#06 innovation
Franz Dietrich

Stopping the "Brain Drain" in Developing and Emerging Nations

In industrialised countries, technology business incubators (TBI) have been around since the 60s. They are now on the rise in emerging and developing countries too. But why are TBI so important for people and the economy?

In 1959 the first business incubator was born quasi of necessity in Batavia, USA. The local government of that tiny city in New York State was no longer able to rent out a large industrial building, since the region lacked large enough firms. Those responsible wanted to make a virtue out of a necessity and support new businesses. So they decided to parcel up the commercial property and rent it out inexpensively to entrepreneurs and small, early-stage companies. One of the companies incubated chicken eggs, and so the business incubator name, according to the legend.

Over the next few years, this new instrument for promoting regional business came over to Europe, from where it spread via numerous know-how transfer programmes with bi-, multi- and supranational support to the west and east in particular, as far as China.

Throughout this process, the target groups and profiles continued to change and evolve. What began with a small industrial building and some chicken eggs has now become an established instrument for promoting innovation and technology commercialisation.

Most of the estimated 4,000 plus business incubators worldwide are technology business incubators (TBI), that is innovation, technology and start-up centres.

Low-risk and innovative environment

On a local level, technology business incubators support new, small technology-oriented firms that particularly focus on creating value. These centres of innovation offer a whole range of business support resources and services, from advising and assistance for young entrepreneurs, employee training, and infrastructure to start-up capital.

This means prospective business founders can realise their ideas in an environment that encourages innovation and entails little risk for the first two to three years. This opportunity and range of services lowers the inhibition threshold for starting a new company.

TBI are generally only one element of regional economic development, though. Higher education and research institutions, technology and research parks, centres of excellence and industrial spaces for other companies from similar branches all need to be developed to round out a TBI.

TBI can only be successful when they direct their technological focus on regional potential, integrating it into an overall strategy for regional development. This is why it makes sense to ensure that some TBI initiators (but not all) are political decision-makers who can assume responsibility for regional development. Further initiators and later institutions for TBI can include academic institutions, chambers, large firms that have decisively shaped the region, banks, unions or trade associations.

No profit – initially

With few exceptions, TBI cannot generate profit, and even reaching a high marginal return is often not possible. This is why sufficient financing over at least the medium-term is a precondition for founding and running a TBI. The German TBI model therefore prefers appropriately large properties financed by public funds that can then be used to general rental income. This income can then be used to cross-finance the other operating costs of a TBI.

In developing and emerging nations, though, this cross-financing option is rarely available. Sufficient co-financing of the operating costs must be secured before a TBI project is realised, such as through national support programmes.

The expectations of a TBI are often inaccurate (such as thinking of it as a different kind of applied research centre) or too high (such as expecting its impact to expand beyond a narrow region). It is therefore important to inform and sensitise possible supporters, initiators and future customers before planning a TBI.

Many advantages for developing and emerging nations

TBI have a special importance for developing and emerging countries, since they can help stop "brain drain" in general, and of young people in particular.

The argument is simple: for an entrepreneur, founding and owning a company in his or her own country is an economically worthwhile alternative to working for someone else abroad. Entrepreneurs have more responsibilities, of course, but also more freedom for self-development and realisation. New, young firms also generally serve local and regional markets at home and create deep roots in the region.

TBI close to universities can be incorporated into students' education plans early on, as start-up information seminars or business plan competitions, for example. The helps TBI consultants win students over early to the idea of founding a company in their own country instead of going abroad.

TBI also often have a multiplier effect: firstly, new businesses create new supplier and consumer relationships, which is to say that one company can encourage others to move to the region. Secondly, imitators often join as well, since successful start-ups often attract others on board.

The "pre-incubator" is another interesting instrument that is increasingly a part of TBI projects in developing and emerging nations. People interested in founding a business can get together with lecturers, technicians and consultants to translate technologically-oriented company ideas into business plans to test their feasibility.

In many emerging nations, business incubators also operate an "international section" (international business incubator). Foreign firms interested in the location can open an office there, which makes initiating contact between entrepreneurs and possible suppliers, customers or financial backers easier. These "subsidiaries" of foreign firms not only make contact easier; they also often create well-paid consulting jobs.

Examples of technology business incubators in South East Asia

The Business Incubator for South East Asia is an example of a well-functioning TBI project. Since 2003 the Deutsche Gesellschaft für Internationales Zusammenarbeit (GIZ) GmbH and its predecessor InWEnt (Capacity Building International) have supported the development of innovations and technology in Thailand, Indonesia, Vietnam and the Philippines. A multi-level training programme was developed comprising international conferences, workshops, on-site consulting services, individual coaching and an e-learning programme. With the help of this programme, the GIZ was able to support political decision-makers, regional and local implementers and representatives of universities in particular.

In these countries the GIZ always worked hand-in-hand with national partners, such as the Ministry of Science and Technology (MOST) in Vietnam. A training cycle lasted two to three years and consisted of four phases, where each phase expanded on the one before it. Initially those responsible for the project were particularly interested in sensitising all involved to the possibilities, opportunities and demands, but also the risks that a "business incubation system" brings. The next step was a feasibility study which was then (assuming a positive feasibility result) followed by the creation of a business plan. After the business plan was completed, training of the TBI management and the first customers began.

An additional "train the trainers" workshop, two publications for planning and operating TBI in English and Vietnamese and an interactive planning programme were created to ensure the sustainability of this project. In 2010 the BISEA project was successfully completed with a total of fourteen pilot TBI and numerous additional projects still in development.

One interesting example is the "Leather TBI" in Yogyakarta, Indonesia. This technology business incubator in a city at the heart of Indonesia responds to the rising number of Indonesian small businesses producing good quality leather products.

The young entrepreneurs who have established themselves here, primarily graduates of the university of the same name, not only take full advantage of the advantages a typical business start-up centre has to offer; they also have access to the know-how and infrastructure of the entire academic institution.

The "Business Incubator for I.T." in Cebu on the Philippines is another good example. CebuinIT is an initiative of the University of the Philippines Cebu an is located directly on the university's campus. The TBI addresses primarily entrepreneurs and early-stage firms active in software development.

The first and therefore oldest TBI project was developed as part of the BISEA Programme in cooperation with local partners is in Thailand: The Business Incubation Center (BIC) of the NSTDA in Bangkok, Thailand. It is also the most successful TBI to date. Over the last five years, over 400 business founders have used its services and upwards of 80 successful firms have been created. The BIC is located in the Thailand Science Park and as such offers good links to the research and application institutions also located there. Two universities are also in the direct vicinity.