Russian business incubator program - The functioning of business incubator organizations: legal...

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The purpose of this document is: TO ASSESS THE STRUCTURE AND PROCESS AND IDENTIFY THE PARAMETERS THAT WOULD ENSURE THE SUCCESSFUL IMPLEMENTABILITY OF A NATION WIDE BUSINESS INCUBATOR (BI)PROJECT IN RUSSIA INVESTIGATE THE PROSPECT DEVELOPMENT INCLUDING: 1) COMPETITIVE ANALYSIS OF BIMODELS AND PROCESSES - (SWOT); 2) SITUATION ANALYSIS OF BIIN CANADA,AND EU (CASE STUDIES); 3) EVALUATION OF BI GRADUATES PROCESSES AND FINDINGS AND; 4)ASSESSMENT OF SETTING UP AND OPERATING BI SUGGEST OBJECTIVES,DATES,CONSULTATION AND COLABORATION BETWEEN RUSSIAN AND CANADIAN TEAM S IN AN EIGHT MONTHS STRATEGIC PLANNING PROCESS

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Microsoft Word - Rus Business_Incubators_text.doc

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RUSSIAN BUSINESS INCUBATOR PROGRAM

PHASE ONE PROSPECT DEVELOPMENT & STRATEGIC PLAN

By: Michael Lazarowich

M. John Wojciechowski

Prepared For: Institute for the Economy in Transition

Moscow, Russia

School of Planning University of Waterloo

Waterloo, Ontario Canada April 18, 2002

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MISSION STATEMENT

TO ASSESS THE STRUCTURE AND PROCESS AND IDENTIFY THE PARAMETERS THAT WOULD ENSURE THE SUCCESSFUL IMPLEMENTABILITY OF A NATION WIDE

BUSINESS INCUBATOR (BI) PROJECT IN RUSSIA

INVESTIGATE THE PROSPECT DEVELOPMENT INCLUDING: 1) COMPETITIVE ANALYSIS OF BI MODELS AND PROCESSES - (SWOT);

2) SITUATION ANALYSIS OF BI IN CANADA, AND EU (CASE STUDIES);

3) EVALUATION OF BI GRADUATES PROCESSES AND FINDINGS AND;

4) ASSESSMENT OF SETTING UP AND OPERATING BI

SUGGEST OBJECTIVES, DATES, CONSULTATION AND COLABORATION BETWEEN RUSSIAN AND CANADIAN TEAM S IN AN EIGHT MONTHS STRATEGIC PLANNING

PROCESS

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EXECUTIVE SUMMARY While incubators have grown in numbers, the uneven performance and poor

sustainability in many situations have become serious issues with the governments and

sponsors who continue to subsidize many of them. There has been much recent interest in

identifying best practices that could then be used elsewhere. But these practices are

location-, culture- and time-specific, and can only be adapted to the conditions prevailing

in local situations.

The successful development of business incubation programs, often measured in terms of

impacts, effectiveness and sustainability, depend essentially on five inter-linked rings:

public policy, private partnerships, knowledge affiliations, professional networking and

community involvement. The successful mix of these ingredients however, is dependant

on the presence and identification of local assets, human skills and potentials.

Understanding the local assets-base is the most important factor in the successful

development of business incubation and yet it is often the least explored in the initial

stages of the project.

It is the purpose of this report to examine best practices of setting up and operating

business incubators. Hence the strategic plan is a form of blueprint for the proposed pilot

project, identifying the parameters, goals, and processes of business incubator

development. The investigation of these components is referred to as PHASE ONE. The

purpose of PHASE ONE is to investigate the prospect development, thus setting the

direction for initiating PHASE TWO the establishment of a Business Incubator Pilot

Project in Russia.

Finally, long-term and short-term objectives as well as potential stakeholders and funding

sources are identified within the proposed three-phased 8-month strategic action plan.

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OUTLINE OF THE PROSPECT DEVELOPMENT

This prospect development component of the report examines business incubators (BI) as

a component in the local strategy contributing to job growth and economic development.

The findings are subdivided into four sections: 1) Competitive analysis of BI models and

processes; 2) Situation analysis of BI in Canada and EU; 3) Evaluation of BI Graduates

processes and findings and; 4) assessment of setting up and operating BI. Each section

will proceed with an outline of the objectives and will conclude with a set of

recommendations.

The first section defines the term business incubator and examines the competitiveness of

the four legal forms of business incubators identifying the physical structure (formal vs.

virtual), their adequateness to a market niche, the type of tenants that the business

incubator will attract/retain, the predominant success factors and the benefits of the

incubator type to the local economy, the graduates and the business incubators

themselves. The section concludes with a summary of identified benefits from a

successful implementation of a business incubator for each of the stakeholders.

The second section will assess the magnitude, structure and effectiveness of different

incubators in US, Canada, EU. This section is based on a number of case studies from

secondary research conducted by the EU Commission, the National Business Incubator

Association (NBIA), as well as academic research. Special emphasis is placed on

strategies directed towards the business incubators graduates. Numerous cases studies

are used to report on the findings complimented by primary research of 2 incubators in

Canada. Furthermore this subsection assesses the monitoring techniques, and identifies

the data type that should be collected.

The third and final section assesses the process of setting up and operating a business

incubator. Size of the incubator, types and numbers of tenants, start-up and annual

operations costs, and funding sources are examined based on the EU Commission Report

(2002).

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1.0 THE COMPETITIVENESS OF BUSINESS INCUBATOR MODELS

Outline of Objectives

1. Define the generic business incubator model and its role in the entrepreneurial activity and local economic development

2. Examine the four legal structures of business incubators determining their structure, purpose, industry niche, tenant characteristics and success

variables

3. Clearly state the benefits of each model to the business venture, the various stakeholders, the business incubator and the local community/economy

1.1 Definition and Function of Business Incubators

Besides start-up capital, many new and growing businesses also need a place to do

business and to receive timely advice, as they face the challenges of starting a business.

Business incubators furnish both the physical location and the expertise that new

businesses need to get started. Business incubators assist emerging businesses by

providing various support services such as assistance in developing business and

marketing plans, building management teams, obtaining capital, and access to a range of

other more specialized professional services. In addition, incubators provide flexible

space, shared equipment, and administrative services. Firms generally remain in the

incubator for about two-and-one-half years, after which it is intended that they graduate

to become independent, self-sustaining businesses (NBIA, 1996).

Incubator facilities help new companies survive the critical early stages of development,

thus lowering the failure rate. They encourage entrepreneurship and minimize obstacles

to new-business formation and growth. Most incubator facilities and programs are

sponsored by one of four kinds of groups: public (non-profit), private (for-profit), private

(non-profit), or educational. Funding sources are drawn from any combination of

foundations, banks, venture capitalists, and all levels of government and government-

sponsored commissions. The following subsections will define the generic business

incubator model, examine the four types of incubator facilities identifying their unique

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organizational structure, the type of businesses they attract and the incubators benefits to

various stakeholders.

1.2 Components of a Generic Incubator

Although business incubators can take a variety of shapes, there is a basic form that the

typical generic incubator takes. Nijkamp (1988) identified some of the rudimentary

elements that makes the existence of a business incubator possible. Supported by a

number of studies in the literature, Nijkamp concludes that any type of business incubator

should include at least these elements to be present in the community. Figure 1 illustrates

Nijkamps (1988) interpretation of a generic business incubator. At the bottom is the

location of potential entrepreneurs with universities, corporations, the general

community, the public sector, research laboratories and inventors being the most likely

sources. The presence of a local entrepreneurial base or culture is perhaps the most

important the yet the most underestimated variable in the success of the business

incubator. The next phase of the process is the identification of market opportunities by

the entrepreneurs. Demand will then be created for an incubator and there are two main

types of incubators that may be established. They can be either formal or informal

facilities. A formal business incubator consists of a physical building that houses and

assists the small business clients through services and counseling. The informal type is

limited more to a consulting role, and businesses are not housed in a central facility. The

informal type of business incubators are today also known as virtual incubators or

without walls.

Smilor (1986) then identifies the building blocks necessary for an incubator. These

range from presence of venture capital in the community, to pre-existing business

networks and an entrepreneurial base. The presence of both debt and equity financing is

highly desirable and should be