Business Incubators: A Nurturing Environment for Entrepreneurship and Innovation

Despite the challenges globalisation has brought to developing countries (LDCs), it has created numerous opportunities for them.  The opening up of new markets and introduction of new technologies are illustrations.  To take advantage of these opportunities, governments of LDCs could engage in initiatives that result in local development.  The small-island developing states (SIDSs), for instance, could enhance their competitiveness by producing goods that can be exported and also serve as a substitute for imports.  They therefore need to develop the caliber of entrepreneurs capable of achieving those goals.


Further, adhering to the various international and regional trading arrangements can leave entrepreneurs feeling frustrated and hopeless, believing that they do not have a fighting chance.  It is particularly frightening for those wishing to go into business for the first time.  Hence start-up entrepreneurs would need more institutional support.  They would require nurturing to help develop their confidence, access to credit and markets, and relevant training that will enable them to survive in a relentless business environment.


Statistics reported by the U.S. Small Business Administration's Office of Advocacy indicate approximately 34% start-up businesses fail within the first two years and up to 60% do not survive six years.  These statistics suggest many things.  For example, some businesses have changed ownership or the proprietor has died.  In either of these two situations, the former enterprise is registered as a closure.  Another explanation is that some business owners are simply not entrepreneurs, therefore they do not go the extra mile to seek, and seize, opportunities to improve business performance.  Consequently, they perform poorly due to their failure to respond to changing market conditions.  Notwithstanding, even true entrepreneurs may encounter difficulties; they may not have access to credit or markets to promote their products or services.


By fostering an entrepreneurship culture and creating an environment conducive to business creation, LDCs can reduce the obstacles to their growth.  "Entrepreneurship is a critical dimension of local development", notes the Organisation for Economic Co-operation and Development (OECD).  The organisation's studies of rapid-growth regions in various OECD countries discovered a high rate of start-ups.  For those who are tempted to argue that comparing developed and developing countries is like comparing oranges and apples, to use a cliché, the more developed countries also have regions that are characterized by "high unemployment, poverty and deprivation" (OECD).  The advent of globalization has affected both categories of countries.  Large companies have been downsizing to become 'leaner'.  Thus new businesses are required to absorb the displaced workers and the new people entering the workforce.  In addressing the situation, the State has to pursue policies to capitalise on it and distribute the rewards among the rest of society.  Implementing policies that promote entrepreneurship is one response toward fomenting needed economic growth. 


In Saint Lucia micro and small enterprises (MSEs), particularly the micro enterprises, constitute the majority of the businesses in the country.   Statistics indicate that MSEs make up approximately 76% to 80% of businesses.  (By Saint Lucia's definition a micro enterprise has up to five employees while the small enterprise has no more than 50 employees.)  This speaks to the vital role they play in the overall economic growth of the country.  Many people rely on them to improve their standard of living.  MSEs engage in the following activities - retail, service, tourism, manufacturing (agro processing, garment, bread, arts and craft, furniture, etc.), construction, and agriculture.


Governments have set up institutions and started programmes to assist and engender the growth of MSEs as a result.  Those in Saint Lucia comprise the James Belgrave Fund (BELFUND), the National Research and Development Foundation (NRDF), the Office of Private Sector Relations (OPSR), the Small Enterprise Development Unit (SEDU), and the Saint Lucia Bureau of Standards (SLBS), to name a few. 


The establishment of a business incubator is another policy instrument toward achieving a vibrant economy.   It offers an avenue for poor countries to alleviate poverty by improving the economic and social environment through the facilitation of enterprises that lead to job/wealth creation.  With this increased wealth the government can improve education and health care and make credit available, argues Sen, a noble laureate and development expert.  The people in turn can have more choice and a healthier standard of living.  Moreover, as more people are able to get jobs, they can then save and/or invest their income, resulting in a more stimulated economy.  In addition, business incubators are an avenue to promote innovation, which leads to new markets and additional revenue streams.


Business Incubators

The word "incubate" means "to foster the development of..." or "to grow under conditions that promote development".  Picture therefore an environment where young vulnerable start-up enterprises are nurtured, similar to an incubator for eggs or babies.  They are given the necessary assistance to increase their chances of remaining successful.  The National Business Incubation Association of America (NBIA) defines business incubation as a dynamic process of business enterprise development:


"Incubators nurture 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 services. They offer entrepreneurial firms shared office services, access to equipment, flexible leases and expandable space - all under one roof [traditionally]."


The businesses participating in the business incubation programme are referred to as incubatees or incubator clients.  They are also called tenants.


History of Business Incubators

The idea of a business incubator took root in the United States of America (USA) after the WWII.  The pioneer and businessman, Joe Mancuso of Batavia, New York, saw it as an opportunity in the 1950s to alleviate the 20% unemployment rate his town suffered when the factories closed down following the end of the war.  Mancuso chose an abandoned building in 1959 which had been used for incubating chickens to serve as a facility where various individuals could set up their own enterprise.  He envisaged this venture leading to the creation of jobs for those in his community, thereby boosting the economy.  The business incubator was born.  Today, this first incubator has developed into what is now known as Batavia Industrial Sector.


The fever spread throughout the USA as the benefits of such an initiative became evident.  The success stories in the USA led to it becoming a development intervention in other parts of the world.  By the end of 2002, there were over 3000 incubators around the world, the majority being located throughout the USA, where the concept originated.  The over 1,000 incubators in the USA provide employment for some 245,000 people.  Some of the other regions where incubators have been set up include Europe.  The European Commission report that there are approximately 1,000 incubators in Europe.  They provide about 29,000 jobs annually and are concentrated mainly in Finland, Germany, Sweden, Luxemburg and the UK, notes the European Commission.  Incubators can also be found in Ukraine, Australia, and LDCs such as China - about 220, India, Mexico, Chile, Colombia, and also the Caribbean - Barbados, Dominica, Grenada, Jamaica and St. Vincent and the Grenadines.


Types of Business Incubators

Business incubators comprise not-for-profit and for-profit business incubators.  Collectively, they include:  independent commercial incubators, regional business incubators, university incubators, company-internal incubators, technology parks and virtual incubators.


In our next article we will examine how business incubators are funded, how they differ from other business support service providers, how to identify and select incubatees, success factors, challenges, inter alia.


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