Literature review (2000) 1.incubator

1.1 Definition of Incubator

The National Business Incubation Association (NBIA, 2005) defines a business incubator as “a business support process that accelerates the successful development of start-up and fledgling companies by providing entrepreneurs with an array of targeted resources and services.” The OECD (2010) defines technology business incubators as variants of more traditional business incubation schemes that assist technology-oriented entrepreneurs in the start-up and early development stages of their firms by providing workspace, shared facilities, and a range of business support services. According to the NBIA (2009), the first business incubator in the United States opened in Batavia, New York in 1959, but the concept did not become popular with other communities until the late 1970s. Today, it is estimated that there are over 3,500 worldwide (Knopp, 2012).

1.2 Classification of incubator

The National Business Incubation Association classifies incubator programs in various ways, with the primary distinction between non-profit and for-profit organizations. (Linder 2002). These are further split into three categories: (i) stand-alone incubators; (ii) incubators that are programs or departments of larger tax-except entities and operate within their tax status such as university or government-run incubators and (iii) incubators that work closely with other organizations whether for-profit or not-for-profit, to achieve their missions. Whereas non-profit incubation programs generally have missions that focus on economic development outcomes, most for-profit programs are set up to obtain a sizeable return on investments for their shareholders. The NBIA recognizes three major types of for-profit incubators, which are further categorized according to how investors anticipate obtaining a return on investment (Temali and Campbell 1984). The first type anticipates return on investment from rents and service fees. This type of incubator generally adds a few company development services to what is basically a package focused on office services and flexible real estate completes the job and leaves. The second type of for-profit program treats the incubator as a portfolio of investments and seeks returns on equity holding in start-up companies. Corporate incubators, the third type, seek benefits primarily from spinning out technologies or spinning in mental or medical innovations with strategies. Additionally, new hybrid models have married some of these elements.

NBIA also classifies business incubators by other characteristics including geography (urban, suburban and rural), founder (for example, university or college, government, economic development organization and corporation) and industry sector (technology, mixed-use manufacturing, services and ‘other’) (Molnar et al. 1997).

1.3 Function of incubator

At a macro level, incubators seek to promote job creation and economic development by linking talent, technology, capital, and know-how in an effective framework to foster the growth of new businesses (Smilor, Gibson, & Dietrich 1990). At the firm level, the incubator provides a value-adding support system for leveraging entrepreneurial agency, which typically includes a raft of tangible and intangible services to help the new venture get off the ground. Tangible services include shared, subsidized rental space, and office infrastructure, such as secretarial services and business/office equipment. Value added services in the form of in-house consulting and access to a network of support businesses specializing in marketing, business planning, legal, accounting, and other services are typically provided as intangible services. (Chandra, He and Fealey 2007). Incubators also provide technology-related support including technology transfer programs to their tenant firms (Abetti 2004). Further resources include services involving government grants and loans, general counseling and mentoring, access to external information and resources, and access to external business people (Abduh, D’Souza, Quazi, & Burley, 2007). All of which are recognized as valuable to incubatees and these value-adding support is expected to enhance the performance of the tenant firms and contribute to their successful graduation.

2.Measuring performance in an incubator

2.1 Effective factors of incubator performance

Numbers priors studies investigated the effective factors that contribute to incubators performance, the different is they chose different variables. Smilor (1987) investigated the critical success factors related to managing incubator system effectively and suggested the following: on-site business expertise, access to financing and capitalization, in-kind financial support, community support, entrepreneurial network, entrepreneurial education, perception of success, selection process for tenants, tie to a university, and concise program milestone with clear policies and procedure. Allen and Mc Cluskey (1990) investigated the relationship among incubator structure, policy, services, and performance. From this research, it is determined that only one other structure, policy, or services variable is required to explain business development outcomes. Mian (1994) examined the cases of six incubators in the United States that are sponsored by universities. He found that university incubators share similar characteristics but also have some unique features, which can be summarized along two dimensions (Bruton 1998). The first involves the characteristics of the incubators themselves, such as technology transfer and involvement of the private sector with the incubators. The second dimension of unique characteristics of university-sponsored incubators was the profile of the client firms of the incubators and how the incubator’s management interacted with those clients. He found that university- sponsored incubators typically conducted performance reviews of the tenants to ensure that they were performing as planned. Sherman (1999) examined the effectiveness of business incubation programs on helping startup businesses to survive and to grow. The results can be summarized with four implications. The first is that incubator managers and sponsors need to reach consensus regarding realistic outcomes their programs are trying to achieve. Second, business incubation programs can be an important part, but only one part, of an overall entrepreneurial development program. Third, sponsors need to recognize the importance of incubator management to the success of the incubation program. Finally, given the current political climate, incubation programs (as well as all economic development programs) need to do a better job in explaining and in justifying their programs. Hansen, Chesbrough and Sull (2000) suggested the “networked incubators,” which typically share certain characteristics. First, well-designed incubators maintain a sprit of entrepreneurship. To encourage that, they allow founding teams to retain significant ownership of their firms—usually 60 to 70 percent. Incubators also offer preferred rate and terms from top-tier service providers, enabling member companies to enjoy certain economies of scale. And they have preferential access to a network of companies. Park, Shin, and Han (1999) suggested that the following strategies are needed to operate the technology business incubator’s (TBI) efficiently: (1) A unified operating center is needed to solve problems of intermingled TBI supporting agencies; (2) An integrated supporting center is needed to collect and to dis- tribute information to each TBI through computer networking; (3) Consideration for cultural properties and kinds of business is needed for establishment and operation; and (4) The integrated TBI supporting center needs to include a capital network system for efficient fundraising and management. Lee, Kim, and Chun (1999) investigated the critical success factors to operate TBI effectively. Their classified critical factors include the following: (1) goal/strategy; (2) policy; (3) infrastructure of TBIs; (4) physical/human resources, and (5) internal/external networking. In this project, I generally use the variables of Lee, Kim, and Chun (1999) were chosen to set up model for measuring performance of incubator, and based on the real situation (means the information I could approach) to delete or add some factors that been mentioned before.

2.2 Mediating capabilities of incubator

Resources influence the performance of the incubator through mediating capabilities (Li, Lin, Wang, Lu, & Yin, 2010), with two important capabilities identified. The first involves the provision of professional services, using resources to provide a nurturing environment for incubatees and giving guidance, a capability we label as the incubator’s ‘integrated service capability’. The second involves the ability of the incubator to establish and use a network to support the incubatees, providing resources and allowing the firms to draw on this network to improve their development, a capability we label as the incubator’s ‘operating and networking capability’. (Wang, Lu, Lin, & Liao, 2010)

2.3 Measure performance of incubator

Since the outcome of incubation is multifaceted, there are a variety of measures of incubation outcome, such as the number or proportion of firms graduating from the incubator and the growth of these firms. A business incubator is a service provider that serves incubatees (start-up firms) so they graduate after the incubation period (Wang, Lin, Yin, Lu, & Cheng, 2008; Wang et al., 2008). Incubatees should exit after three to five years, with the graduation rate of incubatees and the success rate of incubatees providing two indicators of the service performance. (Luo & Bian, 2008).

Sarfraz A.Mian(1997)analyzed the elements of university image, facilities and human resources to the incubating enterprise value growth contribution, and established efficiency evaluation system of technology business incubators from the aspect of the continuity and growth of the projects, the survival and development of incubating enterprises, influence on university image, the complement of facilities and service of business incubators. K.F.Chan and Theresa Lau (2005) constructed incubator evaluation system (including resource gathering advantages, resource sharing, consulting services, public image, the network advantages, the cluster effect, location advantages, the cost of subsidies and financial support), and made an empirical research on the incubation process of a start-up business in Hong Kong Science and Technology Parks. Sung et al (2003) collected seven Korea business incubators data and applied statistical analysis of the “linear model” and “non-linear model” to the evaluation of business incubators.

Chinese scholars focus more on applying different methods of evaluation of the incubator efficiency on the basis of construction the index system. Liu Ninghui & Wang Xiaomin (2007) constructed performance evaluation system of science and technology business incubators, and made performance evaluation on the basis of the grey system theory with the data of five of Nanjing science and technology business incubator. Li Hengguang (2008) used AHP and fuzzy evaluation method to establish an evaluation model of comprehensive capacity of science and technology business incubators and it provided the basis for comprehensive ability evaluation of science and technology business incubators. Dai Bibo & Sun Dongsheng (2012) used DEA method to do empirical research on the operation efficiency of science and technology business incubators in Northeast China. Ying Qun & Zhang Jiao (2010) estimated the operation efficiency of business incubators in Yangtze River Delta region with DEA method, and put forward the efficiency improvement strategy of controlling inputs and output resource. Wang Jing & Wang Keyi (2012) made a technical efficiency evaluation on 140 national science and technology business incubators with DEA method, and drew a conclusion that the efficiency of business incubators are mainly affected by economic development, regional innovation level, the government public expenditure and intellectual support levels. Huang Hong (2013) did research on the operation efficiency and regional differences of 260 national science and technology business incubators with stochastic frontier analysis method, and put forward the countermeasures and suggestions of improving efficiency of business incubators. However, Chinese scholars focus on quantitative analysis rather than qualitative analysis, this project will through will interview with 11 incubator leaders in Heilongjiang province, China to find out the influence factors in the real context.

3.Incubators in China

While the number of business incubators began increasing substantially across the world in the 1980s (Link and Scott 2003), it was not until 1987 that science and technology business incubators (STBIs) were established in China, according to the Torch Center under the Ministry of Science and Technology. In China, almost all the STBIs are founded and operated by local governments and universities. Since most universities are state-owned, the STBIs are almost all government-supported incubators. The managers of the STBIs are quasi government officials appointed and paid by local governments or universities. The Torch Program, a part of the Ministry of Science and Technology, which was set up by the Chinese government to support the creation and growth of incubators in China in 1990s, has invested heavily in incubators through its line of “construction funds”. The government has several lines of dedicated funds to support incubation in the form of “construction” funds for incubators, “seed capital” funds for start-ups and “innovation” funds for small and mid-sized ventures that are in the growth phase of their life cycle. The Torch Center predicts that the total number of STBIs will reach 1,500 by 2016 and that they will nurture more than 100,000 technology-oriented start-up firms. As a result, incubators in China tend to be larger in terms of size and incubating capacity (Scaramuzzi 2002). The government viewed business incubators as a strategic tool for China’s transition to a high technology-driven market economy and hence was willing to invest large amounts of resources into these crucibles of entrepreneurship (Harwitt, 2002).

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