Report On Business Incubators: Types, History, And Role In Firm’s Performance

Introduction

Ambition often turned sour in the past as aspiring entrepreneurs struggled to find investors and the right market for their products or services. Today, thanks to the business incubators, it is now possible to make a global impact in a very short time, provided you have a sound idea.

Business Incubators

The business incubators are defined as a location where entrepreneurs can receive pro-active, value-added support, and access to critical tools, information, education, contacts, resources and capital that may otherwise be unaffordable, inaccessible or unknown. Khalil and Olafsen (2010) defined business incubation as the “process aimed at supporting the development and scaling of growth-oriented, early staged enterprises”.

Types of Business Incubators

Business incubators are divided into different types depending on their primary and secondary objectives. These incubator types include Public or Non-profit Incubators, Private Incubators, Academic-related Incubators and Public/Private Incubators.

Public or Non-profit Incubators are supported by government and non-profit organizations, whose primary objective is to promote economic development. Private Incubators are run by ventures and seed capital investment group. They generally seek a return on investment. Academic-related Incubators are academic institutions whose main focus is faculty-development and on creating business-spin-offs from faculty research.

Public/Private Incubators are basically joint efforts between government and private agencies. Business incubators contribute in achieving the commercialization targets, creating new startups, promoting the entrepreneurial culture, innovation and generating revenue. The main focus of business incubators internationally is economic development, broadly defined, which covers development activity at the local, regional, and national levels.

History of Business Incubators

Business incubators is not a new concept in the world. It has formally existed for 50 years. The first business incubator was founded in 1959 in Batavia, New York as a privately owned for-profit center. Until 1970s, the formation of new ventures falls in less priority list. In 1980s, only 12 incubators were in operation while the figure rises to 1250 by 2012 only in USA and then overall reaches beyond the mark of 7000 (National Business Incubation Association, 2014). Although the idea of incubators was conceived in the 1950s, it did not see widespread acceptance until the 1980s. The mushroom growth of incubators, initiated in 1980s has resulted in over 1, 400 incubators today in North America, with 1, 115 in United States, 191 in Mexico and 120 in Canada. In 2005 alone, North American incubation programs assisted more than 27, 000 companies that provided employment for more than 100, 000 workers and generated annual revenues of $17 billion.

Asia, the largest and mostly developing region with around 50 countries, enjoys more than 2000 BIs. Out of 2000 incubators, most of the BIs are operating in the populous countries of Asia such as China and India. In Pakistan, the first business incubation center was founded in 2005 at National University of Science and Technology, Islamabad, named as Technology Incubation Center. Incubation center at NUST was registered as private business incubator. Then slowly and steadily, many business incubators and accelerators were launched at public and private educational institutes or independently. This concept of business incubators became prevalent in both, private and public, sectors of Pakistan. Higher Education Commission of Pakistan is mainly responsible for expansion of incubation program at universities and associated research institutes of Pakistan. The criteria laid down by HEC, Pakistan for selecting the universities for human and financial support to functionalize incubators at their locations are mainly include strong R and D activities, availability of entrepreneurial support and industrial area. There are around fifty business incubators in Pakistan reported till the mid of 2018. Thirty-five of them are registered as public business incubators and around fifteen are registered as private business incubators. A more recent addition to the field of incubation is the creation of ‘accelerators’ which are characterized by 3-4-month incubation periods for early business launch.

Role of Business Incubators and Firm’s Performance

The whole concept of incubation is attitudinal in that incubation fosters a community attitude of encouraging and supporting emerging firms to be successful with its success dependent on three fundamental factors: “an entrepreneurial and learning environment, ready access to monitors and investors, visibility in the marketplace”, Levakova (2012). Training is one of the most common strategies of support offered to start-ups and small enterprises, by business incubators, worldwide. Time spent in an incubation program and indeed the age of the incubator contributes to firm survival. Business incubators help start-ups in mentoring, financing, business training and developing business plan. Firm’s survival/failure, sales/revenue growth, employment/job creation, venture funding/capital and networking alliance in that order are the most used business performance measures used in business incubation research.

Other measures such as technology transfer, firm patents and R & D productivity are less used as measures of firm performance. On average, it takes about three to four years to incubate a successful enterprise, and if one would like to measure the viability and growth rate of the incubated firms one would have to wait at least another three or four years after graduation.