Industrial policy significantly changed when it shifted from import substitution to the promotion of private sector-led export oriented industries. This change was considered necessary from the economic point of view. It resulted in considerable changes in the industrial and export structure and strengthened manufacturing subsectors with comparative advantages such as garment production that enjoyed rapid growth with the help of the quota system. However, the change also hindered local industries, especially the SMIs that could not grow enough to match foreign competition. With the most liberal economic environment on South Asia, foreign direct investment flowed into the country. Most of the companies that were set up were labour-intensive and self-sufficient and hardly disseminated their technology to local industries. Therefore knowledge-based industries have yet to develop in the country in spite of Sri Lanka’s advantageous human resources. Insufficient investment by the government for R&D activities has also contributed to a great extent to this shortcoming.

2. National Science and Technology policy The Science and Technology Development Act No. 11 of 199410 came into effect in April 1998. With respect to the application of S&T for industrial development, the Act provides for promoting the use of S&T to achieve rapid economic development, supporting development of indigenous technology whilst promoting the import, adaptation and assimilation of technology for rapid growth in industry and to identify priority areas of S&T likely to be of benefit to Sri Lanka. However, the resources and facilities afforded to this sector by the Government are sadly insufficient with the allocation being only 0.18 per cent of GDP in 1996.11 Hence the S&T policy of the country cannot be totally effective for the development of the industrial sector.

270

3. Concessions, exemptions and fiscal incentives12 In Sri Lanka, there have been no policies or incentives especially for SMIs. Incentives were available across the board until 1998 when the Government extended a concessionary rate of tax on profits for the SMI sector. Some of the other concessions, exemptions and incentives that are available to the industrial sector are as follows:

(a)

Advanced technology

This scheme encourages the use of advanced technology. It offers duty free import of approved machinery and equipment for new and existing enterprises and tax exemptions on incremental profits. The scheme, which was available to large industries with a minimum investment requirement, is presently available to SMIs as well with a view to encourage SMIs to acquire advanced technology.

(b)

Thrust industries

Industries such as electronics and components for assembling, ceramics and glassware, rubber based industries, light and heavy engineering, cutting and polishing of gems, diamonds and manufacture of jewellery have been declared as “thrust industries” and are given various duty free, tax and exchange control benefits.

(c)

Export oriented industries

Businesses engaged in the manufacture and export of non-traditional products, export trading and export of services are eligible for concessionary rates of tax and are exempt from import and excise duties of imported items as well as those purchased locally.

(d)

Regional industrialization

To promote regional industrialization, the government has introduced an incentive scheme aimed at promoting geographical dispersion of industries. Accordingly, enterprises setting up an expansion unit or relocating in a zone designated as a difficult area, employing a minimum of 150 persons and exporting 50 per cent of the output are provided with fiscal incentives.

(e)

Textile sector

A Restructuring programme for the textile industry was introduced after the liberalization of textile imports in 1998. This encourages domestic textile manufacturers in introducing new generation technology to increase efficiency and competitiveness.

(f)

Gem and jewellery sector

Profits arising from export and sale of gems to the State Gem Corporation are exempted from taxes. The import of rough gemstones, machinery equipment and tools are duty free.

(g)

Computer software

A tax holiday and duty free import of all project-related items are extended for the development of software for commercial purposes. It is not known, if and how far the SMI sector in the country makes use of these concessions, exemptions and fiscal incentives.

271

B. S&T infrastructure The S&T infrastructure in the country basically consists of 17 research institutions13 and 12 universities,14 all in the public sector. Since Sri Lanka is predominantly an agriculture-based country, most of these research institutes have been set up to serve this sector. The universities scattered in the different regions of the country are mainly geared to provide academic and technical training for students. Very few of these universities have specific programmes to provide services for the SMI sector. Two of the major SMI support R&D institutions that are in existence are as follows:

(a)

Industrial Technology Institute (ITI)

The ITI has the main objective of elevating the level of technology in Sri Lanka to the level required for rapid industrialization. The institute supports SMIs by technology transfers, adaptation of technologies and development of new technologies. The Institute is actively, involved in developing and transferring suitable technologies in areas of food-processing chemicals, rubber, plastics, wood and paper based products.

(b)

National Engineering Research and Development Centre (NERDC)

The NERDC provides expertise on engineering designs, indigenous technology in areas of energy, transport, building and techno economics. Both these organizations operate in the Government sector and, as funding from the Government is always limited, services even to the SMI sector are provided on a cost recovery basis with no sliding scale facility. Due to the financial limitations of SME entrepreneurs, the services of these institutes are not freely accessible.

1. Technical entrepreneur development Several programmes targeted at technical entrepreneur development are provided by the following major Government institutions:

(a)

Clothing Industry Training Institute (CITI)

The CITI is the only Institute in the country that provides training to those engaged in the garment manufacturing industry. The Institute also assists enterprises to formulate training programmes for their special requirements.

(b)

Industrial Development Board (IDB)

The IDB is the principal SMI development Institution and is responsible for the development of subsectors other than textile and cottage industries. Special subsector schemes operate in areas of rubber products, building materials and light engineering.

(c)

National Apprentice and Industrial Training Authority (NAITA)

NAITA is the main institution providing skills training to the employable. Under the NAITA programmes SMIs have the opportunity of skills training for technicians and craftsmen.

(d)

National Institute of Business Management (NIBM)

The NIBM conducts training programmes to train and educate managerial and supervisory staff of SMIs in modern management and productivity aspects.

272

(e)

Textile Training and Services Centre

The centre conducts training programmes on textiles, marketing, international trade and also provides quality assurance and other services to the textile industry.

(f)

Vocational Training Authority of Sri Lanka (VTA)

The VTA conducts training programmes through several national, regional and rural level training centres, mainly targeted at vocational development of potential entrepreneurs and micro, small and medium scale enterprises. The Industrial Technology Institute (ITI) and the Export Development Board (EDB) also provide various programmes for entrepreneur development. Skills development programmes are available through Small Industry Chambers, Women’s Chambers and the Sarvodaya Movement which is a voluntary non-government organization active mainly in the rural areas, providing leadership and skills training to SMIs.

2. Innovative financing support system Several schemes of financial assistance are available to the industrial sector and some specifically to the SMI sector. Some of these are through credit lines that are in operation and others through credit facilities and Venture capital.

(a)

Short and long term financial support systems

SMIs in Sri Lanka have access to long and medium term financial facilities in the form of direct loans and equity participation from The National Development Bank (NDB) and the Development Finance Corporation of Ceylon (DFCC). Short-term as well as medium and long-term credit facilities as working capital are provided mostly by commercial banks.15 However no concessionary rates or simplified procedure are available to SMIs with respect to this facility. The long and medium term financial scheme for SMIs has been in operation since 1979 when the World Bank/Asian Development Bank sponsored Small and Medium scale Industry (SMI) lending scheme became operational in Sri Lanka. Four lines of credit operated during the period 1979 to 1996. On the completion of these four SMI schemes, the National Development Bank succeeded in raising two other credit facilities amounting to a total of US$ 96 million enabling the continuation of the support to the SMI sector. This facility is now channelled through two schemes. Under these schemes, the bank lends directly as well as through several participating credit institutions and also plays the role of refinancier and provides assistance to almost all sectors of SMI operation. Both start-up projects and expansions are considered under the scheme. The SMI has to provide 25 per cent of the overall cost of the project in the form of equity. The bank, at competitive interest rates, provides 75 per cent of the cost of the project subject to a maximum. The basis for granting the assistance is the economic and commercial viability of the project, experience, integrity and managerial capability, market competitiveness of the product, technical feasibility and the profitability. The two schemes in operation are as follows:

(i)

The SMILE scheme

The Small and Micro Industries Leader and Entrepreneur Promotion Project (SMILE) came into operation in 1996 when the Government of Sri Lanka initiated a credit line amounting to US$ 46 million from the Overseas Economic Cooperation Fund of Japan specially for the promotion of Small and Micro enterprises. These enterprises are defined as those where fixed assets (excluding land and building) does not exceed SL Rs 10 million (approximately US$ 0.13 million).

(ii)

The SMAP scheme

Small & Medium Enterprises Assistance Project (SMAP) came into operation in 1997 when a credit facility of US$ 50 million was successfully negotiated from the ADB. Enterprises where the value of the fixed

273

assets (excluding land and building) on completion of the project does not exceed SL Rs 20 million (approximately US$ 0.26 million) are benefited by this scheme. These loan schemes, even though in operation are not easily accessible to SMIs due to high interest rates, having to rely on securities and most SMIs not being well versed in loan scheme options available. SMIs also generally lack managerial and financial discipline and are, therefore, not in a position to provide the details required by the banks prior to obtaining financial assistance.

(b)

Venture capital16

In 1999, seven Venture Capital Companies (VCCs) were in operation. These companies provide long-term capital for the commencement of new business, expansion of existing ventures, acquisition of buyouts in addition to investing in shares etc. Most of the companies also provide added services such as financial advice, planning, introducing foreign technology, formulation of marketing strategies and introducing joint ventures and marketing partners. In 1999, the VCCs assisted a large number of projects under the Graduate Entrepreneurs Loans programme and the Non-graduate Educated Youth programme. The manufacturing sector and the services sector are the major recipients of funds. VCCs are required to invest in specified risk ventures under the Inland Revenue Department guidelines. However, at present, VCCs can opt out of the tax holiday by expanding investments in diversified activities such as priority sectors and the software industry.

(c)

Angel capital Private capital sources such as Angel capital is unavailable in the country at present.

3. Intellectual property assistance/Technical consultant assistance Intellectual property assistance is available through the National Intellectual Property Office in Sri Lanka. This office deals with almost all activities of intellectual property including inventions, designs, trade and service marks, copyright etc. A Sri Lankan patent provides protection for an invention only in Sri Lanka. However, as Sri Lanka is a party to the international cooperation treaty, protection is possible in other countries as well. Sri Lanka’s Inventors Commission assists inventors in locally patenting an invention, patenting procedures and in making contact with local and foreign investors. Technical consultant assistance is available through R&D institutes and private individuals. However, no specifically targeted assistance is planned as yet for technology and business incubation.

(a)

Strategic business alliances and networking

SMIs in Sri Lanka have access to a range of business and technical services support from Government institutions as well as various donor-funded activities. The performance of various agencies in providing technical assistance to SMIs has been mixed. Weaknesses have included a “supply driven” approach in providing technical assistance rather than an assessment of the real needs of the sector. Several Chambers of Commerce and Trade Associations are in existence promoting entrepreneurial and trade related activities. E-mail and Internet are also increasingly accessible to entrepreneurs. Some of the institutions that have been set up with the major objective of assisting SMIs in establishing business alliances and networking are as follows:

(i)

Industrial Development Board (IDB)

The IDB is one of the largest as well as an important implementation institute for the improvement of technology and management skills of industries, especially SMIs. The IDB is in charge of the development of regional industries as it operates through several provincial and district offices and also manages 10 industrial estates.

274

(ii)

Project SMED (Small and Medium Enterprise Developers)

SMED is a joint collaboration with Friedrich Naumann Foundation of Germany and the Federation of Chambers of Commerce and Industry in Sri Lanka. It has the primary objective of strengthening SMIs. The project provides consultancy services with respect to technology requirements in specialized areas and business alliances.

(iii) Sri Lanka Business Development Centre (SLBDC) The SLBDC is a private non-profit organization established to develop, strengthen and stimulate business and industry. Amongst the goals of the centre are fostering entrepreneurship and upgrading and expanding management training and development.

(iv)

Sri Lanka Export Development Board

The Sri Lanka Export Development Board has a special scheme for developing SMIs for export through a network of regional offices and through awareness programmes on export products, procedures, markets and export packaging. Assistance is also provided for participation in trade fairs, contact promotion programmes and inward/outward buying missions.

(v)

Sri Lanka German Private Sector Programme (PSP)

PSP assists private enterprises in export marketing, productivity, quality improvement and cooperation with German companies in selected sectors. The project is implemented under the auspices of the Ministry of Industrial Development with the technical assistance of the German Development Corporation (GTZ).

(vi)

Technology Initiative for the Private Sector (TIPS)

TIPS, which is funded by USAID, is designed to increase the international competitiveness of Sri Lanka’s private sector and generate employment in industries. TIPS assists in searching, acquiring and mastering technologies with assistance form the International executive service Corps of the United States of America.

4. Standardization, metrology quality control (SMQC) and marketing (a)

Standardization, metrology and quality control (SMQC)

Standardization, Metrology and Quality control facilities are fairly well developed and available through two major institutions the SLSI and the ITI. However, one major disadvantage with respect to SMIs is that both these institutes operate mainly from the capital Colombo even though a branch of the SLSI provides some services in the north-western region of the country.

(i)

Sri Lanka Standards Institution (SLSI)

The SLSI provides laboratory facilities for standardization and quality control, promotes these activities through educational consultancy, operates a certification marks scheme and is responsible for the preparation of national standards. The institute also provides metrology facilities.

(ii)

Industrial Technology Institute (ITI)

The ITI provides standardization, metrology and quality control facilities to almost all sectors of SMI activity. Both the SLSI and ITI are presently being assisted through the UNIDO Integrated Industrial Development Support programme for Sri Lanka on the component Quality, Standardization and Metrology. This is mainly with the objective of strengthening these areas as well as the testing capabilities in the country, with particular emphasis on quality systems and environmental management systems and development of accredited chemical and microbiology testing laboratories mainly for providing quality services to SMIs.

275

A large number of organizations in the country have obtained ISO 9000 certification. However, only one private sector laboratory and two ITI laboratories have obtained laboratory accreditation as per the ‘ASTEL’ accreditation scheme which is based on the internationally recognized ISO ISO/IEC Guide 25 Quality system for testing and calibration laboratories and operated by the Sri Lanka Standards Institution (SLSI).

(b)

Marketing

Assistance for SMIs for marketing of their products is available through the several Chambers of Commerce and Industry and Trade Associations and a few other institutions. These are as follows:

(i)

The Department of Small Industries

This is one of the oldest institutions that has been set up to promote small industry especially in the handicrafts sector and to directly undertake marketing for SMIs. The Department has offices in every district. A few other allied institutions, viz The National Crafts Council, the Sri Lanka Handicrafts Board (Laksala) and the National Designs Centre have been set up to support the handicraft sector. Laksala, which has several branches islandwide, also directly undertakes marketing for SMIs.

(ii)

The Export Development Board

The Export Development Board provides assistance with respect to export marketing.

(iii) The National Exporters Association (NEA) The NEA encourages SMIs to enter the export markets and expand existing operations. The association shows considerable commitment to develop export markets for non-traditional industries. However, there is no established organization where SMIs can obtain information on global markets. Regular awareness programmes for SMIs to determine prospective local and foreign markets through participation in Trade fairs, exhibitions, visits to technology parks, study tours, etc. with full access to industries are rarely available to SMIs as these programmes usually require a financial input from the SMI.

IV. RECOMMENDATIONS FOR FUTURE ACTION A. Incubation system With the several catalytic factors that are targeted towards the development of SMIs in the country, prospects for developing and facilitating the incubation system in Sri Lanka appear positive. It is recommended, however, that the feasibility of setting up new incubators be determined mainly based on demand, the possibility of seeking strong partners and also after identification of the incubator purpose and type. The incubators that will be set up must be managed as a business operation as far as possible even though “not for profit” incubators may be considered. It must be borne in mind that the incubators can only succeed with a well developed business plan, a dynamic and competent manager with business experience, a progressive and active Board of Directors, well-defined policy for entry and exit of tenants and, of course, sufficient sources of revolving funds. The incubator managers must necessarily resist political pressure from stakeholders to recruit companies that do not meet the necessary criteria. The operation of the new incubators that will soon be set up must provide potential for the services of the incubators to be modified to meet the changing needs of client companies. It is also recommended that the performance of the incubators that are being developed presently be continuously evaluated and corrections promptly identified and made so that new incubators can benefit from the lessons learned by the pioneers. Developing linkages to industry, R&D and university networks for quality services and, very importantly, looking outward towards export and networking, both nationally and internationally, is also recommended.

276

It is recommended that the facilities of the SMI Development Corporation (SMIDEC) be fully utilized by the incubators for the benefit of the SMI incubator tenants when this corporation is established. The establishment of SMIDEC has been recommended by the JICA study team17 that is drawing up a Master plan for industrialization and investment promotion in Sri Lanka. This corporation is envisaged to provide assistance with respect to technology, finances, marketing, venture and incubation promotion and credit guarantee. This new organization will also, hopefully, coordinate the work of the multiplicity of the SMI development institutions in the country and provide every possible assistance to make policies and regulations SMI-friendly.

B. High-Technology based enterprises With respect to setting up high-technology based enterprises, the R&D institutions in the country must be more demand-oriented in catering to the high-technology areas. The government should allocate additional funds to subsidize the R&D efforts of these institutions to make the results freely available in general to the SMI sector and, more specifically, to incubator tenants. Agriculture-based research institutes as well universities should promote specific agro-industrial high-technology projects that can be commercialized by incubator tenants. The government must also make sufficient investment for commercializing these technologies and other scientific results that is, at present, lacking in the country. It is also recommended that direct foreign investors should be given necessary incentives to transfer appropriate high technologies to their local counterparts so that these enterprises will be knowledge based rather than labour intensive as at present. The curricula of universities and other training institutions should be modified to meet the technological, leadership and business demands and needs of the SMI sector. This will not only encourage S&T entrepreneurship but can also lead to the formation of “graduate companies” in incubators. Quality control and standardization procedures should be improved for obtaining ISO certification with state assistance, private sector associations and chambers of industry. Development of computerized Wide Area Networks (WAN) covering the regions, relevant agencies and organizations to provide up to date information to SMIs should be provided. Most importantly, the high-technology enterprises and incubator systems must be structured so as to effectively compete in the global economy.

V. CONCLUSIONS It is encouraging to note that the development of incubators in Sri Lanka is proceeding at quite a rapid pace considering the fact that the concept was introduced to the country only a little more than a year ago. It is hopeful that, in the near future, Sri Lanka can boast of some well established and successful incubators that will be examples to countries in the region that have yet to benefit from the incubator concept.

277

REFERENCES 1

Economic and Social Statistics of Sri Lanka, vol. XXI (Central Bank of Sri Lanka 1999), p. 1.

2

Annual Report (Central Bank of Sri Lanka, 1999), p. 5.

3

Annual Report (Central Bank of Sri Lanka, 1999), p. 48.

4

Sri Lanka Small and Medium Industries: Impact of Liberalization and Constraints of Development (Project SMED, May 1999), p. 14.

5

Johnston, Norbert B., Industrial Incubator Feasibility Study (Sri Lanka Chamber of Small Industry, July 2000), pp. 2-5.

6

Bearse, Peter, “Assessment of the feasibility and logistics of industrial business incubators”, in Report of the UNIDO Mission to Sri Lanka (July 2000), p. 6.

7

Japan International Cooperation Agency (JICA) and Ministry of Industrial Development Democratic Socialist Republic of Sri Lanka, Master Plan Study on Industrialization and Investment promotion in Sri Lanka (Phase II): Interim Report (January 2000), pp. G-43.

8

Japan International Cooperation Agency (JICA) and Ministry of Industrial Development Democratic Socialist Republic of Sri Lanka, Master Plan Study on Industrialization and Investment promotion in Sri Lanka (Phase II): Interim Report (January 2000), pp. H-24.

9

Sri Lanka, Ministry of Industrial Development, New Industrialization Strategy for Sri Lanka, (November 1995), pp. 17.

10

National Science Foundation, comp., Science & Technology Statistical Handbook 1996 (September 1998), p. 1.

11

Sri Lanka, Parliament of the Democratic Socialist Republic of Sri Lanka, Science & Technology Development Act No. 11 of 1994, pp. 1-2.

12

Annual Report (Central Bank of Sri Lanka, 1999), pp. 62-64.

13

National Science Foundation, comp., Science & Technology Statistical Handbook 1996 (September 1998), p. 8.

14

National Science Foundation, comp., Science & Technology Statistical Handbook 1996 (September 1998), p. 39.

15

Annual Report (Central Bank of Sri Lanka, 1999), p. 200.

16

Annual Report (Central Bank of Sri Lanka, 1999), p. 61.

17

Japan International Cooperation Agency (JICA) and Ministry of Industrial Development Democratic Socialist Republic of Sri Lanka, Master Plan Study on Industrialization and Investment promotion in Sri Lanka (Phase II): Draft Final Report (March 2000), pp. 18-19.

278

X. STRENGTHENING TECHNOLOGY INCUBATION SYSTEM FOR CREATING HIGH TECHNOLOGY-BASED ENTERPRISES IN TAJIKISTAN

279

First of all we would like to express our gratitude and say that it is great honour for us to be invited to participate in the “Regional Consultative Meeting on Strengthening Technology Incubation System for Creating High Technology-based Enterprises”, held in Seoul, the Republic of Korea, during 29-31 August 2000. As a newly-emerged economy in the process of transition towards a market-oriented economy, Tajikistan has to learn from developed countries on technology incubation schemes. Due to the long-lasting civil war and its aftermath we did not have an opportunity to create an incubation system in Tajikistan. We are in the initial stage of creating such a system and are establishing contacts with countries having an experience in this field. Therefore, it is very necessary for us to participate in the above-mentioned meeting. At the Agency for Support and Development of Small Entrepreneruship, under the Government of the Republic of Tajikistan, there is a Department on the Development of Entrepreneurship dealing with the creation of a technology incubation system in the country. For instance, from the experience of the Russian Federation, theoretically, we have come to the following conclusions: Private enterprises are considered to be one of the principals driving forces in economic development. They stimulate private ownership and entrepreneurial skills, generate employment, help diversify economic activity and make a significant contribution to exports and trade. Promoting entrepreneurship has a vital role to play in improving competitiveness of businesses and improving Tajikistan’s employment situation. In spite of the fact that the promotion schemes of the advanced market economies and the countries in transition are different, entrepreneurship is being encouraged, especially by eliminating spatial disparities and by fostering technological development and new innovative enterprises. Business incubators are growing rapidly over the world, from 200 at the beginning of the 1990s to around 3,000 today. The majority of the countries in transition (CITs) have acknowledged that private entrepreneurship is crucial for economic restructuring and is an important element of the reform process. Governments in the CITs play a crucial role in the development of support services for enterprises. Some of these support institutions are in an initial phase while some institutions have acquired vast experience of both success and failure, depending on the needs to be analyzed. Experiences should be exchanged by similar organizations and lessons drawn for the future. It is generally recognized that these support institutions are newcomers to the market economy, lack entrepreneurial skills and need human and financial resources to be effective. Business incubators are a major component of the infrastructure of SME support and development. The major aims of the BI are: ◆

To provide scientific and methodical assistance to the business incubators

◆

To establish information support infrastructure for SMEs

◆

To represent the interests of small business in the government and in public.

Business incubation is a tool for enterprise development – an important one but still only a tool that needs to be used for the purposes of the institution in question. This could be an incubator breeding new enterprises, or a science park for an industrial zone where the incubation services are included in a wider programme. Depending on the type and purpose of the institution, the main benefits include, among others, the following: ◆

The business incubator can become a long-term economic development tool for a community. It helps to diversify the economy and expand the tax base.

◆

The business incubator helps in changing attitudes towards personal initiative, innovation, risk-taking and entrepreneurship.

◆

The business incubator helps entrepreneurs to start their own businesses and gives them an advantage over non-incubator new firms.

◆

The business incubator creates job opportunities.

281

◆

The business incubator greatly increases the likelihood of business survival for new small and medium sized start-up firms.

◆

The business incubator allows tenants to participate in exchanging information and discussing mutual commercial interests.

◆

The business incubator helps retain individuals who would otherwise leave the area due to a lack of job opportunities.

◆

The business incubator helps to rehabilitate and re-use existing buildings.

◆

The business incubator helps to enhance the community’s image as a centre for innovation and entrepreneurship.

◆

The business incubator promotes the clustering of SMEs which helps to overcome their major weaknesses-isolation and powerlessness-and raise their competitive potential through the emergence of linkages between firms providing economies of scale and scope.

◆

The business incubator is itself a dynamic model of a sustainable, efficient business operation.

◆

The business incubator provides additional jobs and income beyond those directly employed and paid through the incubator’s tenants.

Thanks to the assistance of the business incubator, the tenants are able to employ a larger workforce and increase their own revenues. This increase has a direct consequence in state revenue growth through the taxes an enterprise has to pay. This extra income can be used by the local government to fund business incubators. The most common constraints are given below: ◆

Entrepreneurs criticize the business incubator for only helping a handful of firms;

◆

The incubator does not fully cover their operational costs and makes it compulsory to take part in special programmes;

◆

Lack of office space; poor communication, limited financial opportunities for young entrepreneurs;

◆

Large expenses for public utilities, poor opportunities for monocompany, financial difficulties;

◆

Expense-related activities of technology business incubator, limited investment and credit opportunities;

◆

Limited financial opportunities for clients, relations with the landlord regarding rent of office space;

◆

Large expenses for public utilities, limited investment and credit opportunities, limited financial opportunities for young entrepreneurs;

◆

Large office rent for management group, limited investment and credit opportunities;

◆

Human resources (in 1997);

◆

No financial opportunities for dynamic development of the business incubator;

◆

Large expenses for public utilities, limited investment and credit opportunities;

◆

Financial limitations of consumers;

◆

Large expenses for public utilities, no working capital;

◆

Limited investment and credit opportunities;

◆

Expenses for public utilities, limited investment and credit opportunities.

Taking into consideration the above-mentioned advantages and disadvantages of the business incubation system, we will try to create a unique business incubation system in Tajikistan. We hope to have the benefit of your cooperation.

282

XI. STRENGTHENING TECHNOLOGY INCUBATION SYSTEM FOR CREATING HIGH TECHNOLOGY-BASED ENTERPRISES IN UZBEKISTAN

283

I. INTRODUCTION A. General information Business-incubators of Uzbekistan were set up in January 1994. The experience of a UNIDO project on the establishment of two pilot business incubators in Tashkent and one in Samarkand has shown that well-organized business incubators may render effective assistance to an enterprise during its formation, thus increasing opportunities of survival and leading to success. These results were the basis of a decision by the Government of Uzbekistan to set up a network of business incubators in all regions of the country. In this connection, a project document was signed between the State Committee for State Property Management of Uzbekistan, acting on behalf of the Government, and the Regional Representation of UNDP on setting up and developing business incubator network in Uzbekistan. According to the project, the Republican Business Incubator (RBI) was established in January 1996 as an organizational and coordinating centre for the whole business incubator system of the Republic. In April 2000 the functions of RBI were transferred to the newly set up Association of Business Incubators and Technoparks of the Republic. For a period from January 1996 to April 1997, a general republican network of 23 business incubators was established. At present the Association includes all existing business incubators and technoparks. A concept of business incubator (hereinafter referred to as BI) in Uzbekistan defines the following directions of its activity: ◆

Business consultations to entrepreneurs on general issues of law, taxation, finance, management;

◆

Assistance in state registration of firm’s constituent documents;

◆

Assistance in obtaining credit and attracting direct investment, as well as partners for project realization;

◆

Preferential leasing furnished and computerized office and technical services;

◆

Information accumulation on available offers of domestic and import equipment for making it available to a wide circle of businessmen;

◆

Transformation of entrepreneurial idea into a concrete project, help in its development and realization;

◆

Work on training and skills development;

◆

Attraction of necessary experts to project work;

◆

The basis of macroeconomic aspects of the concept is the following;

◆

Setting up and complex development of new enterprises;

◆

New working place creation;

◆

Mobilization of society investment resources and their use for solution of priority tasks of economic development;

◆

Development of entrepreneurial ability of the population;

◆

Creation of technical and managerial knowledge and skills of personnel of incubators and tenant-firms;

◆

Commercialization of scientific researches;

◆

Development and strengthening of scientific and production links.

B. Total number of operating incubators The total number of operating incubators is 23.

285

C. Incubator typology Number of BI: 23 including 2 specializing in technological development issues as well as scientific research commercialization.

D. Incubator’s legal status ◆

State enterprise (100 per cent state property) – Republican business-incubator

◆

Limited Liability Company (mixed form of property) – 20 BI

◆

Joint-stock company (mixed form of property) – 2 BI

E. Main factors offering technological and business incubation (1)

National policy regarding science, engineering and production

1

(2)

R&D entities and HEE

3

(3)

Businessmen occupied in engineering

4

(4)

Financial system of innovation support

1

(5)

Assistance in the sphere of intellectual property/technical consultations

2

(6)

Business development

1

(7)

Scientific and technological parks

5

(8)

Strategic business alliances and network development

5

(9)

Standardization, metrology, quality control and marketing

2

II. CATALYTIC FACTORS FOR SUPPORT AND ASSISTANCE TO TECHNOLOGICAL AND BUSINESS INCUBATION A. National policy regarding science and technology Business incubators’ activity (including two of them specializing in problems of technological development and scientific research commercialization) is based on project document “Business-incubator network development in the Republic of Uzbekistan” signed by UNDP and the Government of Uzbekistan. There is also additional normative and instruction base determining conditions and priorities of business incubator network’s activity and development prospects. In the whole, innovative, scientific and technological activity in the Republic is based on the following main legal and normative documents: ◆

Laws of the Republic of Uzbekistan “Towards standardization”, “Towards certification of products and services”, “Towards metrology”, “Towards informatization”, “Towards inventions, useful models and industrial samples”, “Towards intellectual property right protection”, “Towards trademarks and service marks”, etc.

◆

Resolutions of the Cabinet of Ministers “Towards measures on state support of science and innovative activity development”, “Towards formation of national calibration basis and metrology development”, “Towards state support of development international scientific and technical links, science programmes and projects on grants of international and foreign organizations and foundations”, “Towards temporary provision on industrial property”, etc.

◆

Decrees of the President of Uzbekistan “Towards state support of science and development innovative activity”, etc.

◆

Departmental normative acts: Resolutions of the State Committee on Science and Technology (SCST) “Towards developing innovative entrepreneurship and improving technology transfer

286

procedure for domestic and foreign industries”, “Towards creation of system of commercialization of scientific and technical development works and innovative projects”, “Towards order of formation and realization of programmes of basic researches”, etc.

B. The main state programmes of support of innovative and scientific and technical activity ◆

Programme of business incubator network development for a period to 2001 within the framework of the state programme of support and development of small and medium-sized business aimed at the creation of favourable economic conditions for setting up and development of new enterprises, and business projects, and, in particular, innovative ones

◆

14 priority state scientific and technical programmes aimed at the solution of problems of the development of intellectual potential, resources conservation, new technologies, materials and facilities

◆

18 scientific and technological programmes aimed at the solution of problems of public health, ecology, informatization, architecture and construction, agriculture and forestry, etc.

◆

11 programmes of basic research in the field of mathematics, physics and astronomy, biology, chemistry, economy, sociology, etc.

◆

Programme of innovative works of the SCST RUz aimed at the solution of critical problems of economic and social development of branches of national economy and regions of Uzbekistan

C. Main directions of state support of innovative activity ◆

Development and improvement of normative and legal provision of innovative activity, mechanisms of its promotion, system of institutional transformation, intellectual property protection in the innovation field and its introduction to economic cycle of operation;

◆

Creation of system of complex support of innovative activity, development production and export;

◆

Development of infrastructure of innovative process including system of information provision, expertise, financial and economic system, production and technical support, systems of certification and promotion development work, staff training and retraining;

◆

Promotion of development of small innovative businesses by creation of favourable conditions for formation and successful operation of small high-tech organizations and rendering state support to them in the initial stages of work;

◆

Improvement of competition system of selection of innovative projects and programmes for support of the most worthwhile industries and organizations, attraction of extra budget investments;

◆

Use of technologies for double purpose, conversion technologies for the development of high-tech products and technological processes in civil branches;

◆

Stimulation of international cooperation of the Republic of Uzbekistan in the field of innovation and technology transfer.

D. Forms of state support of innovative activity ◆

Allocation of direct state budgetary funds for carrying out basic researches, realization of scientific, technological and innovative programmes and projects of general national character (state order);

◆

VAT exemption of: (i)

scientific and technological and innovative works performed by state orders;

(ii)

patent duties, registration fees, license payments for purchase of intellectual property object rights;

287

◆

Temporary profit tax exemption of patentees (licensors) and users (licensees) of industrial property objects patented in the Republic of Uzbekistan;

◆

Exemption from gross income of physical persons of amount of grant obtained by them from international organizations and foundations as well as within the framework of international agreements on scientific and technological cooperation;

◆

Exemption from VAT, excise, custom duties on equipment received through grants of international organizations and foundations within the framework of international agreements on scientific and technological cooperation;

◆

Attraction of foreign investments and credits on security of government;

◆

De jure recognition of intellectual property objects as investment resources committed to objects of economic and other activities;

◆

De jure recognition of intellectual property right commitment, including copyright, patents, trademarks, useful models, industrial samples, trade names, know-how, goodwill, as one of forms of foreign investments on the territory of the Republic of Uzbekistan;

◆

Accelerated depreciation of Capital fund;

◆

Preferential national duties for industrial property objects patenting formed within state order.

E. Intellectual property object tax privileges Business-incubators of Uzbekistan do not have any special tax privileges connected with their own activity or activity of BI tenant firms. They also do not handle any financial resources allocated to them, besides those transferred as basic funds for material and technical base creation. Moreover, business incubators may, alongside with other objects of national economy enjoy the following system of tax privileges on intellectual property objects: ◆

According to Tax code of the Republic of Uzbekistan put into force from 1 January 1998, contributions, shares and other targeted fixed capital investment pooled for general task solution are not legal personal income set up specially for these tasks solution and are not objects of taxation; intangible costs are liable to aggregate income deduction as depreciation in the next period.

◆

Intangible costs are liable to aggregate income deduction as wearing-out monthly at the rate calculated by a legal person proceeding from their original value and useful life (no longer than legal person validity). On intangibles, when it is impossible to determine a period of rational use, depreciation norms are defined proceeding from five years (no longer than legal person validity).

◆

The following legal persons are exempted from income tax: ❏

❏

❏

Patentees (licensors) from IPO use in own production as well as from license sell on them-from the date of the use start within their validity: (i)

invention and selective achievement on patent-during 5 (five) years;

(ii)

invention on preliminary patent and selective achievement on a certificate, industrial sample on patent-during 3 years;

(iii)

industrial sample on preliminary patent-during 2 years.

Licensors (persons entitled to use an object of license agreement) from IP0 use from the beginning of the use: (i)

inventions and selective achievements on patent-during 5 years;

(ii)

inventions on preliminary patent, selective achievements on certificate, industrial sample on patent-during 3 years;

(iii)

industrial sample on preliminary patent, useful model on certificate-during 2 years.

Trademark and service mark on certificate-during 1 year (at production of a licensor).

288

❏

In accordance with Tax Code of the Republic of Uzbekistan, income sum obtained by a patentee (licensor) from IPO use in own production or from sale of licenses on them from the day of coming into use within the validity, as well as licensee from IPO use is not included in taxable income of physical persons from the date of coming into use of: (i)

invention and selective achievement on patent – during 5 years;

(ii)

invention on preliminary patent and selective achievement on certificate, industrial sample on patent-during 3 years;

(iii)

industrial sample on preliminary patent and useful model on certificate-during 2 years.

F. Expenses on scientific developments The total volume of expenses on researches and development in 1999 amounted to 76,292,915 thousand soums. This index, as the object of financing belongs to the main scientific research base or subsidiary organization, consists of two components: internal and external expenses. In the structure of total expenses, internal ones were 70,684,449 thousand soums or 93 per cent, external expenditures totalled 5,608,466 thousand soums or 7 per cent. However, internal expenses are also divided into operating expenses (salary, acquisition of working assets) and capital investments (acquisition of buildings, facilities, machinery, equipment, etc.), with prevailing operating costs forming 98 per cent of all internal expenses on researches and development. This figure shows an insignificant replenishment of special equipment that at the moment implies a big problem for the scientific institutions in Uzbekistan. In 1999, internal operating expenses amounted to 69,371,796 thousand soums and had relatively even distribution to three groups of expenses: 34 per cent – applied researches, 34 per cent – scientific and technical developments, 15 per cent – fundamental researches, and 17 per cent – other branch expenses. Dynamics of change of the absolute expenses on scientific and technical developments in Uzbekistan within 1997-1999 has a very positive tendency: total expenses for this period increased by 142 per cent, internal operating expenses by 143 per cent, the volume of capital investments by 239 per cent, and external expenses by 110 per cent. Of course, it is necessary to take into account the influence of inflation on these indexes (according to the UNDP Report on human development for 1999, in 1997 – 27.7 per cent, in 1998 – 17.9 per cent), however, a positive tendency in financing scientific and technical projects has been observed. Considering financing of internal expenses on researches and developments on sources of funds, one can conclude that the state budget funds (42 per cent) prevail, financing from the customers of scientific and technical products (39 per cent), and financing at the account of own funds of scientific organizations (16 per cent). Other financing sources have small specific gravity: the means of non-budget funds (less than 1 per cent), foreign investments (less than 1 per cent), etc. A change in these indexes within the recent years attests a constant growth of the federal budget role in financing scientific and technical programmes (from 1997 to 1999, the volume of financing increased 2.6 times), as well as growth of budget assignation for keeping institutions of higher education (1997 – 45,183 thousand soums, 1999 – 1,544,221 thousand soums, i.e. 34 times). Expenses on scientific and technical developments in the Republic of Uzbekistan are cited in table 1. The information on internal financing expenses on researches and developments are given in table 2.

G. Science organizations The Scientific complex of the Republic of Uzbekistan includes 452 scientific organizations and 56 ministries and departments involved in scientific and technical works. Its organizational structure consists of scientific and research institutions (181), design organizations (28), project and project-prospecting organizations (27), institutions of higher education (55), scientific and research and design organizations at the industrial enterprises (7) as well as other scientific organizations (154). These are scientific, experimental stations and fields, state archives, institutions on nature protection, museums, libraries, geological and prospecting organizations, organizations on serving scientific institutions. On the whole, the branch “Science and Scientific Service” includes 1,000 organizations, but only one-third is engaged in scientific research and development. In 1999, they generated scientific and technical work of more than 8 million soums. Their share in the GNP is 0.4 per cent. About half of the given volume, i.e.

289

3.7 million soums, consists of scientific research. 70 per cent of them (2.6 million soums) are applied research, and 30 per cent fundamental development (1.1 million soums). Analysis of statistical data for the last 3 years shows permanent increase of the number of branch structures. From 1997 to 1999, the number of scientific organizations increased by 57 per cent, and the volume of the work executed by them increased by 135 per cent. At the same time, the share of scientific and technical work in the GNP also increased by 21 per cent. The number of organizations involved in scientific research and development in the Republic of Uzbekistan is given in table 3. The number of organizations involved in scientific research and development and grouped based on the number of their employees is given in table 4.

H. Training of personnel In 1999, the number of scientific organization employees in the Republic was 36,900 people. 66 per cent of them or 24,300 are researchers-specialists. The rest 34 per cent are technicians, supporting personnel and other workers. In Uzbekistan, there are 40 people, having degrees such as doctor of science and kandidat of science, per 100 scientists. The number of specialists having doctor of sciences degree is 1,929 people, kandidat of sciences – 7,934 people. In 1999, for training specialists of higher qualification, there were functioning 138 post-graduate studies (83 in scientific organizations and 55 in higher educational establishments), with about 4,000 post-graduates, and 77 doctors of science studies (44 in scientific organizations and 33 in higher educational establishments) with 337 people where they trained specialists on more than 20 branches of sciences. At present, in Uzbekistan, there are no special state programmes on enhancing qualification of entrepreneurs specializing in technology development. However, there is a wide network of specialized business schools, courses, training centers and other institutions for training and enhancing qualification of entrepreneurs in market economy and individual market subjects.

I. System of financial support of innovations Nowadays, financing of innovation activity in Uzbekistan is undertaken by the State Committee on Science and Technology that makes preferential investments into innovation projects for 1-2 years in terms of reimbursement of funds invested. Typically, financing of scientific and technical developments is undertaken at the level of scientific research work and scientific research, experimental and design developments, and there is no financial infrastructure required to introduce them into practice. The existing model of state financing of innovation projects is inadequate to the character and duration of an innovation cycle that forms 5-7 years of work. Also, finished innovations cannot be introduced to the local market because of a shortage of funds. Therefore, they either become obsolete a “go away” abroad. Besides, it is burdensome for the Government to act as a main investor and this does not correspond with the global practice of financing innovations on the base of commercial and mainly venture capital. In the most countries of the world, this problem is solved by the creation of a system of consistent financing, when the government finances the initial and the most risky part of the scientific research, experimental and design developments and then venture capital funds finance it further. Commercial financing of innovation projects also does not meet requirements of the market. Access of small and medium innovation firms to the loan commercial capital is limited due to the absence of pledged security, impossibility to present own share required by banks in project capital and shortage of working assets. Also, banks need collateral before making decisions on loans. As a result, banks allot credits, not against the idea but against concrete property guarantees, and for a relatively short period of time. This is a key problem for the innovation companies to which, in spite of the attractive commercial prospective of technologies developed by them, bank credits are not available or unattractive.

290

Taking into consideration the situation, it is extremely important work towards the creation of innovation projects venture financing institutions in Uzbekistan. Unfortunately, in the country, there is no a single structure involved in the organization of the total complex of works and services for the creation of venture funds: development of normative, legal and constitutive documentation; methodological and informational literature; presentation of information; advisory, training and educational services. In this connection, business incubators generated an initiative to create a centre of venture financing institutions development as the basis for all further work on this subject. This project is prepared at the level of feasibility studies and is being now discussed with the International Eurasia Foundation in order to attract a grant. Participation in the project is also offered to the Asian Pacific Center on Technology Transfer (APCTT) and the first steps have already been undertaken to start cooperation. The key project objectives are as follows: 1. Creation of a centre of venture financing institutions development as the organizational technical, managerial, training and methodological basis for the formation of a system of venture capital institutions. 2. Creation of a highly professional team of experts in sphere of financing innovation investment projects that will form the basis of the managerial section of all further work. 3.

Development of: ❏

a conception of creating and developing institutions for innovation projects venture financing as a basis of the innovation entrepreneurship support system

❐

drafts of normative and legal acts that regulate venture financing institutions activities in the country

❏

package of standard constitutive documents required for the state registration of these structures

4. Formation of training and methodological basis for training and enhancing qualification of specialists in the sphere of venture financing of investment projects in scientific and technical fields.

J. Standardization, metrology, and quality control In the Republic of Uzbekistan, there is a state system of standardization and metrology that regulates general organizational and technical rules of carrying out work on standardization and metrology. Organization, coordination and provision of works on standardization, are implemented: ◆

In national economy branches – Uzbek state center of standardization, metrology and certification under the Cabinet of Ministers of the Republic of Uzbekistan (Uzgosstandard)

◆

In sphere of construction, building industry, including projecting and designing – State committee for architecture and construction (Goskomarhitekstroy)

◆

In sphere of regulation of usage of natural resources and environment protection from pollution and other harmful influences – State Committee for Nature Protection (Goscompriroda)

◆

In sphere of medical products, articles of medical technology, medicinal means, as well as in the issues of determining content of matters harmful for human in products manufactured by the industry of the country, including imported products – Ministry of Health (Minzdrav)

According to the Law of the Republic of Uzbekistan “About standardization” dated 28 December 1993, state governing bodies, within their competence, develop, approve, register, issue standards and terms of references as well as instructions and interpretation on the application of normative and legal acts. Bodies that approve standards create and manage information funds of standards and provide interested consumers with information on international standards, standards of the republic of Uzbekistan, national standards of foreign countries, as well as with information on international agreements on standardization, state classifiers of technical and economic and social information, rules, norms and recommendations on standardization.

291

If an international contract or agreement fixes rules other than those provided in the legislation of Uzbekistan, the rules of international contract or agreement are applied. Production and sale of the products without any normative documentation is not allowed. In order to secure protection of the interests of the Republic and competitiveness of products manufactured, in well-grounded cases preliminary requirements for future forestalling possibilities of traditional technologies are determined in standards. The government guarantees economic support and stimulation of tenants of economic activity, which manufacture products marked with the sign of conformity to the standards, including the standards with preliminary requirements for future forestalling possibilities of traditional technologies. Objects of state metrological control and inspection are as follows: standards of weight and measures, means of measurements, standard samples of content and property of matters and materials, informational and measurement systems, methodology of measuring, etc. State metrological control and inspection is applied in the following fields: ◆

Public health, veterinary medicine, environmental protection

◆

Inventory-making of material, values and energy resources

◆

Trade and commercial, customs, post and tax operations

◆

Storage, transportation and destruction of toxic, easily catching fire, explosive and radioactive matters

◆

Provision of state security

◆

Provision of security of labour and transportation

◆

Definition of security and quality of certified products

◆

Geodesic and hydrometrical works

◆

State testing, inspection, calibration, repair and metrological attestation of measurement means

◆

Extraction of minerals

◆

Other spheres of activity fixed by normative acts.

In the Republic of Uzbekistan, quality control, certification of manufactured products and services are provided by “Uzgosstandard”, which defines the list of products subject to obligatory certification; accredits agencies certifying similar products and testing laboratories (centers); makes state rolling of certified products, accredits certifying agencies and testing laboratories, and experts; assumes state control of certification rules observance, certified products, as well as of accredited certifying agencies; takes decisions on joining international certification systems; represents Uzbekistan in interrelations with other states and in international organizations on the certification issues, etc. Rendering support to the small and medium business representatives in solving problems of certification and standardization of their products, business incubators of Uzbekistan actively interact with competent state bodies. Unfortunately, there are no accredited certifying laboratories (centres) within the business incubators framework and, when necessary, services of other organization are used.

K. Best practice in business incubating During more than 5 years of business incubators operation, over 400 business projects were prepared and about 100 production enterprises and enterprises of service sphere have passed the process of incubation. At present, 245 small and medium-sized enterprises operate as business incubator tenants and more than 2,800 jobs have been created. Within the period from 1996 to 2000, business incubators and their tenants generated products (works, services) for the amount of about 3 million soums and 200 thousand USD. More than 100 business incubators tenants received support in implementing investment projects (credits, grants, creation of a joint venture) for a total amount of about 300 million soums and US$ 1 million. More than 12,000 people were trained within the framework of short-term courses, seminars, training and educational programmes created under business incubators, on such subjects as market economy, accounting, computer literacy, foreign languages, farming, etc.

292

Some significant examples of business incubation are:

(a)

Ecological Enterprise “Greentech”

(Date of creation is 1996; Main sphere of activity is development and production of equipment and devices for water and air purification). The enterprise cooperates with the business incubator “STBI” (Tashkent city). Experts developed a business plan of enterprise development within the period by 2000. Support was rendered in preparation and enhancing personnel qualification, organization of the management system, marketing of raw material and material suppliers and buyers of finished products, technical documents for manufactured products were prepared and submitted to the bodies of certification and standardization. The most important factor of organizational and advisory support was preparation of documentation and carrying on negotiations on the subject of testing products of the enterprise by independent scientific organizations of the United States of America, Germany, Republic of Korea, India, and Malaysia. Since 1996, the enterprise has expanded its range of manufactured products (installations for filtering, skimming, desalting, softening and desalination of potable water for individual and industrial use, installations for special water preparation in liqueur and wine making, installations for preparing water in heating systems, installations for purification of industrial, house-keeping sewage and purification of industrial gas wastes, fibrous sorbents for water and air purification) by five times and the volume of production has increased 15 times.

(b)

“Orom-biopreparat” Co. Ltd.

(Date of creation is 1990, Sphere of activity is development and output of lacto-, biphido-, propione-, coli-containing bacterial preparations, ferments and products on their basis, infants food on the base of local untraditional raw material). The enterprise became a tenant of business incubator “STBI” (Tashkent city) in 1997. To that moment, the enterprise accomplished scientific researches and developments on a number of innovation subjects and was at the stage of organization of its production activity. The management of the firm, jointly with the business incubator, developed feasibility studies for enterprise development. According to the programme of action, experts rendered support in: ◆

Search of necessary production site and additional equipment for the organization of production;

◆

Marketing of suppliers of raw materials, materials and consumers of finished products, in preparation and implementation of the initial contract documents;

◆

Patenting, certification and standardization of the applied technological process and finished products;

◆

Creation and state certification of laboratorial complex to control the quality of raw materials, materials, and finished products.

Within the period from 1997 to 1998, experts worked as managers of the enterprise and managed to attain stabilization of production, financial and economic activity. Nowadays, they have a developed business plan and are searching for a foreign partner for the creation of a joint venture for packaging medical preparations and bacterial ferments.

(c)

Private Firm “D-4”

(Date of creation is 1992. Sphere of activity is development of science-intensive technologies in the field of physiological active matters for application in medicine and agriculture). The enterprise became a tenant of business incubator “STBI” (Tashkent city) in 1997. A business plan for the enterprise development was developed with assistance of business incubator’s experts, according to which the firm rendered assistance in: ◆

Development of investment project “Enhancing sustainability of wheat to lodging in the conditions of farming requiring irrigation with the help of D-4-2 – stimulator of growth and development” for

293

obtaining a grant of the State Committee of Science and Technology of the Republic of Uzbekistan (GKNT), negotiations and conclusion of financial agreement; ◆

Organization and conducting of field tests of the developed preparations;

◆

Organization and conducting of laboratory researches and certification and standardization of finished products;

◆

Organization of advertising campaign, search of consumers and presenting interests of the enterprise at the level of different state institutions.

The enterprise has implemented two grants of the State Committee of Science and Technology within the framework of which a unique immune-stimulator – “Timonin” was developed and allowed to apply as a stimulator of growth and for increasing the yield of technical crops (the yield increases on average by 25-30 per cent, with seeds keeping the property for one more year).

(d)

Training Centre “NetDec” Co. Ltd.

(Date of creation is 1996. Sphere of activity is training and enhancing qualification in sphere of computer literacy). In 1996, 4 persons, graduates of the Tashkent State Institute of Connection, came for consultation to the Republican Business Incubator with an idea to create a firm for training in computer skills. As a result of joint work with the business incubator experts, a business plan was developed for the creation and development of such an enterprise. Business incubator’s experts implemented this project and started to work as managers of the firm. During implementation of the business plan, the following measures were undertaken: ◆

Presented furnished office, telephone and fax, possibility to use computer and office equipment, secretary and accountant services in favorable terms;

◆

Prepared a package of constitutive documents for state registration;

◆

Prepared an inquiry to the Russian Office of “Microsoft” in Moscow for receiving requirements on certification of authorized training centre in Uzbekistan. On the base of data received, a business plan was worked out for “Microsoft”, a classroom was adapted to the current requirement and the firm’s representatives were sent for training to Moscow;

◆

A business plan was developed for obtaining credit from a local bank and necessary negotiations were arranged with the bank. The project is at the level of obtaining credit;

◆

Support was rendered in searching for an optimal proposal for the procurement of computers and registration of contract documents;

◆

Assistance was given in marketing, advertising campaign and attracting students.

As a result, in 1997, the training centre formed a material and technical basis and received authorization from “Microsoft”. At the moment, it is a well-known and constantly developing firm in Uzbekistan, having 9 employees, 4 classrooms equipped with 22 up-to-date computers and promoting several directions of investment activity. More than 600 people were trained in the centre.

III. RECOMMENDATIONS AND CONCLUSIONS Today, in the Republic of Uzbekistan, a significant system of scientific and production organizations, scientific and research institutions, higher educational establishments, etc. has been formed. There is a number of state programmes directed to the development of scientific, technical, and innovation developments. There is also great intellectual potential. Moreover, most industrial enterprises possess all necessary production resources for practical implementation of innovation projects. However, there is a lack of organizational, technical and financial systems providing an interlink between science and production. A considerable number of the most interesting innovation projects need investments, venture capital, and advisory support for accomplishing scientific and research work, and for implementing scientific research and experimental design developments and in introducing these technologies into industrial production.

294

In this connection, one of the main elements of the present and future planning is the preparation of institutional, methodological, normative and legal, managerial (personnel) basis for creating a system of venture financing of innovation, scientific and technical programmes (as mentioned above), development of a “spin-off” system as well as of a network of technology business incubators and technoparks. There are good reasons to hope that this work will acquire concrete practical character in the near future. The Government of Uzbekistan pays great attention to the promotion of the business incubator system and small industrial complexes, with the functions of technological parks, in the country. It is expected to establish ten additional business incubators within 2000-2001. Privatization of large industrial enterprises being implemented at present is expected to restructure industrial complexes and create networks of small enterprises within the framework of a single zone of technological development. Such kind of techno-polices will be organized with the active participation of foreign investments, technologies, equipment, experience of technological development management, etc. The main providers of these programmes are the State Committee of Science and Technology of the Republic of Uzbekistan and State Committee for State Property Management and Entrepreneurship Support. Business incubators take direct participation in this work. There is a conception of applying business incubators as a primary organizational model in creating large scientific and technological parks. A circle of international partners was determined in this field. They are the International Eurasia Foundation, Agency on international cooperation of Turkey and other organizations. The interest in promoting this subject in Uzbekistan was showed by the United Nations Industrial Development Organization, and first steps were taken to build up relations with APCTT. This makes our participation in the seminar held on 29-31 August 2000 in Seoul, extremely important and useful. We hope to gain maximum information, documentary materials and to establish necessary business contacts with foreign colleagues intensify and qualitatively improve the work carried out by us.

295

XII. STRENGTHENING TECHNOLOGY INCUBATION SYSTEM FOR CREATING HIGH TECHNOLOGY-BASED ENTERPRISES IN VIET NAM

297

I. BACKGROUND ON VIET NAM INDUSTRY AND SMALL AND MEDIUM SIZED ENTERPRISES FOR THE LAST YEARS You may know that Viet Nam is in the process of transition from a centrally-planned economy to a free market economy driven by the government under light of the renovation, open-door policy which commenced in 1986. In the whole economy, generally, and in industry, particularly, Viet Nam has accomplished certain achievements. Viet Nam industry witnessed an annual growth rate of 11.23 per cent; it increased by 14.1 per cent in 1996 and 13.2 per cent in 1997. Due to the negative impact of the regional financial – economic crisis, industry grew at the rate of 12.1 per cent in 1998 and decreased to 10.41 per cent in 1999. In 1999 alone, the proportion of state-owned sector, which mostly are Small and Medium-sized Enterprises (SMEs), accounted for 43.48 per cent of the total industrial production, equivalent to an increase of 4.52 per cent as compared to the 1988 figure. The proportion of non-state sector whose enterprises are SMEs was 21.7 per cent (increased by 8 per cent) while foreign invested sector contribution accounted for 34.75 per cent (increased by 20 per cent) of the total industrial production. For the first 6 months of 2000, statistics showed that the situation is better than that in the first 6 months of 1999. Before 1995, industrial export turnover was only a few billion US$ but this figure has increased considerably during the following years. In 1997, industrial export turnover increased by 20.38 per cent as compared to 1996, in 1998 it increased by 7.27 per cent and in 1999 by 33.91 per cent as compared to the previous year. To the end of April 2000, there were 2,991 projects that received foreign direct investment (FDI) in the whole economy for a total investment of US$ 42.75 billion, in which there were 643 projects in heavy industries with a total capital of US$ 7.24 billion, 41 projects in oil and gas sector which accounted for US$ 2.92 billion, 14 industrial and export processing zones with total investment of US$ 0.95 billion, 653 projects in light industry with US$ 4.20 billion, 160 projects in food processing industry with total capital of US$ 2.53 billion. 59 countries are currently investing in Viet Nam. Viet Nam and foreign investors have cooperated in setting up 67 industrial and export processing zones and licensed 916 enterprises with total capital invested of US$ 7.8 billion in those zones. In regard to the legal environment, the National Assembly of Viet Nam has ratified a number of laws to enable a favourable environment for economic and industrial development and international cooperation. These laws include the Law on Foreign Investment in Viet Nam (revised and adjusted), Law on Oil and Gas, Mineral Law, Corporate Law, Private Business Law, Cooperatives Law etc., in which Private Business Law and Cooperatives Law are an important legal base for SMEs development in Viet Nam and for restructuring the economy. Regarding industrial restructuring for the purpose of gaining higher efficiency, the number of state-owned enterprises (SOEs) has decreased considerably. However, there is little decrease in the proportion of this sector’s contribution in the total industrial output. Meanwhile the non-state enterprises have increased, both in number of enterprises and in their proportion to the total industrial production. It means SMEs increased their number and proportion to the whole economy.

II. SMALL AND MEDIUM SIZED ENTERPRISES (SMES) DEVELOPMENT In the process of integration of Viet Nam to the regional and global economy, the role of SMEs became more important. The official definition of SMEs has been recognized in the official letter of Government No. 681/CP-KTD in June 1998 and other policies on SMEs are under process of elaboration and approval. According to the definition, an enterprise which has less than 200 employees and capital of less than 5 billion Viet Nam dong (about US$ 380,000) can be defined as a SME. SMEs are both state-owned and non-state.

299

In process of restructuring the Vietnamese economy, the number of SOEs decreased from about 12,000 before 1990 to 5,873 in 1995 and 5,280 in 2000 and will be reduced to 3,000 in 2003. About 54 per cent of restructured SOEs (1,233 enterprises) have the capital from VND 1 up to 10 billion (equivalent to US$ 88,000 up to 880,000); 36.5 per cent of them have capital less than VND 1 billion (equivalent to US$ 88,000). Equitization is the priority form of restructuring SOEs. Up to 2003, about 1,498 SOEs will be equitized. At present, this figure is only about 500. Another 380 state owned enterprises will be merged and 368 will be dissolved. The number of non-state enterprises have increased considerably. Before 1990, this figure was 390,756, in 1995 was 612,977. Another form of restructuring is to set up services incidental to manufacturing, production, agriculture, fishery, forestry and mining. In previous years, production in almost all enterprises has been organized under a closed cycle. It means each enterprise had to do everything in a production process in order to produce the finish products and, therefore, productivity and quality were very low. Restructuring helps in the establishment of SMEs under existing laws and in manufacturing and services sectors. The number of foreign owned enterprises, including joint venture companies, in 1995 was 692 and more than 50 per cent of them met the definition of SMEs. The number of private enterprises was 1,096 in 1995 and more than 95 per cent of them were SMEs. The number of Limited and Stock Companies in 1995 was 4,360 and more than 95 per cent of them were SMEs. Almost 1,888 million of family enterprises in 1995 were SMEs. In Viet Nam, since 1998, many initiatives have been launched in favour of SMEs. For example, centres for assisting SMEs have been established in Viet Nam Chamber of Commerce and Industry (VCCI) and in the Ministry of Labour, War Invalids and Social Affairs. Also, some professional associations have been set up to have dialogue with government agencies non-discriminatory treatment between state owned and private companies and between SMEs and big enterprises. For assisting SMEs, there is a need to elaborate on policies for a legal framework, organization, founding family enterprises, land management, export promotion and promotion of technology and complementary industries along with human resources development. In order to promote technology and complementary industries for SMEs the following tasks should be undertaken: ◆

improve production management and product quality control;

◆

diversify and openly contact big enterprises and foreign owned enterprises;

◆

support production of prototypes;

◆

assist in accessing to all information sources;

◆

develop industrial clusters;

◆

broadly apply traditional technology;

◆

promote technology transfer from State owned Enterprises and foreign enterprises to SMEs;

◆

However, SMEs in Viet Nam are lacking capital, human resource and expertise to do these tasks and, therefore, development and strengthening of technology incubation systems are very important.

III. TECHNOLOGY INCUBATION SYSTEM In Viet Nam, some activities of technology development in favour of SMEs are underway. Some science and technology centres and research institutes (see Annex) are assisting SMEs, under contracting arrangements, on designing, manufacturing prototypes, technology process design, training new production lines, upgrading and expanding of existing production lines, training etc. For example, the Mining and Metallurgy Institute helped a Province Mineral Production Enterprise by designing and developing a mineral beneficiary equipment and now the equipment is operating successfully and brings job and good salaries for local people. The Agricultural Machine Research and Designing Institute helped some cooperatives to manufacture a prototype of Agro-product processing machine and the cooperatives can now produce such machines and sell them to many farmers. In Viet Nam, 75 per cent of the population are farmers. Therefore, various machines including small diesel engines,

300

pumps, small electrical generations, power tillers should be developed. The Technology Institute helped a foundry cooperative in upgrading its traditional foundry technology and, as a result, its product quality improved. Institutes Centres assist such activities daily. But, because of the constraint of the government budget, researchers and engineers of those Institutes in Viet Nam usually receive about 50 per cent of standard salary. Their contracts with SMEs, therefore, are on the basis of negotiation on prices. This means SMEs would not enjoy any preferential treatment in pricing. If some international organizations, other countries or the Government of Viet Nam assists in compensation of contract prices (say, 20-30 per cent of contract prices), more SMEs would benefit from such links with research institutes. From the point of view of management, the Ministry of Industry of Viet Nam would appreciate learning experiences from the other countries, ESCAP or other international organizations on how to effectively and officially organize the technology incubation systems for SMEs. Also, assistance on the functions and tasks of an Institute or Centre on becoming an official member of a technology incubation system and on necessary conditions to set up an official technology incubation system, for example in the Ministry of Industry of Viet Nam would be of great use. Viet Nam would be happy to submit proposals on this issue, especially for funding for price compensation of technology development proposals of SMEs.

301

Annex POSSIBLE MEMBERS OF TECHNOLOGY INCUBATION SYSTEM OF THE MINISTRY OF INDUSTRY FOR SMALL AND MEDIUM SIZED ENTERPRISES IN VIET NAM 1.

Viet Nam Institute of Electronics, Informatics and Automation Address: 156A Quan Thanh Street, Hanoi, Viet Nam Tel: (84.4) 8456 380/fax (84.4) 8232 958

2.

National Research Institute of Mining and Matallurgy Address: 30 Doan Thi Diem Street, Hanoi, Viet Nam Tel: (84.4) 8232 986/fax (84.4) 8456 983

3.

National Research Institute for Mechanical Engineering Address: Mai Dich Commune, Tu Liem District, Hanoi, Viet Nam Tel: (84.4) 8343 29/fax (84.4) 8347 883

4.

Research Institute of Geology and Mineral Resources Address: Km 9+300 Hanoi, Hadong Road, Thanh Xuan District, Hanoi Tel: (84.4) 8544 386/fax (84.4) 8542 125

5.

Food Industry Research Institute. Address: Km 8 Nguyen Trai, Thanh Xuan, Hanoi, Viet Nam Tel: (84.4) 8585 107/fax (84.4) 8584 554

6.

Oil Plant Institute Address: 171-175 Ham Nghi, District 1, Ho Chi Minh City Tel: (84.8) 8297 336/fax (84.8) 8243 528

7.

Institute of Ferrous Metallurgy Address: Quan Ganh, Thuong Tin District, Ha Tay Province Tel: (84.34) 853 094/fax (84.34) 853 972

8.

Institute of Mining Science and Technology Address: Phuong Lien, Dong Da Street, Hanoi Tel: (84.4) 8642 024/fax (84.4) 8641 564

9.

Institute for Machinery and Industrial Instrument Address: 34 Lang ha, Dong Da District, Hanoi, Viet Nam Tel: (84.4) 8344 372/fax (84.4) 8344 975

10.

Research Institute for Agricultural Machinery Address: Km 9 Nguyen Trai Street, Dong Da District, Hanoi, Viet Nam Tel: (84.4) 8544 429/fax (84.4) 8547 366

11.

Research Institute for Machinery Technology Address: 219 Lang Ha Street, Dong Da District, Hanoi, Viet Nam Tel: (84.4) 8533 322/fax (84.4) 8547 366

302

PART FOUR SPECIAL PRESENTATION ON KOREAN EXPERIENCES I. THE GROWTH AND DEVELOPMENT OF THE KOREAN VENTURE CAPITAL INDUSTRY BY

KWON SUNG-MOON PRESIDENT OF KTB NETWORK THE REPUBLIC OF KOREA

303

By rapidly responding to and engaging in the global change, the economic paradigm shift to the new digital economy, and miraculously recovering from the financial crisis that engulfed the nation in late 1997, the Republic of Korea has recently emerged as one of the leading venture powers in the Asian region. The dramatic headway made by the Korean venture capital industry was set in motion by various factors: corporate and financial restructuring, the growth and development of the IT/Telecommunications and Internet industries, vitalization of the KOSDAQ market, and the government’s strong support for venture companies and venture capital firms. During the expansion period, venture capital firms greatly contributed to the Republic of Korea’s meteoric rise as a venture power by providing the necessary financing and business resources to support the growth and development of venture companies. This report will provide an overview of the growth of Korean venture capital firms, their role in the recent venture boom and the future horizon of the industry by focusing on the pioneer of the VC industry, KTB network, to illustrate the impact that venture capital firms have made on the industry.

305

I. INTRODUCTION A. Origin of the Korean venture capital industry The Korean venture capital industry can be traced back to the establishment of the Korea Technology Advancement Corporation (KTAC) in 1974 with the purpose of commercializing R&D efforts of the Korea Institute of Science and Technology (KIST). However, investment activity during this period was severely limited due to the lack of both venture companies and investment funds. It can, therefore, be said that the origin of today’s venture capital firm was established in 1981 in the form of the Korea Technology Development Corporation (KTDC), the predecessor of KTB network. During this period, the economy was in the midst of the second oil crisis and was dominated by a handful of powerful conglomerates. To overcome these existing challenges KTDC was established by the government to help create greater economic stability through the fostering of a more balanced industrial environment. In 1986, the Government enacted the “Regulations to Support the Establishment of Small and Medium-Sized Enterprises” to promote the growth of competitive technology companies and to overcome the limitations of the previous existing “Chaebol-oriented” economic policies. The regulation helped build the foundation for the present growth of the Korean venture capital industry through its support of investment firms and associations that primarily focused on the financing of small and medium-sized enterprises (SMEs). However, the majority of these investment firms and associations, with the exception of a limited number of companies such as KTB network, were relatively small in scale and did not actively engage in investments due to the slow growth of the venture market. Furthermore, investments from these firms were unlike true venture capital investments in that much of the financing was in the form of loans rather than equity investments. 1995

1996

investment 45%

investment 46% ban 55%

ban 54%

Source: Small and Medium Business Administration (2000).

Figure 1.1. Classification of venture capital financing as of the end of 1995 & 1996

B. Building the foundation for growth and development Since the IMF Crisis in 1997, the economic policy targeting large business conglomerates (“Chaebols”) to lead the nation’s globalization came into question as a result of their inefficiencies of high costs and low margins. The alternative business paradigm manifested itself in the form of venture companies, particularly, high-technology ventures. In order for the Republic of Korea to accelerate its global competitiveness, consensus from society in August of 1997 prompted the Government to respond by replacing the existing “Venture Support for Small and Medium-Sized Enterprises Act” with the new “Special Measures for Establishing and Supporting Venture Companies”. The purpose of the new act was to effectively foster the development of ventures by addressing key issues critical to growth of venture companies such as financing, technology, human resources, and geographical location. Government policy changes provided a more favourable investment climate for financial institutions and pension funds to participate in venture capital investments. Also, participants from certain qualified investment associations were no longer subject to investigations in regards to the source of their funds and the return on their investments received preferential tax treatment. Furthermore, the introduction of additional policies helped

306

further the growth of the industry such as relaxing regulations for the establishment of Angel investment and venture capital associations, a limited liability system for venture capital associations, and the expansion of investment scope for venture capital firms. Concurrently, the Government provided measures to vitalize the KOSDAQ market. Although, the KOSDAQ market was established in July 1996 to provide direct financing opportunities to venture companies and SMEs, the market’s trading volume did not begin to show signs of life until March 1999 when investment sentiment was bullish. Robust market activity encouraged the Government in May 1999 to enact measures to sustain the growth of the KOSDAQ such as the relaxing of listing requirements for venture companies. As a result, the KOSDAQ has become a haven for venture companies with the listing of an unprecedented number of venture companies. The KOSDAQ had finally matured into a true exchange for investment activity and provided the necessary market infrastructure for the growth of venture companies and their future valuation. 300

900

10 Mar 2000

800 700 KOSDAQ Composite Index

200

600 500

150

400 100

300 200

KOSDAQ Venture Index

50

(Venture Index)

(Composite Index)

250

100

0 3 Jul 00

31 Mar 00

5 Jan 00

7 Oct 99

13 Jul 99

19 Apr 99

18 Jan 99

27 Oct 98

13 Aug 98

1 Jun 98

0

Source: The KOSDAQ Stock Market, Inc.

Figure 1.2. KOSDAQ index The wealth of private funds amassed during the nation’s economic heyday prior to the IMF Crisis was largely secured in the financial sector. The existing level of distrust investors had for financial institutions during the course of the corporate and financial restructuring further fueled the flow of funds from the banking and investment trust institutions to the venture industry. The crisis in late 1997 and the aftermath of the IMF Era, proved to be underlying factors contributing to the growth of the industry.

C. The recent rapid growth of the industry The venture boom of 1999 was defined by a dramatic increase in the number and size of capital investments from venture companies due in large part to the Government’s preferential tax treatment for investments. One method to actively participate in venture investments in the Republic of Korea is to be approved as a New Technology Support Financing Company (NTSFC) under the “Loan Specialization Financial Business Act”. Until 1987, there were only 2 companies engaged in this specialized activity including KTB network, but during the period from 1998 to the end of June 2000, the total number had risen to six (figure 1.3). In addition, 12 financing corporations specializing in loans including BC Card, KDB Capital Corporation and Development Leasing Corporation were granted limited business involvement in the new technology financing activities. As of the end of 1999, the total financing received by venture companies is approximately KRW 5.3 trillion comprised of KRW 0.8 trillion in investments and KRW 4.5 trillion in loans. Thanks to the New Technology Support Financing Companies and the “Small and Medium Enterprises Establishment Support Act” (SMEESA), small and medium venture capital firms and associations were able to grow. Among the 137 venture capital firms and 248 associations established by the end of June 2000, more than half were established after 1999. The trend is expected to become more pronounced during 2000 as 20 new venture capital firms and 40 venture capital associations have been established in a single month.

307

6 5

Companies

4 3 2 1 0 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Source: Korean Financial Supervisory Commission.

Figure 1.3. The Growth of new technology support financing companies Table 1.1. Number of investment firms and associations by year (Units: W billion)

No. of investment firms Paid-in Capital No. of investment association Total amount of financing raised

1986-1996

1997

1998

1999

54

60

72

87

June 2000 137

799

886

1 026

1 240

1 866

71

84

93

149

248

719

869

920

1 072

1 786

Source: Small and Medium Business Administration (2000).

Investments from venture capital firms and associations established under the SMEESA accelerated and reached 950 billion won (W) in 1999, and are continuing to grow. The financing method has also altered. While more than half of the financing in 1996 was in the form of loans, 90 per cent of the financing for 1999 was provided through equity investments. This, in turn, allowed the venture capital firms to be true to their appellation, venture capitalists seeking out investment opportunities based on future growth potential and valuation.

1 600 ban

(billion won)

1 400 1 200 1 000 800

investment

600 400 200 1996

1997

1998

1999

Source: Small and Medium Business Administration (2000).

Figure 1.4. Annual investments balance from investment firms and associations The Korean Venture Investment Association defined under the “Special Enforcement on Promoting Venture Businesses” has been operating the “Korean Venture Fund” since September 1999. The total size of the fund is US$ 80 million with a 50:50 investment ratio between the Small and Medium-Sized Business Promotion Corporation and foreign investors. In addition, approximately W 128 billion was raised by Angel investors comprised of 17,874 individual investors and 13 Angel associations as of the end of March 2000.

308

The venture boom that started in 1999 helped alter the industrial landscape and transform the nation into one of the leading venture powers in the Asian region. The following pages of this report will further examine the contributions made by Korean venture capital firms in terms of the factors contributing to the growth and development of the industry and the primary role played by these firms during the expansion period.

II. MAJOR FACTORS IMPACTING THE GROWTH OF THE INDUSTRY AND THE PRIMARY ROLE OF VENTURE CAPITAL A. Major factors impacting the growth of the industry In the wake of the Financial Crisis many of the nation’s largest corporations were left insolvent or in the process of major corporate restructuring. The economic malaise was a turning point for the nation and the aftermath made it painfully evident for the Government to redress its economic policy and pursue reforms focused on large business enterprises. In contrast, the United States of America was experiencing its greatest economic expansion since the end of World War II. The growth was largely attributable to the boom in the venture and telecommunications industry. The global telecommunications revolution, particularly wireless communications, and the Internet proliferated at great speed, transcending national borders and finding new market opportunity in the Republic of Korea. To actively participate in the global technological market, the Korean government enacted the “Special Enforcement Act on Promoting Venture Businesses”1 to provide the necessary support for the development of technology-based companies. The objective of the Act was twofold: (1) to accelerate the nation’s economic recovery via the growth of new technology venture companies and (2) to restructure the industrial landscape from the Chaebol dominance of the pre-IMF Era. As a result, Government action accelerated the exponential growth in the number of venture companies which, in turn, brought new life to the KOSDAQ market in 1999. The new enterprises fulfilled the underlying expectations of the advancement of the nation’s technological prowess and economy. Table 2.1. Number of venture companies in the Republic of Korea by year No. of ventures

1998

1999

Jan 2000

Feb 2000

Mar 2000

Apr 2000

May 2000

2 042

4 934

5 212

5 546

6 004

6 547

7 110

Source: Small and Medium Business Administration (2000).

Table 2.2. Korean venture companies’ contribution to the national economy Per cent of GDP contribution by venture companies Number of professionals employed at venture companies

1999

2005 (Projection)

4.8 per cent

18 per cent

173 000

1 200 000

Source: LG Economic Research Institute (2000).

The rapidly growing number and scale of venture companies created a great demand for funds. At the time, conventional financial institutions including banks were undergoing financial restructuring and it was nearly impossible for them to provide financing to the high-risk venture companies. This void was filled by venture capital firms and “Angel” investors who financed the high-risk companies for potential high returns, providing momentum for rapid growth in the industry and individual firms. 1

The “Special Enforcement Act on Promoting Venture Businesses” was enacted in the Republic of Korea in October 1997. Prior to this Act, the general concept of venture businesses though understood, had never clearly been defined. Today, the scope of venture businesses is defined as follows: 1. A company with more than 10 per cent equity investment from a venture capital firm. 2. A company which spends more than 5 per cent of its sales revenue on R&D. 3. A company that has commercial patents, utility model rights, etc. 4. A company that has been approved by a venture business vitalization committee such as the industry-based technology development business.

309

Government policy support for the VC industry

Exponential growth of VC firms

Rapid growth of venture industry IT/telecommunications & internet revolution

Transformation of the industry structure to SMEs & ventures

Accumulation of private funds

Financial restructuring

Figure 2.1. Primary factors for the development of the Korean VC industry

B. Primary role of venture capital The objective of venture capital firms is to realize capital gains through the future growth and valuation of venture companies. In addition to financing, VC firms provide management consulting services and monitor the company’s business performance, thereby playing a major supporting role for venture companies.

1. Provision of funds to venture companies Venture capital firms provide the funds required at the time by ventures during various stages of their development in order to foster the growth of these companies. Korean venture capital firms provide financial assistance to venture companies in the form of investments through the acquisition of stocks and convertible bonds and financing through general and Government policy-based funds. As of the end of 1999, the investment amount provided by new venture capital firms and technology support financing companies is estimated to be W 6.8 billion. The amount, excluding loans, is approximately W 2.3 billion, of which W 1.9 billion was through stock acquisitions. Table 2.3. Classification of financing As of the end of 1999

(Units: W billions) Investments

VC Firms NTSFC Total

Amount Ratio

Loans

Total

Acquisition of stocks

Convertible bonds

1 128

202

84

71

1 485

749

55

39

4 453

5 296

Others

1 877

257

123

4 524

6 781

27.7 per cent

3.8 per cent

1.8 per cent

66.7 per cent

100.0 per cent

Source: Korean Venture Capital Association (2000).

In theory, venture capital firms provide a small amount of seed financing during the early stages of the company, and also participate in the latter financing rounds of the company’s development, thereby providing comprehensive financing at each stage of development. In the Republic of Korea, as of the end of 1999, 36 per cent of the total investments were provided to those venture companies that had been established for three years or less. This is the equivalent of 44.5 per cent of the total number of venture companies. When taking into account that those companies that have been established for three years or less represent 45.9 per cent or 2,976, compared to a total of 6,485 venture companies as of the end of 1999, a large number of venture companies have received financing from venture capital firms, demonstrating the increased role that they are playing.

310

Among the leading venture capital nations including the United States of America, investing in high-risk venture companies is generally taken on by angel investors, the government or corporations. The role of venture capital firms is usually to provide most of the financing for the latter operation stages of the venture companies. Lately, the number of angel investors has been rapidly proliferating in Korea with a total investment amount of W 128 billion as of March 2000. Although the growth is dramatic, the demand for financing from the rising number of ventures far exceeds the actual supply of investment funds. Table 2.4. Status of newly established VC firms providing financing support As of the end of 1999

(Units: W billions)

After establishment

Number of companies

Ratio

Amount of financing

Ratio

Within 1 year

535

19.5

21

14.0

2~3

685

25.0

33

22.0

4~5

418

15.2

29

19.3

6~7

313

11.4

20

13.3

8 ~ 14

774

28.2

46

30.7

Over 14 years

18

0.7

1

0.7

2 473

100.0

150

100.0

Total

Source: Small and Medium Business Administration (2000).

Table 2.5. Number of angel investors and total amount of investment by year 1998

1999

Jan 2000

Feb 2000

Mar 2000

Number of Angel Investors

349

4 253

8 215

11 171

17 874

Investment Amount (Unit: W billion)

2.4

52.1

88.5

98.3

127.9

Number of Investee

12

86

128

132

190

Source: Korean Venture Capital Association (2000).

(a)

Provision of management consulting services for the growth of venture businesses

Although there are some chief executive officers (CEOs) of ventures who have had experience in establishing and managing a company, the majority is inexperienced in business management. A recent study indicated that 28.1 per cent of CEOs of ventures had been researchers, university professors or otherwise did not have any experience working in a company. Among the 71.9 per cent who did have such experience, most had actually worked in technical or research related areas and did not have adequate management expertise. Table 2.6. Professional experience of venture CEOs Category No. of CEOs Ratio

Small and Medium Cos.

Large Cos.

Researcher

Professor

Other

Total

3 211

1 705

610

306

1 006

6 838

47.0 per cent

24.9 per cent

8.9 per cent

4.5 per cent

14.7 per cent

100.0 per cent

Source: Client Survey conducted by KTB network in December 1999.

According to a survey conducted by KTB network for investee companies at the end of 1999, 68 per cent of the respondents stated that they were strong in technology, but 42 per cent stated that they lacked marketing or sales experience. Furthermore, in a survey regarding services besides financing from venture capital, a large number of companies responded that they would like to receive information on trends in the venture industry along with greater support in external promotional activities. In summary, today’s Korean venture companies are

311

Table 2.7. Strengths and weaknesses of venture companies Strengths

Weaknesses

Technology

68 per cent

4 per cent

Marketing/Sales

28 per cent

42 per cent

Organizational Management/Human Resources

0 per cent

2 per cent

Fund Procurement/Operation

0 per cent

16 per cent

Other Total

4 per cent

36 per cent

100 per cent

100 per cent

Source: Client survey conducted by KTB network in December 1999.

very interested in receiving not only management consulting services but also diversified information from venture capital firms. Most Korean venture capital firms, however, have a short history and venture investment practices in the past were focused simply on financing and there is very little experience in providing comprehensive management support. In addition, in the past, venture entrepreneurs themselves regarded venture capitalists’ participation in the company’s decision-making process as a violation of the rights of management. In some cases, the Board of Directors, the official channel for venture capitalists to participate in the company’s management became a non-functioning body due to a few self-righteous entrepreneurs. Lately, however, surveys indicate that the views of venture entrepreneurs on venture capital firms and venture capitalists are changing. The trend is such that a greater number of venture entrepreneurs are requesting information from the venture capitalists with regard to business management and the venture capitalists, in turn, are providing the requested business services. Also, the emergence of consulting companies providing services exclusively to venture companies such as business techniques and business strategy consulting, formerly provided by existing venture capitalists, has raised the level of competition. As a result of the changing environment, the progress of the venture industry has accelerated and a strong complementary relationship between venture entrepreneurs and capitalists is mutually beneficial.

(b)

Business performance monitoring and supporting public offering

The exit strategy of most venture capital firms is to realize high returns on their initial investment by selling their equity stake in the investee company. Therefore, it is essential to monitor the performance and growth rate of the company. Also, this allows for the venture company to objectively judge and measure its own business performance and development. This evaluation process, in turn, leads to greater recognition and adds higher value to the company in the event of a future public offering. Business performance is usually determined by comparing the profit yield for a specified period with the profit projections made at the time of the investment or by estimating the market value of the initial public offering. During the investment contract process, the provision of necessary financial and non-financial information is stipulated as a precondition to the contract agreement. However, the formality does not resolve the fundamental problem of the information flow between the investee company and the venture capital firm. In the event that the flow of information is inhibited, venture capital firms have taken several precautionary measures. One of the most common financing practices in the Republic of Korea is to provide funds on a stage-bystage basis contingent on the venture company’s business performance and development. Another form is through the acquisition of convertible bonds, and if the investee company does not meet business performance expectations, then it is possible for the venture capital firm to receive its principal after a defined time period. Also, the existence of put-options allows the investor to re-sell its equity stake to the investee company if expectations are not met. In addition, providing stock options to top management is another measure to help ensure successful business operations of the company. Venture capital firms’ high returns from their high-risk investments are made through various exit strategies common to the industry such as the initial public offering, selling of equity stake to a third party and mergers and

312

acquisitions (M&As). The public offering of the investee company’s equity shares is the most widespread method. The listing of the company is not only crucial for venture capital firms, but also for the future of the venture company. Since 1999, the KOSDAQ has become not only the market for venture companies, but it is also essential for their future valuation. Furthermore, the Third Market was opened this year with relaxed listing requirements to allow companies not listed on the major exchanges access to financing. Though this market provides an additional exit strategy for venture capital firms, trading is not yet very active. Also, limitations to utilize this market exist for institutional investors who have an equity stake in a large number of investee companies. Utilizing M&As as an exit strategy for venture capital firms at this point in time is still a difficult issue in the Republic of Korea. It is not so much a question of legality but more of a matter of morality. In the Republic of Korea, M&A activities are perceived as undermining the company’s interests and usurping management’s control of the company and, therefore, inherently immoral. The concept of M&As is poorly understood as are their benefits such as the retirement of inefficient management, the creation of synergy from the merger or acquisition and the expansion of market dominance. Since market expansion via M&As is directly linked to the enhancement of value for dot.com companies, the M&A market holds great potential as a viable exit strategy for venture capital firms as they invest more heavily in the dot.com companies. Table 2.8. Annual growth of the KOSDAQ market (Units: million shares, W billion)

No. of listed companies (Venture companies)

1996

1997

1998

1999

331 (52)

359 (86)

331 (114)

453 (173)

June 2000 538 (191)

Capital stock

3 102

3 495

5 408

13 062

15 119

Market capitalization

7 606

7 069

7 892

98 704

65 080

Transaction Performance Fund Procurement

Transaction volume

35

47

206

8 674

23 154

Transaction amount

535

1 166

1 607

106 808

391 174

Increase of shares to be issued

124

87

1 873

3 084

3 227

27

129

6

2 125

1 609

151

216

1 880

5 210

4 836

Public offering Total

Source: The KOSDAQ Stock Market, Inc.

III. EXPERIENCE OF KTB NETWORK A. KTB network’s status in the venture capital industry 1. The pioneer in the Korean venture capital industry The nation’s first venture capital firm, Korea Technology Development Corporation was established in 1981 by the Government to offset the policies centred on large conglomerates by fostering the development of venture companies. The KTDC was established at a time when the concept of venture capital firms was not even defined, but the very precedent of the company helped create the foundation for the growth of the Korean venture capital industry. The Korea Technology Development Corporation was a public corporation established under a government mandate, the Korea Technology Development Corporation Act. In 1992, the Korea Technology Development Corporation Act was replaced by the Korea Technology Banking Corporation Act, which effectively enhanced the scope of operations and resulted in the change in company name to the Korea Technology Banking Corporation (KTB, presently KTB network). In 1999, with the repeal of the Korea Technology Banking Corporation Act and incorporation of the Loan Specialization Financial Business Act, the company was transformed into the present KTB, a private loan specialization financial business institution.

313

When KTB network first began operation, the Korean venture capital industry was practically nonexistent. KTB network initially raised venture capital funds, essentially Government policy-based funds, to promote the venture industry and provided loans and investments to venture companies that had difficulty obtaining financing from banking institutions. The financing of small and medium-sized venture companies was the first attempt of its kind in the Republic of Korea. The financing policy with an emphasis on technology-oriented venture companies highlighted the importance of technology in the Korean economy. Table 3.1. KTB network’s annual venture investments (Units: W billions) 1981-1985 No. of companies Amount

1991-1995

1996-2000

288

1986-1990 537

1 601

1 975

87

403

1 958

3 736

Source: KTB network database (2000).

2. The first and largest venture capital firm in the Republic of Korea KTB network is the pioneer of the domestic venture capital industry and has been the largest venture capital firm in the Republic of Korea since its establishment in all respects including total assets, total investments, and number of employees. In addition, as a public corporation, KTB network, has played a pivotal role in the diffusion of Government policies through policy-based funds for the specific purpose of supporting ventures. Table 3.2. Profile of the leading venture capital firms (Units: W billions) Date of establishment KTDC

May 1981

Paid-in capital

Number of employees

48

121

Major shareholders Government, Private Companies

KTF

October 1984

38

59

The Korea Development Bank, etc.

KDI

December 1982

12

25

7 Short-term Financing Companies

KT

September 1974

7

14

KAIST

Source: KTB network database (2000).

In addition to the company’s size and investment volume, KTB network takes great pride and responsibility as the leading venture capital firm in the Republic of Korea for making quality investments in venture companies through its fair and rigorous appraisals. As a result of KTB network’s superior investment performance, client companies are recognized as having great potential for stability and growth. Consequently, KTB network has invested in most of the leading domestic venture companies. As of March 2000 KTB 22%

Other 56%

KDBV 9%

KTIC 5%

TGV 8%

Source: Korea Venture Capital Association.

Figure 3.1. Market share of KTB network (balance of investment)

314

Furthermore, thanks to its high recognition and reputation as the leading venture capital firm, KTB network was able to build an extensive information network. This network provides valuable information and resources to client venture companies, and creates a synergy effect of scale resulting in numerous successful ventures. Approximately 30 per cent of the companies listed on the KOSDAQ are investee companies of KTB network. Table 3.3. Comparison of the leading venture capital firms in Korea As of the end of 1999

(Unit: W billions) KTB

No. of employees

KDB Capital Corporation

KTIC

TGV

246

194

49

33

Asset

2 078

3 860

456

219

Investment/financing balance

201

1 270

664

339

Operating income

502

1 495

75

42

Net income

111

73

44

23

Source: KTB network database. Note: In the case of KDB Capital Corporation, leases are included (lease asset of W 1,879 billion).

Table 3.4. KTB network investee companies listed on the KOSDAQ As of the end of June 2000

(Units: companies)

Classification (a) KOSDAQ listed companies (b) KTB network investee companies Percentage (b/a)

No. of companies

Venture companies

485

191

82

56

16.9 per cent

29.3 per cent

Source: The KOSDAQ Stock Market, Inc. and KTB network database (2000). Note: KOSDAQ stocks are categorized into three sectors of non-venture companies, venture businesses, and securities investment companies.

KTB network’s growth and status in the market helped sustain the Korean venture industry, which had not recorded any tangible growth for the past 20 years. Also, thanks to KTB network, those venture entrepreneurs who do not have a strong presence in the economy can now aspire to become independent and successful companies armed with their technology. Furthermore, KTB network, the indisputable leading venture, contributed greatly not only to the recent dramatic growth of the venture industry, but also to the nation’s recovery from the financial crisis in 1998. In addition, the company played a vital role in supporting the Korean venture industry, breathing new life into the economy. Paving the way to support the companies maturing in this changing economic paradigm has produced an alternative to the large business conglomerate-oriented economic growth.

B. Change in financing from loans to investments 1. Role of government policy-based funds When KTB network was first established, the role of venture capital firms was limited to providing funds to small and medium-sized companies that were experiencing difficulty in raising funds unlike their larger counterparts. In the early days, financing provided by venture capital firms was not an investment in the future valuation of the company, but a mere distribution of funds from the Government’s Promotion Funds for Small and Medium-Sized Companies. Since the company’s establishment and up until its recent privatization, KTB network also performed the same general role of raising the Government’s venture company promotion funds and essentially sublending the

315

Table 3.5. Percentage change of KTB network’s loans and investments (Unit: W billions) 1981-1985 Investments

1986-1990

1991-1995

1996-1999

June 2000

6

62

136

409

Loans

81

341

1 822

2 978

37

Total

87

403

1 958

3 387

350

93.1 per cent

84.6 per cent

93.1 per cent

87.9 per cent

10.6 per cent

Percentage of Loan

313

Source: KTB network database (2000).

loans to venture companies at favourable terms. KTB network’s business operations to support venture companies were primarily focused on loan financing, which accounted for 90 per cent of the total financing provided to venture companies.

(a)

Technology-oriented loan business

It should not be overlooked that KTB network’s loan operations are very different from that of ordinary banking institutions. The most important factors for conventional banking institutions in determining loan appraisals are collateral and credit guarantee of a company. In KTB network’s case, loan eligibility is determined by focusing mainly on a company’s technology and its future growth potential. When these conditions are met, KTB network provides the loans even if the company lacks collateral or credit guarantees. In such a way, it has become an important source of financing for Korean venture companies in the Republic of Korea. Even though most of the venture capital financing was initially in the form of loans, KTB network actively sought out promising venture companies and evaluated both their growth potential and future valuation. The valuation of the company was accepted in place of any security for the loans, thereby providing the financing needed for technological start-ups to face and overcome future challenges with new technology. This form of financing is unique to the Korean venture capital firms.

(b)

KTB network’s investments gives rise to venture legends

In conjunction with its loan operations, KTB network also carried out and performed the duties and responsibilities of a venture capital firm. It made direct equity investments in venture companies that had financial difficulties but possessed superior technology and growth potential. The equity investments reduced the financing burden for venture companies and helped to promote the spirit of venture entrepreneurship in a business environment in which the development of new technology can grow without financial burdens. KTB network’s investments in promising venture companies have supported the venture industry for the past 20 years and helped build the foundation for the recent rapid growth of today’s venture industry in the Republic of Korea.

2. Growth in investments-based on future valuation KTB network’s financing of venture companies was based on the existing practices at the time, which were predominantly focused on loans. During the nation’s financial crisis in 1998, the company faced its own dire financial crisis as a result of a loan extended to a company that subsequently became insolvent. Then, in March 1999, the Government sold its equity stake in KTB network to the Will-Bes Company, Ltd., marking the beginning of KTB network’s privatization. The change in management and a new major shareholder transformed the KTB network into a completely new company. Management transformed business operations from the risk avoidance of the company’s former loan operations to the role of a true venture capital firm, seeking out promising ventures and taking on high risks for potential high rewards. The transformation into an investment-oriented company was initiated by the resolute determination of the new management. Management’s mid to long-term vision and belief in the Korean venture industry and its enormous growth potential, despite the grave situation at the time, provided new hope for the company. At the

316

Case Study 1: Investment in the pioneer of Korean venture companies, Cas Corporation i)

ii)

Company overview at the time of investment ◆

Established in 1983, as a manufacturer of industrial automatic control devices, industrial equipment, and industrial robots.

◆

After failing in robot manufacturing, the company changed its product to electronic scales and was in need of development funds.

◆

In 1984, KTB network provided W 250 million in loans for the localization and development of electronic scales that were previously imported from industrialized nations.

◆

KTB network grew together with the company and financed a total of W 50 billion until 1998.

Growth and influence within the industry ◆

After developing electronic scales in 1985, sales revenues reached W 980 million (a 1,650 per cent increase from the year before).

◆

Market share of 45 per cent in 1986, exported products in 1987 and annual export growth rate was 100 per cent up to 1989.

◆

As of 1999, sales revenues were W 46.5 billion; market share of 70 per cent; number of employees of 336; local subsidiaries in the United States of America, Turkey and China.

◆

In early 1980s, at a time when the concept of ‘venture’ was unfamiliar, this company became a myth among venture companies thanks to financing from KTB network and its own technology.

◆

By interacting continuously with KTB network, the company grew and became a prime example of how a venture company and a venture capital firm can grow together.

◆

By becoming the first successful venture company in the Republic of Korea, to many Korean venture companies it demonstrated that a knowledge-based industry can succeed even in the Republic of Korea and inspired then to succeed, which led to the Korean venture boom.

same time, the Korean venture industry boom quickly turned KTB around from its precarious situation into a company that posted over W 100 billion in net income. The dramatic recovery supported management’s faith in the company and future of the industry. Table 3.6. KTB network’s recent investment performance (Unit: W billions) Period 1999 First half of 2000 Total

Acquisition Cost (a)

Profit/loss from sales

Valuation profit/loss

Total profit/loss (b)

Profit ratio (b/a)

47

369

55

424

902 per cent

21

127

85

212

1 010 per cent

68

496

140

636

935 per cent

Source: KTB network database (2000).

3. Expansion of investments in the IT/telecommunications and Internet industry KTB network’s recent investments targeting IT/telecommunications and Internet companies have paved the way for the formation of a new economic paradigm. IT/telecommunications and Internet have become buzzwords and will ultimately alter the world as we know it. In order to actively and effectively compete in the world economy, a country or a company must have a competitive edge in IT/telecommunications and Internet. Korea’s IT/telecommunications and Internet industries have already become competitive in the global market with regards to technology, public interest and increasing popularity. The growth of these core industries has the potential to advance the nation into a leading global player.

317

Table 3.7. KTB network before and after privatization (Unit: W billions) Before (1998) Number of employees Net income Capital Investment

Note:

Variance 12.2 per cent

-129

111

186.7 per cent

91

302

231.9 per cent

Capital

47

697

1 383.0 per cent

Annual investment

23

163

608.7 per cent

Number of investee Loan assets Investment assets as a per cent of total assets Investment revenue

Profit composition

147

Paid-in capital

Investment assets Asset composition

After (1999)

131

Loan revenue Investment revenue as a per cent of total revenue

29

113

289.7 per cent

238

584

145.4 per cent

1 453

802

-44.8 per cent

10.9 per cent

26.6 per cent

15.7 per cent

15

296

1 873.3 per cent

223

100

-55.2 per cent

3.6 per cent

59.0 per cent

55.4 per cent

KTB network invested W 356.4 billion in 208 companies during the first half of 2000 realizing W 201 billion in net income, which is twice the amount of its net income in 1999.

KTB network also makes aggressive investments and provides various services to IT/telecommunications and Internet companies playing a vital role not only in the development of the Korean economy, but also the world economy. KTB network’s investments focus on the IT/telecommunications and Internet sectors have resulted in recent major technological developments from its investee companies in these industries. High investment performances in these industries continue to improve as a result of KTB network’s active role in the venture industry.

Table 3.8. KTB network’s investments by industry (Unit: W billions) Sector

1998

1999

Jan - Jun 2000

Electronics, IT/telecommunications

3

63

72

Internet

–

22

50

Machinery

0

7

4

Multi-media

–

4

34

Bio/Environment

1

6

6

Restructuring

–

20

105

Other

2

17

35

6

138

247

Total

4. Implementation of corporate restructuring and overseas investment businesses KTB network is expanding its scope of operations to include corporate restructuring and overseas investment businesses in addition to its telecommunications and Internet investments. The corporate restructuring business objective is to provide the necessary financing to revive those companies that became insolvent during the financial crisis. These companies share similarities with venture businesses in that they also possess superior technology and require greater financing. In this respect, KTB network is advantageously positioned to apply its unparalleled venture experience to the corporate restructuring business.

318

Case Study 2: Early Investment in Daou Technology Inc., a Leading Internet software company in Korea i)

ii)

Company overview at the time of investment ◆

Daou Technology began developing IT software in the early 1990s at a time when the importance of software programmes was not fully recognized in the Republic of Korea

◆

Daou Technology’s exceptional grasp of the leading software programmes in the United States of America and understanding of domestic needs led to the localization of such programmes

◆

KTB network’s investment in Daou Technology was based on the growth projections of the Korean IT industry

◆

KTB network’s total initial investment amount was W 1.3 billion in the form of convertible bonds and provided further mezzanine financing in the amount of W 8 billion

◆

Numerous visits made to the company as a non-standing director to provide management consulting

Growth and influence within the industry ◆

Despite the stagnant KOSDAQ market, Daou Technology was the first software company to be successfully listed in 1997 with the strong support of KTB network’s management and investment

◆

The company has since become one of the largest software companies with a total market capitalization of W 500 billion, leading the Korean Internet companies

◆

Daou Technology’s talented professionals play a key role in the development of the Korean software industry

◆

KTB’s realized return on investment was 769 per cent with an investment amount of W 1.3 billion and an investment return of W 10 billion

Case Study 3: Kisan Telecom, leading developer of telecommunications equipment i)

Company overview at the time of investment ◆

Kisan Telecom, is a leading developer of telecommunication equipment such as switchboards, wireless data, PCS, etc.

◆

In 1998, the domestic telecommunications equipment market’s future looked very bright, but lacked the necessary financing and business management skills

◆

The decision to invest in the company by KTB network was based on Kisan Telecom’s recognized leading technology within the Korean telecommunications industry.

◆

In May 1998, KTB network’s investment amount was W 1.8 billion (with a face value of W 500 and expected offering price of W 9,000) and in KTB network provided Kisan Telecom with consulting services on stock options, employee stock ownership associations, staffing, and public offering. The comprehensive consulting services began several months before the actual public offering in regards to closing, corporate statute changes, company briefing session, etc. ➡

ii)

The initial offering price had increased from W 8,000 to the final offering price of W 12,000.

Growth and influence within the industry ◆

In November 1999, the company listed on the KOSDAQ

◆

The total return on investment was 14 times the principal over a two-year period.

◆

The company was highly recognized for its superior technology. It recorded the highest growth rate among venture IT/Telecommunications equipment producers in Korea, but it, unfortunately, lacked strong management. KTB network’s participation helped the company become the leading telecommunications equipment company in the Republic of Korea.

◆

KTB network realized a return on investment ratio of 1,433 per cent and W 25.8 billion in realized gains.

319

In addition, KTB network is in the process of expanding its overseas investment operations in the United States of America, the global leader in the venture industry, and Japan and South-East Asia where future growth is expected. Together with a full understanding of these world-wide venture trends, KTB network will further enhance its presence in the global venture market and become a leading global venture capital firm through investments in promising ventures. Recently, the company has been active in investment operations such as carrying out venture investment in the Democratic People’s Republic of Korea.

Case Study 4: Restructuring business implementation i)

ii)

Overview of the corporate restructuring business ◆

Normalizing business operations of technology companies with high growth potential through emergency financing. Many of these tech companies became insolvent during the financial crisis due to a temporary liquidity shortage.

◆

Corporate restructuring investments are of less risk and have stable returns relative to venture investments.

Scope of corporate restructuring ◆

Attract direct investment from domestic and overseas investors through acquisition of stocks and convertible bonds

◆

Mediation of debt through negotiations with the creditor bank

◆

Provision of management consulting services in business strategy, sales strategy, sale of business division, etc.

iii) Performance ☞ Maxon Electronics Co., Ltd. ◆

Size of Investment: W 18 billion

◆

Acquisition of Convertible Bonds

◆

First corporate restructuring investment in Korea

☞ Korea PTG ◆

Size of Investment: W 14 billion

◆

Acquisition of New Shares

◆

Guarantee settlement, acquisition after establishment of new company

☞ Dong Yang Total ◆

Size of Investment: W 49 billion

◆

Acquisition of New Shares

◆

Largest investment in a single company

☞ Wise Control ◆

Size of Investment: W 5 billion

◆

Acquisition of Convertible Bonds

◆

Successful in avoiding court mediation

320

Case Study 5: Globalization via overseas investment i)

ii)

Leader in overseas investments among venture capital firms ◆

In 1983, KTB invested in Advent V.L.P., an American venture fund, the first overseas investment for a venture firm in Korea

◆

In 1990, KTB invested US$ 0.9 million in Quickturn Design System, a high-tech company located in Silicon Valley

◆

Total investment amount of US$ 25.6 million in 27 overseas venture companies including investments in the United States of America, Israel, and Indonesia.

◆

Investment of US$ 0.3 million in 5 venture funds in countries including the United Kingdom of Great Britain and Northern Ireland and Singapore.

Present status of foreign investments ☞ Venture Company Investments ◆

Total Investment: W 18 billion

◆

Investment Balance: W 16 billion

☞ Venture Funds ◆ ◆

Total Investment: W 3 billion Investment Balance: W 2 billion

iii) Best performance of overseas investment ◆

Presently, 12 companies have realized capital gains either through initial public offerings on the NASDAQ or M&As.

◆

During the first half of 2000, Centillium and Sonus are expected to go public while VailCert and iAsiaWorks are to be listed in the second half of the year.

C. Providing value-up service via network 1. Building the venture network In today’s society, the exchange of information and cooperation has become critical to the successful growth and development of the IT/Telecommunications industry. This trend is more apparent in the venture industry as it relies heavily on knowledge and information. Therefore, no matter the superiority of a technology, it could become obsolete if one fails to understand and keep abreast of the trends in the industry. In order to reflect such societal changes and trends in the venture industry, KTB network provides a network to investee companies, thereby redefining the role for venture capital firms. KTB network has been at the forefront of building this venture network system since the first half of this year. The venture network refers to a systematic network that links all relevant and related parties of the venture industry such as individual investors and government entities that determine industry policies, as well as venture entrepreneurs and venture capital firms. Once the network is fully in place, all the participants in the venture industry will be well equipped with an effective information resource for the exchange and sharing of information to ensure greater business success. In order to provide the requisite infrastructure, KTB network operates the “KTB n-Club,” an informal organization comprised of about 3,600 portfolio companies, to promote and support venture entrepreneurs with the exchange and sharing of information and resources. Also, KTB network has established strategic alliances with leading universities and R&D institutes to promote the growth of the industry through the exchange of resources as well as to offer financing support for start-ups. Furthermore, KTB network has been building the network in conjunction with large business corporations so as to allow its investee companies to explore and penetrate overseas markets. It is predicted that the venture network mentioned above will evolve into a more effective system by linking up with the Value-Up services that KTB network has been promoting since the end of 1999, supported by an infrastructure that provides comprehensive services for the success of a venture company.

321

Table 3.9. Status of KTB network’s venture network Category

Company (organization) name

Major functions and roles

Law

3 law firms including Kim & Chang and 1 online company called Venturetopia

Legal advisory and consulting services

Tax/Accounting

Ahn Kwon & Co., Kim Jong Rul Tax office, etc.

Tax/Accounting advisory and consulting services

Human resource/labour

Unico, Hong-Ik Labour Firm, etc.

Human resource support and consulting services

PR/Advertisement

8 agencies including Thomson Digital KTB, Hankyeorye IT

PR, IR Support

Management consulting

Vision & Consulting, SPR, etc.

Management consulting and management integration solutions

Incubating

KTB-I, 7 universities Venture education centres including Hoseo university, Yonsei university

Start-up service

Overseas marketing

Hanwha Co., Hyundai Corporation, etc.

Export agency, exploration of overseas channels

Company evaluation

Korea Investor Service, Bizi.com, etc.

Company and technology evaluation

Education

International Management Institute of the Federation of Korean Industries

Venture start-up education, etc.

E-business

Han secure, Ubiz system, Internet Empire, etc.

Provide web and online services

* Linked system: off-line; Weekly and monthly meetings as well as various events, on-line; KMS (in Bank).

2. Building infrastructure for value-up service KTB network has made tremendous efforts in building the network and the value-up service infrastructure to meet the changes in the new venture industry. Value-up service is essentially service provided throughout the company’s development, from the start-up stage to the venture company’s listing on the KOSDAQ. This is a major move forward in the evolution of services provided by venture capital firms from the mere investment of capital. Moving forward in this direction, KTB network has established institutions or companies to develop and evaluate new technology, provide human resources and conduct advertisement/public promotion as well as create strategic partnerships with existing companies to provide such value-up services. In addition, KTB network is securing qualified human resources as part of the infrastructure of seamless follow-up management service for investee companies. Fortunately, the required personnel are migrating from universities, research institutes and large business conglomerates to the venture industry, providing the talent and resources for the venture industry. The on-going effort of KTB network mentioned above is shifting the domestic venture industry to a new direction. The undertaking of a comprehensive value-up service infrastructure is the first of its kind in the Republic of Korea. More importantly, KTB network provides these services through its infrastructure at no cost or at a nominal amount to maintain the infrastructure services.

322



Deal Sourcing

Stage

Tech. Develop. Estimation & Marketability

Service

Infra

– – – –

KTB-i Venture Advisory Committee Internet Advisory Committee – E-business Estimate Centre

Maturity

Start-up

Growth Stage

Establishing Business Planning

Marketing, Recruiting Service

IPO, IR/PR Service

– nClub – Second Round Financing – Recruit

– IPO Service – IR/PR Service – M&A Boutique

– Financing – Account, Law Advisory – Business Consulting – KTB119

3. Investment criteria suggestions for venture companies KTB network has defined the objectives of the domestic venture industry while recommending a future direction for the Republic of Korea Korea’s venture capital. KTB network’s investment criteria for Korean venture companies are as follows:

(a)

First, is there a market or can the company create a market?

With regards to the market, it is important to ask whether the company can satisfactorily contribute to the existing market demand. In other words, an exceptional technology is of no value if it brings no practical benefit to society or cannot create demand in the market. Even if a market already exists, it is better to have an independent market. In addition, the greater the market share the better chances for growth of the company. For example, if a company’s market share is consistently 40 per cent-50 per cent with revenues of W 100 billion, the company is more efficient in terms of revenue generation than a company with sales revenue of W 1 trillion with only 1 per cent share of a large market.

(b)

Second, is the company market competitive?

The days when the so-called Cut-line2 concept was the name of the game are long gone. Nowadays, a company should have at least one distinct comparative advantage. In other words, it must have an overriding competitive edge in the market compared to other companies, in terms of technological superiority, patents, and/or market share. Recently, competitive edge has become more important than technological muscle when it comes to market dominance. In Daum’s case, the company has the largest Internet portal site in the Republic of Korea and enjoys a high stock valuation even though it has not been profitable. Why is that? Daum has laid the foundation to expand further into new businesses through its high brand awareness and large market share.

(c)

Thirdly, is management open-minded and aggressive?

Whether a market exists for the company and whether there are factors which set it apart from other companies, KTB network places great importance on the open-mindedness of the company’s management. In other words, it is critical that the CEO has the willingness to step aside and allow outside professional management to take the helm of the company for the growth and development of the company.

2

Cut-line: Minimum required capabilities in each business area for a company to survive and grow.

323

Statistics for the KTB network’s investee companies last year show that the less open-minded a CEO is, the greater the chances for the company’s revenues to be low even if it has a sound business model and excellent technology. Our definition of open-mindedness is an individual who understands the importance of having highly qualified professionals manage the company and is willing to offer appropriate compensation for his or her services, even if it is more than that of the CEO.

(d)

Fourthly, does the company have an influential sponsor?

Whether a company has a good sponsor or not is also considered to be of consequence when KTB network reviews an investment decision. If a company has a good sponsor, it can have a positive influence over all the above mentioned points. Also, in case the CEO and/or the company should temporarily get in trouble, a good sponsor can provide the support needed to weather the storm. Venture companies do not in general meet the Survival Cut-line, but rather excel in only one area, so at times external support is crucial to the success of the company. KTB network, as its name implies, is fully aware of the importance of the network of comprehensive services that are provided through its infrastructure, and supports companies from the start-up stage to the listing of the company as well as establishing subsidiaries and listing in overseas markets.

(e)

Fifthly, how do we get our return on investment?

Listing on the KOSDAQ provides an alternative means for the company to raise financing. The company can receive financing through an increase in paid-in capital and may be in a better position to issue corporate bonds. Since venture companies, in particular, have far higher risk from an investors’ perspective, the longer the period for the return on investment, the greater the risk. In this respect, it is necessary for venture companies to meet the IPO requirements as soon as possible, while taking into consideration such things as the selection of directors and/or auditors. The objective of KTB network in establishing its investment criteria is to unearth venture companies with higher competitiveness. Through these investment reviews, the expectations are that venture companies can equip themselves with the tools needed to succeed in the market and for the Korean venture industry to gain competitiveness in the international market.

IV. PROSPECT AND CHALLENGES OF KOREAN VENTURE CAPITAL FIRMS A. The future of the venture industry in the Republic of Korea 1. Becoming a venture power based on sound infrastructure The Republic of Korea is concentrating all its efforts and competencies in the IT/telecommunications industry, especially the Internet and wireless communications sectors. The number of Internet users in the Republic of Korea, as a result, has surpassed 10 million or nearly one quarter of the entire population of 43 million, and 1 out of 2.4 people in the Republic of Korea own a cellular phone. Venture enterprises are at the forefront of investments in the IT/telecommunications sector in Korea. Technically, the Republic of Korea still lags behind industrialized countries such as the United States of America or Europe in the pure and applied sciences, but the activities of venture enterprises in the IT/telecommunications sector are considered to be the second most dynamic following the United States of America. There are several advantages that work in favour of the Republic of Korea in the telecommunications industry. The first advantage is the fact that the basic infrastructure for the development of telecommunications is in place thanks to the continuous progress made in the electronics industry since its inception in the 1970s when it began with simple product assembly. The second advantage is that the Republic of Korea has an abundance of highly qualified and educated human resources. Lastly, the easily excitable temperament of Koreans allows them to adjust easily to the rapidly changing technological and industrial environment.

324

At the end of 1997, following the outbreak of the foreign exchange crisis, the government devised a legal and systemic foundation for fostering venture businesses. Consequently, private, not government-owned venture capital firms were born, spurring the rapid development of venture businesses. Also, with the emergence of successful venture enterprises and venture entrepreneurs, the social atmosphere is undergoing changes. The deep-rooted closed social structure in the Republic of Korea is breaking down and a new culture placing more value on originality and individuality is accelerating the growth of the venture industry. The Republic of Korea now has the infrastructure to back venture enterprises and help them to become successful. Furthermore, there are more venture enterprises in which venture capital firms can make investments. The future of the venture industry and venture capital firms can be said to be very promising when the future of venture capital firms hinges on the success of venture enterprises.

2. Major points when looking at the Korean venture industry With the recent slump in the KOSDAQ market, concerns about the entire Korean venture industry are being expressed. The following three points, however, need to be considered when looking at today’s Korean venture industry.

(a)

Mid to long-term outlook of the venture industry

The stock prices of venture enterprises may be volatile in the market for the short-term but, in the long run, the outlook for venture companies show strong and steady growth with the development of the IT/Telecommunications and Internet industries. If, as part of the overall trend, stock prices skyrocket, a national adjustment period is bound to ensue. The KOSDAQ market is currently undergoing such an adjustment. With investors wanting quick returns on their investments, venture entrepreneurs have been concentrating too much on generating year-end profits rather than proposing their mid to long-term visions, and the government has implemented measures that actually weakened the competitiveness of venture companies such as enforcing restrictions on stock issues and strengthening listing regulations. These knee-jerk reactions to the market will work as obstacles to the growth of the Korean venture industry in the long run. Despite the moribund venture market and while all other venture capital firms were reducing their investments, KTB network, the largest venture capital firm in the Republic of Korea, invested a total of W 360 billion in 210 companies during the first half of the year. This figure is more than double the W 160 billion invested during the latter half of last year. This shows that KTB network is investing in ventures with a mid to long-term perspective.

(b)

The limitations of venture entrepreneurs

In many cases, venture entrepreneurs have not been able to keep up with the growth rate of their businesses. More and more cases show that entrepreneurs who had no difficulties managing a company with 10 to 20 employees were unable to continue to do so when the company grew larger. With 10 to 20 employees, one on one leadership can work, but with 100 to 200 people, leadership no longer works because the system needs to be managed. There is only a slim probability that the founding CEO will continue to be an excellent leader in a bigger company. Therefore, most companies choose the option of employing a professional CEO when a company grows large.

(c)

Dominance in the market

Venture companies have recently tended to rely more on market dominance than technology in order to be competitive. This clearly indicates that it is very difficult to maintain a competitive edge in the market with technology and, if the competition becomes fierce, it is difficult to generate profit no matter how fast the market grows.

325

Many online companies continue to provide services even when they are not generating a profit. The reason why these companies provide free services or services that are costly for the company is to strengthen their position in the market. If they can secure a certain level of market dominance, they can influence the price and once they can do so, they eventually can generate a profit. In order to dominate the market, M&As must become pervasive within each industry. It can even be said that the global competitiveness of the Republic of Korea will depend on the smooth incorporation of M&A strategies in the Republic of Korea during the latter half of this year.

B. Challenges and tasks of venture capital firms to sustain growth 1. Expansion of investment in mid to long-term future value With an excessive number of companies listed on a sluggish KOSDAQ market, not only are sales revenues of venture companies dropping, but start-ups of venture capital firms and investment in venture companies are also nose-diving. In the case of online companies with their base in the Internet, most of the funds procured from venture capital firms or the capital market are spent as marketing expenses so as to secure market competitiveness. However, it is difficult to generate immediate sales profits using the Internet since it was first conceived to provide free services to the public. Accordingly, the stock prices of dot.com companies which have enjoyed unrestricted escalations have plummeted more than 50 per cent compared to early this year. The stock prices of venture enterprises may fluctuate in the short run, but the general trend of the telecommunications and Internet-related industries leading the 21st century will not change. After examining the industry, venture capital firms basically invest in the future of the investee companies with a mid to long-term outlook despite the stagnant KOSDAQ market.

2. A venture company support system through networks In the past, companies could be sustained and grow only when all management factors were developed in a balanced manner. Companies needed to have resources in research and development, production technology, finances, marketing, as well as production facilities such as research centres, manufacturing plants, offices, and distribution channels. Nowadays, however, a company can survive by standing out in only one or two areas and even become successful since other management factors such as funds and production facilities can be acquired from outside. Most venture enterprises today do not have management resources but only a specific technology or idea. In the future, venture capital firms in the Republic of Korea must be able to provide the information and the resources these venture enterprises require. Naturally, not all venture capitalists can be or need to be specialists in all areas. Venture capital firms need to be able to connect their know-how with those with management resources. This will be possible by building a network that can provide all the resources required for the venture company to grow.

C. Venture capital firms creating the future together with the world As a result of the recent changes in the industry paradigm and the emergence of the venture industry as the locomotive driving economic development, Korean venture capital firms have been transformed and have assumed a new role distinguishing them from venture capital firms of the past. Needless to say, the recent rapid growth in the Korean venture industry was possible thanks to the efforts of several venture capital firms, including KTB network. With their assistance, venture enterprises were able to overcome management difficulties during the long stagnant period in the venture industry. Korean venture capital firms in the past were unable to perform their fundamental task of taking risks and investing in the future.

326

However, Korean venture capital firms today fulfill their responsibility as venture capital firms in the truest sense by defining their own role, helping venture enterprises to succeed as well as by building a corporate environment that encourages the success of venture enterprises by providing business items and management structure that suit the venture enterprises. In addition, the venture capital firms can reach a stage where they will be able to develop their own technology and independently establish a venture enterprise. Moreover, the venture environment in the Republic of Korea is conducive to its progress in several ways. In the future, telecommunications and the Internet will be the driving economic force, and the Republic of Korea has a stimulating environment for venture businesses who will be at the forefront of the telecommunications era. This, therefore, indicates that there is a strong possibility that the Republic of Korea will become a leader in the future world economy. Venture capital firms in the Republic of Korea will be able to provide considerable momentum for the advancement of all venture businesses and venture capital firms throughout the world if they prepare for the coming era with a mid to long-term perspective and take advantage of venture opportunities available in the Republic of Korea and worldwide. Based on these experiences and technology, Korean venture capital firms will accelerate the era of telecommunications digitalization and redefine a more meaningful role of cooperation with global venture businesses and venture capital firms.

327

II. THE SUCCESSFUL EXPERIENCES OF BIONEER BY

PARK HAN-OH PRESIDENT OF BIONEER CORPORATION THE REPUBLIC OF KOREA

329

I. CEO Dr Han-Oh Park graduated from the Department of Chemistry, Seoul National University, and entered the graduate programme of Chemistry in KAIST. During his graduate studies, he participated in a DNA synthesis project to produce the basic material for genes, and from 1986 he simultaneously conducted research at both the biomaterials lab in KRIBB (Korea Research Institute of Bioscience and Biotechnology) and the molecular biology lab in KAIST. While working in both research organizations he noticed that virtually every research apparatus was of foreign creation and felt the need for research tools developed and produced domestically. He gathered plans for a venture company that would contribute to the development of the field of biotechnology in the Republic of Korea. In February 1992, he received his Ph.D. at KAIST, and founded “Korea Biotech, Inc.” in August. With his experience from numerous projects at KRIBB at KAIST, he has directly and actively participated in the research and development in his company, and holds 23 of patents and pending patents up to now.

Educational background 1980.3 - 1984.2: BS in Chemistry, Seoul National University 1984.3 - 1986.2: MS in Biochemistry, KAIST 1987.3 - 1992.2: Ph.D. in Biochemistry, KAIST

Career 1984.3 - 1986.2: Researcher, KAIST 1986.3 - 1992.8: Senior Researcher, Molecular Cell Biology, KRIBB 1992.8 - Present: President, BIONEER Corporation

Research achievements prior to founding BIONEER 1984 - 1987: DNA chemical synthesis project 1986 - 1987: Development of mass DNA extraction method, from the spermatogonium of a frozen pollack 1987 - 1988: Development of mass phosphatase production method, from Bovine intestine 1989 - 1992: Development of the method to synthesize glycoside by glycosidase Miscellaneous

Awards 1987:

KRIBB Outstanding Researcher Award

1996 - Present: Applied for 23 patents 2000.5:

Selected as the best scientist of the year by SMBA (Small & Medium Business Administration)

II. COMPANY OUTLINE Bioneer was founded in August 1992 by a research scientist from KRIBB as a bioventure company and, at present, is a leading company in the field with W 4.3 billion in capital and 107 employees. In the DNA Research Institute of Bioneer, 55 per cent of the employees are working as research scientists, most holding advanced degrees and having many years’ experience. Numerous research products of all types have been developed by Bioneer, as exemplified by its main products, such as oligonucleotides, gene amplification reagents, gene amplification apparatus, gene analysis reagents, DNA and RNA extraction reagents, DNA Chip machine, automatic DNA extractor, etc. We hold patents to these reagents and apparatus, which are core tools required for functional genomics research in the post-genomic era. The market value of our patented automated functional genomics tools such as the DNA chip synthesizer are especially rising each year.

331

The main fields undergoing R&D in the DNA Research Institute of Bioneer are functional genomics tools such as the Mass Oligo, DNA Chips, Automatic DNA Analyzer, Gene Screening Kit, and novel drug candidate genes such as for obesity and cancer.

III. COMPANY OBJECTIVES 1992

2002

2000

2005

1st Phase To establish the Biotech infrastructure in Korea by completely domesticating all DNA research products

2nd Phase To open overseas markets and gradually extend market share by the mass production of high quality of cutting-edge reagents and equipment

3rd Phase To obtain patents over the genes that cause diseases and compounds that can be used for new medicines through development of new technology and analysis of a large volume of target genes

At the time of foundation, the first objective was to establish the Biotech infrastructure in the Republic of Korea by completely domesticating all DNA research products. By 1999, Bioneer has completed development of most tools for genomics research, so the first objective has been successfully achieved. In the second phase, the objective is to open overseas markets and gradually extend market share by developing a system for mass producing high-quality, cutting-edge reagents and equipment. Mass production systems for some reagents have been set up and efforts for further system development will continue. In the third phase, the goal is to obtain patents over important disease-related genes and compounds which can be used as new drugs, through the development of revolutionary technologies and the systematic analysis of a large volume of target genes. We plan to gather gene resources through gene patents, and prepare for the gene competition era.

IV. FOUNDING BIONEER Bioneer was founded by Han-Oh Park, Ph.D., who felt the need for the independent, domestic development and production of research tools while working at KRIBB. After working for many years as a research scientist, he gathered ideas to create better domestic equipment and reagents. At the time, a venture support programme was offered by the Ministry of Science and Technology, and Dr Park took the opportunity to take venture business courses and construct more concrete business plans. In August 1992, W 80 million in business funds was gathered for founding the company. Although a pitiful amount, Dr Park put the money to good use. Because it was difficult and expensive to locate the company in the customer-rich Taejon Science Complex region, he rented an agricultural warehouse located in a farm area outside of Taejon, and converted it to a research facility and office headquarters and “Korea Biotech, Inc.” was established on 28 August. An oligonucleotide synthesis service was planned as the first business, and

332

two oligonucleotide synthesizers were purchased, which nearly consumed all the business funds. At the time, the sales from oligonucleotide synthesis made up over 90 per cent of total sales. Employers and employees alike spent all day conducting regular business and conducted research and experiments at night. Although equipment and location was lacking, all company members cooperated in a family atmosphere to lead the company in the right direction. Thanks to the Venture Founding programme for Researchers at KRIBB, he was able to use the equipment at KRIBB, money was saved on equipment and used for research and development, greatly helping the company. The oligonucleotide synthesis business was the initial revenue provider. The revenues gained were invested in development of new products and, as a result, numerous apparatus were produced domestically. At the time of the founding of “Korea Biotech, Inc.”, biotechnology in the Republic of Korea was almost nonexistent, as there was not a single domestic company that produced biotechnological equipment. Because Dr Park had gathered many ideas while working at KRIBB, he was able to successfully produce a large number of products in a short period of time. Bioneer provided products of equal or higher functional level at 20-30 per cent lower cost, so there was no reason to select otherwise. Bioneer gradually found its way into more and more research laboratories and, thus, the early market strategy has succeeded.

V. BIONEER’S PAST, PRESENT, AND FUTURE A. A brief history of Bioneer 1992.8.28

Korea Biotech, Inc. established

1995.6.29

Selected as the first Technology Development Model Company (Technology Credit Guarantee Fund)

1995.7.19

Research Institute established

1996.5.29

Relocated headquarters and factory to Cheongwon, Chungbuk Province

1996.7.15

Company name changed to BIONEER CORPORATION

1997.5.22

Selected as Promising Company with Advanced Technologies (Small & Medium Business Administration)

1998.1.20

DNA Research Institute – construction completed

1998.12.22

Quality Management System ISO 9001 certified by IQNet and KSA-QA (IQNet Registration No.: KR-01415)

1999.1.19

Gene amplification Kit (AccuPower PCR Premix Kit), US Patent Registered/US Patent & Trademark Office

1999.1.19

Designated as Predominent Company with Competitive Technologies (Small & Medium Business Administration)

2000.3.26-30

First participation ever by a Korean company in Bioindustry & Technology International Exhibition by BIO (Biotechnology Industry Organization, the United States of America)/Boston Convention Centre

2000.3.30

Selected as Promising Product – PCR Premix Kit, DNA Silver Staining Kit, GM Soybean Screening Kit, GM Maize Screening Kit/Supply Administration

2000.7.21

Obtained factory in Taejon (31,183.1 sq m land, 9,833.2 sq m actual factory)

As stated above, “Korea Biotech, Inc.” was established in August of 1992, and successfully developed various products. It was selected as the first official Technology Development Model Company from the Technology Credit Guarantee Fund. A Research Institute was established in July.

333

Four venture companies got together to form the Hi-Tech Company Collaboration Complex in the Chungbuk Chongwon, near Taejon City, and Bioneer moved there in May 1996. In July 1996, to enter the world market, the trademark name was changed from Korea Biotech, Inc. to Bioneer Corporation. The Bioneer derives its name from Bio-Engineer and Bio-Pioneer, and reflects the corporate ambition to become a world leader in the Life Sciences field. In May 1997, Bioneer’s technological competitiveness was acknowledged, as it was designated the Promising Company with Advanced Technologies by the Small & Medium Business Administration. In January of 1998, Bioneer’s DNA Research Institute building was constructed next to the new Bioneer Building, and equipped with the best research equipment and reagents, researchers were provided with the best research environment. For the quality and excellence of its products to be acknowledged not only in the Republic of Korea but throughout the world, the staff at Bioneer focused on receiving the ISO quality certificate from April 1998, and on December they succeeded. Now Bioneer has an excellent quality control system, ensuring the quality of every product and the satisfaction of every customer. In January 1999, one of Bioneer’s key products, the gene amplification reagents, received patents in both the Republic of Korea and the United States of America, and Bioneer was acknowledged as a highly competitive company. In March of 2000, the BIO 2000 Exhibition was held in Boston, the United States of America, by the BIO (Biotechnology Industry Organization) of United States and Bioneer participated by displaying its products, which was a first for a Korean company. This exposition is held every year in the United States of America, has about 7,000 business leaders and 2,000 companies participating, making it the world’s largest international Biotech-related event. Besides product displays, various symposiums, business partnerships, investor-company meetings, etc., are held. In this exposition, Bioneer displayed its self-developed Automatic Gene Extractor and DNA Chip Synthesizer, capturing the interests of biotechnologists from all over the world, and received praise after its comparison with similar products from other companies. Bioneer plans to participate next year also, and has already reserved two booths. In March 2000, 4 products, the Gene Amplification Reagents, DNA silver staining reagent, GMO Bean Detection kit, GMO Corn Detection kit, were designated outstanding products from the Supply Administration. In view of this designation being awarded only to patented technologies or products of high export potential, we can say that the excellence of the above products is acknowledged by the government of the Republic of Korea. On 21 July 2000, Bioneer acquired to Taejon Factory.

B. Awards received 1997.12.23

The Grand Prix Award at the 7th Small and Medium Business Awards Ceremony/Ministry of Trade & Industry

1998.4.27-28

The Excellent Poster Award from the First International Workshop on Advanced Genomics, Tokyo International Forum, Japan

1998.11.5

2nd Venture Company Grand Award/the Prime Minister

1998.12.2

’98 Korean Patent Technology Gold Prize/Ministry of Commerce, Industry and Energy (Gene amplification reagent – AccuPower® PCR PreMix Kit)

334

C. The company at its founding This is the company at its foundation, which was built from a farm warehouse. With a pitiful “Korea Biotech, Inc.” sign, it is hard to tell if this building is a company.

The DNA synthesis room at the beginning

Company at its foundation, formed from a farm warehouse

However, employers and employees alike endeavoured at setting up the company, with shovel and hoe in hand. As all members had the same goal in mind, they were able to help each other and achieve the goal in minimal time. The gene synthesis room was also small and pitiful, and employers and employees fixed everything that needed fixing themselves. The gene synthesis business became profitable at 3-4 months following foundation, and, at the beginning formed 90 per cent of the sales, and currently comprises about 50 per cent of Bioneer’s sales. Customers in the vicinity received the ordered oligos directly from our representatives while customers located further away received the oligos by packaging services. All customers received their order in minimal time.

D. Bioneer at present 4 years after foundation, the company moved to Chungwon, right outside of Taejon, along with 3 other venture companies, forming the Hi-Tech Business Collaboration Complex. Here, there is 4,630 sq m of land and 1,158 sq m of factory space, and here the research, development and production of various life sciences reagents and equipment is being carried out. The headquarters and factory was built first, followed by the DNA research centre. At the time of the moving, employees of all fields were placed in the building shown left. This was a large improvement over the first building, but the numerous production, research tasks made the space insufficient. The picture on the right shows when the second floor of the building was used as a laboratory. Bioneer at Chungwon. DNA Research Centre at right, headquarters at left

335

In January 1998, The DNA Research Centre was established. This 3-story building holds various machines and equipment for life sciences research and holds 50 research employees. Here, cutting edge research such as genome analysis, disease-related gene SNP analysis, DNA chip development, enzyme development by genetic recombination, development of a system for the detection of mush-room/fungus transgenesis, full-length cDNA library construction, novel drug development, etc., are being carried out, and tasks such as reagent and kit development, functional genomics automation equipment development are being carried out. Results from the research are immediately applied for patents, connecting research to information ownership.

E. Taejon site, to be moved into in 2000, and future visions

At the end of last year, when investment in Life Sciences was skyrocketing, Bioneer was acknowledged as the bioventure company having the most advanced technology and the highest potential in the Republic of Korea, and managed to obtain 28 billion won in investment funds, an enormous sum for a venture company. This fund was obtained by selling W 5,000 face value stocks at W 400,000 per share, to investment companies such as Korea Technology and Banking (KTB), Samsung Life and Hyundai Investments Trust and Securities, which were attracted by the high potential of Bioneer. While the Bioneer Organization was solidifying and growing, there was a need for more space and equipment than was provided by the Cheongwon company site. With the investment funds, a new company site was purchased. Located at Taejon Industrial Complex, the site is large-scale, with total area of 31,183 sq m and building area of 9,833 sq m. Currently, we are preparing to operate a world class-scale factory, which will hold oligo synthesis and analysis, DNA chip synthesizer facilities. Also, a system for the mass production of automated equipment for functional genomics will be set up by August 2000, and fully moved to the Taejon site. In this site, a megascale oligo synthesis system of 200 oligo synthesizers developed by Bioneer will be set up by 2001. 200 large-capacity oligo synthesizers will allow the synthesis of 100,000 oligonucleotides per year, and 30,000,000 oligonucleotides per year. Once this is set up, Bioneer will have the world’s largest oligonucleotide synthesizing capacity. Also, Bioneer is developing an automatic gene analysis apparatus and, once completed, at the Taejon site will be a world-class DNA sequencing system capable of sequencing 10,000,000 bases per day.

336

VI. ACHIEVEMENTS AND RECORDS A. Introduction to main products Equipment

PCR • • • •

AccuPower PCR, RT, RT/PCR PreMix GeneFinderTM Taq DNA Polymerase AccuPower GMO Screening Kit

• • • • • • • • • •

Sequencing • • • • •

AccuPower DNA Sequencing Kit AccuPower Automated DNA Sequencing Kit Top DNA Sequencing Kit Top DNA Polymerase Silverstar Staining Kit

• • • •

DNA ChipBuilderTM Microarrayer RoboPrepTM Automated DNA Extractor MyGenleTM 32 Themal Block Gene RunnerTM Econo SequencerTM Agaro-PowerTM Centra EvaporatorTM BloPowerTM II CellFarm 3B EasyComTM Solid Phase Synthesis System & Rotating Incubator Gene GunTM II JetgeneTM Imager IIITM Multi-CrackerTM

DNA/RNA Preparation • • • • • • • • • • • • •

Services

AccuPrepTM Plasmid Extraction Kit AccuPrepTM Genomic DNA Extraction Kit AccuPrepTM Viral Extraction Kit AccuPrepTM PCR Purification Kit AccuPrepTM Gel Purification Kit AccuPrepTM GMO Extraction Kit AccuPrepTM Stool DNA Extraction Kit DNA PrepMateTM II DNA PrepMateTM -M Genomic DNA PrepMateTM Viral RNA PrepMateTM Blood RNA PrepMateTM Tissue RNA PrepMateTM

• • • • • •

Oligonuceotide Synthesis Services DNA Sequencing Services Gene Synthesis Services DNA Library Construction Services Gene Cloning Services Site-directed Mutagenesis Services

Etc. • • • •

Enzymes Tissue Bank (DNA, RNA, Protein) Primers & Controls Buffers & Chemicals

Bioneer has striven to develop creative and revolutionalry products which are easy to use and provide reproducible results. Various reagents, enzymes, kits and simple research apparatus up to cutting-edge automated equipment have been developed and there are currently over 100 products. To state simply, Bioneer’s products can be divided into Gene amplification-related reagents, gene analysis-related reagents, DNA extraction/purification-related reagents, and equipment, and customer-order services. Of the customer-order services, the Oligonucleotide Synthesis Service provides the oligo DNA of the sequence that the customer desires, and comprises 50 per cent of Bioneer’s sales. Also, there are a variety of other services available, such as a sequence analysis service, gene cloning service, and DNA Library construction service. Of Bioneer’s products, a few examples are:

ChipBuilderTM Microarrayer ◆

DNA chip synthesizer that can spot and produce up to 100 DNA chips per run

◆

27,000 different sample solutions can be spotted (world’s highest capacity)

◆

Rapid and Precision spotting (5 µm resolution)

◆

High capacity Rack System (384 x 72 plates)

◆

Extensive Washing Station

◆

A must tool for DNA chip-related research and to compete in DNA chip market

337

RoboPrepTM Automatic Nucleic Acid Extractor ◆

Automatically and quickly extracts DNA from samples such as cells, blood

◆

DNA can be extracted from as many as 960 samples simultaneously

◆

High-purity extraction of DNA

◆

Whole extraction process automated by PC-driven GUI system

◆

DNA extraction by hand is obsolete; there is a demand for fast and large-scale extraction of DNA for large-scale genomics research

AccuPower® PCR PreMix Kit (Gene amplification Kit) ◆

Components for PCR are premixed and freeze dried; stabilizer greatly increases reagent stability

◆

Convenient and Reproducible

◆

Patented in the United States of America and the Republic of Korea

◆

High amplification rate even for genes not easily amplified

◆

World’s first PCR kit that is stable at room temperature

AccuPower® DNA Sequencing Kit & Silverstar® Staining Kit (gene analysis reagent) ◆

Components for gene analysis are premixed and freeze dried; after gene analysis reaction with DNA sequencing kit, Silverstar Staining Kit allows easy examination of results

◆

Convenient and Reproducible

◆

Safe components (conventional kits use radioisotopes)

◆

Silverstar Staining Reagent has world’s highest sensitivity

◆

Determination of gene analysis results in minimal time

AccuPrepTM DNA/RNA Purification Products (DNA/RNA extraction and purification) ◆

Allows convenient, quick extraction of high-purity DNA from various samples such as E.coli, blood, tissues, cultured cells

◆

High-purity, high-concentration DNA or RNA is obtained

◆

Fast and convenient DNA/RNA extraction

◆

Different kit types allow customers to select the optimal kit

MyGenieTM 32 well Thermal Block (gene amplification equipment) ◆

Korea’s first Heat-Block type gene amplification apparatus, allows easy control of heating and cooling steps using semiconductor-type heat transfer peltire

◆

High-speed gene amplification, up to 32 samples can be amplified simultaneously

◆

Precise temperature control, resulting in high reproducibilty

◆

Many additional functions

B. Main research achievements A world leader in DNA synthesis technology, to lead world Bioneer has developed the world’s fastest DNA synthesizer, which is patent pending. This machine can synthesize 256 different oligonucleotides simultaneously, which is about 100 times more productive than conventional synthesizers. Also, Bioneer self-produces the twenty or so chemicals used in DNA synthesis, reducing the oligo production costs by half, giving Bioneer’s oligo synthesis system the highest competitiveness in the world market. Bioneer’s research staff has developed a technology of mass-extracting deoxynucleoside, the core material in DNA synthesis, and has patented it. Thus Bioneer is able to self-provide materials for DNA synthesis to fulfill world market demands.

338

Complete Development of all required Genomics Research Reagents As stated above, Bioneer has completed development of all reagents required in the genomics research field. The DNA amplification kit (patents in the United States of America and the Republic of Korea), RNA amplification kit (patents in the United States of America and the Republic of Korea), DNA sequencing kits (American patent and two patents in the Republic of Korea), DNA/RNA purification kit, high-performance DNA staining kit (The Republic of The Republic of Korea patent, 4 patents pending as international patents (PCT)), among about 100 other products have been fully developed and commercialized, and these reagents and tools are used in Bioneer’s own life sciences research, reducing research funding costs. Bioneer will continue to produce products that are convenient, time-saving, reproducible and low-cost by researching how to reduce production costs.

Development of all required Genomics Research Equipment The Automatic Gene Extractor, Large-scale Gene Amplification Device, DNA Chip Synthesizer, Liquid Dispensing Robot, and Large-Scale gene cloning system have already been completely developed, while the automatic DNA sequencer is about 60 per cent developed. Also, as the fermenting device, gene image analyzer, electrophoresis devices, cell culture devices have also already been developed, and the completion of the development of the automatic DNA sequencer will mean we have developed all equipment required for gene and genomics research.

C. Main research fields Novel Drug Development Obesity, Diabetes – related drug development Cancer-related drug development Chemical screening for new drug candidates

Novel Gene Screening and Gene Patents Novel gene screening in various organisms Novel gene functions research Applications for gene patents Procurement of gene resources

339

D. Financial highlights and R&D investment These are the financial highlights of Bioneer since its foundation. (Unit: W million) (Forecast)

Selected income statement

Selected balance sheet

R&D investment

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Sales

19

287

557

1 105

1 730

1 964

2 353

2 268

5 852

24 550

49 984

135 941

Net income

-15

34

53

278

317

124

71

-599

2 168

12 218

30 595

70 171

Per cent to sales

-77 per cent

12 per cent

10 per cent

25 per cent

18 per cent

49 per cent

61 52 per cent per cent

Assets

77

191

439

981

2 470

3 643

4 413

5 338

70 170

310 999

376 848 451 109

Liabilities

12

92

246

526

1 235

2 283

2 983

3 344

34 807

2 445

Equity (paid-in-capital)

65 (80)

99 (80)

192 (120)

455 (120)

1 235 (620)

1 360 (620)

1 430 (620)

1 994 (1 783)

35 362 (4 350)

308 554 (5 655)

R&D

250

613

640

884

1 500

R&D/Sales

14.45 per cent

6.3 3 per cent per cent

31.23 27.20 per cent per cent

-26 37 per cent per cent

3 199

7 289

373 649 443 820 (5 871) (5 871)

38.98 26 per cent per cent

Total Sales and R&D investment Sales/R&D Sales R&D

6 000

5 000

4 000

3 000

2 000

26%

1 000

39%

27%

31% 15%

0 1992

1993

1994

1995

1996

1997

1998

1999

2000

There is a constant increase in sales since its foundation up to 1998. Although the effort to increase sales is very important, Bioneer believes that intensive investment in R&D is more important than efforts to increase short-term sales and has invested greatly in the R&D of new products and technologies. In 1999, during the nationwide economic crisis, Bioneer had a slight decrease in sales (W 70 million) for the first time. The staff was reduced and the remaining crew focused even more on R&D. During 1998 and 1999, cutting-edge equipment in the genomics field were successfully developed, which was a proud achievement. All members at Bioneer proudly believe that following the successful development of cutting-edge genomics reagents and equipment, Bioneer’s technology is at a world-class level. Now is the time to advertise and market at a world level these technologically advanced and high-quality products. Bioneer has formed a marketing team from the beginning of 2000 and is conducting regional representative marketing system. Elite scientists with an MS or higher degree in Life Sciences have been recruited and will meet customers on a one-to-one basis to

340

Future Projected Sales 140 000 120 000 100 000 80 000 60 000 40 000 20 000 0 2001

2000

2002

2003

discuss the customer’s specific needs and to quickly provide services and products. Bioneer currently has 8 overseas sales headquarters, where it conducts export sales, but plans to greatly increase the number of overseas headquarters for a greater share of the world market. Bioneer achieved W 2,268 million in sales in 1999 and predicts W 5.8 billion in sales in 2000. As Bioneer’s new products, the DNA Chipbuilder (DNA Chip synthesizer) and RoboPrep (Automatic Gene extractor) are high-price products costing over 100 million won, they will play a large role in the increase in Bioneer’s sales. Also, as these equipments also require consumable reagents, sales of the equipment will directly result in sales of the reagents for a steady sales source. Sales Breakdown

1999

1998 20%

12%

54% Oligonucleotide 12%

AccuPower Premix-PCR, RT, RT-PCR 14%

48%

Oligonucleotide AccuPower Premix-PCR, RT, RT-PCR

Instrument

Instrument

Others

Others

12%

28%

Looking at the 1998 sales composition, Oligo sales comprised 54 per cent, AccuPower Premix kits (gene amplification reagents) 12 per cent, and equipment 12 per cent. In 1999, Oligos comprised 48 per cent, Oremix kits 28 per cent, and equipment 12 per cent. In 2000, we predict that Oligos will comprise approx. 36 per cent, AccuPower Premix kits 21 per cent, and equipment and devices about 22 per cent. Thus, we predict that the fraction held by oligos will continue to decrease, while equipment increase for a short while. In 2003, we picture a different situation where DNA chips comprise 53 per cent of sales, while Oligos comprise 32 per cent, AccuPower PreMix kits 8 per cent, and equipment 5 per cent. 2003 8%

5%

2% 53%

DNA Chip Oligonucleotide AccuPower Premix-PCR, RT, RT-PCR Instrument

32%

Others

341

In 2000, the market for DNA chips is about 780 million dollars, while it is predicted to be about W 1,250 million in 2003 (by Frost and Sullivan, 1997). Oligonucleotides, which are the material for DNA chips, can be mass produced by our oligo mass synthesis system, and these will be used to create DNA chips using the DNA ChipBuilder, forming the hypothetical sales composition graph shown above. We plan to hold 5 per cent of the DNA chip market in 2003. We at Bioneer hope to establish the best marketing strategies to increase Bioneer’s future sales as planned and we plan to hold significant shares of the world Oligo and other Life Sciences-related markets.

E. Strategic alliances and joint research organizations Seoul National University Medical Center – Tissue Serum Bank

Korea Research Institute of Bioscience & Biotechnology (KRIBB)

Samsung, LG & Seoul National University – DNA Chip Development

BIONEER

Korea Research Institute of Chemical Technology (KRICT) – Obesity & Diabetes

National Institute of Health Seoul National University Pohang University of Science & Technology National Institute of Agriculture Science and Technology (NIAST)

Bioneer has not only developed products through the years but also carried out government-funded research projects. Also, collaborative research relations with outstanding research organizations or universities were formed, accelerating the research effort and benefiting both sides. By reaching a business agreement with the Seoul National University Clinical Medicine department and the tissue plasma bank, Bioneer receives the materials from the Clinial Medicine Research centre, and processes and markets the product. Thus, Bioneer effectively runs a tissue plasma bank. Also, Bioneer collaborates with KRIBB (Korea Research Institute of Bioscience and Biotechnology) in a G7 project, The Korean Chemical Research centre in research to develop a next-generation obesity-diabetes treatment, and Samsung and LG in a joint development project to develop DNA chips. All these projects are government funded projects and are awarded only to the most outstanding companies. There are additional joint research projects with the Korean NIH, Seoul National University, Pohang University of Science and Technology, and other outstanding research institutes.

F. Patents received Registered Patents

Trademarks

*

International

4*

1 * (USA)

Total 5

Pending

23

3

26

Total

27

4

31

Registered

4

4

Pending

7

7

11

11

Total Note:

Domestic

Registered patents: 1. Production method for DNA polymerase reaction mixture. 2. Apparatus for scanning and analyzing solution run through a capillary. 3. Lyophilized Reagent for Polymerase Chain Reaction. 4. High-sensitivity Silver Staining Method. 5. PCR primers for the simultaneous detection of Human papillomavirus type 16, 18, and a detection method using these primers.

342

Bioneer’s policy is to immediately apply for patents for any successful research results. Although the application process is expensive, and no immediate profits are visible, licenses through the patents can be of greater value than actual product sales. Patents held by Bioneer are 1 United States of America patent and 4 domestic patents for a total of 5 patents. Currently, 26 patents are pending, and Bioneer’s R&D will be continued to be linked to patents. In the patent wars, it will be important to protect Bioneer’s own intellectual property as Bioneer becomes a world-class company.

VII. THE BIONEER ORGANIZATION Bioneer is an organization with a high fraction of researchers in the workforce. Bioneer’s success in its many R&D projects can be accredited to Bioneer’s outstanding research workforce and organization. Of the total workforce of 107, There are 7 Ph.D.s from Life Sciences fields such as Biochemistry and Molecular Biology, and 38 M.Sc.s from various science fields, and over half of the total workforce are employed as researchers. In the DNA research centre, researchers in various fields besides Life Sciences, such as chemistry, electronics, and computer programming, who have many years of experience, are team leaders, and each team is composed of researchers in the same field. The development of automated genomics tools is a complex task that requires cooperation between researchers of many scientific fields and Bioneer operates an effective research organization where these researchers of many fields can cooperate freely. This system gives Bioneer success in product development and competitiveness in the world market. Bioneer is the only company in the country where cutting-edge technology from Chemistry, Biochemistry, Molecular Biology, Mechanics, Electronics, and Software is combined to form an organized system, giving it the competitive ability to develop cutting-edge equipment independently. Current organization of Bioneer

343

Organic relationships within the Research Institute

Chemistry (Organic Synthesis)

Biochemistry

System Engineering

Computing & Programming

High-Tech Instruments

Instrument Design & Manufacturing

Molecular Biology Electronics Control

VIII. FACTORS BEHIND THE SUCCESS OF BIONEER ◆

Clear founding objective and well-planned beginning stages

◆

Timely founding (allowing Bioneer to become leader in Korean Biotech)

◆

Commercialization of high-value items

◆

Product development geared at customer satisfaction

◆

Understanding between the company and customer

◆

Extensive investment in R&D and R&D geared towards the future

◆

Effective operation of the research organization, talented workforce

◆

Accurate prediction of the future situation in the field of Life Sciences

◆

Strategic alliances and research collaborations

344

III. TECHNICAL ENTREPRENEURSHIP DEVELOPMENT BY

KOREA

BAE ZONG-TAE PROFESSOR GRADUATE SCHOOL OF MANAGEMENT ADVANCED INSTITUTE OF SCIENCE AND TECHNOLOGY (KAIST) THE REPUBLIC OF KOREA

Abstract This paper presents successful experiences in technological entrepreneurship development in the Republic of Korea. Korea Advanced Institute of Science and Technology (KAIST) has been a major source of highly successful technical entrepreneurs sine 1980s. With the establishment of KAIST TBI-TIC (Technology Business Incubator/Technology Innovation Centre) in 1994, KAIST started entrepreneurship development programmes for potential entrepreneurs and real world entrepreneurs. Especially KAIST Graduate School of Management (KGSM) has started Advanced Venture Management (AVM) programme in 1998, as the first executive programme specifically for entrepreneurs in the Republic of Korea. This four-month programme has gained very good reputation among entrepreneurs and venture capitalists in the Republic of Korea. This paper will explain successful experiences of the AVM programme and present policy implications for other developing countries.

345

BIOGRAPHY Zong-Tae Bae is an Associate Professor of entrepreneurship at the Graduate School of Management at Korea Advanced Institute of Science and Technology (KAIST). He received a B.Sc. degree in Industrial Engineering from Seoul National University, and a Ph.D. degree in Management Science from KAIST in 1987. He served as a visiting faculty at the School of Management, Asian Institute of Technology in Thailand from 1989 to 1991. Also, he spent one year at the Stanford Business School as a visiting scholar from 1999 to 2000. His research interests include various aspects of R&D/technology and venture management. He has published several articles in IEEE Transactions on Engineering Management, R&D Management, Journal of Product Innovation Management, Journal of Engineering Technology Management, Science & Public Policy, World Development, International Journal of Innovation Management and Technovation. He has been involved in establishment and management of the KAIST Technology Business Incubator located in Taedok Science Town since 1992. He is a founder and director of the Advanced Venture Management programme.

I. INTRODUCTION As a new engine of technological innovation and economic development, high-tech ventures are attracting greater attention from government, industry and universities in the Republic of Korea. Now fostering entrepreneurship and promoting new venture creation have become priority policy actions. Korea Advanced Institute of Science and Technology (KAIST) has been a major source of highly successful technical entrepreneurs since 1980s. With the establishment of KAIST TBI-TIC (Technology Business Incubator /Technology Innovation Centre) in 1994, KAIST started entrepreneurship development programmes for potential entrepreneurs and real world entrepreneurs. In recent years, many new ventures have been spun off from university, industry and governmentsponsored research institutes. KAIST, as a leading science and technology (S&T) university, has been a pioneer in cultivating entrepreneurs and educating entrepreneurship in the Republic of Korea. Also, a higher rate of new venture creation from spinning off from universities is expected in the future, because universities are considered as sources of incubating organizations in the Republic of Korea. Especially KAIST Graduate School of Management (KGSM) has started Advanced Venture Management (AVM) programme in 1998, as the first executive programme specifically for entrepreneurs in the Republic of Korea. This four-month programme has gained a very good reputation among entrepreneurs and venture capitalists in the Republic of Korea. This paper will explain successful experiences of AVM programme and present policy implications for other developing countries.

II. THEORY AND PRACTICE OF ENTREPRENEURSHIP DEVELOPMENT A. Definitions of entrepreneurship The term “entrepreneurship” has become a well-defined domain of management. Entrepreneurship is defined as “the pursuit of opportunities regardless of the resources currently controlled” (Stevenson and others 1994). The key concepts of entrepreneurship can be explained as follows: (1)

Strategic orientation

(2)

Commitment to opportunity

(3)

Commitment of resources

(4)

Control of resources

(5)

Management structure

(6)

Reward philosophy

347

B. Entrepreneurship development programmes Many universities have entrepreneurship programmes. Stanford University is operating Centre for Entrepreneurial Studies. Recently Professor Karl H. Vesper of University of Washington and Professor William B. Gartner of University of Southern California conducted an intensive survey on University Entrepreneurship Programmes, which provides a convenient source of information about university programmes in entrepreneurship. They surveyed 126 schools that grant a four-year or graduate degree in conjunction with an entrepreneur programme. The results shows that a total of 104 out of the 126 responding four-year schools seemed to have programmes truly focused on entrepreneurship. There was still a wide range of programmes, however, from schools like Iowa and Wichita State which clearly had many entrepreneurship courses to those which squeaked by the threshold of three courses by counting small business management as one of them. Table 1 lists courses that seemed to us to be most likely focused on start-up or entry into business. Table 2 lists courses that were primarily oriented toward the management of ongoing firms. In spite of many entrepreneurship courses for undergraduate and graduate programmes, a limited executive programme on entrepreneurship can be found. They offer an executive programme as a form of seminar and intensive short courses such as Babson College. KAIST AVM programme is very unique in the Republic of Korea as well as in the world. The education model should be developed and diffused into other universities, especially into the universities in developing economies. Table 1. Frequency count of entrepreneurship courses Course

Number of Schools Offering Total

Undergrad

Grad

Both

120

16

35

63

Venture Finance

83

19

45

16

3

Venture Plan Writing

42

7

21

12

2

Entrepreneurship, Start-up

Not Sure 6

Venture Marketing

35

4

22

8

1

Technology Transfer

30

4

21

5

0

Product Development

19

0

18

1

0

Opportunity Finding/Screening

24

2

12

8

2

International Venturing

21

6

11

1

3

Innovation Evaluation

19

4

15

0

0

Law For Entrepreneurs

18

3

12

2

1

Creative Thinking

16

4

10

2

0

Entrepreneurship Research

12

2

9

1

0

Entry via Acquisition

11

0

10

1

0

Franchise Development

10

3

3

4

0

Venturing in Arts, Software, etc.

9

2

6

1

0

New Product Marketing

8

1

6

1

0

Entrepreneurship for bankers, biologists, etc.

7

1

2

4

0

Entrepreneurship for non-business majors

6

3

1

2

0

New Venture Lab

5

1

4

0

0

Entrepreneurial Economy

4

1

3

0

0

Social Entrepreneurship

3

0

2

1

0

Sociology of Entrepreneurship

2

0

1

1

0

504

83

269

134

18

100 per cent

16 per cent

53 per cent

27 per cent

4 per cent

Total Per cent

348

Table 2. Ongoing firms management courses Number of Schools Offering

Course

Total

Undergrad

Grad

Both

Not Sure

Small Business Management

72

32

15

20

5

Field Project, Consulting

42

17

15

8

2

Starting & Running

38

8

19

9

2

Managing Fast-Growing Firms

37

5

23

8

1

Family Business

25

9

6

8

2

Corporate Venturing

24

5

15

4

0

Internships

16

5

7

4

0

Comprehensive Analysis/Strategy

10

2

7

1

0

MIS for Small Business

8

4

4

0

0

Joint Ventures

5

0

5

0

0

HRM for Small Business

4

1

2

1

0

Entrepreneurship in Service Organizations

4

0

3

1

0

Turnarounds

3

0

3

0

0

Total Fractions

288

88

124

64

12

100 per cent

31 per cent

42 per cent

23 per cent

4 per cent

III. HISTORY AND OBJECTIVES OF KAIST ADVANCED VENTURE MANAGEMENT (AVM) PROGRAMME A. Need for the AVM programme Within a few years after its creation, a venture firm goes through the most vulnerable stage that will ultimately determine is success. It is this stage where management knowledge and skills are crucial. In response to these needs, KGSM has established Advanced Venture Management (AVM) Programme, which was started in October 1998 as a four-month non-degree executive programme.

B. Objectives of the AVM programme The AVM programme offers top executives of new high-tech ventures and venture capitalists the opportunity to learn management approaches and techniques in the process of [foundation – growth – maturity], and to understand management of innovation and change, principles and practices of opportunity identification, financing, marketing and venture capital operation.

C. History of the AVM programme The AVM programme started in October 1998 with 40 executives. Since then, four batches of executives have graduated, and the number of alumni has reached 133. Table 3 shows the history of the AVM programme.

349

Table 3. History of the AVM programme (1)

(2)

(3)

First batch AVM programme ◆ October 1998 ◆ October 1998 ◆ January 1999 ◆ February 1999

First Batch Programme Started (40 executives) Site Visit & Workshop Silicon Valley Field Trip Graduation (33 executives)

Second batch AVM programme ◆ March 1999 ◆ March 1999 ◆ May 1999 ◆ June 1999 ◆ July 1999

Second Batch Programme Started (40 executives) Site Visit & Workshop Silicon Valley Field Trip Alumni Seminar Graduation (32 executives)

Third batch AVM programme September 1999 ◆ September 1999 ◆ November 1999 ◆ February 2000

Third Batch Programme Started (40 executives) Site Visit & Workshop Silicon Valley Field Trip Graduation (29 executives)

Fourth batch AVM programme ◆ March 2000 ◆ March 2000 ◆ May 2000 ◆ July 2000

Fourth Batch Programme Started (40 executives) Site Visit & Workshop Silicon Valley Field Trip Graduation (39 executives)

Fifth batch AVM programme ◆ August 2000 ◆ September 2000 ◆ October 2000 ◆ December 2000

Fifth Batch Programme Started (45 executives) Site Visit & Workshop Silicon Valley Field Trip Graduation

◆

(4)

(5)

IV. CHARACTERISTICS AND STATUS OF KAIST AVM PROGRAMME A. Characteristics of the AVM programme The management environment of the venture companies is vastly different from that of the mature firms. Creative problem solving ability is to be cultivated to meet the ever-changing role of the managers. The curriculum of the AVM programme is balanced between theory and application and emphasizes participation and practices through lectures, business clinic sessions, case studies, and thesis thereby enhancing problem solving and adaptive abilities. The AVM programme can be characterized by two principles. (a)

Differentiation with other executive programmes in quality and target

(b)

Specialization and focus on entrepreneurship issues

The AVM programme is very unique and differentiated in several aspects. First, the AVM programme is specialized by participants. Targeted audiences of the AVM programme are entrepreneurs of venture companies who have been in business more than 3 years. Generally, they have engineering backgrounds and lack management capability, which is a vital factor especially in the growing companies. This programme is dedicated to entrepreneurs who already created new ventures. Second, AVM programme is specialized by programme contents. The AVM curriculum is customized to entrepreneurs in the growing companies. The curriculum pursues a balance between theory and practice and focuses on venture management issues. Major contents include entrepreneurship and venture management, opportunity identification, changing roles of entrepreneurs, stage financing, high-tech marketing, technology

350

management, creativity, business valuation and harvest issues. Also, a Silicon Valley field trip is included as a part of the AVM programme. Third, AVM programme is specialized by education methods. In addition to lectures, the AVM programme has business clinic, case presentation and analysis, thesis writing, and field trip. Also, participants meet every other week on Friday afternoon and Saturday morning to give more flexibility to participating CEOs in time management. In Friday afternoon, one CEO of a successful high-tech venture is invited as a speaker and presents the case of the company. In the business clinic session of Friday night, all the participants discuss as a team on the situation of one company and try to find solutions. Fourth, the AVM programme is specialized by resource persons and education level. Speakers of the AVM programme are mainly industry experts to deliver practical knowledge, although KAIST professors teach management concepts. The contents of the programme are very extensive, structured and of high level. The summary of the programme is presented in table 4. Table 4. The AVM programme summary (1)

(2)

Target audiences of AVM programme ◆ CEOs of new ventures ◆ Venture capitalists and business angels ◆ Executives of internal corporate ventures of large firms ◆ CEOs of middle-sized companies who want to reform a firm into new venture ◆ Government officials and social authorities who are interested in nurturing new venture firms Programme period: twice a year Spring semester (March – June) ◆ Fall semester (September – December) ◆

(3)

Structure of programme Total of 63 hours in 4 months and Site Visit of Silicon Valley for 7 nights/8 days ◆ The class meets Friday and Saturday of every other week (6 hours on Friday, 3 hours on Saturday) ◆

(4)

Number of participants per batch 40 persons per batch

◆

B. Current Status of the AVM programme Currently 45 students are enrolled in the KAIST AVM programme. The average age of participants’ firms is 5, and average size of sales is about W 3.4 billion (US$ 3 million). Table 5 shows the participants’ distribution by organization type. Table 5. Typical demographics of AVM participants: distribution by organization Number

Percentage

High-tech ventures

Type of organization

30

75

Large corporations

2

5

Venture capitalists

4

10

Supporting firms

4

10

40

100

Total

351

C. Alumni activities The first batch of AVM graduates organized KAIST AVM Angel Fund immediately after graduation, and it became a new tradition of AVM alumni. They raised about US$ 2 million and invested in more than 20 start-up companies. In addition, AVM Board activities have been carried out regularly. AVM programme has graduated four batches and the total number of alumni reached 133 as of July 2000.

D. Performance of the AVM programme This programme has received high reputation from industry and applicants for this programme are continuously increasing. The level of satisfaction from participants has been more than 4.5 out of 5 point.

V. CURRICULUM OF KAIST AVM PROGRAMME A. Structure of contents of the AVM programme AVM programme was designed to differ from other general executive programmes and to focus on the needs of new ventures. It is differentiated in terms of curriculum, target audience, education methods, and the level of learning. The AVM programme addresses all the stages of venture development but puts more emphasis on the growth stage. The structure, contents and time schedule of AVM programme curriculum are shown in table 6, table 7 and table 8, respectively.

B. Field trip to Silicon Valley and Los Angeles As a part of the programme, AVM participants join one-week field trip to Silicon Valley and Los Angeles. The purposes of the field trip are (1) to understand the habitat and the operating mechanism of Silicon Valley, (2) to search strategies of the United States of America’s market entry by Korean venture enterprises, and (3) to acquire hand-on experience and practical skills. The field trip programme is composed of three parts. Table 6. Structure of the AVM programme curriculum (1)

(2)

Special lectures ◆ Acquiring expertise in each field ◆ Introduction to core theory and methodology in venture management Case study The foundation and growth process of successful new ventures ◆ Learning through case analysis ◆

(3)

Business clinic Learning business clinic ◆ Talking about the problems confronted in real situation ◆ Problem identification and solution search (based on worksheet) ◆

(4)

Thesis Applying acquired knowledge into real world business ◆ Identifying problems and finding solutions ◆

(5)

Networking activities Networking and synergy creation through alumni activities ◆ Mutual understanding and cooperation through group activities ◆ Invitation and linkage to professional group for new ventures ◆

(6)

Field trip to Silicon Valley Special lectures: CEOs of start-ups and venture capitalists ◆ Site Visits: Start-up companies, venture capital, law firm, business incubator ◆ Visit to Stanford University: campus tour and lecture ◆ Discussion and networking among participants ◆

352

Table 7. Contents of the AVM programme curriculum 1.

2.

KAIST AVM Curriculum (I): Content Approach ◆ Who are you? ❏ Venture management and entrepreneurship (the 1st week) ◆ Why to do? ❏ Strategic management (the 3rd week) ◆ What to do? ❏ Opportunity recognition (the 2nd week) ◆ How to do? ❏ Marketing (the 4th week) ❏ Fund raising, accounting, financial analysis (the 5th week) ❏ Understanding the Silicon Valley (the 6th week) ❏ Management of technology and organization (the 7th week) ◆ When to do? ❏ Management of growth and harvest (the 8th week) KAIST AVM Curriculum (II): Process Approach Setting vision and goals ❏ Venture management and entrepreneurship (the 1st week) ❏ Strategic management (the 3rd week) ◆ Evaluating the opportunity ❏ Identifying the opportunity (the 2nd week) ◆ Developing the business concept ❏ Marketing (the 4th week) ◆ Building venture strategy and assessing required resources ❏ Strategic management (the 3rd week) ❏ Fund raising, accounting, financial analysis (the 5th week) ◆ Acquiring necessary resources ❏ Fund raising, accounting, financial analysis (the 5th week) ◆ Managing the venture ❏ Understanding the Silicon Valley (the 6th week) ❏ Management of technology and organization (the 7th week) ◆ Harvesting and distributing value ❏ Management of growth and harvest (the 8th week) ◆

353

Table 8. KAIST AVM programme curriculum for 2nd Batch (March – June, 1999) Week

Date

1 Venture management

Mar 12 (Fri.) Mar 13 (Sat.)

2 Recognition of business opportunity (Workshop)

3 Strategic management

Mar 26 (Fri.) Mar 27 (Sat.) Apr 9 (Fri.) Apr 10 (Sat.)

4 Marketing

Apr 23 (Fri.) Apr 24 (Sat.)

5 Financing

May 7 (Fri.) May 8 (Sat.)

6 7 Organization/ Technology management

8 Change management

Jun 11 (Fri.)

Jun 12 (Sat.) Jun 25 (Fri.) Jun 26 (Sat.)

Curriculum 2:00-3:20 3:30-4:50

Orientation Lecture I

Introduction to AVM programme Leadership and changing roles of entrepreneurs

5:00-6:00 7:00-9:00

Case study Business clinic

Case analysis methods and thesis writing Business game

9:00-10:20 10:40-12:00

Lecture II Lecture III

New management strategy of Korean new ventures Entrepreneurship and venture management

2:00-3:20 3:30-4:50

Site Visit Lecture I

Visit to KAIST High Tech Venture Centre Patent strategy of new ventures

5:00-6:00 7:00-9:00

Case study Business clinic

PSD TECH Business clinic (1): Lecture and introduction of company

9:00-10:20 10:40-12:00

Lecture II Lecture III

Venture promotion policies in Korea Technology innovation and creativity enhancement

2:00-3:20 3:30-4:50

Lecture I Lecture II

Competitive analysis Strategic management

5:00-6:00 7:00-9:00

Case study Business clinic

LOCUS Business clinic (2): Strategic analysis

9:00-10:20 10:40-12:00

Lecture III Lecture IV

How to write business plan Case study of business plan writing

2:00-3:20 3:30-4:50

Lecture I Lecture II

High-tech marketing Marketing of new ventures

5:00-6:00 7:00-9:00

Case study Business clinic

MEDISON Business clinic (3): High-tech marketing

9:00-10:20 10:40-12:00

Lecture III Lecture IV

Marketing strategy of new ventures Internet marketing

2:00-3:20 3:30-4:50

Lecture I Lecture II

Financial management for new ventures Venture capital

5:00-6:00 7:00-9:00

Case study Business clinic

HUMAX Business clinic (4): Financial analysis

9:00-10:20 Lecture III 10:40-12:00 Lecture IV May 23 (Sun.) to 30 (Sun.)

Capital flow management of new venture Valuation of high-tech new ventures Visit to Silicon Valley

2:00-3:20 3:30-4:50

Lecture I Lecture II

Management of organization and human resources

5:00-6:00 7:00-9:00

Case study Business clinic

TURBOTEK Business clinic (5): Organization and human resources

9:00-10:20 10:40-12:00

Lecture III Lecture IV

Strategic management of technology Life corporation: New paradigm of management

2:00-3:20 3:30-4:50

Lecture I Lecture II

Informatization and customer value creation M&A

5:00-6:00 7:00-9:00

Case study Business clinic

HANDYSOFT Paper presentation

9:00-10:20 10:40-12:00

Lecture III Lecture IV

Service competence in manufacturing and service companies Korean venture management and globalization

354

(a)

Morning sessions: Special lectures by

(b)

◆

CEOs of start-ups ( Korean-American or American)

◆

Venture capitalists and Stanford professors

Afternoon sessions: Site visits to ◆

Stanford University: campus tour and lecture

◆

Start-up companies (private companies, public companies)

◆

Supporting organizations: business incubators

◆

Subsidiaries of Korean large companies in Silicon Valley and Los Angeles.

Through the field trip, participants could understand how Silicon Valley works. The typical schedule of the programme is presented in table 9. Table 9. Typical schedule for site visit of Silicon Valley and Los Angeles Date

1st Day (Sun.)

2nd Day (Mon.)

3rd Day (Tue.)

Places

Time

Seoul

Evening

Depart from Seoul

SF San Jose

Afternoon

San Francisco Tour Move to San Jose

Arrive at San Francisco

Morning

Special lectures (I) (II) Silicon Valley: Past, present and future Roles of venture capitalists in Silicon Valley

Afternoon

Site visits (I) (II) Visit two start-up companies

Morning

Special lectures (III) (IV) Silicon Valley way: Management style and culture Most common mistakes of start-ups

Afternoon

Site Visits (III) (IV) Visit one business incubator Visit Stanford University Special lectures (V) Silicon Valley and Stanford University

Morning

Special lectures (VI) (VII) What makes Silicon Valley unique: case study Strategies for entering into the US market

San Jose

San Jose

San Jose 4th Day (Wed.)

Los Angeles Afternoon

5th Day (Thurs.)

6th Day (Fri.) 7th Day (Sat.) 8th Day (Sun.)

Schedule

Site visit (V) Visit one start-up company Move to Los Angeles

Morning

Special lectures (VIII) (IX) (X) Globalization of Korean venture companies Internet business Wrap-up and discussions

Afternoon

Site visits (VI) (VII) Visit one venture capital firm Visit one start-up company

Los Angeles

Los Angeles Morning Los Angles Morning Seoul Afternoon

Free time Depart from Los Angeles Arrive at Seoul

355

C. Regular Courses for entrepreneurship In addition to the AVM programme, KAIST Graduate School of Management is offering two courses on entrepreneurship for graduate and undergraduate students. The contents of the courses are presented in table 10 and table 11. Table 10. Entrepreneurship and new venture creation – for graduate students (1)

Course overview New Venture Creation (NVC) explores the skills and knowledge needed to design a new venture. Student teams are requested to design business concept and to prepare a business plan. NVC is offered as an elective course for students both in MBA programme and in Ph.D. track. While the course stresses entrepreneurial start-ups, it is also relevant to those interested in general management, project management, business development and internal corporate venturing.

(2)

Course objectives New Venture Creation (NVC) focuses on how to design and launch an effective and sustainable new venture. The emphasis is on both concepts (the elements of a well-designed venture) and actions (how to plan and design a venture, write an effective business plan and implement it) required for successful start-up.

(3)

Course contents and organization Team projects and classroom exercises (cases, panel discussions, and presentations) provide students multiple opportunities to examine both the large issues of venture design and the micro-level decision points of implementation that play a critical part in new venture creation. To provide students with the operational practices, professionals having experience in related fields are invited. The project requires each student team to develop a business plan that provides sufficient operational detail to show how a new product or service can be brought to market, as well as to create the strategic vision that will attract the resources needed for launching and growing the enterprise.

(4)

Results and performance of the course NVC has been opened once a year since 1993. NVC has an enrollment of over 50 in each offering. This course is intended for students expecting to design and launch new ventures at some point during their careers. So, those who participate in this course have various educational backgrounds.

Table 11. Entrepreneurial management – for undergraduate students (1)

Course overview Entrepreneurial Management (EM) explores the start-up process for new ventures and the issues faced in the growing stage. PEM introduces the concept of entrepreneurship and business strategies and management tools for solving the problems faced by venture firms at the growth stage. This course is intended for students who are interested in the process of starting and managing a new venture. This is an elective course for undergraduate students who have various academic backgrounds.

(2)

Course objectives The objectives of EM are to provide the comprehensive understanding of the entrepreneurship and the entrepreneurial process for new ventures, and to provide the opportunity to address the venture management practice in the real situation.

(3)

Course contents and organization EM covers the entire spectrum of the entrepreneurial process from the development of the idea into a workable business model, to getting started and grow up and eventually harvesting. The contents include: ◆ Developing a framework for understanding and evaluating opportunity; ◆ Creating alternative strategies for resource acquisition; ◆ Facing the challenges associated with managing a growing enterprise; and, ◆ Harvesting value. Students will build teams to analyze the management practices of a real venture case and create alternative strategies to cope with the problems faced by the company. Through these case studies, students will review the issues discussed in class.

(4)

Results and performance of the course EM has been opened once a year from 1998. For each offering, over 60 students with various majors participate in this course.

356

VI. OPERATING PRINCIPLES OF THE KAIST AVM PROGRAMME A. Quality control for the AVM programme To maintain the quality of the programme, the members of the AVM programme committee meet regularly. In the selection process for new students, the programme accepts only qualified applicants even though it could not fill up regular T/O. Also the requirements for graduation – more than 75 per cent of attendance and thesis submission – have been applied strictly.

B. Learning as first priority, networking as second priority The KAIST AVM programme emphasizes integrative learning as the first priority and networking as the second priority – NOT the reverse. To pursue this principle, the following activities have been carried out. First, the programme focuses on performance through customized course design, course evaluation and feedback and the Silicon Valley field trip. Second, the programme focuses on practical application through business clinic and case studies. Third, the programme provides opportunities for networking through several group activities, workshop and garden party. KAIST AVM programme is expanding the network of entrepreneurs of growing companies, through the growing number of AVM alumni.

C. Financially self-sufficient operation The KAIST AVM programme has been contributing financially to KAIST Graduate School of Management. Tuition fee for the programme is W 5 million (US$ 4,500).

VII. FUTURE DIRECTIONS FOR ENTREPRENEURSHIP PROGRAMME A. Problems of entrepreneurship programmes There can be several problems faced by entrepreneurship education. First, entrepreneurs can be sources of problems, such as: (1) lack of understanding on the importance of management, (2) lack of understanding on their own management capabilities, (3) lack of time to learn, and (4) misunderstanding on executive programme. Second, some problems arise from training organizations, such as: (1) lack of contents and experience, (2) difficulties in finding eligible resource persons, and (3) lack of PR activities.

B. Directions for entrepreneurship programme To develop a successful entrepreneurship programme, some approaches and actions are needed such as: (1) developing specialized programme, (2) analyzing success/failure cases, (3) changing mindset of entrepreneurs, and (4) changing attitudes of government. First, specialized entrepreneurship programmes targeted for each entrepreneur group should be developed. For example, training programmes for CEOs, middle managers, and potential entrepreneurs need to be designed differently. Second, in designing the programme, analysis of successful or unsuccessful programmes can bring useful lessons. Through analysis, key success factor can be identified. The AVM experience shows that the reputation of training organization, the quality of the programme and resource persons, and alumni activities are some of key success factors.

357

Third, some entrepreneurs think they have some years of experience in managing companies and they know how to manage the company. But the most widely recognized reason for unsuccessful business plans by venture capitalists is the lack of management capability. The CEOs of ventures should be adaptive to the rapidly-changing environment and the capability for change management and entrepreneurial management are very important assets for venture CEOs. They should be ready to learn management. Fourth, government officials could be very reluctant to support an entrepreneur programme for “growing” or already grown companies. Because they think the entrepreneurs of growing companies are already rich, they are active only in promoting venture formation and in supporting potential entrepreneurs. But, entrepreneurs of growing venture companies need support from infrastructure and habitat, and indirect policy support for entrepreneurship programme as well.

VIII. CONCLUSIONS AND IMPLICATIONS A. Conclusions The AVM programme puts more emphasis on practical and collective learning rather than human networking. To do this, a business clinic session has been devised and participating CEOs can discuss their problems in each group. Development of success and failure cases is needed for more practical learning in the local context. Summing up, this paper discussed successful experiences of the AVM programme and policy implications for other developing countries. The KAIST Advanced Venture Management (AVM) programme, the first executive programme specifically for entrepreneurs in the Republic of Korea, has gained a very good reputation among entrepreneurs and venture capitalists in the Republic of Korea. But, it still has many unsolved problems.

B. Implications for developing countries Some implications for other developing countries can be drawn from Korean experience and the case of the AVM programme. First, although entrepreneurship development needs appropriate habitat and culture of community, diverse entrepreneurship programmes are needed to promote entrepreneurship and new venture creation in developing countries. Second, cultivating potential entrepreneurs and developing entrepreneurs can be the starting point of entrepreneurship development in developing countries. In designing the programmes, the objectives and targets of trainees should de clarified and programme contents should vary according to participants’ needs. Third, university-industry cooperation is the most important part of success in designing and implementing entrepreneurship development programme. University should take a very important role in shifting the traditional and conservative society into a dynamic and entrepreneurial society. The entrepreneurship course should be one of the core courses for engineering and business school students in universities. Fourth, entrepreneurship education should be very practical and it needs commitment from industrial experts. To pursue this, professors and industry leaders should offer entrepreneurship programmes with joint efforts. Fifth, because high-tech ventures should compete in global markets, entrepreneurship development programmes should contain global perspectives and increase the exposure to global business environment. Sixth, learning from successful experiences from Silicon Valley and other successful high-tech regions can be useful, but the programmes need well-organized approaches based on cooperation with key persons and institution in those high-tech regions. Seventh, cooperation among developing countries in entrepreneurship programme development and research can promote opportunity identification and cooperation in the real business world.

358

C. Guidelines in designing entrepreneurship programmes In designing entrepreneurship programme, the following programmes with different targets, lengths, and contents can be considered. (1)

(2)

(3)

Degree programmes (1-2 years) ◆

Interdisciplinary Entrepreneurship Programme

◆

Venture Management Programme (Venture-MBA)

Non-degree Executive Programmes (1-4 months) ◆

Advanced Venture Management Programme

◆

Venture Capitalist Training Programme

Short-term Training Programmes (1-3 weeks) ◆

Technological Entrepreneurship Seminar

◆

Potential Entrepreneurs Internship Programme

◆

New Venture Forum

For each programme, some frameworks will be very useful in designing and sequencing the detailed contents on entrepreneurship. For example, Timmons’ model (1999) of entrepreneurial process can be a good example of framework as shown in figure 1.

Founder and Team

Opportunities

Fit and Gap

Resources

Figure 1. Framework for entrepreneurship education

Harvard Business School, Babson College, and Stanford Business School have been very successful in entrepreneurship education. The entrepreneurship management programme at Harvard includes the following topics: (1) entrepreneurial finance, (2) entrepreneurship, creativity and organization, (3) real property asset management, (4) venture capital and private equity, and (5) entrepreneurial marketing. Also Babson College has designed the entrepreneurship curriculum according to the stages of venture development, such as: (1) before founding, (2) at founding, and (3) after founding. The AVM experience shows some guidelines in designing entrepreneurship programme, such as: (1) designing the curriculum based on objectives and target of the programme, (2) inviting prominent industrial experts as speakers and for case presentation, (3) building human networking through team activities, (4) providing global perspectives through field trip to Silicon Valley or other high-tech regions, as one-week intensive programme

359

(15-20 lectures or site visits), and (5) promoting application of knowledge into business realities through individual research. Recently, online education for larger group of audiences has emerged as a new opportunity for entrepreneurship education. Also, intensive internship programme has evolved and some companies are looking for business opportunities on executive education. Entrepreneurship education is getting greater attraction from universities and industry.

REFERENCES Bae, Zong-Tae, 1998. “Developing education programmes for entrepreneurship and venture management”, The Korean Venture Management Review, vol. 1, No. 2 (October 1998) [in Korean], pp. 155-182. Stevenson, Howard H., Michael J. Roberts and Irving H. Grousbeck, 1994. New Business Ventures and the Entrepreneurs, 4th ed. (Irwin, Burr Ridge). Timmons, Jeffery A., 1999. New Venture Creation: Entrepreneurship for the 21st Century, 5th ed. (Boston, McGraw-Hill).

360

PART FIVE INAUGURAL STATEMENTS I. MESSAGE OF MR KIM HAK-SU

EXECUTIVE SECRETARY UNITED NATIONS ECONOMIC AND SOCIAL COMMISSION FOR ASIA AND THE PACIFIC (ESCAP)

361

Your Excellency, Distinguished Participants, Ladies and Gentlemen, While I regret that I cannot be personally present, it gives me great pleasure to welcome you to the Regional Consultative Meeting on Strengthening Technology Incubation System for Creating High Technology-based Enterprises in Asia and the Pacific Region, which is organized by ESCAP in cooperation with the Korea Advanced Institute of Science and Technology (KAIST) with the generous financial support from the Government of the Republic of Korea. At the outset, I wish to express our sincere appreciation to Honorable Dr Eui-Jin Jun, Deputy Minister, Science and Technology Policy, Ministry of Science and Technology, Republic of Korea, who, despite his heavy workload, has found time to inaugurate this Meeting. Our sincere appreciation also goes to the High-Tech Venture Center, Korea Advanced Institute of Science and Technology (HTV/KAIST), in particular its President, Dr Choi Duk-In, and High-Tech Venture Centre Director, Dr Kim Jong-Duk, whose cooperation proved vital in organizing this event in Seoul. In addition, I would like to express my gratitude to the resource persons, Dr Gerhard Raetz, ADT Association of German Technology and Business Incubation Centres in Germany, Mr Shigeki Sadato, Project Director of Venture Incubator, Kyoto Research Park Co., Ltd. in Japan, Mr Dinyar Lalkaka, President of Business and Technology Development Strategies in the United States of America and Dr Jurgen Bischoff from Asian and Pacific Centre for Transfer of Technology (APCTT), for their participation in this Meeting to present their valuable experiences on technology incubation system. As the forces of globalization intensify, knowledge and technological capabilities are becoming increasingly crucial for national development in order to respond effectively to emerging challenges and opportunities. In an increasingly competitive international trading environment, there is an imperative need for industrial restructuring and strengthening of technological capabilities in developing countries. This is even more important as developing countries appear to be losing their traditional comparative advantages such as those based on cheap labour, natural resources, production by Small and Medium Enterprises (SMEs), and so on. Furthermore, SMEs risk further marginalization or absorption by large companies, in particular transnational corporations (TNCs) which are creating economies of scale and scope in technology development and innovation through mergers and acquisitions. Governments can no longer afford to allow the SME sector to be neglected and discriminated against in terms of a supporting policy framework, access to finance, management, marketing expertise and technology. In order to guarantee their survival and improve their international competitiveness, supportive programmes need to be given priority attention. One such supportive programme to increase the international competitiveness of SMEs is to strengthen and promote technology venturing through incubation programmes for new technology-based enterprises. An incubation programme aims to produce successful businesses that are financially viable and freestanding when they graduate from the incubator, usually in two to three years. ESCAP has been taking various initiatives to strengthen technological and industrial capabilities for integrated development and to promote cooperation among the economies of the region. A new initiative taken by ESCAP is for creating high technology-based enterprises under the project, “Mechanism for Strengthening Technology Incubation System for SMEs in Asia and the Pacific”. Nodal agencies and representatives of participating countries have been identified to take the responsibilities of promoting technology and business incubation. A survey based on questionnaires had been undertaken to identify the current status of technology and business incubators and catalytic factors for supporting and facilitating technology and business incubation which participating countries had initiated for creating technology-based enterprises. Additionally, a study mission was launched by ESCAP to survey technology incubation systems in selected countries such as Malaysia, Singapore, Republic of Korea and Japan. According to the ESCAP survey and study mission, it is estimated that about 600 business incubators exist in Asia and the Pacific region. Japan started its incubator programme in 1988 and has 140 science parks and 40 incubators. China set up its first incubator in Beijing in 1989 and has now more than 110 incubators, based on the China Torch Programme, to promote technology business incubators. In addition, there are 53 national science and technology and industrial parks in China. Malaysia has about ten technology parks/incubators/ innovation centres. The Republic of Korea which established the first technology incubator in 1994, during past two or three years, has created about 300 incubators for technology-based small enterprises. Philippines has 68 technology and business incubators. Uzbekistan has 2 technology and 21 business incubators. India has 31 incubators including 15 technology incubators. This number of incubators in Asia and the Pacific is almost

363

similar to that of the United States of America. However, technology incubators in least developed countries or some of the developing countries may be of a general type. The major problem in developing and least developed countries is to revitalize and restructure the local industries including SMEs and create employment through development and applications of new and high technologies in traditional sectors. Industrially advanced countries and industrializing countries are focussing on establishing their technological leadership in selected sectors and, consequently, promoting high technology corporations through sound global technology incubation systems. The survey also indicates the factors influencing technology incubators. Technopreneurs, national policies and financial support are most important among the catalytic factors for supporting and proliferating technology incubation for technology-based enterprises. Technology incubators are especially capital intensive, equipped with simple to sophisticated science and technology facilities, and mostly aimed at developing intellectual property. Technopreneurs are relatively young and have high level education in science and technology and are acquiring technical and administrative expertise from their incubating companies such as universities, research and development institutions. Thus, the governments are making efforts in providing a conducive and coordinated national policy environment, strong R&D institutions and research-oriented academic institutions, technical entrepreneurship development and support measures and in developing innovative financing systems. Developed countries, in general spend large amounts on national R&D, about 2-3 per cent of their GNP, out of which 50-80 per cent is contributed by the industry. On the other hand, in developing countries, the total R&D expenditure is generally in the range of 0.1 per cent to 1.0 per cent. In absolute terms, these expenditures are even at subcritical levels for meaningful R&D. In this background, this meeting will enable a thorough discussion on the current position of technology incubation for creating technology-based enterprises and develop policy guidelines and recommendations for cost-effective and user-friendly technology incubation to promote efficiencies and competitiveness of SMEs. This would involve a review of existing policy guidelines, best practices, methodologies and constraints with a view to establish effective and efficient technology incubators and to suggest a model technology incubator for economies at various levels of development in the region. Based on the findings of the study and the recommendations of this meeting, ESCAP will, through a follow-up project, support and facilitate national initiatives towards an enabling policy framework for the development of technology and business incubators. I wish the meeting great success and look forward to the outcome of your deliberations and recommendations. Thank you.

364

II. CONGRATULATORY SPEECH OF MR EUI-JIN JUN DEPUTY MINISTER FOR SCIENCE AND TECHNOLOGY POLICY MINISTRY OF SCIENCE AND TECHNOLOGY (MOST) THE REPUBLIC OF KOREA

365

Honorable Dr Dhungana, Chief of Industry Section of International Trade and Industry Division of ESCAP, Dr Duk In-Choi, President of Korea Advanced Institute of Science and Technology and Ladies and Gentlemen. I am honoured to be with you at this gathering hosted by ESCAP and the Korea Advanced Institute of Science and Technology (KAIST) and to make a congratulatory speech on behalf of Dr Jung Uck Seo, Minister of Science and Technology.

Significance of high tech-based venture business If a nation is to have a sustainable competitive edge in this knowledge-based economy of the 21 century, intellectual firepower becomes a must, not only to creatively generate knowledge but also to use it in an innovative way. st

One force of this power is high technology-based venture businesses, which, involved in commercialization of scientific and technological innovations, are emerging as the backbone of an economy.

S&T policies of the Republic of Korea for the knowledge-based economy Ladies and Gentlemen, On the threshold of a full-blown knowledge-based economy of the 21st century, the Government of the Republic of Korea is working hard to lay the groundwork for a more innovation-encouraging socioeconomic environment to facilitate the creation, dissemination, and utilization of scientific and technological knowledge. Let me tell you about several steps that the government is taking. In 1999, “The National Science and Technology Council”, chaired by the President, was crated to coordinate national S&T policies. In the same year, the Council established “Vision 2025: the Long-Term Plan for S&T Development” with a view to creating a national management system that emphasizes science and technology. Currently, we are about to introduce “The Basic Law on Science and Technology” as a fundamental legal framework. In addition, to secure competitive high technologies, the Government is initiating national R&D projects in such areas as information, mechatronics, energy, environment, new materials, and bioengineering. To support these ambitious projects, we plan to increase the share of the Government budget for R&D from the current 4.1 per cent to 5 per cent by 2002. Finally, as creative ideas for technological innovation come from scientists and engineers, we are running special educational programmes for the gifted in science. We are also nurturing excellent higher educational institutions like KAIST and Kwang Ju Institute of Science and Technology, as well as Science Research Centres, Engineering Research Centres, and Regional Research Centres to help fully develop the limitless potential of the human resources in S&T.

Nurturing high tech-based venture business Ladies and Gentlemen, At this important time of a paradigm shift in the world economy, Republic of Korea is trying to establish a national innovation system required for the effective commercialization of R&D outputs from Government-supported Research Institutes (GRIs) and universities. To nurture high technology-based venture businesses, the Government is supporting them in getting easy access to capital, technology, skilled human resources and building sites.

367

For example, we are: ◆

Transforming the Dae Duk Science Town, which you will be visiting this Thursday, to make it fully functioned as a high-tech venture valley where industry, research institutes and academia can cooperate effectively;

◆

Supporting the establishment and operation of Business Incubation Centres, especially within the Dae Duk Science Town;

◆

Facilitating the creation of spin-offs from the researchers of GRIs and universities and encouraging researcher start-ups;

◆

Financially supporting promising technology-based venture businesses; and

◆

Introducing a technology-value assessment system to streamline technology transfer, expansion of technology-secured loans and others.

Expectation and prospect of further cooperation Ladies and Gentlemen, This Meeting will discuss ways to strengthen “Technology Incubation System for Creating High Tech-based Enterprises”, by sharing each country’s experience and best practices. I am sure that this Meeting will provide a unique opportunity to discuss and exchange ideas for effective technology incubation system, and that this meeting will pave the way for more active international cooperation in the development of venture industry. I hope that ESCAP will implement follow-up projects in the near future to assist member countries in strengthening technology incubation systems and I promise Republic of Korea will be an active participant in these projects.

Closing remarks Last but not least, I would like to express my heartfelt thanks to all the guest speakers, participants, and hosts ESCAP and KAIST who have worked so hard to make this Meeting a great success. Ladies and Gentlemen, Let me conclude my speech by saying, “Welcome to Korea” and wishing you an enjoyable stay here. Thank you.

368

III. WELCOME SPEECH OF MR CHOI DUK-IN PRESIDENT OF KOREA ADVANCED INSTITUTE OF SCIENCE AND TECHNOLOGY (KAIST) THE REPUBLIC OF KOREA

369

Ladies and Gentlemen, On behalf of KAIST and the Korean delegation, I would like to welcome all of you to the International Symposium of “Regional Consultative Meeting on Strengthening the Technology Incubation System for Creating High Technology-based Enterprises”. I am very pleased to speak with you, the distinguished experts from various countries. The International Symposium, organized by the United Nations Economic and Social Commission for Asia and the Pacific (UN/ESCAP) and KAIST, has aroused enormous interest and is a matter of concern to the countries which are trying to revitalize their economies through the cultivation of venture business. In an era of knowledge-based economies, venture companies play a key role in improving internal and international competitiveness in industry. Technology venturing through incubator activity is regarded as an important tool for the commercialization of R&D outputs and the transfer of technology. Further, technology incubators accelerate the creation of new enterprises and the development of jobs. From this point of view, the nurturing and revitalizing of the ventures is seen as a key factor in sustaining economic development. Understanding the importance of nurturing venture enterprises, the Korean Government has been fully and resolutely supporting the idea of the technology incubation system in aspects of financing, locating, technology, and marketing for example. With the help from the government, high-tech start-ups have been booming and spread nationwide in a short period. As of the end of May 2000, the number of venture companies reached 7,110. Frequently, the amount of transaction in KOSDAQ, where venture companies raise money, has amounted to 4 trillion won, exceeding the amount in the Korea Stock Exchange. The Technology Business Incubators are considered as the most important factor in promoting the growth of the venture industry. There are about 320 incubators in the Republic of Korea which actively support entrepreneurs and small technology-based enterprises. Thus, we are hoping that today’s meeting on Strengthening the Technology Incubation System will give us the chance to review policy guidelines, practices, methodologies, and constraints based on the actual experiences of various nations. And, through this meeting, we will not only be able to suggest effective and efficient models for technology incubation for various levels of economies in the region, but to come up with a suitable mechanism for strengthening networking and cooperation among relevant institutions. In particular, the experts from the Asia and the Pacific region will make presentations on technology business incubation system based on their real experiences. I believe that this symposium will help to establish national policy for economic revitalization, in more general terms. Ladies and gentlemen, Once again, I thank you for participating in this symposium and I sincerely hope that this meeting will bear fruitful results and help to promote more active exchanges among the countries of Asia and the Pacific. Thank you.

371

ANNEX I LIST OF PARTICIPANTS

373

LIST OF PARTICIPANTS CAMBODIA Mr IN Sambo, Deputy Chief of Laboratory, Laboratory Office, Department of Industrial Technique, Ministry of Industry, Mines and Energy (MIME), Phnom Penh CHINA Ms Luo Hui, Deputy Director, Division of International Development, Torch High-Technology Industry Development Center, Beijing INDIA Mr P.K.B. Menon, Adviser, Department of Science and Technology, Ministry of Science and Technology, New Delhi MALAYSIA Ms Maznah Ibrahim, Manager, Technology Park Malaysia Corporation, Resource Centre, Kuala Lumpur NEPAL Mr Nirmal Kumar Bista, Executive Director, Industrial Enterprise Development Institute (IEDI), Kathmandu PAKISTAN Mr Abdul Rashid, Joint Technological Adviser, Ministry of Science and Technology, Islamabad PHILIPPINES Ms Maripaz L. Perez, Director, Technology Application and Promotion Institute (TAPI), Department of Science and Technology (DOST), Metro Manila REPUBLIC OF KOREA Mr Jun Eui-Jin, Deputy Minister of Ministry of Science & Technology (MOST), Seoul Mr Choi Duk-In, President, Korea Advanced Institute of Science and Technology (KAIST), Taejon Mr Kim Jong-Duk, Director, High-Tech Venture Center, Korea Advanced Institute of Science and Technology (KAIST), Taejon Mr Kim Ji-Soo, Director, Advanced Venture Management Programme, Professor, Graduate School of Management, Korea Advanced Institute of Science and Technology (KAIST), Seoul Mr Bae Zong-Tae, Professor, Graduate School of Management, Korea Advanced Institute of Science and Technology (KAIST), Seoul Mr Kwon Sung-Moon, President, KTB Network, Seoul Mr Pak Han-Oh, President, Bioneer Corporation, Cheongwon SRI LANKA Ms Nirmala M. Pieris, Head, Corporate Services Division, Industrial Technology Institute, Colombo TAJIKISTAN Mr Davron Yuldashev, Director, The Agency for Support and Development of Small Entrepreneurship under the Government of the Republic of Tajikistan, Dushanbe

375

UZBEKISTAN Mr Karapetov Alexander, UNDP National Expert on Investments, UNDP Office in Uzbekistan, Deputy of the Officemen of Association of Business Incubators and Technoparks of Republic of Uzbekistan, Tashkent VIET NAM Mr Quan Thang, Deputy Director General, International Cooperation Department, Ministry of Industry, Hanoi

OBSERVER Mr Yu Sung-Su, Director, Industrial R&D Innovation Division, Ministry of Science & Technology, Seoul Mr Oh Young-Jei, Director, Technology Business Incubator Center, Korea Institute of Science & Technology, Seoul Mr Kim Soung-Hee, Dean, Korea Advanced Institute of Science and Technology (KAIST), Graduate School of Management, Seoul Mr Paik S. Jong, Director, Center for Technology Partnership Programme, Korea Research Institute of Standard and Science, Taejon Mr Choi-Gye-Ho, Director, Kongju National University Business Incubators (KNUBI), Chungnam Mr Lee Kum-Bae, Director, Kongju National University Business Incubators (KNUBI), Chungnam Mr Jun Yong-Du, Manager, Kongju National University Business Incubators (KNUBI), Chungnam Mr Yang Kap-Seung, Business Incubator, Chungnam National University, Chungnam Mr Choi Wook, Director General, Korea Federation, WASME, Seoul Mr Park In-Bok, Vice-President Korea Federal, WASME, Seoul Mr Rhee Guhn, President, Intellectual Property Valuation Center Co. Ltd., Seoul Mr Lee Hyung-Chill, Director, Intellectual Property Valuation Center Co. Ltd., Seoul Mr Hwang Jong-Hwan, President, Intellectual Property Valuation Center Co. Ltd., Seoul Mr Min Byung-Soo, Auditor General, Intellectual Property Valuation Center Co. Ltd., Seoul Mr Han Min-Goo, Director, Koje Business Incubator, Koje College, Seoul Mr Kim Jin-Hwan, Manager, Overseas Business Team, Internet TV Networks, Seoul Mr Cho Bong-Jin, Director, Business Incubator enter, Keimyung University, Taegu Mr Lee Jong-Sung, Mnager, Kwangju Chonnam Technopark, Chonnam Mr Chang Hong-Yul, CEO & President, Kyongki Small Business Center, Seoul Mr Baek Yoon-Su, Director, Yonsei Technology Business Incubator, Yonsei University, Seoul Mr Kim Dong-Jin, Director, Technology Business Incubator Center, Hallym University, Chun-Chen Mr Lee Seag, General Manager, Kwangju-Chonnam Technopark, Chonnam

376

SECRETARIAT Mr B.P. Dhungana

Chief Industry Section International Trade and Industry Division

Mr Song Woo-Geun

Expert on Industrial Development Policies and Planning, Industry Section International Trade and Industry Division

Resource Persons Mr Dinyar Lalkaka

Partner, Business & Technology Development Strategies, New York, U.S.A.

Mr Shigeki Sadato

Project Director of Venture Incubator Kyoto Research Park Co. Ltd., Japan Kyoto, Japan

Mr Gerhard Raetz

Representative ADT Association of German Technology and Business Incubation Centres Berlin – Adlershof, Germany

Mr Surya Prakash Agarwal

Adviser Department of Scientific and Industrial Research Ministry of S&T, Government of India New Delhi, India

Mr Jurgen Bischoff

Director Asian and Pacific Centre for Transfer of Technology (APCTT) New Delhi, India

Mr Vadim Y. Kotelnikov

Adviser Asian and Pacific Centre for Transfer of Technology (APCTT) New Delhi, India

377

ANNEX II AGENDA

379

AGENDA 1.

Opening of the meeting.

2.

Election of officers.

3.

Adoption of the agenda.

4. Presentations by ESCAP secretariat on “Strengthening technology incubation system for creating high technology-based enterprises in selected countries” (Malaysia, Singapore, the Republic of Korea and Japan). 5. Presentations by Experts from Japan, Germany and the United States of America on experiences in “Technology incubation system for creating high technology-based enterprises”. 6. Presentation by APCTT on “Project selection, monitoring and evaluation for technology incubation in developing countries”. 7. Country presentations on “Technology incubation system” by representatives from Bangladesh, Cambodia, China, India, Malaysia, Nepal, Pakistan, Republic of Korea, Sri Lanka, Philippines, Tajikistan, Uzbekistan and Viet Nam. 8. Special presentations by Korean Experts on “Successful experiences in venture capital, venture businesses and technical entrepreneurship development in the Republic of Korea”. 9. 10.

Other matters. Adoption of the report.

381

ANNEX III PROGRAMME OF ESCAP AND HIGH-TECH VENTURE CENTER/KOREA ADVANCED INSTITUTE OF SCIENCE AND TECHNOLOGY (HTV/KAIST) REGIONAL CONSULTATIVE MEETING ON STRENGTHENING TECHNOLOGY INCUBATION SYSTEM FOR CREATING HIGH TECHNOLOGY-BASED ENTERPRISES 29-31 August 2000 SEOUL

383

PROGRAMME OF THE INAUGURAL SESSION Tuesday, 29 August 2000 0800-0900

Registrations

0900-0930

◆

Welcome Statement by Dr Choi Duk-In, President of KAIST

◆

Statement of Dr Kim Hak-Su, Executive Secretary, ESCAP, delivered by Dr B.P. Dhungana, Chief, Industry Section International Trade and Industry Division, ESCAP

◆

Inaugural Speech of Dr Jun Eui-Jin, Deputy Minister for Science and Technology Policy, Ministry of Science and Technology (MOST), the Republic of Korea

◆

Vote of Thanks – ESCAP

0930-1000

Coffee/Tea

385

PROGRAMME OF WORKING SESSION Tuesday, 29 August 2000 1000-1030

Election of Officers Adoption of the agenda

1030-1100

Presentation by Dr S.P. Agarwal, ESCAP’s Consultant, on “Strengthening technology incubation system for creating high technology-based enterprises in selected countries” (Malaysia, Singapore, the Republic of Korea and Japan)

1100-1110

Discussion

1110-1140

Presentation by Dr Gerhard Raetz, ADT Association of German Technology and Business Incubation Centres, Berlin-Adlershof, Germany, on “Technology incubation system in Germany”

1140-1150

Discussion

1150-1220

Presentation by Mr Shigeki Sadato, Project Director, Venture Incubator, Kyoto Research Park Co. Ltd., Japan, on “Technology incubation system in Japan”

1220-1230

Discussion

1230-1330

Lunch

1330-1400

Presentation by Mr Dinyar Lalkaka, President, Business & Technology Development Strategies, New York, on “Technology incubation system in the United States of America”

1400-1410

Discussion

1410-1440

Presentation by Dr Jurgen Bischoff, Director, APCTT, on “Project selection, monitoring and evaluation for technology incubation in developing countries”

1440-1450

Discussion

1450-1500

Coffee/Tea break

1500-1830

Country presentations by Mr IN Sambo, Cambodia Ms Luo Hui, China Dr P.K. Menon, India Ms Maznah Ibrahim, Malaysia Dr Nirmal Kumar Bista, Nepal

Wednesday, 30 August 2000 0900-1230

Country presentations by Mr Abdul Rashid, Pakistan Dr Maripaz L. Perez, Philippines Dr Nirmala M. Pieris, Sri Lanka Mr Davron Yuldashev, Tajikistan Mr Alexander Karapetov, Uzbekistan Dr Quan Thang, Viet Nam

1230-1330

Lunch

386

1330-1350

Country presentation by Dr Kim Jong-Duk, Director, High Tech Venture Center/Korea Advanced Institute of Science and Technology (HTV/ KAIST), on “Technology incubation system for creating high technology based enterprises in the Republic of Korea”

1350-1400

Discussion

1400-1500

Special presentation by Mr Kwon Sung-Moon, President of KTB Network, on “Successful experiences in venture capital in the Republic of Korea

1500-1530

Discussion

1530-1630

Special presentation by Dr Park Han-Oh, President, Bioneer Corporation, on “Successful experiences in venture businesses in the Republic of Korea”

1630-1700

Discussion

1700-1800

Special presentation by Dr Bae Zong-Tae, Professor, Graduate School of Management, KAIST, on “Successful experiences in technical entrepreneurship development in the Republic of Korea”

1800-1830

Discussion Adoption of Conclusions and Recommendations Closing of Meeting (Closing remarks by ESCAP and KAIST)

◆

Thursday, 31 August 2000 0700

Depart Seoul for Dae Duk Science Town

0900

Arrive Dae Duk Science Town

0900-1500

Visit High-Tech Venture Center of KAIST

1500

Depart Dae Duk for Seoul

1700

Arrive Seoul

387

ANNEX IV

SURVEY ON NODAL AGENCIES, STATUS OF INCUBATORS AND CATALYTIC FACTORS FOR SUPPORTING AND FACILITATING TECHNOLOGY AND BUSINESS INCUBATION IN SELECTED COUNTRIES UNDERTAKEN BY ESCAP UNDER THE PROJECT OF “MECHANISM FOR STRENGTHENING TECHNOLOGY INCUBATION SYSTEM FOR SMEs IN ASIA AND THE PACIFIC”

ESCAP under the project on “Mechanism for Strengthening Technology Incubation System for SMEs in Asia and the Pacific”, identified the nodal agencies and representatives who were responsible for promoting technology and business incubation in the participating countries. Questionnaires were prepared and sent to nodal agencies to identify the current-status of technology and business incubators and catalytic factors for supporting and facilitating technological development. Based on the response to the questionnaires, this document has been prepared for the information of the participants.

389

I. QUESTIONNAIRE RESPONDENT Questionnaires were received from the following 11 countries: Bangladesh, Cambodia, China, India, Nepal, Pakistan, Philippines, and the Republic of Korea, Sri Lanka, Uzbekistan and Viet Nam. They were not received from Indonesia, Malaysia and Tajikistan.

Representatives and nodal agencies of participating countries Bangladesh Mr M. Mosihuzzaman, Chairman, Bangladesh Council of Scientific and Industrial Research (BCSIR), Dr Kudrat-e-Khuda Road, Dhanmondi, Dhaka 1205, Bangladesh. Tel: 880-2-502000, Fax: 880-2-8613022.

Cambodia Mr IN Sambo, Official of Ministry of Industry, Mines and Energy (MOIME), Industrial Technical Department, Phnom Penh, Cambodia. Tel/Fax: 855-23-428263.

China Ms Luo Hui, Deputy Director of China Torch High Technology Industry Development Center, Beijing, China. Tel/Fax: 0086-10-6851-4068, 0086-10-6851-1868.

India Mr P.K.B. Menon, Joint Advisor, Department of Science and Technology, Ministry of Science and Technology, Government of India, New Delhi 110016. Telefax: 011-651-7186.

Malaysia Puan Maznah Ibrahim, Manager, Technology Park Malaysia Academic, Kuala Lumpur.

Nepal Mr Nirmal Kumar Bista, Executive Director, Industrial Enterprise Development Institute (IEDI), Kathmandu. Tel: 977-1-523012, Fax: 977-1-261241.

Pakistan Mr Abdul Rashid, Joint Technological Adviser, Ministry of Science and Technology, Islamabad. Tel: 92-51-9201786, Fax: 92-51-9205971, 92-51-9210734.

Philippines Ms Maripaz L. Perez, Director, Technology Application and Promotion Institute, Department of Science and Technology (DOST), Metro Manila. Tel: 837-6188, 837-2071, Fax: 837-2936.

Republic of Korea Mr Kim Jong-Duk, Director of High-Tech Venture Center, Korea Advanced Institute of Science and Technology, Taejon 305-701. Tel: 82-42-869-2013, Fax: 82-42-869-4780.

Sri Lanka Ms Nirmala M. Pieris, Head, Corporate Services Division, Industrial Technology Institute, Colombo. Tel: 94-1-697994, Fax: 94-1-697994, 94-1-686567.

391

Uzbekistan Mr Karapetov Alexander, The Republican Business Incubator, Tashkent 700060. Fax: 371-1363774.

Tel: 371-1363726,

Viet Nam Mr Quan Thang, Deputy Director General, International Cooperation Department, Ministry of Industry, Hanoi. Tel/Fax: 84-4-826-0411.

II. STATUS OF INCUBATORS IN PARTICIPATING COUNTRIES A. Typology and total number of incubator Country

Technology

Business

Other

Total

Bangladesh

3

–

–

Cambodia

–

–

–

–

China

110

–

–

110

India

15

10

6

31

Nepal

–

–

–

–

Pakistan

–

–

–

–

Philippines

7

61

–

68

291

10

–

301

Republic of Korea

3

Sri Lanka

–

–

–

–

Uzbekistan

2

21

–

23

5

5

–

10

433

107

6

546

Joint

Total

Viet Nam Total

B. Ownership of incubator Country

Public

Private

Bangladesh

3

–

–

3

Cambodia

–

–

–

–

China

110

–

–

110

India

31

–

–

31

Nepal

–

–

–

–

Pakistan

–

–

–

–

Philippines

7

61

–

68

Republic of Korea

291

10

–

301

Sri Lanka

–

–

–

–

Uzbekistan

1

–

22

23

Viet Nam

8

1

1

10

451

72

23

546

Total

392

C. Influencing factors to technology incubation {(1) as most important, (8) at least important} National policies

R&D Institute

Technopreneur

Financing support

Property and consulting

S&T parks

Bangladesh

2

5

3

1

6

1

1

2

Cambodia

1

5

1

1

1

1

5

5

China

1

6

3

4

8

2

5

7

India

5

3

1

2

8

7

6

4

Country

Alliance SMQC/ and marketing networking

Nepal

2

1

3

4

–

–

5

–

Pakistan

1

2

2

2

3

3

–

–

Philippines

1

3

2

3

4

4

5

4

Republic of Korea

3

2

1

4

6

7

3

5

Sri Lanka

1

2

1

1

2

3

1

2

Uzbekistan

–

–

–

–

–

–

–

–

Viet Nam

1

–

–

2

3

–

4

5

2

5

1

3

8

4

7

6

Output

D. Success factor of incubator {(1) as most important, (6) at least important} Government support

Location of incubator

Service

Management

Networking

Entrepreneur development

Bangladesh

1

5

3

2

1

1

Cambodia

1

1

5

5

5

5

China

–

–

–

–

–

–

India

–

–

–

–

–

–

Nepal

1

4

–

5

3

2

Pakistan

–

–

–

–

–

–

Country

Philippines

1

4

2

3

5

3

Republic of Korea

6

5

4

2

1

3

Sri Lanka

1

2

2

1

2

1

Uzbekistan

–

–

–

–

–

Viet Nam

1

4

–

3

5

2

1

6

2

4

5

3

Output

393

III. CATALYTIC FACTORS FOR SUPPORTING AND FACILITATING TECHNOLOGY AND BUSINESS INCUBATION A. National policies in industry, science and technology 1. Name of basic legal framework Bangladesh, Cambodia, China, Nepal, Pakistan and Sri Lanka (a)

For technology incubation:

None

(b)

For business incubation:

None

(a)

For technology incubation:

Appropriate institutional mechanisms, venture capital, and technology back up.

(b)

For business incubation:

Infrastructure, escort services, less government control.

India

Philippines (a)

For technology incubation:

Executive Order No. 128 otherwise known as the Reorganization of the National Science and Technology Authority (NSTA) now. Department of Science and Technology (DOST) is mandated to formulate policies, plans, programmes and projects for the development of S&T and for the promotion of scientific and technological activities for both the public and private sector and ensure that results of S&T activities are properly applied and utilized to accelerate economic and social growth legislative bills are also pending in Congress.

(b)

For business incubation:

(1) Republic Act No. 7919 – Legal framework for the creation, operation, administration and coordination of Special Economic Zones in the Philippines and the creation of the Philippine Economic Zone Authority (PEZA). (2) Republic Act 7844 otherwise known as Export Development Act.

Republic of Korea (a)

For technology incubation:

The science and technology Promotion Law (Law No. 1864, 1967) to promote S&T systematically at the national level as a basic law. Major provisions of this law include the establishment of policies and plans for S&T and the overall support mechanism for related projects and agencies.

(b)

For business incubation:

Law for Special Measures to support New Technology and Knowledge Intensive Business (1997) to transform SMEs into venture businesses and encourage new small venture businesses.

Uzbekistan (a)

For technology incubation:

None

(b)

For business incubation:

Business-incubators’ activity (including 2 of them specializing in problems of technological development, scientific research commercialization) is based on project document “Business-incubator network development in the Republic of Uzbekistan” signed by UNDP and the Government of Uzbekistan. There is also additional normative and instruction base

394

determining conditions and priorities of business-incubator network’s activity and development prospects. In the whole, innovative, scientific and technological activity in the Republic is based on the following main legal and normative documents: ❏

Laws of the Republic of Uzbekistan “Towards standardization”, “Towards certification of products and services”, “Towards metrology”, “Towards informatization”, “Towards inventions, useful models and industrial samples”, Towards intellectual property right protection”, Towards trademarks and service marks”, etc.

❏

Resolutions of the Cabinet of Ministers “Towards measures on state support of science and innovative activity development”, Towards formation of national calibration basis and metrology development”, Towards state support of development international scientific and technical links, science programmes and projects on grants of international and foreign organizations and foundations”, “Towards temporary provision on industrial property”, etc.

❏

Decrees of the President of Uzbekistan “Towards state support of science and development innovative activity”, etc.

❏

Departmental normative acts: Resolutions of the State Committee on Science and Technology (SCST) “Towards development innovative entrepreneurship and improvement technology transfer procedure to domestic and foreign industries”, “Towards creation of system of commercialization of scientific and technical development works and innovative projects”, “Towards order of formation and realization of programmes of basic researches”, etc.

Viet Nam (a)

For technology incubation:

Definition and classification of SMEs (No. 681/CP-KIN dated 20 June 1998)

(a)

For business incubation:

None

2. Major programmes provided by Government, based on the above legal framework Cambodia, Nepal, Sri Lanka, and Viet Nam (b)

For technology incubation:

None

(c)

For business incubation:

None

Bangladesh (a)

For technology incubation:

(1) R&D projects (2) Annual Development Projects, (GOB) (3) Project under S&T special allocation

(b)

For business incubation:

None

(a)

For technology incubation:

Preferential tax policies. Technology Innovation Fund for Small and Medium-sized firms.

(b)

For business incubation:

None

China

395

India (a)

For technology incubation:

(1) Establishment of institutional mechanisms such as the STEPs, TBIs, STPs and encouragement of other University-Industry interactions. (2) Creation of venture capital agencies such as Technology Development Board and other financial institutions in public and private sector. (3) Availability of competent technology back up from premier institutions like Indian Institutes of Technologies (IITs), Indian Institute of Science (IISc), National R&D laboratories and Regional Engineering Colleges (RECs).

(b)

For business incubation:

(1) Creation of state-of-the-art infrastructural facilities such as STPs, STEPs and other mechanisms for encouragement of business incubation. (2) Escort services through Entrepreneurship Development Training programme and other follow-up services by expert institutions in this area. (3) Establishment of one window clearance of the business proposals by the government.

Pakistan (a)

For technology incubation:

(1) Technology policy (2) Industrial policy and action plan

(b)

For business incubation:

Trade policy and industrial policy – Economic and financial reforms.

Philippines (a)

For technology incubation:

The Science and Technology Agenda for National Development (STAND) is part of a series of measures that was pursued to realize the vision of making the Philippines a newly industrialized country (NIC). STAND emphasizes the development and utilization of superior technologies to a level of competitive advantage. STAND shall be market-oriented and private-sector led. The programme has been reiterated as a continuing activity that should be strengthened under the new S&T Development Plan.

(b)

For business incubation:

(1) Development the CALABARZON – its master plan includes expansion and upgrading of infrastructure support facilities and harness human resources towards a more conductive investment climate for a sustainable development in Subregion IV, sound environmental and ecological management links both industry and agriculture. (2) Subic Bay Metropolitan Authority (SBMA) – whose vision is to develop the Subic Bay Freeport into a globally competitive self-sustaining environment-friendly centre for industry, commerce, finance, investment and tourism in the Asia Pacific Region. (3) With the creation of PEZA a number of Special Economic Zones, Industrial Estates, Export Processing Zones, Free Trade Zones were established and provide incentives for the establishment of business incubators.

396

Republic of Korea (a)

For technology incubation:

Technology Development Assistance Programme for SMEs. Technology Credit and Assessment Programme for Promoting Investment. Special Service Programme with Military Exemption.

(b)

For business incubation:

None

Uzbekistan ❏

Programme of business-incubator network development for a period to 2001 within the framework of state programme of support and development small and medium-sized business aimed at the creation of favourable economic conditions for setting up and development of new enterprises, business projects, in particular, innovative ones.

❏

14 priority state scientific and technical programmes aimed at the solution of problems of the development of intellectual potential, resources conservation, new technologies, materials and facilities.

❏

18 scientific and technological programmes aimed at the solution of problems of public health, ecology, informatization, architecture and construction, agriculture and forestry, etc.

❏

11 programmes of basic researches in the field of mathematics, physics and astronomy, biology, chemistry, economy, sociology, etc.

❏

Competition scientific and technical programme and programme of innovative works of the SCSTRUz aimed at the solution of critical problems of economic and social development of branches of national economy and regions of Uzbekistan.

3. Financial support and tax incentives provided by Government for incubation activities for emerging high technology-based enterprises Cambodia, Pakistan and Sri Lanka (a)

Financial supports:

None

(b)

Tax incentive:

None

Bangladesh (a)

Financial supports:

Through ADP projects.

(b)

Tax incentives:

None

(a)

Financial supports:

Each year, Ministry of Science and Technology allocates 10 million technology business incubators. Each year, Central Government allocates 1 billion Innovation Fund for technology-based small firms.

(b)

Tax incentives:

Local Government will refund the local tax to tenant companies in technology business incubators.

Financial supports:

The technology-based enterprises in the STEPs mobilize the financial resources through financial institutions and banks. The STEP provides the following facilities to the entrepreneurs: nursery space; testing and calibration, consultancy, training, research, precision tool room/central workshop; prototype development, business facilitation; computing, databank, library and documentation; communication, Internet and E-mail; seminar hall, conference room; common facilities such as phone, telex, fax, Xerox; etc.

China

India (a)

397

The STP entrepreneurs also mobilize the finance through the existing financial institutions and banks. The STP’s role is promotional and catalytic. It provides the infrastructure, customized solutions in data communication and networking, and interface with industry and government. The EHTP entrepreneurs also mobilize their investment by themselves. Foreign equity up to 1,000 per cent is permitted. (b)

Tax incentives:

There are no special tax incentives for STEP entrepreneurs. The STP programme provides the following: Duty free imports, Excise on domestic purchase exempted, Income tax holiday for a block of 5 years in first eight years, DTA sale of 25 per cent of value of software exported, No location constraints, Infrastructural support provided inside complexes, Datacom services offered at selected locations, Custom Bonding assistance, Import certificate. The EHTP provides the following: (1) duty free import of capital goods, raw materials, components and other imported inputs permitted; (2) no minimum value addition required for export market; (3) complete tax holidays for 5 years.

Nepal (a)

Financial supports:

Access to loan from Government owned banks with collateral.

(b)

Tax incentives:

None

Philippines (a)

Financial supports:

Financial support for the development/improvement of existing science and technology parks and development of road networks and utilities for new ones.

(b)

Tax incentives:

(1) Tax and duty-free importation of capital equipment and spare parts. (2) Tax credit for taxes and duties on raw materials in the manufacture, process and production of export goods. (3) Tax credit on domestic capital equipment, and income tax holiday of 4-6 years.

Republic of Korea (a)

(b)

Financial supports:

Tax incentives:

◆

Start-up fund, reengineering, etc.

◆

Venture capital, Technology financing, angle, etc.

◆

Technology mortgage.

Tax reduction.

Viet Nam (a)

Financial supports:

Government fund for investment in agricultural machines manufacturing.

(b)

Tax incentives:

Import duty 0-5 per cent for aico products; 5 per cent VAT for agricultural machines manufacturing; 0 per cent for FDI projects with high-tech.

398

B. R&D expenditures by year and sector

Year

Public sector (%)

Private sector (%)

Total (%)

Per cent of GNP (%)

Bangladesh

1995-1996

0.18

–

–

0.01

Cambodia

–

–

–

–

–

China

–

–

–

–

–

India

–

–

–

–

–

Country

Nepal

–

–

–

–

–

Pakistan

–

–

–

–

–

Philippines

–

–

–

–

–

Republic of Korea (W million)

1998

27% (3 060 234)

73% (8 276 383)

100% (11 336 617)

2.50 (–)

Sri Lanka

1996

n/a

n/a

–

0.18

Uzbekistan

–

–

–

–

–

Viet Nam

–

–

–

–

–

C. R&D institutions (Unit: number) Research institution Country

Year

Total

Subtotal

Public

University college

Private

Subtotal

Public

Private

Bangladesh

1994-1995

83

73

73

–

10

8

2

Cambodia

–

–

–

–

–

–

–

–

China

–

–

India

1999

Nepal

2000

8

7

2

5

1

–

1

–

–

–

–

–

–

–

–

Pakistan

–

–

–

–

–

–

–

–

–

–

–

–

Philippines

1994

198

5

–

(nat) 5

79

40

39

Republic of Korea

1998

2 869

2 602

183

2 419

267

49

218

Sri Lanka

2000

31

19

19

–

12

12

–

Uzbekistan Viet Nam

–

–

–

–

–

–

–

–

1999

17

17

17

–

–

–

–

D. Technical entrepreneurs (Unit: person) Country

Year

Doctor

Master

Bachelor

Others

Total

Bangladesh

1996-1997

1 382

2 804

1 911

3 825

9 922

Cambodia

–

–

–

–

–

–

China

–

–

–

–

–

–

India

1999

–

–

–

–

–

Nepal

–

–

–

–

–

–

Pakistan

–

–

–

–

–

–

Philippines

1992

6

10

382

114

512

Republic of Korea

1998

281

601

2 204

922

4 008 –

Sri Lanka

–

–

–

–

–

Uzbekistan

–

–

–

–

–

–

Viet Nam

–

–

–

–

–

–

399

E. Any programmes provided by the Government for the capability building of technical entrepreneurs? Bangladesh (i)

Human Resource Development

(ii)

Banga Bandhu Fellowship

Cambodia None

China Torch programme

India The Government of India has established a National Science and Technology Entrepreneurship Development Board (NSTEDB), under the Ministry of Science and Technology, to promote entrepreneurship among S&T persons and use the development in S&T to encourage gainful employment among youth. A number of programmes and activities have been evolved to achieve the following broad objectives of the NSTEDB: (i)

To promote entrepreneurship among S&T persons;

(ii)

To facilitate and conduct various informational services relating entrepreneurship development among S&T persons;

(iii)

To network various Central and State government agencies and non-governmental organizations in technical entrepreneurship;

(iv)

To develop institutional mechanisms for technical entrepreneurship;

(v)

To involve technical institutions in entrepreneurship activities.

The programmes and activities that have evolved in the past include, among others, establishment of STEPs in the vicinity of technical and R&D institutions, include establishment of Entrepreneurship Development Cells in academic institutions and universities, creation of information networks to help the start-up technical entrepreneurs, organization of entrepreneurship development training, organization of entrepreneurship awareness camps, conduct of skill development training in the emerging technology areas.

Nepal Skill development training. Polytechnic institutes.

Pakistan Ministry of Science and Technology had launched at national level HRD Programme. So far, more 1,300 have completed Ph.D. in different field. To produce 100 Ph.D., the programme is going on.

Philippines The government through its educational/technical training institutions specializing in developing skills for the manufacturing, agricultural, mining, infrastructure, etc. and service sectors offer trainings to interested parties to enhance capability building.

400

Republic of Korea KAIST operates AVM (advanced venture management programme) and Venture Class. SMBA performs Technology Venture Class, Training Abroad Programme, Scientist Exchange Programme, etc.

Sri Lanka Some programmes are provided by the following major Government institutions viz. The National Apprentice & Industrial Training Authority (NAITA), Clothing Industry Training Institute (CITI), Textile Training and Services Centre and the Sri Lanka Business Development Centre (SLBDC). Ad-hoc programmes are also provided by the Industrial Technology Institute (ITI), the Industrial Development Board (IDB) and the Expert Development Board (EDB). Skills and vocational training programmes are also available.

Viet Nam Not yet.

F. Innovative financing support system (a)

Venture capital companies available? If “Yes”, please describe in details?

(b)

Private capital source (Angel) available? If “Yes”, please describe in details?

Bangladesh, Cambodia, Pakistan and Viet Nam (a)

None

(b)

None

China (a)

Yes, but most venture capital companies are funded by government money.

(b)

Yes, but not many.

India (a)

The Government of India has a set up a Technology Development Board (TDB) as a venture capital agency. The TDB invests in equity capital or gives soft loan to industrial concern attempting development and commercial application of indigenous technology, or adapting imported technology to wider domestic application. All India Financial Institutions such as the Industrial Credit and Investment Corporation of India (ICICI) has floated a Technology Development and Information Company of India (TDICI Ltd.) in collaboration with Unit Trust of India (UTI). The Industrial Finance Corporation of India (IFCI) has a subsidiary named Risk Capital and Technology Finance Company, which provides venture capital to innovation based companies. To assist innovative ventures in the small-scale sector, having good scope for commercialization but having characteristics of high risks and high gains, Small Industries Development Bank of India (SIDBI), operates a venture capital scheme. To encourage the setting of venture capital funds, Government extended several incentives like capital gain tax concession under the Income Tax Act. Some Public Sector banks have also set up venture capital companies and a few venture capital funds were instituted in the private sector.

(b)

Presently, about 30 institutions have floated venture capital companies or venture capital fund.

401

Nepal (a)

None

(b)

Yes, finance companies and private banks.

Philippines (a)

In support of the industries development programme, the government and private banking systems established several venture capital corporations to provide equity capital to industries. VCC form part of the management of the project.

(b)

Private capitalists develop the area with infrastructure and utilities requirements and lease area to would-be locators where both parties agree upon terms and conditions.

Private capitalists develop the area and would-be locators provide infrastructures/utilities according to their needs conditions of which are agreed upon by the developer and locator.

Republic of Korea (a)

Venture capital companies in 71 in 1998 and 114 in 1999.

(b)

Number of angel clubs was 6 in 1998 and 20 in 1999. The number of members is ranged between one to ten thousands.

Sri Lanka (a)

In 1999 seven Venture Capital Companies (VCCs) were in operation. These companies provide long-term capital for the commencement of new business, expansion of existing ventures, acquisition of buyouts, in addition to investing in shares etc. Most of the companies also provide additional services such as financial advice, planning, introducing foreign technology, formulation of marketing strategies and introducing joint ventures and marketing partners. In 1999, the VCCs assisted a large number of projects under the Graduate Entrepreneurs Loans programme and the Non-graduate educated youth programme. The manufacturing sector and the services sector are the major recipients of funds. VCCs are required to invest in specified risk ventures under the Inland Revenue department guidelines. However, at present VCCs can opt out of the tax holiday by expanding investments in diversified activities such as the priority sectors and the software industry.

(b)

Not available at present.

G. Intellectual property assistance/technical consultant assistance If available, please describe outlines for technology and businesses incubation

Bangladesh, Cambodia, and Viet Nam None

China Yes, in Chinese business incubators we have these organizers to provide professional service.

India The Ministry of Science and Technology has set up a Patent Facilitating Centre to help scientists, technologists and industries in their patenting requirements.

402

Technical Consultancy Organizations, public sector as well as private has been set up in different parts of the country, covering all sectors of industry. In addition, the faculty of premier technical institutions such as the ITTs, RECs and National Laboratories also undertake consultancy jobs for the industry and entrepreneurs.

Nepal Yes, private sector organizations are in technical consultancy but almost non-existent in incubations.

Pakistan Law is under preparation.

Philippines The Intellectual Property Office of the Department of Trade and Industry is mandated to administer and provide lawful protection for the copyrights, patents, trademarks, industrial design, etc. The Department of Science and Technology (DOST) through the Technology Application and Promotion Institute’s (TAPI), Intellectual Property Rights (IPR) Assistance Programme provides assistance in securing intellectual property protection for patents and copyrights. Forms of assistance include consultancy services covering the filing of application, prosecution of patents and complete package of patenting assistance through the services of the Philippines Association of Certified Patent Agents.

Republic of Korea Government supports the technical assistance for SMEs by professors and researchers in public institutions by SMBA and the technical consulting programme by MOST.

Sri Lanka Intellectual property assistance is available through the Intellectual Property Office in Sri Lanka. Technical consultant assistance is available through R&D Institutes and private individuals. However, no specifically targeted assistance is planned so far for technology and business incubation.

H. Science and technology parks If available, describe outlines

Bangladesh, Cambodia, Pakistan, Sri Lanka, and Viet Nam None

China There are 53 national science and technology industrial parks in China.

India The STEP, which has been described as an incubator above, has various facets. It has the following major objectives: (1) To forge a close linkage between universities/R&D institutions on the one had and industry on the other. (2) To promote entrepreneurship among S&T persons. (3) To provide R&D support and other facilities to small scale sector. STEP provides a reorientation in approach to innovation and entrepreneurship involving education, training, research, finance, management and government. It creates the necessary climate for innovation; for sharing of ideas, experience and facilities and opens up avenues for students, teachers, researchers and industrial managers to grow in a common transdisciplinary culture, each understanding and depending on others inputs for starting a successful economic venture.

403

Nepal Under construction (information technology).

Philippines The Department of Science and Technology supported and helped maintain three (3) S&T parks and seven (7) technology business incubators which provided a conducive environment for academic institutions and private institutions to interact and work collaboratively for innovation and contract research and spin-off technologies from laboratories to industries. Spaces are offered to startup industries who lack capital to put up its own company. Common service facilities/equipment are also offered to locators. Use of space and equipment charged at minimal costs.

Republic of Korea In the Republic of Korea, we have three different types of science park-related projects launched. The first one is Taeduk Science Town in Taejon city, which started in 1971 and now has 67 research institutes. The number of researchers is about 14,000. The second is the technopark programme by Ministry of Commerce, Industry and Energy, by a special article for Industrial Technology Support in 1989 and now 6 parks are in operation. The third is local high tech industrial parks initiated by local governments and private sector.

I.

Strategic business alliance and networking

If available, describe outlines by item

Cambodia, India, Nepal, Pakistan, and Sri Lanka None

Bangladesh BCSIR has contacted with Dhaka Chamber of Commerce and Industries in greater Dhaka area and with Federation of Bangladesh Chamber of Commerce and Industries throughout the country.

China City Business Incubator Network, Western Business Incubator Network and China International Business Incubator Network.

Philippines To facilitate the actualization of the industrialization thrusts, the government has established institutional linkages at various levels with international institutions for both technical and financial assistance. Requesting parties submit proposals to international institutions for their consideration. Upon approval of the project, a memorandum of agreement is prepared to include terms and conditions of assistance.

Republic of Korea Networking is one of the most important infrastructures. Korea organized KOBIA (Korea Business Incubators Association) After KOSDAQ booming, many consulting companies supporting venture companies by providing service, management support, technology evaluation, patent and legal service firms, were created.

Viet Nam Not yet for SMEs.

404

J.

Standardization, meteorology and quality control (SMQC) and marketing

If available, describe outlines

Cambodia, China, India None

Bangladesh Bangladesh Standard and Testing Institute (BSTI) is engaged in testing and quality control of industrial products. It also provides standardization certificate before marketing the product. In some specific cases BCSIR is involved in testing and standardization.

Nepal Government Sector: Nepal Bureau of Standardization and Meteorology, Central Food Laboratory.

Pakistan Pakistan has set up Pakistan Standard and Quality Control Authority and NFSL to take necessary measures standardization, meteorology and quality control (SMQC).

Philippines The Department of Science and Technology (DOST) has established a state-of-the art Meteorology Center through the Japanese government assistance. Standards maintained at DOST are calibrated or intercompared with standards of other international laboratories abroad. TAPI’s programme on Manufacturing Productivity Extension for Export Promotion (MPEX) Programme extends assistance to SMEs in the manufacturing sector to attain high productivity. Promotion of products through fairs and participation in international fairs and exhibitions are provided support by TAPI. Marketing assistance for exportable products are being extended by the Department of Trade and Industry.

Republic of Korea After success in pilot test of product and marketing, the failure of quality control was often reported, but no special measures and standardizations were designed.

Sri Lanka Standardization and Meteorology and Quality Control service are available through the Sri Lanka Standards Institution (SLSI) and the Industrial Technology Institute (ITI). Assistance with marketing is available through the Sri Lanka Institute of Marketing (SLIM) and the several Chambers of Commerce and Industry and Trade Associations. The Export Development Board (EDB) provides assistance with respect to export marketing.

Viet Nam Vietnamese Government encourages SMEs to apply ISO, but only a small number of SMEs, got ISO certificates.

405

IV.

BEST PRACTICES IN TECHNOLOGY INCUBATION

Bangladesh, Cambodia, India, Nepal, Pakistan, Sri Lanka and Viet Nam None

China Combine angel fund with technology business incubation project.

Philippines (1)

Commercialization of new and emerging technologies;

(2)

Creation of technology-based enterprises;

(3)

Creation of employment/job opportunities.

Republic of Korea KAIST operates HTVC since 1992 and the number of tenant companies is 120 in information technology, biotechnology, environment and energy, mechatronics and semiconductors. Among the companies, Darim Vision, Dr Y. Kim, KAIST graduated with Ph.D., was housed in 1994, and graduated in 1999 with sales volume of US$ 6 million and in preparation for KOSDAQ.

V. RECOMMENDATIONS AND FUTURE NEEDS Bangladesh, Cambodia, China, India, Nepal None

Pakistan Pakistan is in the process of establishing Science Park incubator centre. On the basis of experience gained in the Republic of Korea, necessary technical/financial assistance in this regard may be extended.

Philippines (1)

Continued government support for existing science and technology parks/incubators;

(2)

Government assistance in sourcing financing support for the commercialization of technologies developed by R&D institutions.

Republic of Korea Issues should be discussed to understand the infrastructure for venture: ◆

venture capital

◆

consulting and incubation

◆

legal and patent

◆

technology assessment

◆

marketing

◆

information flow

◆

outlet policy (IPO, M&A, etc.)

406

Sri Lanka Similar to other developing countries, Sri Lanka has reached the stage where the ability of SMEs to generate socioeconomic benefits, value addition to indigenous raw material and employment generation have been recognized. However, S&M entrepreneurs need much assistance to face the difficulties arising from their inherent weaknesses in accessing finances, skills, information, business concepts and markets. Even though a large number of organizations that can provide services to SMEs are in existence in the country, there is no ‘one-stop’ shop for providing this assistance. Therefore, cost effective business development services and well-managed workspaces are a necessity to the S&M entrepreneurs. Business incubator development in the country, following the setting up of a successful pilot incubator that will need to be adjusted and adopted to improve performance before replication will no doubt fill this need.

Viet Nam Policies on SMEs are new in Viet Nam. Besides survey, Ministry of Industry needs international assistance and guideline for setting up network of SMEs, their technology and business incubation system, including their funding.

407