Benchmarking of Business Incubators
Incubator: BIC Liguria 1.
Background and Regional Context
Incubators in Italy are viewed as a useful economic development instrument to promote new business creation, encourage SME innovation, promote an entrepreneurial environment and create new jobs. Whilst business incubators in Italy were initially concentrated in steel closure areas of Italy and in economically lagging areas of the south, today, incubation is seen as a useful tool for encouraging SME innovation and activity. Compared to other European countries, SME promotion has only relatively recently been considered as a significant governmental policy objective in Italy. Traditionally, there has been a very strong presence of SMEs in the Italian economy so the main aim of government policy has been to encourage the development and evolution of large-scale enterprise. This is reflected in the relatively late development of Italy’s incubation network. There are currently 17 business incubators within the network overseen by Sviluppo Italia, the Italian national agency for economic development and entrepreneurship promotion. A further 13 additional incubators are currently in the process of being built or are going through the planning stages. Most of the incubators in Italy are located on the premises of European-Union funded BICs (Business & Innovation Centres). All Italian BICs are members of EBN, the European network for the promotion of the incubation and BIC concepts on a European platform. Many of the incubators located in southern Italy also qualify for structural funding as Objective 1 or Objective 2 regions. Although Italy traditionally has a strong entrepreneurial culture due to the prevalence of small firms and local enterprise as the dominant business model, there is a strong need from an economic development policy perspective to promote growth in lagging regions. Most incubators in Italy, therefore, are located in relatively disadvantaged regions where the overriding priority is new job and enterprise creation and the provision of physical infrastructure (i.e. affordable managed workspace) where previously there was market failure. The emphasis, therefore, is generally on the provision of relatively straightforward business support services such as secretarial, bookkeeping with some more specialist advisory services on strategy and business planning. Some research has been undertaken in Italy to suggest that business incubation is a more cost-effective and sustainable job creation platform than other comparable forms of public investment. The net marginal cost of creating a job in a BIC is estimated at around 60m liras or around €30,6001. 1
The currency conversion rate as at 10.07.01 was 1,000 liras: 0.5164 euros
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Benchmarking of Business Incubators
The average tenancy target of the Sviluppo Italia incubator network is four years. It is hoped that once the 30 incubators are fully operational, Italian incubators will collectively have approximately 1,000 tenant companies at any one time and employ 8,000 people. Genova has a population of 650,000 and was historically part of Italy’s northern industrial triangle comprising the cities of Milan, Turin and Genova. The incubator is situated in Genova’s industrial zone, an area that has undergone profound structural decline over the past 30 years. The area was formerly a centre for the Iron & Steel industry, which underwent profound structural change leading to closures and major jobs losses, particularly during the 1980s. The BIC Liguria incubator, Italy’s first, was set up as a regional economic development catalyst in 1990 against a backdrop of industrial decline. Given the considerable economic and structural challenges faced by the Genova region resulting from postindustrial fall-out, the incubator’s primary objectives were to contribute to improving the local and regional socio-economic base of the BIC Liguria region by encouraging new business creation in a range of industries and supporting new job creation. The severe nature of the crisis (the population of Genova dropped by almost 200,000 in 20 years), the incubator did not initially introduce sectorally targeted admission criteria. However, as the regional economic base has recovered and diversified, particularly into electronics, logistics and tourism - so the incubator has evolved – the sectoral mix of its tenants today reflecting the corresponding diversity of the wider regional economy. BIC Liguria operates from its central headquarters in Genova and from other offices located across the Liguria region. Parts of Genova, including the area in which the incubator is located, are eligible for Objective 2 support from the European Commission. 2.
Incubator Operations
BIC Liguria was established in 1990 and occupies 15,000 m² in a converted factory in the re-industrialisation zone on the outskirts of Genova, (Genova Campi). The incubator also has small offices in the centro storico of Genova and manages other sub-regional offices, some of which also provide physical space. The incubator currently houses approximately 55 companies, is operating at full capacity and has a waiting list. The main incubator, in the industrial zone of Genova, provides offices, research facilities and factory space varying in size from 30 to 460 m² depending on the individual needs of the business. Simple office units usually measure either 75 or 150 m². Key partners include the regional authorities of Liguria, the comune of Genova in the province of Savona, the European Commission and Sviluppo Italia, the Italian national development agency. The incubator has 12 full-time staff. Approximately 50% of the incubator’s total revenue derive from rent to tenants. Tenant companies receive professional advice and business support services (e.g. help with the
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Benchmarking of Business Incubators
business plan, marketing, logistics, inter-firm networking) as part of the overall rental package – they are not obliged to pay for services directly. This is partly because Italian small firms are traditionally reluctant to use business support services and external outsourcing, a culture that is gradually changing. In terms of rent payable, the amount paid by tenants is in line with the external commercial rate – however, tenants benefit from additional support services, shared facilities and a canteen, as well as the prestige and networking potential the BIC confers on its tenants. In terms of rent levels, incubators in Northern Italy usually structure their rental charges in line with the commercial rate for space. In Southern Italy, however, there is a scheme whereby incubator tenants pay 30% less than the commercial rate in their first year, 20% less in their second year and 10% less in their final year. In terms of admission criteria, the BIC does not currently practice sectoral targeting of potential tenants. The incubator was purposely built for mixed usage to reflect the need for economic diversification. In terms of admission assessment criteria, the incubator conducts a rigorous analysis of the viability of a prospective tenant’s business plan before granting admission. In terms of exit criteria, the incubator usually only allows tenants to remain at the BIC for a maximum 5 year period. However, in certain circumstances, the incubator has a flexible approach to maximum tenancy length, especially if the tenant is perceived by the wider business community and internally as a flagship or anchor tenant. Breakeven is regarded as an objective of the BIC. The basic definition of breakeven is that total turnover exceeds operating costs. Funding comes from a variety of sources – in an average financial year, approximately 40-50% of turnover comes from commercial rent, approximately 25% from training courses for entrepreneurs, a small proportion from the incubator’s own capital whilst the remainder comes from public subsidies from the European Commission, the Italian national and regional authorities. Since its inception in 1990, BIC Liguria has helped create 165 firms and has created an estimated 800 jobs. The estimated failure rate was 15-20% of all companies incubated. The number of employees of tenant companies ranges in size between 1 and 20 people. In terms of occupancy rates, the BIC is usually 85-95% full. BIC Liguria has also developed informal links with Universities in the region. For example, the BIC has run a couple of promotional seminars at the University of Genova. 3.
Good Practice Examples
There are several aspects of the incubator’s operations that demonstrate good practice: The ‘Centro Storico’ (historic centre’) project: Genova has one of the largest historic town centres in Europe. For a number of reasons, the historic centre, over a period of years, has become extremely run down and dilapidated with a high level of social problems, delinquency, drug abuse, illegal immigration and squatting. BIC Liguria,
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Benchmarking of Business Incubators
working in partnership with the regional authorities, the comune and the mayor, has taken an active lead in the physical regeneration process of the Centro Storico, as part of a community ‘outreach’ project. With the help of a fund set up by the national authorities and the Genovan town council, the BIC is helping potential entrepreneurs meet the restoration and conversion costs of turning abandoned buildings in the old quarter into viable commercial outlets (bars, craft shops, delicatessen etc.) at ground floor level in order to rejuvenate and dynamise the economy of the old quarter. The BIC provides advice and expertise at both strategic level (regional partners and the municipality) and directly to private entrepreneurs. BIC Liguria manages the Centro Storico project on a day-to-day basis, playing an important role in improving the social and economic fabric of the region as a whole, beyond the incubator walls. Technology Incubator Project: The BIC, in partnership with its regional partners, has set aside space within the incubator specifically to nurture high-growth, high-tech, pure technology companies from January 2002 onwards. BIC Liguria has drawn on 10 years of expertise nurturing small firms in order to set the Technology Incubator up, and has established informal links with local universities to tap into research expertise. The BIC has set up a working group with the participation of private sector representatives from the high tech sector such as Marconi. The BIC will be using rigorous selection criteria to choose the six or seven initial high-tech ‘incubatees’, the first time sectorally driven selection criteria have been used. Projects must be highly innovative and technology driven. High-speed Internet access is provided to technology incubator tenants. Biotechnology Incubator: BIC Liguria is also currently in discussions with local and regional economic actors and the University of Genova to set up a Biotechnology Incubator at the laboratories of Genova University, which has particular expertise in biotechnology research. The BIC will lend its expertise and business know-how to the project. This is an interesting example of how the incubator has evolved in parallel with the changing regional macroeconomic environment. When the incubator was established, sectoral targeting was not possible in an area, which needed to encourage job creation above all other considerations. Over time, as the economy has recovered, the incubator has been able to implement a sectoral strategy to focus on new strengths which will boost economic prospects over the longer term. Centro Sperimentale: The Centro Sperimentale or ‘Experimental Centre’ is essentially a pre-incubation service for potential clients of BIC Liguria. The BIC provides a small amount of physical space where prospective entrepreneurs can work on and elaborate a business idea and develop a business plan, with expert management support and advice available on demand. Participants pay a nominal fee (2,000,000 liras or 1030 euros) for the use of a small office space and typewriter for a period of up to 6 months. As part of the package, tenants get 32 hours of consultancy and training focused on helping
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Benchmarking of Business Incubators
entrepreneurs to work on their initial idea until the business plan has reached a stage where it is ready to be launched. Club Imprese: The BIC has set up an ‘Entrepreneurs Club’ for its tenants, which holds regular social events and discussion dinners. The Club provides an opportunity for informal networking between tenant firms and encourages tenants who have been at the incubator for a relatively long period to share information and advice with more recent entrants. Flexible financial arrangements with local financial institutions: BIC Liguria has initiated relationships with a number of financial institutions. One scheme provides SMEs with access to bank loans at a discounted rate. Regular Monitoring and Appraisal: BIC Liguria undertakes a regular survey of its members both to ascertain the performance of tenant companies (restricted to total turnover and no. of employees) and to gauge SME demand for specific services (both inhouse and external) such as high speed internet access, advice on meeting product and quality standards and legal advice on patents. The BIC also conducts evaluation and appraisal of its tenants and provides advice and guidance on overall business direction. At any one time, 3 or 4 tenants out of the aggregate population of 55 tenants will be undergoing an evaluation by the incubator management. Promotional Activities to encourage Young Entrepreneurs: BIC has run a couple of promotional seminars at the University of Genova in conjunction with a major regional bank, the Cassa di Risparmio di Genova. The Bank and the BIC jointly ran a programme in 1997 offering a first prize of €5,000 + free rent at BIC Liguria for a year for the young person who came up with the best new business idea – the aim of the promotion was to promote entrepreneurship and raise awareness in the business community and amongst young people about the activities of the BIC in the Genova region. 4. Views on Key Issues In the view of the incubator manager the following points are critical in the successful setting up and management of business incubators: ·
Quality of Business Support Services – BIC Liguria has established good relationships with business support organisations such as local entrepreneurs associations and the local Chamber of Commerce. Wherever there is a need for specialist advisory services e.g. quality standards etc. the BIC has the contact network in place to organise a relevant seminar and bring in external consultants with the right skillset.
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Quality of Knowledge Networks, both formal and informal: All members of the board come from different backgrounds (financial, technical, operational) and have different social and business networks.
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Strong regional partnership and community links – BIC Liguria has established strong community links with various community associations and the local council through its participation in the Centro Storico project. The BIC has forged strong links with its regional partners and regards close partnership as integral to the success of the BIC concept.
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Credibility and word of mouth marketing: After 10 years in operation as a BIC, new clients often hear about BIC Liguria via word of mouth from previous or existing tenants. This has helped BIC Liguria to achieve a consistently high occupancy rate
6. List of Interviews Name
Position
Sig. Filippo Gabbani
Chief Executive, BIC Liguria
Sig. Renato Angelino
Italian National Expert, Sviluppo Italia
Dr Claudio Montaldo
Vice-Mayor of Genova
Alessandro Comola
President of BIC Liguria
Dr Ugo Ballerni
Ex-President of BIC Liguria, Managing Director of FILSE, regional financial body
Dr Orazio Brignola
Vice-President of the Associazione Industriali di Genova
Sandra Maragno
Director and Consulting)
Dr Alessandro Trussi.
Director and Joint Founding Partner, Proes Automazione, (software development)
Sig. Galicchio Gabriele
Director, GSEI (Industrial Electronics)
founder,
Selefor
(Human
Resources