FOREWORD

ESCAP has been taking various initiatives to strengthen technological and industrial capabilities for
integrated development and promotion for SMEs and to promote cooperation among the economies of the region.
A new initiative for SMEs undertaken by ESCAP is the project, “Mechanism for Strengthening Technology
Incubation System for SMEs in Asia and the Pacific”.

Under this project, ESCAP has identified nodal agencies and representatives of participating countries to
take the responsibilities of promoting technology and business incubation. A survey based on questionnaires had
been undertaken to identify the current status of technology and business incubators and catalytic factors for
supporting and facilitating technology and business incubation which participating countries had initiated for
creating technology-based enterprises. A study mission was also undertaken by ESCAP to survey technology
incubation system in selected countries such as Malaysia, Singapore, Republic of Korea and Japan. The Regional
Consultative Meeting was held in Seoul, during 29-31 August 2000, to draw policy guidelines and recommendations
for creating technology-based enterprises through technology and business incubators.

ESCAP’s survey indicates that technopreneurs, national policies and financial support are most important
among the catalytic factors for supporting and proliferating technology incubation for technology-based enterprises.
Developed countries in general spend large amounts on national R&D, about 2-3 per cent of their GNP, out of
which 50-80 per cent is contributed by the industry. On the other hand, in developing countries, the total R&D
expenditure is generally in the range of 0.1 to 1.0 per cent. In absolute terms, these expenditures are even at
subcritical levels for meaningful R&D. It is implied that developing countries increase their R&D budgets for
creating technology-based enterprises, based on commercialization of their R&D outputs.

As the force of globalization intensify, knowledge and technological capabilities are becoming increasingly
crucial for national development in order to respond effectively to emerging challenges and opportunities. In an
increasingly competitive international trading environment, there is an imperative need for industrial restructuring
and strengthening of technological capabilities in developing countries. In order to mobilize the opportunities of
the technological resolution and cope with the challenges of globalization now upon us, member countries in
Asia and the Pacific have to develop new strategies to stimulate innovation and entrepreneurship. In this regard,
ESCAP will continuously develop technology and business incubation programmes to promote efficiencies and
competitiveness of SMEs. ESCAP will also support and facilitate national initiatives towards an enabling policy
framework for the development and promotion of technology and business incubators.

It is expected that this document will contribute to greater awareness and understanding of the issues
concerning technology and business incubation and that the recommendations presented will assist policy makers
in these efforts to formulate and implement national policies and programmes, effectively and efficiently.

Finally, I would like to take this opportunity to express my deep appreciation to the Government of the
Republic of Korea for generously funding this project and hosting the Regional Consultative Meeting in Seoul,
and providing NRL expert, Mr Song Woo-Geun who has initiated and successfully implemented this project as
the project coordinator.

Kim Hak-Su
Executive Secretary
ESCAP

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 ABBREVIATIONS

ACP Association for Craft Producers

AMF Asian Monetary Fund
APCTT Asian and Pacific Centre for Transfer of Technology
ARD American Research Development
AVM Advanced Venture Management
BDS Business Development Service
BEPG Board Economic Policy Guidelines
BI Business Incubator
BIC Batavia Industrial Centre
BICs Business Innovation Centres
BTDS Business and Technology Development Strategies
CAE Chinese Academy of Engineering
CAS Chinese Academy of Sciences
CDA Capital Development Authority
CDC Council for Development of Cambodia
CEO Chief Executive Officer
CHED Commission on Higher Education
CIB Cambodian Investment Board
CITI Clothing Industry Training Institute
CITs Countries in Transitions
COMPETE Comprehensive Programme to Enhance Technology Enterprises
COTAC Competitive Technology Assessment Centre
CRDB Cambodian Rehabilitation and Development Board
CSC Commonwealth Science Council
CTEVT Council for Technical Education and Vocational Training
CTs Critical Technologies
DAGS Demonstrator Application Grant Scheme
DECS Department of Education Centre and Sports
DFCC Development Finance Corporation of Ceylon
DNA Deoxyribonucleicacid
DOI Department of Industry
DSIR Department of Scientific and Industrial Research
EDB Economic Development Board
ESCAP Economic and Social Commission for Asia and Pacific
ESEP Engineering and Science Education Programme
FDIs Foreign Direct Investments
GNP Gross National Product
GRI Government Research Institute
GRIs Government-supported Research Institutes
GSP General System of Preference

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GTH Gifts, Toys and Houseware
HAN Highly Advanced National
HDI Human Development Index
HIC Hanamaki Incubation Centre
HSDP High Speed Data Communications
HTC High-Tech Complex
HTV High-Tech Venture
HTVC High Tech Venture Centre
IBI International Business Incubators
IC Innovation Centre
ICICI Industrial Credit and Investment Corporation of India
ICT Information Communication Technology
IDA Info-Communication Development Authority
IDB Industrial Development Board
IESC International Executive Service Corps
IFCI The Industrial Finance Corporation of India
IGS Industry R&D Grant Scheme
IIT Indian Institute of Technology
IMCs Incubator Management Companies
IMF International Monetary Fund
INTET International Network for Transfer of Environment
IPO Initial Public Offering
IPR Intellectual Property Rights
IRPA Intensification of Research and Priority Area
ISO International Organization for Standardization
IT Information Technology
ITBI International Technology Business Incubator
ITI Industrial Technology Institute
JANBO Japan Association of New Business Incubation Organizations
JICA Japan International Cooperation Agency
KAIST Korea Advanced Institute of Science and Technology
KAP Kazusa Academia Park
KERIS Korea Education and Research Information Service
KGSM Korea Advanced Institute of Science and Technology Graduate School of
Management
KINITI Korea Institute of Industry and Technology Information
KIPRIS Korea Industrial Property Rights Information Center
KIST Korea Institute of Science and Technology
KOBIA Korea Business Incubators Association
KOSDAQ Korean Securities Dealer Automated Quotations
KRIBB Korea Research Institute of Bioscience and Biotechnology
KRP Kyoto Research Park
KSP Kanagawa Science Park

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KTAC Korea Technology Advancement Corporation
KTB Korea Technology and Banking
KTDC Korea Technology Development Corporation
KVA Korea Venture Association
M&A Merger and Acquisition
MDC Multimedia Development Corporation
METI Mechanism for Exchange of Technology Information
MFN Most favoured Nation
MIME Ministry of Industry, Mines and Energy
MIT Massachusetts Institute of Technology
MITI Ministry of International Trade and Industry
MOCIE Ministry of Commerce, Industry and Energy
MOID Ministry of Industrial Development
MOST Ministry of Science and Technology
MOSTE Ministry of Science Technology and Environment
MPEX Manufacturing Productivity Extension Programme for Export Promotion
MRC Multimedia research centre
MSC Multimedia Super Corridor
MSTQ Metrology, Standards, Testing and Quality Assurance System
MTDC Malaysian Technology Development Corporation
MTIR Ministry of Trade, Industry and Resources
MUST Manpower Upgrading for Science and Technology
NAITA National Apprentice and Industrial Training Authority
NBIA National Business Incubator Association
NBSM Nepal Bureau of Standard and Metrology
NCSRD National Council for Scientific Research and Development
NDB National Development Bank
NEA The National Exporters Association
NERDC National Engineering Research and Development Centre
NGO Nongovernmental Organization
NIBM National Institute of Business Management
NIDC Nepal Industrial Development Corporation
NIE National Institute of Electronics
NRCP National Research Council of the Philippines
NRs Nepalese rupees
NS Nepal Standard
NSDB National Science Development Board
NSTA National Science and Technology Authority
NSTB National Science and Technology Board
NSTEDB National Science and Technology Entrepreneurship Development Board
NTSFC New Technology Supporting Financing Company
PEZA Philippine Economic Zone Authority
PQLI Physical Quality of Life Index

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PRs Pakistan rupees
PSB Productivity and Standards Board
PSP Private Sector Programme
RACORD Regional Association for the Commercialization and Application of R&D results
R&D Research and Development
RBI The Republican Business Incubator
RECAST Research Centre for Applied Science and Technology
RM Malaysian Ringgit
RNA Ribonucleicacid
RONAST Royal Nepal Academy of Science and Technology
S&T Science and Technology
SBFC Small Business Finance Corporation
SBMA Subic Bay Metropolitan Authority
SCI The Sabarangamuwa Chamber of Industry
SDF Skills Development Fund
SE Small Enterprise
SHIBI Shanghai International Business Incubator
SIDBI Small Industries Development Bank of India
SIRIM Standards and Industrial Research Institute of Malaysia
SLBDC Sri Lanka Business Development Centre
SLIIT Sri Lanka Institute of Information Technology
SLIM Sri Lanka Institute of Marketing
SLSI Sri Lanka Standards Institution
SMAP Small and Medium Enterprises Assistance Project
SMB Small and Medium sized Business
SMED Small and Medium Enterprise Developers
SMEDA Small and Medium Enterprises Development Authority
SMEESA Small and Medium Enterprises Establishment Support Act
SMEs Small and medium scale enterprises
SMI Small and Micro Industry
SMILE Small and Micro Industries Leader and Entrepreneur
SMQC Standardization, Metrology and Quality Control
SOEs State-Owned Enterprises
SPB Standards and Productivity Board
SSP Singapore Science Park
SSI Small Scale Industries
SSTC State Science and Technology Commission
STA Science and Technology Agenda
STAND Science and Technology Agenda for National Development
STDB Science and Technology Development Board
STEP Science and Technology Entrepreneurs Park
STEVPP S&T Experts Volunteer Pool Programme
STIC The Shanghai Technology Innovation Centre

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STMP Science and Technology Master Plan
STP Software Technology Park
TACDPAP Technical Consultancy Development Programme for Asia and Pacific
TAPI Technology Application and Promotion Institute
TBI Technology Business Incubators
TBI-TIC Technology Business Incubator-Technology Innovation Centre
TBT Technical Barriers to Trade
TCDPAP Technical Consultancy Development Programmes for Asia and Pacific
TDCs Technology Development Clusters
TDICI Technology Development and Information Company of India
TESDA Technical Education and Skills Development Authority
TEVT Technical Education and Vocational Training
TI Technology Incubator
TIC Technology Innovation Centre
TIF Technopreneurship Investment Fund
TIPS Technology Initiative for the Private Sector
TLOs Technology Licensing Organizations
TNCs Transnational Corporations
TPM Technology Park Malaysia
TRIPS Trade Related Intellectual Property System
TST Taeduk Science Town
UKM Universiti Kebangsaan Malaysia
UM Universiti Malaya
UNDP United Nations Development Programme
UNFSTD United Nations Fund for Science and Technology Development
UNIDO United Nations Industrial Development Organization
UPM Universiti Putra Malaysia
USAID United States Agency for International Development
UTI Unit Trust of India
VCCI Viet Nam Chamber of Commerce and Industry
VCCs Venture Capital Companies
VCTI Virtual Centre for Technology Incubation
VTA Vocational Training Authority of Sri Lanka
WAN Wide Area Networks
WEAN Women Entrepreneurs’ Association of Nepal
WTO World Trade Organization
YESL Young Entrepreneurs of Sri Lanka

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 PART ONE
REPORT OF THE REGIONAL CONSULTATIVE MEETING
ON STRENGTHENING TECHNOLOGY INCUBATION SYSTEM
FOR CREATING HIGH TECHNOLOGY-BASED ENTERPRISES
IN ASIA AND THE PACIFIC

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 I. ORGANIZATION OF THE MEETING

The emergence of new technologies has significantly changed the nature and scope of industrial
competitiveness. Competition has been increasing and the need for improving technological and innovative
capabilities has become urgent to meet the requirements of international competitiveness.

In a knowledge-based economy, technology venturing is a key factor of internationally comparative

advantage in industry. Recently, technology venturing through incubator activity is emerging and has become
a useful strategy to improve international competitiveness. Business incubator, which bred and nurture enterprises,
has become an important instrument in the creation of new enterprises and jobs. In particular, technology
incubator which plays a role of accelerating commercialization of R&D outputs and transfer of technology has
contributed to start-ups of high technology-based enterprises in the newly industrializing economies.

However, an incubator by itself is not enough for business as it is necessary and essential to provide
business/technology incubation system to create and sustain competitive enterprises at a national level. Keeping
those perspectives in mind, the ESCAP secretariat with the generous financial assistance provided by the
Republic of Korea, organized the Regional Consultative Meeting on “Strengthening Technology Incubation
System for Creating High Technology-based Enterprises” in Seoul, during 29-31 August 2000. The meeting was
held in cooperation with the High-Tech Venture Center/Korea Advanced Institute of Science and Technology
(HTV/KAIST), the Republic of Korea.

A. Objective

The objectives of the meeting were as follows:

(a) To review policy guidelines, best practices, methodologies and constraints to establish effective
and efficient technology incubators which will help entrepreneurs set up and develop small
technology-based enterprises in various national economies and suggest models for various levels
of economies in the region.
(b) To assess the determinants of success and failures and study their impact in forging R&D
community-industry relationships in selected countries.
(c) To evolve suitable mechanisms for strengthening networking and cooperation among relevant
institutions/agencies.

B. Attendance

The meeting was attended by senior officials of Governments and representatives of the private sectors
from the following countries: Cambodia, China, India, Malaysia, Nepal, Pakistan, Philippines, Republic of
Korea, Sri Lanka, Tajikistan, Uzbekistan and Viet Nam participated at the three-day meeting. The list of participants
is attached as Annex-I.

Resource persons from Germany, Japan, the United States of America and Asian and Pacific Centre for
Transfer of Technology (APCTT) also participated.

C. Election of officers

The meeting elected Mr Kim Ji-Soo, Professor, Graduate School of Management, Korea Advanced Institute
of Science and Technology (KAIST), as Chairman, Mr P.K.B. Menon, Advisor, Department of Science and
Technology, Ministry of Science and Technology, India, as a Vice-Chairman, and Ms Maripaz L. Perez, Director,
Technology Application and Promotion Institute, Department of Science and Technology (DOST), Philippines,
as a rapporteur.

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 D. Opening session

The meeting was opened by Mr Jun Eui-Jin, Deputy Minister of Science and Technology, Republic of
Korea. In his opening address, Mr Jun welcomed the participants and delivered his statement. He emphasized
the importance of high technology-based venture businesses which are involved in commercialization of scientific
and technological innovations. He added, the Government of the Republic of Korea provided the long-term plan
for S&T development. The Republic of Korea prepared a fundamental legal framework for S&T development
and promotion. In addition, to secure competitive high technologies, the Republic of Korea has initiated national
R&D projects in such areas as information, mechatronics, energy, environment, new materials, and bioengineering.
To support these ambitious projects, the Republic of Korea will increase the share of the Government budget for
R&D from the current 4.1 per cent to 5 per cent by 2002. He also promised that the Republic of Korea will be
an active participant in follow-up projects to assist member countries in strengthening technology incubation.

Mr B.P. Dhungana, Chief of Industry Section, International Trade and Industry Division, ESCAP
communicated the message of Mr Kim Hak-Sue, Executive Secretary of ESCAP, and welcomed the participants
to the meeting. He thanked the Government of the Republic of Korea for the excellent host facilities and
cooperation in organizing the meeting. He also thanked Mr Jun Eui-Jin, Deputy Minister of Science and
Technology, for having inaugurated the meeting despite his busy schedule and the Government of the Republic of
Korea for having provided generous financial assistance to ESCAP to undertake the meeting. He further thanked
Mr Choi Duk-In, the President of the Korea Advanced Institute of Science and Technology (KAIST), for having
played a vital role in organizing this event in Seoul. He further pointed out that knowledge and technological
capabilities are becoming increasingly crucial for national development in order to respond effectively to emerging
challenges and opportunities. In an increasingly competitive international trading environment, there is a need
for industrial restructuring and strengthening of technological capabilities in developing countries.

In this connection, strengthening and promoting technology venturing through incubation programmes
for new technology-based enterprises is necessary to survive in a competitive society. He recommended out that
R&D expenditures of developing countries should be increased up to more than 2-3 per cent of their GNP, which
advanced countries spend on their national R&D projects. He concluded by saying that, based on the findings of
the study and the recommendations of this meeting, ESCAP will, through a follow-up project, support and
facilitate national initiatives towards a conducive policy framework for the development of physical infrastructure
of technology and business incubators, technical entrepreneurship, innovative financing support-system and
formulation and implementation of R&D projects for business incubation.

In his welcome statement, Mr Choi Duk-In, President of KAIST, pointed out that in an era of
knowledge-based economies, venture companies play a key role in improving internal and international
competitiveness in industry. Technology venturing through incubator activities is regarded as an important tool
for the commercialization of R&D outputs and transfer of technology. He hoped that the meeting would not only
suggest effective and efficient models for technology incubation for various levels of economies in the region but
come up with a suitable mechanism for strengthening networking and cooperation among relevant institutions.

Mr B.P. Dhungana delivered a vote of thanks. He stressed the importance of technology and business
incubation for creating high technology-based enterprises. He pointed out that developing countries should make
efforts to acquire industrial technologies for products to compete with other competitors in international markets.

E. Programme

The meeting adopted an agenda and a programme for its deliberations, which is attached as Annex II to
the report.

II. CONSIDERATION OF ISSUES

After the inaugural session, there were presentations on the following issues:

(a) Strengthening Technology Incubation System for Creating High Technology-based Enterprises in
Selected Countries (Malaysia, Singapore, Republic of Korea and Japan).

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 (b) German Experiences on “Technology Incubation System for Creating High Technology-based
Enterprises” in Germany.
(c) Japanese Experiences on “Technology Incubation System for Creating High Technology-based
Enterprises” in Japan.
(d) United of America’s Experiences on “Technology Incubation System for Creating High
Technology-based Enterprises”.
(e) Project Selection, Monitoring and Evaluation for Technology Incubation in developing countries.
(f) The experiences of the Republic of Korea in venture capital, venture business and technical
entrepreneurship development.

In addition, there were presentations on the experiences of the following countries: Cambodia, China,
India, Malaysia, Nepal, Pakistan, Philippines, Republic of Korea, Sri Lanka, Tajikistan, Uzbekistan and
Viet Nam.

There were presentations on “Strengthening technology incubation system for creating high
technology-based enterprises in selected countries”. It was pointed out that:

(a) In Malaysia, Technology Park Malaysia (TPM) is an independent real estate driven entity under
the Ministry of Science, Technology and Environment, and is currently operated as a public company with
government grants. Malaysia Technology Development Corporation (MTDC), under the Ministry of Trade and
Industry, is promoting Technology Development clusters in universities with focus on specialization related to
that of the university or high tech areas such as electronics and biotechnology. It has set up a public company to
manage and operate these incubators or technology development clusters. Multimedia Development Corporation
is also promoting information technology related incubators and their networking. Private involvement is limited.

(b) In Singapore, Science and Technology Development Board, Standards and Productivity Board, and
Economic Development Board are the main government agencies promoting technology incubators and
technopreneurs in new and high technologies, with and without private participation. Several laws and procedures
are being simplified or relaxed to attract bright technopreneurs, including foreigners, and new financing mechanisms
are being evolved. Singapore Science Park is a large real estate driven activity to promote national and international
high tech companies and businesses including R&D institutions.

(c) The Republic of Korea has taken several initiatives to promote various types of technology incubators
including those located in S&T parks or science towns or at industrial clusters or near the universities/R&D
institutions. It is estimated that there are about 300 incubators promoted or in pipeline at present. Attempts are
being made to evolve new financing support measures for the incubators/incubatees such as venture capital,
angel investors, etc. Various economic ministries including Ministry of Science and Technology, are engaged in
development of incubators and in attracting young and bright technopreneurs and foreign R&D institutions.

(d) In Japan, there are about 140 science parks and 40 incubators. Japanese incubators do not function
to hatch new corporations but rather nurture hatched corporations and also enable SMEs that have nurtured to
develop new businesses. Both the purpose and function of a Japanese incubator differ greatly from incubators in
Europe or the United States of America which are intended for entrepreneurs newly establishing a corporation.
However, recent initiatives are towards new SMEs, employment creation and also industrial restructuring besides
creating new credit and financing mechanisms including venture capital and new stock exchange systems.

(e) Germany started its business incubation in 1983 in Berlin with the opening of the Berlin Innovation
and Business Incubation Center. Now Germany has more than 350 centres and parks in all Federal States of
Germany. More than 10,300 technology-based enterprises with about 70,000 employment, are involved in
technology incubators. More than 2,300 technology-based enterprises have already graduated from technology
incubators.

(f) Business incubators originated in the United States of America and have proliferated most rapidly
there. The origins of the idea can be traced to 1942, when Student Agencies Inc., in Ithaca, N.Y., began
incubating student companies. In 1946, the first incubator outside the student community was created by American
Research Development (ARD), started by several MIT alumni, to supply risk capital to New England entrepreneurs.
In 1959, Charles Mancuso and his family purchased the Batavia Industrial Center (BIC) in New York state and

5
used this former factory warehouse to create jobs in an economically depressed small town. It was only in the
1960s that incubators began to develop. Growth accelerated in the 1970s and 1980s largely as a result of the
need to revitalize regions suffering from job losses in basic industries. The 1990s have witnessed further
development of incubators throughout the country. Starting in 1996 and gathering momentum in 1998, a new
kind of incubator, variously called an “Internet incubator”, “accelerator” or “venture catalyst”, made its appearance.
Recent growth in the American incubator industry has been driven largely by these Internet incubators.
The network of 800 incubators (including about 550 traditional incubators and 250 Internet incubators) is up
from 12 in 1980 and is the largest in the world. Internet incubators are driving new growth, with more than
a hundred established in 1999 and early 2000 alone. According to the National Business Incubator Association’s
(NBIA) survey of its member firms:

◆ 40 per cent of incubators are technology focussed; 30 per cent are mixed use, accepting a wide
variety of clients; and the remainder focus on service, light industrial and niche markets or on
assisting targeted populations
◆ 75 per cent of incubators are nonprofit and 25 per cent are for-profit
◆ 45 per cent are urban, 36 per cent are rural and 19 per cent are suburban.

Based on the above findings and secondary papers, the definitions of business and technology incubators
were presented as follows. However, the definitions are very broad and general and vary from country to country
or even in the same country.

(a) Business incubators are to promote continuous regional and national industrial and economic
growth including increasing employment through general business development or stimulating specific economic
objectives such as industrial restructuring and wealth generation or utilization of resources. The incubator
combines a variety of small enterprises support elements in one integrated affordable package. It has a special
niche, i.e. nurturing early stage, growth-oriented ventures, through focussed assistance within a supportive
environment. A “third generation system” termed as “International Enterprise Centre” is reported to be emerging
to bring under a single aegis the full range of support services for the development of knowledge-based business,
with linkages to universities, research institutes, venture capital and international joint ventures.

(b) Technology Incubators (TI) are to bolster the technology development stage. This type of incubator
aims to complete technological ideas for technologies under development. However, in practice, the primary
goal of technology incubators is to promote the development of technology-based firms, and assist in completion
of the technologies under development. These are located at or near universities, R&D institutes, and Science
and Technology parks. They are characterized by institutionalized links to knowledge sources including universities,
technology transfer agencies, research centres, national laboratories and skilled R&D personnel. The aim is also
to promote technology transfer and diffusion while encouraging entrepreneurship among researchers and academics.
Technology incubators, in practice, are a variant of business incubators, and combine broadly the functions of
technology business incubator and innovation centre.

(c) Technology Innovation Centres (TIC): The TICs conduct research and development (R&D) and
technology innovations required by the industrial field, which aims to jointly invest resources into university
campuses or research institutions and achieve commercialization with support from business enterprises or public
institutions. As a concept the TIC is similar to that of the Technology Parks, and, at the R&D stage, to the TI.

(d) Technology Business Incubators (TBI): The TBI is a venture of universities, public research
institutes, local government and private institutions to promote and bolster a new technology intensive enterprise.
The TBI is different from TI or TIC in that it supports the commercialization of previously developed technology;
that is, the start up activities of an enterprise. It differs from general BIs in that it concerns technology-intensive
or high tech business.

The stated good practices include: strong and deep commitment of the promoters, well defined objectives
and missions, recruitment of competent and dynamic management team and constitution of an advisory committee
of members from promoting organizations, focus on cluster based technologies, selection of tenants according to
‘needs’ and ‘fits’ with set criterion including residency time, tailor and leverage existing services, diversified
sources of finances, shared experiences and improved evaluation mechanisms.

6
 The various catalytic factors for supporting and expediting technology incubation for high technology
based enterprises include: well coordinated implementable national policies including S&T, industrial, trade &
commerce, and finance policies; strong R&D institutions and capabilities including researchers and academia;
larger investments in R&D including liberalized tax structure and grants, technical entrepreneur development
programmes and incentives; innovative financing support system including venture capital, angel investors;
specialized and liberalized stock exchange systems for high tech enterprises; intellectual property assistance and
professional services including legal and technical consultancy services; development of S&T parks, establish
next of strategic business alliances and networking, and support for standardization, quality management and
marketing etc. The nature of these factors will vary with the stage of development and national objectives.

Research parks and S&T parks are integrated large facilities, mostly real estate development-driven and
located in or near major universities or R&D institutions. They are mostly promoted and supported by the
national governments along with regional or local development agencies. Easier availability of financial grants
and investments and loans on soft terms is a major attraction to the tenant corporations or organizations which
are usually large and even TNCs or other foreign companies. Technology incubators are usually a part of the
S&T parks or linked organically and are capital intensive.

The total R&D expenditures range from about 0.1 per cent to 3 per cent or even more of GNP in
different groups of countries. The absolute amounts of national R&D expenditure are sub-critical in several
countries, and may sometimes be less than R&D expenditures of a TNC in advanced countries. Further, the
corporate R&D expenditures are much lower (about 20 per cent) than those of the governments (about 80 per
cent) in most of the developing countries. Also, the quality of support infrastructural facilities such as
communications, transport, roads, education, financing institutions, etc. widely vary among various groups of
economies, and influence the technology incubator activities as well as the quality and levels of technopreneurs
or technology-based enterprises. Thus, the models of incubators in different groups of economies have to be
necessarily different.

Besides development of high-tech enterprises in areas such as information technology, computer software,
internet and e-commerce, biotechnology, microelectronics, etc., it is necessary to apply new technologies to
revitalize the existing enterprises including SMEs in the traditional economic sectors and to promote new enterprises
based on natural resources or comparative advantages. Also, the industrial clusters and industrial estates etc.,
which have come up over the years in various countries, need to be vitalized or reoriented through appropriate
models of technology incubators located therein with their connectivity to the larger incubators or S&T parks. In
many countries, such as India, Republic of Korea or even Japan, old corporations are reorienting their strategies,
including privatization of public sector companies, and adopting Voluntary Retirement Scheme (VRS) etc. to
reduce the strength of their employees. This is creating unemployment in the society. Also technopreneurs who
have vast managerial and technical experience and capabilities, have worked in senior positions, and are willing
to start their own enterprises need initial support to become technopreneurs. At the same time, new generation
young technopreneurs are emerging who also need to be encouraged and supported. Thus, the strategies for
technology incubators would be different for different groups of economies and targets in the region.

In view of the above, the objectives, models and practices for technology incubators have to be flexible
and varying to meet specific needs ranging from simple business incubators in least developed countries or island
developing and transition economies countries or even some of the developing countries to more sophisticated
stand-alone technology incubators or an integral part of a technology park in industrially advanced countries.
They may be of general type in least developed or some of the developing countries and highly focussed sector
wise in developed countries or a mix of the above models. It is unlikely that there would be many researchers or
researchers/academia needing sophisticated technology incubators in least developed or some of the developing
countries. Industrializing countries are attempting to create such capabilities in their R&D and university systems.
The immediate problem in many of the developing countries or least developed countries is to revitalize and
restructure local industries, including SMEs, and create employment through development and applications of
new and high technologies in traditional sectors besides taking advantage of the opportunities for developing
high tech enterprises in computer software, bio-technology, and information technologies etc. Industrially advanced
countries and industrializing countries are focussing on establishing their technological leadership in selected
sectors and consequently promoting high-tech corporations through technology incubation systems on a global
basis.

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 Keeping in view the S&T capabilities, financial resources, and the needs arising out of the globalization
of economies and internationalization of trade and R&D, to revitalize the core sector capabilities already built, to
provide employment and assist industrial and tiny sector clusters etc., in industrializing and developing countries,
least developed countries, island developing countries, and transition economies following models of technological
incubators are suggested:

(a) Well-equipped technology incubators at or near universities/R&D institutions as independent entitics

but closely networked with knowledge sources. They could be “general” or specific to the expertise of the
concerned university/R&D institution and integral to S&T parks.

(b) Virtual incubators or “open wall” type incubators located at or near industrial clusters of SMEs or
at the concentration of tiny sectors or in rural areas.

(c) Incubator Management Companies identified by the government and interested in technology
incubation programmes with R&D grants and venture capital etc. from the government or jointly with private
corporations.

(d) International technology incubators to globalize and internationalize R&D and encourage transfer
of technology with or without foreign direct investments.

(e) Each country will, however, have to evolve its own model/models depending upon its own need,
capabilities and resources.

III. CONCLUSIONS AND RECOMMENDATIONS

In developed and advanced developing economies, technology incubators have played a critical role in
developing ideas, technologies and innovations from R&D and academic institutions and in-house R&D units of
corporations, including TNCs, and converting these to commercially viable high-tech enterprises. Technology-
based entrepreneurs or technopreneurs have been nurtured and supported in their early stages of development
through various types of services available at the technology incubators. However, the models, services and
practices in TIs vary widely from country to country and even within the same country.

In advanced developing countries and newly industrializing countries such as Republic of Korea,
large, integrated and well-equipped technology incubator complexes, that are high-tech sector specific, may be
promoted in addition to developing the existing incubator facilities. In other developing countries, simple business
incubators to technology business incubators or, preferably, technology incubators may be promoted to support
technology-based enterprises or promote commercialization of selected technologies from academic and R&D
institutions. These facilities may be subsequently upgraded with advanced facilities later to address the more
complex needs of high-tech and sector specific companies. Foreign R&D institutions and corporations, including
TNCs, may also be encouraged to take advantage of these facilities through collaborative projects and/or activities.
Development of technology incubator management skills, availability of innovative financing mechanisms and
financial grants, support in marketing and IPR issues including patenting, etc. are some of the important key
factors that should be considered. Development of stronger S&T infrastructure facilities and S&T manpower are
needed on a long-term basis. ESCAP and other international developmental organizations have an important role
to play in the above programmes.

Government

The development of technology incubators should be explicitly included as an objective in S&T policies
to promote and nurture high technologies and high technology based enterprises. Technopreneurs and specific
financial outlays to be provided may also be indicated. At present, the promotion of technology incubators is
generally implicit.

In some countries such as Republic of Korea, Singapore and Malaysia, a number of ministries/departments
are involved in the promotion of technology incubation systems. There is a need for well-coordinated and
complementary efforts with clear distinction of the responsibilities of each agency. Similarly, various policies
related to the incentives, tax structure, real estate development, operations, skill-development and human resource
development programmes and development of SMEs, among others, should be evolved in consultation with

8
technology incubator promotion agencies. State governments and local bodies should be fully involved in these
efforts preferably in encouraging them to be active stakeholders. Consortia approach could be useful and should
be reviewed.

In developed countries, the focus should generally be on nurturing new technologies of generic nature
through sector specific incubators mostly located in or near a university or an R&D institution, with the ultimate
objective of developing more successful SMEs and new TNCs. Economies in transition and developing countries
may, however, need to develop generalized technology incubators and sector specific incubators to support the
restructuring of traditional economic sectors, including industrial clusters and estates, besides commercializing of
new technologies and supporting technopreneurs. In least developed and island developing countries, initial
focus may be on the development of simple business incubators with technology as a central theme and located
in industrial estates and/or industrial clusters.

Closed wall type of TIs, equipped with integrated and sophisticated S&T facilities near a scientific/
academic institution or as an integral part of technology parks, may be desirable in developed countries. In
developing countries, open wall type or virtual incubators with access to R&D facilities and support services
including professional services, requiring minimum investments may be more practical. In fact, with the availability
of modern information technologies and communication facilities, virtual incubators may be suitable even in
developed or industrializing countries and can be widely dispersed all over the country. The “Incubator Management
Companies” (IMCs) concept of Singapore may be considered to nurture high technology based enterprises in
other countries.

Once the objectives, location and models are defined, the government and the promoting partners should
constitute an advisory committee and select a dynamic and professional expert as chief executive to implement
best management practices. The sustained commitment of the government and management team is extremely
necessary, as is ensuring the availability of adequate financial grants/support to the incubators and their incubatees.

Incubatees and graduated enterprises should be given preference in R&D grants, liberalized tax laws,
government purchases, low cost loans, etc. New mechanisms should be evolved and encouraged to finance
activities such as venture capital, angel investors, specialized stock markets and listing arrangements, patents and
technology auctions, patent insurance, etc. Use of information tools such as internet, websites, e-commerce, etc.
should be encouraged.

National R&D expenditures, both public and private, should be enhanced continuously so that R&D
facilities and expertise in universities and R&D institutions are strengthened and researchers/academicians are
encouraged to become technopreneurs. Patentable R&D should be encouraged. Similarly, young technopreneurs
should be trained and supported to nurture their technology based businesses. Mechanisms need to be evolved to
cover or share the risks in high-tech businesses. Some of the R&D institutions may be privatized as in Japan.

International Technology Business Incubators (ITBI) should be encouraged to attract foreign R&D
institutions and companies including TNC. Local technopreneurs should also be encouraged to go abroad and
undertake collaborative contract research to enhance accessibility to international R&D systems. Collaborations
and partnerships among and across countries should, therefore, be encouraged.

Government should support and encourage the setting up and networking of Technology Incubator
Associations within the country and outside. Exchange of experiences, organization of trade fairs and exhibitions
for technologies and products of incubatees at national and international levels could be encouraged. Since
incubatees and graduated companies are generally small with limited resources, such activities could assist them
in marketing their products and promoting cooperation.

Inward and Outward Foreign Direct Investments (FDIs) for SMEs with related technology transfers
should be encouraged through TIs that may even be involved, albeit technically in the selection and acquisition
of technologies.

Concerted efforts should be made on long term basis to develop trained and skilled manpower. Mobility
of S&T personnel between industry and R&D institutions should also be encouraged.

Intellectual property systems including patent literacy, search and filing facilities should be encouraged
through training etc. Financial support could also be given to enable companies to file patents abroad through
the TIs.
9
 Incubatees and graduated enterprises should be encouraged and supported to obtain international
certification such as ISO 9000 and ISO 14000, quality management and energy conservation, etc. In fact, TIs
themselves should be encouraged to obtain such certifications.

Technology assessment and forecasting services and other technology related information systems should
be available to TIs and tenants. TIs can advise SMEs and corporations in legal and technical matters related to
technology transfer and joint ventures or collaborative arrangements for the development and acquisition of
technologies.

There is a need to evolve and promote widely-dispersed TIs that are less capital intensive and with
relatively low operating expenses but nevertheless meet the technological and professional services needs of
technology-based SMEs. There are, at present, specific industry clusters in developing countries which are not
covered by TNCs but have very high economic and social relevance and need technology input. Virtual incubators
and even simple business incubations may help promote and support enterprises, for example, in the handicrafts,
gifts, toys and houseware (GTH) industry, lock industry, glass industry, garments and textiles industry.

Impact and performance evaluation of TIs should also include technology-related parameters such as the
number of technologies developed, commercialized and transferred; number of patents granted and used and
royalties and know-how fee earned in addition to the more popular parameters such as the number of enterprises
incubated and which sustained operation, employment generated and annual turnover achieved. However, the
evaluation procedures followed will largely depend on the objectives of the country.

TIs, in low cost new buildings which are small, compact and specifically designed, may be preferred
although renovated old buildings are considered cheaper and helpful in the initial stages of TI. Location is an
important criterion to attract good tenants. Thus, TIs are preferably housed in intelligent buildings with efficient
business and office facilities with efficient communication services and having availability of external expert
services on areas like technical consultancy, legal, marketing, etc. Intenet-incubators have good potential. However,
the R&D and technical facilities available elsewhere should be used rather than creating expensive facilities
within the TI itself.

International collaborative arrangements and agreements should identify opportunities for possible linkages
with institutions and among TIs in different countries.

Each government should develop its own models based on their objectives and available resources.
A combination of physical technology incubators requiring huge investments and virtual incubators with minimum
investment requirement may be appropriate for most of the developing countries.

The government may set up a specific division in the Ministry of Science and Technology or the Ministry
responsible for S&T development, with specific financial budgetary outlay, for the development of technology
incubators to promote and support high-tech enterprises in chosen areas.

An interagency Task Force or a high level committee may be constituted by the office of Prime Minister/
President and may be serviced by MOST, with members from various economic Ministries and development
organizations, R&D institutions, financial institutions, industry, and consultancy/service group at the central and
state levels. The committee should set policy directions, evolve and implement strategies/mechanisms to establish
technology incubators in the country.

Technology Incubation promotion divisions may also be set up in key economic ministries/departments
such as industry, commerce, and education, in coordination with MOST.

A survey should be carried out to identify the strengths of important R&D and academic institutions in
the country, including the commercializable technologies, advanced or specialized S&T facilities and expertise
available, and the number of scientists/engineers/professors interested in becoming technopreneurs. This should
be widely publicized within the country and abroad.

Efforts should be made to identify technopreneurs needing the facilities/expertise available in the national
or private R&D and academic institutions. Interactions with industrial associations, industrial clusters of SMEs,
etc. would be helpful, as would invite proposals through advertisements.

10
 Officials responsible for the technology incubator promotion programme should be trained and exposed
to the technology incubation systems in developed countries such as the United States of America and Germany
or advanced developing countries such as Republic of Korea, Malaysia, Singapore, India and China. Experts
from these countries may be invited to train and create awareness about the role of technology incubators in
developing countries. At the same time inter-country entrepreneurship and entrepreneurial capability-building
training programmes may be developed and pursued vigorously.

Large corporations, including TNCs and small enterprises from other countries, may be invited and
encouraged to set up R&D facilities or new enterprises in the incubator. Collaborative R&D and contract
research may be encouraged. Domestic technopreneurs may also be encouraged to undertake technology related
subcontracting or partnerships with foreign companies. Quality foreign direct investments in high-tech enterprises
should be encouraged, preferably involving export-oriented products and services.

Technology-related new products and services from the incubatee enterprises should be given preferential
treatment in government purchases, in addition to better tax incentives and concessions and increased financial
grants during the developmental phase.

Liberalized and innovative financial facilities should be evolved and made available to the incubatee
enterprises, especially during the early phase of their commercial activities. These may include interest free
loans, venture capital, angel investors, technology mortgage and insurance, SWEAT Capital, employees shares
option programme, etc.

Advanced developing economies may predominantly promote new and emerging sophisticated technology-
based enterprises while other developing economies may promote relatively simple technology-based enterprises.
That is, integrated technology incubators that are mostly sector specific may be encouraged in advanced developing
economies and simple business incubators or technology business incubators may be pushed in other developing
countries. Particular attention should be given to the technological needs of SMEs. Simple business incubators
may be set up in industrial clusters in cooperation with industry associations and regional development agencies.
Business plans need to be prepared in each case.

In the long-term, policy initiatives should be taken to strengthen S&T infrastructural facilities and increase
national R&D expenditures through increased government and private R&D initiatives and to develop skilled and
specialized S&T personnel. Networking and strategic alliances of incubators, including association of incubators
and incubatees, should be encouraged and supported. Incubators should promote venture capital enterprises or
other forms of technology financing.

Private Sector

Large corporations, private universities, training institutions, R&D institutions, industrial associations,
export promotion councils and trade development agencies etc. should also promote technology incubators
independently or jointly with government agencies. Private financial support agencies and investors should also
actively associate themselves with government-supported or privately-promoted incubators.

Foreign companies and TNCs should support TIs in specific areas to augment their R&D and technological
capabilities, as is being done by Oracle in Singapore. TNCs can also set up R&D centres or centres of excellence
in developing countries, which can be linked to TIs.

Large corporations and SMEs should seek the services of TIs during technology transfer while actively
pursuing inward or outward FDIs.

Large corporations can subcontract their R&D or technology development projects to TI companies and
source some of their requirements (goods and services) from TIs or their graduates.

Private agencies can promote and manage real estate or property development driven TIs and technology
parks as in case of some developed and industrializing countries.

International Technology Incubators may be promoted by large corporations or TNCs in their home
countries and abroad to attract the best of talents and services and residents abroad.

11
 Exchange of R&D personnel and professionals between the TIs and manufacturing companies, including
training arrangements, may be encouraged by industrial associations.

Private corporations as well as SMEs should increase their R&D expenditures in developing countries.
At the same time, private corporations in developed countries should enhance their R&D efforts in basic sciences
or generic technologies to complement efforts of universities and specialized research centres identified by the
government.

Industrial associations should actively interact with TI associations and networks and support their activities
in areas of mutual interest.

The private sector should be represented in the management committees of government supported TIs
and vice-versa.

Regional/subregional cooperation

ESCAP and other international promotional agencies should assist national governments in developing
training managers of TIs and in establishing and operating technology business incubators. Workshops and
training programmes may be organized towards this objective. In addition, support may be provided to facilitate
the exchange of experts or even deploying experts from countries with wide experiences in technology incubation
to those desiring to establish or promote incubators.

ESCAP may document experiences in developing countries and prepare guidelines for promoting
technology incubators in developing, least developed and island developing countries as well in economies in
transition.

ESCAP should support the establishment, strengthening and networking of national and regional
associations of incubators including Asian Association of Incubators. It should also support the exhibition of
products and technologies of incubator tenants to encourage international trade and cooperation among SMEs in
the region. This would encourage the globalization of R&D and technology transfer with or without FDIs in the
region.

Asian and Pacific Centre for Transfer of Technology (APCTT) is currently implementing a UNDP funded
project on “Nurturing Technological Entrepreneurship through Science & Technology Entrepreneurs Parks and
Technology Business Incubators”, which hopes to create two technology business incubators (TBIs) in India that
promote linkages with R&D institutions and industries. Similar projects may be implemented in other developing
countries. APCTT can also play an important role in identifying R&D projects which can be implemented
through partnership arrangements among the TIs in various countries.

The establishment of a revolving fund may be considered to promote the developments/operation of

technology incubators in various economies of the region.

ESCAP and APCTT should support technopreneurship training programmes particularly in technology
management, patents and intellectual property protection, international standards, technology transfer arrangements
and issues, and awareness about the laws, rules and regulations attendant to WTO agreements and implications
thereof. For example, information about Technical Barriers to Trade (TBT) is an important issue and may need
R&D or technology development activities to enhance exports and overcome such barriers.

ESCAP should support and facilitate the development of innovative financing support system to meet
initiate expenditures of start-up companies until venture capitalists or angel investors become interested. Technology
auction, patent auction and patent insurance are some of the new mechanisms emerging in developed countries.
There is a need to examine these and create awareness about such mechanisms among developing and less
developed economies.

ESCAP should support and facilitate technical capability-building of institutions and organizations directly
assisting technology based enterprises. For example, researchers and technopreneurs should be supported to
undertake graduate studies and enhance Ph.D. thesis projects in various universities through technology incubators.

Establishment of virtual incubators in industrial clusters and niche areas especially for craftsmen, artisans,
and women, relevant to rural development and needing technological upgradation, or new technologies in

12
developing, least developed and island developing countries should be supported. Expert services should also be
made available in selected areas.

ESCAP may support and facilitate capacity-building for formulating national policies in science, technology
and industry and national R&D programmes to expedite business and technology incubation. Deputation of
experts to national governments/institutions and exchange of researchers may be supported.

International developmental and promotional organizations, such as ESCAP, should evolve and undertake
projects to promote and support capability-building for the establishment of technology incubators in developing
countries, particularly in less developed and transition economies. These activities may include support for
training, services of experts, exchange of experiences through workshops and seminars; organization of exhibition
of technologies; products and services from incubators in various countries, among others.

The technologies and technological capabilities available in member countries of ESCAP should be
assessed and documented for possible technological cooperation among the incubators and incubatees. Manuals
and guidelines may be prepared for the establishment, operation and practices etc. for technology incubators in
different groups of economies in the region. A revolving fund may be considered for the incubators, which may
be operationalized through APCTT.

ESCAP may commission a study relating to various innovative financing systems for the guidance and
benefit of high tech enterprises.

APCTT should play a pivotal role in the formulation and implementation of the above activities including
setting up of incubators and information sharing and networking of incubators in the region. A periodical or
a magazine may be brought out by APCTT on technology incubators and related activities in various countries.
It may also interact with organizations such as UNDP, UNIDO and UNFSTD etc. which are actively engaged in
the development and promotion of technology incubators in developing countries.

ESCAP should support and encourage the setting up of national and regional associations of incubators
and promote cooperation at policymaking and operational levels among member countries besides strengthening
their technology-related capabilities.

13
 PART TWO
RESOURCE PERSON PRESENTATIONS

I. STRENGTHENING TECHNOLOGY INCUBATION SYSTEM FOR

CREATING HIGH TECHNOLOGY-BASED ENTERPRISES
IN SELECTED COUNTRIES
(MALAYSIA, SINGAPORE, THE REPUBLIC OF KOREA
AND JAPAN)

BY

ESCAP CONSULTANT, MR S.P. AGARWAL, ADVISER

DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH
MINISTRY OF SCIENCE AND TECHNOLOGY, NEW DELHI, INDIA

15
 I. INTRODUCTION

A. Background

Economic and Social Commission for Asia and the Pacific (ESCAP) has been taking various initiatives
to strengthen technological and industrial capabilities towards integrated developments at national and regional/
subregional levels and to promote cooperation among the economies of the region. A new such initiative, among
others, relates to strengthening technology incubation systems for creating high-technology-based enterprises in
selected countries (Japan, Malaysia, Republic of Korea and Singapore). United Nations fund for Science and
1-5
Technology Development (UNFSTD), UNIDO, UNDP and other promotional organizations are credited with
initiating programmes to promote the concepts of incubators including Technology Business Incubators (TBI) in
developing countries, as early as 1980s. These countries have gained varied experiences in the setting up and
operations of incubators in various forms and a large number of reports/publications/papers etc. are available
today relating to their performances and practices adopted in the developed and developing economics.

The incubation systems ranging from simple business incubators to highly complex establishments in the
form of science parks/research parks or industrial parks seem to have met with mixed results, subjective successes
and failures and are still considered to be in the evolutionary stage. The definitions, models, objectives, operations
and best practices, physical structures, modes of financing and assessment and evaluation methods for incubators
etc. vary from country to country and even within the same country, and seem to lack clarity at many instances.
In this context, the present programme of ESCAP relating to Technology Incubation system for creating
High-technology Enterprises is a timely and focussed effort towards strengthening and promoting technological
and industrial capacities at national and regional/subregional levels, particularly for developing economics and
command economies at a time when knowledge-driven development and technology are becoming dominant in
the strategies for globalization of economic policies and building internationally competitive strengths. Among
various issues relevant to the development of technologies and need for high-tech enterprises in the new emerging
order, only two issues viz. globalization of R&D and role of Foreign Direct Investment (FDI) are briefly discussed
below.

B. Globalization of research and development (R&D)

The process of globalizations, establishment of World Trade Organization (WTO), rapid scientific and
technological advancements, newer developments and applications of information technologies, emergence of
knowledge based and capital intensive industries, stricter quality standards and systems including ISO 9000 and
ISO 14000 systems, environment and pollution control and energy considerations, direct and indirect trade
barriers by advanced countries, etc. are eroding the traditional competitive advantages of industries in developing
countries, particularly of Small and Medium Enterprises (SMEs), which significantly contribute to the over all
industrial and economic developments at national level. Industrial restructuring, including privatization, is creating
the need for retraining and redeployment of the workforce in order to increase employment, besides increase
efficiency and productivity in traditional manufacturing sectors through development and use of modern
technologies and methods, including computers and information systems and technologies such as e-commerce
and internet services, for competitive advantages. Emergence of a stronger service sector and its role in economic
development is being increasingly realized in developing economies also.
All these changes are necessitating the globalization of manufacturing facilities as well as that of services
and technologies including R&D, so as to take advantages of the strengths such as markets, skills, policies and
infrastructure including S&T, natural resources and so on, available in various countries. The objective is to
encourage higher value addition activities and preservation of natural resources through the developments and
applications of high-technologies such as biotechnology, new materials; computers, telecommunications and
information techniques and systems, microelectronics, etc.

According to Mashelkar7 the chain of concept to development of technologies and commercialization of

R&D necessarily crosses transnational boundaries today. Companies realize that to gain competitive advantage
they have to leverage their capabilities. The globalization of R&D is closely linked to globalization of business
and consequently to global competition of skills. In the decade from 1985-1995, Companies from the United

17
States of America doubled their research spending overseas, principally in Europe and Japan, from 5 per cent
to 10 per cent of their overall budgets.7 In 1995, firms throughout the world spent a total of more than
US$ 20 billion on R&D conducted outside their home base Ð a figure that is increasing rapidly. The globalization
process is moving up the R&D value chain (figure 1.1),8 indicating the increasingly important role assumed
by foreign facilities in the creation of knowledge. Leading firms such as IBM, Philips, Hyundai, Samsung,
Hewlett-Packard, are expanding their networks worldwide. Globalization of R&D is sometimes defined as ÒThe
ability of the technology development organization to recognise and respond to technology and market signals
from all strategically important locationsÓ.

Based on a survey of a large number of companies by Arthur D. Little7 it was found that most companies
claim to globalize for one or more of the following factors as drivers:

S. No. Drivers Relative importance

1 To acquire new knowledge 45 per cent
2 To be close to external customers 31 per cent
3 To accelerate the deployment of technology 21 per cent
4 To reduce the cost of R&D 3 per cent

There are two types of new industries: the industries which can be created by consuming new technologies
or markets with existing industries, and completely new industries.8 Creation of completely new industries
requires the application of innovative technologies, at least in some part. To apply innovative technologies,
original basic research should be conducted. To facilitate basic research covering a wide range of fields, it is
desirable that laboratories specialised in various technical areas gather in a research park where they can share
their expertise and conduct joint research. Basic research that focuses solely on the discovery of unknown areas
does not result in new industries. As a next step, the ÒincubationÓ stage should follow where potentials of new
industries are studied. Preferably, a research park should have an incubation town in it to facilitate research at
the ÔincubationÕ stage. Then should follow an ÔinnovationÕ stage, which helps new industries to grow on a larger
scale. In this ÔinnovationÕ process, focus is given to specific new large scale, high-tech industries. In developing
new products in the established industries, manufacturers will have to manage the process starting from research

Technology Development Product Development Technology Support

R&D labs in foreign countries R&D labs in foreign countries Engineering centres in foreign
play a role in a global programme participate in the development countries adapt existing
of basic or applied research. of new products. products and provide technical
Objective: Leverage pockets of Objective: be fully responsive support.
innovation and knowledge in to local markets and Objective: Reduce cost of
foreign countries production environment adaptation and tech support

Globalization Process

Reference: A. Boghani, and others, ÒGlobalization of R&DÓ,International Journal of Technology Management, vol. 17 No. 6 (1999),
pp. 698.

Figure 1.1. The process of globalization is moving up the value chain

18
and ending with the creation of new industries in a manner totally different from a conventional one. International
harmonization of intellectual property is considered to be essential for growth.8

C. Foreign direct investment and technology development and transfer

Most of the Governments are encouraging foreign direct investments (FDIs) which is being considered as
an aid for speedy industrial and economical development, besides strengthening indigenous technological
capabilities. In fact, ESCAP itself has formulated and implemented several programmes to promote investment
related technology transfers. There have been a large number of studies and literature on the experiences of
various countries at different stages of development. However, the impact of FDI on technology development in
local firms is mixed and9 depends upon several factors including the policy environment and in-house technological
capabilities. There are different routes to greater involvement of transnational corporations (TNCs) in R&D in
developing countries. Where the production base is large and considerable local adaptations or improvements are
needed, adaptive R&D is likely to be launched. Over time, adaptive R&D generally shades into genuine innovation,
especially where skill the base is good and TNCs gear their operations to world markets. The incidence of local
R&D will be higher the more technologically complex and fast moving are the activities undertaken by TNCs.
Innovative R&D is attracted most to countries with strong science and research bases. Some economies, like
Taiwan Province of China and India, have mobilized local research consortia to collaborate with TNCs in
developing new technologies.

The costs of innovation, the spread of international production and policy liberalization have increased
the role of TNCs in all aspects of technology. Both externationalization Ð oriented and internationalization Ð
oriented strategies have been adopted by most developing countries requiring local technological and innovatory
capacities, besides networking and policy measures. However, the sheer pace of technological change makes
technological strategies more risky and expensive. Not too many developing countries are in a position to create
broad and deep domestic capabilities in the immediate future. Host country efforts need to be complemented by
international efforts to foster effective transfer of technology.

The new rules of international trade, investment and the protection of intellectual property rights have
rendered many instruments used in the past by the then newly industrializing economies difficult to apply. As
regards industrial policy, for instance, it is becoming harder to impose local content rules, give infant industry
protection, or subsidise targeted activities. Nevertheless, with regard to technology policy, there is some scope
for developing countries to provide technology support services and finance for innovation. Also, a number of
policy options remain to strengthen the Òsupply sideÓ. One of the possible mechanisms for effective transfer of
technology from TNCs relates to developing industrial parks with high-technology infrastructure to attract
high-technology investors. Governments can also enter the pre-production stage by fostering high-technology
entrepreneurs in technology incubators located in universities or technological institutes in an industrial park.9
The suggestions for encouraging local R&D include contract R&D with local research institutions and universities,
developing human resources for R&D in specialized disciplines, developing local enterprises including clusters
and network of high-technology firms and enterprises active in niche markets to attract knowledge intensive
FDI.9, 10

D. Problems and perspectives for creating new technology-based

enterprises in developing countries

New Technology-based enterprises in developing countries may be broadly categorized as follows:

1. A young technopreneur (highly qualified specialist) with new ideas or innovations willing to set up
an enterprise and take risk, with limited financial resources and limited or practically no management and
marketing or organizational experiences.

2. Senior professionals and executives who are well qualified and have long management, marketing
or organizational experiences, and have left their jobs due to industrial restructuring or otherwise, and may have
small capital/assets. They may need technological and financial support.

19
 3. Existing SMEs or family businesses including traders etc., planning to diversify to technology-
based production enterprises, and have financial resources as well as organizational experience, but need
technological inputs and support.

4. Large Corporations and TNCs planning to diversify or expand into new technology-based businesses
utilizing their in-house R&D efforts or acquiring new technologies from national or private R&D or academic
institutions or utilizing national R&D facilities to further develop and commercialize their own innovations/ideas.
These corporations have strong financial and organizational as well as marketing muscles but look for competitive
advantage factors such as knowledge and skills or technological capabilities, infrastructural facilities and policy
framework, and market potential in the host country.

Technology incubation facilities or systems in the form of technology incubators and S&T parks, etc. is
one of the important concepts which has emerged during last about two decades based on the experiences in
developed economics such as United States of America, United Kingdom of Great Britain and Northern Ireland,
Germany, and more recently in Japan, to promote and nurture technology-based enterprises in their initial growth
phase. These incubation systems may vary from country to country or region to region in the same country,
depending upon the needs and resources and also the type of problems of promoters or technopreneurs and the
sectors of technology. For example, the models and facilities for biotech enterprises would be different than
those for information technology or microelectronics or communication engineering enterprises. Developing
countries today are struggling to develop sustainable economies through technology-based industrial and agricultural
developments including development and application of new and high-technologies in a competitive environment,
and fully recognising the role and needs of SMEs. At the same time the traditional industrial sectors including
those largely based on natural resources need to continue to be productive and competitive since large investments
have already been made besides development of social and infrastructural systems.

While there is a large potential to promote and support technology-based enterprises through technology
incubation process, in areas such as Information technology, Microelectronics, Communications, Biotechnology,
drugs and pharmaceuticals, there are some inherent constraints also. These include S&T and other policies and
institutional mechanisms, inadequate financial resources and financing mechanisms to support technopreneurs
and R&D activities, non-availability of technologies from R&D and academic institutions, inadequate S&T
manpower and training facilities, etc. besides firm commitments and will at the highest policymaking levels, in
some developing countries.

Analysis of responses to questionnaires

A questionnaire was designed by ESCAP and sent to the representatives in the participating countries
for the Regional Consultative Meeting on ÒStrengthening Technology Incubation System for Creating High
technology-Based EnterprisesÓ held at Seoul during 29-31 August 2000. This questionnaire related to the
information about the technology incubation systems in the participating countries. Responses have been received
from the following countries:

◆ Bangladesh
◆ Cambodia
◆ China
◆ India
◆ Nepal
◆ Pakistan
◆ Philippines
◆ Republic of Korea
◆ Sri Lanka
◆ Uzbekistan
◆ Viet Nam.

Five countries of these responses have been analyzed and indicated in table 1.1. It is seen from this
table 1.1 that:

20
 Table 1.1. Brief analysis of country responses to questionnaires on technology incubators
Bangladesh Cambodia Philippines Republic of Korea Uzbekistan
Incubators 4 3 68 (including 61 industrial 301 23
estates)
Technology incubators 3 --- 7 291 2
Ownership of Public Sector Private Public 7 Public 291 Government 1
incubators Private 61 Private 10 Joint 22
Key factors ◆ Location ◆ R&D Institutions ◆ DST ◆ Special articles for promoting ◆ National policies and
venture business government support
◆ Intellectual Property/ ◆ Strategic alliances ◆ Legal frame work for
Technical consultancy special economic zones ◆ TDA for SMEs ◆ Tax incentives
◆ Service
◆ R&D Institutions ◆ S&T Agenda for national ◆ Technical credit and Assessment
◆ Management
development includes TIs Programme
◆ Technical Entrepreneur
◆ Entrepreneurship
◆ Special support and tax ◆ Military exemption
development
incentives
◆ Tax incentives
◆ VC, technology financing, angel

21
◆ Technology mortgage
R&D expenditure 0.01 (1995-1996) ------ 0.21 2.5% of GNP (1998) 0.34% of GDP
(% of GNP) 4.1% of total government budget (2000)
R&D institutions 83 ------ 5 183 government and 2419 private (1998) 143
University/colleges 10 ------ 79 323 56
Innovative financing No VC No Venture capital corporations VCC 114 No venture financing
No organized source Angel Clubs 20
Intellectual property No organized source No IPR Assistance Programme Government technical assistance for ------
assistance/technical of DST SMEs by professors and researchers
consultancy and technical consulting programme
by MOST
S&T parks Nil None 3 3 types of projects Technopark 1
◆ Taeduk Science Town
◆ Technopark Programme
◆ Incubators by SME
 Table 1.1. (continued)
Bangladesh Cambodia Philippines Republic of Korea Uzbekistan
Strategic alliances BCSIR contacts with None National and International linkages ◆ Korea Business Incubator An Association of
Chambers of Commerce, etc. for technical and financial Association (KOBIA) Incubators
assistance
◆ Consultancy companies to support
various components of venture
companies
Technical entrepreneur No special programmes None Educational/technical training ◆ Advanced venture management No special state programmes
development institutions programme of KAIST for entrepreneurs
programmes
◆ Technology Venture class,
Training Abroad Programme etc.
of SMBA
Best practices in ------ None ◆ Commercialization of new KAIST operates HTVC ------
technology incubators and emerging technologies

22
◆ Creation of technology based
enterprises
◆ Employment creation
Recommendations and ------ ------ ◆ Government support for ◆ Venture capital Preparation of institutional
future needs existing parks/incubators methodological, legislative
◆ Consulting
and managerial basis for
◆ Government support for
◆ Legal and patent research commercialization,
commercializing of
venture financing and
technologies ◆ Technology assessment
development of ÒSpin OffÓ
◆ Marketing system as well as network
◆ Information of technology incubators
and technoparks
◆ Outlet policy (IPO, M&A, etc.)
 1. Republic of Korea has maximum number of incubators (301 including 275 technology incubators),
followed by Philippines (68 including 7 technology incubators) while there are only two technology incubators in
Republic of Uzbekistan and there is no technology incubator in Cambodia. These incubators are mostly promoted
and supported by the governments and also privately supported in Republic of Korea and Uzbekistan, etc.

2. R&D expenditures range from 0.01 per cent (Bangladesh) of GNP in 1996 to 2.5 per cent (Republic
of Korea) of GNP in 1998 Republic of Korea has largest number of R&D institutions (183 Government and 2419
private in 1998) while Philippines has only 5. Similarly there were 267 Universities/colleges in Republic of
Korea in 1998 as against only 10 in Bangladesh in 1995.

3. R&D institutions, location, intellectual property/technical consultancy assistance, venture financing,

government finance support and tax incentives, entrepreneurship development programmes, and strategic alliances
etc. are some of the important key factors identified for the success of the technology incubators. These support
systems however vary from country to country. Several support programmes and incentives have been evolved
in Republic of Korea while there are very few in Bangladesh and Cambodia or Republic of Uzbekistan.

4. The recommendations include need for strong S&T infrastructure, government grants and tax
incentives, venture capital and other innovative financing mechanisms, consulting, legal and patent services,
technology assessment services, marketing and information services and outlet policies including IPO, M&A,
etc.

The analysis of the responses to questionnaires, though limited in number, suggests that various developing
countries are interested in promoting and nurturing technology-based enterprises through technology incubation
systems. The number of technology incubators largely depends upon the S&T infrastructure, national R&D
expenditures, financial grants and tax incentives as well as other support facilities including innovative financing
systems for commercialization of R&D and setting up of ventures. Some of the developing countries such as
Cambodia and Republic of Uzbekistan have sought international and foreign assistance to develop necessary
systems and capabilities for promoting technology incubators.

E. Structure of the report

It may be seen from the above that a variety of incubation systems are in practice in developed and
developing economics and also in transition economics, with the primary objective of promoting regional and
interregional economic developments, providing employment, development and commercialization of
high-technologies as well as better utilization of R&D capabilities and facilities in public research/academic
institutions, through nurturing technology-based enterprises, specially SMEs, in start up or development stages.
The levels of investments, sophistication and practices may vary from country to country or place to place. In
view of the faster technological developments and new rules for international trade and other issues including
developments in information technology, it is necessary that appropriate incubating systems are evolved for
promoting high-tech enterprises which may vary for various countries depending upon their resources, stage of
development, and national policies, etc.

With the above objective in view, ESCAP commissioned this study in March 2000. As part of this study,
a two member study mission to Japan, Malaysia, Republic of Korea and Singapore during the period 23 April to
9 May 2000, was organized to study the incubation systems in these countries and evolve recommendations
based on the data/information so collected as well as other information from secondary sources or through
discussions, etc. Details of this visit are indicated in appendix 1.1. This study report is to reflect the appropriate
models of technology incubators for various groups of countries in the ESCAP region. The following are the
main objectives:

1. To review policy guidelines, best practices, methodologies and constraints to establish effective
and efficient technology incubators which will help entrepreneurs to set up and develop technology-based small
enterprises in various national economies and suggest models for technology incubation for various economies in
the region;

2. To access the determinants of success and failures of incubators and study their impacts in forging
R&D community-industry relationship in selected countries; and

23
 3. To evolve suitable mechanisms for strengthening networking and cooperation among relevant
institutions/agencies.

The structure of this report is arranged as follows:

I. INTRODUCTION

II. TECHNOLOGY INCUBATORS FOR CREATING HIGH TECHNOLOGY-BASED

ENTERPRISES

III. CATALYTIC FACTORS FOR SUPPORTING AND EXPEDITING TECHNOLOGY INCUBATION

FOR HIGH TECHNOLOGY-BASED ENTERPRISES:
A. National Policies (S&T and others)
B. R&D institutions
C. Technical Entrepreneur Development
D. Innovative financing support system
E. Intellectual Property Assistance/Technical Consultancy Assistance
F. Science and Technology Parks
G. Strategic Business Alliances and Networking
H. Standardization, Quality Control and Marketing, etc.

IV. RECOMMENDATIONS FOR FUTURE ACTIONS

A. Introduction
B. Recommendations for Technology Incubation
C. Action Programmes

V. CONCLUSIONS

II. TECHNOLOGY INCUBATORS FOR CREATING

HIGH TECHNOLOGY-BASED ENTERPRISES

A. Theoretical background on technology incubators

1. Technology incubation system

As mentioned earlier, the definitions and practices relating to incubation systems including Technology
Incubation systems vary widely. However, some of the widely accepted definitions including the one considered
appropriate here for technology incubation are briefly indicated below:

(a) Business Incubators (BI)

According to Lalkaka,1 the incubator combines a variety of Small Enterprises (SE) support elements in
one integrated affordable package. It has a special niche, that is, nurturing early stage, growth oriented ventures,
through focussed assistance within a supportive environment. In Republic of Korea, BIs host start ups and
provide various benefits and services for promoting and supporting small and medium sized enterprises.11 They
promote the survival rate of newly started small and medium enterprises, reinforce the application of technological
innovations, create new business and employment, revitalize economies and the research functions of universities
and research institutes and finally, foster technical manpower.11 According to OECD studies,4 Business Incubators
aim to assist entrepreneurs with enterprise start-ups and development. Incubators typically seek to provide
workspace, often on preferential and flexible terms, for a specific industry or type of firm while concentrating
spatially the supply of utilities, services, facilities and equipment. In addition to workspace, the services provided
by incubators can include various forms of business planning and managerial advice, office facilities, finance and
accounting access to business networks, and legal services.

24
 What is also now emerging is the Òthird generationÓ system, more appropriately called an ÒInternational
Enterprises CentreÓ, which will bring under single aegis the full range of support services for development of
knowledge-based business, with linkages to universities, research institutes, venture capital and international joint
ventures. This trend is already evident at the convergence of support mechanisms at business incubators/technoparks
in South-East Asia. The business and technology incubation concept is at the convergence of two global
movements: the emergence of small and medium scale enterprises as instruments of economic growth and
accelerated pace of technological change.1

(b) Technology Incubators (TI)

The TIÕs main concern is to bolster the technological development stage. It aims to complete technological
ideas for technologies currently under development. Specific activities by TIs include specialists sent as
technological guides; joint development; supporting and raising necessary funds; and the provision of support in
using machinery and related experiment/instrumentation equipment and computers. In some cases, the TI provides
facilities such as office and communication equipment.11

According to OECD studies,40 technology incubators take a range of institutional forms, operating as
integrated or sometimes separate, organizations within science parks, universities, and innovation centres. TIs
present a technology oriented variant on the BI theme. TIs more frequently provide technology Ð related services
and support on issues of intellectual property and support from law schools and local legal firms. Some incubators
focus on attracting branch plants, while others work almost exclusively with start up firms and SMEs.

TI can help tackle many of the problems such as: capital requirements including venture capital, linkages
to sources of knowledge, strengthening research capacities with appropriate interface mechanisms, supplementing
business management and marketing skills of technopreneurs, technology acquisition skills, market intelligence
and strategic planning, etc.3

(c) Technology Innovation Centres (TIC)

The TIC conducts research and development (R&D) and technology innovations required by the industrial
field, which aims to jointly invest resources into university campus or research institutions and achieve
commercialization with support from business enterprises or public institutions. As a concept the TIC is similar
to that of the Technology Park, and at the R&D stage to the TI.11 In Japan, Innovation centres do not have parks
on-site to allow for the expansion of business activities, including manufacturing activities by the founding
enterprise or the new introduction of research facilities, etc. from outside. They are generally urban industrial
development bases where research and technological development work is carried out in close cooperation with
nearby universities, public research facilities and institutions of higher learning. They are established for the
purpose of promoting interregional economic development through creation of enterprises to exploit scientific
and technological resources.5

(d) Technology Business Incubators (TBI)

The TBI is a venture of universities, public research institutes, local government and private institutions
to promote and bolster a new technology intensive enterprise. The TBI is different from TI or TIC in that it
supports the commercialization of previously developed technology; that is, the start up activities of an enterprise.
It differs from general BIs in that it concerns technology-intensive or high-tech business.11 Two thirds of
business incubators in industrializing countries focus on technology-based activities, compared to one Ð third in
the United States of America.3

Figure 2.13 depicts success factors for an incubator while figure 2.23 indicates between Technology Park
and Business Incubator as suggested by Lalkaka.3

(e) Science parks

In Japan, these incorporate incubation facilities to support the creation of new enterprises alongside other
major facilities housed in the park. Science parks have comparatively large areas of land at their disposal to

25
 NATIONAL AND INTERNATIONAL ENVIRONMENT

Supportive University Community Internet Technical International Business

National Policies Linkage Assistance Linkage

Initial Government Technical Market

Funding Infrastructure Opportunities

ENTERPRENEUR ENTERPRISE EMPLOYMENT Growth

INCUBATOR

Local Consultants Manager Training Tenant Finance

Rigorous Business ÒChampionÓ Entrepreneurial Professional Services

Strategy Development Sponsors Board Selection Graduation Network

INCUBATOR ENVIRONMENT
Source: Rustam Lalkaka, ÒTechnology business incubators; critical determinants of success; science based economic developmentÓ,
Annals of New York Academy of Sciences, vol. 798, (18 December 1996), pp. 272.

Figure 2.1. Incubator success factors

Technical University
Faculty-Graduate Students Research
Facilities Liaison Office

International
Government
Technology
Policies Technology Park
Quality Technology Multitenant Venture Capital Know how
Other
Business Enterprise Fund
Universities International
Incubator Building for
for start up established Markets
Research
Laboratories early-stage business
Export of
Technology-
Professional
based Goods
services R&D Parcels
Anchor tenants

Productive Sector
Private/Public

Source: Rustam Lalkaka, ÒTechnology business incubators; critical determinants of success; science based economic developmentÓ,
Annals of New York Academy of Sciences, vol. 798, (18 December 1996), pp. 275.

Figure 2.2. Technology park-business incubator nexus

26
allow space for concentrations of research facilities and R&D enterprises as well as room for enterprises that
originated in incubators to expand into. These are generally suburban industrial development basis and built on
a large scale. They are often located next to concentrations of universities and other research facilities. Through
research and technological development carried out in close cooperation with institutions of higher learning such
as universities, they aim positively to promote the creation of enterprises to exploit the results of such R&D work
as well technological innovation within existing enterprises. Their basic goal is the promotion of interregional
economic development, but they also function effectively as an attraction to enterprises from outside the region.5

(f) R&D Parks

Lacking incubation facilities to promote the creation of enterprises to exploit S&T resources, these
research parks in Japan were built to encourage the accumulation of research facilities such as universities and
public testing research facilities in one area. Naturally, the set-up conditions and infrastructure provided differ
from those of industrial parks. In addition to considerations such as access to transportation facilities, residential
environment, living environment, and natural environment, easy access to urban functions is also important. One
of the key elements is a foundation of social services to support human intellectual productivity. Research
exchange functions enhance the regionÕs R&D capabilities as well as attract R&D enterprises from outside the
region. Neither type of R&D park is principally aimed at promoting interregional economic development. These
facilities have traditionally been developed as tools for attraction based regional economic development.5

(g) Other Definitions

Other names such as Business Innovation Centre, Industrial parks, Business parks, S&T parks, etc. are
also loosely used with almost similar objectives as above though details may differ. For example, Business
Innovation Centres and S&T Parks in United Kingdom of Great Britain and Northern Ireland are essentially
property based initiatives with strong financing facilities/linkages. S&T parks are somewhat similar to science
parks/R&D parks in most of the countries including United States of America and industrializing countries.

B. Technology incubators in selected countries

1. Japan

(a) General scenario

1. Japan has always been a nation with many small businesses, despite its image as the land of
corporate leviathans manned by regiments of salary men.12 Big companies are realizing the benefits of competitive
procurement prices and are struggling to pare their work forces, largely by drastically cutting hiring of new
employees. Also, they are adopting compensation programmes based on performance and abolishing remuneration
determined by seniority, diluting the attractions of lifetime employment. A survey of SMEs in Japan and United
States of America has indicated that 66.4 per cent of the firms spend 0 to 0.5 per cent of the total revenue on
R&D or acquiring new technologies in Japan as against 44 per cent in the United States of America, while only
8.8 per cent expand more than 2.0 per cent in Japan against 20.1 per cent in the United States of America. This
and other parameters in the study reveal that SMEs in the United States of America are more technology
intensive than the Japan.13 The new S&T and other policies and mechanisms are also being reoriented to
encourage high-tech businesses in Japan, in order to retain its leadership in technology and in industry in the
world.

2. There are mainly two substantial problems that the Japanese economy faces. The first one is the
societyÕs increasingly fewer children and ageing population. The second problem is the increasing trend toward
hollowing out of the Japanese economy. Another industrial structure related problem is the high cost structure of
management resources in Japan. The most important pillar of the series of measures taken by the government to
solve these economic problems, relate to the creation of new business based on technological innovation14 and
incubation. Incubator is a Òfacility (including that which provided only a fixed asset such as a rental office or
a rental research room) that provides rental offices, rental research rooms and shared services at a low fee,
consulting services for management and business planning and marketing and also financial support for persons

27
who are trying to establish a business, corporations that have recently been established, and also small and
medium sized corporations that are attempting to advance into new fieldsÓ. Incubators are a part of the main
infrastructure of innovation centres and S&T parks and are also important facilities and functions for bringing
about innovation.5

3. Incubators started to spread from 1988 and a total of 45 incubators were established up to 1993
and another 20 have been under planning in 1994. Of the 70 S&T parks that had been established till 1994,
45 have incubators while only 20 out of another 41 parks were planned to have incubators. It was informed at
Kanagawa Science Park (KSP) that there are 140 science parks and 40 incubators in Japan at present. Ministry
of International Trade and Industry (MIT) is the nodal agency for incubators promotion though most of the
parks/incubators are joint efforts of local governments along with private corporations.

4. Apart from rental research rooms and rental offices, technical consultancy, eating houses and
restaurants, conference rooms and databases were provided by the incubators. Consultation services included
patents, financing and marketing while shared services included telephones, fax machine or a reception desk.
Tenant entrepreneurs were mostly recruited through personal introduction. Many incubators impose the condition
that tenants be limited to corporations and individuals who are basically trying to carry out R&D, while some
specify clearly that tenants be limited to those 16 kinds of industry stipulated in the Brain Site Act and SMEs.
The tenancy period is limited to 3 to 5 years and can be extended if necessary. A rental fee that is lower than the
market rate is an incentive for a prospective tenant.5

5. Japanese incubators do not function to hatch new corporations, but rather nurture hatched
corporations. They also to enable SMEs that have matured to develop new businesses. Both the purpose and
function of a Japanese incubator differ greatly from those of the European and United States type of incubator
which is intended for entrepreneurs newly establishing a corporation. About 50 per cent of tenants are engaged
in R&D, 9 per cent in manufacturing and 15 per cent in sales in incubators. 63 per cent of tenancies consist of
branches of corporations, and 37 per cent head offices of a corporation or an individual. The areas occupied by
tenants vary between 25 sq m to 75 sq m. Yoshizawa and others5 have identified the following issues for
development of technology incubators in Japan:

(a) Employment creation type and industrial structural conversion type incubators need to be introduced
before setting up of advanced technology industry generation type incubators.
(b) The development of management know-how matched to the unique characteristics of the region,
such as residence policies support functions for resident enterprises, and graduation policies, is
important, for promoting incubators at Ôitem 1Õ above.
(c) A careful analysis and evaluation needs to be made of the extent of accumulation of scientific and
technological resources as well as S&T needs in terms of industry and lifestyle, in various regions
to encourage continuous technological innovations for development of regional areas. Then,
a social foundation that will support comprehensive intelligent production from basic research
through technological development and application in business and industry must be built as part
of a unified social system.
(d) New credit and financing mechanisms such as venture capital, microloan system, seed capital at
early stages, angel funding, and an over-the-counter system for putting on the market stock, etc.
as in Europe and the United States of America, need to be introduced aimed at lowering the
barriers facing new participants. However recently two new stock exchanges have been set up
specifically to foster fledgling enterprises-Mothers and Nasdaq Japan. The pool of venture capital
is also swelling.12
(e) There is serious shortage of promising entrepreneurs in Japan. There were no incentives to
encourage, in particular, researchers and engineers to establish themselves as entrepreneurs. There
is a need to build a new framework for a cooperative system linking industry and the academy
with incubation as its core, including a reassessment of the role and functions of the university in
society, in order to induce spin-offs from universities and research organizations. Various measures
are now being taken by the government to improve the situation.

28
(b) Kanagawa science park (KSP)15

1. The Kanagawa Science Park (KSP) is a core project to strategically cultivate R&D enterprises in
KanagawaÕs industrial society in order to realise the Brain Centre Concept. KSP is an urban style Science Park
designed to create, develop and gather R&D cooperation in one place and promote exchange.

2. The special features include: Promotion of new small and medium sized R&D enterprises;
incubation rooms to create and develop corporations, R&D, measurement and prototype design laboratories,
exchange facilities, human resource development and other support & service facilities; Community based
environment friendly facility; a new structure located near the Tokyo Metropolitan area with concentration of
information, industry and research functions as well as of regional high-tech industry, R&D corporations and
high level specialized industrial enterprises. KSP promotes new projects through a system in which the local
government concludes a partnership with private corporations and utilizes the know-how and capabilities of the
private sector while serving as leader of projects.

3. The three central institutions of KSP15 are as follows:

(a) KSP Inc.
(b) Kanagawa High-technology Foundation
(c) Kanagawa Academy of Science and Technology foundation (KAST). KSP Inc. is the owner
and is a semi-public corporation, established as the Central entity of the KSP in December
1986 with a Capital of 4.5 billion yen (Public Sector, 1.5 billion yen and Private sector,
3 billion yen).
The main projects include:
(a) Incubation: Actively and systematically promote the scouting of ambitious and creative
entrepreneurs and the development of R&D Corporations
(b) Incubator: Provide all types of support services targeted at individuals including technological
support, funding, space, equipment, technological and management guidance, and foster
development into independent corporations
(c) Incubator: Provide space (start-up rooms) at a lower than average price and provide all
types of support services for R&D Corporations that are newly established for five years
(d) Laboratories
(e) Human Resource Development
(f) Exchanges Ð Information and facilities
(g) Real Estate Rental

4. KTF was established in August 1989 to provide sophisticated testing and material characterization
services as well as to create a technological information service that provides data on patents and promotes their
application to support enterprises R&D and production activities. KTF functions as KSPÕs measurement laboratory,
with an investment of 1.2 billion yen by the local government.

5. KAST was newly established in July 1989 with a basic capital of 4 billion Yen (public and private)
to promote research in vanguard, high-level scientific and technological fields and technology transfers; to encourage
gifted people with creative visions; to further academic pursuits; and to support regional SMEs in their R&D
activities. It functions as the R&D laboratory for the KSP. Research and education for nationals and foreigners
are the main objects.

6. Support for R&D activities include: all types of business support services for Corporate R&D,
hotel services, amenities such as post office, banks, restaurants, shops, etc. Total area: 55,362 sq m; total
building area: 15,987 sq m; total floor space: 146,336 sq m; innovation centre: 46,290 sq m; R&D business
Park: 100,046 sq m.

7. The team was informed that there were 140 tenants including 70 from R&D sections of large
companies and 70 start ups. Seventy companies have graduated in last 10 years. One-third tenants are successful,
one-third failures and the remaining are borderline cases. The tenants employ 1 to 150 people and working

29
partnership with universities is established. KSP Inc. is profit making with 1.4 billion yen sales and 50 m yen
profits per year, 80 per cent income from rent and 20 per cent from services. This profit however seems to be
due to real estate activities and the tenant companies are getting several direct and indirect financial benefits from
the government. In fact, KSP as a whole is being funded by the government and therefore the above profits
appear to be notional only. KSP takes equity also in related tenants. There is a management team of 23 people
representing various partners.

8. The success of the incubators/parks is attributed mainly to strong management team and the
financing agencies. Information Technology is considered a new era for future developments in Japan. More
and more Science Parks/Technology incubators are being encouraged in private and public university campus,
with a focus on regional/subregional developments or technology/industry specific developments.

2. Malaysia

(a) General scenario

1. Malaysia is guided by its vision 2020 document, which states that the country should have a fully
developed, matured and knowledge rich society by that year. To achieve the vision, Malaysia has embarked on
an ambitious plan to embrace the Information Age and become a regional leader in information and multimedia
technology. The creation of the Multimedia Super Corridor (MSC) is a necessary strategy to ensure that Malaysia
is not left behind the rest of the world. It will attract leading companies of the world to locate their multimedia
industries, undertake research, develop new products and technologies, and export from this base. MSC is
expected to help in producing inventors, researchers, thinkers and leaders, and also to develop a new generation
of small to medium size enterprises (SMEs).19

2. Traditionally, SMEs have contributed significantly to the overall industrial development of the
country in various sectors such as rubber, palm oil, and recently petroleum and chemicals, metallic and
non-metallic products, electrical and electronics. This type of economic growth strategy was followed after the
oil crisis about two decades ago. A number of large industries in various sectors such as automobiles and
textiles, etc. have also come up, the overall industrial development generally being based on natural resources.
Presently, the emphasis is towards development of high-tech industries such as information technology,
biotechnology, Telecommunications, etc. Towards the above objectives, Ministry of Science, Technology and
Environment (MOSTE), and Ministry of International Trade and Industry (MITI) have undertaken programme to
promote Technology parks and Technology Development Clusters etc. besides the initiatives of State governments,
Universities/organizations and Private bodies. At present, there are about ten Technology Parks/Incubators/
Innovation centres in Malaysia, mostly developed by the Malaysia Technology Development Corporation (MTDC)
through the University Campuses and operating in their respective areas of specialization/strength, except
Technology park Malaysia (TPM) developed by MOSTE as an independent entity but networking with relevant
organizations including universities and R&D institutes.

(b) Technology park Malaysia (TPM)20

1. The TPMÕs mission is to provide first class infrastructure and services for technological innovation
and R&D to enable high-tech enterprises to grow and compete in the global market place. The objectives are:

(a) To facilitate private sector R&D and innovation

(b) To participate in the commercialization of research results and innovation
(c) To facilitate joint government and private sector technology development
(d) Wealth creating through technological innovation.

2. TPM focuses on engineering, IT, multimedia and telecommunications, and biotechnology including
computer integrated farming areas. The infrastructure, facilities and services include: Resource Centre (auditorium,
conference room, business centre, IT and multimedia centre, smart learning centre, etc.); Master Centre (design,
prototyping and manufacturing engineering facilities, technical training, consultancy, skilled manpower, Robotics,
flexible manufacturing systems, etc.); IT and Multimedia Centre; and buildings for innovation house, 3 incubator
centres, 3 enterprise houses, and R&D plots. The common facilities include securities, local area network,

30
teleconferencing, maintenance, telephone connections and wide bandwidth Internet connectivity. TPM is an
integrated complex covering 800 acres of land strategically located near Kaula Lumpur and in close proximity to
academic and R&D institutions, besides having an easy availability of community facilities.

3. Presently there are 88 companies, out of which 74 per cent are in information technology followed
by engineering (14 per cent) and biotechnology (8 per cent). The total built-up area for Incubator centre and
Enterprise house is about 40 million sq ft, with reasonable rents and tenancy period of one to two years. TPM
provides/arranges venture capital support for tenant companies and has obtained equities in three tenant companies
so far.

4. TPM was established in 1988 and is now operating as a public sector company with paid up
capital of M$ 59 million and annual turnover of M$ 80 million and is profit-making although continuous grants
(M$ 40 million) are made from MOSTE and financing support also comes from other sources. The tenant
companies are also given preferential treatment for R&D grants/loans and other financial incentives from the
governments. It is essentially a real estate driven project for development of high-tech enterprises. TPM
employs about 200 people, largely technical and a small management team headed by a smart and experienced
chief executive. Large size, rentals, quality and types of services, and government support etc. were considered
to be essential factors for success. It was felt by its CEO that such facilities should be independent, and not part
of a university or an R&D institute, for efficient and commercial operations. Information was not readily
available about the graduated companies and their present status or the promising technologies developed or
commercialized.

(c) Technology development clusters programme21

1. Malaysian Technology Development Corporation (MTDC) has been actively promoting the transfer
of innovative ideas of Malaysian Universities and research institutions to the marketplace since 1997 through the
establishment of Technology Development Clusters (TDCs) throughout Malaysia. TDC is an incubation Centre
established within a university to allow companies within specific industries such as biotechnology and multimedia
to operate in close collaborations with lecturers and scientists. TDC also strengthens linkages between universities/
research institutions and industry.

2. Following four TDCs have been developed and many more are proposed to be developed in other
Universities/R&D institutes:

(a) Universiti Putra Malaysia (UPM) Ð 1996: IT and multimedia

(b) Universiti Malaya (UM) Ð 1999: electronics and manufacturing
(c) Universiti Kebangsaan Malaysia (UKM) Ð 1999: biotechnology, pharmaceuticals and
chemicals
(d) Universiti Technologi Malaysia (UTM)

3. A funding of M$ 200 million is proposed during 2001-2005 to develop and establish such
programmes with selected universities with focus on certain technology areas based on relative strength and
location of the University. The technology centres incorporate features like laboratories for research and other
amenities for small scale manufacturing activities including skills manpower, equipment and facilities.

4. MTDC during last three years has learnt:

(a) Companies need close guidance from the stage of idea generation, formulation of business
strategies and marketing;
(b) Communication network;
(c) Continued government assistance;
(d) Incubation centres must be managed by a reputable management company. MTDC
technology infrastructure Ltd. (MTI) is formed by MTDC and appointed as Project Manager;
(e) Specialised training institutions within the centre;
(f) Services provided include: R&D and engineering consulting;
(g) High-technology Transfer and international collaboration;

31
 (h) Human Resource Development;
(i) Administration and Project consortium;
(j) Quality Management;
(k) Manufacturing and process development;
(l) Funding Assessment, Venture Capital, grants, etc. MTDC provides venture capital and
promotes joint ventures;
(m) A steering committee for monitoring the direction and policy of TDCs.

5. The selection criterion for tenant companies include:

(a) R&D collaboration or cooperation with the respective university;
(b) Beneficiary of research grants from MTDC;
(c) R&D division from established companies (multinationals);
(d) A technology-based company.

6. TDCs consist mainly of Technology Incubation Centres and Advanced specialised Industrial Training
Institutions. The arrangement with universities will be as follows:
(a) Universities will lease land for a period of 30 years;
(b) Universities will receive 5 per cent of the gross rental income;
(c) Universities can acquire equity participation in a company through the capitalization of
intellectual property rights.

7. It was expressed that TDCs would also provide space to large companies and multinationals to
attract high-tech entrepreneurs and enterprises and also for better utilization and interaction with university
facilities. No strict residence criterion is followed. There are 33 companies, mostly joint ventures with MTDC,
and the area available is about 400,000 sq ft in UPM. Only one company is reported to have graduated in three
years. Ten companies interact with the UPM and 8 companies are set up by the faculty of the university. There
were 16 companies in the centre at UKM, all being MTDC holding companies. Thus, it seems from above that
the finances and other support from MTDC, and the cheaper infrastructural facilities have been the main attractions
for the tenant companies. Most of the tenant companies continue to be in the incubator even after three years or
more of residency, and received preference for R&D grants, loans, etc.

(d) MSC central incubator22

Multimedia Super Corridor (MSC) central incubator is another initiative of the Multimedia Development
Corporation (MDC) to support budding entrepreneurs, SMEs and start-ups to become successful IT and multimedia
companies. It is located within the multimedia university campus on a 765-acre area, in the smart city of
cyberjaya. It is an integrated complex with office spaces on cheap rental for start-ups and facilities such as rest
rooms, reception, meeting and conference rooms, office equipment and telecommunication facilities, IT equipment,
in-house business advisory services including intellectual property and outsourced business advisory services
such as legal, tax consultancy, etc. MCI is focussing to develop technopreneurs by assisting them to get capital
and financing including venture capital, management assistance, etc. The tenant companies must be in the areas
of multimedia computing, Internet commerce, software, biomedical, environmental technology, telecommunication,
etc. MSC status companies are eligible for various types of preferential and concessional facilities in finance,
govt. regulations, grants, etc. A National network of incubators is proposed to be set up. As of 24 April 2000,
59 companies were tenants in the incubator including 40 resident companies as against a capacity of 66 at this
stage. However, the incubator is at an infancy stage and experience or the performance data is yet to be built up,
as it was set up only in July 1999, and the residency period is defined as 2 years.

3. The Republic of Korea

(a) General scenario

In the Republic of Korea, a phased approach of developing technologies has been adopted for technological
and regional developments since 1970s and the same has been speeded up after 1997, in line with a more active

32
policy towards technological leadership and promoting the creation and development of SMEs.26 Technopolis is
defined as broader concept that comprises S&T park and S&T Industrial park. There are three clear phases of
technopolis development: (i) the national science town construction at Taedok in the 1970s and 1980s, (ii) the
technopolis programmes from 1989, and (iii) local high-tech industrial parks since the early 1990s.

(b) Taedok science town (TST) – Phase 1

1. TST was established in 1973 by the Ministry of Science and Technology (MOST), with the main
objectives of:

(a) Creating a foundation for joining the ranks of advanced countries in the 21st century based
on science and technology development;
(b) Fostering closer linkages among research institutes, academia and industry through the
effective placement of government supported and private research institutes and universities;
(c) Establishing a pollution free science garden city with cultural facilities.

2. A total of W 1,550 billion (approx. US$ 2,214 million) has been invested in the TST construction
which is about 150 km away from Seoul. It has a total area of 6,880 acres including 3,370 acres for research and
educational institutions. A great leap of urban development started in 1993. Moving of the eleven government
offices in 1998 renewed the business environment, especially, the Korea Patent Agency, the Agency for Small &
Medium sized Business (SMBA) and patent court.27 TST itself accommodates 61 research institutes including
16 national, 4 universities and 25 research centres of large companies, with 13,000 scientists. KAIST was
relocated in 1989 from Seoul, facilitating technology innovation and higher education. It is recognised that
spin-offs from research institutes start after 20-30 years of the science park construction.

3. In TST and the Taejon area, 13 incubators were in operation with 272 tenant companies in 1999.
Facilities include fundraising, networking and outsourcing, marketing, training, IPO into KOSDAQ, information
flow, intellectual properties and assessment of technology at Competitive Technology Assessment Centre. Other
facilities include venture exhibition, SME service centre, the Korea Venture Association (KVA), High-Tech
Valley, Taeduk 21st Century Club, Taeduk Angel Club. The KAIST TIC/TBI is now expanded to High-tech
Venture Centre (HTVC) with the help of MOST. Comprehensive support for venture companies include:
establishment of education and training programmes, cyber incubator, cyber technomart, collaboration of venture
companies, overseas market entry, evaluate the future value and the technological strength of venture companies
by analyzing the technology and market ability, commercialization of research results, etc. besides other services
for entrepreneurship development. Since 1994, 5 companies have graduated, 17 companies closed and 4 companies
have become bankrupt. The residency period for tenant companies is 3 to 5 years. Free space without security,
cheaper operation costs, preferential financial support in the form of grants and free loans, high prestige, etc. are
some of the incentives to the tenant companies. However, TST is reported to be now facing a new paradigm
change from doing research to creating venture.

(c) Development of technopolis programme – Phase 2

The basic plan for technopolis development was conceived in 1989, primarily to stimulate decentralization
of R&D and high-tech industries to peripheral areas for sustained regional development. Ministry of Commerce,
Industry and Energy (MOCIE) and MOST evolved two separate plans for creating new high-tech centres in
peripheral area and 12 sites in total were identified. However, the concept of technopolis programme has been
changed to S&T industrial parks with reduced sizes.

(d) Development of S&T industrial parks – Phase 3

They focus on attracting high-tech industries with research labs engaged in the specialised sectors of
industry. At the same time, residential zones are planned to accommodate employees and families. Considerable
emphasis is given to the role of local efforts in providing basic facilities and local universities in facilitating
technology transfer. Incoming private sector companies are key factors in the technological innovation process.
The national plans of these local high-tech industrial parks are identified in table 2.1.26 Some other

33
 Table 2.1. National plans for local high-tech industrial parks in Republic of Korea
Development
Location Area (km2) Key industries Initiatives
period
Kwangju 9.9 1989-1995 Bioengineering, precision chemicals, information industry, National
(9.5 in addition) (1996-2001) new materials
Pusan 6.6 1990-2001 Semiconductors, industrial robots, precision machinery, Regional
airplane parts, telecommunication, machinery
Taegu 3.5 1990-1995 Computers, semiconductors, precision instruments, Regional
bioengineering, new materials
Taejeon 4.5 1990-1995 Precision chemicals, precision instruments, telecom- Regional
munications, new materials
Chongju 9.9 1991-1997 Semiconductors, computers, communication instruments, Regional
airplane parts, precision chemicals
Jeonju 3.5 1990-2001 Semiconductors, computers, new materials, precision Regional
chemical, bioengineering
Chuncheon 4.3 1992-1996 Semiconductors, computers, optical instruments, medical Regional
instruments
Kangneung 3.4 1990-2001 New materials, precision chemicals, telecommunication, Regional
machinery, maritime technology
Jinju 2.8 1992-2001 Telecommunications, precision instruments, airplane parts Regional

Source: Zong-Tae Bae, Planning and Principles for the Construction of S&T Industrial Parks: the Korean Approaches (Republic of
Korea, KAIST, 1999), pp. 32.

high-technology parks are planned by the private sector. For example, the Pohang Steel Corporation in Pohang
and a Technocomplex by Korea University in its campus.

1. The following two laws were enacted to promote the effective development of industry at the
national and local level.

(a) Industrial Location and Development Law

(b) Industrial Distribution and Plant Establishment Law

2. As traditional SMEs have operated under high costs and low efficiency, the government enacted
another law called ÒSpecial Measures to support new Technology and Knowledge Intensive businessÓ in 1997 to
transform SMEs into technology-based enterprises and to encourage new small technology-based enterprises.
This law provides measures to ensure an adequate supply of essential production factors such as financing,
manpower, technology, and factory sites. Since this law was enacted, about 300 technology and business incubators
are reported to be in operation and under construction in universities and R&D centres in Republic of Korea in
2000.25 Ministries of Commerce, Industry and Energy, Information and Communication, etc. are also promoting
technology incubators besides MOST and local government.

3. Considering the Korean experience, following broad conclusions are drawn26 for High-tech Industrial
parks:

(a) Local conditions and infrastructure should be strongly considered in the planning and design
of the S&T industrial parks;
(b) All components of the parks such as industrial units, academic and research institutes and
a residential zone, should be linked and operated according to laid principles;
(c) To induce high quality personnel, high education institutes should be supported/established
in the area by the central and local governments. Science and engineering research centres
also need to be designed;
(d) Central government should continue to play the supportive role for regional development;
(e) Although these conclusions cannot be generalized for all countries, they can be useful to
them as guidelines.

34
 4. Singapore

(a) Science park32

1. In Singapore, Science and Technology Development Board (STDB), Standards and Productivity
Board (SPB) and Economic Development Board (EDB) are the main government departments/agencies concerned
with the development of science and technology, and industry, including development of technopreneurship and
high-tech enterprises through science parks, technology incubators and similar other mechanisms. Singapore
Science Park (SSP) was set up by the government in 1980 to provide a focal point for research, development and
innovation, as an integrated complex covering various types of services necessary for development and operation
of enterprises and their employees, and is located in Singapore Technology corridor. The management of the
science park was privatized in 1990 and is now owned and managed by Arcasia Land Pvt. Ltd.

2. Singapore Science Park I covering a total land area of 30 hectares is now fully developed with
a built up area of 245,000 sq m. There are six land Lessees including Technology centres and laboratories with
a focus on industrial R&D and information technology. There are three buildings housing IT companies, which
are named CINTECH Buildings. Science Park II is being developed over two phases. Phase IIA, which covers
a total area of 20 hectares houses an innovation centre as well as a technopreneur assistance centre catering to the
need of technology based start-up companies, in addition to land lessee organizations such as The Institute of
Micro Electronics. TeleTech Park, dedicated to R&D in telecommunications is also located here. Phase IIB
covers a total land area of 15 hectares and is currently at the master plan design stage.

3. In 1997, there were a total of 226 companies, the majority of them come under the field of
information technology followed by those in electronics. Currently there are more than 7,000 research engineers,
scientists and support staff working in the Singapore Science Park.

4. The Technology Corridor is an area where there is a high concentration of knowledge based
industry comprising R&D companies, Universities and R&D institutes and centres. Different types of research
facilities are offered to meet the differing needs of R&D companies including custom built buildings and different
sizes of land plots for development. Innovation centre is a one-stop facility for start-up technology companies
and provides fully Ð fitted accommodation for more than 50 fledgling companies, sharing office services and
on-sight legal and management consultancy services.

(b) Technology incubator programme (TIP)33

1. The newly launched TIP of National Science & Technology Board (NSTB) is a structured investment
programme with built in management support to increase the success rate for start-ups. Incubator Management
Companies (IMCs) from successful and experienced groups of businessmen and technopreneurs render their
services to nurture and mentor high-tech start-ups and provide advice in strategizing business. They incubate
start-ups over a period of two years. NSTB and IMC will invest a maximum of total of S$ 600,000 over
two years for a start-up. The financing will cover up to 85 per cent of the R&D costs and any other business
expenditures. Upon graduation, the companies are expected to attract further financing from venture capitalists
and other investors.

2. The eligibility criteria include:

(a) Newly registered companies with 50 per cent local ownership;

(b) Involved in R&D of new products and services;
(c) R&D expenses more than 50 per cent of total operating expenses.

3. So far only three IMCs have been identified by NSTB. 70 per cent start-ups are expected to be in
IT and e-commerce. Large companies, including TNCs, are supporting incubators, especially in computer software
and e-commerce. For example, Oracle has launched a US$ 55 million incubation initiative to support budding
internet start-ups and speed up the momentum of E-business in Southern Asia.35 Eight incubation centres in
Singapore have agreed with Oracle to jointly deliver the oracle-E-business Accelerator Programme.

35
(c) PSB incubator programme36

1. The objective of the PSB Incubator Programme is to promote, encourage and support development
work and industrial innovation in Singapore with a view to enhance the international competitiveness of the local
enterprise. Technology-based start-ups who wish to exploit their creative ideas for commercial application may
have access to PSB technical expertise and resources such as laboratory space, facilities and equipment, besides
developmental grants including local enterprise technical assistance and subsides ranging between 30 per cent to
70 per cent for essential expenditures. Foreign companies and institutes are also encouraged to initiate R&D
activities and develop technology applications.

2. A science hub37 is planned at Buona Vista area for technopreneurs. Start-ups can operate from
renovated bungalows and other old buildings so that initial costs are low. Jurong Town Corporation (JTC) has
also launched programmes to promote incubators to cater to the growing number of technopreneurs start-ups.
59 incubator units have been launched at AYER RAJAH CRESCENT recently, and more will be set up in
future.38

(d) Technopark, Chai Chee39

This technopark with six blocks offering a total letable arc of about 1.2 million sq ft is located at the
eastern part of Singapore and specifically developed for companies involved in the electronics and
telecommunications industry. An e-biz hub has been created within the technology park for e-commerce companies.
It is essentially a real estate initiative of the government through involvement of public and private sector
companies including DBS Land Group. In-house facilities include a clinic, gym, cafŽ, tennis court, etc., and real
estate rules have been relaxed to promote such technoparks. Presently, there are 45 tenants, the majority of them
are start-ups and in e-business or information technology, and also companies such as Microsoft, with a total of
about 500 people. The park is still under development.

5. Other Countries

(a) The United States of America

1. At present, it is estimated that there are more than 3,000 business incubators all over the world,
out of which the United States and Europe alone seems to account for about 50 per cent. Business incubators are
employed in the United States as a strategy for new business creation, and ultimately, for job creation.4 The
business incubation industry including technology incubators in the United States of America is extensive and
diverse. Although few programmes look alike, most operate on the principle that the synergy of providing
business assistance and rental space to fledgling firms stimulates local enterprise development. Technology
incubators are not limited to support the technology development phase alone but include technology transfer,
commercialization and diffusion also.

2. According to the National Business Incubation Association (NBIA), there are more than 600
business incubators operating in North America, occupying about 30 million gross sq ft of space. These incubators
have served 7,795 client firms and launched 4,651 graduates. Approximately 28 per cent of these incubators
(around 165) are technology related, half of which (about 82) are university affiliated with an average of
14 tenants per incubator.28 Technology incubators are usually created in partnership with academic and research
institutions to commercialize new technologies. Federal government generally support construction costs, industry
research, R&D projects and analysis, besides support from other agencies such as local governments, corporations
and Small and Medium Business Administration (SMBA). According to the NBIA impact study in 1997, 57 per
cent of revenues for incubators in the United States of America came from rent or client fees, 21 per cent from
service contracts or grants, and 31 per cent from cash subsidies. Most technology incubators have benefited from
state grants in one form or other. Those associated with land-grant universities have received operational subsidies
as well. Private investors have often been described as the best source for early seed capital for emerging
technology companies. Most technology incubators tenants have ample opportunity to pursue private venture
capital funds.

36
 3. The majority of firms in incubators in the United States of America remain for less than two years
while the survival rate after 5 years is approximately 80 per cent. It is estimated that the return on R&D for both
small and large firms involved with universities is 26 per cent, but only 14 per cent for firms not involved with
a university. Also, fast growth companies that utilize university resources boost productivity rates 59 per cent
higher than peers without an university relationship, and have a 21 per cent higher annual revenue and 23 per
cent more capital investments. The tenant companies leaving the incubator experienced a 49 per cent jump in
employment and a rise in sales of 166 per cent on an annual basis between 1980 and 1990.

(b) Germany

1. Europe now has over 1,000 business incubation centres and technology parks. Following the
creation of the first innovation centre in Berlin in 1983, the number of technology and innovation centres in
Germany has increased to around 200. It is expected this number will rise to nearly 300 by the year 2000.
An average incubator focuses on three main technologies: information and communications, software, and
environmental technologies. Between 1983 and 1996 some 6,500 firms had been created in technology and
innovation centres of which 82 per cent were new technology-based firms, nearly half of which were spin-offs
from university research. Nearly 2,000 companies have moved out of centres, following limited stays of 3 to
7 years. Often centres grow together with their companies and survival rate of companies is estimated at about
50 per cent.

2. Two thirds of the money invested in German incubators comes from the budget of the local
authorities and state governments. It is now reported that German incubators are becoming like many of their
British counterparts, gradually moving away from their role as promoters of innovation-based companies and
becoming mere suppliers of office space.5 On the other hand, it is also reported that GermanyÕs network of
technology centres and business incubators is proving to be a source of impetus and a network of future oriented
workshops for industry,4 including in reorienting the industry and research sector in the former East Germany.
Technology centres are either part of technology parks or grow into technology parks over a period of time.
These centres, in cooperation with institutes of higher education and research centres, exert a driving force in
support of academic spin-offs, and are found in the vicinities of 59 universities in Germany.

(c) The United Kingdom of Great Britain and Northern Ireland

In the United Kingdom, technology incubators are generally a function of science parks and technopoles.
In 1995, there were estimated 1,250 firms located in 46 science parks employing over 23,000 people. The
Enterprise panel has identified four types of incubators in the United Kingdom. The first concerns new and
established technopoles such as Astan Science Park and the more recent Cranfield Technology Park. The second
are sector specific incubators including the Oxford Centre for Innovation/Oxford Trust or Manchester Bioscience
Incubator. The third and fourth categories are general incubators which cover mixed-use enterprises and Òbuilding
businessÓ incubators such as the Electronics Commerce Centre at the University College London. The United
Kingdom now has more than 100 business incubators.

(d) The Russian Federation and Central and Eastern Europe

1. Among policymakers in the Russian Federation and Central and Eastern Europe, there is an
appreciation of the role of business and innovation centres as broadly defined by the German Association of
Technology and Business Incubation Centres (ADT): Òan infrastructure based venture for the establishment and
growth of firmsÓ. The ADT, along with other European and the United States of America institutions is playing
an active role in coordinating, expanding and funding growing networks of knowledge based ventures. The main
goal is to promote technology commercialization as part of rebuilding S&T management systems and developing
the economic potential of the regions and lending to employment creation. Perhaps one of the most important
contributions of technology incubators is providing technical and management training, and creating a network
that strengthens firm to firm cooperation and information exchange between new firms at their early stages of
development.

2. In the case of the Russian Federation, there appeared to be only three technology incubators and
19 business incubators in 1997, originating from a USAID grant to set up a model incubator in Moscow. But,

37
other types of incubators and innovation centres provide support for technology-based firms. There are attempts
to expand International Business Technology Incubator (ITBI) type of technology incubators. Most financing for
regional incubator is in the form of foreign government grants and soft loans. New forms of equity financing are
slowly appearing and there have been proposals to create the first Russian Venture fund by January 1998.45
Virtual incubators in the form of Òincubator without wallsÓ were considered to serve as a cost-effective way to
help new firms grow via computer and telecommunication network.

3. In 1997, 26 technoparks were in operation in the Russian Federation. A good example is

St. Petersburg State Electrotechnical University that leads and coordinates a number of national research
programmes. The ETU technopark seems to act as a host for a technology incubator. The federal government is
supporting 6 pilot projects for the establishment of technology centres and business incubators in Eastern Europe.

4. Poland has established business incubators and innovation centres, sometimes in cooperation with
international support. A main goal of incubators is to increase university-industry relations as at the Warsaw
Technical University. The short-term impact of incubators has been relatively weak.

(e) China

1. China has developed the largest business incubation system outside the United States of America.
It established Shenzhen Science and Technology Industrial Park in 1985, the first park. In 1994, preferential
policies including tax reduction and exemption were designed by the government of China. In 1999, the state
council promulgated the ÒDecision to accelerate commercialization of science and technology research resultsÓ
which highlights the importance of innovation centres and encourages venture capital investment by innovation
centres.

2. There are around 127 incubators in China located in every province and widely spread all over the
country. In addition, there are another 64 software parks and university S&T parks. At the end of 1998,
77 incubators were included in the Torch Programme, mostly representative of the first generation of incubators
with general technology focus, had a total area of 884,000 sq m with 33 having space of over 10,000 sq m each,
4,138 tenant firms and 1,316 graduate firms. Tenants and graduates employed around 140,000 people.46 The
primary objective of the incubator programme has been to commercialize technical innovations. Incubators are
mostly sponsored and financed by the government or sometimes jointly with private sector. The Torch programme
office of MOST is responsible for the Incubator programme.46

3. International Business Incubators (IBI) are designed to assist both international and Chinese start
up firms enter the Chinese and international markets respectively. The IBI programme expects to attract high
potential international and Chinese firms to facilitate domestic and international networking.

(f) India

1. In India, ÒScience & Technology Entrepreneurs Park (STEP)Ó programme was started about twenty
years ago by the Department of Science and Technology (DST), primarily with a view to support and promote
technical entrepreneurs. About a dozen STEPs have been set up, mostly in university campuses in different parts
of the country. A good number of entrepreneurs (about 600) have been developed and supported over the years,
and have led to the commercialization of some of the technologies of the university system and generation of
employment (about 5,000) in the country. National financial institutions have been involved in the programme to
finance the entrepreneurs while financial grants are given by the DST on recurring basis.49

2. Around 1990, a pilot TBI project for promoting three types of incubators, viz a closed wall type in
a national R&D institution, an open wall type in a private R&D institution, and physical incubation facilities
through a technical consultancy company, was conceived with the support of UNFSTD through funding and
administrative support from the Department of Scientific and Industrial Research (DSIR). The response was
encouraging and the concept was getting accepted among the technology based start-up companies or entrepreneurs.
About 40-50 incubatee companies took advantage of these facilities in a short duration of about two years.
However, the programme was discontinued due to various reasons including sub-critical funding support from
DSIR, change of top management at the host organizations and impatience to see quicker results on the part of
promoters. However, this pilot project and experience created wider awareness among various sections of the

38
society and helped in subsequently setting up and promoting a large number of software parks, technology parks,
industrial parks, etc. though with different models. Thus, the pilot project experience was useful in the country,
to promote technology commercialization and transfer, besides technology-based enterprises.

3. Software Technology Parks, India (STPI) has been set up by the Ministry of Information Technology
to promote Software parks for accelerating exports by providing infrastructural facilities, including High Speed
Data Communications (HSDC) links. The offshore development through HSDC links has increased from 5 per
cent in 1991-1992 to around 70 per cent in 1998-1999. STPI has set up 18 centres in the last nine years all over
the country. STPI also established a Business Support centre in the Silicon Valley in the United States of
America, in 1999. Some of the STP centres provide incubation infrastructure to SMEs, enabling them to
commence operations without delay. The centres are equipped with business support facilities with a built up
space of over 20,000 sq ft.47 A knowledge park is being developed at Hyderabad by Industrial Credit and
Investment Corporation of India (ICICI) along with other agencies.

4. A recent initiative relates to setting up of two technology parks/technology incubators in academic

institutions, one at New Delhi and the other in South India, with the support of UNDP. The DST is the nodal
agency while Asia and Pacific Centre for Transfer of Technology (APCTT) is also involved actively with the
implementation of the project.

5. It may be noted that there is a strong network of R&D and academic institutions in the country,
besides a variety of institutional mechanisms and support systems including tax concessions etc. relating to the
development of technopreneurs and SMEs. Small Industries Development Bank of India (SIDBI) exclusively
provides finances and grants to SMEs to upgrade their technical and technological capabilities, and is taking
several new initiatives such as promoting technology incubators and venture capital companies. New forms of
financing systems such as venture capital, angel investors, technology sensitive stock markets and mutual funds
are also being encouraged to finance technology-based companies.

C. Suggestions and development of appropriate models for

technology incubation system for developing countries

In the previous sections, we have seen that the incubation models and practices vary widely in various
types of economics and need to be evolved on case by case basis. The developing countries are grouped into
different levels of economies such as newly industrializing economies, developing economies, least developed
countries, island and land locked countries, and economies in transition. As such, the technology incubator
models have to be necessarily different and flexible for different levels of economies, taking into account that
these models can be upgraded or extended or modified as the economies improve or as per requirements.

1. Linkages and other Considerations

Technology incubators may be of general type in least developed countries or some of the developing
countries and highly focussed sector wise in developed countries or a mix of these models. It is unlikely that
there would be many researchers or researchers/academia needing sophisticated technology incubators in least
developed or some of the developing countries. Industrializing countries are attempting to create such capabilities
in their R&D and university systems. The immediate problem in many of the developing countries and least
developed countries is to revitalize and restructure local industries, including SMEs, and create employment
through development and applications of new and high-technologies in traditional sectors, besides taking advantage
of the opportunities for developing high-tech enterprises in computer software, biotechnology, and information
technologies etc. Industrially advanced countries and industrializing countries are focussing on establishing their
technological leadership in select sectors and consequently promoting high-tech corporations through technology
incubation systems, on a global basis. Figure 2.3 suggests organic relationships among various types of technology
incubation systems which can be picked up and developed as per the needs of economies. Figure 2.4 suggests
various types of services and linkages of technology incubator which may again be flexible and expanded as per
needs.

In some countries such as the Republic of Korea or Singapore or Malaysia, a number of ministries/
departments are involved in the promotion of technology incubation systems. There is a need for well-coordinated

39
 Entrepreneur

BI TBI TI IC RP TP

University/
R&D
institution

Industrial
Estate/Cluster/
Town

BI Business Incubator
TBI Technology Business Incubator
TI Tecnology
IC Incubation Centre
RP Research Park
TP Technology Park

Figure 2.3. Suggested technology incubation systems

and united efforts, with clear distinctions and responsibilities of each agency. Similarly, various policies related
to the incentives, tax structure, real estate development, operations, skills-development and education programmes,
development of SMEs, etc. should be evolved in consultation with the technology incubator promotion agencies.
State governments and local bodies should be fully involved and should be stakeholders. Consortia approach
should be useful.

In developed countries and also in newly industrializing economies, the focus should generally be on
nurturing new technologies of generic nature through sector specific incubators mostly located in or near
a university or an R&D institution, with the ultimate objective of developing new TNCs. The industrializing
economies in transition and developing countries may, however, need to develop generalized technology incubators
and sector specific incubators to support the restructuring of traditional economic sectors including industrial
clusters and estates, located at these places. In least developed and island developing countries, initial focus may
be on the development of simple business incubators with technology as a central theme and located in industrial
estates and industrial clusters.

Closed wall type of TIs equipped with integrated and sophisticated S&T facilities near a scientific/
academic institution or as an integral part of technology parks may be desirable in developed countries. In
developing countries, open wall type or virtual incubators (figure 2.5) with access to R&D facilities and support
services including professional services, requiring minimum investments may also be desirable. In fact, with the
availability of modern information technologies and communication facilities, virtual incubators may be suitable
even in developed or industrializing countries and be widely dispersed all over the country. In this connection,
the concept of Incubator Management Companies (IMCs) as in case of Singapore, may be considered to nurture
high-technology-based enterprises (figure 2.6).

40
 Experts Financing
Government knowledge agencies
department & sources (R&D, including VC,
agencies policy academia, etc.) angels, stock Testing &
makers within the markets, etc. certification,
country & insurance training,
abroad companies patent offices
Local bodies

Technology &
industrial
Incubators &
information
industrial ¥ Responsive management system
associations ¥ Built up space
¥ Technology administration
¥ & business support facilities
¥ Computers, Internet, Legal services
Market promotion & consultants,
¥ telecom facilities
including design &
¥ Advisory services
exports engineering
¥ Equipment, prototype,
¥ testing, etc.
Technology Incubator
Foreign
collaborators & Equipment
investors manufacturers

Networking International
Corporations &
institutions such
private bodies
as UNDP,
ESCAP, ADB

Figure 2.4. Suggested technology incubator linkages and services

Technical
consultants,
legal services

Local bodies
and Financing
government agencies
agencies
INDUSTRIAL
CLUSTER OR
ESTATE

Markets and
Industrial
VTI large
association
corporations

R&D Equipment
institutions manufacturers,
and material
universities suppliers, etc.

Technology
parks &
technology
incubators

Figure 2.5. Virtual technology incubator (VTI)

41
 R&D INSTITUTIONS TECHNOLOGY PARKS UNIVERSITIES

GOVERNMENT

IMC* IMC* IMC*

HIGH TECH HIGH TECH HIGH TECH

ENTERPRISES ENTERPRISES ENTERPRISES
* IMC: Incubator Management Company.

Figure 2.6. TBI development through IMCs

Once the objectives, location and models are defined, the government and the promoting partners should
constitute an advisory committee and select a dynamic and professional expert as chief executive so as to
implement best management practices. The deep and continuing commitment of the government and the
management team is extremely necessary, besides ensuring adequate financial grants/support to the incubators
and the incubatees for capital and recurring expenditures though the same may taper down over a period of time.
The incubator management should be given to a private entity with freedom to operate and manage the affairs
within the laid down parameters.

Incubatees and graduated enterprises should be given preference in R&D grants, government purchases,
low cost loans, etc. New mechanisms such as venture capital, angel investors, specialized stock markets and
listing arrangements, patents and technology auctions, patent insurance, etc. should be evolved and encouraged
for financing systems. Asia Monitoring Fund, with emphasis on high-tech enterprises may be worth considering.
Use of information tools such as Internet, websites, e-commerce, etc. should be encouraged.

(a) Models

Keeping in view the S&T capabilities, financial resources, and the needs arising out of the globalization
of economies and internationalization of trade and R&D, to revitalize the core sector capabilities already built, to
provide employment and assist industrial and tiny sector clusters etc., in industrializing and developing countries,
least developed countries, island developing countries, and transition economies, the following models of
technological incubators are suggested:

1. Well-equipped technology incubators at or near universities/R&D institutions as an independent

but closely networked with knowledge sources. They could be ÒgeneralÓ or specific to the expertise of the
concerned university/R&D institution and integral to S&T parks.

2. Virtual incubators or Òopen wallÓ type incubators located at or near industrial clusters of SMEs or
at the concentration of tiny sectors or in rural areas.

3. Incubator Management Companies identified by the government and interested in technology

incubation programmes, with R&D grants and venture capital, etc. from the government or jointly with private
corporations.

4. International technology incubators to globalize and internationalise the R&D and encourage transfer
of technology with or without foreign direct investments. Based on a survey of a large number of companies in

42
the Untied States of America and other countries by Arthur D. Little, it was found that most companies globalize
generally to acquire new knowledge, to be close to external customers or to accelerate deployment of technology.

5. Each country will, however, have to evolve its own model/models depending upon its own needs,
capabilities and resources.

D. Salient features of creating and developing technology

incubators in developing countries

Based on the above studies, some of the generalized salient features of Technology Incubators, which
may, however, differ from country to country or even in the same country, are summarized below:

1. The main concern of Technology Incubators (TI) is to bolster the technological development stage.
It aims to complete technological ideas for technologies currently under development. Strictly, TIs are to nurture
technologies rather than business or entrepreneurs. However, in practice, particularly in developing countries,
these functions are blurred with those of Technology Business Incubators (TBI) and Innovation Centres. They
are mainly located at or near universities and science and technology parks, or are an integral part of S&T parks
or innovation centres. TIs are characterized by institutionalized links to knowledge sources including universities,
technology transfer agencies, research centres, national laboratories and skilled R&D personnel. Specific industrial
clusters and technologies may also be targeted.

2. The technology development objective or the development of high-tech enterprises through

incubation is largely integrated to the economic and social development in a region, besides encouraging the
researchers or technopreneurs to promote enterprises.

3. The promoters of TIs are mainly national governments or state governments or local development
agencies. Joint sector or, sometimes, private sector along may also be promoters.

4. TIs in new buildings, though modest, are preferred compared to renovating old buildings. The
location is important to attract tenants. High investments are made in building and facilities, but low cost models
have also been evolved.

5. The national governments have to provide financial grants for capital and recurring expenditures
on a continuing basis which, however, may taper down to partial grants in the future. Part of the expenditure is
met from the rentals and services provided by TIs.

6. The tenants are mainly attracted because of cheaper space, easy access to support facilities and
specialized R&D facilities in universities etc., financial grants and soft loans, tax benefits etc. from the government
for R&D and technology related activities and, sometimes, prestige and better market potential for their products.

7. The quality and deep commitment of the management team and the chief executive is crucial. It is
better to have an independent or private management with an advisory committee of the members representing
different interests in the TI.

8. Most of the incubators provide a range of administrative, professional and technical support services
and linkages with service providers, computers and telecommunications with Internet, etc., on demand and on
nominal payment basis. Some of the incubators equip themselves with R&D equipment, testing facilities,
workshops, design and engineering, etc. facilities, especially in case of sector specific incubators. Training and
skill upgradation facilities are also created at some places.

9. The tenancy period is usually limited to 3 to 5 years, but not strictly followed. Tenants are
selected based on their business plans and merits. Some countries encourage outfits or branches of foreign or
multinational companies also. In fact, the presence of multinationals is considered as a source of attraction for
local technology-based enterprises.

10. The impact or performance of TIs is usually measured in terms of number of tenants, number of
companies graduated and survived, number of people employed by these companies, the annual turnover, or
revenue generated to the government. The information about the technologies developed, patents granted and
used, actually commercialized and exports of technologies, etc. is rather limited or not readily available. However,

43
in some cases such as Germany, it is claimed that R&D based or technology-based companies from the technology
centres are more successful in terms of innovations and new technologies. S&T parks in Japan are also reported
to have produced significant number of technologies and corporations of international dimensions. In general,
the total number of high-technology graduated companies over a period of more than a decade appears to be
small compared to the investments made. In the United States of America, the success rate of small graduated
enterprises is claimed to be about 80 per cent compared to about 30-40 per cent outside the incubators.

11. The trend is towards developing sector specific TIs, such as information technology,
telecommunications, biotechnology, Internet and e-commerce, computers and microelectronics, etc.

12. A variety of financial incentives and favourable building laws and tax laws, financial grants for
R&D, and support services are being made available to the incubators and tenants. Venture capitalists, angel
investors, new forms of stock exchanges and laws for technology-based companies are emerging.

13. National, regional and international associations and networks have been formed for the TIs, etc.,
mostly in developed countries. Some of the developing countries are members of these internationals associations
but, generally, do not have their own associations or are not effective.

14. The emerging issues arising from the globalizations and new laws of international competition and
trade, which are adversely affecting the domestic companies particularly SMEs, are yet to be attended.

15. TIs also have to play an important role in the effective transfer of technologies and technology
capability building associated with foreign direct investments. The developed countries such as Japan are reorienting
the strategies of TIs to ensure their technology leadership. Republic of Korea is also fast changing to build its
technological and industrial strengths in selected sectors through TIs as one of the measures including revitalization
of industrial clusters and industrial estates. Other countries such as Malaysia do not seem to be addressing the
existing and traditional industries but concentrating on electronics, information technology, multimedia technology
development and biotechnology.

The stated good practices include: well defined objectives and missions, recruitment of competent and
dynamic entrepreneurial managers; focus on cluster based technologies, select tenants according to ÒneedsÓ and
ÒfitsÓ, tailor and leverage existing services, build on local and international linkages, diversify sources of finance,
shared expenses, and improved, evaluation mechanisms. Table 2.248 gives the offered by technology and general
incubators.48

16. Many developing countries such as India, and Economies in Transition, and least developed countries
such as Bangladesh, Nepal and Sri Lanka, etc. are yet to evolve meaningful TI strategies and take action to set up
the same. China seems to be the leader in setting up TIs as far as developing countries are concerned.

Table 2.2. Types of services offered by incubator type

Service Technology (%) General incubators (%)
Space 100 100
Management advice 98 97
Business planning 87 85
Office services (reception, typing, etc.) 83 85
Financing assistance 87 84
Marketing assistance 83 79
Financial/accounting 70 65
Technology/consulting 87 50
Legal/intellectual property assistance 72 44
Other 20 19
Source: Woo-Geun Song, ÒTechnology incubator for creating new technology-based enterprisesÓ, project paper for ESCAP International
Trade and Industry Division, January 2000.

44
 17. Technology incubators essentially assume

(a) Strong R&D and technological capabilities in academic institutions and R&D organizations,
thereby originating R&D results with commercial potential and encouraging potential
entrepreneurship in research scientists.
(b) Potential technopreneurs including researchers, who are willing to translate their ideas/
technology into products and services, are available.

III. CATALYTIC FACTORS FOR SUPPORTING AND EXPEDITING

INCUBATION FOR HIGH TECHNOLOGY-BASED ENTERPRISES

A. National policies (S&T and others)

1. Japan

A series of policy measures have been recently taken by the government of Japan to strengthen its S&T
infrastructure and capabilities, specially towards emphasizing basic research efforts in frontier areas, increasing
government R&D expenditures and promoting high-tech enterprises/corporations. This includes drawing up
a science and technology Basic Plan in 1996 for the next ten years beyond 2000. Fifteen new and growth fields
have been identified for sustainable growth of the economy.8 Japan has made various efforts for the creation of
new business in close cooperation between government and industries over the past few years. Capital, human
resources and technology are considered to be indispensable for fostering new industries.8

Human Resources: In order to create an environment conducive to the development of venture businesses
and growth, Ministry of International Trade and Industry (MITI) will pursue a three pronged strategy:

◆ To foster employees with diverse capabilities and creativity, efforts will be concentrated on promoting
internships providing students with opportunities to acquire on-the-job experiences that are closely
related to their specialities and future career and on enrichment of venture business-related education
and studies in colleges.
◆ To encourage free labour mobility, employment placement businesses and stock option system that
gives its employees an opportunity to purchase the companyÕs stock at a set price, through tax
incentives, etc. shall be introduced.
◆ To facilitate personnel outsourcing, the manpower dispatching business law will be totally reviewed
to allow the dispatching company, for instance, to provide services to all industries except those on
the negative list.

Technology: MITI is creating and developing an environment that would encourage the development of
innovative technologies and facilitate more effective use of existing intellectual resources of universities and
national research institutes. The goal is to transfer and utilize budding technologies in a commercial context.
The various measures include: resources for technology development related to identified industrial sectors,
exchange of personnel and joint R&D among private businesses, universities and national research institutes;
protection of intellectual property rights to inventors; and assisting technology licensing and transfer organizations.
In August 1998, ÒThe Law for Promoting the Transfer of Technological Research Results at Universities and
Institutes to Private SectorsÓ was enforced. The purpose of this Law is to establish TLOs (Technology Licensing
Organizations). In February 1999, ÒThe New Business Promotion LawÓ came into effect when a system of
renovating technologies of small and medium enterprises was started. In 1999, ÒThe Special Law to Encourage
the Revival of JapanÕs IndustryÓ was approved. ÒIndustrial Power Enhancement BillÓ is aimed at to improve
industrial competitiveness in Japan. Another measure is the New Venture Oriented Research and Development
Promotion Project started in 1999 by the Japanese Science and Technology Corporation (JST). This system aims
at cooperative research and development between researchers and those who wish to start business.14 Japan is
one of the highest spenders on R&D as a percentage of its GNP (about 3 per cent). Besides the above measures,
other initiatives include: globalized trade and competitive policies, enhanced international cooperation, establishing
manufacturing and R&D facilities abroad, encouraging foreign direct investments (inward and outward), and

45
so on. A variety of tax concessions and fiscal incentives are provided to encourage R&D in industry and joint
research. Japan is perhaps the only net exporter of technology in the world.

2. Malaysia

The Ministry of Science, Technology and Environment (MOSTE) has evolved the following strategy to
achieve its objectives of promoting science and technology competence for international competitiveness:23

◆ Increase R&D activities

◆ Promote and develop local technologies, besides improving methods of diffusion
◆ Improve the nationÕs capabilities in receiving and implementing new technologies
◆ Control of pollution and environment management
◆ Develop and increase skilled manpower in S&T through effective human resource development
programmes.

The National Council for Scientific Research and Development (NCSRD) helps to strengthen technology
base through enhancement of R&D activities and formulation of technology development programmes. The
S&T funding programmes include: Intensification of Research in Priority Areas (IRPA), Industry R&D Grant
Scheme (IGS), Multimedia Super Corridor R&D Grant Scheme (MSC) and the Demonstrator Application Grant
Scheme (DAGS). A National Plan of Action has also been prepared in 1998 which focussed on widespread
adoption and adaptation of technology and increasing market-driven R&D activities. S&T Human Resource
Development Fund was also introduced in 1997. Several other schemes include: Recruitment of Malaysian
Scientists Overseas and Foreign Scientists, enhanced international cooperation, National Bio-Technology
Programme, establishing S&T information Centre, environment friendly technologies, and Intellectual property
etc. The overall R&D expenditure was estimated at about 0.22 per cent of GDP in 1996, predominantly in the
public sector. The targeted level of investment for R&D is 2 per cent of GDP by the year 2000. However there
is an increase in industryÕs investment in R&D accounting for 73 per cent of total R&D expenditure.

Malaysia Technology Development Corporation (MTDC), under the Ministry of International Trade and
Industry, is also actively engaged in the development and applications of industrial technologies, by way of
promoting Technology Development Centres, including incubators, in the campuses of universities to promote
high-tech enterprises. However, the linkages between the technology development agencies, industrial development
organizations and academic institutions, need further strengthening.

The number of researchers have fallen from 4,545 in 1994 to 4,243 in 1996. Malaysia ratio of researchers
is 5 per 10,000 population, which is very low compared to the ratio in countries such as Singapore(48) and
Japan(82). There is a 20 per cent shortage of needed scientists, engineers and technicians for the industrial
workforce. Malaysia requires approximately 493,830 scientists and engineers for R&D in 2020.

3. The Republic of Korea30, 31

In an effort to join the ranks of technologically advanced nations, MOST has pursued a wide range of
innovative measures that include the enactment of a special law for scientific and technological innovation,
formulation of the Five-year (1997-2000) Plan for S&T Innovation, a Highly Advanced National R&D Project
(HAN), and a Creative Research Initiative. During the late 1990s, R&D investments have gone up as a percentage
of total government budget to 4.1 per cent in 2000 and is planned to be raised to 5 per cent by 2002. Also, the
National Science and Technology Council (NSTC) was established in April 1999 to strengthen the overall
coordination of national S&T policy. R&D manpower is estimated at 1,300,000. Programmes have been
initiated to produce high-calibre manpower through financial support to universities on the basis of their research
performance. The number of graduates in 1998 receiving BS, MS and Ph.D. degrees was 90,446, 16,781 and
3,392 respectively.

The government is endeavouring to expand R&D investment to develop advanced technologies in fields
such as biotechnology, environments, new materials, information technology and nuclear energy. The target is to
be one of the top 7 nations in S&T by enhancing competitive advantage in specific areas by 2025. The
government will encourage technology innovation driven by the private sector rather than by the government.

46
Further, emphasis would be shifted from investment expansion to efficient distribution of investments, and
globally networked R&D will be pursued to acquire knowledge-creation capability to promote new industries.
The government will strengthen policy measures to improve industrial R&D capabilities and to utilize the
environments for new venture creation e.g. technoparks, technology incubation centres, regional consortiums
among universities, industry etc. Also, R&D investment is to be increased for the development of social
infrastructure technologies such as transportation, water resources and construction management. Increased
efforts are to be made to promote international cooperation in S&T including undertaking joint research
programmes.

4. Singapore

The national policies are guided by a philosophy that competition is increasingly based not just on cost
competitiveness but on capacity competitiveness as well Ð especially the ability to innovate and come up with
new products and services for increasingly sophisticated customers. Singaporeans are stated to be among the
most highly educated people in the world, with 60 per cent of high school students receiving tertiary education.
With the highest personal computer ownership rate in the world today, Singaporeans are also stated to be among
the most IT-Savvy.

NSTB, established in 1991, has focussed on capability development in S&T, through emphasis on industrial
R&D, technology infrastructure, promoting technopreneurship, R&D manpower development and international
linkages.25 The emphasis of S&T development is to promote high-tech sectors such as computer software,
e-commerce, biotechnology, microelectronics, telecommunications, information technology, besides other
non-polluting industries. According to the 1999 R&D survey, there are 66 researchers and scientists per
10,000 workers. In 1998 R&D expenditure was estimated at 1.76 per cent of GDP. Private sector R&D
expenditure was more than 61 per cent of the total R&D expenditure. The number of patents filed and worked
by the research institutes and centres reached a cumulative figure of over 200 in 1998. More than 30 high-tech
companies have spin-off, till 1998. R&D manpower is estimated at 130,000. Programmes have been initiated to
produce high-calibre manpower through financial support to universities on the basis of their research performance.
In 1998, Singapore had 12,810 research scientists and engineers. The goal is to increase this number to 90 per
10,000 in 2005, compared to 65.6 per cent in 1998. NSTB develops and upgrades the capabilities of local
research scientists and engineers. It also facilitates recruitment of foreign research manpower and nurtures
a scientific interest among the young. It networks closely with companies to develop capabilities of research
talents to broaden and deepen the scope of R&D activities in Singapore. Several measures have been taken to
develop and train skilled manpower to meet the growing requirement of infotech industry in Singapore. These
include the establishment of INFOCOMM 21 Masterplan and consequently Info-Communications Development
Authority of Singapore (IDA) in consultation with partners in industry and in other government organizations.
The current pool of 93,000 infocomm manpower, comprising 5 per cent of the total workforce, needs to grow to
250,000, about 10 per cent of the total workforce by 2010.43 Another programme to boost IT manpower is
through subsidizing course fee for Singaporeans and compensating employers for employees desiring to be
trained in IT.

Manpower Upgrading for S&T (MUST) aims to help companies to acquire and build capabilities and
know-how in R&D and technopreneurship activities through training and postgraduate studies. PSB administers
the Skills Development Fund (SDF) for manpower development in the industry and institutions of relevance.

5. General observations

From the above sections, it appears that all countries have taken new policy initiatives to strengthen their
technological capabilities and related infrastructure to promote high-tech enterprises sectorwise or in general,
through various mechanisms including technology incubators in some form or the other. The fiscal incentives,
tax structure, legal framework and investment policies, and grants etc. conducive to the setting up of technology
incubators and attracting high-tech enterprises or technopreneurs have been evolved for their faster growth into
successful corporations, with varying degree of experiences and successes. The quality and extent of
implementation of policies as well as resources deployed for the purpose, however, vary from country to country.

47
 B. R&D institutions

1. Japan

Looking forward to the 21st century, Japan is committed to promoting creativity in science and technology
for the betterment of society at home and abroad. A strong network of a large number of R&D institutions,
universities and private sector R&D facilities has been established and several of institutions operate in highly
specialized fields. During 1999, four technology transfer institutions were approved as targets for support
measures for development of high-tech corporations. Joint Research centres at national universities for academic
and private sector cooperation have been established. A new type of centre with liaison capabilities was established
at Tohoku University and Tokyo Institute of Technology. The Science Council of Japan recommended in 1998
for the conversion of national research institutions into independently administered Corporations as part of the
reforms.17

2. Malaysia

There are about 30 R&D institutions and almost similar number of universities, both in the public and
private sector, in Malaysia. The involvement of the institutes of higher learning and the private sector to carry
out product R&D in technology parks and innovation centres has been on the increase.24 The collaboration
between Universiti Malaya (UM) and Polylran Resources Ltd. Berhad to develop electronic ballast product and
the collaboration between Universiti Putra Malaysia, Universiti Malaya and TropBio Research Ltd. Berhad in
generic improvement of forest trees and other tropical plants research are examples of efforts of TPM. Public
research institutes and universities concentrate their R&D efforts on socio-economic development and the
advancement of knowledge, while the private sector focuses more on commercial goals.

3. Republic of Korea30, 31

To reorient the objectives and strengthen the R&D capabilities in government research institutes (GRI),
a ÒLaw Concerning Establishment, Operation and Development of Government Supported Research InstitutesÓ
was enacted in January 1999. Under the new system, there are five research councils under the Prime MinisterÕs
Office, which oversee the operation of GRIs. The National Research Laboratory Programme is a new programme
launched in 1999 to identify and support small-scale laboratories of industries, universities and public research
institutes so that they can grow up as the major performers of national R&D projects. There were over
5,000 private institutes, 35 government supported research institutes and 61 centres of excellence in 2000.

4. Singapore

SingaporeÕs technology infrastructure comprises 13 research institutes and centres, two universities, the
polytechnics and government departments. R&D collaborations between research institutes and industry in
Singapore or abroad are encouraged to promote globalizations of R&D.40 There is a strong network of research
institutes and centres, institutions of higher learning and innovative companies. This helps promote viable
innovations in technology in core research areas of IT, Communications, life sciences, chemicals, materials, and
the environment, manufacturing and automation, and electronics. Kent Bridge Digital Labs, for example, has
produced more than half a dozen start-up companies in the last two years through its innovative bridging units.
In September 1998, the Institute of High performance computing was through the merger of the National
Super-Computing Research Centre and the National University of Singapore Centre for Computational Mechanics
to undertake upstream and industry driven research and simulation using advanced computational techniques.
NSTB has recently established the centre for Drug Evaluation jointly with the Ministry of Health, with the
support of Smithkline Beecham and Merck Sharpe Dohme, to strengthen the drug evaluation infrastructure and
expertise for Singapore and the region. SingaporeÕs industries and TNCs continued to invest in setting up of new
R&D establishments to introduce innovative technologies to strengthen their global competitiveness in various
areas such as electronics, communications, chemicals, drugs and pharmaceuticals, automotives and information
technology.

48
 PSB plays a key role as a technology connector by establishing strategic linkages and collaborations that
enable industry to gain access to the wide range of technologies available in the research institutes, both locally
and overseas. PSB also helps companies exploit new technologies for higher productivity. Through its testing
and analysis services and product and process improvement and development programmes PSB plays an active
role in facilitating the wider diffusion of technology in industry.42

5. General Observations

It may thus be seen from the preceding sections that setting up and promoting R&D institutions, academic
institutions including universities and continuing development of human resources as well as encouraging research
personnel for entrepreneurship has been a major activity in all countries. However, the focus of R&D programmes,
the extent of facilities, the size and number of the institutions and the number of scientists/engineers trained
depend upon the resources available and also the availability of expertise. Increasing participation of the private
sector is encouraged. In some countries, the focus is on conducting basic and generic research in select areas
with a view to establish global leadership besides encouraging industrial research, while in other countries the
focus is on development of competitive high-technologies in select sectors for industrial development. Research
and scientific personnel are encouraged to be technopreneurs through technology incubators. Globalization of
R&D is also promoted.

C. Technical entrepreneur development

Technology incubators essentially aim to nurture and support technopreneurs in development of their
technologies from infancy stage to a take off stage for commercialization. These technopreneurs or technical
entrepreneurs, desiring to establish high-tech enterprises based on their technologies, are often young and have
high level of education in science and technology, but may lack adequate finances, knowledge or expertise in
financial and administrative management, marketing etc. necessary to run an enterprise. These technopreneurs
may often team up with other entrepreneurs having requisite experience and capabilities in these areas. Even so,
a minimum level of knowledge in various fields is necessary for technopreneurs for setting up and for the growth
of an enterprise. With this view in mind, almost all countries have evolved training and skill development
programmes for technical entrepreneurs and made such programmes available free or at low costs. In some
countries, Entrepreneur Development Institutes have been set up. Technology incubators often arrange such
training programmes for continuous upgradation of management and administrative skills of technical entrepreneurs.
Information and methodologies related to various government rules and procedures and matters requiring necessary
approvals from various authorities are also included in the training programmes.

In some countries, special programmes and incentives have been evolved to train and attract high quality
high-tech entrepreneurs. For example, in Singapore, apart from various technopreneurship and manpower
development programmes for industry and S&T personnel, another programme known as Technopreneur Home
Office Scheme has been recently evolved. Under this scheme, technopreneurs are allowed to use their homes as
offices as long as the character, ambience and environment of the residential estate is preserved. The type of
business suitable for this scheme must be technology based and knowledge intensive. It must be a firm or an
unlisted private company registered in Singapore and with more than 50 per cent equity owned by Singaporeans.
NSTB is the implementing authority. NSTB is the lead agency for intensifying technopreneurship.
A ÒTechnopreneurship 21Ó private sector effort is aimed at successful development of technopreneurs. Several
financing and incubation support programmes including TIP have been launched.

In Republic of Korea, with a view to promote development of entrepreneurship and venture business,
several programmes and policy instruments have been evolved in recent years. Besides the law for special
measures to support new technology and Knowledge Intensive Business, Venture Business Bureau was set up in
Small and Medium Business Administration in 1997.25 Programmes for university professors, researchers and
students and public are present to encourage them to enter venture businesses. Public R&D organizations are
required to formulate R&D plans for SMEs with regard to their technology development efforts with emphasis
on venture businesses.

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 D. Innovative financing support system

Technopreneurs may not have adequate finances or financial support even to pay for the services of
a technology incubator and for developmental activities and more so to establish an enterprise based on their
technologies or technologies acquired and upgraded/improved. In order to encourage and support such entrepreneurs
and recognising the knowledge as ÒcapitalÓ in a knowledge driven society, the government and even private
corporations, independently or jointly, have taken several initiatives to fund early stage development efforts as
well as the precommercial operations, besides financing of the manufacturing and related operations subsequently.
Many new concepts and innovative financing systems have come up in recent years to value ÒknowledgeÓ
as capital and to fund ÒideasÓ, and the ventures proposed to be established on such ideas. Financers and
investors are increasingly getting prepared for high-risk and high return ventures.

Usually, the financing support systems for development of technologies and supporting new and emerging
technology-based enterprises include:

◆ Financial grants, tax concessions and fiscal incentives

◆ Interest free or low cost loans
◆ Venture capital
◆ Angel investors
◆ Banks including specialized banks for SMEs, financial institutions and insurance companies
◆ Stock options and liberalized listing
◆ Sweat equity
◆ Employees stock options
◆ Specialized stock exchanges and mutual funds
◆ Foreign investments

In globalized economies and in the age of extensive application of information technologies, it is now
said that financing capital is no more a problem for a new high-tech venture. The evaluation of intangibles and
invisible assets, including human resource, in high-tech companies is also getting widely accepted for financing
purposes or for valuing the worth of a company.

Venture capital is an established source of funding for new and emerging technology-based enterprises.
Venture capitalists usually become involved with seed capital at an early stage and finance production, marketing
and distribution activities. A large number of venture capitalists are coming up in countries such as Republic of
Korea and Singapore with innovative schemes while in some countries such as Japan and Malaysia, venture
capitalism is catching up. Technology incubators are also being financed by some of the financing institutions.
TIs themselves may be equity partners or provide soft loans to their tenants. In some countries, venture capitalists
have formed associations to voice their concerns and have been receiving preferential treatment in tax and other
related matters from the governments.

MITI in Japan is working to foster an environment which facilitates competition, lowers taxes, provides
new financing mechanisms and reviews labour and employment systems. The new financing systems include
diversifying capital supply sources and improving the capital market to new business that are unable to procure
loans because of lack of collateral. Angel tax system helps private investors reduce risks of investing in venture
businesses. Preregistration and prelisting in markets are being reformed to ensure a smooth flow of capital to
enterprises. Public placement of shares and improvement of over the counter market are also being introduced.16

In Republic of Korea, based on the provisions of the law for special measures to support new technology
and knowledge intensive businesses, various pension and other funds as well as investment trust and insurance
companies are allowed to invest in venture business directly or through intermediary venture capital companies.
Venture businesses listed on the KOSDAQ (Korean Securities Dealer Automated Quotations) market are allowed
to issue corporate bonds in an amount equal to 10 times their capital and reserves as compared to the current five
times. An ÒAngel MarketÓ, where businessman and investors come together to establish venture businesses, has
been set up. Angel investment fund is not subject to audit, and tax deduction and exemption privileges are
available for angel investors. Prospective technopreneurs seeking to establish start-up firms using their own

50
technology, holders of intellectual property assets and new firms are offered funds to start their business or
develop new products and high-technologies.

SMBA is also playing an important role in the development of high-tech venture businesses through
technology incubators in Republic of Korea. It provides concessional financial and administrative support to
venture businesses with the following condition:

◆ Venture is unlisted in the United States of America

◆ R&D expenditure is at least 5 per cent of total sales
◆ Venture capital investment is more than 10 per cent
◆ IPR and Patent related sales are more than 50 per cent of the total sales
◆ Technology is assessed by the government.

SMBA has planned to support 80 incubators per year in future, and 220 incubators are designated
presently by it in universities/R&D labs. Future policy is to convert some of the existing companies to ventures
and promote more start-ups, with no financial constraints, and encourage them to go abroad.

Besides government grants and loans, venture capital companies and angel investors, a TIF of
US$ 1 billion provides additional liquidity for venture capital and equity injections to support technopreneurship
development and the establishment of a vibrant venture capital industry in Singapore. The TIF is placed with
private sector funds and helps to attract larger funds with international repute. It is also aimed at establishing
a global network of relationships to have the way for the transfer of technological know-how.41

To boost funding for technopreneurs, the government launched a US$ 1 billion Technopreneurship
Investment Fund (TIF). This has drawn venture capitalists from the Silicon Valley and Taiwan Province of China
to set up regional bases and Headquarters in Singapore. It has also resulted in the creation of several other
venture funds for technopreneur start-ups.41

The former Vice Minister of Finance for International Affairs, Japan, has recently18 advised to quickly
start the process of adopting economic and social system to the Information Technology (IT) revolution and
globalization. Also, in order to cope with negative side of globalizations and virtualization as a result of IT
revolution, defensive mechanisms need to be built up to shield from possible future (crises). He has suggested
the creation of regional funds, which may be known as Asian Monetary Fund (AMF). As IT revolution eventually
spreads through Asian and countries globalize their economy, intraregional transactions among all Asian countries
would increase dramatically which may strengthen regional ties through increased intraregional trade and capital
flows. In this process development of high-tech enterprises through technology incubation would assume an
important role.

The European Commission has also recognised access to Risk capital as a key factor in encouraging
entrepreneurs and small business to achieve their full potential.44 The 1999 Board Economic Policy Guidelines
(BEPG) have stressed that efficient risk capital markets play an important role and should be a part of structural
reforms needed to improve the overall funding of capital markets. The very recent and rapid growth of electronic
share trading, through electronic communication networks, will let companies, in the future, list and trade their
shares globally and around the clock and will contribute to a decrease in the cost of raising capital.

An analysis by the European Union in April 1998 on barriers to the development of risk capital showed
six main areas of concern: market fragmentation, institutional and regulatory barriers, taxation, a paucity of
high-tech SMEs, lack of qualified human resources and pernicious cultural barriers. Further, measures already
launched in favour of business angels, to simplify administrative procedures, or to facilitate and development of
long-term duration interaction between sources of finance and sources of technology would be enhanced. For
example, actions taken to promote an entrepreneurial approach towards exploitation of university research or to
develop adopted financial models and ownership structures for university incubators are examples of good practices
to be developed in all countries.44

Patent insurance, patent auction, technology auction, technology mortgage, and financing on the strengths
of patent are other mechanisms coming up to support the financial requirement of high-tech companies.

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 E. Intellectual property assistance/technical consultancy service

1. Intellectual property

Intellectual property is a key legal issue for technology-based enterprises, particularly for new and
high-technologies in areas such as drugs and pharmaceuticals, biotechnology, microelectronics and computer
software and agriculture. Often, the key to business success is the ability of a company to protect legally its core
technology besides the national policies and efforts to provide appropriate support systems and patent related
services. An incubator facilitates access to legal assistance in this area.

With the establishment of the World Trade Organization (WTO) and its Trade Related Intellectual Property
System (TRIPS) Agreement, almost all the member nations are trying to harmonize their intellectual property
laws, including patent laws. Several countries have undertaken modernization and upgradation of their patent
related organizations and launched patent literacy among researchers and entrepreneurs. As a result, it has been
noted that the number of patents filed and granted to researcher/companies in various countries in the region has
dramatically increased, particularly in developing countries, after 1995. The number of patents granted and used
is an indication of the technological capabilities in a country as well as of the patenting companies. It was,
however, noted that the data/information related to the patents obtained by the incubatee companies in various
countries was not readily available or reported, though many of the incubators are providing patent facilitating
services to their tenant companies. This needs a review of the R&D projects on the technology development
activities being taken up in incubators, as well as evolution of necessary measures to encourage patentable
developments or create awareness among the technopreneurs and among the management of the incubators.

2. Technical consultancy services

Technology based start-ups in particular have needs for more specialized expertise. One way of brokering
this type of help is to bring specialized service providers to the companies in the incubator facility. Such
in-house firms, which are weak in many areas, need to access niche expertise that complements or supplements
staff abilities. Incubators themselves do not have resident technical expertise. The solution to this problem is to
broker firm relationships with external expertise, often through a contract or grant, and often on a subsidized
basis.

Incubators usually arrange to provide external technical consultancy/professional services to their tenant
companies as per requirements. These services may relate to preparation of feasibility and project reports,
market requirements, field trials, detail design and engineering or upscaling of processes, drawing technical
specifications, and identifying commercial sources of supply of plant and machinery, raw materials, components;
mode of financing, and so on. Special issues such as those related to environment, energy, safety and international
trade practices, laws of other countries, may also need external professional services.51

ESCAP has been supporting a Technical Consultancy Development Programme for Asia and Pacific
(TCDPAP), with its Secretariat facilities at the Consultancy Development Centre at New Delhi.52 However, the
activities under this programme needs more financial support of ESCAP and other international promotional
agencies, besides cooperation and appreciation among the member countries. The technical consultancy services
also promote technology transfer, investments and trade.

F. Science and technology parks (S&T parks)

S&T parks have been discussed in detail in chapters I and II. Some of the S&T parks in advanced
countries have been established ÒnaturallyÓ based on technological entrepreneurs and market demand, while
almost all of S&T parks in developing countries have been established by the integrated efforts of the governments.
This is a human, scientific and economic system, strongly supported by the government, to stimulate the
technological innovation and commercialisation process and industryÕs need for competitiveness through working
linkages between university, research institutes and businesses. As the developing economic are opening up and
the need for international competitiveness is increasing, the S&T parks are expected to assume greater significance
in the overall national plans for technological and industrial developments. However, the models practised in
advanced countries such as the United States of America and Japan or in industrializing countries such as

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Republic of Korea or even developing countries such as Malaysia, are too capital intensive and the gestation
period is large which very few developing economics may be able to afford easily. Therefore, long term loans or
grants from international agencies would be desirable as would developing alternative models which are less
capital intensive and more effective. With the developments in information technologies, globalization of R&D
activities and new financing mechanisms becoming available, including easier flow of foreign investments,
it should be possible to evolve such new models to meet the emerging needs of high-tech enterprises.

G. Strategic business alliances and networking

Entrepreneurship is a dynamic process, more so in case of high-technology enterprises. As such, it

requires links or relationships, not only with individuals but also with a variety of institutions in the public and
private systems. The potential links and relationships can promote and sustain new ventures in an incubator.
A university provides business and research centres, continuing business education, and a potential base for
research and development, particularly for generic technologies, and also helps to develop entrepreneurs. Emerging
firms are provided with a tier of peer support which are needed to establish important links with suppliers and
customers.

Technology development and entrepreneurship is a complex multidisciplinary activity, requiring a wide

range of inputs which may not be easily available at one place. Strategic business alliances and networking,
therefore, is becoming extremely important with those who matter. These may include R&D institutions,
universities and centres of excellence, government agencies and industrial associations, training and testing
facilities, consultants, subcontractors and assemblers, financial agencies, information centres, and even competitors,
within the country and abroad. Increasing costs of R&D and higher costs involved in commercializing and in
setting up manufacturing and allied facilities, reduced technology and product life cycles, scarce R&D or specialized
manpower and stricter quality requirements are also some of the factors for entering into strategic business
alliances and networking arrangements. In fact, it is happening almost every day when geographical locations
and other physical parameters are becoming less and less important compared to the source of knowledge and
technology.

Technology incubators should, therefore, develop strategic business alliances with the relevant
organizations/agencies, including large corporations and R&D institutions. They should also network with the
technology incubators in other countries, besides developing networking and creating associations of incubators
in their home country. Exchange of experiences and visits of specialists from the incubators in developing and
developed countries would be useful for all concerned. Also, organization of exhibitions, trade fairs and workshops
etc. for the technologies and products from the incubators in various countries would enhance business prospects
and cooperation in the region. International organizations such as UNDP, UNIDO, ESCAP and ADB should
support such activities.

H. Standardization, quality control and marketing, etc.

Standardization and appropriate quality control systems are no more optional but a necessity for any
enterprise to be competitive, particularly for high-tech enterprises. Increasing attention on conservation of natural
resources and international competitiveness are necessitating the development and adoption of international
standards and quality management systems. Japan has been a pioneer in these areas and has set up many new
practices. ISO-9000, ISO-14000 and other systems have almost become mandatory for international trade in
many countries and a large number of companies in developing countries have obtained certifications. At the
same time, most of the developing countries are creating necessary certification agencies for training of personnel
and implementation of various standards and methods.

In Malaysia, the Department of Standards Malaysia (DSM) is the national standards and accreditation
body. It was established in 1996 following the corporatization of the Standards and Industrial Research Institute
of Malaysia (SIRIM), to undertake the statutory roles in national standardization. In addition, DSM is also
responsible in carrying out accreditation activities for laboratories and certification bodies. Several quality
improvement programmes have been undertaken to ensure the quality of Malaysian goods and services for the
international market.

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 Singapore Productivity and Standards Board (PSB) is a statutory Board set up in 1996 under the Ministry
of Trade and Industry to raise productivity through standards and quality developments through various subsidized
schemes, among other activities. ISO-9000 certification of quality management systems have been introduced
and promoted to organizations.

Technology incubators should assist their tenants in obtaining relevant standards and certification, besides
adopting quality management practices of international level. Also, skill upgradation programmes in these areas
should be organized. It is suggested that all high-tech companies graduating from incubators and the incubator
itself should be encouraged to obtain ISO-9000 and/or ISO-14000 certification. Expenses in this connection
should be met by the governments or the promoters of the incubators.

IV. RECOMMENDATIONS FOR FUTURE ACTIONS

A. Introduction

As the globalization of economy progresses, knowledge and technological capabilities are becoming
increasingly crucial in national developments in order to meet the challenges and also avail the opportunities,
arising from the new rules and laws of international trade and competition. The WTO and its various agreements
have hastened the necessity of industrial restructuring and strengthening of technological capabilities in its member
countries. In this process, the developing countries appear to be losing their traditional comparative advantages
such as those based on cheap labour, natural resources, production by Small and Medium Enterprises (SMEs),
and so on. Besides, various other issues such as those related to the need for environmentally friendly technologies
and production facilities, conservation of natural resources, stricter quality management and new standards
requirements, direct and indirect technical barriers, technology transfers, child labour, energy conservation, safety
requirements, and emergence of regional groupings, are also to be addressed. The fast developments and newer
applications of information technologies such as computer software, Internet and e-commerce, communication
systems etc. are accelerating the re-structuring of technological and industrial systems.

Foreign Direct Investments (FDIs) and transnational corporations (TNCs) are considered to be playing
an important role in enhancing the technological and industrial capacities of developing countries and facilitating
technology transfers as well as globalizing of R&D, essentially based on comparative advantages of various
countries. Increasing costs of R&D and setting up of new dispersed production facilities are leading to various
types of unprecedented mergers and acquisitions and also to the policy of Òcompete and cooperateÓ.

In this scenario, there is a need to strengthen technology incubation systems as a mechanism for creating
high technology-based enterprises in areas such as computer software and information technology,
telecommunications, microelectronics, biotechnology and new materials, etc. Also there is a need to revitalize
the traditional economic sectors as well as SMEs which significantly contribute to the industrial production,
export and employment, particularly in developing countries.

The present study undertaken by Economic and Social Commission for Asia and Pacific (ESCAP) outlines
the concepts and practices of Technology Incubators (TIs), besides some related catalytic actors, in select countries
primarily based on the information and details collected by an ESCAP sponsored two member study mission to
some technology incubators in Japan, Malaysia, Republic of Korea and Singapore, during 24 April to 9 May
2000. The study also briefly covers a few other countries such as the United States of America, United Kingdom
of Great Britain and Northern Ireland, Germany, Russian Federation and Eastern and Central Europe, China and
India, based on information from secondary sources. The report then makes some recommendations and policy
options relating to creating or strengthening technology incubators and for facilitating implementation of the
identified priority projects by both government and the private sector as well as by international organizations
such as ESCAP, in the short term and long-term. Since the study is mainly based on limited data and information
available during the short visit of the study mission to a few select countries only, it is bound to be limited in its
contents and recommendations made here and, therefore, should be taken in this perspective.

The main goal of business incubators is to promote continuous regional and national industrial and
economic growth including increasing of employment through general business development or to stimulate
specific economic objectives such as industrial restructuring and wealth generation or utilisation of resources.

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The incubator combines a variety of small enterprises support elements in one integrated affordable package.
It has a special niche, that is, nurturing early stage, growth oriented ventures, through focussed assistance within
a supportive environment. A Òthird generation systemÓ termed as ÒInternational Enterprise CentreÓ is reported to
be emerging to bring under single aegis the full range of support services for development of knowledge based
business, with linkages to universities research institutes, venture capital and international joint ventures.

The main concern of Technology Incubators (TI) is to bolster the technology development stage. It aims
to complete technological ideas for technologies under development. However, in practice, the primary goal of
technology incubators is to promote the development of technology-based firms, and assist them in completion of
the technologies under development. These are located at or near universities, R&D institutes, and Science and
Technology parks. They are characterized by institutionalized links to knowledge sources including universities,
technology transfer agencies, research centres, national laboratories and skilled R&D personnel. The aim is also
to promote technology transfer and diffusion while encouraging entrepreneurship among researchers and academics.
Technology Incubators, in practice, is a variant of business incubator and, in fact, combines broadly the functions
of technology business incubator and innovation centre. In fact, TIs should be looked upon, in the broadest
sense, as a mechanism for long-term capability-building and regional or local developments.

Research parks and S&T parks are integrated large facilities, mostly real estate development driven and
located in or near the major universities or R&D institutions. They are mostly promoted and supported by the
national governments along with regional or local development agencies, easier availability of financial grants
and investments and loans on soft terms is a major attraction to the tenant corporations or organizations which
are usually large and even TNCs or other foreign companies. Technology Incubators are usually a part of the
S&T parks or linked organically and are capital intensive.

The above definitions are only broad and general and vary from country to country or even in the same
country. There are about 3,000 incubators of various types in the world, about half of which are located in the
United States of America and Europe. Among developing countries, China has taken the lead with about
130 incubators. Among industrializing countries, Republic of Korea is reported to have taken lead with about
300 incubators. Japan and Singapore are also making serious efforts to promote technoentrepreneurship in
high-tech businesses through technology incubators. The objectives, models, practices and impact etc. appear to
widely vary. Some countries such as the United States of America and Germany and also Republic of Korea
have reported much better success rates for graduating and graduated enterprises over a period of about two
decades but in countries such as Malaysia and China, any meaningful conclusions are yet to be drawn. The trend
is now towards International Technology Business Incubators (ITBI) to attract foreign companies and R&D
organizations to promote international linkages or R&D globalization and also sector specific incubators especially
in high-tech areas including information technologies.

The stated good practices include: strong and deep commitment of the promoters, well defined objectives
and missions, recruitment of competent and dynamic management team and constitution of an advisory committee
of members from promoting organizations and select experts; focus on cluster based technologies; selection of
tenants according to ÒneedsÓ and ÒfitsÓ with set criterion including residency time, tailor and leverage existing
services, build on local and international linkages, diversified sources of finances, shared experiences, and improved
evaluation mechanisms.

The various catalytic factors for supporting and expediting technology incubation for high technology-
based enterprises include: well coordinated implementable national policies including S&T, industrial, trade &
commerce, and finance policies; strong R&D institutions and capabilities including researchers and academia;
larger investments in R&D including liberalized tax structure and grants; technical entrepreneur development
programmes and incentives, innovative financing support system including venture capital, angel investors,
specialized and liberalized stock exchange systems for high-tech enterprises; Intellectual property assistance and
professional services including legal and technical consultancy services; development of S&T parks; establishment
of strategic business alliances and networking; and support for standardization, quality management and marketing
etc. The nature of these factors will, however, vary with the stage of development and national objectives.

The TIs essentially assume the following:

◆ Strong R&D and technological capabilities in R&D and academic institutions and availabilities of
R&D results/technologies for commercialization.

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 ◆ Potential technopreneurs, including researchers, who are willing to translate their ideas/technologies
into products and services, are available.

The resources, technological and industrial capacities and infrastructure are widely different in developed,
industrializing, developing, least developed, island developing and transition economies, although the basic policies
tend to be similar since most countries do not want to be marginalized in the process of globalization.

The total R&D expenditures range from about 0.1 per cent to 3 per cent or even more, of GNP in
different groups of countries. The absolute amounts of national R&D expenditure are subcritical in several
countries and may some times be less than R&D expenditures of a TNC in advanced countries. Further, the
corporate R&D expenditures are much lesser (about 20 per cent) than those of the governments (about 80 per
cent) in most of the developing countries. Also, the quality of support infrastructural facilities such as
communications, transport, roads, education, financing institutions, etc. vary widely among various groups of
economies, and influence the technology incubator activities as well as the quality and levels of technopreneurs
or technology-based enterprises. Thus, the models of incubators in different groups of economies have to be
necessarily different.

Besides development of high-tech enterprises in areas such as information technology, computer software,
internet and e-commerce, biotechnology, microelectronics, etc. it is necessary to apply new technologies to
revitalize existing enterprises, including SMEs, in the traditional economic sectors and to promote new enterprises
based on natural resources or comparative advantages. Also, the industrial clusters and industrial estates etc.
which have come up over the years in various countries need to be vitalised or reoriented through appropriate
models of technology incubators located therein, with their connectivity to the larger incubators or S&T parks.
In many countries such as India, Republic of Korea or even Japan, old corporations are reorienting their strategies,
including privatization of public sector companies, and adopting Voluntary Retirement Scheme (VRS), etc. to
reduce the strength of their employees. This is creating unemployment in the society. Also, technopreneurs who
have vast managerial and technical experience and capabilities, have worked in senior positions and are willing
to start their own enterprises need initial support to become technopreneurs. At the same time, a new generation
young technopreneurs are emerging whom also need to be encouraged and supported. Thus, the strategies for
technology incubators would be different for different groups of economies and targets in the region.

B. Recommendations for technology incubation

1. Government

(a) Development of Technology Incubators should be explicitly included as an objective in S&T

policies to promote and nurture high technology-based enterprises and specific financial outlays. Presently,
promotion of technology incubators is generally implicit.

(b) In some countries such as Republic of Korea or Singapore or Malaysia, a number of ministries/
departments are involved in the promotion of technology incubation systems. There is a need for well-coordinated
and united efforts, with clear distinctions and responsibilities for each agency. Similarly, various policies related
to the incentives, tax structure, real estate development, operations, skill-development and education programmes,
development of SMEs etc. should be evolved in consultation with the technology incubator promotion agencies.
State governments and local bodies should be fully involved and should be stakeholders. Consortia approach
should be useful.

(c) In developed countries and also in newly industrializing economies, the focus should generally be
on nurturing new technologies of generic nature through sector specific incubators mostly located in or near
a university or an R&D institution, with the ultimate objective of developing new TNCs. The industrializing
economies in transition and developing countries may, however, need to develop generalized technology incubators
and sector specific incubators to support the restructuring of traditional economic sectors, including industrial
clusters and estates, located at these places. In least developed and island developing countries initial focus may
be on the development of simple business incubators with technology as a central theme and located in industrial
estates and industrial clusters.

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 (d) Closed wall type of TIs equipped with integrated and sophisticated S&T facilities near a scientific/
academic institution or as an integral part of technology parks may be desirable in developed countries. In
developing countries, open wall type or virtual incubators (figure 2.5) with access to R&D facilities and support
services, including professional services, requiring minimum investments may also be desirable. In fact, with the
availability of modern information technologies and communication facilities, virtual incubators may be suitable,
even in developed or industrializing countries, and could be widely dispersed all over the country. In this
connection, the concept of Incubator Management Companies (IMCs), as in case of Singapore, may be considered
to nurture high technology-based enterprises (figure 2.6).

(e) Once the objectives, location and models are defined, the government and the promoting partners
should constitute an advisory committee and select a dynamic and professional expert as chief executive to
implement best management practices. The deep and continuing commitment of the government and the
management team is extremely necessary, besides ensuring adequate financial grants/support to the incubators
and the incubatees for capital and recurring expenditures though the same may taper down over a period of time.
The incubator management should be given to a private entity with freedom to operate and manage affairs,
within certain parameters.

(f) Incubatees and graduated enterprises should be given preference in R&D grants, government
purchases, low cost loans, etc. New mechanisms should be evolved and encouraged for financing systems such
as venture capital, angel investors, specialized stock markets and listing arrangements, patents and technology
auctions, patent insurance, etc. Asia Monitoring Fund, with emphasis on high-tech enterprises, may be worth
considering. Use of information tools such as Internet, websites, e-commerce, etc. should be encouraged.

(g) The national R&D expenditures, both public and private, should be enhanced continuously so that
R&D facilities and expertise in universities and R&D institutions are strengthened and researchers/academicians
are encouraged to become entrepreneurs. Patentable R&D should be encouraged. At the same time, young
technopreneurs should be trained and supported to nurture their technology-based businesses. Mechanisms need
to be evolved to cover or share the risks in high-tech businesses. Some of the R&D institutions may be
corporatized as in Japan.

(h) International Technology Business Incubators (ITBI) should be encouraged to attract foreign R&D
institutions and companies, including TNCs and local technopreneurs, should be encouraged to go abroad to
globalize R&D and undertake contract research and also to enhance accessibility to international R&D systems.
Collaborations and partnerships should be encouraged.

(i) Government should support and encourage the setting up and networking of Technology Incubators
Associations within the country and outside. Exchange of experiences, organizations of trade fairs and exhibitions
for technologies and products of incubatees, at national and international levels, should be encouraged. Since
incubatee and graduated companies are generally small and with limited resources, such activities would assist
them in marketing and promoting cooperation.

(j) Inward and Outward FDIs for SMEs with related technology transfers should be encouraged
through TIs. TIs may even be technically involved in selection and acquisition of technology by large corporations
in public and private sectors.

(k) Concerted efforts should be made on a long-term basis to develop trained and skilled manpower
and mobility of S&T personnel between industry and R&D institutions should be encouraged. There should be
no disrespect to researchers who have been unsuccessful as technopreneurs.

(l) Intellectual property systems including patent literacy, search and filing facilities should be
encouraged through training etc. and financial support should be given to file patents abroad through the TIs.

(m) Incubatees and graduated enterprises should be encouraged and supported for international
certification such as for ISO-9000 and ISO-14000, quality management and energy conservation, etc. In fact, TIs
themselves should be encouraged to obtain such certifications.

(n) Technology Assessment and forecasting services, besides technology related information, etc. should
be available to TIs and tenants. Also, TIs can advise the SMEs and corporations in legal and technical matters
related to technology transfer and joint ventures or collaboration arrangements for development and acquisition
of technologies.
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 (o) There is a need to evolve and promote widely dispersed TIs involving lesser capital and low cost
of operations, meeting technological and professional services needs of tiny units, artisans and craftsmen etc.
There are some specific clusters of niche areas in developing countries which are not covered by TNCs but have
economic and social relevance and need modern technological inputs. For example, handicrafts, lock industry,
glass industry, carpets, garments, etc. in India. Virtual incubators may help to promote and support such enterprises.
Even simple business incubators may initially be useful in such cases and later, may be upgraded to technology
incubators, specially in least developed and island developing countries.

(p) Impact and performance evaluation of TIs should include technology related parameters such as
number of technologies developed, commercialized and transferred; number of patents granted and used, the
royalties and know-how fee earned, etc. besides the more popular parameters such as number of enterprises
incubated and survived, employment generated and annual turnover achieved. The former parameters have long
term and overall capability strengthening impact on economy. However, the evaluation procedures will also
largely depend upon the objectives.

(q) TIs in low cost new buildings which are small and compact and specifically designed should be
preferred rather than renovating old buildings. Location is an important criterion to attract good tenants. The TIs
may be housed in intelligent buildings with efficient business and office facilities including communication
services and provision of external expert professional services such as technical consultancy, legal, marketing
support, etc. The R&D and technical facilities available elsewhere should be networked rather than creating
expensive facilities in TI itself. Such an approach will require minimum investments.

(r) International collaborative arrangements and agreements at government level should identify
opportunities for possible linkages with institutions and among TIs in different countries and seek expertise or
technical assistance if necessary.

(s) Each government should develop its own models as per objectives and available resources, after
careful assessments of needs and planning. Perhaps a combination of physical technology incubators with large
investments and virtual incubators with minimum investments may be appropriate for most of the developing
countries. Technology incubators should aim towards technological capability-building for capability exploitation
in the country. Also, TIs should be proactive rather than reactive.

2. Private Sector

(a) Large Corporations, private universities, training institutions, R&D institutions, industrial
associations, export promotion councils and trade development agencies etc. should also promote technology
incubators independently or jointly with government agencies with focus in their respective areas of operations.
Private financial support agencies and investors etc. should also actively associate themselves with the government
supported or privately promoted incubators.

(b) Foreign companies and TNCs should support TIs in specific areas to augment their R&D and
technological capabilities, as is being done by Oracle in Singapore. TNCs can also set up R&D centres or
centres of excellence in developing countries, as in India, which can be linked to TIs. R&D costs in developing
countries are usually much lower than those in developed ones. However, generation of knowledge and skills is
important to attract TNCs.

(c) Large corporations and SMEs should seek the services of TIs during technology transfers and
while going for inward or outward FDIs.

(d) Large corporations can subcontract their R&D or technology development projects to TI companies
and also source their requirement of goods and services from TIs or their graduates.

(e) Private agencies can promote and manage real estate or property development driven TIs and
technology parks as in case of some developed and industrializing countries.

(f) International Technology Incubators may be promoted by large corporations or TNCs in their
home countries or abroad to attract the best of talents and services or residents abroad.

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 (g) Exchange of R&D personnel and professionals between the TIs and manufacturing companies and
also training arrangements may be encouraged by industrial associations.

(h) Private corporations as well as SMEs should increase their R&D expenditures in developing
countries. At the same time, private corporations in developed countries should enhance their R&D efforts in
basic sciences or generic technologies, besides setting up universities and specialized research centres especially
in thrust areas identified by the government.

(i) Industrial associations should actively interact with TI associations and networks and support their
activities in mutual interest.

(j) Private bodies should be on the management committees of government supported TIs and
vice-versa.

3. Regional/Subregional

(a) ESCAP and other international promotional agencies should assist national governments in
developing trained managers and human resources or establishing and operating technology business incubators
so as to adopt best practices or to enable them to evolve their own practices and models. Workshops and training
programmes may be organized towards this objective besides supporting exchange of experts or deputing experts
from countries having experiences in technology incubators to those desiring to promote such incubators.

(b) ESCAP may document experiences in developing countries and prepare guidelines for promoting
technology incubators in developing and least developed and island developing countries as well as for economics
in transition.

(c) ESCAP should support establishment, strengthening and networking of national and regional
association of incubators including Asian Association of Incubators. It should also support the exhibition of
products and technologies of incubatorÕs enterprises for possible international technology trade and cooperation
among SMEs in the region. This would encourage internationalization of R&D and technology transfer, with or
without FDI in the region.

(d) Asia and Pacific Centre for Transfer of Technology (APCTT), New Delhi, is already implementing
an UNDP funded project on ÒNurturing Technological Entrepreneurship through Science and Technology
Entrepreneurs Parks and Technology Business IncubatorsÓ, with an aim of creating two first ever technology
business incubators (TBIs) in India to promote linkages with R&D institutions and industries. Such projects may
also be implemented in other developing countries. APCTT can play an important role in identifying R&D
projects which can be implemented through partnership arrangements among the TIs in various countries, having
mutual complimentarities and supplementaries.

(e) A revolving fund may be considered to promote technology incubators in various economies of the
region.

(f) ESCAP and APCTT should support technopreneurship training programmes particularly in areas
such as technology management, patents and intellectual property systems, International Standards such as
ISO-9000 and ISO-14000, technology transfer arrangements and issues, and awareness about the laws, rules and
regulations in various countries including WTO agreements and implications therein. For example, information
about Technical Barriers to Trade (TBT) is an important issue and may need R&D or technology development
activities for enhancing exports.

(g) ESCAP should support and facilitate the development of innovative financing support systems,
especially to meet the expenditures till venture capitalists or angel investors become interested. Technology
auction, patent auction and patent insurance are some of the new mechanisms emerging in developed countries.
There is a need to examine and create awareness about such mechanisms.

(h) ESCAP should support and facilitate technical capability-building of institutional organizations to
create intellectual property and related expertise for technology-based enterprises. For example, researchers and
technopreneurs should be supported to further undertake development work on Ph.D. thesis projects in various
universities through technology incubators, after careful screening and assessment of possible industrial potential.

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 (i) Establishment of virtual incubators in industrial clusters and in niche areas for craftsmen, artisans,
and women, relevant for rural development and needing technological upgradation or development of new
technologies for specific requirements etc. in developing, least developed and island developing countries should
be supported. Expert services should also be made available in select areas.

(j) ESCAP may support and facilitate capacity building for formulating national policies in science,
technology and industry and national R&D programmes to expedite business and technology incubation. Deputation
of experts to national governments/institutions and exchange of researchers may be supported.

C. Action Programmes

The long-term and short-term action programmes to implement the recommendations made in
paragraph 4. (b) would necessarily be interactive and multidisciplinary involving various ministries/departments
and other organizations, including R&D and academic institutions, in the public and private sectors and would
vary from country to country. However, an attempt has been made here to outline some generic type of action
programmes which may be appropriately modified to suit specific requirements.

(a) National

1. The government may set up a specific division in the Ministry of Science and Technology or the
Ministry responsible for S&T developments, with specific financial budgetary outlay, for the development of
technology incubators to promote and support high-tech enterprises in chosen areas.

2. An interagency Task Force or a high level committee may be constituted by the office of Prime
Minister/President and may be serviced by MOST, with members from the various economic Ministries and
development organizations, R&D institutions, financial institutions, industry, and consultants etc. at the central
and state levels. This committee should be charged with the sole responsibility and authority to evolve and
implement technology incubation programmes in the country.

3. Technology Incubation promotion divisions may also be set up in key economic ministries/
departments such as industry, commerce, and education, in coordination with MOST.

4. A survey should be carried out to identify the strengths of important R&D and academic institutions
in the country, including the commercializable technologies, advanced or specialized S&T facilities and expertise
available, and the scientists/engineers/professors interested in becoming technopreneurs. This should be widely
publicized within the country and abroad.

5. Efforts should be made to identify technopreneurs needing the facilities/expertise available in

national or private R&D and academic institutions. Interactions with industrial associations, industrial clusters of
SMEs, etc. would be helpful, besides inviting proposals through advertisements in various modes including
websites, Internet, etc.

6. Officials responsible for technology incubator promotion programme should be trained and exposed
to the technology incubation systems in developed countries such as the United States of America and Germany,
or advanced developing countries such as Republic of Korea, Malaysia and Singapore. Also, experts from these
countries may be invited for training and creating awareness about the role of technology incubators in developing
countries. At the same time, entrepreneurship training programmes should be implemented.

7. Large corporations including TNCs and small enterprises from other countries may be invited and
encouraged to set up their R&D facilities or new enterprises in the incubators and also R&D collaborations and
contract R&D may be encouraged at institutional and enterprise levels. Domestic technopreneurs may be
encouraged to undertake technology related subcontracting or partnerships with foreign enterprises. Quality
foreign direct investments in high-tech enterprises should be encouraged, preferably involving export-oriented
products and services.

8. Technology related new products and services from the incubatee enterprises should be given
preferential treatment in government purchases, besides better tax incentives and other concessions and more
financial grants in the developmental phase, through incubators. All incubators should be encouraged to obtain

60
ISO-9000 and other relevant certifications and have their own websites etc. Patenting services and consultancy
services should be freely and easily available to high-tech incubatee enterprises.

9. Liberalized and innovative financial facilities should be evolved and made available to the incubatee
enterprises, starting from early phase of their commercial activities. These may include interest free loans,
venture capital, angel investors, technology mortgage and insurance, SWEAT Capital, employees shares option
programme, etc.

10. Advanced developing economies may predominantly promote new and emerging sophisticated
technology-based enterprises while other developing economies may promote relatively simple technology-based
enterprises. That is, integrated technology incubators, mostly sector specific, may be encouraged in advanced
developing economies and simple business incubators or technology business incubators in other developing
countries which may be integrated or upgraded later. Particular attention may be given to the technological
needs of SMEs and simple business incubators may be set up in industrial clusters in cooperation with industrial
associations and regional development agencies. Business plans need to be prepared in each case.

11. In the long-term, policy initiatives should be taken to strengthen S&T infrastructural facilities
increasing national R&D expenditures through increased government and private R&D initiatives and to develop
skilled and specialized S&T personnel. Networking and strategic alliances of incubators, including association of
incubators and incubatees, should be encouraged and supported. Incubators should promote venture capital
enterprises or other forms of technology financing.

(b) Regional/subregional

1. International developmental and promotional organizations such as ESCAP should evolve and
undertake projects to promote and support the capability-building for establishment of technology incubators in
developing countries, particularly in less developed and transition economies. These activities may include
support for training, services of experts, exchange of experiences through workshops and seminars, organization
of exhibition of technologies, products and services from incubators in various countries, etc.

2. The technologies and technological capabilities available in member countries of ESCAP should
be assessed and documented for possible technological cooperation among the incubators and incubatees. Manuals
and guidelines may be prepared for the establishment, operation and practices etc. for technology incubators in
different groups of economies in the region. A revolving fund may be considered for the incubators, which may
be operationalized through APCTT.

3. ESCAP may commission a study relating to various innovative financing systems for the guidance
and benefits of high-tech enterprises.

4. APCTT should play a pivotal role in the formulation and implementation of the above-mentioned
activities including setting up of incubators and information sharing and networking of incubators in the region.
A periodical or a magazine may be brought out by APCTT on technology incubators and related activities in
various countries. It may also interact with organizations such as UNDP, UNIDO and UNFSTD etc. which are
actively engaged in the development and promotion of technology incubators in developing countries all over the
world.

5. ESCAP should support and encourage the setting up of national and regional associations of
incubators and promote cooperation at policy-making and operational levels among the member countries, besides
strengthening their technology related capabilities.

V. CONCLUSIONS

The main concern of technology incubators is to bolster the technological development stage and to
complete technological ideas for technologies currently under development. However, the technology incubators
are commonly known to include concepts of technology business incubators and innovation centres. The goal of
technology incubators is also to promote the development of technology-based firms, and to address regional or
local developmental issues through applications of S&T. These are usually located at or near universities and

61
science and technology parks. They are characteristized by instutionalized links to knowledge sources including
universities, technology transfer agencies, research centres, national laboratories and skilled R&D personnel.
Technology incubators promote technology transfer and diffusion while encouraging entrepreneurship among
researchers and academics. TIs are long-term investment towards S&T and industrial capability building and not
merely a commercial entity.

A technology incubator is a managed workspace with low cost office facilities and business and professional
services necessary for nurturing and supporting early stage growth of technologies and technology-based enterprises.
The services may include modern communication and information services and access to the R&D, testing,
design and engineering etc., facilities and services. The objective is to cover some of the risks involved in the
early stages of incubation of technologies and technopreneurs particularly in case of high-technologies such as
information technologies and telecommunications, computers and microelectronics, biotechnologies, etc.

In developed countries having strong scientific and technological capabilities in public and private sector,
there could be a large number of R&D results or ideas or infant technologies in universities or R&D institutions,
which may have high potential for growth into multinational corporations and need to be nurtured in their early
stages. These countries spend large amount on national R&D, about 2-3 per cent of GNP, out of which 50-80 per
cent is contributed by the industry. On the other hand, in developing countries the total R&D expenditure is
generally in the range of 0.1 per cent to 1.0 per cent. In absolute terms, these expenditures are even at subcritical
levels for meaningful R&D. In most of such cases the total R&D expenditure is even less than the R&D
expenditure of a major transnational corporation in the United States of America or Germany. However, some of
the industrializing developing countries have invested considerably in R&D, as about 3-4 per cent in Republic of
Korea and planned to be increased to 5 per cent of its governmentÕs total budget in next few years. Similarly,
Singapore has planned to raise its R&D expenditure to more than 2 per cent of GNP. China, India, and Malaysia
have also planned to raise their R&D expenditures substantially in near future. Also, it may be better to identify
new and specific areas where TNCs or large foreign companies may not have much interest and are essential for
local development or even relevant to other countries.

Also, in most of the developing countries, the R&D expenditures by industry (about 20 per cent) are
much smaller compared to government expenditure (about 80 per cent) while in developed countries and
industrializing countries such as Republic of Korea, this ratio is reversed.

In view of diversified scientific and technological capabilities, the availability of commercializable R&D
results varies widely being very small in most of the developing countries. In such situations, the models of
incubators will also vary and so will the best practices, objectives and evaluation criterion. In developed countries,
technology incubators are capital intensive, equipped with simple to sophisticated S&T facilities and mostly
property development driven activities. The governments provide financial grants to incubators almost on
a recurring basis while incubatees are given preferential treatment for R&D grants, tax incentives, soft loans,
relaxation in various rules and procedures etc. The incubators are usually integral to S&T parks which are huge
self-contained areas with all facilities to attract large corporations and TNCs. In developing countries, resources
are limited and problems are of different nature and, hence, the incubator models also have to be different.

The globalizations of economics and internationalisation of trade and competition, faster technological
developments and the emergence of new information tools and techniques such as e-commerce and internet, have
led various countries, particularly developing ones, to reorient or restructure their industrial and economic policies
and to develop stronger S&T capabilities. No country wants to be marginalized in this technology and knowledge
driven society but resources and capabilities are limited. Foreign Direct Investment and related technology
transfers, globalizations of R&D and various agreements of World Trade Organization (WTO), etc. are offering
challenges and opportunities to the developing countries, especially to knowledge based and high-tech industries.
At the same time, issues such as unemployment, revitalization of core economic sectors and industrial clusters of
SMEs and also the tiny sector and rural development etc. need to be addressed in the changed scenario where
acquisitions and mergers, Òcompete and cooperateÓ and increasing R&D costs are the order of the day.

The range of services provided by technology incubators aim to help small firms exploit and commercialize
research knowledge. These services include: physical infrastructure, management support, technical support,
access to finance, legal services and networking. The good practices for promotion and operation of technology
incubators include: defined objectives and mission; recruitment and training of entrepreneurial managers; dynamic
and competent chief executives and deeply committed promoters and advisory committee; assured adequate

62
financial support; focus on cluster-based technologies; selection of tenants on needs and merits; tailor and leverage
existing services including networking; build on local and international linkages; diversified sources of finance
including venture capital, angel investors; patent auction, technology auction, patent insurance; liberalized norms
for stock exchanges; sharing of experiences; improved evaluation mechanisms and training and skill upgradation
for the tenants.

The catalytic factors for supporting and expediting technology incubation for high-technology-based
enterprises may include: conducive and coordinated national policies (S&T and others), strong R&D institutions
and research oriented academic institutions, technical entrepreneurs development and support measures, innovative
financing system, intellectual property assistance/technical consultancy assistance, establishment of science and
technology parks, strategic business alliances and networking, technology incubator associations, standardization,
quality control, marketing support, etc.

National and local governments, with or without private participation, are usually the promoters of
technology incubators. In some cases, private corporations have also taken initiatives to promote technology
incubators, including those around private universities. Private and independent management, even for government
promoted incubators, is preferred. Real Estate development driven technology incubators attract better and more
prestigious corporations and TNCs, besides good technopreneurs. TIs can be general as well as sector specific.
The trend is to develop TIs in high-tech sectors such as information technology, e-commerce, microelectronics,
computers, biotechnology, drugs and pharmaceuticals, etc. even in developing countries such as Malaysia and
Singapore.

Keeping in view the S&T capabilities, financial resources and the needs arising out of the globalizations
of economies and internationalization of trade and R&D, to revitalize the core sector capabilities already built, to
provide employment and assist industrial and tiny sector clusters, etc. in industrializing and developing countries,
least developed countries, island developing countries, and transition economies, the following models of
technological incubators are suggested:

1. Well-equipped technology incubators at or near universities/R&D institutions as an independent

but closely networked with knowledge sources. They could be ÒgeneralÓ or specific to the expertise of the
concerned university/R&D institution, and integral to S&T parks.

2. Virtual incubators or Òopen wallÓ type incubators located at or near industrial clusters of SMEs or
at the concentration of tiny sectors or in rural areas.

3. Incubator Management Companies identified by the government and interested in technology

incubation programmes, with R&D grants and venture capital, etc. from the government or jointly with private
corporations.

4. International technology incubators to globalize and internationalize the R&D and encourage transfer
of technology with or without foreign direct investments. Based on a survey of a large number of companies in
the United States of America and other countries by Arthur D. Little, it was found that most companies globalize
generally to acquire new knowledge, to be close to external customers or to accelerate deployment of technology.

5. Each country will, however, have to evolve its own model/models depending upon the need,
capabilities and resources.

6. Recommendations have been made and an action plan is suggested to implement these
recommendations to promote and strengthen the technology incubation systems for development of
technology-based enterprises in developing countries on short-term and long-term basis. These relate to the
national and local governments, private sector, and regional and subregional developmental agencies such as
ESCAP and UNDP.

63
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66
 Appendix 1.1. Visit details of study mission

Date Important organizations visited Chief contacted

24 April 2000 ESCAP, Bangkok International Trade and Industry Division

25 April 2000 Technology Park, Malaysia Dr Datuk Salleh Ismail, President/Chief

Executive Officer

26 April 2000 UPM-MTDC Technology Incubator Mr Shahrul Mubin b. Yaa Kub, General Manager
Malaysian Technology Centre, University MUHD Shaman Bakar, Executive Director
Research Park, Serdang (MTDC) Malaysia
MSC Central Incubator Multimedia Development Dr Norsaidatul Akmar Mazlan, head of MSC
Corporation Ltd., Malaysia Central Incubator
Pusat Teknologi Puntar UKM-MTDC, Malaysia Mr Tang Chee Kwan, manager
Chembell Technology Ltd., Malaysia Mr Kenny Ng Kuan Chong, Regional manager
Skali. Net UPM-MTDC, Malaysia Mr Mohd. Fadilah halim, Business manager

27 April 2000 National Science & Technology Board, Mr Francis Yeob Asstt. Managing Director
Singapore
Confederation of Indian Industries, South East Mr Amitabh Khosla, Deputy Director
Asian Regional Rep. Office, Singapore

28 April 2000 Asia Pathways P. Ltd., Singapore Mr Jim Obendorf, Vice President
Mr Anthony Koh, Vice President
Singapore Productivity and Standard Board Ms Mally Teo, Senior Officer
Technopark Chai Chee, Singapore Mrs Tan Sea Hoon, Executive
Mr Jason Chew, Asstt. Manager
M/s. National Computers Systems P. Ltd., Mr Quek-Chang Noi kee, Catherine, Senior
Technopark Chai Chee, Singapore Manager
Mr Tan Kim Leng, Senior Manager
M/s. 1-Net Singapore P. Ltd., Technopark Mr Amos Jen Kim Fei, Senior Consultant
Chai-Chee, Singapore Mr Cherry Choo, Manager
International Video Conferencing Centre Mr Alan Go, Director
Technopark Chai-Chee, Singapore

1 May 2000 KSP, Tokyo Mr Kei Iznuma

2 May 2000 National Institute of Science and Technology Dr Kinjz Gonda, Senior Director
Policy, S&T Agency of Japan, Tokyo
Embassy of India Tokyo Dr U.S. Tandon Counsellor (S&T)
Embassy of Republic of Korea, Tokyo Counsellor (S&T)

4 May 2000 Taejon Science City, HTVC, etc., Prof Kim Jong Duk, Director and
Republic of Korea Chief Executive HTIC
Small and Medium Business Administration, Mr Changsoo Suh, Director
Venture Businesses

5 May 2000 KAIST, Innovation Centre, etc. Taejon Science Prof Kim
City Republic of Korea

6 May 2000 Ministry of Science and Technology, Seoul Dr Yoo-Hyun, Moon, Director General
Mr Choi Kwang-Yun, Director
8-9 May 2000 ESCAP, Bangkok International Trade and Industry Division

67
II. STRENGTHENING TECHNOLOGY INCUBATION SYSTEM
FOR CREATING HIGH TECHNOLOGY-BASED
ENTERPRISES IN JAPAN

BY

ESCAP RESOURCE PERSON, MR SHIGEKI SADATO

PROJECT DIRECTOR OF VENTURE INCUBATOR
KYOTO RESEARCH PARK CO., LTD., JAPAN

69
 Research shows that the number of public Japanese incubators had reached 120 early this year. The
number of private incubators is estimated to grow approaching 50-60 in the near future. These figures support
research that indicates the number of incubators has increased rapidly in the past five years.

I. JAPAN ASSOCIATION OF NEW BUSINESS INCUBATION

ORGANIZATIONS (JANBO)

Japan Association of New Business Incubation Organizations (JANBO) was established in June 1999 as
Japan’s first nationwide network to support new businesses through enhancing the business incubators operations.
JANBO activities are summarized as follows:
◆ Holding annual meetings and seminars related to business incubation
◆ Carrying out training programmes for incubation managers
◆ Developing a network for information exchange among members
◆ Offering an electronic BBS for queries from members
◆ Serving as a Japan-wide point of contact for incubation-related inquiries
◆ Selecting and honoring the best incubators and managers.

A. JANBO members and structure of the regional platforms

As of 1 May 2000, JANBO had 50 Core members and 1,000 supporting members. These members
organize the structure of regional platforms to support start-up enterprises. Through transregional partnerships
with core member institutions and other groups, they provide one-stop service for fledgling entrepreneurs.

The groups include the following organizations and individuals:

◆ Incubators and Rental Laboratories
◆ Universities and R&D Institutions
◆ Venture Capitals and Bankers
◆ Technology Transfer Agencies
◆ Business Circles
◆ Supporting Professionals such as Accountants, Lawyers and so on.

In collaboration with supporting groups, the core institutions are able to provide the start-ups with
one-stop services covering business and technology fields.

B. Industry type of tenant enterprises

Industry type of tenant enterprises in incubations are shown as follows:

◆ The largest ratio of 31 per cent indicates the software industry
◆ The second largest ratio of 19 per cent means the processing and assembly industry
◆ Material, consumer-related, machinery design, research laboratory and consulting industry respectively
range from 2-3 per cent.

C. Incubation case studies

JANBO tentatively categorizes the incubations into three types:

◆ R&D type
◆ Rural type
◆ Private-sector-led type

71
KAP (Kazusa Academia Park)

KAP is categorized as R&D type. It is located in the suburb of Chiba Prefecture, and managed mainly
by the prefecture government.

KAP consists of 3 key facilities:

(a) DNA Research Institute

The institute completed the world’s first structural analysis of a complete genome.

(b) Incubation Centre

It consists of 8 laboratories with now full occupancy.

(c) Kazusa Ark

Ark facilities include a convention centre, first class hotel and some sports facilities. These facilities
promote academic information exchange and communication.

HIC (Hanamaki Incubation Centre)

HIC is categorized as a rural type. It is located in Hanamaki City in the northern part of Japan.
Hanamaki is a beautiful garden city with population of 72,000.

HIC was founded and is managed by the city government. The total floor space amounts to 1,500 sq m
Rental laboratories and test equipment are available at low cost for the tenant companies.

HIC utilizes resources such as agricultural products and, for example, succeeded in developing food
products using bean curd residue such as a high-protein, low-calorie ice cream. It has a broad supporting
network with Iwate University, companies in newly developed industrial parks and other public organizations.

KRP (Kyoto Research Park)

KRP is one of private-sector-led-type incubations. It began its operations in 1989. Outline of KRP is as
follows:

◆ Total floor space: 106,000 sq m

◆ Tenant companies: 125 companies and 7 institutions
◆ Occupancy rate: 98.5 per cent

KRP has double functions as a member of regional platform and as an independent incubation.

II. A KYOTO RESEARCH PARK (KRP) CASE STUDY

KRP has now 10 buildings in the area of 5.1 ha in the west central part of Kyoto City. Osaka Gas Co.,
which formerly used this area as gas production site for over 50 years, closed down in 1978. After much
consideration on how to use this area for new business development, Osaka Gas decided to redevelop the area as
an urban-type, profit-based and privately-owned research park modeling after UCSC (University City Science
Centre) of Philadelphia, Pennsylvania in the United States of America. UCSC is a non-profit organization and
managed by a consortium of universities and local governments such as University of Pennsylvania, Drexel,
Temple, Delaware State University and so on.

72
 A. KRP overseas networks

KRP began its operations in October of 1989. Up to now, the total rental floor space amounts to
1.1 million sq m. The number of tenants is now 132, including 7 institutions and 125 companies. Occupancy
rate is at a record high of 98 per cent. Annual revenue has reached $US 42 million and pretax income is
2 million. It became profitable in FY 1996 and we recovered all accumulated losses in 1999.

KRP has a global network among overseas research parks such as USCS, Australia Technology Park,
Oxford Science Park, Tianjin Science Park as well as a domestic alliance with Yokosuka Research Park. KRP
established the overseas subsidiary jointly with UCSC, and through its subsidiary, KRP owns and operates the
rental office space in Science Centre in Philadelphia.

B. Background of KRP

Why did Osaka Gas Co. decide to redevelop the former production site as a research park, an innovation
centre of high-tech industry and IT businesses in Kyoto?

Business Week of June 1999 picked up Kyoto as Japan’s High-Tech Hope and described Kyoto as
Silicon Valley in Japan. On the cover of this magazine, the famous Kinkakuji Temple is not made of wood but of
state of the art of semiconductors. Kyoto City is well known throughout the world as the ancient Japanese
capital from 8th century to 19th century for more than 1,000 years. But now, it has a reputation as the capital of
new venture economy in Japan.

Utilizing the following resources cultivated in Kyoto City, Osaka Gas Co. started a research park business
in 1989.

Entrepreneurial spirit

After World War II, independent and entrepreneur-driven companies were founded in high-tech business
areas in Kyoto. They have grown up into global high-tech companies.

Kyocera
Manufacturer of ceramics for semiconductors, cellar phones, and electronic devices. It was founded in
1959 by Mr Inamori and went public in 1971.

Omron
Manufacturer of factory-automation machines. It was founded in 1948 by Mr Tateishi.

Rohm
Manufacturer of customized semiconductor. It was founded in 1958 by Mr Satoh and went public
in 1983.

Nintendo
Video game software manufacturer and distributor. The product of ”Pokemon” is well known to children
around the world. Mr Yamanouchi, president of Nintendo, has developed this new product-line of video game
software since the 1980s.

For more examples of entrepreneur-driven high-tech companies, we can refer to Murata, Hiroba, NIDEC
and so on.

In the current recession of the Japanese economy, huge companies, mainly based in Tokyo, are suffering.
However, entrepreneur-driven companies in Kyoto are increasing revenues and profits through original product
and technology, flexible and effective management system, global operation, strong leadership and the charismatic
character of entrepreneurs.

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Traditional skills and workmanship

Traditional skills and workmanship have been carefully cultivated in Kyoto for over thousand years.
A sense of beauty and refined skills were fostered and improved in the traditional industries such as textile,
ceramic and industrial art handicrafts. The originality and creativity of products essential to new venture
start-ups are nurtured by the legacy of these industries.

Advanced science and technology

Advanced Science and Technology are present in academic sectors. Nearly 40 universities and colleges
reside in Kyoto City. Kyoto University is sending out globally renowned scholars including 4 Nobel Award
recipients in high-tech fields. Doshisha University, Ritsumei University and other colleges also contribute greatly
to the development of science and technology and also supply the industry with well-trained and educated
people.

Taking advantage of these resources nurtured in Kyoto, Osaka Gas Co. has started research park business
and developed it successfully for ten years through KRP.

C. Tenants of KRP

KRP tenants can be categorized into two types such as institutions and private companies.

As to the first category, seven institutions have missions and operations to support new ventures and
SMEs from a variety of aspects such as technology, management and financing.

As to the second category, 125 private companies have a wide variety ranging from branch offices or
R&D centres of big companies to small start-up companies.

Institutions

Kyoto City Government operates ASTEM (Advanced Software Technology & Mechatronics Research
Institution and KYSA (Kyoto Software Application). ASTEM focuses on the technology of computer-controlled
machines and IT software development. KYSA focuses on human-resource development for the computer
software industry. Both of them have very close research and human relationship with Kyoto University and also
serve as Internet provider to Kyoto citizens at a very low cost.

Kyoto Prefecture Government operates the Service Centre for SMEs. It dispatches consultants of
management & technology to SMEs on their demand and supplies financial support to new ventures and SMEs.

Invention and Innovation Centre helps new ventures consult intellectual property rights at free or cheap
expense.

Kansai Technology Licensing Organization (Kansai TLO) has the missions to transfer university-developed
technologies to companies and to distribute licensing revenues to inventors, universities and Kansai TLO itself.

Research Centre of Nation’s Law supports SMEs by providing information about commercial laws of
nations.

KRP is able to utilize this kind of systematic services provided by the city, prefecture and private
institutions in order to incubate the tenant companies.

Private companies

The ratio of tenants by industry category shows that IT-related new ventures constitutes the largest
number of 40 per cent. Sales and service business and consulting business follow respectively at about 10 per
cent each. Chemistry and R&D related tenants amounts to 6 per cent.

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 D. Incubation programmes for new ventures

Incubation programmes that KRP can provide is ranging from the start-up stage to IPO stage.

1. To educate the entrepreneurs, we are operating an entrepreneur school. About 50 people have
attended this school in the past three years. In addition, the public sectors in KRP provide them with practical
knowledge and skills necessary for operating new ventures through their seminars held in KRP.

2. We can provide the start-ups and growing companies with the following original services.

◆ Economical small rental space (about 4 sq m) with plug-in facility only for the start-ups
◆ Consulting services regarding business model patent, technology transfer, management,
financing and so on
◆ Marketing support service in order to complement the lack of credibility of new ventures.

We make a contract with big companies in the name of KRP and subcontract it to our tenants. These are
good opportunities for the tenants to improve their skills and technology in response to strict demands from big
companies.

◆ We have just structured an IPO support system in collaboration with 5 independent VCs. KRP will
play a role in finding prospective entrepreneurs and introducing them to venture capital partnership.
Jointly with VCs, KRP will also strongly support new ventures towards their IPO.
◆ KRP is a member of Kyoto City Platform for New Enterprise Promotion composed of
12 organizations. Seven members out of 12 organizations have their offices and operation bases
within KRP. Utilizing this platform structure, we can incubate our tenants of start-ups in a more
effective way.

E. KRP activities

Multimedia Research Centre Inc. (MRC)

MRC is one of our prospective tenants operating in IT business field and has the typical traits of a new
venture. The KRP Consulting Team makes a contract with big companies in the name of KRP and subcontracts
it to tenant companies, including MRC, that are specialized in original technologies and skills.

◆ Mr Sakata founded MRC in 1996 at KRP.

◆ He was then 36 years old and started his business with 3 of his friends.
◆ It specializes in planning and producing digital contents.
◆ Now it has 25 employees and its annual sale revenue reaches $2.5 million.
◆ Mr Sakata recruits his staff members through the Internet and encourages them to start their own
company rather than expanding his own company.
◆ His style is typical of the young entrepreneur.

Kansai TLO

KRP takes opportunities to enter into new business by itself. This chart shows the structure of Kansai
TLO, a new institution for transferring university-developed technology to companies.

◆ Kansai TLO was founded in October 1998.

◆ KRP, Kyoto University, Ritsumei University and a government-based VC made investment to
incorporate Kansai TLO.
◆ The Japanese Government supports TLO operations by financing it.
◆ It has now about 400 professors and 200 companies as its membership.
◆ Fifty five patent applications were made during the past year and a half.

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 ◆ Three technologies out of 55 were successfully transferred to companies.
◆ Revenue comes from companies in the form of license fee.
◆ Kansai TLO distributes revenue to inventors, university and Kansai TLO.

This TLO scheme is expected to enhance technology transfer from universities and to promote founding
new companies by professors and postdoctoral students.

A Case Study of Kyoto Instruments Co.

Kyoto Instruments Co. is one of the successful technology transfers by Kansai TLO:

◆ Stable Frequency Detector for Dynamic Force Microscope was invented in Venture Business
Laboratory of Kyoto University.
◆ The new technology was transferred into TLO from the inventors of Kyoto University.
◆ TLO applied patent right to the agency at its own expense.
◆ Postdoctoral student of Kyoto University formed a new company named Kyoto Instrument Inc., to
start the production and sales promotion of new detector.
◆ TLO supported the foundation of new company and transferred the execution right of the patent to
the new company.
◆ In collaboration with professors and TLO, KRP is supporting the operations of this new company
that was established and managed by the post-doctoral student.

Centre for entrepreneurship education

KRP tries to begin the new operations in collaboration with the institutions within KRP. This chart
shows the set-up of Centre for Entrepreneurship Education jointly with the city-government organizations (ASTEM
and KYSA).

The greater KRP consortium is now developing the computer network system to spread this education to
schools and colleges.

The case of Centre for Entrepreneurship Education is as follows:

◆ Entrepreneurship Education for elementary and high school students is essential for enhancing new
venture economy in Japan.
◆ A consortium was organized for this purpose in early last year in collaboration with ASTEM,
KYSA and KRP.
◆ The consortium introduced Entrepreneurship Programme from the United States of America and is
developing an original computer network system to spread this education. By the end of this year,
several high schools and colleges are expected to join this education system.
◆ Students will set up the virtual companies and make transactions with other domestic virtual
enterprises as well as with overseas virtual enterprises by using this computer education system.

III. KYOTO REGIONAL PLATFORM

JANBO focuses on spreading this type of platform all over the prefectures and big cities in Japan in
order to promote new venture creation.

In Kyoto, ASTEM is the core support institution that promotes the platform operations. Seven institutions
out of twelve members of the Kyoto platform have their offices and operation bases within KRP. We are proud
that KRP plays an important role in the platform through conducting its own incubation programmes as well as
providing the platform members with an effective environment for collaborations.

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III. STRENGTHENING TECHNOLOGY INCUBATION SYSTEM
FOR CREATING HIGH TECHNOLOGY-BASED ENTERPRISES
IN GERMANY

BY

ESCAP RESOURCE PERSON,MR GERHARD RAETZ

ARBEITSGEMEINSCHAFT, DEUTSCHER TECHNOLOGIE UND GRÜNDERZENTREN
ADTEV, BERLIN, GERMANY

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 1. INTRODUCTION

The system of business incubation is now an important element of regional economic development and
a solid part of economic policy in different regions and in the national sphere. In particular, business incubation
in innovative and technology orientated fields has a special importance for the creation of new companies with
new products and services for the market use of results of R&D. The incubators in Germany have an essential
role in supporting entrepreneurs and young innovative technology orientated companies in their start-up and first
development steps.

450

400

350

300

250

200

150

100

50

0
1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Figure 1. Development of Innovation Centres in Germany

The history of real business incubation in Germany started in 1983 in Berlin with the opening of the
BIG, the Berlin Innovation and Business Incubation Centre. Since then, there has been a continuous growth in
the number of Innovation Centres, Business Incubators, and Science and Technology Parks in Germany. Now,
there are more than 350 Centres and parks in all Federal States of Germany. It is one of the largest networks of
incubators in the world. The quantitative development of these Centres in Germany is not finished, but we think
that dynamic of growth will be smaller in the future.

More than 10,300 companies with about 70,000 employees started their work in these Centres or realized
their start-up-development there. More than 2,300 companies left these centres to realize the extension of their
company. The companies which started their development in Innovation Centres created about 140,000 jobs.

This development and the collected experiences in Germany is one part of the background for this
presentation. The other is the real work of ADT, the National Organization of these Centres and parks for more
than 15 years. The third is the proper activity of the author in the field of creation and management of Innovation
Centres and in the ADT for more than 10 years.

The incubators themselves will be in the spotlight of this presentation, especially their role as instruments
for regional economic development and as specific service companies for entrepreneurs, new and young innovative
companies.

Their characteristics, the special marks on their quality and their activities will be the central point.
Frame conditions, the success factors and recommendations for future action will be discussed.

2. TECHNOLOGY INCUBATORS – INNOVATION CENTRES

In Germany incubators are a result of a necessary change of economics. Under pressure to create new
enterprise initiatives and in their consequence to create new jobs, the first incubators were established in the
regions with the biggest problems in economic structure.

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 Figure 2. The network of Innovation Centres in Germany

The German “Model” is characterized by the integration of start-up and development of new enterprises
with the development of new technologies. The support of new enterprises with new products for the market is
the basic task of Innovation Centres in Germany.

2.1. Main aims and definitions

2.1.1. Definition and different names

The name “Innovation Centre” integrates different kind of centres and parks like Business Incubators,
Technology Centres or Parks, Science Parks in Germany. In reality, you can find many different names for all of
these centres and parks. These names refer to the regional identification and the general aims for the region.
They characterize different potentials and regional or local aspects.

The use of different names, in general, is unpractical. The important thing is that all kinds of centres and
parks with their different names realize special activities to support new enterprises with new products and
services.
The Innovation Centres in Germany are based on the following concept (see figure 3). Innovation
Centres have their working area in connection with their surrounding which is characterized by the potentials of
industry, science and R&D institutions and service and trade businesses. In this frame, Innovation Centres
integrate three components in general, the first one is a business incubation part, the second one a technology
development part and the third one a transfer and information part.
The business incubation component is characterized by all kind of support activities for entrepreneurs
(see 3.3.1.1). This is not orientated to a special client like innovative or technology orientated start-up companies.
In the foreground is here the development of new businesses in general.

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 Industry

Technology Business
Centre/Park Incubator
Innovation
Centre/Park

Science/ Information & Service &

Research Communication Trade
Centre Business

Figure 3. The concept of Innovation Centres

The technology development component is characterized by support activities to develop special

technologies directly (see 3.3.1.2). In the central point of view are here technologies on a high level and with a
large importance for the future. You can find here special instruments and infrastructure for selected technologies.
The different centres are concentrated to a concrete number of technology fields in connection to the regional
potential especially in R&D.

The transfer component characterized the technology and knowledge transfer between science institutions
and enterprises or between enterprises themselves in all directions. This is an important component to create
strategic alliances and to realize a practicable networking (see3.3.5).

You can find all these components in all Innovation Centres, but in different scales. The conditions in
the surrounding, the regional potential in industry, science and R&D and in the businesses and trade determine
the target of an Innovation Centre.

The concentration of different organizations with technology and economic development activities under
the name “Innovation Centre” is a result of the experiences in Germany. It is more likely to summarize different
experiences and to concentrate different potentials of synergy for support of new enterprises.

2.1.2. Aims in general

Innovation Centres work in real regional conditions, in a concrete frame of industry, science and R&D
and different businesses. Dependent on these facts they realize different tasks in business incubation, technology
development and information and communication. They offer different kinds of support activities to realize their
main tasks (see3.3) in dif ferent intensity. This depends on regional resources, the potentials of entrepreneurs, the
location of science institutions and universities, the industrial potentials in the region etc.

In summary, we say that Innovation Centres are an instrument to support the creation and development of
companies and, especially, of innovative and technology-orientated companies, which are developing, realizing
and selling new products and new services from results of R&D to the market. In this respect these centres are
instruments of regional economic development and instruments to develop a regional economic structure.

The general aims of Innovation Centres are based on five points. The first one is to advance the creation
and the development of new enterprises. New enterprises pay new taxes for the government and create many
jobs. The second one is to develop the innovation orientated economic structure in the region. To find out the
innovative potentials in the region for creation of new products and services is the third one. In connection with

81
them is the qualification for innovation and management. And the fifth one is the creation of networks for
innovation and economic development.

In expectation of this you can realize different regional effects. The creation of new and attractive jobs is
the most important. The establishment of new enterprises demonstrate that the region is healthy. More synergy
for the development of companies and the improvement of a higher technological level into the regional enterprises
is a sign for a modern economy. The region has to prevent experts from hearing and to support their comeback
to show it is attractive for high-tech enterprise development.

These are all quality marks of the economic structure and its quality of a concrete region. In summary,
Innovation Centres are, on one hand, close community sites of start-up and young enterprises and, on the other
hand, their management organizations are specialized service companies for their customers, who are the
entrepreneurs and employees who establish and develop their enterprise in the centre. The specific services of
Innovation Centres are offers and the realization of concrete support activities for their customers within the best
frame conditions which facilitate the start and first development phase of the companies.

2.1.3. Relations between centres and parks

New companies need a perspective for their prospective development. They mostly need it in the
neighbourhood of the incubator. This is one of the reasons to create a park in the environment of an incubator.
The neighbourhood of the support activities of centre, to the relations of cooperation with other companies or
with research institutions etc. are very important for future steps in the development of these companies.

Science & Education

Business School Research Park

Science Park

Creation Development
Technology Centre Technology Park
innovative SME’s innovative SME’s

Innovation Centre

Business Incubator Business Park

Industry

Figure 4. Relations between Innovation Centre and Science Park

In general a “Centre” is a building or a smaller complex of buildings. A “Park” is a bigger area with
more complexes of buildings. In a park, the company can buy its own building plot principally to construct its
own building for its use.

This relation between a centre and a park is very interesting for private profit orientated companies in the
field of real estate development. They can create an incubator like an Innovation Centre as a nonprofit organization.
For the developed companies which have to leave this centre after their first years, and for other interesting
companies they construct the park and they can realize their profit in this field.

In the relation between Innovation Centre and Science Park you can see that they have a large potential
for cooperation. You find their different components of Innovation Centres and Science Parks and their effects in
different directions to creation and to the development of innovative companies or to science and education or to
an industrial development.

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 But Innovation Centres are not located only in the frame of a Science Park. You can find it as
a stand-alone centre or as part in an industrial or technology park or in a science park.

Within these possibilities, Innovation Centres realize their work but with different effects and aims.
In a technology park, the companies find their cooperation partners in other enterprises or their customers more
directly. But the input from science and R&D, the new ideas for the creation of new products and services is not
so direct.

But the contacts to scientists and the results of R&D are stronger if an Innovation Centre is located in
a Science Park directly. The best location for an Innovation Centre is a combination between Science Park and
Technology Park. You can find here potentials for cooperation and customers. The input with new results of
R&D and the output in form of new products and services are very suitable for the companies.

In this respect the effects for economic regional development are the best. In the following we will use
for centres and parks the name “Innovation Centre” as a synonym.

2.2. Characteristics by different sites and ages

Innovation Centres have different characteristics depending on their location and their age.

2.2.1. By different Sites

The development of an Innovation Centre depends on the real local and regional conditions. It makes
a difference if the centre is located near a university, in an industrial zone or in a rural area. In this respect you
have several tasks and aims of the centre and you have different potentials of entrepreneurs, start-ups and new
companies.

Technology Innovation
Park Centre

Science
Innovation
Centre
Park

Technology Innovation
Science
Park Centre Park

Figure 5. Innovation Centres in relation to their location

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 A centre in a science determined area will be more orientated to the development of new technologies by
results of R&D. You will find here more developers of new technologies and companies which cooperate
stronger with science institutions. In the foreground of the tasks and aims are the support of development of new
technologies with new companies in this field.

In an industrial or former industrial zone an

Innovation Centre is more characterized by using and
implementing technologies in real production processes.
In these centres you will find a corresponding structure
Rural Area of companies. Here, the creation is new jobs is
28.2%
Science Area important.
44.6%

In rural areas, the Innovation Centres are

Industrial Area
27.1%
orientated to the creation of companies working in the
service area on a higher level. The creation of new
jobs is important too.

The different sites of Innovation Centres show

Figure 6. The shares of location of Innovation that one cannot compare them in their different tasks
Centres in Germany and aims.

2.2.2. By different ages

The age of an Innovation Centre is an important factor to value its efficiency.

In the initial period during the first four years after the opening, the centre will concentrate on the
construction of its internal structures and the external network. These are different work phases than you have in
the following establishing period. In the period of the following five years the integration in different structures
in the region, national and international, and the creation of cooperation networks are in the foreground. The
older centres have to conform their offers and services to the new requirements.
One cannot compare centres with different age. In Germany’s experience, the number of technology
orientated companies is higher in elder centres.

2.3. Target groups

Innovation Centres support the start-up and development of innovative and technology orientated
companies. But the target group of Innovation Centres is very different. If we want to develop high technology
companies, we need a wide base of different levels of technology and innovation. The concentration of innovation
in general is important because the different technologies are a part of innovation, and innovation includes more
than technologies only. We need innovative companies in different fields for the development of the economy
not only in classic or actually important technology fields. Real new products and services for real necessities of
the market are in central point.
We say “technology orientated company”. That means that the companies can be a developer of new
technologies which they offer for users. On the other hand, these companies can be a user of technologies and
they buy them from the developer.
In general, technology orientated companies develop new technologies and/or use new technologies or
they have their work in direction of use of technologies in other companies. This is the main target group of
Innovation Centres.
But we need other clients in the Innovation Centres too. Those clients are companies which can support
the development of the main target group like lawyers, tax advisors, transfer organizations, specialists of public
relations etc.
It is important for an Innovation Centre that it includes a different structure of companies in different
ages, sizes and technology fields. In an optimal combination one will have a high potential of synergy and
cooperation between the companies in the centre.

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 3. CATALYTIC FACTORS FOR TECHNOLOGY INCUBATION

3.1. Policies

3.1.1. National and state policies

The national policy for business technology incubation is reflected by the federal structure of politics in
Germany. The federal government creates general set-ups like legal frameworks and financial support for
entrepreneurship and the development of young innovative companies. In addition the state governments offer
different support programmes for enterprises in their respective federal states.

The young companies have to integrate their activities in the general legal framework like any other
enterprise. In Germany, special laws do not exist for them. The same applies to tax regulations.

Another thing is the different financial and advisory support activities of the government for young
innovative companies. Here you can find a large number of support programmes. You can summarize these
programmes to:

◆ credit programmes with state-subsidized rates

◆ share programmes by governmental VC-companies
◆ grants of the government especially for investments of the company, for creation of new jobs and
for the development of concrete technology fields, like e.g. multimedia, biotechnology, life sciences
◆ surety programmes by governmental surety organizations or in taking over a part of the risk of
credit institutes of enterprises by the government
◆ advisory activities financed by governmental organizations.

These programmes are partly cofinanced by the European Commission. In reality you can find
combinations between different programmes and a combination with private financing activities from credit
institutions or private VC-companies.

It is important for an entrepreneur and a young innovative company that all public financial programmes
are coupled with a bureaucratic act for application and proof of use.

All governmental support activities can give an additional help only in the first steps of development of
enterprises, technologies, products or services. They cannot give real market potential and real customers for the
new products and services.

For high effectiveness, governmental support needs to realize a suitable infrastructure for development of
new companies. In this field the federal and state government supported the construction of Innovation Centres
as an instrument of regional economical development.

All federal and state politics can support the activities of entrepreneurs and employers only in small
parts. They cannot replace the entrepreneurial responsibility for their own enterprise and for their activities on
the market.

But all policy can create an atmosphere of creativity, and entrepreneurial activities are beginning in
schools and universities.

3.1.2. Regional policy

All Innovation Centres in Germany are created by initiative of regional protagonists and of regional
policy. The establishment of Innovation Centres in the counties is an act for the development of regional
infrastructure for economic development. The majority of innovation Centres in Germany have the local and/or
county administration as their shareholder in the management company. Politicians of counties or representatives
of administrative bodies have a place in their advisory board or in other committees of the centre management.

This is, on one hand, an advantage. In this constellation you can realize the regional consensus between
all protagonists in the region to support the activities of the centre and their companies. This regional consensus

85
of politicians of all different parties, of chambers of commerce, of regional economic development organizations,
of financing institutions and of the county administration is the main base for creation, financing, construction
and work of an Innovation Centre.

On the other hand, this constellation is a disadvantage. In many cases the management of a centre is
covered financially by its own entrepreneurial legal capacity. Innovation Centres are a part of regional infrastructure
and a specific enterprise for support of new innovative companies. They have an ambivalence to the public
administration and to their own entrepreneurial interests.

Innovation Centres realize many tasks which are a part of regional administration like advisory of
politicians, management of regional projects for economic development, technology transfer and advisory of
entrepreneurs outside of innovative and technology orientated fields.

With such activities, Innovation Centres can establish their contact network with many advantages for the
companies in the centres.

Innovation Centres have to form the frame for the economic activities and the global and international
market activities for their companies and the companies in the region.

3.2. Frame conditions and infrastructure

Outside of the influences of politics, Innovation Centres realize their work in different frame conditions
and infrastructure more as hard facts.

3.2.1. Regional factors

The character of surroundings of an Innovation Centre influence their kind of work and their aims. You
can see the sharing of Innovation Centres in different surroundings in figure 5.

3.2.1.1. Science determined factors

Innovation Centres on sites of science, R&D institutions and universities present the typical characteristics
of an Innovation Centre at best. These centres have best conditions for creation and support of innovative
technology orientated companies. The cooperation between scientists and young entrepreneurs is very close.
You can find in these centres a higher-than-average number of innovative technology orientated companies in
technology fields.

In addition, these centres have a closer cooperation to research institutes of industry. Many companies in
the surroundings of these centres realize research activities themselves.

The universities and the industrial research institutes are an important source of entrepreneurs, who could
be students and academic employees.

A major characteristic of these centres side is their direct location in a Science Park or in the campus of
a university directly. They realize a close cooperation with all organizations in this park especially in the
identification of entrepreneurs and of cooperation potentials for the companies in the centre. On the other hand,
you can find more centres with a focus to special technology fields in this frame.

3.2.1.2. Industrial determined factors

Innovation Centres in industrial determined areas have more complicated conditions for their development
and the realization of their tasks. The character of this area with an active industry or with a former industrial
zone, influence the kind of activities of a centre. A success factor of these centres is the integration of the
companies of the centre with the companies outside of the centre. These centres develop their own technology
competence to influence the companies in the region with innovative aspects for their development. This is
a chance for companies in these centres which are more users of new technologies.

The location of centres in such a region are mostly in free old and reconstructed industrial buildings.
Often these centres are located in a business or industrial park.

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3.2.1.3. Rural determined factors
Innovation Centres in rural determined areas have to realize a stronger work. The most important
activity is the identification of new entrepreneurs and, step by step, the development of technology based companies.
In these centres, the support of new businesses is in the foreground. Their chance is to develop the centre to
a regional point for creation of new companies and to support their cooperation. The efficiency of these centres
is coupled with the economic development in the region. The regional consensus is more important here than in
other regions.

But these centres have their chance. More and more young innovative companies and entrepreneurs go
into a rural determined area with its healthy environment. Especially companies in informatics select this area
for their location.

3.2.2. Locational factors of infrastructure

Innovation Centres need a good infrastructure in their surrounding and in the structure of buildings in
which they realize enterprises.

3.2.2.1. By surrounding
Local factors have a fundamental importance for establishing an Innovation Centre and they influence its
work and success. The main locational factors are a close connection to traffic components like public transport,
roads with enough parking places, the connection to telecommunication and the internet and, last but not least,
a healthy environment.

To be easy to reach for employees and customers is an important factor of an Innovation Centre. The
neighborhood to universities and science and R&D institutions or a close connection to them is an essential
condition for the development of innovative and technology orientated companies in an Innovation Centre.

To establish a centre on the green meadow in high distance to the real life is possible only for different
technology fields which don’t need contacts to other institutions and companies. In general you have to avoid
this.

For the future development and growth of companies which have to leave the centre the possibility to
establish a Technology Park in the close neighborhood is very important.

3.2.2.2. By buildings
The building of an Innovation Centre and its structure inside is the essential factor to realize a site
community of different innovative companies. This depends on the kind of target group and from technology
fields which are developed in the centre.

A clear internal structure of corridors, of entrances and elevators is one point of this. The second one is
adequate possibilities for variable completion of spaces for the companies and their capable utilization in different
functions like offices, workshops, laboratories, etc. Important is that you can extend different components of
technical supply networks like energy, water and waste water, telecommunication, ventilation systems, etc.

A building of an Innovation Centre is characterized by four functional zones:

◆ the entrance and service zone, with entrance hall, equipment for services like photocopiers, equipment
for presentation like beamers, overhead projectors, etc.
◆ the zone of facilities for the community of companies, like conference rooms, cafeteria, meeting
points for small talk, small kitchen, etc.
◆ the company spaces zone with rental room for different functions
◆ the zone of the centre management.

These functional zones are not closed areas in the centre. They are integrated components.

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 The character of the building and their facilities have to support the aims of an Innovation centre. For
new Innovation Centres it is important that you have the possibility to construct it step by step in relation to the
development of number of companies and their own development.

3.3. Support activities for enterprises

Many organizations realize activities to support new enterprises especially in innovative and technology
orientated fields. These are technology transfer organizations in universities or such organizations from the
economy, advisory companies, chambers of commerce and trade, regional economic development organizations,
employees in the regional administration, support banks which are in the ownership by a government and which
give grants etc. These are all organizations in a network and they can realize only a part of support of young
companies.

Innovation Centres realize a closed package of support activities for entrepreneurs and young innovative
companies. They realize it, in one hand, through their work and in different fields in cooperation with their
partners in the network. The concentrate of all activities from consulting activities to technical, organizational
assistance and renting activities to technology and marketing support and opening a large network for the companies
is very important for the efficiency of support and the development of competency for the companies.

In this direction, we have to concentrate on activities of the centre management in cooperation with its
network. The support of the centre management in all fields cannot replace own activities and own responsibility
of the enterprises and their employers. The centre management can identify the right doors and it can open these
doors, but the employer has to go through this door alone. The centre management can prepare him for its way.

3.3.1. Consulting activities

The consulting activities of a centre management are different to a professional work of consultants. Of
course, the centre management integrates all its experiences and networks in its work but it realizes at first help
to self-help as a partner of the companies in the centre. The centre management has big advantages in this field.
It realizes its work in close proximity of its clients everyday. The centre management knows all details of the
business plan and it knows the character of the key persons in the young companies and it can create
an atmosphere of confidence and partnership.

The aim of this work is not to make a profit. This work is, in general, a part of the basic services of the
centre management for the companies and their costs are often integrated in the rental costs of spaces. In this
respect, the consulting activities are activities of acquisition for new companies for the centre and also support
activities for the companies in the centre.

Consulting activities are, in general, an individual work of the centre management. Every enterprise has
its own specific aspects and it needs an individual partnership.

3.3.1.1. Business consulting activities

This includes all kinds of support for normal entrepreneurial activities like the creation of a concept for
realization of an idea, creation of a business plan and all things in a real life of an enterprise. Enterprises, in
general, have similar questions. Questions about the legal form of enterprises, about personal recruiting, about
expansion strategies, about contacts to financing institutions, about the way to the market, about the tax system,
about the possibilities of public grants, all these and more you can discuss with all enterprises.

In general, the centre management can answer most questions. For other questions, the centre management
integrates specialized external consultants. It is important that the centre management has good contacts to
external experts like lawyers, specialized consultants, tax advisors, etc.

The main results of this consultancy work of the centre management is that it helps the employers to
create their own business plan and their own development strategy, etc. These are the first instruments to run
their companies. And, also important are the company’s own experiences in this way.

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 In this field, the centre management has to develop its own experiences to support the companies. This
includes the activities in the case of an insolvency of a company in the centre. The centre management can help
to create a second chance for such employers.

3.3.1.2. Technical consulting activities

Technical consulting activities need a special knowledge of the centre management and of external
experts in its network in different technology fields. The Innovation Centre can help in the form of a large
network of specialized experts. It can also realize an approach to documentation of standards and quality
remarks.
A close cooperation of centre management with universities, science and R&D institutions is very important
in this field. It can realize a match-making between enterprises and scientists to initiate their cooperation and to
transfer know-how.

Centre management can realize and organize a brokering between enterprises in the same technology
field to exchange experiences and for the creation of cooperative activities.

In this field, the centre management can organize a different spectrum of possibilities for exchange
experiences between the companies in different Innovation Centres and their regions.

Innovation Centres which concentrate on particular technology fields can give more technical assistance.
These centres have a specialized technical infrastructure and own experiences in these fields. In addition, they
have close contacts to scientists to transfer the knowledge into the companies directly. These Centres develop to
competence centres in technology fields like multimedia, biotechnologies, microelectronic, etc. These centres
have often established a close partnership to large industrial companies, e.g. automobile industry, chemical
industry, pharmaceutical industry, biotechnology. In this frame, a closer cooperation is possible but the degree of
dependence can grow.
The main task of the centre management in this field is the moderation of different interests and the
identification of potentials for cooperation and for exchange of experiences.

3.3.1.3. Financing support activities

The financial support activities of an Innovation Centre are realized in two directions. The first one is to
offer best conditions in rent and costs of spaces, infrastructure and services in the centre. This will be possible if
the conditions for building usage and infrastructure for the centre management are also the best. The experience
is that the centre management has to account prices for different kind of support activities. But these are prices
which help to realize a self-economic efficiency (see 3.5).
The second one is the support of acquisition of finance like corporate financing, Business Angels, VC,
credit financing and public subsidiaries.
With different forms of financing we have different experiences in Germany.

In the first view, public grants and subsidiaries are the best form of financial support. The second view
shows that this form is coupled with a high bureaucracy for the company. In many cases one can use these
grants only in selected fields and only in the pre-competition field, e.g. for the development of prototypes, etc.
The entrance in the market with its high costs is not cofinanced. And grants need in regular complementary
financing from the company itself in the volume of 30 to 70 per cent.

Business Angels are a highly effective form of assistance and financing the companies. Between the
employer and the Angel a close connection has to be developed which includes a personal component. The
Business Angels want to support the development of the company. He integrates his network, his experiences
and his money in the company. The problem here is to find the right angel for the right company. The centre
management can use networks of business angels. This network is open for all kind of enterprises but, in most
cases, will create an engagement between an Angel and an innovative new enterprise.

An effective form is corporate financing. The corporate partner, mostly a potential customer, gives its
money to develop new technologies or products. However, a drawback in this form maybe that it could develop
a close dependency between the company and its corporate partner.

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 The classical credit financing is, in many cases, for young and innovative enterprise a problem. They
cannot give the necessary securities in most cases.

Another form is venture capital. VC is very attractive but it needs a special type of an employer and
of an enterprise. Enterprises with a high-speed growth with 30 to 80 per cent per year are very interesting for
VC-companies. You can find these enterprises especially in biotechnology, multimedia and informatics fields.
We have to see that only about 5 per cent of all innovative companies are interesting for venture capital. But we
need this financing form for lower growth of companies with 10 or 15 per cent per year.

In reality, we find combinations between these forms. The centre management has to integrate in their
network all financing institutions in all kinds of financing. In its work with the companies the management can
offer different possibilities for financing a concrete case.

There are also Innovation centres, which offer financing of enterprises from their own portfolio as
investment or as loans. It must be considered here, however, whether through this, with the developing economical
interest of the centre management in separate enterprises does not somewhat circumvent the basic principle of
similar dealings with all enterprises in the centre. Finally this question is to be measured by the commercial
requirements of the task of an Innovation Centre. It appears more expedient to preserve the basic principle of
similar dealings, therefore generally not to approve financial and company-law type investments by the centre
management and its employees to enterprises. On the other hand, however, it is necessary to support external
financing situations in cooperation with the enterprises.

But, in all activities in this field, we have to see that the main finance institution is the customer who
needs the offered products and services or the development of new technologies. The best financing concept
cannot replace him.

3.3.1.4. Intellectual property assistance

The intellectual property and the necessary fast offer of new products and technologies are in many cases
in a contradiction. To save the intellectual results is a long procedure with high costs. In many cases it is better
if you concentrate all your activities to bring product in the market in a high speed and realize your business and
profit. After that the competitors can realize their activities as a second step in the market.

For the centre management, it is important to have a close relation to special lawyers in this field who
can support the innovative companies in their way to the market with the necessary property of their knowledge.

3.3.1.5. International assistance

Innovation Centres are a knot in a global network in the international sphere. The National Organizations
of Innovation Centres work for creation of these international networks. The centre management can integrate its
activities in this network. The goal is to find different partners in different countries, to organize activities,
to identify and prepare cooperation potentials and activities. The centre management is, in this case, an agent or
a negotiator. It can offer an international competency to its companies which to have to go to the international
market. Innovation Centres can build up more acceptances in their region as an international central point for
cooperation.

In the international sphere you can see the creation of international business incubators, like the IBI in
San Jose the United States of America or the East-West-Cooperation-Centre in Berlin-Adlershof (Germany).
These are specialized centres for international cooperation.

3.3.2. Technical and organizational activities

The goal of all technical and organizational activities of an Innovation Centre is to help the companies in
their first steps of development, and to save their investments, time and money. These activities will be realized
by the centre management in combination with its cooperative partners.

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3.3.2.1. Basic services
The basic services in the technical-organizational field of activities of an Innovation Centre are oriented
to the pragmatic support of the enterprises in their startup and initial development phase. These services of the
centre are offered to every enterprise equally. In this respect, the costs arising from this are mostly calculated as
a component of the rental costs or are deducted directly according to demand.

Among other things, the following are associated with these services:

◆ The reception service and the support of visitors

◆ The mail service, stamping and sending of mail dispatches
◆ The organization of events for enterprises
◆ Services in the catering field.

It is important that these activities depend on the needs of the enterprises. There should not be
a utilization obligation for these services. Also their offer is open to competition.

On the other hand, the centre management offers basic services and, therefore, stays in contact with the
enterprises, which is important, particularly in the case of larger centres.

For the feasibility of the basic services, the centre must have an appropriate infrastructure.

3.3.2.2. Infrastructure
Infrastructure, in this connection, means the equipment, furnishings of an Innovation Centre, which
enable the realization of the basic services and are directly available for use by the enterprises.

The following are associated with the basic infrastructure equipment:

◆ The central reception

◆ The service area, mostly coupled with the reception
◆ Conference and seminar rooms, with corresponding equipment for presentations
◆ Cafeteria as a meeting place, with food catering, at least over the usual business hours
◆ Small kitchens for self-service
◆ Mail delivery system, as close as possible to reception
◆ Contact points in the centre, where employees of enterprises can meet in a free and easy way
(smoking areas, waiting rooms, break areas)
◆ Photocopiers distributed in the centre at easily accessible locations
◆ Internet accessibility and networking, with high transmission performance
◆ Telecommunication facilities and networking
◆ Leased devices, e.g. presentation equipment, binding machines, mobile trade fair booths.

In total, the general infrastructure has a communication supporting character, that is of great importance
for an Innovation Centre.

In addition, those equipment furnishings, which support the work of the enterprises, with a corresponding
profiling of the centre to specific technology fields, are to be linked here. In this respect, with an orientation to
biotechnology, the corresponding systems for the supply and waste disposal of the laboratories and, where
appropriate, specially equipped laboratory areas are to be provided within a specific framework.

A concentration on computer science and multimedia presupposes a strong networking of the individual
rental units.

In the case of equipping the infrastructure, however, the costs arising from that are also to be considered.
The equipment should be, if possible, equally usable for all enterprises, or, in case of use through individuals, the
costs should be equitable. Experience shows that often the created infrastructure, e.g. community workshop or
laboratory, high-grade large-scale equipment, have a longer life and thus have costs greater than the requirement

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of the enterprises. In such cases the management centre remains tied to such costs or it must distribute them to
other tenants in the centre.

In this respect it should be strictly ensured, in the case of the establishment of specialized infrastructures,
to what extent they satisfy an available requirement from the long-term viewpoint. It is important here, that,
rather than create the prerequisites with the structural factors, the subsequent specific installations can be carried
out by the individual enterprises at low-cost. Priority is to be given here to the corresponding multifunctional
usability of the building with a specific flexibility.

In this connection, economically self-supporting service providers (advertising agencies, illustrators,

workshops, test laboratories, library, etc.) should rather be linked into the enterprise profile of the centre, since
they can significantly expand the offer of the centre management.

3.3.3. Renting activities

As a matter of course, Innovation Centres also make the corresponding premises available to the new
enterprises for their enterprise startup and their development. It is just such a unique feature of Innovation
Centres that they also create a spatially defined real location community of young, technologically innovative
enterprises, in which communication and cooperation determine the synergy potentials.

The rental activities make special demands on the centre management, that differs clearly from those of
the commercial provider of non-residential space. These requirements are determined in particular through the
fact that the rental represents not the objective but a resource for the completion of the objective of an Innovation
Centre. It is part of the complex support package for young innovative enterprises and must also be adapted to
their needs.

These needs are particularly characterized by high flexibility, which corresponds to the development and
to the growth of the enterprises. Flexibility means here:

◆ flexible short-term leases, flexible termination notice possibilities

◆ assurance of space options for future growth stages in defined periods
◆ rents which, on the one hand, pass on the advantage to the enterprises from governmental subsidizing
of the investment during the construction of the centre and, on the other hand, take into account the
degree of development of the enterprise (graduated rents).

The Innovation Centres, above all, offer temporary leases within a given time, since, with their
know-how, they support only the first years of the development of an enterprise in agreement with their economical
goals.

Not only the requirements on the rental itself place special demands. The equipment and design of the
rooms for the enterprises must also be taken into account. On the one hand, they are supposed to enable
a multifunctional usability, on the other hand they have to also have an expansion standard, which enables an
immediate take-up of the work of an enterprise, without, however, high inherent investment in the leased object.
In this respect there cannot be any rigid orientations here. As basic features, however, the following can be
mentioned:

◆ Differentiated room division, combinable smaller and larger rooms, combination capability and
flexibility for growth of the enterprises
◆ Immediate utilization-capable rooms, finished walls and floors, basic package with regard to power
supply, light, accessibility to telecommunication networks and optimally direct Internet accesses
◆ Multifunctional usability within a defined framework
◆ Change-capability of the rooms through low-cost, tenant-own expansion for functional adjustment
within a defined framework (e.g. equipment furnishings of laboratories, workshops).

A corresponding support of the enterprises through centre management is, of course, provided. This has
to ensure that, on the basis of framework agreements, corresponding low-cost services from craftsmen are integrated.
It should be mentioned here that, on the one hand, through contracts for the maintenance of the technical systems
in the buildings, their utilization capability is preserved and, on the other hand, economic advantages are achieved.

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 Of greater importance, however, is the fact that also the more mundane activities for the preservation of
the premises, the house technicians and building administration, play an essential part in providing satisfaction
for the customers, the young enterprises in the centre. Through their work, they determine the physical
developmental conditions of the enterprises. In this respect, the realization of these tasks is an important part of
the work of the centre management. Possibilities exist here, to be able to remain in contact with the enterprises,
to find out how they are progressing, in order to provide corresponding support as quickly as possible.

3.3.4. Marketing activities

The support of marketing activities is to be considered in two directions. One direction is the marketing
for the centre itself, for its services and the other direction is the support of marketing activities for the enterprises.

3.3.4.1. For the centres

In our experience, the marketing for the centre itself should not be implemented using the classical
marketing instruments, in order not to openly question its economy-supporting and complex task setting
functionality.

In this respect, the marketing activities for the respective centre are to be adapted to the complex offer of
support services for enterprise founders and young enterprises in the innovative and technological field. That
basically means for the centre management:

◆ Contact support to key institutions in the network, such as Chambers of Industry and Commerce,
banks, economy-improving institutes, public administration, materials handling providers,
VC businesses, etc.
◆ Local presence in places where enterprise founders can arise in the corresponding target group;
thus, in the universities, technical colleges and research facilities, business plan competitions, etc.,
in order to explain the range of facilities
◆ The use of the classical marketing instruments, such as displays, advertising spots, extensive brochures.

Just in the case of the latter, the expenditure often stands in no favourable relationship to the benefit.

Ultimately, the marketing activities for the centre have two objectives. The first is the acquisition of new
enterprise founders and young enterprises for the centre, which also want to use the service package of the
centre. The second is the mobilization of appropriate founder potentials.

The marketing instruments for an Innovation Centre are thus, in particular:

◆ a demand-appropriate support package for the target group with a very pragmatic and individually-
tailored orientation
◆ high level of awareness about the centre and its services in the area. Also national and international
awareness and the integration of the centre into corresponding networks
◆ multipliers in the area, not only in institutionalized form, e.g. Chambers of Industry and Commerce,
but also in the informal field
◆ an active public relations facility, which places not the centre itself, but the development of the
enterprises in the centre, in the foreground
◆ satisfied customers, that is, enterprises in the centre, that, through the use of the support package,
could start their development and successfully expand.

The main canvassers for Innovation Centres are therefore their satisfied customers. But, those persons,
that were well advised by the centre management in their initial concept phase, but who nevertheless could not
decide on an establishment of an enterprise, should also be included.

In this respect, the informal networks and the advised enterprises stand at the focal point of all marketing
activities for Innovation Centres.

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3.3.4.2. For enterprises
The marketing activities for the centre also support the corresponding activities of the enterprises for
their own development.

Marketing activities for the enterprises have the predominant objective to increase the degree to which
they are known about as enterprises and also publicise their products and services. Associated with that is the
expectation to help open up cooperation potentials and markets for the enterprises.

In this respect, Innovation Centres support this process through public relations work, which is directed
to the enterprises, where they make journalists aware of the services of the enterprises and where they initiate
corresponding reports, etc. For those unknown-enterprises, with their often no-name-products, this component is
of supreme importance.

The organization of the participation of several enterprises in national and international trade fairs is
a further part of marketing activities, directed towards the enterprises by means of a low-cost grouping of the
organizational work by the centre management. It helps, on the one hand, to lower the expenditure for the
enterprises and, on the other hand, however, they organize a professional trade fair preparation and, of particular
importance, a subsequent follow-up. Also, marketing activities for the enterprises, which are directed more
internally, are helpful for their development.

Associated with this is the fact that every enterprise is adequately informed about the products and
activities of the other enterprises in the Innovation Centre and knows their main players. Enterprise meetings on
specific universal subjects are used for enterprise management and development, with a subsequent free and easy
presence, just the same as the reference to enterprises moving in, and to allow them to become informed locally
about selected enterprises in the centre.

Also, the organizations of specialist symposia, with regard to specific technological questions that are
processed by enterprises in the centre, are an important part of the marketing activities. The participation of
customers, scientists, cooperation partners and also competitions, at such events help to increase the degree to
which the enterprise becomes known and helps to open up cooperation possibilities. The fact that the centre
management is assigned only a supporting organizational function here, is understood. The organizers are the
enterprises. The centre management can additionally guarantee correspondingly effective public relations.

A further possibility in this field is the grouping of the marketing activities of the enterprises in the centre
by the centre management. This can be directed to the marketing of concrete products, to the formation of
purchase and sale communities and to the structuring of sales and marketing systems nationally, as well as
internationally. However, in the case of such activities, it should be noted that this can develop into a commercial
service of the centre management, with all its advantages and disadvantages, as well as liabilities and risks.
Here, it must also be considered, as represented already in the case of the financing of the enterprises (see 3.3.1.3),
whether entrepreneurial responsibility is not limited by such activities and commercial interest of the centre
management develops in separate individual enterprises. In this case too, the integration of external competent
organizations would be the alternative.

Several Innovation Centres canvass and implement, in this area, the management of combined projects of
enterprises from their house, with external enterprises and scientific institutions. What is involved here, in
particular, is the development of new products, procedures, technologies and services that are also mostly financially
supported from the public purse. The objective of such activities is the grouping of know-how from different
enterprises and technology fields, for the development of new products and services with high market potentials.
This develops into a specific service of the centre management, which, because it is financed from the participating
enterprises, considerably reduces the expenditure for the organization of such projects for the enterprises. Such
services are feasible for the centre management in the case of quantitatively and qualitatively adequate staff
resources and without disregard of the “care obligations” for the non-participating enterprises in the centre.

Particularly, in the case of support of the marketing activities of the enterprises, the importance of
strategic alliances and a broad network becomes clear.

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 3.3.5. Strategic business alliances and networking

Strategic alliances and networks are all the rage in the case of supporting young innovative and
technology-based enterprises. In this case, references are made to their positive effects mostly for linked enterprises
and equipment. However, with regard to the concrete structures of such networks, their organizational principles
and their concrete effects, definitive information is less often to be had.

The determining basics for the formation of alliances and networks are the agreed-upon situations of
interest that pursue an objective at least partially and should reach this objective totally or partially either by the
same path or by different paths. In this respect they are characterized, above all, by the interests of the players,
be they legal or natural persons.

An adequate transparency of the different interests of the participants is a prerequisite for the formation
of networks and alliances. These are to be initially determined and the common interfaces are to be extracted,
which should be pursued within the framework of a network or an alliance.

The organization of networks, and also alliances, can be implemented both in an institutionalized form
and in a rather private informal framework. Both formats have advantages and disadvantages.

The institutionalized forms offer a certain security, contacts to other insiders and to information, as well
as a certain protection against outsiders, which is not unimportant for young enterprises. On the other hand,
however, the danger of the independence of this institution also exists, so that real life increasingly bypasses it.
Furthermore, it can also be observed with such constellations, that individual members hide behind the competence
of this organization and, instead of building up and ensuring their competence themselves, exploit the organization.

The institutionalized form is also a prerequisite for the formation of strategic alliances. As a rule, the
basis for such alliances is an unambiguous contractual agreement for the cooperation of several partners, who
wish to target-develop or market a concrete product. Such alliances are directed mostly against the competition.
In this respect such alliances arise from a more or less close cooperation and are based on an agreed-upon market
launch of the partners. The centre management can offer support here only in the pre-contractual field. It can
help in providing its own service or by using experts from its network, such that all risks and side effects become
transparent and the involved enterprise is fully conscious about the consequences of such an alliance in a positive
as well as also in a possibly negative way.

Informal networks, in contrast to formal structures which tend to develop rigidity, sometimes have the
advantage of a high level of dynamics and flexibility. Here, partners do not cooperate on the basis of an
institutionally characterized “compulsion”, but by virtue of their own competence and voluntary decision. They
would like to work with each other in order to reach common objectives more efficiently. And, it is possible, if
the objective has been achieved and the interest and objectives have changed, to exit from this network without
damage or to realign it quite differently, without having to take regard of structures which have grown up.

Networks and alliances are effective and efficient only for so long as the mutual interests and objectives
of the participants continue to exist. They are, therefore, fundamentally temporary affairs.

It is the task of the centre management, to open up such available networks for their enterprises and,
where appropriate, to initiate new networks for their enterprises. This is because the new enterprises often have
quite a difficult time with access at this point.

A component of this is that the Centre management itself builds up a strong network of external experts
and that it supports this and continuously extends and reshapes it. Here especially, the informal structures have
proved themselves, that in particular enable it, the one hand, to continuously integrate new partners, according to
the requirements of the enterprises, however, also in the case of disappointing performance, to separate from
partners in a simple way.

A broad spectrum of experts and institutions, which are all important for the development of innovative
and technology-based young enterprises, are part of this network of Innovation Centres. This spectrum extends
from scientific equipment and furnishings, through lawyers, tax accountant, expert evaluators, governmental
supply institutions, VC business banks, chambers and associations, up to governmental administrations and
authorities from the local or extended environment of the Innovation Centre.

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 In this networking, on the one hand, the task of the Centre management is one of structuring, while on
the other hand, it has a moderating function. The structuring function refers to the continuous expansion of the
network that will never be completed. The moderating function refers to the opening up of the network for the
enterprises in the Centre. It is just this part that is, in its effect, directly meaningful for the enterprises. By this
means they can get concrete help for their concrete problem from identified experts.

The responsibility of the centre management is restricted in this process only to the procurement of the
experts, not their service. That is especially important if liability questions arise. The centre management
provides the possibility of a concrete service provision. The company cannot and must not purchase and evaluate
this service on the basis of its own decision and responsibility. Of course it still remains unchanged however,
that the centre management will note the quality of their external partners and that it arranges possibly advantageous
conditions for their enterprises with these partners.

The centre management can only locate the suitable doors for the path an enterprise must take and open
these doors for the enterprise. The enterprise must or can pass through on the basis of its own decision and
responsibility and in full consciousness of the consequences possibly combined with that.

In total, the networking of an Innovation Centre is an essential component of its work and supplies
concrete benefit for the development of the enterprises in the centre. In this respect, the Innovation Centres are
interesting, from the different points of view, as attractive partners in varied networks. The centres, as a rule,
have available enterprises which are developing in a stable way, that are themselves also directly economically
interesting for different network partners. In this respect, networking is never unilateral and is always current
and dynamic.

3.4. Management of centres

An Innovation Centre in itself represents only a real estate company, with corresponding equipment and
a philosophy extending to the external, as an instrument of regional promotion of economic development. The
life in an Innovation Centre is determined, in the first place, by the enterprises which move in and is organized
by the centre management. In this respect, comprehensive demands are placed on the management of Innovation
Centres, that result from the specific task of such centres. These have influence on the organization of the centre
management and also on its required competencies.

The management of an Innovation Centre must be implemented according to the same entrepreneurial
and economical principles, whose implementation is expected from the enterprises in the centre.

3.4.1. Kind of organization

The entrepreneurial handling capability of the centre management is determined, to an important degree,
by the organization of the structure of the owners as well as the selected legal form.

The owners of an Innovation Centre in Germany are, for the most part, a corporation of public right or
a combination of public and private institutions in a public private partnership. It results mostly from the
initiators of an Innovation Centre.

For the realization of the daily tasks of a centre, the owners, as a rule, set up a management company,
that, for the most part, is organized as a private-enterprise solution in Germany as a “Business with limited
liability” (GmbH).

Of decisive importance here is that entrepreneurial commercial spaces are actually made available to the
operating business and that it does not remain under the continuous influence of the public sector, with their
rather administrative viewpoints. The control of the completion of the task, as defined by the statutes, is,
as a rule, the obligation of a supervisory board in accordance with the legal determinations. Further controlling
or advising committees are possible. In the case of setting up some, it must be noted, however, that the main
subjects of the attention of the management company are not its committees but the enterprises in the centre.

In addition, other forms are also to be encountered in Germany, e.g. as part of a public administration or
part of a corporation of public right, such as the Chamber of Industry and Commerce.

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 Figure 7. The organization of management of Innovation Centres

3.4.2. Competencies

The tasks of the management company of an Innovation Centre are very complex. On the one hand,
it has an obligation to structure a complex support package for the enterprises and to apply it in the routine daily
work and to continue to develop it.

In addition, it has to provide for a continuous infusion of young blood into the new enterprises, to select
the tenants and to advise in their concepts.
In addition, the routine tasks of the operation, the administration and preservation of the building, the
accounting etc. are also to be dealt with.
In order to complete all these tasks, comprehensive professional and social competencies of the employees
are important. The following, in particular, are associated with that:
◆ financial capabilities for economic business practice
◆ technical understanding and corresponding intelligence
◆ entrepreneurial thinking and action
◆ social competence
◆ enjoyment of contact, knowledge of human nature
◆ team capability, reliability, integration capability
◆ knowledge and intuition with regard to regional requirements.

The social competencies are especially important here.

In the course of cooperation with the enterprises, close confidential relationships arise that provide
intimate knowledge of the enterprise development with respect to their strengths and weaknesses. These are an
indispensable prerequisite, in order to offer targeted support services and to provide contacts. The confidence
bonus combined with this, however, works only for as long as continuity exists in the occupation of the personnel
of the operating business. Every new employee, and particularly management employees, must continue to build

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up this relationship, which is based on confidence. With this, loss of information or even breaks in communication
with the enterprises arise. That can be absolutely represented as a serious hindrance in the development of the
Innovation Centre. In this respect, what is important is ensuring the continuity of the qualified personnel of the
management company through careful selection.

3.4.3. Staff and working methods

The requirement and the structure of the personnel in a management company of an Innovation Centre
depend particularly on its size and the stage of development of the centre. Also having an influence is the degree
to which the management company has responsibility for the building and the grounds, e.g. as proprietors,
lease-holders or tenants, or also for a tied park. The minimum configuration for a management company is the
manager and one assistant. This is mostly the setup at the beginning of a centre, when it still in the startup phase
and when it is possibly located in temporary buildings. With the growth of the centre and thus also its tasks,
employees are acquired for house-technical service, services, projects and accounting.

On the average, the management companies of German Innovation Centres have one employee, including
company manager, for each 1,000sq m rental area for the enterprises. Smaller centres have relatively more in
this case and larger centres correspondingly less. In the case of 20,000sq m there are, e.g. only 10 employees.

Here, the question arises as to whether in fact all tasks of the employees of the management company
itself are realizable. The answer to that will be given in the weighting of the costs and the effects for the centre
and its enterprises in each case, according to the concrete possibilities. There cannot be a universal guideline for
that.

However, there are some approaches to be considered, which would have to be included.

All the tasks, which are to be completed in direct contact with the enterprises, which presuppose
communication with it, should be implemented by the personnel of the management company. Everything that
follows, can be on the basis of cooperation.

For example, the house technician should be an employee of the management company. He negotiates
with the enterprises about the necessary repairs or tenant-sided expansion. The craftsmen themselves, who carry
out repairs, are employees of the cooperation partner. The case is similar with the service employees, which have
the closest contact to the enterprises.

In the case of selection of the employees and management, their prerequisites for a long-standing activity
should be thoroughly tested in the centre management. It is of little use to the development of the centre if the
personnel change continuously or if the locations are engaged with persons on full earnings and who are at
a stage immediately before retirement.

Entrepreneurial spirit and commitment is demanded from the employees. Here, the corresponding flexibility
in the method of operation is placed in the foreground. The management company is finally a dynamic company
and not a public authority. In this respect also, dealings with the enterprises in the centre are to be equated with
handling valuable customers. Here, a cooperative, open and communicative relationship has a particularly
positive effect. Restrictive and formal behavior of the centre management should remain limited only to those
cases where it is unavoidable. Problem solution should be attempted in the first place through communication.

The special feature of the centre management and in the work of its employees, is that they are “confronted”
with their customers on a day-in, day-out basis. They cannot evade them and they cannot put them on the long
finger. They are required to take account of the requests of the enterprises to the maximum extent, immediately,
and to process them accordingly.

3.5. Financial conditions of Innovation Centres

Innovation Centres are instruments of regional economic development. They have to realize best conditions
for the development of new companies, especially in innovative and technology-orientated fields. In this sphere,
these centres are public organizations. On the other hand, these centres and their management companies are
specific service companies with entrepreneurial aspects within their work.

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 The basic of financial conditions of centres is the acceptance that their work is not orientated to realize
profit directly. The profit will be realized by taxes and social deliveries of new companies and their employees
which realize their first development in Innovation Centres and which will expand in the surrounding of these
centres.

In this respect, centres have a public and an entrepreneurial component as their financing base as well as
in the investment part in the construction period of an Innovation Centre and in the daily economic working
period.

Public components

The public components consist of financial subsidiaries in using regional, national or international financial
support programmes. The engagements of public shareholders of the centres are integrated here. In the construction
period these are, for example:

◆ subsidiaries for the investment in buildings, infrastructure and equipment

◆ capital contributions of public shareholders.
In the working period the public components are, for example:
◆ subsidiaries for compensation of any deficits in summary of proceeds and costs during the initial
period
◆ financing different costs temporally like rent costs for the building, personal costs
◆ compensation of deficits by the shareholders and owners of the management companies in general.

All these public subsidiaries have to orientate to reduce the current costs and to create best frame
conditions for the companies in the centres.

The goal is that the current cost will be taken over step by step by the management companies of centres
themselves.

The claim for a high level of public financial promotion is established particularly on the basis of the
economy-supporting task of the centres. They make available their services to several generations of enterprises,
in each case in their initial development phase, and ensure a continuous status fluctuation through the developed
enterprises moving out and new enterprises moving in.

3.5.2. Entrepreneurial components

The entrepreneurial components are, on one hand, normal income and costs as a classical enterprise. On
the other hand, they are determined by the specific aims of Innovation Centres and the specific tasks of their
management companies.

In this direction these components include in the construction period:

◆ credits from banks to complementary financing to public subsidiaries

◆ costs for own investments of the Centre management.
During the working period these are:
◆ rental incomes from the companies for use of spaces and equipment
◆ incomes from the companies for use of water, energy and other expenses
◆ incomes from the companies for use of different services
◆ incomes from work out of different projects for companies and for public organizations and
administrations
◆ costs of buildings (e.g. rental costs or financing costs, costs for maintenance)
◆ costs for energy, water etc. and public tributes
◆ general costs of management companies like personnel costs, office costs, travel costs, etc.
◆ costs for the offer of services
◆ costs for realization of projects.

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 The general aim is that the balance of income and costs will be a black zero to establish a financial
independence from public partners.

3.5.3. Economic efficiency

The economic efficiency of Innovation Centres one can be assessed in two directions. The first one is
the economic efficiency of management companies themselves. The other one is the economic efficiency of
Innovation Centres in the general economy.

Economic efficiency of these management companies requires an own entrepreneurial freedom of action
to realize their specific work. The basic direction of economic work of the management companies is breaking
even, not making profit. In German we say realization of a self-economic efficiency of an Innovation Centre and
its centre management.

This self-economic efficiency is depended from different aspects:

◆ the volume of public financing for investments in the construction phase of an Innovation Centre
◆ the financial modalities of use of centre buildings by the centre management like small costs without
profit, the establishment and use of buildings step by step with corresponding costs
◆ the size and quality of the rental area for companies, minimum 3,000 to 5,000sq m and an adequate
potential of entrepreneurs and start-up companies
◆ the use of service offers of the centre management
◆ the acceptance of centre management and its competency in the region and its integration in regional
economic development projects.

Continuous subsidiaries from public organizations or administrations for compensations of deficits of an

concrete Innovation Centre is, in general, not a mark for missing efficiency. The effects of a centre in the region,
the creation of new enterprises and jobs realize an income for the government and fix the economic efficiency of
Innovation Centres in a general economy.

This efficiency is determined by different government-incomes and state effects because of activities of
the new companies. These incomes integrate:

◆ the corporation tax of the companies in the centres

◆ the income tax of employees of the companies
◆ the tax on different products as oil for consumption of the companies
◆ the realization of value-added tax
◆ the contribution of the companies and their employees in public social insurance and pension funds
◆ the reduction of social governmental costs for unemployed because of creation of new jobs.

But these incomes are not only realized by the work of companies in the centres directly. These companies
cooperate in different fields with other companies and contribute in this way to a stabilization of employment in
these companies with the named effects for the government. If you look at this global economy, then you can
see that Innovation Centres are very viable for the government and for the economic development. In Germany
some centres exist which amortize the public investment in four to five years in this way.

3.6. Assessment of success of Innovation Centres

The consideration of its concrete conditions, tasks and objectives is a prerequisite for the effective
success evaluation of an Innovation Centre. These are to be derived from the respective regional factors and the
expectations on the corresponding centre, based on those factors. An overall comparability of the centres is not
possible in our opinion (see 2.2).

As already represented at the beginning, we understand every centre in its concrete structuring, as an
unique entity according to the respective definitive potentials, resources and general conditions in the respective
concrete area.

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 Despite this however, there are factors that can be used for a determination of success. Against this
background, success factors with different effects will result. These are factors that refer to the internal functions
of a centre; those with a regional reference and, in addition, with a national economic effect. No definite
boundaries can be drawn in this case however.

The following in particular are associated with the internal success factors:

◆ the fluctuation, the moving in and moving out of successful enterprises, the stay period of the
enterprises
◆ the number or share of newly set up enterprises in the centre
◆ the share of innovative technology-based enterprises
◆ the degree and the quality of the infrastructure and the equipment of the centre
◆ the intensity of the communication between the enterprises and with the centre management (climate,
atmosphere)
◆ the acceptance and utilization of the range of facilities of the centre management by the enterprises
◆ the volume of cooperation of the enterprises with each other in the centre
◆ the expenditure for the acquisition of new enterprises for the centre
◆ the insolvency rate of the enterprises in the centre and the survival probability after they have
moved out
◆ the utilization of the rentable surfaces
◆ the self-economic efficiency of the management company of the entre.

This overview also represents a certain weighting of the individual criteria in regard to their precedence
as listed. In this respect, those criteria that are oriented to the enterprises and their development have a more
heightened importance for the evaluation of the internal capability of a centre than the questions about the space
utilization and the self-economic efficiency of the management company. This weighting also gives expression
to the specific task setting of an Innovation centre.

The regional success factors represent the relationships of the centre, and its enterprises to the direct
regional environment. The following are associated with these factors:

◆ the acceptance of the centre in the area

◆ the settling of the enterprises, which leave the centre, in its direct neighborhood
◆ the intensity of cooperative relationships of the centre enterprises with enterprises in the area
◆ the contribution of the enterprises in the creation of jobs in the own enterprise but also in enterprises
in the area
◆ the contribution of the enterprises to the amount of regional taxes
◆ the use of the services of the centre by enterprises in the area
◆ the settling of “external” enterprises in the environment of the centre, because of its range of
facilities or the cooperation potential with the centre enterprises
◆ the extent of recurring subsidies from the public purse to ensure the current operation of the centre.

Also, in this overview, it was attempted to carry out a certain weighting with the precedence given in the
list. However, at this level, it is very difficult to establish this as a whole, due to the dependence on the
respective regional conditions. The recurring subsidizing of centres is, however, placed consciously at the
bottom as a success criterion. The effects for the area, which are achieved through the newly created enterprises,
are decisive. In the case of many permanently subsidized centres in Germany, due to their size, situation and
specific task setting, these are often a lot higher than the annual financial subsidy (see 3.5).

The economic success factors basically describe overlapping effects, where universal weighting of those
items listed should not be performed anymore because of their mutual influencing effects. Nevertheless, the
factors must be clarified more strongly in their economic effects.

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 The following are associated with this:

◆ the tax payments made by the enterprises in the centres and their employees (corporation tax,
income tax)
◆ the jobs directly and indirectly provided or ensured due to cooperation
◆ the social charges paid
◆ the amount generated in VAT sales tax by the implemented sales
◆ technology development
◆ the economic efficiency of the Innovation centres (see 3.5.3).

Of course, associated with that is also the development of new technologies and new products that
influence many areas of social life. Their effectiveness in the success evaluation results in jobs, sales and taxable
capacity of the enterprises, so that this is the quantifiable measure for success.

With these factors, in their different effect levels, starting points for a success evaluation are given, even
if they themselves are not always exactly quantifiable. The evaluation of the actual effects is important in
relation to the realistic expectations which are linked to the centre. In this case also, a stable regional consensus
proves to be effective for the operation of an Innovation centre.

It should be underlined, however, once again, that these factors are unsuitable for overall comparisons of
different centres. They provide only clues about a success evaluation, tailored to the concrete centre in each
case.

A comparison of Innovation Centres, from an external viewpoint, using overall generalizing key points,
adds little to the development and the characterization of quality features of the centres. Essentially of more help
is the organization of the cooperation of the Innovation Centres, the exchange of experience for best practice in
the management of centres and in the support of the enterprises.

4. RECOMMENDATIONS FOR FUTURE ACTION

Recommendations for future activities in the structuring and the development of Innovation Centres are
very multilayered. They are aligned with policy at the most varied levels, but also with national organizations of
Innovation Centres, including their international associations. However, recommendations are to be addressed
also to the management companies of existing Innovation Centres for the further development of their centres,
because Innovation Centres represent a dynamic instrument for the promotion of economic development, which
must be set up and adapted to take account of continuously changing requirements.

These recommendations must not be directed towards short-lived actions, but must be based on
a strategically dominated development.

4.1. To politics

Initially, some recommendations, to be generalized with regard to politics, result from the viewpoint of
experiences in Germany. These are particularly oriented to the creation of positive general conditions for innovative
enterprises, which are of essential importance for the preservation of the competitive capacity in international
local competition. In the foreground is the revaluation of independence and entrepreneurship for the effectiveness
of the national economy. Within this framework, an improvement of the business climate for enterprise founders
is needed for the provision of positive general conditions for enterprise foundation and development, in particular
through:

◆ Revaluation and reevaluation of entrepreneurial independence in science, in the media and in

politics

A differentiated form, which represents service and function of the medium-sized economy according to
their economical and social importance, must be built up by entrepreneurs and contractors.

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◆ Creation of a positive image for the job description “Entrepreneur”

The term “entrepreneur” is still characterized strongly on the basis of old cliché thinking. The term
“entrepreneur” must be newly defined and independence profiled as a life objective. The school is
an ideal environment for characterizing the job description of the “entrepreneur” as a successful, imaginative
self-employed person, with responsibility for financial risks, economic growth and industrial capacity
with social competence.

◆ Modification in the mentality thinking – from dependent occupation to independence

Entrepreneurial qualified people, who identify opportunities in independence and are able to apply these
and are ready to take risks and to bear social responsibility, are to be supported. Such commitment earns
social acknowledgement. The mentality, which is still characterized by thinking that a secure place of
work is guaranteed only through a dependent employment relationship, does not belong anymore in our
contemporary economy and social structure. All three occupational possibilities (independence, dependent
work, unemployment) are to be brought into the consciousness of the people, instead of only discussing
the alternative between dependent work and unemployment.

◆ Promotion and awarding of independence and entrepreneurial commitment in existing enterprises

Where unexploited innovation potential can be used by new or established foundations, as well as by
enterprise expansions, and jobs can be ensured, this should be supported. Suitable employees are to be
encouraged to take the step to independence. A stimulus, to dare to take the step to the independence, is
the possibility to control the success and the net yield of the enterprise through one own labour.

◆ Anchoring of the topic “Entrepreneurial independence” in the education policy

Sensitization for an entrepreneurial independence through stronger integration of questions regarding the
establishment of an enterprise into the contents of training, into curricula and continued and advanced
training measures at schools and universities.

◆ Sensitization for the entrepreneurial reality

In order to increase the practical value, operating practical training sessions should be carried out more
intensively in the schools. These should be brought to the awareness not only of pupils, but also of the
teaching personnel. The employment of liaison teachers between school and business increases the
relationship to the reality of the business economy. In order to confront the pupil/student with the
entrepreneurial reality directly, to the maximum extent, it would be a meaningful step to bring entrepreneurs
into the school/university.

◆ Integration of the professional sector “independence” into vocational guidance

The classical vocational guidance is aligned towards becoming a dependent employee. The path to
independence still receives scant attention in vocational guidance.

◆ Comprehensive points for persons willing to found enterprises

For the deregulation of the foundation process, concentrated support measures contribute as nodal points
of a network, such as concentration in one authority of all formal obligations required for the foundation,
transparent publicizing of the networks.

◆ Reinforced publicizing of entrepreneurial success stories

Entrepreneurial success stories are publicized only seldom. Successful entrepreneurs perform
a model function. They increase the degree of motivation of those persons willing to found an enterprise
to take the first step to independence.

With these highlights it becomes clear that the most important prerequisite for the structuring of new
Innovation Centres is represented by the development of enterprise foundation potentials – particularly in the
technological and innovative field.

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 For the structuring of Innovation Centres, the bottom-up development should be given preference. Thus,
the development of a corresponding concept, with the concrete regional requirements as starting point should be
preferred. This can also be fully supported from programmes of the central government, however, it should not
be excessively regimented and the structuring of Innovation Centres should not be centrally regulated.

Despite the regional integration of the centres and the regional initiatives for the improvement of their
economic structures, central governmental attention should nevertheless be paid to the initiation and, to a limited
degree, to the coordination of such activities. This is useful for the meaningful employment of governmental
support, which, as well as the appropriation of financial resources, can also consist of the low-cost provision of
real estate, which is in the possession of the government and is no longer used, for the construction of Innovation
Centres.

In particular, at the regional political levels, it should be carefully considered whether the determining
prerequisites for an Innovation Centre are in existence, in order to achieve the expected effects.

An important prerequisite for the construction of Innovation Centres is the financial promotion of their
construction stage. Without this promotion, many centres would not have arisen in Germany. In addition,
start-up financing will also be further required for the initial development phase of an Innovation Centre, because
in many cases, due to the step-by-step development of the centres, deficits cannot be avoided.

Despite this, more private initiatives should be involved in the establishment of new centres, however,
than is the case up to now. With the concept of public private partnership, powerful Innovation Centres are
developed, provided that the private sector, on the one hand, accepts the economy-supporting grounds described,
however, on the other hand, the private interests can also be furthered in a net yield of invested capital, with the
enterprise growing out from the centre in corresponding park concepts.

The most important recommendations for the policies are:

◆ In the case of construction of Innovation Centres, consider your own national and regional special
features;
◆ Do not copy any so-called “models” from other countries;
◆ Send experts to the developed countries so that they see for themselves, in situ, how the respective
centres really work;
◆ Use the competence of national organizations of Innovation Centres for the exchange of experience
and for support during the construction of the Innovation Centres in your country.

4.2. To national organizations

The national organizations of Innovation Centres are an important link for the centres with each other,
and also for the purposes of representation of their interests in public and governmental institutions. These
organizations concentrate primarily on the support of the construction and operation of the Innovation Centres,
organize the exchange of experience and the communication with each other and develop strategies and handling
recommendations for the further development of the Innovation Centres.

They can observe their role as interested representatives of the Innovation Centres most effectively, if
their foundation is initiated by the management organizations of the Innovation Centres themselves, according to
the bottom-up principle.

Broadly diversified demands are placed on the national associations in the case of the development of
Innovation Centres. The following are emphasized:

◆ In-depth analytical work,

in order to derive handling recommendations and best practice for the further qualification of the work of
the centres and to make them fit for the facing challenges.

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◆ The development of quality parameters,

considering respective regional special features, on the one hand, in order to develop further the level of
the Innovation Centres and their support services for young enterprises and to profile them as specialist
Centres for enterprise foundation and development in the innovative technology-based field. On the
other hand, this is used for the derivation of strategies for the future development of the centres.

◆ The development of the communication between the centres,

in order to support their cooperation with each other on this basis. In this case, in the practical work,
very great value is placed on the avoidance of competition between centres and on the creation of overall
favourable general conditions for innovative and technology-based enterprises.

◆ The internationalization of the centres,

in order to develop them to nodal points in an international network for communication cooperation and
to make this usable for the young enterprises and their development.

◆ Comprehensive public relations and lobbying work,

in order to inform about the services of the Innovation Centres and to help the centres on site to
strengthen their positions. On the other hand, the role of the national organizations is to be increased as
the national interest representative of the Innovation Centres.

Overall, the work of the national organizations is directed towards the attaining of real added value for
their members.

4.3. To centre management

Handling recommendations to centre management have naturally a higher concreteness than those
mentioned up to now. On the one hand, they are based on the direct work with regard to their customers, the
enterprises to be supported, while, on the other hand, they are based on the work and the development of their
respective centre itself.

The recommendations in the development of their relationship to their customers can be paraphrased
with six “More”:

1. More added value and useful service for the companies

2. More networking for the companies to find out external partners in financing, science
3. More flexibility in infrastructure and spaces for the companies
4. More activities to create steps to more cooperation between companies
5. More quality in the centre management
6. More atmosphere in communication and creativity in the centre.

However, in addition, new tasks increasingly come to the foreground, that requires the commitment of
the centre management to a far greater extent. These concern basically:

◆ The development of their moderation capability,

in order to integrate the enterprises into the process of regional service provision and international
marketing, in the area of national as well as international enterprise cooperation and project work.

◆ The attention to a new type of founder personalities,

who are oriented increasingly to fast-track enterprise development and to favoring management buy out
and small stock corporations.

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◆ The tireless development of the network,

in order to enlarge it, particularly for pragmatic technology transfer, and also for the extension of the
competencies of the centre management itself.

◆ The own profiling as service enterprises

with specific economy-supporting tasks and corresponding entrepreneurial capability.

◆ The careful weighting of a professional profiling of the centre

with inclusion of the regional prerequisites affecting sustainability.

◆ The grouping of competencies of the enterprises

for the improvement of their market situation and for the profiling of individual areas of competence in
the Innovation Centre.

◆ The development of an “old-boy network movement”

of departed enterprises and their structuring to a global network of partners for the enterprises and the
Innovation Centre.

The centre management must itself develop that same entrepreneurial flexibility and adaptability to new
conditions in a highly dynamic way in its work, just as it expects from the innovative enterprises in the centre.

5. Conclusions

Innovation Centres are dynamic instruments of regional economy promotion. They create particularly
favourable general conditions for enterprise founders and young enterprises which are active in innovative and
technology-orientated fields. These general conditions consist, in particular, of a complex offer of support
services, which consider all aspects of the development of such an enterprise. With their services, the Innovation
Centres submit an offer which is particularly aimed at those enterprises that do not use it to replace their own
entrepreneurial initiative and responsibility.

A system of technology incubation can create favourable general conditions for enterprise development.
However, it cannot replace entrepreneurial initiative and markets.

The Innovation Centres are part of the regional economy-supporting infrastructure. In this respect, their
activity is aligned to the regional conditions, potentials and possibilities. These influence the type and manner, as
well as the intensity of the concrete tasks. In this respect every Innovation Centre is a unique entity. There are
no universal copy-capable models for that. There are also many different types of experience with the structuring
and operation of Innovation Centres. These are available for use and concept development for new Innovation
Centres.

The national organizations of Innovation Centres can cooperate in this field. The national governments
can create the frame conditions for these activities and can support these organizations.

And we can cooperate between Innovation Centre to Innovation Centre in different countries. This is the
best way to exchange experiences in the work of an Innovation Centre and to identify potentials for cooperation
between companies of different centres in different countries and to help to open the market for them.

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 Recommendations to future contacts

Arbeitsgemeinschaft Deutscher Technologie- und Gründerzentren, ADT e.V.

(Association of German Technology and Business Incubation Centres)

Dr Uwe Heukeroth,
Ms Kathrin Bodin,
Rudower Chaussee 29
12489 Berlin-Adlershof Germany
Phone: +49-30/6392-6221
Fax: +49-30/6392-6222
Mail: <[email protected]>
Web: <www.adt-online.de>

Innovations-Zentrum Berlin Management GmbH

(Innovation Centre Berlin Management Company Ltd.)

Dr Gerhard Raetz
Rudower Chaussee 29
12489 Berlin-Adlershof Germany
Phone: +49-30/6392-6000
Fax: +49-30/6392-6010
Mail: <[email protected]>
Web: <www.izbm.de>

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 IV. STRENGTHENING TECHNOLOGY INCUBATION SYSTEM
FOR CREATING HIGH TECHNOLOGY-BASED ENTERPRISES
IN THE UNITED STATES OF AMERICA

BY

ESCAP RESOURCE PERSON, MR DINYAR LALKAKA

BUSINESS AND TECHNOLOGY DEPARTMENT STRATEGIES, NEW YORK, U.S.A.

Abstract

In order to mobilize the opportunities of the technological revolution and cope with the challenges of
globalization now upon us, the countries of Asia have to develop new strategies to stimulate innovation and
entrepreneurship. Technology business incubators can help address some of these problems. The number of
incubators is now growing at a more rapid rate in developing and restructuring countries, albeit over
a smaller base, than in the industrial nations.

This paper outlines the progress of business incubation in the United States of America in comparison
with developments in the Peoples Republic of China. It reviews its effectiveness as an economic development
tool, its strengths and weaknesses, and points to some lessons emerging for practitioners operating under
difficult business infrastructure conditions.

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 TECHNOLOGY INCUBATORS IN THE UNITED STATES OF AMERICA

As we enter the 21st century, both industrialized and industrializing countries are arguably poised on the
threshold of a major economic transition from manufacturing-based economies to information-based economies.
Simultaneously, nations around the world are showing renewed interest in entrepreneurship and technological
innovation. Whereas “big” was typically perceived to be beautiful in the old industrial order, “small” and
“entrepreneurial” firms are often seen as better in the new one. It is increasingly recognized by both industrialized
and industrializing nations that entrepreneurial start-ups have important contributions to make to technological
innovation, economic growth, employment and social equity.

Technological entrepreneurship is widely acknowledged as one of the major strengths of the economy of
the United States of America. Silicon Valley provides an example that policymakers in many countries seek to
emulate. Culture and history are not easily replicable, but some of the institutions that have contributed to
technological innovation in the United States of America, can and have been partially replicated in other countries
and are worthy of examination.

Business incubators in the United States of America

Business incubators are one such institutional mechanism for the support of entrepreneurial start-ups.
They originated in the United States of America and have proliferated most rapidly there. It is generally
acknowledged that the origins of the idea can be traced to 1942, when Student Agencies Inc., in Ithaca, NY,
began incubating student companies. In 1946, the first incubator outside the student community was created by
American Research Development (ARD), started by several MIT alumni to supply risk capital to New England
entrepreneurs. In 1959, Charles Mancuso and his family purchased the Batavia Industrial Center (BIC) in
New York state and used this former factory warehouse to create jobs in an economically depressed small town.
BIC is still in operation and has been instrumental in the creation of more than 1,000 businesses.

Despite these pioneering efforts dating from the 1940s, it was only in the 1960s that incubators began to
develop. Growth accelerated in the 1970s and 1980s, largely as a result of the need to revitalize regions
suffering from job losses in basic industries. The belief that business formation was a major factor differentiating
growing areas from declining areas led to increased government support of incubators, primarily in smaller towns
and distressed urban areas. The 1990s have witnessed further development of incubators throughout the country.
Starting in 1996 and gathering momentum in 1998, a new kind of incubator, variously called an “Internet
incubator”, “accelerator” or “venture catalyst”, made its appearance. Recent growth in the American incubator
industry has been driven largely by these Internet incubators.

After two decades of rapid growth, the American business incubation industry has reached a level of
maturity and can look back with satisfaction on its accomplishments. The network of 800 incubators (including
about 550 traditional incubators and 250 Internet incubators) is up from 12 in 1980 and is the largest in the
world. Internet incubators are driving new growth with more than a hundred established in 1999 and early 2000
alone.

According to the United States National Business Incubator Association’s (NBIA) survey of their member
firms:

◆ 40 per cent of incubators are technology focused; 30 per cent are mixed use, accepting a wide
variety of clients; and the remainder focus on service, light industrial and niche markets or on
assisting targeted populations.
◆ 75 per cent of incubators are nonprofit and 25 per cent are for-profit.
◆ 45 per cent are urban, 36 per cent are rural and 19 per cent are suburban.
(Source: <http://www.nbia.org>)

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 Special characteristics of
the United States of America technology incubators

In the technology field, small firms are major sources of innovation, economic growth and employment.
More than 90 per cent of high technology firms in the United States of America have less than 500 employees
and about 70 per cent have less than 20 employees (see United States Small Business Administration web site,
<http://www.sba.gov/>). Despite recent layoffs, the Internet has been one of the fastest growing sources of
employment growth in many parts of the United States.

The immediate objective of technology incubators is to help small firms exploit and commercialize
research results. Currently, about 40 per cent of incubators in the United States of America are technology
focused. This percentage has risen rapidly in the last three years due to the rapid development of Internet
incubators, more than 200 of which have been established since 1997 (about 100 in 1999 and early 2000 alone).
The discussion in this section focuses primarily on conventional technology incubators.

Many American technology incubators are associated with universities and/or science parks. Due to the
success of the Stanford Research Park in 1951 and the Research Triangle Park in North Carolina in 1959, many
state and local economic development programmes have sought to create public-private partnerships to replicate
these hubs of technological innovation. The need for universities to commercialize their research results has
been an important factor driving this trend.

Typical services offered by technology incubators

The typical services provided by conventional technology incubators in the United States of America are
not unlike those provided by other conventional incubators. Commonly provided services include: workspace,
shared physical facilities, management support, technical support and networking assistance. Access to other
professional services (such as legal and accounting/financial) and access to capital are important additional
services that are frequently provided.

Workspace:

Small technology firms need space that is flexibly configurable and is available on flexible lease terms.
The ability for a tenant firm to move in and start work quickly, without spending much time and money on
renovation, has also proved important. For the same reason, some incubators provide workspace that is already
furnished with basics such as partitions, desks, chairs and filing cabinets.

Shared facilities:

In addition to the shared facilities such as administrative services, conference rooms, provided by incubators
of all types, technology incubators often provide specialized laboratories and equipment. This is especially true
of “targeted” technology incubators, which cater to the needs of a particular industry. In many cases, access to
laboratories and equipment is provided by linkages to universities or, in some cases, outside private firms. A new
trend is to provide all tenant firms with access to a common “IT infrastructure”, where not only Internet access
but services such as accounting, payroll, etc., are provided centrally to all tenant firms.

Management Support:

Technology startups are typically founded by people with strong technology skills but weak management
skills. This increases the need for management support from the incubator. This support typically begins with
the business plan. Even before a tenant is admitted to an incubator, some form of business plan is usually
a requirement for admission. The initial evaluation of the business plan is often followed by further assistance to
test the assumptions of the business plan and refine the business model. Marketing is the second most common
area where new technology businesses need assistance.

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 The primary responsibility to provide management support to tenant firms typically rests on the incubator
manager and his or her staff. This is one reason why incubator managers are usually people with previous
entrepreneurial experience. Training services in areas such as entrepreneurial skills and business and market
planning have proven to be a valuable means of helping technology businesses improve their internal management
skills. Incubators have also served as bridges to link entrepreneurs to training services outside the incubator.
Advisory boards of outside technical experts have proven to be a good strategy to assist both the incubator to
evaluate applicant firms and to provide some guidance to these firms after admission.

Technical Support:
The technology spillovers and favourable technology transfer environment associated with universities
and research institutes have proven to be major success factor for technology incubators. Links to university
research, grants, libraries and databases, faculty and students are also important.

Networking assistance:
No incubator can provide all the resources relevant to its client firms. Therefore, establishing links with
outside resources is a critical task. Such links can include many forms. Examples include:

◆ Links with potential investors such as venture capital firms

◆ Links with professional services firms such as lawyers, accountants, advertising firms, etc.
◆ Links with established businesses, including incubator graduates
◆ Links with experienced entrepreneurs
◆ Links to other incubators.

Another form of networking – that between tenant firms within the incubator – can also be an important
source of cross-fertilization of ideas and mutual help. Successful incubators in the United States of America
have made special efforts to create an environment where tenants have plentiful opportunities to interact with one
another.

Access to finance:
One of the important advantages that an incubator can confer on tenant firms is a cachet of legitimacy.
By selecting firms that meet selective admission standards, providing these firms with a favourable growth
environment and ensuring that they are well prepared when they search for financing, incubators can help their
tenant firms be taken more seriously by potential investors.

In recent years there has been a growing trend for conventional incubators to assist their tenants through
innovative financing arrangements, such as using its superior credit and resources to serve as a guarantor in
leasing arrangements or to make bulk purchases on behalf of several tenants.

Another important trend is for conventional incubators to take small equity stakes in their tenant firms.
This is often a symbolic two to five per cent, but can be considerably higher. This practice underlies the business
model of the Internet incubator, the most rapidly growing segment of the technology incubation field.

The impact of conventional business and technology incubators

Relatively few studies have been conducted on the national level of the impact of technology incubators
alone. Therefore, the impact of technology incubators is best understood in the context of the impact of conventional
incubation in general.

The NBIA conducts periodic surveys of their member incubators. These studies show that:
◆ Eighty seven per cent of all firms that graduated from NBIA member incubators are still in business.
◆ The average number of employees for graduate firms of each incubator is 251.
◆ Startup firms served by member incubators annually increased sales by an average of US$ 240,000
each and added an average of 3.7 full- and part-time jobs per firm.

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 ◆ For every US$ 1 of annual public operating subsidy received by the incubator, clients and graduates
of incubators generated about US$ 45 in local tax revenue alone.
◆ Eighty four per cent of incubator graduates stay in their communities and continue to provide a
return to their investors.
◆ Publicly supported incubators create jobs at a cost of about US$ 1,100 each whereas other publicly
supported job creation mechanisms commonly cost more than US$ 10,000 per job created.
◆ Incubator tenants employ an average of 85 people.
◆ Every 50 jobs created by an incubator client generate another 25 jobs in the community.
◆ North American incubator clients and graduates have created approximately half a million jobs
since 1980.
◆ Conventional incubators have an average full-time staff of 2.8 persons.
(Source: <http://www.nbia.org, 1998 Source of the Business Incubation Industry, NBIA>)

Other studies (Rice and Matthews 1995, Tornatsky and others, 1995) have concluded that:

◆ The estimated public subsidy cost per job created was only US$ 1,109 over a seven-year period.
This compares well with other business development services.
◆ Local, state and federal subsidies for incubators may be considered as investments for generating
tax revenues. For a sample of 23 incubator firms, the return as tax revenues was almost five dollars
for every dollar invested.
◆ By 1996, firms in incubators had grown by over 400 per cent per year, with average annual sales
growth of US$ 1,240,000 and employment growth of 3.7 jobs per year.
◆ While the survival rate of new companies after 4 years has been around 40 per cent, 87 per cent of
firms graduated from incubators were still in operation in 1996.
◆ These are difficult to quantify but are nevertheless real, in transferring technologies, strengthening
research-university-business relations, creating an entrepreneurial culture, and developing self-esteem
in disadvantaged groups.

Given the high economic and social costs of unemployment, business bankruptcies, and plant closings,
it may be concluded that in the United States of America well-planned and managed incubators represent
a cost-effective modality for creating and sustaining high value-added jobs and tax revenues, together with
technology commercialization and social benefits more difficult to quantify.

Public support for incubation

The rationale for the incubator as economic development tool in the United States of America is generally
as follows:

◆ Mechanism to promote technology commercialization

◆ Promoting synergy within and among businesses
◆ Reducing costs and consequences of business failures
◆ Helping reduce market failures, e.g. the lack of affordable, divisible work space, facilities, services,
of access to finance, information and other resources.

Government support makes sense in specific conditions:

◆ When it helps overcome market constraints, improves access to information not freely available,
reduces proportion of failed firms
◆ Becomes a visible symbol of the state’s commitment to SMEs
◆ Is limited to initiate the incubator-establishment process:
❏ not new building construction but a renovated or rented space
❏ not a continual subsidy but until operations are stabilized

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 ◆ When an incubator is an extension of the state’s role in providing public goods, i.e. knowledge,
research, technology-transfer and infrastructure.

The justification for public investment is as follows:

◆ Creation of jobs (direct & indirect) per net $ public subsidy

◆ Taxes paid by corporations & workers per net $ subsidy
◆ Income, sales and exports generated for community and country
◆ Disadvantaged groups empowered
◆ Client (incubator tenant) satisfaction at services received, common costs saved, faster time to market
◆ Public satisfaction at demonstration of commitment
◆ Partner (private) satisfaction at return on investment to market
◆ Promote innovation and entrepreneurship as prime forces in new economy.

Why incubators fail to perform:

◆ Measures of success and failure vary depending on context and objectives. Incubators fail to
perform according to expectations for a variety of reasons, starting in the planning stage and including
the following:
❏ No feasibility/business plan, inadequate demand
❏ Poor governance, inactive board
❏ Location with poor infrastructure, weak entrepreneurial culture
❏ Inappropriate building layout/limited space
❏ Manager without business experience/skills
❏ High investment and operating costs
❏ Insufficient professional/university linkages
❏ Inadequate government policies, support, taxes.

The experience of the last 15 years in starting, operating and evaluating business incubators indicates that
they can become small but significant components of a national enterprise promotion programme. But they need
initial government support, a community consensus on objectives, and realistic understanding of constraints.

The factors contributing to success are outlined below:

◆ Technocratic leadership and national vision on the creation of knowledge-based enterprises should
be boldly articulated with incentives for innovation and risk-taking.
◆ The microeconomic framework should stimulate innovation and markets for new goods and services,
together with a master plan prepared in consultation with local communities, entrepreneurs and
stakeholders.
◆ Commensurate investments are required in scientific research and technology development,
engineering and management consultancy, technical education and continuous learning,
entrepreneurship development, quality assurance and environmental preservation, transport and
communications infrastructure.
◆ Long-term plans should be formulated for developing the convergent enterprise support systems
encompassing the full range of small business development services, anchored possibly in a business
incubator and technology park.
◆ A proactive supervisory board and carefully selected and trained management team are critical to
success. They, in turn, have to mobilize broad community support and networks of external
professional’s service providers.
◆ The incubator is not just bricks-and-mortar but a coherent system for providing focused assistance
to its members for survival and success. Rents and fees have to be affordable but also structured to
become sources of revenue for the incubator and move it towards sustainability.

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 ◆ Locations for these support complexes should be environmentally attractive and well connected to
technical universities and research laboratories, cultural and recreational facilities. While it is easier
to start in a developed urban environment, political wisdom may call for balanced expansion to
peripheral regions.
◆ Good governance starts with the selection of proactive sponsors and sound organizational structure
with responsibilities moving progressively to knowledge institutions, private sector, non-governmental
agencies and national associations.
◆ Governments should solicit carefully prepared technical assistance from multi/bilateral organizations,
such as the United Nations development system and development banks, to initiate innovative
concepts and support local initiatives, within frameworks of national priorities and local culture.
◆ Programmes are required for kindling nascent entrepreneurship from school onwards and structured
efforts to search for new tenant businesses, their selection and graduation.
◆ Capital markets have to be structured to provide access to investment and working capital for the
incubator as well as sources of credit and risk capital for the tenants.
◆ Networks should be developed with agents at the regional and national levels, particularly consulting,
manufacturing and service sectors, venture capital, banking, legal and accounting services, business
associations and chambers, together with firm linkages to the international community.
◆ The performances of the incubator and its tenants have to be monitored continuously and remedial
actions taken. Objective evaluations of effectiveness require a sound management information
system that compiles, analyzes and disseminates data.

New incubators for the new economy

The first generation of business incubators in the 1980s were essentially offering good, affordable space.
In the 1990s the need was recognized for counselling, skills enhancement and networking service, for tenants in
the facility and affiliates outside. Starting in 1999, with the maturing of the Computing and Communications
Revolution, new third generation incubation models have emerged. These are intended to mobilize ICT and
serve the New Economy towards creating livelihoods and economic growth.

In the context of venture creation, the distinctive features of the New Economy have been defined as
follows:

The old economy, you learn a skill. The New Economy is lifelong learning. The old economy is
concerned with security; the new is risk-taking. The New Economy is job creation; the old is job
preservation. The old economy is capital equipment. In the new, it’s intellectual property that
matters. The old economy is about the status quo. The New Economy embraces speed and
change. The old economy is top down and highly regulated, and tends to be a zero-sum game:
You win, I lose. The New Economy is distributed and instead of being highly regulated, we form
public/private partnerships. If the old economy is zero sum, the New Economy is win-win.

– John Doerr, Kleiner Perkins Caufield & Byers1

Do the New Economy and ICT really empower? With near-costless computing and real-time
communications in the globalizing economy, disadvantaged groups (such as small enterprises, backward regions
and poor countries) are expected to overcome the lack of access to needed resources. Nevertheless, there are
serious concerns in the international community regarding the ‘digital divide’ which may well widen the income
gap between the IT-haves and have-nots. Further, there are the troubling issues of privacy, the toxic chemicals
used by high-tech industries, the problems of sustaining high productivity and raising employment.

But it can be argued that throughout the history of human endeavour serious social and economic
consequences have accompanied every radical shift caused by emerging technologies. Technical change is often
odious but almost always for the better in the long-term.
1
Quoted in O.M. Chinsboom, Incubators in the New Economy (MIT, June 2000).

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 The Internet incubator

We are now experiencing an exponential growth in for-profit incubation systems for accelerating the start
and growth of ICT-enabled ventures. The Harvard Business School in its recent survey2 identified 348 such
New-Economy incubators around the world. Of these 214 are in the United States of America (that is, about
25 per cent of the total United States of America incubators). The others include Canada (14), United Kingdom
of Great Britain and Northern Ireland (10). A force driving innovation and entrepreneurship in the United States
of America today has been the rapid growth of venture capital. From a level of US$ 3 to 4 billion in the early
1990s, the VC funds have risen more than 10-fold to US$ 46 billion in 1999.

The distinctive feature of the venture creation process in this millennium is the speed at which it has to
move. Typically, the preferred growth plan comprises:

Develop e-business concept (possibly in an incubator)

Sell to potential partners
Attract US$ 20 million + in VC to build brand awareness
Enter market and develop an income stream
IPO in 12 to 15 months
Target growth of 200 per cent plus every year

The overall purposes are to achieve compression of time to market to realize the first mover advantage,
time to value by raising market share, time to liquidity measured in many millions and in months not years. To
cater to the above start-up scheme, the Internet Incubator has to provide three essential inputs to its portfolio of
ventures:

◆ Hi-tech space and equipment with shared administrative, accounting, legal support
◆ Management, marketing expertise and networking
◆ Seed capital and rapid access to larger venture capital, usually in exchange for equity.

Examples of Internet Incubators in the United States of America are noted below.

◆ eHatchery, Atlanta:
Funded by idealab. High tech, plug-’n-play building, staff of 45. Uses special software tools (e.g.
Celeration, hatchware). Takes equity up-front (30 per cent average, US$ 250,000 to 2 million) in
tech-enabled businesses to IPO in short time-frame.

◆ Cambridge Incubator, Boston:

Partners include Draper Fisher Jurvetson (a major VC firm), Boston Consulting Group, Sun
Microsystems and Pricewaterhouse Coopers. High-tech building, staff of 40 + students. Space &
services at cost. Has invested since US$ 12 million in 7 ventures in 2 rounds since June 1999.

◆ Intelligent Systems Incubator, Atlanta:

Publicly-traded. Small staff (3 partners + 5 support staff). Incubates companies without making
investment, charges monthly fee for services. Mostly invests in early-stage companies outside
incubator (50 in last 10 years, average of 25 per cent of total equity).

The Harvard survey cited earlier reached the following conclusions:

◆ The bulk (92 per cent are focused on Internet specific, mainly B2B, software, telecom and content).
◆ A small proportion is run by Venture Capital firms (31 per cent), and most are focused on
early-stage companies. The average equity taken in the companies being incubated is 35 per cent.
◆ While 44 per cent flip the companies as soon as their equity stake can be sold for a good profit, the
others hold their equity stakes to create a large portfolio of successful companies.

2
Hansen, Nohria, Berger, The State of the Incubator Marketspace (June 2000).

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 ◆ As most of these for-profit incubators are very young, the model is as yet unproven. Only 38 per
cent have produced ‘graduates’ and only 16 per cent have had a liquidity event (for instance, sold or
had an IPO).
◆ Revenue sources for these incubators comprise equity only (55 per cent) and fee only (4 per cent),
with the balance taking a mix of equity and fees. In return for the equity given up-front, the
average seed capital provided is US$ 1.1 million.
◆ In addition to space with IT infrastructure, most incubators provide administrative services, group
buying programmes, accounting, PR legal and staff recruitment assistance.
◆ The median number of staff per incubated company is 6.7.
◆ Most of the networking opportunities among the tenants were informal with some idea-sharing,
scheduled meetings, cross board memberships and sales partnerships.
◆ In future, there will be a shake-out. Many incubators will seek a wider geographical range, to lower
their costs, improve services and increase the graduation rates.

Internet incubators in developing countries

The Internet is coming fast to Latin America and Asia. For instance, two years ago there were two
million Internet users in China, this year there will be 20 million (almost one-fifth of the current United States of
America). For such Internet accelerators to succeed, the current state policies and regulations for joint ventures
in the Internet arena should progressively become more supportive and liberal. Venture capital from the United
States of America is now entering the Chinese Internet market and many millions more would follow. But this
requires the easing of the serious obstacles being encountered by young Chinese entrepreneurs in the Internet
sector with regard to bureaucratic procedures, joint-venture restrictions and financing constraints to going public.

With entry of China in to the World Trade Organization and the opening of its markets to international
competition, the entrepreneurial energy of educated youth (and their ability to attract venture capital for
ICT-enabled ventures) offers the opportunities of transforming the economy and creating new employment.
Examples of this ferment are to be found in the university-affiliated technology incubators such as Tsinghua,
Tianjin, Wit-hub and Xian as well as the new Internet Incubators such as Shanghai Dakang Business Accelerator.

Box: Shanghai Dakang business accelerator

Shanghai Dakang Business Accelerator is a partnership between Shanghai Jiaotong University, the pioneering
Tianjin Innovation Center, and Business & Technology Development Strategies (BTDS), New York. The company
targets Chinese early-stage, Internet ventures, and western firms seeking to enter the Chinese market. The strategic
anchor-partners resident in the facilty are Bexcel, nationwide new venture consulting specialists, and AllBright
Law, a leading law firm specializing in new ventures.

DCBA has 6,000 sq m space in the heart of Shanghai’s business district with high-speed Internet access. Part
of this will be used for nurturing Internet companies, and the balance rented out to other start-up firms, anchor
tenants and service providers. WitHub Venture Capital is a founder investor while intensive management support
will be provided by Jiatong University, Tianjin Innovation Center and BTDS.

While there has been a shake-down in dot-com ventures in early-2000 and some slowing in the pace of
growth in ’net-related incubators, this model can be expected to continue to grow in the coming years.

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 The virtual incubator

ICT also makes possible a variant – the Virtual or Cyber Incubator – which enables a variety of
businesses to start and grow in their own premises. Advisory and networking support can be provided from
a distance, in a cost-effective manner, at rapid speed and from a variety of sources worldwide. With the spread
of “always on” broadband connectivity, small businesses can look forward to the Internet providing a seamless
virtual extension of their capabilities and reach.

The United Nations Development Programme initiative3 to launch such virtual incubators on a pilot scale
comprises:

◆ national web-based portals for small business support initially in, say, three countries in different
regions of the world
◆ an inter-regional portal to support, link and create synergies among these national portals and
their business clients.

The portals would be well-organized, extensive web sites that serve as entry points to a range of resources,
tools, expertise, business opportunities, etc.

The national portals would provide early-stage and start-up businesses with (1) relevant information,
resources and tools, (2) access to various business services, particularly skills enhancement and counseling in
management and marketing, (3) facilitated access to resources including seed equity capital, (4) a platform for
entrepreneurs to learn from each other and (5) the ability to connect business-to-business. In addition to developing
vibrant networks of small businesses, the national portals would help create a virtual community of business
support organizations and service providers in the country.

The interregional service portal would focus on serving the national portals and other small business
related institutions by (1) providing relevant generic resources and useful tools, (2) promoting interactions,
experience-exchanges and bench-marking opportunities among practitioners under different economic situations,
to arrive at good practices for adaptation to their own conditions and (3) creating a global community for such
organizations. Eventually, the global portal would facilitate international e-commerce and the formation of
business partnerships among small businesses and with large firms from developing and developed countries.

TECHNOLOGY INCUBATORS IN CHINA

Since its start twelve years ago with assistance from the United Nations and strong support from China
State Science and Technology Commission, incubators have developed rapidly, both in quantity and quality.
Today, this programme is the largest in the developing world and the third largest worldwide, after the United
States of America and Germany. It has significant achievements (and some shortcomings) from which others can
benefit.

While the vitality of collectively owned township and village enterprises has been the force behind
China’s fast economic growth over the last twenty years, entrepreneurship received official sanction and
encouragement from the government only recently. Starting in 1998, the government has implemented measures
to foster small enterprises.

Today there are some 127 incubators in China located in every province, autonomous region and major
city except Tibet and Qinghai. In addition, there are another 64 organizations such as “software parks” that
function much like incubators. Incubators have become an established feature of the technical and business
infrastructure and continue to increase in number at the rate of one to two each month. As of end 1998, the
77 incubators included in the Torch Programme, mostly representative of the first generation of incubators and
almost all with a general technology focus, had a total floor area of 884,000 sq m with 33 having space of over
10,000 sq m each. There are 4,138 tenant firms in incubation and 1,316 graduate firms. Tenants and graduates
together had total sales of some 10.1 billion yuan (about US$ 1.2 billion) and employed some 140,000 people.

3
UNDP-assisted Virtual Business Incubators (UNDP, July 2000).

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 Some characteristics of three incubators studied recently, including the oldest and newest, are summarized
below. Tianjin Technology Incubator, among the oldest, is at the port city of Beijing, 100 km away; Tsinghua
Pioneer Park (actually an incubator) is linked to the foremost technical university in China at Beijing; and Hefei
is a provincial capital.

Characteristics of three Chinese incubators

Tianjin Hefei Tsinghua

Year started 1991 1992 1999
Area gross, sq m 11 000 33 000 2 500
No. of enterprises 84 121 12
Enterprise employees 1 035 200
Revenues, RMB ’000 100 565 120 000 –
Taxes paid 3 571 2 400 –
Graduates – No. 37 40 –
Graduates – jobs 949 28 000 –
Graduates – revenues, RMB ’000 110 878 255 000
US$ 1 = approx. RMB 8.4

Tsinghua is only one year old, already fully occupied by high-tech companies, and expanding. It may be
noted that while Hefei has a large area under management, only half is leasable for incubation as the balance is
used to earn income as rents from commercial users.

Types of incubators

Based on our research, some 127 incubators and another 64 incubator-like organizations can be identified,
for a total of 191 such entities as of year-end 1999.

Incubators
Torch Incubators 77
New Incubators (not included in Torch statistics) 50
Sub-total 127
Incubator-like entities
Overseas Chinese Scholars’ Parks 17
University S & T Parks 34
Software parks 13
Total 191

General technology incubators

Technology business-focused incubators are the most common types in China. According to the Torch
regulations, priority technologies include new materials, environmental technologies, electro-mechanical
technologies, biotechnology, aerospace and information technologies (with 13 software parks as part of China’s
recent stress on IT).

Tenant companies are mostly spin-offs from universities, research institutes and state-owned enterprises.
Ownership of the spin-offs typically remains with the parent institutions which also provide the finance. However,
in recent years there has been a slow but steady increase in the number of privately-owned tenant firms, drawn
from various sectors of society including scientists leaving the state research institutions; they must raise financing

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from their own sources. As of year-end 1998, 111 of 127 (87 per cent) incubators in China had a general
technology focus while some focused on sectors such as biotechnology, pharmaceuticals, materials science and
oceanography. In contrast, in the United States of America with about 600 incubators, only about one-fourth
had a technology focus (1998) although this proportion is rising in recent months.4

A good example is the Tianjin High Technology Innovation Center, located in the Technology Park
110 km south-east of Beijing. Of 96 tenants (January 2000), 57 per cent are in computing/electronics, 18 per
cent electro-mechanical, 11 per cent materials, 11 per cent biotechnology and 3 5 others. The incubator has
contributed to the commercialization of approximately 300 research results equivalent to almost 40 per year.

Special market segment incubators

China has pioneered in establishing a network of “International Business Incubators” (IBIs). These
are designed to assist both international and Chinese startup firms enter the Chinese and international markets
respectively and to promote cooperation between the two. While the traditional incubator serves only national
ventures, the IBI is intended to facilitate small companies with significant technical products but with limited
resources to enter a complex market such as China.

The feasibility study prepared in March 19975 evaluated and selected eight existing technology incubation
centers in order to transform these for mixed Chinese – foreign company use. The IBI Programme expects to
attract high-potential international and Chinese firms to facilitate domestic and international networking.

◆ University Incubators are among the most promising and fastest growing new segment in the
industry. Eight have been established to date including some by China’s best-known universities
such as Tsinghua University in Beijing. During our visit to Tsinghua in October 1999, we were
impressed by the management arrangements and the high scientific capabilities of the tenant
businesses. These are headed by faculty and students alike. Most are in IT-related businesses. The
best of China’s university-affiliated incubators (such as at Tsinghua and Jiaoda) provide a calibre of
support and an entrepreneurial environment comparable to that of the best university incubators in
developed countries.
◆ University Science & Technology Parks have also been increasing rapidly. Unlike university
incubators, they cater to larger enterprises and provide modular manufacturing space. 34 have been
established in 1998 and 1999. Sponsorship of the university S&T parks is by a combination of the
universities, local governments, MoST and MoE.
◆ “Overseas Chinese Scholars’ Parks” are incubator-like institutions which provide a supportive
environment for Chinese students returning home after advanced technical education. 28 Overseas
Chinese Scholars’ Parks have been established in the late 1990s; 11 of these were established by
and share personnel and facilities with established incubators while 17 are new facilities. Preliminary
results in terms of quality of technologies commercialized, enterprise growth, etc. have been
promising.

While the earlier incubators were predominantly for commercializing innovations, this is changing. Now,
an incubator in Tianjin focusing on enterprise creation by laid-off female factory workers and sponsored by
UNDP, AusAid and the Tianjin Women’s Federation, is presently in the implementation stages6. A second
project sponsored by the Zhenjiang Economic Commission and focused on the creation of family businesses by
laid-off factory workers is still in the planning stages7.

In the context of the government’s push to “develop Western China”, it is now essential to develop
a Chinese model for an ‘empowerment incubator’ to create livelihoods through mixed enterprises, including such
recent developments as ‘kitchen incubators’ and ‘arts incubators’. Such a model would also help retrenched

4
1998 State of the Business Incubation Industry, (Ohio, Athens, NBIA).
5
R. Lalkaka in cooperation with TORCH expert team, 1997.
6
Ma Feng-Ling and Peter Strong, “City of Tianjin laid off women workers business incubator feasibility study” (June 1999).
7
D. Lalkaka, “Zhenjiang business incubator inception report” (December 1999).

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workers from the State-Owned Enterprises to start their own spin-off businesses. This would also help
re-invigorate the Township and Village enterprises.

Incubator networks composed of incubators in the same region or with the same focus are a new and
flourishing phenomenon. To date, eight have been established and are a useful means of mutual help.

Typology of sponsors

Incubator sponsorship in China is undergoing an evolution, from exclusive sponsorship by the MoST’s
Torch Programme to a more pluralistic pattern. In the initial stage (1987-1994), direct sponsors were mainly
(1) the Provincial and Municipal Science & Technology Commissions (which are part of the MOST structure)
and (2) the High Technology Enterprise Zones (also part of the MoST structure). After 1997, institutions such as
universities also became sponsors of Torch incubators.

Sponsorship pattern of torch incubators

Sponsors Number
Provincial/Municipal STCs 24
High Tech Enterprise Zones 47
Jointly by STC and Tech Zone (1 & 2) 1
State-Owned Enterprises 2
Universities 2
Economic Zones 1
Jointly by University and Economic Zone (5 & 6) 1
Total 78

Sponsorship has moved down to lower administrative levels. Instead of Provincial and Municipal S&T
Commissions, incubators are increasingly sponsored by County and District S&T Commissions. The university
incubators and university S&T parks come under the purview of MoE. The Returned Student Parks are under the
aegis of the Ministry of Personnel.

The Tianjin and Zhenjiang incubators for laid-off workers are sponsored by the Tianjin Women’s Federation
and the Zhenjiang Economic Commission respectively, breaking completely with the conventional model of
Chinese technology incubators and independent of the Torch programme.

Two incubators sponsored by a public-private partnership of local government and private enterprises
were established in 1999. One is the Nanjing Private Technology Innovation Center, organized by local government
but funded by private enterprises, and run on a for-profit basis. Other signs of diversification of sponsorship
include incubators sponsored solely by a private company in Tianjin, a state-owned enterprise in Beijing and
a private Hong Kong, China company in Beijing.

Financing of China incubators

Current and emerging forms of incubator sponsorship and financing are as follows:

◆ Government-sponsored, fully subsidized or self-financing:

Fully sponsored and financed by the government. Token fees or no fees collected from tenants.
The incubator is expected to become self-sustaining after an initial period of around two to five
years.
◆ University-sponsored, self financing:
University-sponsored incubators typically charge relatively low fees which cover only a portion of
their operating costs, with ongoing subsidization by the university.

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 ◆ State Owned Enterprise-sponsored:
These are established by SOEs with an economic development mandate. The incubators are expected
to perform a social function but also be economically viable.
◆ Public-private, self-financing:
Typically sponsored and funded by both government and private firms. Some privately sponsored
incubators are run as for-profit businesses.

Objectives of incubator programme

As with sponsors, the objectives of China’s incubators have changed and diversified over time. The
primary objective has been to commercialize technical innovations. Prior to China’s economic reforms starting
in the late 1970s, there were few structural mechanisms to move S&T research results out of the laboratory. In
the absence of a market economy, enterprises were not market-driven and had little incentive to innovate or
utilize new technologies. Likewise, in the absence of intellectual property rights, research institutes had little to
gain by transforming research into marketable products.

With the transition to a market economy, this situation was no longer acceptable. By 1987, incubators
were seen as an important means of bridging the gap between R&D and of creating favorable microenvironments
in the face of the earlier unfavorable macro-environment. There is arguably a better justification for investing in
incubators in a transitional economy until such time as the evolution to a market economy is completed.

Organization

The Torch Programme Office of MOST is responsible for organizing, developing, financing and guiding
China’s official technology incubator programme. Provincial, county, municipal and district Science and Technology
Commissions are responsible for implementing the programme and establishing incubators in their local jurisdiction.
In addition, National-Level High Technology Development Zones are also promoting technology incubators.

Sponsors do not play an active role in the governance of incubators. As a result, the concept of
a fiduciary Board of Directors, bringing together various sponsors/investors and actively overseeing the work of
the incubator management, is largely absent. Again, signs of change have begun to appear. The public-private
partnerships at the new Nanjing and Chengdu incubators have established fiduciary Boards that participate
actively in supervising operations. The Tianjin incubator for laid-off women workers is establishing an advisory
board which will include representatives from a variety of organizations.

Given their typically large size, Chinese incubators are generally lightly staffed with an average of staff
per incubator. Around 36 incubators had a staff of 10 or less, 9 had staff between 11 and 20, 9 between 21 and
30 and only 5 had a staff of 31 or more.

The organizational structures of Chinese incubators vary but they are typically headed by a Director and
include an Enterprise Department responsible for services to tenant enterprises, a Real Estate Management
Department responsible for routine management of services in the main building, a Finance Department responsible
for bookkeeping and financial services for both the incubator and its tenants and a General Office responsible for
office and secretarial services.

Effectiveness as an economic development tool

How does one judge the quantitative economic and financial effectiveness of Chinese incubators? What
has been the government’s return on its investment in the programme? While detailed statistics for all Chinese
incubators are not available, we do have good data for 77 incubators tracked by the Torch Programme. In 1998,
these incubators had an average floor space of 11,475 sq m, 54 tenants and 896 employees. Each had an average
of 17 graduate companies, that employed 612 persons (at graduation). Tenant sales amounted to equivalent of
about US$ 9.5 million average with profits of about US$ 625,000.

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 Performance of torch programme incubators, 1998

Gross floor space 883 620 sq m

Tenants 4 138
Tenant employees 68 975
Tenant sales RMB 6 066 798 000 US$ 735 400 000
Tenant profits RMB 396 535 000 US$ 48 100 000
Tenant taxes RMB 264 106 000 US$ 32 000 000
Cumulative No. of Graduates 1 316
Graduates’ employees 47 134
Total Seed Capital Funds RMB 259 819 000 US$ 31 500 000

Data on the investment (subsidy) by government in these 77 incubators through 1998 is imperfect but the
information available indicates that this figure is over RMB 1.3 billion, equivalent to about US$ 150 million. On
a static basis (i.e. lacking in time series data on taxes paid by tenants and abstracting from the present value of
that income stream), government tax receipts from incubated enterprises would pay for the entire investment
through 1998 in the 77 incubators in about five years.

This excludes the additional value of the social benefits, for example, the number of direct and indirect
jobs created, the induced increase in taxes paid by suppliers and customers, the promotion of an innovation
culture and the value of the technological products and services brought to market. Surveys of limited samples
of sponsors and tenants at Tianjin, Tsinghua and Hefei indicated overall satisfaction at their performance.

Strengths and weaknesses

Strong government leadership in an era when market forces were still in the early stages of development
has been the main determinant of the performance of China’s incubation programme. This has been both the
source of many its strengths and some of its weaknesses.

Strengths

The size of the incubation programme is impressive. No other developing country has been able to
marshal the commitment and resources necessary to develop such a large network in the relatively short span of
a dozen years.

◆ Significant numbers of enterprises, sales and jobs have been created, technologies commercialized
and taxes generated. This is due in part to the heritage of centuries of scientific prowess and
entrepreneurial energy. Further, after initial subsidy, Chinese incubators are generally required to
become self sufficient on an operating basis.
◆ Chinese incubators have also been a means of creating cultural change due, in large measure, to the
commitment of pioneers8. Incubators have also made contributions to bridging the gap between
publicly funded research and the marketplace, fostering entrepreneurial attitudes and facilitating the
re-entry of scholars from abroad.
◆ CASTIP, the incubator association, has been effective in promoting continuous interaction and
learning opportunities among the managers of Chinese incubators. It has been active in promoting
regular exchanges with incubator associations and professionals internationally. Some of the best
incubators such as Xian, Tsinghua and Beijing-Fengtai now have women as managers.
◆ The programme has been dynamic and continues to evolve. There has been a willingness to learn
from mistakes and from the experience of other countries. It is changing its operating style from
a ‘socialist incubator’ to a ‘market incubator with Chinese characteristics’. It has pioneered in such

8
The incubator pioneers include Professor Song Jian, Madame Dong Guilan and Mr Wu Yikang and the Torch Office led by
Director Zhang Jing’an, Mr Zhang Chaoying and Ms Luo Hui.

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 fields as the IBI and equity in tenant companies and is now moving into the NEW Economy with
Information Technology and Internet Incubators.

Weaknesses

◆ The programme has had a narrow organizational base in the MOST’s Torch Programme. Little
effort was made to create “ownership” by the communities in which incubators are located.
Governance continues to be a weak link. Now, the imperative of economic development of the
Western Region requires special measures to develop incubation for sustainable livelihoods where
the business infrastructure is still weak.
◆ It has had a near-exclusive concentration on technology enterprises because the programme is
“owned” by the Torch (high technology) Programme. As noted, the potential of incubators to
address other social and economic issues has not yet been explored. The scope of the programme
should now be extended rapidly to new target groups such as, the disadvantaged regions of China.
◆ Women and minorities are poorly represented. For the average person in the street with a bright
entrepreneurial idea, it is generally still difficult to gain admission to an incubator simply on the
strength of a good business plan.
◆ Again, the programme is heavily focused on the “hardware” aspects of incubators. Physical space
and facilities have had priority to the detriment of the “software”, i.e. quality business support.
Importance of soft services is only now being recognized.
◆ The programme has not been immune from the dynamics of politics. Local “empire building” is an
important driver of the programme. This skews the effectiveness of investment in the programme,
for example, by reinforcing the emphasis on bricks and mortar (from which empires can be built)
and the relative neglect of services (less suited to the demonstration of local clout).
◆ Incubator management is generally composed of civil servants who have little or no entrepreneurial
experience. This further limits the quality of the “soft” business support services they can provide
to their tenants.
◆ The services that are provided in-house are typically not on a cost-recovery basis. This limits their
quality and sustainability. This of course is true in many developing countries where entrepreneurs
have no personal savings and where they expect that all support from a government sponsored
programme must come free of charge.
◆ There is as yet no coherent national policy framework for incubator development and for linking
this to entrepreneurship development. The policy treatment of incubators by local governments in
terms of legal status, taxation, etc. varies widely. Few guidelines in terms of feasibility study
templates, operations manuals, evaluation criteria, etc. exist. As in some other countries, incubators
are launched and operated primarily on the basis of “intuition”.

In China, the first phase of the transition to a market economy is largely over. The incubator programme
has served as a means of facilitating this. It now needs to re-position itself to meet the changing needs of the
new global environment. Whatever that role is, Chinese incubators a decade from now, like China itself, will be
more diverse and decentralized than they are today. Moreover, given the strong base that now exists, this
incubation programme can be expected to continue to serve as a reasonably effective tool of technological
innovation and economic development.

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 OVERALL COMPARISON
Framework for performance assessment

The majority of incubation programmes worldwide can be characterized as “public-private partnerships”

in which initial financial support is received from the state bodies. Many governments consider them as part of
the business infrastructure and the evidence indicates that the annual taxes and other benefits from regional
economic development more than offset the initial subsidy. Private sector participates when it sees that the
programme will lead to greater business opportunities and promote spin-offs. Good measures of performance of
an incubation system are the medium-term benefits accruing to small businesses, sponsors, local community,
region and nation.

Guiding principles

New venture creation at business incubators is based on three fundamental principles summarized below:

1. Focus the energy and resources of the TBI on developing the businesses within it and enable them to
learn from each other.

New jobs and economic growth are created by the resident companies not by the workspace itself.
Further, small enterprises can be their own most effective service providers. In some countries, the
tendency is to spend much effort on preparing perfect plans rather than on developing the human resources
and providing real services for enhancing firm-level productivity.

2. Manage the incubator as an entrepreneurial business operation while developing networks of state,
university, financing and community support and a ‘champion’.

The managements of incubation centers supporting the constituents have to be entrepreneurial with business
experience. Government involvement is necessary to create the business infrastructure and to provide
initial funding. But corporate sponsors, regional and city agencies, associations and universities have to
get involved to move towards sustainability.

3. An outward looking, export-oriented incubator is forced by the competition to become more dynamic and
more efficient.

The skills and structures for marketing are generally the most critical. Changing markets require continuous
innovation and this comes best from an environment which encourages risk-taking and competition.

Operations in both industrial and industrializing countries can now benefit from linkages between them,
both south-south and south-north. In the southern Asian context, good experiences are available from China and
are emerging in the Republic of Korea and Japan. ESCAP has a special responsibility of transferring these
incubation experiences to neighboring countries.

LESSONS (TO BE) LEARNED

The strengths and weaknesses outlined above indicate some of the reasons why incubation works (and
how it might work even better). They also offer some guidelines for decision-making on starting and operating
business incubator programmes in other developing and restructuring countries. The lessons emerging (but yet to
be fully learned and applied) are summarized below:

1. Commit to the core principles of venture creation with business incubation as one catalytic component of
a national small enterprise and entrepreneurship development strategy. Enterprises (and employment)
are created by companies, mainly through individual initiatives; the appropriate role for governments is
to develop the business infrastructure, implement supportive policies, trouble-free regulations and the
requisite demand for this to happen. Incubation is often more successful in the restructuring countries as
it helps overcome market failures. In China (unlike many other developing countries), the government at
all levels has committed continuing ‘patient’ resources and is generally satisfied with the results.

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2. Adapt business incubation to a new empowerment model to address social and economic problems
(as well as technology commercialization). Better use has to be made of incubators for economic
development in the western region of China, regional and rural development, alternative livelihoods for
workers from the State Owned Enterprises and for other special purposes. But while the state-as-sponsor
considers employment creation as an essential purpose, the incubator-as-enterprise must give priority to
venture creation, survival and growth.

3. Recognize that traditional business incubators – like other development services in developing and OECD
countries – require initial state support/subsidy with the prospect of becoming reasonably self-sustaining
at maturity. In turn, incubators do provide a variety of benefits such as nurturing early-stage ventures to
survival and success, diversifying the regional economy and taking innovations to the market with
consequent direct and indirect employment, taxes, exports and economic growth. Benefits not readily
quantifiable include promotion of entrepreneurship and networking cultures.

In the restructuring countries, private sector providers of services for small businesses are not yet developed
and the state has a bigger role to play. But this should be limited to an initial period of around 5 to
6 years until the facility demonstrates its effectiveness and the private sector begins to participate. Public
intervention can be justified when it addresses market failures and provides public goods.

4. Do the homework, starting with survey of the demand for incubation services, analysis of the feasibility
and business plan, identification of committed sponsors and realistic objectives, choice of the type of
incubation facility needed and mobilization of stakeholders and community consensus. This preparatory
work then offers the best chances for future success as in the case of the Tsinghua incubator. Without
structuring operations for future sustainability, an incubator would continue to struggle and perhaps fail
when the public subsidy inevitably declines in future. Ideally, such a study should also consider options
other than incubators.

5. Choose a location and building that will facilitate the incubation process and enable the incubator to
generate sufficient revenues. Recognize also that an incubator is not a real estate operation with big
buildings and hardware but essentially a nurturing environment. In most countries, it is difficult to find
a vacant space or finance to construct a new building. In China, on the other hand, the political and
prestige considerations have resulted in vast buildings which create commercial revenues but often at the
sacrifice of value adding support services for tenants. While larger scale of operations may offer lower
costs, the new breed of entrepreneurs require quality space and service. In future the focus must shift
from constructing bigger buildings towards providing better services.

6. Structure the incubator governance and organization to minimize interference and maximize assistance
to the tenant companies. This in turn requires the careful selection of managers with entrepreneurial
experience, their hands-on training at home and abroad, remuneration (and incentives) that reward
performance. Researchers, professors or government officials do not usually make good incubator
managers. Entrepreneurs especially women entrepreneurs, do. The Chinese managers have come mostly
from local governments partly because private business has emerged only recently and because massive
state support comes with some strings attached.

To meet the needs of qualified managers, a structured training system is now required which accredits the
incubator managers who meet professional standards.

7. Select early-stage companies with the potential to grow and create good jobs and organize services
specific to their needs. In developing country situations, potential ‘incubatees’ have poor business
management/marketing skills and limited finances. This requires that incubator managements take special
pre-incubation/probation/post-graduation measures as well as consider variants of franchising of business
concepts and vouchers for services. Some Chinese incubators now take equity in selected tenant companies
and plan future venture capital operations.

8. Re-engineer the incubation process to take advantage of the exponential growth of Internet applications.
In the United States of America, Internet and New-media incubators have emerged recently where venture
capital and consulting companies identify innovations and rush them rapidly to the capital markets, not in
2 to 3 years as in the traditional incubators but in 6 to 12 months in the new “accelerators”. Essentially,

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 the accelerator is a convergence of venture capital + strong management consultancy support + a high-
tech building.

Internet is coming fast to Asia. For instance, two years ago there were two million Internet users in
China, this year there will be 20 million (almost one-fifth of the current number of users in the United
States of America). For such Internet accelerators to succeed, the current state policies and regulations
for joint ventures in the Internet arena should progressively become more supportive and liberal. The
advanced developing countries (China, India, Brazil, Malaysia, Egypt included) need to adapt some of
these revolutionary trends.

In this context, one of the first such facilities in China is the Shanghai DotCom Business Accelerator.
This is a China-United States of America joint venture with strong partners, namely, the Jiaotong University
(China’s premier technical institution) Withub Incubator, the Tianjin High Technology Innovation Center,
Shanghai Webb Consulting, and Business & Technology Development Strategies LLC, New York.

9. Accelerating the venture creation process in turn calls for special measures to promote the expansion of
Venture Capital firms linked to technology incubators. The on-going boom in the economy of the United
States of America is due to a culture of risk-taking and the strong drive to create entrepreneurial, knowledge-
based ventures backed by venture capital and concomitant management support. The VC commitments
have risen ten-fold in ten years, to the level of US$ 47 billion in 1999. The bulk of this (about 75 per
cent) has been in Internet related businesses.

10. Develop a range of counseling services, capacity-building and entrepreneurship development programmes
and networking opportunities targeted to the needs of the tenants and affiliates. The success of the
incubator has to be measured by the success of its companies and the key to success is good services.
Importantly, these services must be paid for through affordable fees, if they are to be efficient and
sustainable. In China – and most restructuring/developing countries – it is expected that such services
from government or donor-sponsored agencies must come free, without fee. This mentality is changing
but slowly.

Further, more out-sourcing should be encouraged for advisory, training and accounting services by
developing networks of service providers.

11. Promote the convergence of support for new venture creation with the incubator serving as a platform
where university, technology park, venture capital, private business and publicly funded research come
together, all reinforcing each other. Good examples of such synergy are the Technology Park Malaysia
(which started operations with an innovation/incubation/enterprise center as the core and provision for
tech-based enterprises clustering around it).

12. Create associations, chambers, clubs and other structures which can play an advocacy role in promoting
the interests of incubators and their members among decision-makers as well as provide a platform for
exchanges of experiences, expertise, training and trade opportunities, both within the country and with
counterparts internationally. CASTIP performs these functions well in China and abroad. Informal
networks and NGOs, with some initial, external support, can be strengthened to help entrepreneurs learn
from each other and help themselves.

Finally, engage in continuous monitoring and evaluation of incubator programmes with actions to improve
performance and better serve the members as their needs change. The increasing emphasis from donors
and sponsors on effectiveness, impact and sustainability calls for serious efforts to collect and analyze
data on incubators and their tenants/graduates in order to enhance operations and justify the state subsidy
provided. Components of such monitoring should be the bench-marking of performance (especially for
a large programme such as China’s), surveys of the changing needs of tenants, and their opinions on
services provided.

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 FUTURE TRENDS

The problems for further research are essentially in the areas of information gathering and defining the
metrics, both the quantification and interpretation of costs and benefits, at the micro- and macro-economic levels.
Few programmes have adequately built into their management systems the routine accumulation and analyses of
data on the success or failure of their graduates and, indeed, of the service facility itself. Yet it is precisely these
longer-term outcomes that validate (or invalidate) the usefulness, impact and sustainability of business incubation
and other SME development programmes.

REFERENCES

Abetti, P.A. and M.P. Rice, 1995. “Planning and building the infrastructure for technological entrepreneurship”,
in Frontiers of Entrepreneurship Research, pp. 248-260.
Lalkaka, R., 1997. Supporting the Start and Growth of New Enterprises. (New York, United Nations Development
Programme).
Lalkaka, R., 1997. “Convergence of enterprise support systems: emerging approaches at Asia’s technology
parks and incubators”, paper presented at the AURRP 12th International Conference, Monterey, California.
Lalkaka, R. and P. Abetti, 1998. “Business incubation and enterprise support systems in restructuring countries”,
paper presented at the Babson College – Kauffman Foundation Entrepreneurship Research Conference,
Ghent, May 1998.
Lalkaka, R. and J. Bishop, 1995. “Technology parks and business incubators: the potential of synergy”, paper
presented at the 4th World Conference on Science Parks, Beijing, September 1995.
Lalkaka, R. and J. Bishop, 1996. Business Incubators in Economic Development: An Initial Assessment in
Industrializing Countries (New York, UNDP-UNIDO-OAS).
Luger, M. and H. Goldstein, 1991. Technology in the Garden: Research Parks and Regional Economic
Development (The University of North Carolina Press).
McMuillan, W.E., 1988. “Entrepreneurial Support Systems: an emerging scientific frontier”, Journal of
Development Planning, 18, Winter, pp. 31-38.
Molnar, L.A. and others, 1997. Business Incubation Works (Ohio, Athens, NBIA Publications).
National Business Incubator Association, 1996a. 10th Annual Survey Report (Ohio, Athens, NBIA).
National Business Incubator Association, 1996b. A Comprehensive Guide to Business Incubators (Ohio, Athens,
NBIA).
Rice, M.P. and J.B. Matthews, 1995. Growing New Ventures, Creating New Jobs (Connecticut, Westport, Quorum
Books).
Tornatsky, L.G. and others, 1995. The Art and Craft of Technology Business Incubation (Ohio, Athens, NBIA
Publications).

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 V. PROJECT SELECTION, MONITORING AND EVALUATION
FOR TECHNOLOGY INCUBATION IN DEVELOPING COUNTRIES

BY

MR JÜRGEN BISCHOFF, DIRECTOR

ASIAN AND PACIFIC CENTRE FOR TRANSFER OF TECHNOLOGY (APCTT)
NEW DELHI, INDIA

Abstract

Today, knowledge economy “innovation” has come to occupy a central place in the competitive
advantage of nations to attain technological leadership in international markets. In this process, the role of
Technology Incubators as part of the system of innovation has become all the more important to transform
technological ideas into commercial benefits. While developed countries have already taken a lead in this
direction, developing countries have yet to fully exploit this system particularly to invigorate SMEs which
are a crucial part of their economy in terms of employment as well as growth. After a brief introduction to
incubators, a description of the efforts of developing countries to use Technology Incubators for innovations
and commercialization of technologies is given. It is emphasized that technology project selection and
evaluation is crucial for success at the incubation stage. This needs particular attention apart from proper
linkages with academia and venture capital firms.

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 I. INTRODUCTION

The process of globalization, establishment of the World Trade Organization (WTO), rapid scientific and
technological advancements, newer developments and applications of information technologies, emergence of
knowledge based and capital intensive industries, stricter quality standards and systems including ISO 9000 and
ISO 14000 systems, environment and pollution control and energy considerations, direct and indirect trade
barriers by advanced countries, etc. are eroding the traditional competitive advantages of industries in developing
countries particularly small and medium enterprises (SMEs) which significantly contribute to overall industrial
and economic development at the national level. Industrial restructuring including privatization is creating the
need for retraining and redeployment of the workforce in order to increase employment, besides increase in
efficiency and productivity in traditional manufacturing sectors through development and use of high technologies
and methods including techniques of biotechnology, application of computers and information systems for
competitive advantages.

The globalization process is moving up the Research and Development (R&D) value chain (Boghani
1999). In this direction, the present objective is to encourage higher value addition activities and preservation of
natural resources through the development and application of high technologies such as biotechnology, new
materials; computers, telecommunications and information techniques and systems, microelectronics, etc. Creation
of completely new industries requires the application of knowledge intensive innovative technologies.

Innovation Management:
Changing Global Scenario
New realities the companies should take into account
to be competitive:

• Shortening life cycle of products

• Globalisation of world economies
• Globalisation of technologies
• Shift of emphasis from manufacturing to
knowledge-based economies

Figure 1.

To apply innovative technologies, the results of original basic research need to be properly nurtured in
a conducive environment. To facilitate basic research covering a wide range of fields, it is desirable that
laboratories specialized in various technical areas gather in a research park where they can share their expertise
and conduct joint research. Basic research that focuses solely on the discovery of unknown areas does not result
in new industries automatically. As a next step, the “incubation” stage should follow where potentials of new
industries are studied. Preferably, a research park should have an incubation town in it to facilitate research at
the “incubation stage”. Then should follow an “innovation stage”, which helps new industries to grow on
a larger commercial scale. In this “innovation” process, focus is given to specific new high tech industries. In
developing new products in the established industries, manufacturers will have to manage the process starting
from technology research projects and ending with the creation of new enterprises in a manner totally different
from a conventional one (Nakahara 1999). In this direction, the “Technology Incubator” has come to play crucial
role.

II. BASIC CONSIDERATIONS

Besides development of high tech enterprises in areas such as information technology, computer software,
internet and e-commerce, biotechnology, microelectronics, etc. it is necessary to apply new and high technologies
to revitalize existing enterprises including SMEs in the traditional economical sectors and to promote new

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 What is technology business
incubation?

Business incubation is a dynamic process of business

enterprise development. Incubators nurture young firms,
helping them to survive and grow during the startup
period when they are most vulnerable.

Incubators provide:
• hands-on management assistance
• access to financing
• business and technical support services
• shared office space, access to equipment

Figure 2.

enterprises based on natural resources or comparative advantages. The industrial clusters and industrial estates
etc. that have come up over the years in various countries need to be vitalized or reoriented through appropriate
models of technology incubators located therein, with their connectivity to the larger incubators or science and
technology (S&T) parks. These play a crucial role to bolster the technology development stage and aim to
transform technological ideas or concepts into technologies for commercial exploitation. In practice, the primary
goal of the technology incubator is to promote the development of technology-based firm, and assist in completion
of the technologies under development.

These are located in or near universities, R&D institutions, and Science and Technology Parks (STPs).
They are characterized by institutionalized linkages with knowledge generating sources including universities,
technology transfer agencies, research centres, national laboratories and skilled R&D personnel. The aim is to
promote technology transfer and diffusion while encouraging entrepreneurship among researchers and academics.
The Technology Incubator (TI) in practice is a variant of business incubator and, in fact, combines broadly the
functions of technology business incubator and an innovation centre. In the long-term perspective, TIs, in the
broadest sense, may be looked upon as a mechanism for technological capability building for regional or local
development.

TIs are usually a part of the Research Park or S&T Park or linked organically and are capital intensive.
Research Parks and S&T Parks are integrated large facilities, mostly real estate development driven and located
in or near the major universities or R&D institutions. They are mostly promoted and supported by the national

Types of incubators

For profit
∇

• Strong financial support

• Rigorous screening
• Large equity share

Not for profit

∇

• Moderate financial support

• Open entry or simple screening
• No or small equity share

Figure 3.

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governments along with regional or local development agencies, easier availability of financial grants and
investments. A loan on soft terms or venture capital is a major attraction to the tenant enterprises or organizations
which may also be TNCs or other foreign companies.

At present, there are about 3,000 incubators, both for profit and not for profit, of various types in the
world. More than 50 per cent of these are located in the United States of America and Europe – about 800 in the
United States of America and 1,000 in Europe including 300 in Germany. Among developing countries, China
leads with about 130 incubators. Among industrializing countries, Republic of Korea is reported to have
about 300 incubators. Japan and Singapore are also making serious efforts to promote techno entrepreneurship in
high-tech business through technology incubators.

Number of Business Incubators

(2000)
Egypt
Israel
Australia
Finland
Brazil
Japan
China
Korea
Germany
USA

0 100 200 300 400 500 600 700 800 900

Figure 4.

Resources, technological and industrial capacities and infrastructure are widely different in developed,
industrializing, developing, least developed and transition economies, although the basic policies tend to be
similar. Thus the models of incubators in different groups of economies have to be necessarily different. As
such the objectives, models, practices and impact of TIs appear to vary widely. Some countries such as the
United States of America, Germany and the Republic of Korea have reported much better success rates for
graduating and graduated enterprises during the last two decades. For example in the United States of America,
the success rate of small graduated enterprises is about 80 per cent compared to about 30-40 per cent outside the
incubators. But in most developing countries, any meaningful conclusions are yet to be drawn (Agarwal 2000).

In Japan, there are about 140 science parks and 120 incubators. Japanese incubators do not function to
hatch new corporations but rather nurture-hatched corporations and also to enable SMEs that have been nurtured
to develop new businesses. Both the purpose and function of a Japanese incubator differ greatly from those of
European and the American type of incubators, which are intended for entrepreneurs establishing new ventures.
However, recent initiatives are towards new SMEs, employment creation and also industrial restructuring, besides
creating new credit and financing mechanisms including venture capital and new stock exchange systems.

A. Characteristics and catalytic factors

TIs essentially assume:

◆ Strong R&D and technological capabilities in academic institutions and R&D organizations, thereby
associating R&D results with commercial potential and encouraging potential entrepreneurship in
research scientists
◆ Potential technopreneurs including researchers who are willing to translate their ideas/high technology
into products and services are available
◆ Strong linkages with academic and financial institutions.

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 The various catalytic factors for supporting and expediting technology incubation for high technology
based enterprises include well coordinated implementable national policies including S&T, industrial, trade &
commerce, and finance policies; strong R&D including liberalized tax structure and grants; technical
entrepreneurship development programmes and incentives; innovative financing support system including venture
capital, angel investors, specialized and liberalized stock exchange systems for high tech enterprises; intellectual
property assistance and professional services including legal and technical consultancy services; establishment of
strategic business alliances and networking; and support for standardization, quality management and marketing
etc. The nature of these factors will, however, vary with the stage of development and national objectives and
priorities.

B. The need and scope

The new rules of international trade, investment and the protection of intellectual property rights have
rendered many instruments used in the past by the then newly industrializing economies difficult to apply. As
regards industrial policy, for instance, it is becoming harder to impose local content rules, give infant industry
protection or subsidize targeted activities. Nevertheless, with regard to technology policy, there is some scope
for developing countries to provide technology support services and finance for innovation. Also, a number of
policy options remain to strengthen the “supply side”. One possible mechanism for effective transfer of technology
infrastructure is to attract high technology investors. Governments can also enter the pre-production stage by
fostering high technology entrepreneurs in technology incubators located in universities or technological institutes
in an industrial park (UNCATD 1999). The suggestions for encouraging local R&D include contract R&D with
local research institutions and universities, developing human resources for R&D in specialized disciplines,
developing local enterprises including clusters and network of high technology firms and enterprises active in
niche markets to attract knowledge intensive FDI. According to Lalkaka, the incubator combines
a variety of Small Enterprises (SE) support elements in one integrated affordable package. It has Business
Incubators (BIs) which aim to assist small entrepreneurs with enterprise start-ups and development, a special
niche, i.e. nurturing early stage, growth oriented ventures, through focused assistance within a supportive
environment. In the Republic of Korea, BIs host start ups and provide various benefits and services for promoting
and supporting SMEs (Lee 1999). They promote the survival rate of newly started small and medium enterprises,
reinforce the application of technological innovations, create new business and employment, re-vitalize economies
and the research functions of universities and research institutes and finally, foster technical manpower. Thus,
the business and technology incubation concepts are at the convergence of two global movements i.e. the emergence
of small and medium scale enterprises (SMEs) as instruments of economic growth and accelerated pace of
technological change and innovation.

According to OECD studies, TIs take a range of institutional forms, operating as integrated, or
sometimes separate, organizations within science parks, universities, and innovation centres. TIs present
a technology-oriented variant of the BI theme. TIs, as a system, more frequently provide technology-related
services and support on issues of intellectual property and support from law schools and local legal firms. These
help tackle many of the problems such as capital requirements including venture capital, linkages to sources of
knowledge, strengthening research capacities with appropriate interface mechanisms, supplementing business
management and marketing skills of technopreneurs, technology acquisition skills, market intelligence, strategic
planning, etc.

C. Technology incubation systems

As stated above, the objectives, model and practices for TIs have to be flexible and varying to meet
specific needs ranging from simple business incubators in least developed countries, transition economies countries
or in developing countries to most sophisticated stand alone TIs or as an integral part of a technology park in
industrially advanced countries. The selection of technology projects for incubation shall vary accordingly,
ascending to the degree of sophistication, specialization and the needs of the industry. They may be of general
type as in least developed or some of the developing countries and highly focused sectorwise in developed
countries and in industrializing countries or a mix of above models. It is unlikely that there would be many
researchers or researchers/academia needing sophisticated technology incubators in least developed or some of
the developing countries. Industrializing countries are attempting to create such capabilities in their R&D and

138
university systems. Industrially advanced countries and industrializing countries are focusing on establishing
their technological leadership in select sectors and consequently promoting high tech corporations through
technology incubation systems on a global basis.

On the other hand, the immediate problem in many of the developing countries is to revitalize and
restructure the local industries including SMEs and create employment through development and applications of
new and high technologies in traditional sectors, besides taking advantage of the opportunities for developing
high tech enterprises in computer software, biotechnology, and information technologies, etc. There is need to
evolve and promote widely dispersed TIs involving technological projects with lesser capital and low cost of
operations, meeting technological and professional services needs of tiny units, artisans and craftsmen, etc.

Innovation Development Stages

Original Concept Proof Product Grow IPO

Partner- VC Product
idea develop- of develop- and or
ships funding launch
generation ment concept ment launch sale

“Concept” “Seed” First round, second

stage stage round, etc.

Incubation period

Figure 5.

There are some specific clusters of niche areas in developing countries which are not covered by TNCs
but have economic and social relevance and need modern, high technological inputs. For example, handicrafts,
the lock industry, the glass industry, carpets, garments, etc. in India. Virtual incubators may also help to promote
and support such enterprises. Even simple business incubators may be initially useful in such cases, which may
be upgraded to TIs, especially in least developed and island developing countries.

The incubation systems ranging from simple business incubators to highly complex establishments in the
form of science parks/research parks or industrial parks seem to have met with mixed results, subjective to
successes and failures, and are considered to be still in an evolutionary stage. The definitions, models, objectives,
operations and best practices, physical structures, modes of financing and assessment and evaluation methods for
incubators, etc. vary from country to country and even within the same country, and seem to lack clarity at many
instances. As such, TI systems may take various forms as under:

1. Technology innovation centres (TIC)

The TIC conducts research and development (R&D) and technology innovations required by the industrial
field and aims to jointly invest resources into university campuses or research institutions and achieve
commercialization with support from business enterprises or public institutions. As a concept, the TIC is similar
to that of the Technology Park working from an R&D stage to technology incubation and innovation for
commercialization.

2. Technology business incubators (TBI)

The TBI is a venture of universities, public research institutes, local government and private institutions
to promote and bolster a new technology intensive enterprise. The TBI is different from the TI or TIC in that it
supports the commercialization of a previously developed technology; that is, the start up activities of an enterprise.
It differs from general BIs in that it concerns technology-intensive or high tech business. Two thirds of business
incubators in industrializing countries focus on technology-based activities, compared to one-third in the United
States of America.

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 3. Science parks

Science parks have comparatively large areas of land at their disposal to allow space for concentrations
of research facilities and R&D enterprises as well as room for enterprises that originated in incubators to expand
into. They are often located next to concentrations of universities and other research facilities. They aim to
promote the creation of enterprises to exploit the results of R&D work as well technological innovation within
existing enterprises.

Lacking incubation facilities to promote the creation of enterprises to exploit S&T resources, these
research parks in Japan were built to encourage the accumulation of research facilities such as universities and
public testing research facilities in one area. Naturally, the set-up conditions and infrastructure provided differ
from those of industrial parks. In addition to considerations such as access to transportation facilities, residential
environment, living environment, and natural environment, easy access to urban functions is also important. One
of the key elements is the foundation of social services to support human intellectual productivity.

Others names such as Business Innovation Centres (BICs), Industrial Parks, Business Parks, S&T Parks
are also loosely used to include the concept of TBIs. BICs and S&T Parks in the United Kingdom of Great
Britain and Northern Ireland are essentially property-based initiatives with strong financing facilities/linkages.
S&T Parks are somewhat similar to science parks/R&D parks in most of the countries including the United
States of America and industrializing countries. The Incubation System thus provides rental offices, rental
research rooms and shared services at a low fee, consulting services for management and business planning and
marketing and also financial support, for persons who are trying to establish an enterprise, corporations that have
recently been established and also small and medium sized corporations that are attempting to advance into new
fields. Incubators are a part of the main infrastructure of innovation centres and S&T parks and act as important
facilities with functions for bringing about innovation (Agarwal and Parthasarathi 1999).

It may be seen from the above that a variety of incubation systems are in practice in developed and
developing economics and also in transition economics with the primary objective of promoting regional and
interregional economic developments, providing employment, development and commercialization of high
technologies as well as better utilization of R&D capabilities and facilities in public research/academic institutions,
through nurturing technology-based enterprises, specially SMEs, in start up or development stages. The levels of
investments, sophistications and practices may vary form country to country or place to place. In view of the
faster technological developments and new rules for international trade and other issues including developments
in information technology coming in, it is necessary that appropriate incubating systems are evolved for promoting
high-tech enterprises. These may vary from country to country depending on their resources, stage of development
and national policies, etc.

III. TECHNOLOGY PROJECT SELECTION, MONITORING

AND EVALUATION

Looking at the diversified requirements of the countries, each government should develop its own models
of TIs as per objectives and available resources after careful assessment of needs and planning. Technology
projects need to be selected and monitored for successful communication and take off in the TIs. Perhaps
a combination of physical technology incubators with large investments and virtual incubators with minimum
investments may be appropriate for most of the developing countries.

A. The need

Incubator programmes are implemented to satisfy a wide range of development objectives: South Africa,
for example, has special programmes where incubation is used for empowerment of the previously disadvantaged
groups in the country and incubation programmes in Israel were primarily to integrate immigrants (scientists and
engineers mainly from Russia) in the mainstream and to absorb new technologies or ideas that they brought.
Moreover, they also created a climate to prevent brain drain from Israel. The endeavour bolstered the technological
ability of the Israeli industry, created new jobs and improved standards of living. These TIs were geared to
absorb any project that suited their structure and aims. It enabled technical entrepreneurs to conduct their R&D

140
programmes in a professional, friendly, supportive atmosphere, while receiving the guidance they need in the
starting phase.

Most of SMEs in developing countries lack the technological requirements for sustainable competitiveness.
Usually their technological needs relate only to straightforward gradual improvements in product quality and
productivity or machinery upgrading. This inhibits strategic breakthrough innovations and turns companies blind
to new business opportunities presented by market and technological discontinuities. The related capability
required to diagnose the technological competitive position of the company, to define technological strategies and
to effectively implement related technological innovation projects does not exist in the great majority of enterprises.
This often leads to a situation where SMEs do not succeed in obtaining the required finance for new technology
projects. This is further aggravated for start-up companies.

New Technology Financing –

Success Rates

6 in 1,000 business plans get funded on average

The No. 1 reason a start-up’s valuation is cut due to

incomplete executive teams
10% of start up in a given venture capital portfolio
will succeed
6 out of 1,000,000 of technology ideas will result in
IPO

Source: Andrew Olmsted, Co-founder, The Cambridge Incubator

Figure 6.

In order to harness the power of strategic innovation a company must act on foresight (into the future)
and on insight into current and future customers’ needs. The leveraging of foresight and insight allow it to
conceptualize a desired future and to create new products and businesses.

Therefore, breakthrough strategic innovations require prospective analysis of technologies prioritized by

their impact on existing and future competitive factors, the detection of opportunities and threats to existing and
new businesses created by market and technology discontinuities it involves, the precise identification and leveraging
of the enterprises core competencies, diagnosis of the technologically competitive position of the company,
definition of respective risks of technological strategies, balanced project portfolios and innovation partner’s

Lifecycle for Products and

revenue
Services Maturity
Asset-based
Financing
Private
Investors Venture
Capital IPO,
Rapid growth Acquisition
Idea and ramp-up
Start Venture Capital
selling
Start mfg. & selling
R&D Prototype
Private Incubators, Dev’t Funds,
Investors Business Angels
time
New Product New Service

Figure 7.

141
roles. In the scenario of globalized markets and increased international competition, these enterprises require
more and more Technology Management skills for technology projects selection and evaluation for successful
incubation.

B. The process

It is very difficult to predict whether a technology will be successful in industry. Market forces play
a major role in determining the success and apart, from these forces being unknown until the technology has
been released into the market, they also change regularly. The functions of technology evaluation and selection
are, therefore, not a single event but rather a process during which several evaluations are made before
a technology may finally be selected to enter into the incubator facility.

Selection of Applicants for

Technology Incubator: Idea
Screening
MARKET
• IS IT REAL?
MARKET
• CAN WE WIN?
MARKET
• IS WINNING WORTH IT?

Figure 8.

Incubation is an extremely powerful process in the sense that it manages the risks of new
technology-based enterprises by creating a virtual business environment for development but is not a guarantee
of market success. The final filter before entering into incubation is, therefore, a more formal filter than any of
the preceding ones, and is applied strictly. The following criteria are often used:

◆ Market potential

A business plan is prerequisite for any incubation. This plan must consider the risks and uncertainties,
including the present and future market size, the distinguishing factors of the products, potential competition
from rivals and substitute technologies and the learning curve pertaining to the manufacturing and development
costs for new product generations. Two critical factors which are often misjudged and viewed over-optimistically
are the future development costs and growth in sales. There should be an immediate export potential.

◆ Competitive edge and sustainability of the technology

Technologies must be in the growth or mature phase of the development cycle to be selected for incubation.
If a technology is aging or easily replicable, it is obvious that the company will not be sustainable for long.

The ideal technology for an existing SME is one which is founded in a core competence of the SME.
This will allow a range of products to be developed and will be more difficult for competitors to imitate.

◆ The personality of the entrepreneur

It is difficult to separate the selection of the technology and the person who will develop and exploit it in
the SME. Emanating entrepreneurs are usually excited about the prospect of owning their own businesses.
The first and rigorous test comes when financial commitment is required. Secondly, the entrepreneur must prove
his/her ability and dedication to perform on time.

142
 It is often found that the technology is described in terms of its capability to generate various
high-technology products and to solve complex problems. It is, therefore, captured in people’s minds and not so
much on paper or in data packs. The scrutiny of the potential of the leader of the new SME is, therefore,
important.

Three attributes appear to be important in the selection of the leader or entrepreneur. Firstly, he or she
must be trustworthy. This can usually be verified by looking at the career history of the person. Secondly, the
person must be willing to learn, endure and accept accountability. This is not easy to ascertain although personal
references may help in this regard. The third attribute is ability. This is normally established through previous
work. In most cases, ability can be enhanced as long as the willingness is present while very little can be done to
build trustworthiness and willingness.

Technology, when effectively utilized, is a powerful instrument for starting a new venture or to enhance
enterprise competitiveness. Therefore, technology project selection for incubation requires the application of
those managerial techniques ensuring that the technological factor is properly utilized to achieve the enterprise
goals. A critical part of this approach lies in the correct monitoring and implementation of appropriate practices
related to technology and innovation management. Within this process, an indispensable pre-requisite to improve
enterprises’ competitiveness is the identification and choice of critical technologies and project options. It is
a prerequisite for successful incubation of technology management strategy which must take in due consideration:

❏ how technology supports the business strategy or vice versa;

❏ if and in what ways technology can be utilized as a source of competitive advantage;
❏ actions in technology development and acquisition to be undertaken in order to achieve the identified
enterprise objectives.

Criteria for Selection of

Applicants for Technology
Incubator
• Advanced technology within the focus area

• Business viability

• University relationships

• Economic impact

• Ability to benefit from the incubator

Figure 9.

This provides a structural framework for assessing and analyzing information to define a technology
choice strategy for incubation.

For many established enterprises, technology selection means mainly to decide which kind of improvements
should be made in the manufacturing process and/or which kind of equipment should be developed/incubated to
satisfy their needs. In these cases, a technology project boils down to the purchase of a new machine along the
related engineering project. Sometimes, engineering projects must be executed to insure the implementation of
the new machine. When the enterprise is technologically more advanced, development projects may then be
envisaged. In these cases, the technological choice decisions are more complex and involve evaluation of
different approaches to technology acquisition and to management of technical projects portfolio.

The process of technology selection thus involves the following steps:

◆ Technology Survey (Technical)

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 ◆ Developing a Business Strategy (Commercial, Financial, Human Resources)
◆ Technology Strategy.

Selection of Tenants:
Auditing
Types of Auditing
• Technical

• Commercial

• Financial

• Human resources

Figure 10.

Examples for selection of tenants by selected incumbents, both for profit and not for profit, are shown in
figures 11, 12 and 13.

Example: Criteria for Selection of

Tenants by Non-Profit
Cyberincubator (China)
• A small young HK registered technology company with limited
liabilities
• At least 2 full time persons, one of whom is a shareholder
• US$ 40,000 paid-up working capital
• Majority of R&D must be conducted at the Tech Centre (host)
• A competent, balanced management team
• A viable business plan

Figure 11.

Example: Selection of Tenants

by Red-Ramot Hi-Tech Incubator
(Israel)
– provides an initial home, necessary services and seed capital
for entrepreneurs with the ideas, vision and determination to
create a viable business in the field of biomedical technology.

Project screening elements:

• Business potential
• Scientific and technological merits
• Personal qualities of the entrepreneur
• (especially marketing and business skills)

Figure 12.

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 Example: Evaluation of Candidates
by a For-Profit Incubator
NetStrategy (USA)
Evaluation: three steps

Screening Analysis Presentation

Management Business model Meet with management

Market Revenue potential Capital requirements
Competition Potential value Scalability
Exit strategy

Figure 13.

Procedures for evaluation of start-up companies include several risk assessments:

◆ Team risk
◆ Business strategy risk
◆ Product/technology risk
◆ Market risk
◆ Operations risk
◆ Financial risk
◆ Marketability/PO risk

In general, as soon as the technical idea of the potential incubator tenant passed the evaluation procedure,
further start-up business valuations can use a combination of three general approaches:

◆ Cost approach
◆ Market approach
◆ Income approach

The cost approach uses the valuation information to restate the asset at fair market value. The market
approach gathers data due to value developing assets. And finally, the income approach connects data to value of
developing assets.

1. Technology auditing survey

This provides an instrument to audit the enterprise’s technological capabilities and its awareness of
technology as a mean to better compete. This can be used as an instrument to assess either the enterprise
management has the appropriate level of understanding of technology and technology management and whether
the required climate to use technology is in place.

The basic purpose of this survey is to increase general awareness among managers of R&D, marketing,
production, finance and general management about the need to design a technology plan and to improve the
management of technology capability of the company. A secondary purpose of this audit is to help bring the
managers of the several areas of the company into the technology planning process. It has been frequently
commented that a principal problem in technology project selection and appraisal is the absence of communication
between different corporate functions that is required for integration. The third objective is to generate information
to complement the auditing process.

The survey involves participation of a consultant, top management and a sample of people involved with
technology. The consultant explains the purpose of the technology needs identification process with a focus on:

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 ◆ Innovation and competitiveness of the firm
◆ Strategy
◆ What is technology management?
◆ What is technology planning and what are technology needs?

This is followed by a survey with the help of a questionnaire (table 1) to get feedback regarding the
reality of the company. Each statement in the questionnaire is to be answered on a graded scale from 1 (low) to
10 (high) regarding the agreement with each statement. Then small groups are formed to discuss individual
results and identify strengths and weaknesses of the company. Finally, presentations are made by each group.

Table 1. Technology auditing survey for a high tech company

Statements Rate
People, in general will, support the necessary changes that will have to be made to implement a better management
of technology
Top Management demand information about the status of the main technological projects at least twice a year
The several areas of the enterprise understand clearly the relevance of technology for competitiveness
The enterprise strategy is clearly defined
Technological activities are consistent with the enterprises overall strategy
The technology sources utilized (internal R&D), licensing, R&D contracting, joint ventures, research consortiums)
are consistent with the deadlines demanded by the strategic guidelines
There is a clear identification of the strategic technological areas
There is a clear definition about the strengths and weaknesses of the enterprise regarding the strategic technological
areas
There is an adequate balance between short term and long term orientation in technological projects
There is an adequate level of consensus regarding the trends of the life-cycle of the strategic technologies for the
enterprise
The authority and responsibilities of the project managers are clearly defined and they are adequate to the needs
of the enterprise
There is sufficient information about the status of each project regarding budgets and deadlines
The enterprise protects intellectual property when necessary
There is an adequate evaluation system to assess the contribution of technology to the enterprise goals
There is an adequate monitoring and information system to identify technological threats and opportunities
There is adequate integration between the several areas of the enterprise regarding innovation of products and
processes
There is an adequate use of technological alliances
There is adequate information about research teams in universities and research institutes developing activities
related to the enterprise’s strategic technologies
The R&D budget in percentage of the total sales is consistent with the expenditures of the competitors
Agreement with the statement regarding the reality of the enterprise: Low = 0, High = 10 (0 = the statement does not apply to the
enterprise, 10 = the statement mirrors the status of the enterprise)

However, technical auditing is only the first step of the auditing process. Figure 14 shows an example
from Australia that only 6 per cent of the applicants that passed the technical audit get seed capital from the
incubator.

2. Development of technology business strategy

A correct technology business strategy is a basic requirement for the choice of technological needs.

The essence of this strategy is to define the business actions so as to respond effectively to a customer
need in a superior way to the competitors’ offering.

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 Example: Auditing of Candidates by
ICT, Australia for Seed Capital
Investment

Technical

Commercial Passed
Dropped out
Financial

Human
Resources

0 20 40 60 80 100

Figure 14.

Selection of Tenants:
Approved Business Plan is often
Mandatory
Essentials to the Business Plan:
The business concept

Market research & analysis

Operational plan

Financial plan

Figure 15.

Here the main actions to be considered are:

(a) Corporate Strategies, involving broad, long term decisions regarding:

◆ New markets: This option involves the search for new customers in the same areas or in new
geographical locations for the same products. Alliances with companies can be an effective way of
using existing contacts with clients and distribution channels.

Business Plan Review:

Main Parameters
A. Reality check
B. Market opportunity
C. Management
D. Technology issues
E. Resources
F. Commercialisation programme

Figure 16.

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 ◆ New products: This strategic action is based on the capability of the company to innovate. The
goal is to sell products that are new to the company, to the country or, in some cases, to the world.
An alliance can be a fast and cheap way of acquiring the technology to implement this strategy.
◆ Withdrawing from products or markets: In some situations, the firm will profit by dropping some
products or markets. This will allow more resources to the products and markets in which the firm
has competitive advantages.
◆ Increase of Production Capacity: This option demands an expansion of the manufacturing capacity
and it will generate economies of scale and its benefits.

Business Plan Review:

A. Reality Check
1. Is there a written and fully current business plan?
2. Are there current financial statements and cash-flow projections
prepared and reveiwed by an outside consultant?
3. Does the business concept appear to be based on sound technical
and business principles?
4. Is the time needed to reach positive cash-flow longer than the ideal
term for a tenant in this facility?
5. Are adequate financial resources available?
6. Is the business opportunity is based on proprietary technology, is
the proprietary position adequately protected?
7. Is there good personal chemistry among the principals?
8. Do the personal financial needs of the principals match the
capacity of the business?
Source: Terry Collision, Blue Rock Capital

Figure 17.

“Reality Check”
for a New Business Idea
When you are thinking up a business,
you do not decide what the business will be
and how it will do.

Your marketplace decides that for you!

A Reality Check is Called When:

– You come up with a great new invention, but you think
you should put off doing any marketing research until
you have built a detailed prototype.

Figure 18.

For a young company, the technology business strategy varies at different phases of the company’s
growth:

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 Development phase Technology development tasks
Start-up ◆ Figure out technology, product and concept
Initial growth ◆ Introduce new technologies and launch differentiated produce
◆ Capture market share
◆ Grow revenues
Rapid growth ◆ Become market leader
◆ Ward of competitors, develop continuous innovation mechanisms
◆ Build management team
◆ Hire and integrate lots of people
Continuous growth ◆ Dominate the industry
◆ Reinvent growth strategy
◆ Introduce new technologies and add products and services
◆ Expand to new markets
◆ Brand company and profile

(b) Competitive strategies

This involves decisions related to beat the competitors in the markets selected by the corporate strategy.
Examples of such decisions are as below:

Business Plan Review:

B. Market Opportunity
Every good business begins with a great idea, but not every
great idea makes a good business.
M. Spenser & C/Ennico “Money Hunt”

1. Evaluate the company’s belief that it has a significant

and credible market opportunity
2. Assess the company’s market approach including strategies
for dealing effectively with customer indifference
3. Evaluate the company’s ability, as a new entrant in this
market niche, to survive long enough to succeed
Source: Terry Collision, Blue Rock Capital

Figure 19.

◆ Lower prices: This strategy involves measures to increase the firm’s efficiency and it will lead to
conquer new clients by selling the products at lower prices. An alliance with a company with
critical process technologies can be an interesting option to be considered.
◆ Product Characteristics: Client needs, technology trends and what the competitor is doing are the
basis for this strategy. The goal is to increase the product performance gaining new customers as
a consequence of the product differentiation. Examples of aspects related to this strategy are –
product performance, durability, guarantee, product integration compatibility and quickness of repair.
◆ Other measures to add value to the customer: Services, distribution, delivery time reduction,
flexibility to respond to customer needs in terms of changes in product orders are examples of such
measures.
The company may have to choose one or more of the above strategies to select which is more adequate
for each product line and sometimes for each product.

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 The strengths and weaknesses of the company and the opportunities and threats of the environment are
important factors to be considered in this decision. Another critical aspect is the return on the investment in each
option. The process of strategic planning should be flexible to allow quick changes and adaptations to new
threats and opportunities.

A simplified procedure for strategy formulation has 5 basic steps: (i) Information about the present
product lines; (ii) Product-Market Analysis; (iii) Strategic Trends, Threats and Opportunities; (iv) Evaluation of
the Market Competitive Factors; and (v) Strategic Priorities and Actions. Chart 1 shows the sequence of strategy
formulation.

Information about
the product lines

Product Market
Analyses

Strategic Trends Threats and Evaluation of the Market

Opportunities Competitive Factors

Strategic Priorities
and Actions

Chart 1.

One should be aware that the strategy design does not follow the sequence above, because there are
many loops which will change the previous steps.

Investment in Product Marketing

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Established Established New company
company & Known company & New &
product product New product

Investment in product marketing Targeted sales

Figure 20.

3. Technology strategy

This addresses the issue of how to identify the critical technological needs and identifies the basic
dimensions of technology choice and project options. It consists of two steps: (i) technology evaluation;
(ii) technological project portfolio.

(a) Technology evaluation

The process of technology evaluation is aimed to collect information on the current and future state
of technology development, to evaluate the importance of each technology in the competitive arena and the
strength of the firm in each technology. The key tasks encompassed in the technology evaluation are presented
in Chart 2.

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 Business Plan Review:
C. Management
1. Is there at least one member of the management team
qualified to undertake the work?
2. Is the management team complete and appropriate for the
work that is to be done?
3. Is there a willingness to bring in additional management
and outside directors?
4. Is there an appropriate group of outside professional
advisors?
5. Does management have the ability and experience to
leverage scarce resources?
Source: Terry Collision, Blue Rock Capital

Figure 21.

IDENTIFICATION OF THE
TECHNOLOGIES INVOLVED

IDENTIFICATION OF THE
CRITICAL TECHNOLOGIES

TECHNOLOGICAL
CAPABILITY ASSESSMENT

Chart 2. Technology evaluation tasks

(b) Identification of the technologies involved

The identification of technologies involves a set of technological knowledge and skills, which has an
impact on the overall competitive position of the firm in the marketplace currently and in the future. Criteria to
be followed in order to identify the technologies are as follows:

◆ Start from a detailed analysis of firm’s technological structure including product technologies, which
means to identify the technologies embodied into the product, including the tools used to develop
a new product
◆ Production process technologies, which means to analyze the production process and to identify the
technologies used
◆ Support technologies, i.e. those technologies used to perform a certain activity of the firm and not
embodied into the firms’ product or production process (typical support technologies are Information
Technology tools, software packages, networks)
◆ Be broad enough to including also those technologies which may have a potential impact in the
future needs such as emerging technologies, i.e. technologies not yet in use but whose potential is
significant.

These steps lead to identification of the technologies for successful incubation and innovation.

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(c) Identification of the critical technologies

This task aims to evaluate the competitive importance of each technology involved. This means to
evaluate:

◆ the extent to which the technologies are relevant to sustain the firms’ competitive factors
◆ the importance for future competition, i.e. to what extent that competence will be critical in future
competition.

This can be done using a matrix, which shows the market competitive factors associated to the product
line and the technology involved. In the cells of the matrix, a score is reported which mirrors the impact of that
technology (T) on that competitive factor. It can be used as a scale from 1 to 4 where 1 means that the T has no
impact on the competitive factor and 4 that is the critical aspect to meet that factor (table 2).

Table 2. Impact of the involved technologies on the critical

competitive factors technology involved
Competitive factors TI-1 TI-2 TI-3 TI-4 TI-5

high impact = 4; low impact = 1

In this phase, it is a critical aspect to involve people from different functions (sales, technical assistance
people, technicians, engineers, production people, etc.) and, if possible, suppliers and customers.

The technologies which have the strongest impact (grades 3 and 4) on the critical competitive factors are
identified as the critical technologies (CTs). This figure provides an overall evaluation of the competitive
importance of each technology involved and supports the choice of the critical technologies for each critical
competitive factor.

(d) Technology projects portfolio

Technology projects can be classified in two main types:

◆ R&D&E projects (research, development and engineering related to product and process) Process
should be understood in a broad sense involving the production chain as a whole and not only
manufacturing. Raw materials and components development, supplier’s development and services
to the client should be included.
◆ Capital investment projects (purchasing of manufacturing and laboratory equipment).

The design of an R&D project portfolio has three phases:

I. Technology Innovation Projects

Technological project generation is both a strategy pull and technology push process. As a matter of fact,
project generation is the result of two processes. On the one hand, projects can be generated under the pressure
of the strategic analysis which has indicated that a certain technology is relevant to support the firm’s strategy.
Technology projects can also be generated by technical people who submit their project proposals.

The main question is: “How can technology help in achieving the set goal?” For example, if the main
strategy for product A is to compete with a low price, possible technological projects should be listed to obtain
cost reduction. This can include process improvements, raw material substitution, equipment purchasing, etc.

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 Business Plan Review:
E. Resources
1. Evaluate the adequacy of the company’s budget in
comparison to the work that is outlined
2. Evaluate the possibility of raising additional funds to carry
out the project
3. Evaluate the adequacy of the facility against the needs of
the tenant company
Source: Terry Collision, Blue Rock Capital

Figure 22.

II. Selection of R&D projects

At this stage, it may occur that a selection among R&D projects has to be done as the amount available
to spend is smaller than the money required for the whole set of projects generated. Therefore, a portfolio of
projects has to be appropriately selected. Benefits and costs should not be limited to financial aspects but should
include subjective and non-quantitative factors as well.

III. Evaluates each project

After the potential projects are identified, the next phase evaluates each project against a set of criteria:

◆ Probability of technical success

◆ Probability of commercial success
◆ Return for the firm, considering the cost of the project
◆ Consistency with the priority product – market pairs
◆ Consistency with marketing strategy
◆ Consistency with core technologies
◆ Extent to which the technology can be patented
◆ Consistency with technological threats and opportunities

A matrix figure for each project can be constructed assigning each criterion a weight (as shown by
table 3), evaluating each project against each criterion, and multiplying weights by score. Therefore, projects are
prioritized according to the matrix figures obtained.

Thus, technological auditing is an important stage to make a strategy plan of technology selection and
project options for incubators.

The objective is to evaluate how much the enterprise is really using technology as a technological
competitiveness instrument. Finally, the effective use of technological auditing depends on some pre-requirements:

◆ Top management support and participation

◆ Task force formed by people from the several areas of the company to coordinate the process
◆ Appoint a trained consultant
◆ Guarantee the implementation of the recommendations of the technological auditing that contribute
to the firm’s success
◆ Repeat the process periodically.

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 Table 3. R&D Projects Selection Matrix
CRITERIA FOR
WEIGHT A B C D E F G H I J K L M
SELECTION

1. probability of technical success

2. probability of commercial success

3. return for the firm, considering the

cost of the project
4. consistency with priority product
market pairs

5. consistency with marketing strategy

6. consistency with core technologies

7. extent to which the technology can

be patented
8. consistency with technological
threats and opportunities
4 – high and 1 – low with the exception of criterion number 3. In this case the actual values would be more adequate when available.
The weights reflect the relevance of the criteria and range from 1 – low to 3 – high.

Business Plan Review:

F. Commercialisation
Programme
1. Assess proposed commercialisation timetable (R&D,
protecting property rights, marketing, manufacturing,
regulatory factors)
2. Comment on the company’s sales function and its ability to
compete in the marketplace
3. Evaluate the company’s methods of distribution
4. Evaluate the company’s approach to customer support
5. Evaluate the company’s financial control, management, and
strategic planning capabilities
6. Evaluate the feasibility of the company’s commercialisation
milestones
Source: Terry Collision, Blue Rock Capital

Figure 23.

C. Role of databases for technology project selection

Easy access to technology information is an important prerequisite for access to new technologies. Efficient
national information services and networks are essential. Enterprises are not only interested in technology
sources but are keen to know the techno-economic details of specific technologies available for transfer. In order
to ensure proper availability of the information, it is necessary to enhance national capabilities and institutional
mechanisms in this direction.

APCTT, as a regional institution, is actively involved in evolving suitable technology transfer mechanisms,
including strategic alliances to create synergies, with a view to accelerating the process and increasing technological
excellence particularly in SMEs. APCTT has implemented a project “Mechanism for Exchange of Technology
Information” (METI) with the active participation of 12 member countries in the region. There is also a definite

154
need to create awareness of the need for such information and to strengthen networking at the enterprise level,
especially among promotional agencies, small-scale industries and financial institutions. In order to bridge the
existing gaps, APCTT has evolved an “International Network for Transfer of Environment – Friendly Technologies”
(INTET), for the exchange of technology information on environment-friendly technologies available worldwide.

The catalytic role played by APCTT in promoting flows of technologies and facilitating access to
them on favourable terms needs to be further strengthened. APCTT is now issuing a bimonthly publication,
“Value Added Technology Information Service” (VATIS) with updated information on priority sectors such as
food-processing; waste management; sources of non-conventional energy; ozone layer protection and biotechnology.
It is proposed to cover more sectors and areas depending on the needs of the member countries. APCTT also
organizes business meetings and promotes technology market forums such as “Techmarts” to bring together
buyers and sellers of technology in specialized and high-tech areas. In addition, it disseminates information on
technology offers and requests and on available consultants through its bimonthly publication “Asia Pacific Tech
Monitor” and through exhibitions and workshops. In 1999, APCTT implemented its technology transfer
programmes in close cooperation with 54 organization, agencies and associations in Armenia, Bangladesh, China,
India, Indonesia, Islamic Republic of Iran, Kazakhstan, Nepal, Pakistan, The Philippines, Republic of Korea,
Tajikistan, Thailand and Viet Nam. The centre has also undertaken studies and needs assessment surveys in
cooperation with various institutions.

The absence of a platform where small enterprises can tap opportunities at the global level for acquisition
of technology or establish business collaborations/partnerships has been compounding the problem. The Technology
Bureau for Small Enterprises is an endeavor to bridge the technology gap and to assist small-scale industries in
technology-transfer-related problems. Resulting from the collaboration between the United Nations’ Asian and
Pacific Centre for Transfer for Technology (APCTT) and the Small Industries Development Bank of India
(SIDBI) it represents, under one roof, synergy of technology and finance. The important features of its activities
are:

◆ Offers a professionally managed system for partner search

◆ Helps in building up confidence between prospective partners
◆ Lends a friendly hand in the intricate task of negotiations and matching of perceptions
◆ Provides a gateway to global technology market through internet and other channels
◆ Unique mechanism for arranging technology and finance
◆ Renders customized service and has wide affiliations
◆ Takes up project and preparation of business plans.

In cooperation with UNCTAD, it organized a regional workshop on R&D Community-enterprise

cooperation during 1994. One of the main recommendations of this Workshop was the establishment of
a “Regional Association for the Commercialization and Application of R&D Results (RACORD)”. The principal
objective of RACORD is to enable R&D institutions to synergise their resources for optimal utilization of their
outputs and assist enterprises, especially SMEs, and government entities in technology acquisition, evaluation
and assessment, technology adoption, upgradation and modernization and hence build up Indigenous Technology
Capabilities.

IV. INTELLECTUAL PROPERTY

Intellectual property is a key legal issue for technology-based enterprises, particularly for new and high
technologies, in areas such as drugs and pharmaceuticals, biotechnology, microelectronics and computer software
and agriculture. Often the key to business success is the ability of a company to protect legally its core
technology besides the national policies and efforts to provide appropriate support systems and patent related
services. An incubator facilitates access to legal assistance in this area.

With the establishment of the World Trade Organization (WTO) and its Trade Related Intellectual Property
System (TRIPS) Agreement, member nations are trying to harmonize their intellectual property laws including
patent laws. Several countries have undertaken modernization and upgradation of their patent-related organizations
and launched patent literacy among researchers and entrepreneurs. As a result, it has been noted that the number

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of patents filed and granted to researcher/companies in various countries in the region has dramatically increased
particularly in developing countries after 1995. The number of patents granted and used is an indication of the
technological capabilities in a country as well of the patenting companies. However, the data/information related
to the patents obtained by the incubate companies in various countries, as yet, are not readily available or
reported, though many of the incubators are providing patent-facilitating services to their tenant companies. This
needs a review of the R&D projects on the technology development activities being taken up in incubators and
necessary measures taken to encourage patentable developments for creation of awareness among the technopreneurs
as well as the management of the incubators.

V. TECHNICAL CONSULTANCY SERVICES

Technology based start-ups in particular have need for more specialized expertise. One way of brokering
this type of help is to bring specialized service providers to the companies in the incubator facility.

Incubators usually arrange to provide external technical consultancy/professional services to their tenant
companies as per requirements. These services may relate to preparation of feasibility and project reports,
market requirements, field trials, detail design and engineering or upscaling of processes, drawing technical
specifications, and identifying commercial sources of supply of plant and machinery, raw materials, components,
mode of financing and so on. Special issues such as those related to environment, energy, safety and international
trade practices and laws of other countries may also need external professional services through specialized
consultancy agencies. With this in mind, ESCAP and APCTT have been supporting a Technical Consultancy
Development Programme for Asia and Pacific (TACDPAP) with its Secretariat facilities at the Consultancy
Development Centre at New Delhi.

VI. ROLE OF INTERNATIONAL ORGANIZATIONS

To strengthen technological and industrial capabilities towards integrated developments at national and
regional/subregional levels and promote cooperation among the economies of the region, initiatives relating to
promotion and strengthening technology incubation systems including Technology Business Incubators (TBIs)
for creating high technology-based enterprises in developing countries (particularly in Japan, Malaysia, Republic
of Korea and Singapore and India), have been taken since the 1980s by United Nations agencies like the United
Nations Fund for Science and Technology Development (UNFSTD)(1-3), UNIDO UNDP, ESCAP and other
promotional organizations.

Economic and Social Commission for Asia Pacific (ESCAP)

ESCAP and other international promotional agencies assist national governments in developing trained
managers and human resources or establishing and operating technology business incubators so as to adopt best
practices or to enable them to evolve their own practices and models. In this venture, ESCAP may document
experiences in developing countries and prepare guidelines for promoting technology incubators in developing
and least developed and island developing countries as well as for economies in transition. It should support
establishment, strengthening and networking of national and regional associations of incubators including the
Asian Association of Incubators. ESCAP also supports and facilitates technical capability building of institutional
organizations to create intellectual property and related expertise for technology based enterprises.

ESCAP and APCTT should continue to support technopreneurship training programmes particularly in
areas such as technology management, patents and intellectual property systems, International Standards such as
ISO 9000 and ISO 14000, technology transfer arrangements and issues and awareness about the laws, rules and
regulations in various countries including WTO agreements and implications therein.

Asia and Pacific Centre for Transfer of Technology (APCTT)

APCTT is implementing a UNDP-funded project on “Nurturing Technological Entrepreneurship through

Science & Technology Entrepreneurs Parks and Technology Business Incubators” with the aim of creating two
first-ever technology business incubators (TBIs) in India and to promote linkages with R&D institutions and

156
industries. Based on these experiences, similar projects could be implemented for the benefit of other developing
countries. APCTT could also play an important role in identifying cross border R&D projects which could be
implemented through partnership arrangements among various national TIs having mutual complimentaries and
supplementaries.

VII. CONCLUSIONS

In developing counties, the open wall type or “virtual incubators” with access to R&D facilities and
support services including professional services, requiring minimum investments are desirable and need to be
promoted to speed up innovations. According to Nowak and Grantham (2000), the competitive advantage for
an enterprise is blind to geographic and resource constraints and focuses solely on pooling resources to optimize
the strategic team’s chances of success. Pooling technical and business talent across all frontiers, providing
a clear focus on wealth creation and a strategy to meet the business opportunities at hand is the main goal of
“virtual incubators”

What is also now emerging is the “third generation” system, more appropriately called an “International
Enterprises Centre”, which will bring under a single aegis the full range of support services for the development
of knowledge-based business with linkages to universities, research institutes, venture capital and international
joint ventures. This trend is already evident at the convergence of support mechanisms at business
incubators/technoparks in South-East Asia. The trend is now towards International Technology Business Incubators
(ITBIs) to attract foreign companies and R&D organizations to promote international linkages or R&D globalization
and also sector specific incubators especially in high tech areas including information technologies and
biotechnologies.

Technology incubators should, therefore, develop strategic business alliances with the relevant
organizations/agencies including large corporations and R&D institutions. They should also network with the
technology incubators in other countries, besides developing networking and creating associations of incubators
in their home country. Exchange of experiences and visits of specialists from the incubators in developing and
developed countries would be useful for all concerned. Also, organization of exhibitions, trade fairs and workshops
etc. for the technologies and products from the incubators in various countries would enhance business prospects
and cooperation in the region. International organizations such as UNDP, UNIDO, ESCAP and ADB should
support such activities.

Developed countries such as Japan are reorienting the strategies of TIs to ensure their technology leadership.
The Republic of Korea is also fast changing to build its technological and industrial strengths in select sectors
through TIs as one of the measures including revitalization of industrial clusters and industrial estates. Other
countries such as Malaysia do not seem to be addressing existing and traditional industries but concentrating on
electronics, information technology, multimedia technology development and biotechnology.

Many developing countries, economies in transition and least developed countries are yet to evolve any
meaningful TI strategies and take action to set up the same.

Technology Incubators are a part of the System of Innovation dealing with the specific needs of industry
in the country. These needs have to be promoted and nurtured through definite policy measures particularly
involving SMEs. Development of Technology Incubators should be explicitly included as an objective in S&T
policies, to promote and nurture high technology based enterprises and specific financial outlays may be indicated.
Presently, the promotion of technology incubators is generally implicit. However, technology project selection
and evaluation is of crucial importance in view of the specific requirements and success for incubation.

Concerning this, the quality and deep commitment of the management team and the chief executive is
crucial. It is better to have an independent or private management with an advisory committee of the members
representing different interests in the TI.

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 REFERENCES

Agarwal, S.P. and Parthasarathi, A., 1999. “Review of national policies for the promotion of technology transfer”,
in Technology Transfer and Technological Capabilities Building in Asia and the Pacific (vol. 4): Emerging
Issues in Regional Technological Capability Building and Technology Transfer, (ST/ESCAP/1951), pp. 9-99.
Agarwal, S.P., 2000. “Strengthening technology incubation system for creating high technology based enterprises
in selected countries”, draft report for ESCAP, 2000, 126 p.
Bae, Zang-Tae, 1999. Planning and Principles for the construction of S&T Industrial parks: The Korean
Approaches (Republic of Korea, KAIST).
Boghani A. and others, 1999. “Globalization of R&D”, International Journal of Technology Management,
17 (6), pp. 696-710.
Brochure on “The multimedia super corridor and you”, Multimedia Development Corporation Ltd. (Cyberjaya,
Malaysia, Sept. 1999).
Brochure on “PSB Incubator Programme”, Singapore Productivity and Standards Board (Singapore).
Brochure on “Technopark at Chai Chee”, Wan Tien Realty (Singapore).
“Buona Vista to be Science Hub”, The Strait Times Interactive: Parliament Reports (Singapore), 11 May 2000.
IIT debates presence of firms on campus (TOI), 17 August 2000, pp. 3.
“JTC hatches plans for more incubation centres”, News Letter: Singapore Enterprise, April 2000, pp. 2.
Kharbanda, V.P., 2000. “Academia-industry symbiosis: Need for technological competitiveness in India and
China”, China Report, 36 (1), pp. 43-72.
Lalkaka, Rustam, 2000. “Rapid growth of business incubation in China”, paper presented at the 2000 International
Conference on Business Incubation and Technology Incubation, Shanghai, China, 18-19 April 2000.
Lalkaka, Rustam, 1997. “Lessons from international experience for the promotion of business incubation systems
in emerging economies”, paper commissioned by the Small and Medium Industries Branch, No. 3, UNIDO
Small and Medium Enterprises Programme, November 1997.
Lalkaka, R. and J. Bishop, 1996. Business in Economic Development: An industrial Assessment in Industrializing
Countries (UNDP, New York).
Lalkaka, Rustam, 1995. “Applying technology for enhancing competitiveness”, paper presented at the International
Seminar on Human Resource Needs for Change in R&D Institute, New Delhi, 15-17 February 1995, pp. 31.
Lee, Dal Hwan, 1999. Korea’s System and Policy Towards Technology Incubators (Seoul, OECD, Science and
Technology Policy Institute (STEPI), pp. 98-105.
Nakahara, T., 1999. “Technology strategy in a borderless economy”, International Journal of Technology
Management, 17(6), pp. 711-724.
Nowak, Michael J. and Charles E. Grantham, 2000. “The virtual incubator: managing human capital in the
software industry”, Research Policy, No. 29, pp. 125-134.
OECD, 1999. Business Incubation: International Case Studies, 658(100).
Shanghai Technology Innovation Centre, Shanghai. (Mimeo)
“Science and Technology Entrepreneurs Parks (STEP)”, status report, Department of Science and Technology,
New Delhi, August 1999.
Toh Han Shih, 2000. “Oracle Launches $ 55m Incubator Initiative”, The Business Times (Singapore) 27 April
2000.
UNCATD, 1999. World Investment Report 1999: Foreign Direct Investment and the Challenge of Development
(United Nations publication, Sales No. E.99.II.D.3), pp. 224.
“Zhongguancun Science and Technology Park”, Beijing Review, 31 January 2000, pp. 23-25.

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 PART THREE

COUNTRY PRESENTATIONS

I. STRENGTHENING TECHNOLOGY INCUBATION SYSTEM FOR

CREATING HIGH TECHNOLOGY-BASED ENTERPRISES
IN CAMBODIA

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 I. GENERAL BACKGROUND

A. Territory and population

Cambodia is located in South-East Asia, bordered by Thailand, Gulf of Thailand, Lao People’s Democratic
Republic and Viet Nam. Cambodia occupies an area of 181,035 sq km adjusted at latitude from 10 to 15 to the
North, and longitude from 102 to 108 to the East. Cambodia’s population is around of 11 million in the year
2000, of which about 1 million live in the capital city (Phnom Penh) and the growth rate is 2.8 to 3.0 per cent per
year. Per capita income, US$ 249 (1998), is low compare with some neighbouring countries.

The official language is Khmer. With regard to foreign language, some of the older generation speaks
French and the use of English is now widespread among the younger generation. English is also the main
foreign language used by government offices.

B. Socio-economic background

Economic and social development in Cambodia is based on agricultural production including rice, crops,
fishes, wood and non-wood products. Official data show that agriculture share of agro-based industry of the total
GDP is about 40 per cent (1998). Agriculture contributes to half of the country’s GDP and employs 85 per cent
of the population. Rice production has increased dramatically and the country is approaching self-sufficiency.
Livestock production, which accounted for nearly 13.1 per cent of the GDP in 1997, is also carried out by
small-scale farming units and is showing strong growth.

C. Report on industrial areas

The story of industrial development in Cambodia to date is one of alternating periods of expansion and
regression. Vigorous promotion of state-owned enterprises followed independence in 1953, under a strategy for
accelerated industrial development through medium and large-scale production. After the nationalization of the
banking system in 1963, the direction of credit towards state-owned enterprises produced a further expansion of
industry during the remainder of the 1960s. Cambodia’s industrial sector in the late 1960s was thus relatively
advanced.

The development of the sector was disrupted by the civil war and no significant further expansion in
industrial capacity took place during 1970-1975. Between 1975 and 1979, however, many of the large factories
were destroyed and much of the remaining industrial capacity fell into disrepair. During the 1980s, industrial
production remained at below pre-war levels with more than 40 per cent of the country’s pre-1975 industrial
capacity remaining idle in 1986. While the private large-scale sector began to revive slowly, efforts were made
by the Ministry of Industry and some provincial authorities to reactivate those medium and large-scale state
enterprises, which were considered viable, restoring many of these by 1989. However, in 1991, a privatization
policy was introduced and implemented fairly rapidly over the period to late 1995, leading to further changes in
industrial structure.

The industrial sector in Cambodia now is small, highly dualistic (a small number of large formal enterprises
contrasting with a vast number of informal cottage and microindustries), generally inefficient and operating with
outdated equipment at low capacity utilization rates.

Today, Cambodia’ industrial sector is highly fragmented with individual production units existing in
isolation from each other. There is a serious lack of communication and exchange between the industrial
companies. So far, public and private industries, large-scale and small-scale industries, urban and rural industries
have been operating without substantial linkages. Enterprises themselves are not actively searching for new
opportunities to exchange final products, parts and components and services. Many of the larger companies are
being closed, while at the same time there is a mushrooming growth of small private industrial activities. Most
of the larger industrial enterprises come under the supervision of the Ministry of Industry, Mines and Energy
(MIME): 53 establishments (privatized, leased or being leased). In addition, some state-owned industrial companies

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were controlled by other ministries, e.g. three drug-processing factories under the Ministry of Health, a number
of rice mills under the Ministry of Commerce, as well as four large rubber-processing plants under the Directorate
of Rubber Plantations. Furthermore about 24,740 small-scale industries employ approximately 70,000 persons.

II. TECHNOLOGY AND BUSINESS INCUBATION SYSTEM FOR

CREATING HIGH TECHNOLOGY-BASED ENTERPRISES

Technology Incubation System in Cambodia is not yet established. However, we have a Royal University
of Agriculture, Cambodia Institute of Technology and laboratories, but we lack National and Public Science
Industrial Research Institutes, lack of private research institutes and industrial research associations, and also lack
updated national laboratories, industrial R&D institutes and skilled R&D personnel for this purpose due to lack
of funding. But, in the near future, we need to promote technology transfer and diffusion, while encouraging
entrepreneurship among researchers.

A. Medium and large-scale industries

Up to now, there are 36 new medium and large-scale industries being created, after the formation of the
new government at the end of 1998. The increase of the factories caused manufacturing number to jump up to
283 registered with the Ministry of Industry, Mines and Energy. Most of them are garment establishments
producing clothes.

Table 1. Factory numbers registered at the Ministry

No. Type of Factories Number of Factories
1 Food, beverage and tobacco
◆ Food 13
◆ Beverage 9
◆ Tabacco 10
2 Textile, apparel and leathers
◆ Textile 5
◆ Apparel 180
◆ Leather 18
3 Wood production
◆ Wood furniture 13
4 Paper production
◆ Paper 2
◆ Carton packing 2
5 Chemical, oil, rubber and plastic
◆ Chemical 5
◆ Rubber 1
◆ Plastic 6
6 Non-metallic
◆ Cement 4
◆ Ceramic 5
◆ Precious crystal (glass) 1
7 Processing metallic industries
◆ From metallic 6
◆ Electricity equipment 2
◆ Incense stick 1
Total 283

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 So far, 47 factories have stopped their activities:

◆ Food, beverage and tobacco 10 factories

◆ Textile, apparel and leather 17 factories
◆ Wood production 8 factories
◆ Paper production 1 factories
◆ Chemical 3 factories
◆ Non-metallic 6 factories
◆ Metallic 2 factories

The number of the above mentioned factories could be variable, because some stopped just for a short
period, and others for a longer period and their resumed operation.

There are many reasons which cause these industries to stop their business:

(a) Industries to export:

◆ Factories have not received buying orders or buying orders are late coming in
◆ Some factories got quotas not in line with their production capacity and other factories cannot find
another market for replacement
◆ Company internal conflicts
◆ Factories’ locations were removed
◆ Transfer of factories from one ownership to another
◆ Quality of products is not justified to buying order condition because of a lack of skills and
experiences.

(b) Industries for local demands:

After operating for a short period, some factories stopped commissioning and others were already built
and some are not built, even though they received permission in principal. The main factors are:

◆ Price of imported products is cheaper than local products.

◆ Economic crisis in Asia caused exchange rate to decline dramatically, resulting in neighbouring
countries’ products being low priced.
◆ Expenditure on electricity power, transportation and other services is high compared to neighbouring
countries.
◆ Local products’ quality cannot compete with imported products’quality.

B. Small-scale industries

Small-Scale industries in Cambodia are defined as manufacturing enterprises with shareholders’ fund
below US$ 200,000. They are, however, required to have manufacturing licenses under the Industrial Sub-decree
No. 12, 1991, approved by the Council of the Minister. In the Sub-decree, we do not provide for labour forces
working in each factory.

The 1999 Industrial survey indicates that there were 24,938 manufacturing establishments in Cambodia,
of which 24,740 (99 per cent) were small-scale industries. Their contribution to the economy is quite significant.

The Ministry’s survey of 24,740 small-scale industries indicates that about 70 per cent are organized as
family or sole proprietors. In term of capitalization, 75 per cent registered capital level of US$ 5,000 and less
and another 15 per cent had capitalization level between US$ 5,000 and US$ 50,000. The rest had capitalization
of among US$ 50,000 and US$ 200,000 each.

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 The result of another survey in 1999, conducted by Small-Scale Industry and Handicraft Office on
Small-Scale Industries shows that most of them were in the sectors of food, beverage and tobacco; textile,
apparel and leathers; wood and wood products; fabricated metal and others.

Among the small-scale industries, 74 per cent of the production was in food processing industries, 13 per
cent in fabricated metal and services, 4 per cent in construction materials, 3 per cent in wood processing, 3 per
cent in electrical and electronic, 2 per cent in ceramic and craft production, 1 per cent in textiles/garments.

About 75-80 per cent of food factories is rice mills. Their locations are in the rural areas. Beside rice
mills, there are beverage, backer, sugar, noodle, syrup, candies, fish sauce, soybean, soy sauce factories and
others.

The handicraft sector has been strongly supported by both government and NGOs on technical improvement
and credit, especially in the field of weaving (silk and cotton thread) and sculpture (wood and marble). Most of
them run their business as a family business and/or subcontractors with wholesalers/NGOs. The silk products
and sculpture have export potential. Because handicraft shops operate in small-scale, the MIME lets them run
businesses without licenses. Small-scale industries are considered as one of the major outlets for absorption of
unskilled workers, where they will be trained in entrepreneurial and a certain level of managerial and technical
skills.

III. CATALYTIC FACTORS FOR SUPPORTING

INDUSTRIAL DEVELOPMENT

A. Major policies to foster industrial development

The most significant changes in industrial policy since 1988 have been the privatization policy and the
policy towards the private sector, particularly towards private foreign investment. The process of privatization
started in late 1989, when a new system of financial autonomy for state enterprises was initiated, although,
because of the need to limit the immediate impact on government budget revenues, this policy was not fully
implemented for some time. In 1991, however, a full-scale privatization programme was put in place, such that
a large proportion of existing state enterprises had been either sold or (mostly) leased or identified for leasing by
April 1992. By September 1995, the process was essentially complete: 16 enterprises had been sold and
51 leased, while 5 other enterprises were non-operational awaiting possible purchase.

A central feature of the new industrial development policy, affecting other sectors also, is the Law on
Investment, promulgated by the Royal Decree of 5 August 1994. Subsequent to this, the Council for Development
of Cambodia (CDC) was established, supported by the Cambodian Investment Board (CIB) and the Cambodian
Rehabilitation and Development Board (CRDB).

The Law on Investment provides generous tax and other incentives and guarantees, which will be
maintained. These include corporate income tax of 9 per cent; corporate tax exemption for periods of up to
a maximum of eight years and determined on a project-by-project basis depending on the relation of the project
to identified favourable characteristics; losses carried forward up to five years; no withholding tax on dividends;
free repatriation of profits; and full import duty exemptions for export industries. In addition, land leases may be
granted up to 70 years and guarantees are given against nationalization or the imposition of price controls.

B. Problems encountered in investment decision-making

The main constraints faced by the industrial sector are related to the lack of appropriate policies, human
resources, raw materials and deficient financial and physical infrastructure.

Cambodian industry operates in a region of relatively low cost, efficient producers of manufactured
goods and as a consequence, can expect to face strong competition in export markets and its own domestic market,
the latter competition increased by its process borders and the extent of unofficial trade across them. Cambodia
must adopt industrial policies, therefore, which will encourage industrial establishments to operate successfully
within a highly competitive market environment. Policies of protection, even if desirable, would not work.

164
 The extreme shortage of skilled workers, technicians, managers and the absence of full productivity in all
branches of industry are critical constraints for future industrial development. There is no way which gives
access to increase productivity and accelerate the economic development of the nation.

The high cost of power is a serious development constraint. Furthermore, much of existing machinery is
too old for reconditioning and productivity cannot be increased rapidly.

The lack of industrial finance is a serious obstacle to industrial expansion and will soon require priority
attention. Only one commercial credit provider exists in Cambodia, which focuses on the provision of short-term
credits. There is no source of long-term capital for industrial investments rural credit schemes for the benefit of
small-scale enterprises in the various provinces.

The physical infrastructure is not able to support Cambodia’s rehabilitation and development. An inadequate
transport network, dependence on foreign fuel and insufficient power supplies and water supplies are some of the
problems that need to be solved.

C. Economic cooperation with foreign countries

Cambodia has broad cooperation in the economic field. It has signed investment protection agreements
with various countries, such as Thailand, Malaysia, Singapore, France, Germany, etc. The government is eager
to sign such agreement with other countries with potential investors.

Cambodia has also got most favoured nation (MFN) and general system of preferences (GSP) from
various countries with very important export markets. Through such preferential treatment, the garment industry
has developed rapidly in the past five years.

D. The profile of MIME

1. Mission

The central mission of MIME is to encourage and support the emergence of a competitive industrial base
to create jobs, stimulate investment and narrow the trade gap through production for export. In short, the mission
is to contribute to the overall government objective of poverty alleviation through generation of industrial
employment and income opportunities for Cambodians.

2. Principal objectives

The principal objective of MIME are twofold: to act as a catalyst for industrial development by the
private sector through implementation of industrial policies and to regulate industry to safeguard the welfare of
the people and their environment in accordance with law.

3. The industrial policy framework

Cambodia’s First Socioeconomic Development Strategy, along with that of the MIME 1996-2000 sets out
a framework of nine guiding principles for industrial policymaking. Some important components of this framework,
together with comment, are as follows:

(a) The Promotion of export oriented policies:

It is argued that because of the relatively small domestic market, import substitution for industrial
development (such as support of infant industries supplying the domestic markets or protectionism) will not
work. Experience has shown that the protectionism inherent in an import substitution policy does not nurture
the creation of competitive industries. Industries that were grown up behind tariff walls because of import
substitution policies do not have a record of accomplishment that fares well in a competitive world. Furthermore,
export opportunities afforded by the granting of MFN status and GSP entitlements augur well for the future of

165
export-oriented policies and for rapid industrial growth in Cambodia. The growth of garment industries is
just one example of how successful an export-oriented policy can be. The policy is consistent with the
export-oriented policies of countries in the region and will facilitate Cambodia’s integration into the regional and
global economies.

(b) The Promotion of labour intensive industries:

With other countries in the ASEAN region experiencing rising industrial wage levels and quotas on their
labour intensive exports, pressure is mounting on firms to relocate to countries with lower wages and whose
labour intensive exports are not subject to quotas. Cambodia stands to gain from this pressure. Nowhere is this
truer than in the garment industry, which is now the fastest growing manufacturing sector in Cambodia. This
industry now employs the largest number of workers engaged in the manufacturing. The challenge now is to
attract more such labour-intensive industries such as assembly of electronic goods, to create yet more employment
opportunities. The history of industrial development has shown that countries often start out with simple assembly
operations for export and gradually move to higher technology-oriented operations as the countries physical
infrastructure and human capital evolve to higher standards.

(c) The Promotion of natural resource based industries:

Industries based on natural resources such as forestry, agriculture, fisheries, mineral deposits, nonmetallic
mineral, oil and gas offer high potential for developing industries of high added value. Natural resource-based
industries are generally located in regions and provinces outside the more built-up areas. They are a good way of
stimulating regional development.

It is also useful to examine the constraints to industrial development from a broader and more generic
perspective. The First Socioeconomic Development Plan, 1996-2000 identified the following constraints:

◆ Lack of basic educational and vocational skills

◆ The cost of power is too high, absolutely and relatively, in comparison to neighbouring countries
◆ The inadequacy of the transportation and communication networks in Cambodia is a major constraint
to industrial development
◆ Cambodian entrepreneurs lack access to information regarding markets
◆ Scarcity of credit from the financial sector for rural and urban small-scale industry is an evident
constraint.

(d) Large-scale versus small-scale industry:

In the past, the emphasis in industrial development promotion was clearly on large-scale manufacturing
establishments. In the new phase, close consideration will be given to the many area of choice which exist in the
matter of scale in different industries, for instance in rice milling, vegetable oil processing, animal feed production,
furniture-making and brick and tile manufacture.

(e) Rural industry:

Related to this, increased weight will be given to the promotion of rural industry and to rural enterprises
promotion, as a whole, particularly through technical and business advice, vocational training and increasing the
availability of credit, with the assistance of independent agencies.

(f) Urban informal sector employment promotion:

The counterpart of rural small-scale industry promotion is the development of industrial activities alongside
other activities in the urban informal sector. While the rate at which new large-scale manufacturing establishments
are being set up in Cambodia is highly encouraging, the number which will be absorbed into such employment,
and into other formal sector employment including public services, will not be sufficient to absorb more than
a portion of the rapidly-increasing urban population in Phnom Penh and other centres, where there is already

166
significant unemployment. The overwhelming majority of present urban manufacturing establishments are
small-scale and labour-intensive and positive measures will, therefore, be taken to encourage the development of
the small-scale sector in urban areas.

IV. RECOMMENDATIONS FOR FUTURE ACTION

The development of SMEs is an essential ingredient to the government’s economic policies for enhancing
the transformation of Cambodia to a market economy through reliance on private sector growth. The ability to
obtain funding to finance various investment projects depends on the know-how to prepare and present viable
projects to various domestic and international financial institutions. SMEs must learn how to prepare and present
technical and business plans and other feasibility studies that are acceptable to domestic and foreign financial
institution.

V. CONCLUSIONS

In particular, this Regional Consultative Meeting can offer new opportunities for the development of
Cambodia’s private sector. This sector is extremely important because the public sector alone does not and
cannot provide enough resources for development. In a market economy, large enterprises and SMEs play
a critical role in economic development and employment creation. In most countries, and especially in Cambodia,
SMEs are a very important for job creation. Therefore the Regional Consultative Meeting to assist SMEs is of
critical importance for Cambodia to implement its economic development programme.

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II. STRENGTHENING TECHNOLOGY INCUBATION SYSTEM FOR
CREATING HIGH TECHNOLOGY-BASED ENTERPRISES
IN CHINA

169
 PREFACE

Business incubator as mentioned in this report, is an institution of public service engaged in cultivating
and supporting small-sized start-up firms. Most of the present business incubators in China aim at cultivating
small and medium-sized hi-tech enterprises, so they are generally called hi-tech incubators. At present, various
types of hi-tech incubators, such as Hi-tech Innovation Centre, university-based incubator, and Innovation Park
for overseas Chinese, international business incubator and business incubators network, have already been
established in China.

This report, by analyzing the background, present situation and future trend of China’s economic and
S&T development, attempts to identify the roles of business incubator in China’s economic and social development.
In the meantime, taking the innovation centres as the object of study, this report makes a preliminary analysis on
the functions, features, advantages and results of business incubators in China in an effort to develop
a comprehensive understanding of the business incubators of China.

171
 I. INTRODUCTION

A. Background

Business incubator in China started in the late 1980s. In 1985, a programme for restructuring S&T
institutions, which was aimed at integrating R&D with economic activity, was approved by the State Council.
The implementation of this programme has built the foundation for the subsequent birth of the incubator concept
in China. In May 1987, Rustam Lalkaka, Chairman of United Nations Fund for Science and Technology
Development (UNFSTD) proposed to Mr Song Jian, State Councilor and Minister-in-charge of State Science and
Technology Commission (Now Ministry of Science and Technology, referred as MOST hereinafter), that it was
feasible to establish business incubators in China. This proposal received a warm response. The first incubator –
Wuhan Donghu Innovation Centre – was then founded in the central area of China in June 1987. With the
support of MOST and based on the real conditions of China, local governments began to build hi-tech incubators
and named them Hi-Tech Innovation Centre, a name with Chinese characteristics.

Torch Programme is a market-oriented programme for accelerating hi-tech development and promoting
the commercialization, industrialization and internationalization of hi-tech research results. China’s overall
hi-tech development strategy is implemented mainly by means of the Programme. In August 1988, innovation
centre was included into Torch Programme. Since then, the development of hi-tech innovation centre has
becomes an indispensable job for deepening reform and promoting hi-tech development in China. The
implementation of the Torch Programme and the emergence of innovation centres and hi-tech development zones
started a new era for the industrialization of hi-tech research results in China.

B. Purposes and functions

According to the definition by MOST, Hi-tech Innovation Centre (IC) is an institution of public service,
aimed at promoting the transformation of hi-tech research results into marketable products and cultivating hi-tech
enterprises and entrepreneurs.

IC functions as the hi-tech innovation base in hi-tech development zone, as the core of the hi-tech
innovation supporting system, and as a school to cultivate hi-tech enterprises and entrepreneurs as well as being
an effective way of combining S&T with economic activity and generating new sources of economic growth.

C. Overall performance

Over the last 12 years, IC has achieved breakthroughs in quantity, scale, infrastructure, social networking,
variety and quality of services and incubation effect. Specialization, standardization, socialization and
internationalization of IC have improved continuously. Up to the present, more than 110 innovation centres of
various types have been established all over China.

IC has achieved steady progress in serving hi-tech innovation and start-up firms. It has gradually grown
into a specialized organization, with improvement in space offering, information networking and venture capital
consulting. By providing the incubated enterprises with all-around services, IC has turned out a large quantity of
hi-tech entrepreneurs and enterprises with flexible structure, strong innovative capability and grand future.
Furthermore, IC creates new taxation sources and regular employment opportunities for the society. In the
meantime, a variety of models of incubator have been developed in the process of its specialization, networking
and internationalization. Based on general hi-tech incubator, specialized hi-tech incubator, Software Park,
international business incubator, Innovation Park for overseas Chinese and university-based incubator have also
been established and developed rapidly. IC has made great contributions to the S&T progress and the development
of local economy. It has become the base for the transformation of hi-tech research results, the incubator for
hi-tech enterprises, the school for modern entrepreneurs, the core of the innovation service system in hi-tech
development zone and the main component of the supporting system for hi-tech industries. IC is and will be
playing more and more important role in hi-tech industrialization and local economic development.

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 Table 1. Main index of hi-tech innovation centres, 1989-1999
Year Number Incubation Number Employment Gross Number Gross Incubation
of IC space of the in the revenue of of revenue of fund
(10,000 sq m) incubated incubated the incubated graduates graduates (billion yuan)
(billion yuan) (billion yuan)
1989 10 --- --- --- --- --- --- ---
1990 15 --- --- --- --- --- --- ---
1991 43 6.2 500 --- --- --- --- ---
1992 61 18.5 1 013 --- --- 45 --- ---
1993 61 16.3 1 500 --- 1.08 --- --- ---
1994 73 27.6 1 390 --- 1.48 190 --- ---
1995 73 40.2 1 854 --- 2.40 364 --- ---
1996 80 56.6 2 476 37 810 3.66 648 2.49 1.0
1997 90 77.5 2 670 45 600 4.08 825 41.60 1.3
1998 100 88.4 4 138 68 975 6.07 1 316 99.70 2.4
1999 110 188.8 5 293 91 600 9.58 1 934 122.00 5.0

II. MAIN FEATURES OF BUSINESS INCUBATOR IN CHINA

A. Models of business incubator

Business incubator in China aims at developing hi-tech industries, most of which are called Hi-tech
Innovation Centre (IC), namely technology-based incubator. IC includes general hi-tech incubator, specialized
hi-tech incubator, international business incubator, Innovation Park for overseas Chinese and business Incubators
network.

1. General hi-tech incubator

General hi-tech incubator takes hi-tech industrialization as its mission. According to Torch Programme,
new materials, environmental technologies, electromechanical technologies, information technologies, biotechnology
and aerospace are included in the list of its priorities. The incubators of this type provide facilities and space for
general use and other general services to the start-ups. Most of the start-ups come from universities, research
institutes and state-owned enterprises, etc. These incubators involve a variety of technology fields without
a focus on one particular field. They represent the first generation of incubators in China.

2. Specialized hi-tech incubators

Specialized hi-tech incubator intends to, in some specific field, specialize the incubated firms, facilities,
services and management team, and is aimed at incubating enterprises with technological advantages in this
specific field. At present, many specialized hi-tech incubators in various fields have been built in China, including
software incubator, biomedicine incubator, integrated circuit designing incubator, new materials incubator,
agriculture hi-tech incubator and ocean hi-tech incubator. Specialized hi-tech incubators have developed at
a faster pace in recent years and account for 10 per cent of the total number of incubators in China.

3. Innovation park for overseas Chinese

Innovation Park for overseas Chinese is an institution for supporting overseas Chinese students or experts
to set up hi-tech firms in China. With the growing attention paid by the government to attracting overseas talents
back home, it has experienced rapid growth in recent years. Over the past 20 years, more than 300,000 Chinese
students went abroad to pursue further studies and nearly one-third returned. They are the precious resources for
hi-tech development in China. Up to now, 28 innovation parks for overseas Chinese have been established in
Suzhou, Beijing, Shanghai and Tianjin and welcome nearly 1,000 overseas Chinese to start their innovative
career there.

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 4. International business incubator

International business incubator is an innovation incubator that is global-market-oriented, aimed at creating

an optimized environment for international cooperation. At present, MOST, with the support of UNDP, started
eight pilot projects of international business incubator respectively in Beijing, Xi’en, Suzhou, Shanghai, Wuhan,
Tianjin, Chengdu and Chongqing. These incubators are equipped with space and facilities of world standard and
have qualified management teams. They have developed cooperative relationships with business incubators or
science parks of the United States of America, United Kingdom of Great Britain and Northern Ireland, Finland,
Italy, Canada and many other countries.

5. University-based incubator

Relying on the intellectual resources, information resources and research facilities of universities and
taking advantages of the preferential policies and favourable environment in science parks, university-based
incubator intends to promote the commercialization and industrialization of hi-tech research results in universities
and to incubate start-ups. Up to the present, 8 university-based incubators, including Tsinghua University
Technology Park, Shanghai Jiaotong University Huigu Incubator, Beijing Space and Aeronautical Engineering
University New Materials Incubator have been established to support young students and faculties to set up
hi-tech start-ups.

6. Business incubators network

Business incubators network is a coordinating organization that facilitates effective communication and
cooperation among innovation centres located in the same cities or regions and, thus, helps to build an integrated
innovation supporting system.

There are 8 business incubators networks of scale, including Beijing Business Incubators Network, Tianjin
Business Incubators Network, Shanghai Business Incubators Network, Jiangsu Innovation Centres Network,
China International Business Incubators Network, Network for Innovation Centres in Five Provinces of North
China, China Western Innovation Centres Network and Overseas Chinese Innovation Parks Network. Association
of China Hi-Tech Development Zones has also set up Professional Committee for Innovation Centres.

With growing influence of business incubators on China’s economy, non-technology business incubators
have also been emerging. On the basis of the experience of MOST, Ministry of Economy and Foreign Trade is
making great efforts to initiate service centres for small-sized firms so as to support small-sized start-ups and
reduce employment pressure.

B. Operational system

1. Investors or sponsors

Incubator sponsorship in China is undergoing an evolution, from exclusive sponsorship by the MOST’s
Torch Programme to a more pluralistic pattern. Up to now, most of business incubators in China had investment
from government agencies, such as local-level S&T Commissions and hi-tech development zones. These incubators
account for 90 per cent of the total number of incubators in China. Governments assume all of the initial
expenses and cover all or part of the operational cost. Only 5 per cent are invested in by universities and others
by enterprises. With the development of venture capital in China, enterprises will become the main investors in
the emerging incubators.

2. Profit or non-profit

Due to the limitations on the missions and functions of business incubators, most of the incubators, about
95 per cent, are institutions of public service. With public service, not profit, as their purpose, they charge only
a small fee to the incubated enterprises, just for covering their operational costs. The items chargeable focus on
space offering and facilities and the fee is 10 per cent-30 per cent lower than the market price to accord with the

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principle of Service First. Besides, some incubators adopt more favourable policies in order to attract more
start-ups. They would charge nothing for the first year, 30 per cent for the second year, 70 per cent for the third
year and full rent the fourth. The other 5 per cent business incubators are profit-driven and enjoy return that
comes from their investment in the firms inside incubators.

3. Nature of organization

Most of the government-sponsored business incubators are public institutions, similar to nonprofit
organizations in the world. They enjoy preferential policies of income tax (income tax for enterprises is about
33 per cent). Other few incubators bear the nature of enterprise and pay income tax by the tax rate for hi-tech
enterprises tax-free for the first two years, 7.5 per cent for the third year and 15 per cent later on.

4. Promotion by Government

China Torch High Technology Development Centre, led by MOST, is responsible for organizing,
developing, financing and supervising hi-tech innovation centres nationwide. S&T Commissions at local levels,
under the guidance of MOST, are responsible for organizing, developing, financing and supervising local hi-tech
innovation centres and have already established incubators under their jurisdiction. 53 state-level hi-tech
development zones are assigned to implement this strategy, most of which have already set up innovation centres
in their zones. In addition, Professional Committee for Innovation Centres at Association of China Hi-Tech
Development Zones is a coordinating organization for IC and plays an active role in training, sharing
experience/information and developing relationships with counterparts at home and abroad. Local and specialized
incubators networks also play an active role in these aspects.

MOST adopted standard qualifications for state-level IC. An innovation centre, which is qualified, will
be identified as state-level IC. The qualifications are as the follows:

◆ Support from local government, with financial input of more than 5 million yuan
◆ Hi-tech related preferential policies for IC and for the incubated enterprise
◆ Clear vision for development and a quality management team at least 70 per cent of managers with
background of higher education
◆ Floor area of more than 80 million sq m, at least 2/3 available to the incubated firms
◆ Complete facilities and integrated services involving business operation, financing, information,
consulting, marketing, training, R&D, PR and international cooperation
◆ More than 80 incubated firms, of which 60 per cent is located in the incubation area
◆ In aggregate, there are more than 25 graduates. Annually, at least 5 per cent of the incubated, and
1,000 or more new job opportunities created by the graduates and the incubated
◆ Operation of more than 3 years and good performance.

Up to now, there are 38 hi-tech innovation centres which have been identified by MOST as qualified
state-level IC.

C. Management

The structure of organization and management of incubators varies due to different local conditions, but
they have the same basic departments such as Business Development Department, Finance and Investment
Department, PR and Training Department, Real Estate Management Department and Administrative Office, etc.
The typical structure is as follows:

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 Table 2. Typical organizational structure

Director

Business Finance and Real Estate PR and Administrative

Development Investment Management Training Office

The Incubated

Employment is based on recruitment, 18 employees per incubator.

D. Conditions for incubation

1. Facilities

Most of innovation centres are located in modern-style buildings specifically designed for IC. These
buildings have wide space for R&D, state-of art conference rooms, telephone, fax, post office, photocopying,
water, electricity, gas and air-conditioning, etc. Many of them also offer Internet access, public lab, cafeteria and
retail shopping. For the 110 incubators covered by official statistics, the total area available for incubation in
1999 was 1.89 million sq m, an average of 17,000 sq m per centre, large-scale by world standard.

2. Services

Service menu for start-ups’ incubation:

◆ Assistance with registration and annual auditing and in setting up branches and joint ventures
◆ Assistance with taxation registration and application for tax-reductions or tax-exemptions
◆ Floor area and conference room
◆ Typing and copying
◆ Traffic and telecommunication facilities
◆ Security
◆ PR and promotion
◆ Telephone, fax and Internet access
◆ CI designing
◆ Assistance in developing regulations and marketing strategies
◆ Other public services

Menu for entrepreneurs:

◆ Assistance in developing management systems

◆ Assistance with recruitment
◆ Training in technical skills
◆ Training in marketing and sales, finance and taxation
◆ Training in management, law and intellectual property protection
◆ Consulting in labour, employment and insurance
◆ Organizing visit tours and business trips in China and abroad

Menu for project promotion:

◆ Assistance with project evaluation business planning technology appraisal, application for government
projects and assessment on research results

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 ◆ Consulting in patent application, trademark registration and intangible asset evaluation
◆ Guarantee for loan and credit and financing
◆ Consulting in economic contract of technology
◆ Product Exhibitions and advertisement
◆ Other services required

3. Services for investment and financing

(1) Development of business plan

(2) Seed Fund (Incubation Fund)
(3) Venture capital
(4) Bank loan for small and medium-sized firms
(5) Innovation fund for small and medium-sized firms
(6) Specific fund from government for small firms and hi-tech innovation

E. The incubated and graduates

1. The incubated

The requirements for the incubated are as below:

◆ A start-up company within 2 years of operation, or a company whose gross revenue is less than
0.5 million yuan;
◆ Engaged in hi-tech R&D and production;
◆ Strong R&D capability, basically on its own, advanced technologies and research results with great
potential in the marketplace;
◆ Persons in charge must be scientific researchers with management capability;
◆ Clear ownership, self-management solely responsible for its profit or loss, and effective operational
system.

At the same time, the incubated firms are required to conduct production instead of just doing trade
business.

In order to get license to enter the incubator, the incubated firms are required to go through the following
evaluation process:

◆ Economic evaluation
◆ Technology evaluation
◆ Market evaluation
◆ Corporate evaluation
◆ Qualification check up

In 1999, 1,711 new firms entered the 110 innovation centres, averaged 16 new for one centre, about
32 per cent among all the 4,138 incubated firms.

2. Graduates

The incubatee will be qualified for graduation when:

◆ It is identified as hi-tech enterprises by S&T commissions at levels of province, autonomous region

and municipal.
◆ It has more than two years of successful operation and the main product has achieved a critical
scale and market share.

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 ◆ It has generated annual gross revenue of more than two million yuan, of which 500,000 yuan or
above is attributed to fixed assets and self-owned fund.
◆ The managers are equipped with strong management and marketing capabilities.

According to the statistics, there were total of 1934 graduates in 1999, with 70,000 staff members and
annual gross revenue of 12.2 billion yuan. Among the graduates, there were more than 30 firms whose annual
gross revenue exceeded 100 million yuan.

The firms, with poor performance, not qualified for graduation will also leave IC some day, not as
a graduate. These firms account for 20 per cent of the graduates.

III. FINANCIAL SITUATION

A. Construction fund

At the initial stage of IC history, the construction fund came from Torch Programme and local financial
support, with the latter as the main source. Local financial support mainly came from local government budget,
budget from S&T Commissions at local levels and hi-tech development zones. Some of the funds are the loans
from financial institutions such as banks. These funds were mainly used for the construction of housing, facilities,
salaries and office expenses while part of them were used to assist the incubated firms with project development
and production.

Table 3. Percentage of investment

Investors Percentage
Allocated funds by central or provincial government 42.2
Bank loan 39.3
Others (including accumulated reinvestment) 15.3
Total 100

Table 4. Expenditure
Expenditure Percentage
Construction 67.7
Project incubation 26.8
Office expenses 5.5
Total 100

From 1998 to the end of 1999, the accumulated direct investment by Torch Programme reached
43 million yuan, driving local investment of nearly 1 billion yuan in the construction and development of
innovation centres. According to the MOST’s statistics on the 110 hi-tech innovation centres nationwide, the net
fixed assets at the end of 1999 reached 950 million yuan.

B. Financial Situations

Most of innovation centres in China adopt a system of “self-sufficient institutions”, that is to say, the
sponsors of incubators, after providing necessary buildings and facilities, will provide financial support on annual
basis or only for two or three years. Incubators have to charge service fees as the financial sources, in order to
support their own operation.

According to the statistics in 1999, average area for the 110 innovation centres is 17,000 sq m per centre,
larger than the break-even scale (normally 6,000-7,000 sq m). Annual revenue based on rent, reached
220 million yuan, averaged 2 million yuan per centre. They have achieved the goal of self-sufficiency.

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 C. Incubation fund (seed fund)

With an exploring experience of more than 10 years in business incubation, IC came to know the
importance of seed fund for start-ups, especially the small or medium-sized ones. According to the statistics in
1998, there were 34 innovation centres that had founded incubation funds, with a total amount of 237.32 million
yuan, averaged 7 million yuan. By means of incubation funds and guarantor companies, etc., these innovation
centres provide various types of financing services such as investment, low interest loan and guarantee for the
incubated. In recent years, professional teams for managing innovation investment have been growing, especially
in Wuhan, Chengdu, Shanghai, Shanxi and Xi’en innovation centres. Innovation centres in Wuhan, Suzhou and
Ha’erbing, Tsinghua Pioneer Park and Peking University Science and Technology Park, jointly founded GuoChuang
Hi-tech Investment Company Ltd. and are preparing for China Torch High Tech Investment Fund.

IV. FUNCTIONS AND EFFECTS

In the view of Chinese government, IC has very important strategic influence on the economy of China
in the aspects as the follows:

(1) Enterprises with innovative capability and marketing potential are the main strength in market economy.
Most of the firms that have graduated from incubators are market-oriented and creative, with flexible
structure, clear ownership, and standardized operation and information disclosure. The goal of IC is to
incubate and produce these firms.

(2) Small and medium-sized enterprises play an unreplaceable role in the development of the national
economy. Effective innovation services directly contribute to the following goals: developing small and
medium-sized enterprises, increasing employment opportunities, promoting S&T progress, generating
new sources of economic growth and improving competitiveness.

(3) Innovation services are one of the important jobs for improving innovation system at all levels. Many
tasks, such as industrializing hi-tech research results, developing hi-tech zones, improving local innovation
system, attracting talents, developing local economy and assisting with the further reform of research
institutes and universities, are deeply influenced by IC.

A. Incubating start-ups

In 1999, there were 5,293 incubated firms in the 110 innovation centres, among which about 1,711 were
newcomers.

B. Creating job opportunities

Up to now, a total of 1,711 incubated new firms have 91,600 employees. The 1,934 graduates had a total
of 73,752 employees (at the time of graduation). The total number of new jobs directly created exceeded
160,000. According to international practice that direct job creation times 2 will result in indirect job creation,
the indirect job creation in 1999 reached 320,000, and the total number of job creation in these incubators was
nearly half million.

C. Commercializing hi-tech research results

The primary objective of IC is to transform hi-tech research results into marketable products and
commodities. Because of the favourable environment in innovation centres, more than 80 per cent of the
research results have been commercialized.

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 A brief introduction to innovation centres with operation experience of 5-years
(Thousand Yuan/number of persons)
Number of Number of Total Net Tax Number of Number of Total
Name the incubated employee avenue profit accumulated employees avenue
graduates
Beijing Hi-tech Innovation Centre 81 965 145 213 2 474 6 288 45 2 390 289 000
Tianjin Science & Technology Innovation Centre 84 1 035 100 565 2 225 3 571 37 949 110 878
Shi Jiazhuang Hi-tech Innovation Centre 121 2 560 120 000 13 000 2 400 40 2 800 255 000
Shenyang Hi-tech Innovation Centre 85 1 200 97 000 19 400 11 600 43 540 45 330
Changchun Science & Technology Innovation Centre 91 2 140 237 180 22 300 5 020 35 896 72 900
Daqing Hi-tech Innovation Centre 72 1 890 90 000 16 380 4 160 34 2 058 188 670
Ha Erbin Hi-tech Innovation Centre 126 2 585 12 540 -4 100 8 979 41 1 044 391 304

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Suzhou Hi-tech Innovation Centre 115 1 605 280 000 5 450 9 490 36 1 055 140 000
Nanjing Science & Technology Innovation Centre 73 438 26 505 1 232 942 61 751 25 597
Jiangxi Ganchang Hi-tech Innovation Centre 151 2 220 302 000 7 800 5 033 41 1 400 27 400
Jinan Hi-tech Innovation Centre 62 2 050 105 000 5 090 2 100 26 740 78 000
Weihai Hi-tech Innovation Centre 51 890 59 780 1 932 648 31 520 24 600
Wuhan Donghu Hi-tech Innovation Centre 44 856 39 468 2 656 934 34 2 015 600 000
Guangzhou Hi-tech Innovation Centre 83 1 666 148 180 7 409 5 927 36 1 623 630 000
Guilin Science & Technology Innovation Centre 115 1 250 68 500 17 125 2 100 47 800 9 000
Chengdu Hi-tech Innovation Centre 70 884 198 110 37 100 15 900 45 2 171 408 900
Chongqing Hi-tech Innovation Centre 217 3 115 201 500 7 200 18 900 81 2 280 2 500 000
Kunming Hi-tech Innovation Centre 97 2 502 93 400 8 620 4 290 34 789 71 500
Xi’en Hi-tech Incubation Centre 196 1 756 230 960 5 983 3 148 50 1 465 806 000
 Case study (by the end of 1996)
Wuhan Chengdu Shanghai Technology
Name
Innovation Centre Innovation Centre Innovation Centre
Total investment (10,000 yuan) 1 125 700 2 000
Number of invested firms 19 13 14
Rate of successful investment (by number) 63 per cent 92 per cent 85.70 per cent
Average period of investment 4 5 4
Cash dividend (10,000 yuan) 67.94 535 3 400
Income Total net asset (10,000 yuan) 2 366.6101 3 167
Total income (10,000 yuan) 1 463.6101 3 002
Return on investment (ROI) 124.80 per cent 428.80 per cent 70 per cent
Average annual ROI 31.26 per cent 85.76 per cent 18 per cent
Note One public company Three public companies Invested firms were
acquired by a public
company

D. Promoting local economic development

IC provides hi-tech development zones with high-quality graduates. In 1999, the gross revenue of the
incubated enterprises reached 9.58 billion yuan, 12.2 billion yuan for the graduates, and the total revenue was
21.78 billion yuan. By now, there are more than 30 graduates whose annual revenue exceeds 100 million.
Among these graduates, Dikong Pharmaceutical from Chengdu innovation centre, Kaidi from Wuhan innovation
centre and Yunda 120 from Kunming innovation centre became the first public companies. IC and its graduates
actively promote the construction and development of hi-tech development zones. It has grown into the main
strength of technology innovation and the flag of hi-tech development zones.

E. Creating favourable environment for start-ups

During the period of planning economy, the government takes the responsibilities of planning economic
activities, such as what kind of business should be conducted, which products or services should be provided to
the consumers, etc. Private enterprise was not mentioned at all, let alone entrepreneurship. IC was founded
along with economic reform. It encourages technological talents in universities and research institutes to set up
firms in IC and transform their research results into marketable products. Enthusiasm for innovation has pushed
many young university students to be engaged in innovative activities. Some students start up firms right after
graduation or during the period of study in school. University students have become a new source of innovation
and start-ups. It will turn the idea of I Choose into I Start Up.

F. Attracting overseas Chinese to return home

At present, innovation centres for oversea Chinese in Beijing, Shanghai, Suzhou, Xi’en Tanjing, Chengdu
and Wuxi are moving forward. In Beijing Haidan Innovation Centre for Overseas Chinese, 48 incubation units
are occupied. There are more than 40 start-ups respectively in the overseas Chinese innovation centres in Suzhou
and Shanghai. According to the statistics on the 23 out of 28 overseas Chinese innovation centre, there is a large
incubation area of above 364,000 sq m, with 504 incubated firms and more than 1,000 overseas Chinese, of
whom 90 per cent have a Ph.D. or a masters degree.

G. Positive international influence

With the development of business incubator in China, relationship and cooperation with foreign counterparts
have been developed. Cooperative relationships, including training, staff exchanging and partnership, etc., have
been developed with incubators and science parks in the United States of America, United Kingdom of Great

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Britain and Northern Ireland, Italy, Canada, Finland and other countries. The International Business Incubator
Management Training Programme was designed for incubator managers from developing countries. Two sessions
of the programme have been conducted for 29 participants from these countries. All efforts have built up high
reputation in the world.

V. ADVANTAGES AND PROBLEMS

A. Advantage analysis

China’s High-tech Innovation Centre is the result of restructuring S&T system. From the beginning, it
has been supported by the government through the Torch Programme. It is a new kind of service institution for
hi-tech enterprises. At present, more than 90 per cent of innovation centres have been established with the
support of governments and supervised by MOST. MOST asks local-level S&T Commissions and high-tech
development zones to set up and promote hi-tech innovation centres in their jurisdiction. A special fund has been
set up by MOST for this and many efforts been made, including regular working conference nationwide, training
courses, visits and seminars, favourable policies and financial support, etc. S&T Commissions at local levels
have done the same jobs as done by MOST. After all the efforts, China’s innovation centres have developed at
a good pace.

Local governments greatly support IC in the aspects of financial resources and space offering, etc. Local
leaders are very concerned with the development of IC. Moreover, central government leaders also pay high
attention to it. Most of the standing members of the Political Bureau of the Central Committee, including
Premier Zhu Rongji and Vice President Li Lanqing, have visited the incubator centres and warmly praised their
achievements. This greatly encourages the development of IC in China.

From 1988 to the end of 1999, the direct input by the Torch Programme accumulated 43 million yuan,
driving local investment of nearly 1 billion yuan in the construction and development of IC. The investment is
and will be increasing along with the continuous development of IC.

With the support of preferential policies, the quantity and scale of China’s innovation centres have taken
a good jump. The policies include: (a) Construction fund for IC can be raised from R&D fund of MOST;
(b) The coordination of tax for investment in capital construction is zero; (c) According to the regulations by
MOST, the taxes paid by IC should be returned by local governments to IC for the improvement of incubation
conditions and services; (d) Local-retained taxes paid by the incubated enterprises should be returned to IC for
the same purposes as above. At present, the policies mentioned above are implemented in most of provinces and
cities. Local governments, including Shanghai, Guangzhou and Beijing, have worked out the relevant policies
and achieved good results.

In April 1999, the State Council approved and issued Regulations on Promoting the Transformation of
S&T Research Results, saying that local governments should support the construction and development of
hi-tech innovation centres by means of financial support and preferential policies. In January 2000, the Ministry
of Education submitted proposals on the implementation of Decisions on Strengthening Technology Innovation,
Developing Hi-tech R&D and Realizing Its Industrialization issued by the Central Committee and the State
Council. The Ministry of Education stated that it would make more efforts to promote the construction of
university science park and to cooperate with MOST for creating a favourable environment for the further
development of university science park and innovation park for overseas Chinese. The Ministry also encourages
teachers, S&T researchers and students in universities and research institutes and overseas Chinese to set up
start-ups in the parks.

Innovation Fund (Innofund) for Small and Medium-sized Hi-tech Enterprises was founded in November
1999. It is a special government fund approved by the State Council, which is aimed at supporting hi-tech
innovative activities of small and medium-sized firms, facilitating the transformation of research results, increasing
tax income and creating more job opportunities. By means of financial aid, loan discount and capital investment,
Innofund is oriented to small and medium-sized firms of all kinds of ownership, which are registered in China
and engaged in hi-tech R&D, production and service. Generally, the volume of financial aid and loan discount is
below 1 million yuan, no more than 2 million yuan even for a key project. The volume of capital investment is

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generally below 20 per cent of the registered capital and required to be called back within a time limit. The
volume of the Innofund is 1 billion yuan annually. Innofund started operation since the latter half of 1999 and
granted nearly 400 million yuan, more than 10 per cent of which is for incubating start-ups in incubators.

B. Problems

The main problems facing IC in China include:

1. Environment for innovation needs further improvement

During the transition period from traditional planning economy to market economy, organizations that
could support and facilitate the development of small and medium-sized firms are urgently needed, and so is
a corresponding service system. Although many far-sighted persons are aware of the important roles of
small and medium-sized firms in social development, and government leaders have paid high attention to
technology-based small and medium-sized enterprises, the overall policy environment for their development still
needs to be improved. The venture capital market for supporting hi-tech innovation has not yet been shaped up
completely and it is still impossible to extend the local optimized environment created by IC. All these problems
need to be solved as quickly as possible.

2. The operational structure needs reform

At present, most of the innovation centres are established by the government. Some of the local
governments regard IC as a government agency, endowing it with powers and authorities as well as responsibilities.
Some of the innovation centres have not escaped from the model of government agencies. These operate without
any attention to the performance results. Professional service level is also waiting be improved.

3. The quality of management team needs improvement

Due to historical causes, China is short of top-quality professional and experienced managers and
consultants. It is another urgency for the development of IC.

C. The future trend of the development of IC in China

1. The development of incubators of various models

General technology-based incubator:

In the past, general technology-based incubator was the main model of IC in China. At present, along
with the emergence of incubator of different models, the percentage of general incubator has slightly decreased.
However, with its advantage of general applicability, it will continue to increase in its number and play a leading
role in the development of IC in China.

Specialized technology incubator:

With the specialized incubation conditions, services and management teams, and by taking full advantage
of the specialized resources and technologies, specialized technology incubator has advantages in market expansion
and scale development, which will greatly attribute to its rapid development. The increasing number of specialized
technology incubator shows its potential for continuous growth.

International business incubator:

MOST appoints some of the well-established incubators as pilot international incubators. With the
development of China’s market economy, especially its future entrance into WTO, China’s economy will be more
and more global-oriented. So the number of international business incubator will be increasing.

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Overseas Chinese innovation park:

Promoted by MOST, Ministry of Education, Ministry of Personnel and other related departments, overseas
Chinese innovation park will play an active role in attracting 300,000 overseas Chinese with hi-tech research
results or expertise to come back and set up businesses. The participation of overseas Chinese will make
considerable contributions to economic development and quality improvement of labour forces.

University-based incubator and university Science Park:

As the source of new knowledge and technology, university will take full advantage of itself by way
of combining itself with economic activity. Moreover, the positive attitude of local governments toward
university-based incubators and university Science Park will also accelerate their development. The increasing
number of younger students engaged in start-up activity results in large demand for university-based incubator
and university Science Park. At present, MOST and Ministry of Education is making great efforts to promote its
development so as for more university students can be incubated as start-ups in the parks. University-based
incubator and university Science Park will produce more and more prominent young entrepreneurs.

Non-technology incubator:

Non-technology incubator is aimed at stimulating local economy, creating job opportunities and encouraging
certain people to start up a business. It will be developed in China as an efficient economic entity. It is expected
that non-technology incubators will also be developing rapidly in China.

2. Multiple Investors for incubator

Today, the positive role of the incubator has been recognized by the society. Most of China’s incubators
are set up by S&T authoritative agencies or high-tech development zones. Government agencies in other sectors
also initiate the incubator and encourage its development, regarding it as an effective way to a specific goal,
e.g. State Economic and Trade Commission for the purpose of stimulating the development of small and
medium-sized firms, labour departments for creating job opportunities, local governments for the booming local
economy, educational departments for accelerating the transformation of research results of universities, personnel
department for attracting oversea Chinese to go back home, etc. At present, the National Women’s Federation is
setting up incubators for unemployed women workers in Tianjin. With the growing interest of enterprises in
incubators, some of the incubators in Beijing have investments by enterprises. Besides, along with the emerging
of venture capital and the speeding up of the internationalization of incubators, incubators invested by enterprises
and those of joint venture have started operation.

3. The market-oriented development of incubators

In the process of the development of socialist market economy with Chinese characteristics, the tertiary
industry has gained ground. Technology-related intermediary institutions, such as S&T consulting services and
market for technology transfer, have been developed. As a key component of the S&T service system, incubator
will inevitably, following the law of market economy, turn to be market-oriented. Incubators at the stage of
market-oriented development take on the following features: (a) services specialized; (b) development standardized;
(c) services chargeable; (d) running as an enterprise. With diminishing intervention of local governments,
incubators will assume more social responsibilities. They will be self-sufficient and some of them will achieve
good performance results.

4. The industrialized development of incubators

Technology-based business incubator, as a part of service system for S&T socialization, is a professional
service institution for providing services to small and medium-sized hi-tech start-ups. The rapid development of
incubators in China has gained recognition from the society, and China’s economic development has raised
demand for more quality incubators. In contrast to the initial stage of incubator history when incubators were set
up by the government, more and more incubators will be set up by entrepreneurs or enterprises and the new trend

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for incubator is to be industrialized. The industrialized incubators will be widely open to society and will
develop into a social network. With the growing demand for incubators, incubators will be more active and
effective. Highly industrialized incubators will achieve complete socialization and networking.

The development of China’s socialist market economy and socialized services will make it possible for
incubators to be further industrialized and market-oriented.

VI. CONCLUSIONS

Business incubators of China have experienced development of 12 years and have great potential for
growth. The remarkable contributions made by business incubator have attracted wide attention from the society.
The process of commercialization, industrialization and internationalization of hi-tech research results is speeding
up. A bridge between scientific research and economic activity has been built up. Entrepreneurship is encouraged
in China. Under the guidance of Torch Programme, hi-tech business incubators have been growing rapidly and
accelerating the transformation of hi-tech research results into marketable products. With the commercialization,
industrialization and internationalization of hi-tech research results as their goals, incubators will be playing
a more important role in the economic development of China. Moreover, hi-tech business incubator will stimulate
further development of incubators in other fields. If incubator supported by the government are regarded as the
first stages of development, commercialization and industrialization of incubator itself, as required by socialist
market economy, will be the trend in the future.

The time for China to enter the WTO is approaching. China will open to the world its wide market with
a large population of more than 1.2 billion, and the world market will be opened to China. Business incubators
in China will take the challenge and be ready to create a very bright future.

Business incubators in China are willing to, together with the counterparts in other countries, contribute
more to the development of business incubator itself, small and medium-sized enterprises and the regional
economy.

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III. STRENGTHENING TECHNOLOGY INCUBATION SYSTEM FOR
CREATING HIGH TECHNOLOGY-BASED ENTERPRISES
IN INDIA

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 I. INTRODUCTION

The scientific and technical dynamism of a country is determined by the time lag between a major
discovery/invention and its translation to an innovation. Technological innovation is generally a dynamic and
complex process involving a wide range of activities. Broadly, it includes the basic research, focused design and
targeted development. Software development, costing and marketing are also inevitable components of successful
innovations. The process of technical change, to a significant extent, is based on the cumulative and incremental
effect of small innovations. New technologies are selected through a complex of interaction between economic
factors, industry demands and the effect of government policies. The important areas in the successful innovation
process include: understanding and meeting the need of the user, effective internal coupling between R&D and
market needs, effective linkage with external sources S&T expertise, committed entrepreneurs, efficient after
sales service and training of the user.

The most radical form of innovation, the creation of new products using new technologies, often requires
new organizational structure. The Technology Business Incubators and similar initiatives are the latest in the
evolutionary line to provide advisory, training and information services, management and marketing support,
linkages to research faculty and facilities, access to capital, thereby greatly enhancing the chances of success of
the early stage technopreneur (Lalkaka, 1996). It is a cost-effective instrument for technology transfer and the
development of knowledge-based an high-tech enterprises. The Government of India has set up a National
Science and Technology Entrepreneurship Development Board (NSTEDB), under the Ministry of Science and
Technology (MOST) to promote technical entrepreneurship in the country. The major objectives of NSTEDB
are:

◆ To promote and develop entrepreneurship among S&T persons

◆ To facilitate and conduct various informational services relating to the entrepreneurship development
◆ To network various government agencies and non-governmental agencies in entrepreneurship and
self employment development, and
◆ To act as a policy advisory body to government in regarding entrepreneurship development

The Board has designed a series of programmes and activities ranging from the creation of awareness,
training, creation of institutional mechanisms for innovation based entrepreneurship, opportunity identification,
information systems, and other areas relevant for the development of technical entrepreneurship. One of the
mechanisms identified by the Board in encouraging technical entrepreneurship and creation of technology-based
enterprises is the Science and Technology Entrepreneurs Park (STEP).

II. TECHNOLOGY INCUBATORS FOR

CREATING HIGH TECHNOLOGY-BASED ENTERPRISES

A. The Concept of Step

The STEP programme was initiated with the following major objectives:

◆ To forge a close linkage between university/academic institutions on the one hand and industry on
the other
◆ To promote entrepreneurship among S&T persons
◆ To provide R&D support and other facilities to small scale industries.

STEP provides a re-orientation approach to innovation and entrepreneurship involving education, research,
finance, management and government. It creates the necessary climate for innovation; for sharing of ideas,
experience and facilities and opens up avenues for students, teachers, researchers and industrial managers to
grow in a common transdisciplinary culture, each understanding and depending on others inputs for starting
a successful economic venture.

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 The task, therefore, is to create an “employer culture” where increasingly S&T people will seek to create
their own employment. It also involves changing the existing attitude of seeking wage employment to look for
a career in small business. To create an impact on this situation requires changes in the educational curriculum,
in the way in which occupational choice is developed, in the way in which career advice is given and ultimately
the role of small scale sector in the wealth generation.

The STEP has a primary mission of ushering in a technocrat industrial society through HRD inputs
enhancing the managerial and technical capabilities in particular and providing infrastructure and expertise support
for enhancing productivity, quality, finance, R&D, personnel management capabilities etc. during the establishment,
sustenance, and growth of the incubating enterprise in general. However, the STEP should reach a financial
self-sufficiency with out loosing focus on the development, which has an impact on the economic activity in the
region. The STEP model, therefore, has been designed in striking a balance between development and
self-sustenance. The areas of activities such as entrepreneurship training, product development, database,
information, servicing, consultancy, quality assurance, business felicitation, continuing education and skill
development training etc. are grouped under three categories as follows: Promotional, cost and profit activities.
The deficit arriving out of the promotional and cost activities will have to be augmented through the profit
activities in due course of time. Promotional and cost activities are aimed at aspiring entrepreneurs and start-up
companies covering entrepreneurship development, business facilitation, skill development, etc.

B. Selection of STEP locations

The criteria for selection of STEP locations are based on the following:

◆ The presence of a strong S&T orientation and a nucleus of R&D activity in the host institution
◆ The development of a comprehensive well thought out plan
◆ Compatibility among the industrial operations included in the STEP
◆ Compatibility between STEP and the host institution activities
◆ Shared central services
◆ Easy access to host institution facilities
◆ The existing relationship between the academic institution and industry.

C. Present status of STEPs

The NSTEDB, jointly with the all India Financial Institutions (Industrial Development Bank of India,
Industrial Finance corporation of India, Industrial Credit and Investment Corporation of India) have so far
established 15 STEPs in different parts of the country. Each STEP has been established as an autonomous
registered society having an independent legal status, which is external to the administrative structure of the host
institution. Each STEP also follows its own particular model depending on the local environment and needs.
Thrust areas in technology development and commercialization have also been identified, based on the strength
of the host institution and the industrial milieu existing in the vicinity.

The number of start-up units, technologies developed and employment generated by the STEPs are given
below: (As on March 1999)*

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 SL No. Step location Number of units Technologies developed Employment
1 Mysore 95 17 800
2 Trichy 106 26 1 100
3 Kharagpur 31 59 313
4 Ranchi 60 60 695
5 Pune 25 60 160
6 Roorkee 14 40 150
7 Ludhiana 95 53 680
8 Kanpur 31 10 200
9 Mumbai 45 0 200
10 Bhopal 46 8 148
11 Suratkal 50 4 450
12 Coimbatore 6 3 18
13 Patiala 1 0 5
* 2 STEPs are new

The facilities available in the STEP for use by the entrepreneurs and the services offered are as follows:

Facilities available Services offered

Incubation space Testing and calibration
Testing and calibration Consultancy
Central workshop Research
Prototype development Training
Computing Software
Data bank Product development
Library & documentation Process development
Seminar hall/conference room Human resources
Common facilities such as telephone, Technical support
fax, telex, e-mail, reprography, etc. Business facilitation
Pollution control laboratory Common utility
Pilot plant facility Bureau of Indian Standards Ext.
Quality assurance centre Escorting to ISO
Patent facility centre

D. Profiles of STEP enterpreneurs

The programme was initiated to promote entrepreneurship among the S&T persons so that a new breed
of technology oriented and quality conscious entrepreneurs could be developed. Therefore, it is expected that
a large number of the entrepreneurs come from the S&T background. An analysis of the STEP entrepreneurs’
educational qualification indicates that majority of them has a degree in engineering (47 per cent), followed by
graduates in science (21 per cent), diploma holders in engineering (21 per cent) and others (11 per cent). The
industry wise distribution shows that a majority entered into engineering related business (42 per cent), followed
by electronics and IT (18 per cent), chemicals & pharmaceuticals (18 per cent), services (10 per cent) and others
(12 per cent).

E. Software Technology Parks

The Software Technology Park (STP) scheme was initiated by the Government of India to boost software
exports from the country. To meet this objective, suitable framework was formulated covering aspects like
simplification/rationalization of procedures, providing single point contact services to the industry, providing
basic amenities needed for export operations with a very short gestation period and share captive infrastructure

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facilities like computing resources and data communication services in a cost effective manner. STPs act as
a “single windows” in providing services to the software exporters. Some of the STPs provide incubation
infrastructure to small and medium enterprises, enabling them to commence operation with out any delay. The
STPs are equipped with basic facilities like back-up power, EPABX, security, training aids, library, photocopier,
fax etc. with a built up space of 200,000 sq ft all over India. Due to the weak capital market for the Indian
software industry, lending institutions including banks are reluctant in taking risks especially for new entrepreneurs.
The STPs give an indirect short-term shelter to start-up companies to establish themselves in the market by
reducing the investment required.

The Government has set up 18 STPs in the last nine years in the following places:

SL No. Location SL No. Location

1 Bangalore 10 Jaipur
2 Pune 11 Mumbai
3 Bhubaneswar 12 Coimbatore
4 Hyderabad 13 Manipal
5 Noida 14 Mysore
6 Gandhinagar 15 Guwahati*
7 Thiruvananthapuram 16 Vizag*
8 Chennai 17 Indore*
9 Mohali 18 Calcutta**
* Under implementation ** Under the State Government

The highlights of STP scheme are as follows:

◆ Approval under single window clearance mechanism

◆ 100 per cent foreign equity permitted
◆ Imports in the STP units are completely duty free
◆ Second hand capital goods may also be imported
◆ Custom bonding period shall be 5 years, but may be extended to 10 years in case of products
requiring significant capital investment and infrastructure
◆ Exemption of local taxes for domestic purchases
◆ The sales in the domestic market are permissible up to 50 per cent of the exports
◆ Exemption from corporate income tax for a block of 10 years
◆ The export obligation on net foreign exchange should be US$ 0.25 million or 5 times the CIF value
of the goods imported, whichever is more, to be fulfilled over a period of 5 years.

The most important contribution of STP to the companies is that of providing High Speed Data
Communication (HSDC) services. STP has designed and developed state-of-the-art HSDC Network called SoftNet,
which is available to software exporters at internationally competitive prices. The following services are provided
through the network:

◆ International Private Leased Circuits (IPLCs) in the bandwidth of 64 Kbps to 2 Mbps

◆ Shared Internet services which include:
❏ E-mail
❏ Remote computing
❏ File transfer
❏ Data base access
❏ World Wide Web
◆ International video conferencing service
◆ Web/Home pages-hosting, authoring and maintenance

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 The STP operates through practically all International Telecom Administrations for worldwide connectivity
and is radiating around 53 Mbps and is operating with around 57 carriers from its earth stations for various
destinations.

F. Performance of STP units

The STP scheme has attracted many entrepreneurs in the area of software and services. 1,198 units have
been established so far. Member units have exported software of over US$ 1,430 million during the year
1998-1999, which is about 84 per cent higher than the previous year. The total export figure from the STPs
represents approximately 60 per cent of the national software exports.

The success of STPs in promoting software exports is being extended to other theme parks such as the
Bio-tech Park, leather Park etc. with specialized infrastructure, technology back-up and escort services. The
Ministry of Industry, Government of India, has also assumed the responsibility of setting up industrial parks for
the development of high-tech industries.

III. CATALYTIC FACTORS FOR SUPPORTING AND EXPEDITING

INCUBATION FOR HIGH TECHNOLOGY-BASED ENTERPRISES

A. National policies in industry, science and technology

Some of the special characteristics of the Small Scale Industries (SSI) sector make them unique in the
Indian industrial scenario. These characteristics include the decentralized nature of the sector, small size, greater
reliance on local raw material and indigenous technology, employment intensity and its sustainability in rural
areas with limited use of techno-economic infrastructure. In order to promote industrial growth as also to
determine the patterns of assistance to small industries for fulfilling socio-economic objectives, the Government
of India had issued a series of six Industrial Policy Resolutions/Statements in the last five decades. The type of
incentives extended to the SSIs related to financial, fiscal infrastructural and developmental. These were targeted
at achieving sustainable growth. Incentives were extended either on a “one time” basis or in the form of
“sustained support” for a specific period. While some of the incentives were made applicable to all industrial
units including the large-scale sector, others were available exclusively for the SSIs. The major policy initiatives
taken during the year 1999 include enhancement of loan limit under SIDBI’s Composite Loan Scheme, increase
in turnover ceiling for computation of Working Capital limit, excise duty exceptions, simplification of systems
and procedures, revision in the investment ceiling in plant and machinery for SSI definition and a provision for
launching of a Credit Guarantee Scheme to increase the flow of credit to SSI sector and to resolve the problems
of collaterals.

In order to give a boost to the development of small-scale industries sector in India, the Government
announced a Millennium Mission in December 1999. The main features of the Mission include, amongst others,
the creation of a sound policy environment to enable the SSI sector to cope with the emerging challenges of
globalization. The inflow of Foreign Direct Investment has been taken as a means of infuse additional resources,
technology and modern management practices to make the SSI sector internationally competitive. In the direction
of simplification of complex rules and regulations, it has been proposed to set up a High Powered Committee for
recommending a single comprehensive legislation for the SSI units. To create an appropriate fiscal environment
conducive to the growth of the SSI sector, rationalization of taxes and tariffs has been considered essential. In
addition, the rationalization of subsidies has become necessary to make them WTO compatible looking into the
broader interests of the SSI sector.

In order to boost SSI units in the Information Technology sector and exports, the Government established
a separate Ministry of Information Technology for the promotion of knowledge-based enterprises, Internet,
e-commerce and IT related education in the country. It is also pertinent to mention here that in the Union Budget
2000-2001, a number of incentives have been provided to knowledge-based industries including the IT sector.
The Budget has proposed a reduction of custom duties on several items for the IT sector, which include computers,
mother boards, floppy disks, specified capital goods for manufacture of semi conductors and ICs, micro processors

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for computers, memory storage services, CD ROMs and micro assemblies. With regard to the tax treatment of
Venture Capital Funds, some changes have been proposed in the Union Budget 2000-2001. The principle of
“pass through” has been proposed to be applied in the tax treatment of Venture Capital Funds and the specified
tax rate (since withdrawn) would apply to undistributed income except for the period prescribed in the Security
and Exchange Board of India guidelines. SEBI has been made the single point nodal agency for the registration
and regulation of both domestic and overseas VCFs.

A number of policy decisions and incentives have been taken by the government to promote R&D in
industry. Some of the important decisions are as follows:

(i) A Technology Development Board has been constituted to provide financial assistance to industrial
concerns and other agencies attempting development and commercial application of indigenous technology
or adapting imported technology to wider domestic application. The Board has the following objectives:
◆ To provide equity capital, subject to such conditions as may be determined by regulations, or any
other financial assistance to industrial concerns and other agencies attempting commercial application
of indigenous technology or adapting imported technology for wider domestic applications, and
◆ Provide financial assistance to such research and development institutions engaged in developing
indigenous technology or adaptation of imported technology for commercial application.
(ii) Exemption from excise duty on goods manufactured, based on an indigenously developed know-how and
patented in any country of the European Union, Japan or US. This exemption is valid for three years
from the date of commencement of commercial production.
(iii) Zero customs duty for specified goods imported for use in R&D projects by companies having a recognized
in-house R&D unit and the project partially financed by any government department or agency.
(iv) Commercial R&D companies, which will undertake industrial research as a business, can avail of
a five-year tax holiday under Section 80(1) (A) of the Income Tax Act. The companies, however, will
have to get DSIR approval.
(v) A weighted tax reduction of 125 per cent is admissible to companies for sponsoring research in national
R&D labs, the Indian Institute of Technology (IIT) and universities.
(vi) An accelerated depreciation of 40 per cent on new plant and machinery for manufacturing goods from
indigenous know-how is also admissible.
(vii) Patent Facilitating Cell set up to train scientists and lawyers to obtain global patents on innovations.
(viii) Excise duty waiver on indigenous equipment, spare parts, consumables, and prototypes procured by
non-commercial scientific and industrial research organizations.
(ix) Price control exemption on domestic R&D based bulk drugs.
(x) Promotion of international R&D collaborations at the enterprise/institutional levels.
(xi) Direct funding of R&D projects in industry by governmental departments.
(xii) Incremental rupee incentive for private investment in governmental R&D institution.

B. S&T infrastructure

Since independence, science and technology have received considerable attention and occupied a notable
position in the management structure at the highest level. The Science Policy Resolution (1958) was the first
step towards a commitment for using S&T for the economic development of the country. The announcement of
a technology policy in 1983 was another landmark towards developing indigenous capabilities in S&T in the
country. The major outcome of the efforts of the government is the establishment and evolution of an institutional
framework for science and technology education and R&D. In 1947, there were just 20 universities and
60 national laboratories in India. Today, there are more than 200 universities, 400 national laboratories as well as
1,300 in-house R&D institutions of the industry and over 200 voluntary organizations with S&T involvement.
India possesses competent manpower in all major disciplines of R&D. Six Science Departments have been
created to focus development in the respective areas. In addition, various socio-economic ministries/departments
have separate outlays for S&T.

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 An important recent development has been the rapid growth of consultancy organization providing
engineering, design, construction and consultancy services and which act as an interface between R&D institutions
and industry. The Indian Institutes of Technology (6), the Indian Institute of Science, the Regional Engineering
Colleges (15) also provides consultancy services to industry. The IITs have set up Foundation for Innovation and
Technology Transfer (FITT) for assisting industry in the requirements innovative technologies. Some of the
CSIR laboratories have taken initiatives to launch subsidiary companies to take up equity in companies where
technology transfer is taking place and also nominate the technology developer on the board of the company to
facilitate the technology transfer process. The Defence Research Development Organisation (DRDO) and the
Department of Space have also set up companies to help commercialization of civilian technologies. To encourage
technology transfer from research laboratories to industry, a National Research and Development Corporation
was set up in 1953 with the following activities:

◆ Know-how licensing and transfer of technology

◆ Industrial collaboration and venture capital assistance
◆ Encouraging inventive talent
◆ Technology export

The NRDC acts as a repository of technological innovations, technical guide to entrepreneurs in industrial
pursuits and catalyst for meaningful transfer of need-based technology.

For technology development, the Government of India has mounted vigorous efforts to develop joint
R&D projects with industry and other user agencies. As a result, a number of multi-institutional research
programmes have been initiated in the emerging areas of technology. Some of the selected examples are given
below:

SL No. Technology Agencies

1 Building materials-wood substitute DST, MUD, CSIR
2 Orthopedic devices DST, MOW, DRDO, TIFAC
3 Mini-micro hydel power DST, MNES, STATE
4 Robotics DST, DRDO
5 Compressed natural gas DST, IIT, INDUSTRY
6 Geotech centrifuge DST, DRDO, MHRD
7 CFC substitute DST, IICT, INDUSTRY, TIFAC
8 64-bit Parallel computer DST, NAL, WIPRO, TIFAC
9 CO based chemicals DST, IICT, INDUSTRY, TIFAC
10 High energy magnets DST, NFTDC, DMRL, TIFAC
11 Cobalt recovery DST, HZL, TIFAC
12 Carbon fiber for braiding applications DST, TIFAC, NPL, NRDC
13 Column floatation DST, TIFAC, NPL, NRDC
14 Biofertilizer DST, MOM, TIFAC
15 Rapid diagnostic kits DST, MOM, TIFAC
16 Membrane technology for chlor-alkali DST, BAIF, TIFAC
17 Air pollution control catalysts DST, BAIF, TIFAC
18 Ore separators DST, CECRI, TIFAC
19 Water jet technology manufacturing DST, ACC, TIFAC
20 Titanium and magnesium production DST, BHEL, IIP
21 Laser processing materials DST, DAE, TML
22 Catalytic converters DST, DRDO, DMRL
DST: Department of Science and Technology, MUD: Ministry of Urban Development, CSIR: Council of Scientific and Industrial
Research, MOW: Ministry of Welfare, DRDO: Defence Research Development Organisation, TIFAC: Technology, Information,
Forecast and Assessment Council, MNES: Ministry of Non-conventional Energy Sources, IIT: Indian Institute of Technology, MHRD:
Ministry of Human Resources Development, IICT: Indian Institute of Chemical Technology, NAL: National Aeronautical Laboratory,
NFTDC: Non-Ferrous Technology Development Council, DMRL: Defence Metallurgical Research Laboratory, HZL: Hindustan Zinc
Limited, NPL: National Physical Laboratory, MOM: Ministry of Mines, BAIF: Bharatiya Agro Industries Foundation, CECRI: Central
Electro Chemical Research Institute, ACC: Associate Cement Company, BHEL: Bharat Heavy Electrical Limited, IIP: Indian Institute
of Petroleum, DAE: Department of Atomic Energy, TML: Tamilnadu Minerals Limited.

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 C. Innovative Financing Support System

1. Venture capital

Investment capital is a crucial fuel of the innovation process. Finance is a necessary early input to any
substantial product development. Financial investment in the innovation process consists of three phases:
investment on R&D, design and development; on industrial production; and in marketing. The success of all the
three phases depends upon the availability financial back up. The Indian venture capital industry is very young.
Government of India Guidelines for Venture Capital Funds (VCF) was first issued in 1988. Guidelines for
overseas investors were issued in 1995. The Securities and Exchange Board of India (SEBI) VCF regulations
were issued in 1996. Though young by international comparison, the Indian venture capital industry has matured
fast as a result of the liberalisation processes initiated by the Government of India in the early 1999’s. Today,
there are about 40 VCFs out of which about 20 are members of the Indian Venture Capital Association. The
members of the venture capital association raised US$ 664 million and invested US$ 279 million in 728 companies.
Total venture capital fund corpus in India is expected to touch US$ 1 billion mark during the year 2000 (Report
by Centre for Technology Development). The venture capital activity in India is mainly concentrated in a few
places like Bangalore, Chennai, Mumbai and Delhi and is restricted to the IT industry.

Three Financial Institutions mainly drove the Venture Capital industry, when it started in India, viz.
Industrial Development Bank of India (IDBI), Industrial Credit and Investment Corporation of India (ICICI) and
Industrial Finance Corporation of India (IFCI). More recently the Small Industries Development Bank of India
(SIDBI) has launched a national IT fund of US$ 25 million. In the early 1980’s as a measure of promoting
indigenous technologies and to accelerate R&D efforts within the country the R&D Cess Act started collecting
a Cess on all foreign exchange payments made for technology imports. The Venture Capital Fund, which was
operated by IDBI unto 1994, has assisted 85 enterprises and invested about US$ 15 million in these ventures.

2. Technology Development Board

The Government of India constituted the Technology Development Board in 1996 to encourage
development and commercialization of indigenous technologies and adaptation of imported technologies for
wider applications. The Board provides equity capital or other financial assistance to industrial concerns and
other agencies. The loan from TDB carries a simple interest of 6 per cent per annum, to be repaid in 5 annual
installments starting a year after the successful completion of the project. In the three years that has been
existence, the Board has signed 65 agreements, adding up to a total project costs of US$ 168 million, covering
a wide spectrum of technologies.

3. Programme Aimed at Technological Self Reliance (PATSER)

PATSER is a programme, which aims at promoting and supporting the industry’s efforts in development
of indigenous technologies and absorption of imported technologies. It provides partial financial support to
research, design, and engineering projects undertaken jointly by industry and R&D organizations and academic
institutions. This programme has so far supported more than 100 R&D projects of industrial units. These
projects cover products and processes in various important industries such as metallurgy, electrical, electronics,
instrumentation, mechanical engineering, earth moving and industrial machinery, chemicals and explosives.

4. Technopreneur Promotion Programme (TEPP)

Realizing the importance of innovative and inventive minds to meet the challenges of changing industrial
and technological requirements of the country, the Ministry of Science and Technology, Government of India,
initiated a programme title “Technopreneur Promotion Programme”. TEPP aims to assist and promote individual
innovators/investors in the categories like farmers, students, scientists, engineers, doctors, and technicians etc. to
translate their innovative ideas for the development of working prototypes/processes. TEPP is crucial for individual
innovators to become technology-based entrepreneurs. It also acts as an interface to enable innovators to avail of
the other support mechanisms to scale up their successful development further. Thus, the basic philosophy of
TEPP is being one of turning grassroots innovators into technology-based entrepreneurs.

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 Financial support under the scheme is limited to the maximum of 90 per cent of the project cost. The
remaining 10 per cent is to be borne by the entrepreneur. Apart from this, TEPP also provides assistance in
patent support and guidance, scientific and technical consultancy, fabrication assistance, market information and
networking with research laboratories etc. in specific areas and needs.

5. Home Grown Technology Programme

The Home Grown Technology (HGT) Programme is a major mechanism for supporting the
commercialization of technologies developed by indigenous R&D. HGT programme assists to reach technologies
from bench scale level to pilot scale or semi commercial level. In the process, it catalyses research and development
efforts in the country and fosters closer linkages between R&D/technology institutions and the Indian industry.
It also encourages multi-institutional funding for the technology projects, so that at various stages of the innovation
chain, the entrepreneur may avail of assistance from more than one agency. HGT also provides financial,
techno-managerial and patent related support to deserving technology development projects. The financial support
under this scheme is limited to 50 per cent of the project cost. The support is available for the technology
development component, and the expenditure for infrastructure on civil works is not considered as part of the
HGT project cost. It is necessary that the industrial partner or a major user must contribute 25 per cent of the
total project cost. The rest, he may arrange from the financial institutions.

The HGT programme has been successful in spawning a new confidence in Indian entrepreneurs and
R&D laboratories to develop modern technological innovations and implement them on commercial scale.

D. Intellectual Property Assistance

Being a member of the World Trade Organisation (WTO), India considers patents, copyright, trademark,
industrial design, geographical indications, and protection of IC layout designs and undisclosed information as
the constituents of the term intellectual property rights. India has its intellectual property laws in place in respect
of patents, copyrights, industrial designs and trademarks. The laws are equally applicable to all those who seek
protection under these laws irrespective of the countries they belong to. The Parliament of India has approved
new laws in respect of trademarks and geographical indications. Draft legislation for protecting IC layout
designs is under consideration of the government. However, it may be mentioned here that the Indian courts do
examine issues related to wrongful disclosure of information under the common law. India is availing itself of
the transition periods due, under Article 65 of the TRIPS Agreement to meet obligations under the seven areas
covered by the Agreement.

A Patent Facilitating Centre has been set up under the Ministry of Science and Technology to assist
scientists, engineers and other inventors on all matters related to patents. The major objectives of the PFC are as
follows:

◆ Introducing patent information as a vital input in the process of promotion of R&D programmes;
◆ Providing patent facilities to scientists and technologists in the country for Indian and foreign
patents on a sustained basis;
◆ Keep a watch on developments in the area of IPR and make important issues known to policy
makers, scientists, industry, etc;
◆ Creating awareness and understanding relating to patents and the challenges and opportunities in
this area including arranging workshops, seminars, conference, etc.

A number of facilities have been created under the PFC, which include, among others, patent search
facilities for Indian, The United States of America and European patents, data bases on Indian patent applications,
mechanism for obtaining full text patent documents and patent searching elsewhere, panel of patent attorneys,
panel of expert faculty for patent awareness work shops, and a free of cost bulletin on IPR.

Similar facilitating mechanisms are available in other scientific departments of the Government of India
such as the Department of Industrial and Scientific Research (DSIR), Department of Biotechnology (DBT),
Department of Atomic Energy (DAE), Department of Space (DOS), and the Department of Agriculture.

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 IV. FUTURE PLANS FOR INDIA

India has formulated a scheme under the aegis of the National Science and Technology Entrepreneurship
Development Board to set up Technology Business Incubators in the country. One project has already been
approved to be located in NOIDA, close to New Delhi. Under support from UNDP sponsored programme on
Technology Management, it is proposed to set up two TBIs (one attached to IIT, New Delhi on IT and another in
the Southern part of India on biotechnology). In addition, several privately managed incubators are being set up
in different parts of India.

V. CONCLUSIONS

Effective Planning and execution alone would not make TBIs a success. The presence of an outstanding
R&D institution alone does not cause the development of high technology industries. The TBIs and the host
institution are envisaged as a service function that can strengthen the trend towards high technology business and
entrepreneurship, but they cannot create the trend. If TBIs are to be of significant value in promoting industries
and generating jobs, the economic and cultural seedbeds need careful preparation to receive the entrepreneurial
seed. The three important factors that can affect TBI movement are:

◆ Freedom given to the S&T community to enter into this activity

◆ Availability of financial support
◆ An industrial cultural milieu.

The government, financial institutions and university all have a significant role to play in creating
an environment conducive to the growth of TBIs and high technology industries. At the same time, TBIs alone
are not sufficient to stimulate advanced technology development. Rather, TBIs are one of the services that the
community possesses to create a growing, advanced technology industry. Various other complementary methods
of university – industry linkages have also to be developed.

REFERENCES

Lalkaka, Rustam, 1996. Technology Business Incubators: Critical Determinants of Success (The New York
Academy of Science).
UNDP, 1996. Business Incubators in Economic Development.
SIDBI, 2000. SIDBI Report on Small Scale Industries Sector.
Menon, P.K.B., 1995. The Role of STEPs in Technology Development, Technical Entrepreneurship (New Delhi,
Allied Publishers Ltd.).
India, Department of Scientific and Industrial Research, Annual Report: 1999-2000 (New Delhi).
Centre for Technology Development, 2000. Technology Financing in India: A Discussion Paper (Bangalore).
India, Ministry of Information Technology, 2000. “Software Technology Parks of India”, STPI Update.

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IV. STRENGTHENING TECHNOLOGY INCUBATION SYSTEM
FOR CREATING HIGH TECHNOLOGY-BASED ENTERPRISES
IN MALAYSIA

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 I. INTRODUCTION

This document describes the technology incubator programmes in Malaysia, the overall Government
framework under which they are coordinated, their strategic direction and objectives, the industries to which they
are targeted, funding and support, their performance benchmarks, and the results achieved to date.

The document is intended to provide the Regional Consultative Meeting with an overview of the successful
implementation of the incubator enterprises in Malaysia as a contribution to the regional development of similar
programmes in countries with developing economies.

The need for technology incubator programme is created by two fundamental forces:

◆ Demand from industry for skilled human resources to enable it to become more competitive in
a world where technological competence is often a critical success factor.
◆ Strategic direction from Government to improve technology industries as the key to national economic
development.

The pre requisites for a successful national incubation programme are:

(a) Government Strategy

(b) Capital Support
(c) Graduate Source
(d) Technology Facilities

The drawing below illustrates the pre requisites for a successful national incubation programme.

Government strategy and active support are essential if there is to be a coordinated and committed
nationwide effort to stimulate and sustain the growth of technology industries. The Government can provide land
and money in terms of development funds to establish science parks. They also provide an important source of
financial support in terms of grants and funds to promote enterpreneurship. The government’s role also includes
establishing policy, industry liaison and monitoring the performance of the various incubator activities set up.

The incubators will require access to investment funds and should basically be non-profit making bodies,
although they may also generate revenue by taking equity positions in start-up companies that they have incubated.
Funding may come from several sources from private venture capital to direct subsidy by government.

GOVERNMENT
STRATEGY

CAPITAL
SUPPORT

GRADUATE TECHNOLOGY
SOURCE INCUBATORS INDUSTRIES

TECHNOLOGY/
SCIENCE PARKS

Diagram 1. Pre-requisites of successful national incubation programme

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 There should be a clear and well-established linkage between the incubators and the technology universities
or research institutes since a ready supply of well-qualified graduates is essential to seed the incubator programme.
The universities and research institutes provide R&D facilities and source of knowledge, knowledge workers and
spin-offs. Physically locating the incubator facilities adjacent to universities facilitates this.

Incubators with state-of-the-art R&D facilities or technology infrastructure including access to research
data, computer and high-bandwidth Internet connectivity, communications, physical space, and convenient facilities
are also essential for the programme.

The way in which Malaysia addresses these requirements are described in this paper.

II. GOALS OF TECHNOLOGY INCUBATORS AND

BUSINESS INCUBATORS IN MALAYSIA

In Malaysia, Small to Medium Enterprises (SMEs) constitute about 91 per cent of the total establishments
in the manufacturing sector. They play a vital role in overall economic development, contributing significantly to
the employment, added value and output of the manufacturing sector. The SMEs are defined by the Ministry of
International Trade and Industry, Malaysia as companies with not more than 150 full-time employees and with
an annual sales turnover not exceeding RM 25 million (1 US$ = RM 3.8).

The contribution from the SMEs in the manufacturing sector’s output was 15.8 per cent in 1998 with
the highest concentration in food processing (17.4 per cent), apparels (16 per cent), fabricated metal products
(12 per cent), furniture and fixtures (8.4 per cent), wood and wood products (6.7 per cent) and industrial machinery
(4.8 per cent). Although SMEs represented the majority of the manufacturing establishments, their contribution
to total value-added and employment was 20.1 per cent and 29.9 per cent respectively. This indicated that they
were relatively less effective due to the smallness of their size, which constrained them from adopting advanced
technology, employing higher skilled workers, increasing their production capacity, expanding their market and
achieving economies of scale.

There are many opportunities to develop SMEs. The development strategies for SMEs during the Seventh
Malaysia Plan (1996-2000) period emphasized the development of domestic market-oriented, small-scale industries.
During this period particular support was given to the development of SMEs which exhibited strong growth
potential by promoting production efficiency and consolidating, strengthening and extending their outreach.
Additional funding was also provided to promote medium-scale industries exhibiting strong growth potential.

The Second Industrial Master Plan for the period 1996-2005 adopted a cluster-based industrial
development approach to sustain and enhance the growth momentum of the manufacturing sector and to develop
a broad-based, resilient and internationally competitive industrial sector. The cluster-based concept not only
emphasizes the growth of the manufacturing sector but, more importantly, the concomitant growth of the supporting
industries, including those in the services sector, which will fuel the engine of growth for the economy.

The cluster-based industrial development provides for the full integration of operations along the
manufacturing value chain with a deepening and broadening of industrial linkages based on a comprehensive and
integrated network of activities. The manufacturing orientation emphasizes full integration of manufacturing
operations through the value chain in order to enhance industrial linkages, increase productivity and expand the
range of business activities. This approach enables SMEs to achieve economies of scale to improve their
efficiency and competitiveness, to become key suppliers to locally based larger firms and the export market and
to fulfil a wide range of needs in the industrial spectrum.

Economic planning in Malaysia has therefore recognized the critical importance of encouraging the
establishment of SMEs and sustaining their growth from fledgling start-ups to profitable businesses playing
a leading role in the nation’s industrialization. The Government is committed to an integrated and comprehensive
programme to incubate the SMEs through:

◆ Measures and programmes to enhance the supply and the quality of the requisite human resources
◆ Development of indigenous research and development (R&D) capability and technology
◆ Access to new processes and technology existing in the market

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 ◆ Adequate supply of both hard and soft infrastructure
◆ Efficient administrative and business support services.

The specific objectives of the incubator programme are to:

◆ Support and sustain university research and development programmes directed towards knowledge
based disciplines
◆ To encourage and facilitate the formation and growth of the new businesses based upon the research
knowledge and expertise available within a university or other centre of research
◆ Assist and support start-up companies meeting the technological criteria to achieve financial
break-even within 3 years of engagement with the incubator
◆ Provide business management training for selected entrepreneurs
◆ Establish knowledge-sharing networks between universities, incubators, and established technological
industries.

To achieve these objectives, the incubators share the following roles and responsibilities:

◆ Define their technological sphere of interest under the aegis of the seven critical national development
plans
◆ Screen business plans for candidate businesses and select the businesses meeting development criteria
of originality, practicality and financial credibility
◆ Provide incubator accommodation, including computer facilities, research access, Internet access
and communications on a flexible, affordable and temporary basis
◆ Provide common services, including secretarial support and shared use of office equipment and
machinery
◆ Make funding available on a commercial basis, such as convertible loans, venture capital and equity
investment, linked to business performance objectives
◆ Provide business management training, including planning, financial control, project management,
sales and marketing
◆ Assist with the preparation of detailed business plans
◆ Assist with identification of markets and distribution channels
◆ After-care and outreach services, providing assistance to tenants after they graduate.

III. CATALYTIC FACTORS FOR SUPPORTING AND

EXPEDITING TECHNOLOGY INCUBATION FOR
HIGH TECHNOLOGY-BASED ENTERPRISES

A. National policy supporting incubators

In the late 1970’s and early 1980’s the Malaysian Government decided to introduce structural changes to
the economy with the intention of transforming it from an agricultural base to a manufacturing base. The
changes would progressively introduce industrialization, shifting the economy from import-substitution emphasis
and expansion of light industries to export-orientated development strategies through investment in medium scale
industrial enterprises. The changes would be followed by increasing the focus on high-technology, labour-saving
industries.

A key element of this strategic change was the development in 1986 of the First National Science and
Technology Policy, outlining a framework for science and technology (S&T) development in Malaysia. The
goals were to ensure achievement of continuous scientific and technological developments that support and
expedite economic growth, to accelerate industrial development and to promote a scientifically and technologically
advanced society.

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 The National Science and Technology Policy was then incorporated into the Fifth Malaysia Plan
(1986-1990) in which the role of science and technology was to increase the productivity in the agricultural
sector, to enhance resource-based industries and to progressively expand the manufacturing base to include heavy
and high-tech industries.

During this time a number of institutions were established to stimulate technology-oriented activities.
These included Malaysian Technology Development Corporation (MTDC), Technology Park Malaysia (TPM)
and university incubators. Various committees and groups as well as funds such as Industry Research and
Development Grant Schemes (IGS), Intensification of Research in Priority Areas Fund (IRPA), Technology
Acquisition Fund (TAF), Multimedia Super Corridor Research and Development Grant Scheme (MGS),
Demonstrator Application Grant Scheme (DAGS), Malaysian Exchange of Securities Dealing & Automated
Quotation (MESDAQ) were also set up to support the commercialization of research and technology. The
Government also established committees and working bodies to encourage cooperation between the public and
private sectors to promote technology management, private sector partnerships (national and international) for
technology acquisition and transfer and for business development.

In 1991, the National Action Plan for Industrial Technology Development was launched. This plan
outlined the strategies for strengthening science and technology capabilities to overcome the structural weakness
that have been associated with the national industrial development.

During the Sixth Malaysia Plan (1991-1995) the goals set for science and technology were to obtain
a continuous scientific and technology development in Malaysia by providing the basic infrastructure incentives
and supporting services to science and technology. Emphasis was made to ensure that public R&D programmes
become more market-oriented by exploiting the commercialization of research and technology. The private
sector, on the other hand, is expected to complement the Government in expanding the R&D and science and
technology using appropriate technology assimilation, diffusion and application. The launching of Vision 2020
in 1990 provided a broad framework for the incorporation of science and technology into the other sector bodies.

The diagram 2 provides a schematic view of the Government’s strategy and direction towards driving the
nation’s emphasis on science and technology.

In an effort to further coordinate science and technology development, several major industrial technology
institutes such as Malaysian Institute of Microelectronic Systems (MIMOS), Standards and Industrial Research
Institute of Malaysia (SIRIM), Malaysian Institute for Nuclear Technology (MINT) and Technology Park Malaysia
(TPM) were placed under the supervision of the Ministry of Science, Technology and the Environment. The
National Council for Scientific Research and Development established in 1975 was then reformed to include
more private sector representatives. The new policy-making bodies such as Malaysian Industry Government
Group for High-Technology (MIGHT) and the Malaysian Business Council were also created.

During the period of the Seventh Malaysia Plan (1996-2000) the focus was for development was on
achieving economic growth and competitiveness by increasing productivity. It was recognized that Malaysia
needed to develop its technology infrastructure further and expand its capacity for technology adoption and
assimilation. The principal objectives in the Plan for upgrading science and technology activities are:

◆ Implementation of appropriate policies and institutional reforms

◆ Optimizing the use of skills and capital
◆ Increasing investments in R&D
◆ Building domestic technological capability in new enabling technologies
◆ Cooperation in R&D and technology development between universities, research institutions and
industries.

The initiatives undertaken to achieve these objectives are the principal catalytic factors supporting and
expediting technology incubation for high technology based enterprises in Malaysia.

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 B. Science and technology infrastructure, R&D institutions and parks

The First National Science and Technology Policy, introduced in 1986, created the framework for
a coherent and integrated national infrastructure for the incubator programme. Since then, through the inclusion
of science and technology infrastructure in all national development planning, (Fifth Malaysia Plan, Sixth Malaysia
Plan, Seventh Malaysia Plan, Vision 2020), the Government has successfully achieved the following:

◆ Establishment of a formal Science and Technology Advisory System, providing a flow of information
between science and technology sector and other sectors
◆ High level coordination of the planning and implementation of infrastructure development through
Government agencies
◆ Implementation of soft and hard infrastructure, including popularization of science
◆ Combined funding and management programmes for R&D through IRPA and industry groups
◆ Introduction of a process for the commercialization of research and technology
◆ The integration of human resource development through education, training and skill acquisition by
various ministries, agencies and international institutions.

VISION 2020

NATIONAL POLICY
FOR SCIENCE
AND TECHNOLOGY

MAJOR THEMES

COMPETI- WEALTH KNOWLEDGE LIFE

TIVENESS CREATION ACCUMULATION QUALITY

KEY DEVELOPMENT PLANS

BIO- ADVANCED INFORMATION PHARMA-

TECHNOLOGY MANUFACT. TECHNOLOGY CEUTICALS

ADVANCED MICRO-
AEROSPACE
MATERIALS ELECTRONICS

EDUCATION INCUBATORS INVESTMENT

KEY DRIVERS
Diagram 2. Malaysian Government’s strategy and direction towards driving
the nations’ emphasis on science and technology

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 1. Incubators in Malaysia

There are now many well-established incubators operating in Malaysia at technology parks and university
campuses. These bodies provide support to nurture new start-up technology-based companies. As part of this
strategy, collaborative activities through smart partnerships between the government, research institutions,
universities and incubator owners help to promote and further accelerate the growth of technology-based companies.
Smart partnerships through technology business incubators have emerged as useful instruments that will contribute
towards increasing the local content in industry and the development of innovative products, processes and
services, particularly in the knowledge economy. The various incubators found in Malaysia include:

(a) Technology Park Malaysia Corporation (TPM)

This was the first science-park established in Malaysia, with the objective of being the best in providing
a first class infrastructure and services for technological innovation and R&D to enable high-tech enterprises to
grow and compete in the global market. TPM focuses on three broad areas: manufacturing and industrial
engineering, information technology, and multimedia and biotechnology, with emphasis on R&D commercialization
and human resource development.

The incubator concept in TPM are categorized into three categories:

(i) Innovation House (for individual entrepreneurs, scientists, software writers, innovators and
start-up entities at pre-production stage)
(ii) Incubator Centres (for individuals and companies expanding from the prototype and pre-production
stage through to market testing and production)
(iii) Enterprise House (for medium-sized companies or R&D wings of large companies or enterprise
expanding from the other TPM facilities)

(b) MTDC Incubation Centres

In line with MTDC’s objectives, MTDC Incubation Centres were set-up to enhance the technology
development activities through collaboration with universities. This will provide the universities with source of
recurring income, further streamline the activities of MTDC/universities spin-off companies within the university
campuses and provide closer relation with the host-universities.

(c) SIRIM Industrial Incubator

SIRIM’s Industrial Incubator’s areas of focus are Advanced Manufacturing Technology (Industrial
Automation/Mechatronic, Industrial & Engineering Design, CAD/CAM, Industrial Instrumentation & Electronic
and Artificial Intelligence System, Process Technology and Advanced Materials.

(d) MSC Central Incubator (MCI)

MCI began operation in mid-1999. It offers 40 cubicles and 20 executive offices, 29,000 sq ft of general
office space and 10,000 sq ft of laboratory office space, all designed to assist in R&D while providing market
exposure to tenants. Because of its unique position within the MSC, the Central Incubator Programme is also
expected to attract investors interested in new, innovative, commercially viable products. The Incubator aims to
create over 1,000 technopreneurs in IT and multimedia by 2003.

(e) Kulim Hi-Tech Park

Officially opened in 1993, Kulim Hi-Tech Park is a state-owned technology park. It incorporates several
functions: industrial, research and development facilities, new township concept with shopping centres, medical
and educational institutions and recreational facilities.

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 C. Technical entrepreneur development

The Government sponsored incubators in Malaysia all include entrepreneurial training in some form
primarily in the areas of enhancement of technical skills and upgrading of business and financial knowledge,
arrangement of seminars, workshops and forums. In general young entrepreneurs are technologically aware and
qualified but lack the experience required to plan and build business operations around the technological concept
of design they wish to develop. Training courses for young entrepreneurs include:

◆ Preparation for business justification

◆ Estimating the financial performance and investment required
◆ Creating functional organizations and defining their performance objectives
◆ Recruiting, focussing and motivating people
◆ Supply and demand contracting
◆ Working with shareholders and stakeholders.

A typical example is the support to incubator start-ups provided by the SIRIM Industrial Incubation
facility. The facility offers courses in Entrepreneur Development to help entrepreneurs develop innovative
concepts, build competence and enhance their knowledge. It also has “SMI Development” such as providing
hands-on technical training to help clients with the development of technological skills and to build quality
assurance into production processes. These are supported by advisory services on technology, quality, management,
financial, marketing, intellectual property advice and patent search.

At Technology Park Malaysia (TPM) such technical entrepreneur development is provided through TPM
Academy, the training arm of TPM through its ‘Teaching Factory Concept’. The Academy offers hands-on
technical courses in Robotics, CAD/CAM, CNC and Flexible Manufacturing Systems. Other courses in Business
Skills and Project Management are also available with workshops on Commercialization of R&D, obtaining
Venture Capital, and IT and Multimedia. TPM also provides financial support to its research officers to pursue
postgraduate courses for Master degree and Ph.D.

MSC Central Incubator’s support on technical entrepreneur development is in the form of free training
and seminars/workshops by consultants to its resident incubator tenants through a membership programme.

D. Innovative financing support system

1. Financial support for incubating activities

There are several fiscal and financial incentives provided by the Government to contribute to the successful
development of science and technology, managed by the National Council for Scientific Research and Development.
The following existing financial support schemes can be acquired by the start-up companies in the incubators in
Malaysia. The following funds have been introduced:

(a) Intensification of Research in Priority Areas Fund (IRPA Fund):

Initially the IRPA Programme was established to provide funds to support R&D in the public sector for
improvements in the socio-economic fields. It has now evolved to focus on R&D activities that are in line with
the national R&D Priority Areas. Public research institutions and universities are eligible to apply for these
funds.

Table 1 shows the amount allocated in the IRPA programme.

At a later stage the programme was then extended to the private sector through various schemes known
as Industry Research and Development Grant Scheme (IGS), Multimedia Super Corridor Research and Development
Grant Scheme (MGS) and the Demonstrator Application Grant Scheme (DAGS).

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 Table 1. Amount allocated under the IRPA programme
Amount allocated
Period
(US$ million)
Fifth Malaysia Plan (1986-1990) 173
Sixth Malaysia Plan (1991-1995) 245
Seventh Malaysia Plan (1996-2000) 417 000
Source: National Survey of Research and Development, Malaysia Science and Technology
Information Centre (MASTIC)

(b) Industry Research and Development Grant Scheme (IGS)

The purpose of IGS is to increase the private sector R&D and promote closer cooperation between the
private sector and public sector institutions and public sector universities through collaborative linkage. The
aim is to encourage Malaysian companies to be more innovative in pursuing and adopting existing technologies
and in creating new technologies, products and processes to benefit the national economy. The key technology
areas that are given priority are the ones that support the Industrial Plan to foster clusters of small companies in
complementary industries with good prospects for commercialization.

(c) Multimedia Super Corridor Research and Development Grant Scheme (MGS)

The purpose of the MGS is to help start-up and young local companies, including joint ventures, to
develop multimedia technologies and applications that contribute to the overall development of the Multimedia
Super Corridor.

(d) Demonstrator Application Grant Scheme (DAGS)

The purpose of DAGS is to encourage Malaysians to adapt and customize existing IT and multimedia
technologies in applications compatible with local culture and to promote the development of local software and
content industries for greater competitiveness in the global market.

(e) Technology Acquisition Fund (TAF)

This fund will provide partial grants ranging from 50-70 per cent to majority Malaysian owned companies
which undertake technology acquisition activities as outlined in the List of Promoted Activities and Products
for High Technology Companies under the Promotion of Investment Act 1986 and other strategic industries
as approved by the Government. The technology activities eligible for partial funding includes purchase of
high-tech equipment and machinery, technology licensing, acquisition of patent rights, prototypes and design,
expert-sourcing programme.

(f) Commercialization of R&D Fund (CRDF)

The fund will provide partial grants ranging form 50-70 per cent to majority Malaysia owned companies
incorporated under the Companies Act 1965 to commercialize research results. The activities eligible under the
partial funding include market survey and research, product or process design and development, standards and
regulatory compliance, and intellectual property protection.

2. Funding for the development of human resource skill

Additional Government funding is also provided for developing the human resource skill. This scheme
is referred to as Human Resource Development Scheme. There are three types of funds available:

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(a) Science and Technology Development Fund (S&T HRD Fund)

The S&T HRD fund was set up to create a pool of skilled and trained S&T manpower among professional
and supporting staffs of Government department, public research institutions, universities and Government research
institutions.

(b) National Science Fellowship (NSF)

The NSF scheme is intended to enhance the number of skilled and qualified R&D researchers in the
selected fields and to create a pool of “critical mass” in less researched fields and to encourage bright graduates
to be involved in S&T research.

(c) Postgraduate and Post Doctoral Program (PPP)

The PPP scheme is intended to increase human resource skills and expertise in advanced technology
areas to support and enhance R&D excellence of the public institutions of higher learning.

3. Tax incentives

There are various fiscal incentive packages available to incubators that have been introduced by the
Government to promote high technology and R&D activities. The tax incentives can be both direct and indirect
and cover the manufacturing, agriculture and tourism sectors. These are provided under the Promotion of
Investments Acts 1986, Income Tax Act 1967, Customs Act 1967, Sales Tax Act 1972 and Excise Act 1976. The
direct incentives are designed to grant partial or total relief from payment of income tax for a limited period of
time. Indirect tax incentives are given in the form of import duty, sales tax and excise duty. There are several
categories of incentives provided:
(a) Manufacturing Sector
(b) High Technology Industries
(c) Strategic Projects
(d) Agricultural Sector
(e) Tourism
(f) R&D
(g) Software Development
(h) Use of Information Technology
(i) Multimedia Super Corridor (MSC)
(j) Acquiring Proprietary Rights
(k) Training
(l) Storage, Treatment and Disposal of Toxic and Hazardous Wastes
(m) Operational Headquarters (OHQ)
(n) International Procurement Centres
(o) Approved Service Projects
(p) Shipping Industry
(q) Tariff Related Incentives

For more details please refer to publication by Malaysian Industrial Development Authority (MIDA) –
“Investment in The Manufacturing Sector-Policies, Incentives and Facilities Malaysia”.

4. Venture capital (VC)

Venture capital began to take root in Malaysia in 1984, with the first being the establishment of Malaysian
Ventures Berhad, with a fund of RM 14 million (US$ 6 million). The development of venture capital in
Malaysia was initially slow with the second fund set only in 1989.

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 To enhance the growth of this industry, the Malaysian Government liberalized the requirements for
venture capital companies, allowing them to invest 100 per cent of their funds in venture capital involved in the
high-risk and new-technology projects. Later, the qualifying evolved to require 75 per cent of total funds to
consist of holding shares in new ventures.

Prudent macroeconomic management and specific tax incentives for the venture capital industry has
helped the industry to register a steady and manageable growth. The fund sizes for some years are shown in the
table below:

Table 2. Fund sizes of venture capital in Malaysia for some years

Year No. of VC companies Fund size
1990 6 RM 93 million (US$ 39 million)
1992 12 RM 350 million (US$ 146 million)
1996 na RM 951 million (US$ 396 million)
1999 33 RM 1.7 billion (US$ 0.7 billion)
Source: Commerce Asset Ventures Malaysia

E. Technical consultant assistance

1. Search for expertise for technology and research

Close links are established between the incubators and universities, research and innovation centres,
faculties, tenants, Government agencies and research institutes and the Government Ministries. These links
enable the incubators to notify these institutions when they require expert support in technology and research and
to negotiate agreements on the means by which this support may be made available to them.

There are also procedures to ensure that access to foreign technology expertise through trade missions,
exhibitions, seminar, forums and Governmental links to Malaysia is available to the incubators. For example, in
the case of visits from overseas, the procedures ensure that visitors meet the appropriate technology agencies to
maximize the interchange of information and expertise.

2. Search for individual experts

Incubators advertise to attract the attention of candidates and receive business plans for review. The
prime role of the incubators is to identify entrepreneurs with a promising business proposition, support them to
develop the proposition to the point of launching a product or service to the market, and to sustain their operations
until they are financially viable.

The key input to this process is a business plan outlining the proposition, describing the product or
service and the market to which it will be sold, and a financial analysis estimating the revenues, the capital and
operational expenditures and the potential profitability. If a plan offers good potential for implementation and the
entrepreneurial sponsors are credible, competent and committed to it, incubators will commence the process of
setting up the support environment.

Key criteria used for this assessment are:

◆ Nature of the technology product or service, originality and functionality

◆ Customer base, potential demand, sales channels, pricing and promotion
◆ Degree of difficulty in developing concept, competencies required
◆ Suitability of business plan originators, experience, qualifications and commitment
◆ Development costs and funding required
◆ Duration of the incubation period
◆ Financial estimates of sales, revenues, expenditures, cash flow, profitability.

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 The process is shown below:

REQUEST FOR
BUSINESS PLANS

SUBMIT
PLAN

REVIEW
PLAN
DECLINE

IS PLAN
YES NO
COMMERCIALLY
VIABLE?

YES ARE SPONSORS NO

CREDIBLE?

APPOINT ARRANGE PROVIDE

PROG. MGR FUNDING ACCOMMODATION

Diagram 3. Process of identifying potential entrepreneurs

3. Establishment of cooperative research relationships with R&D institutions

Through the various Government agencies and committees described in chapter III, the institutions that
undertake R&D, including universities, established commercial enterprises, and Government corporations, contribute
to the incubator programme by:

◆ Outlining their respective areas of interest and competence for R&D projects
◆ Circulating these profiles to the sponsoring organizations for incubators
◆ Assisting with the screening of incubator business plans to identify complementary opportunities
with their spheres of influence
◆ Providing expertise and guidance to selected incubator projects.

The concept is to provide direct assistance to incubators supporting the commercial development of
complementary businesses rather than to create joint research programmes.

4. Means of access to science and technology, expertise and facilities provided

by the incubators

A typical example of the facilities available to incubators for access to science and technology, expertise
and facilities to start-ups is the incubator system in Technology Park Malaysia. TPM provides an advanced
manufacturing automation technology facility referred to as the MASTERCentre. This state-of-the-art facility is
also made available to other SMEs and large foreign multinationals. The services in the facility include design,
manufacturing, rental of engineering facilities and equipment and customized training and technical consulting
with their qualified professionals. The facilities range from CAD/CAM lab, Rapid Prototyping, Product
Manufacturing, Robotics and FMS, Metrology/QC lab and storage.

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 A similar technology facility is also provided in SIRIM Industrial Incubator which includes full assistance
and technical advice from a pool of experienced consultants. As an extension to that facility, SIRIM, through
a collaboration efforts with other Government agencies, disburses grants known as the Industrial Technical
Assistance Fund (ITAF) set up by the Government since 1990 to qualified SMEs as a means to enhance the
development of SMEs and as well as start-up companies in their incubators.

F. Strategic business alliance, collaborations, networking

and structural relationships

1. Business alliances and collaborations

Collaborative efforts undertaken by incubators in Malaysia, such as SIRIM, TPM, MTDC and MCI all
include establishing smart partnerships with research institutions and universities to develop technology-oriented
SMEs with product development, designing and prototyping capabilities. This is accomplished through upgrading
of knowledge and enhancing technical skills among SMEs in critical areas such as Advanced Materials (Ceramic,
Ceramics and Metals), Chemical and Industrial Biotechnology, Advanced Manufacturing (Industrial Automation
and Mechatronics, Industrial Instrumentation and Electronics, CAD/CAM, Artificial Intelligence and Engineering
Services and IT and Multimedia.

Additionally, collaborative efforts by incubators such as TPM, SIRIM and MTDC, working closely with
supportive government ministries, State Economic Development Corporations (SEDCs) and international agencies
such as Japanese Trade Organization (JETRO) and the Ministry of Entrepreneurial Development, establish
a supportive framework for knowledge and resource sharing. This framework creates synergy in providing
technology and expertise to start-ups. Some of the initiatives to disseminate technology and commercialization
expertise are undertaken through forums, seminars and workshops. The general target groups are young graduates,
retiring government officers, uniform groups, mentor-mentored and chamber of commerce. Product enhancement
efforts are initiated through Value Engineering activities and product specification and standards development,
which cater for export markets.

2. Networking and structural relationships

Extensive networks at many levels operate in Malaysia to support the incubator programme, providing
a strategic, political, financial, administrative and infrastructure framework within which they can operate efficiently.

The primary networks and their contributors are shown in the diagram 4.

These networks are enhanced by the creation of smart partnerships – a platform whereby technopreneurs
with bright ideas can meet businessmen willing to invest in their ideas and business plans.

Since incubators are, in most cases, sponsored and supported by the major science and technology
organizations in Malaysia, such as TPM, MDC and the universities, this establishes structural relationships to
ensure they receive appropriate level of support and investment.

Most of the incubators are located in close proximity to research institutes, or within the campuses of
universities, and have direct access to technology expertise, R&D programmes, advanced research facilities,
management and administrative support. Many are also strategically located within the nation’s Multimedia
Super Corridor (MSC) near the nation’s new administrative centre, Putrajaya, and numerous expressways giving
easy access to the marketing network and distribution channel.

There is also a national policy, sponsored and actively supported by the Government, to encourage
“Smart Partnership” within public-private sector cooperation in promoting technology management best practice,
partnerships (national and international) in technology acquisition and transfer and business development through
such organizations as the Commonwealth Partnership for Technology Management (CPTM) and Malaysian Industry
Government Group for High-Technology (MIGHT).

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 R&D
UNIVERSITIES
COMPANIES

KNOWLEDGE
NETWORK

GOVT. VENTURE

INFRASTRUCTURE
CORPS CAPITALISTS

INVESTMENT
NETWORK

NETWORK
INCUBATORS

BUSINESS GOVT.
FACILITIES AGENCIES

STRATEGY &
POLICY NETWORK

GOVERNMENT PLANNING
CORPS

Diagram 4. Networking and structural relationship between incubators,

universities, Government and supporting services

G. Marketing arm or links with suppliers and customers

Nearly all incubators are supported by a marketing function to help the incubating businesses create
relationships with their suppliers and customers. This function performs the following services for incubators:
access to supplier databases in each product category with product description, price ranges, delivery times and
contact data.

At the national level, on the other hand, the Government has taken steps to enable the Malaysian businesses
to promote their products and services to the global market. This is achieved through the Government agency
under the Multimedia Super Corridor initiatives (Multimedia Development Corporation). Under the programme
known as the Malaysia Trade Electronic (MteX), a business to business electronic commerce site will be established
and any Malaysian business can utilize this platform as an avenue to promote its products and services to the
global market. This platform also allows electronic transaction to be performed between Malaysian businesses
and their clients. These facilities can also be utilized by start-up companies in incubators to market their
products and services at minimum cost.

IV. RECOMMENDATIONS FOR FUTURE ACTION

In Malaysia, continuous improvements, new avenues and strategies to existing programmes are being
pursued to positively reinforce successful technology business incubators. These are some of our recommendations
for the success of incubator efforts:

Continuing government support: For the maximum cumulative benefit from the incubator programmes, the
Government must provide the appropriate degree of strategic, legal, financial and administrative support.

University involvement: The success of the incubator programmes depends to a great extent on the availability
of graduates, access to research and development facilities and an environment of intellectual creativity.
Close proximity to university premises is therefore, essential to satisfy these requirements.

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Collaboration and networking: There should be a mechanism for reinforcement of formal and informal
networking between industries, universities, research institutions and the incubators to maximize the
productive flow of ideas, share research, provide mutual support and encouragement and to assist with
the evolution of the incubating businesses from start-up mode to sustainable profitability.

Experienced incubator management: A team of experienced and well-trained incubator managers available
full-time to render continuous support, coaching, mentoring and motivation to start-up companies.

Tenant entry and exit criteria to be clearly defined: This is to ensure transparency and regular evaluation of
the performance of both incubator candidates and incubator operator’s effectiveness.

Establish well-defined targets: Incubators need to establish clear define targets in specific focused technology
areas, usually included in the initial business proposal. Benchmarking of incubator performance should
also be established to ensure that progress to the targets is measured and reported.

Conducive business environment: Incubators to function not as landlord or as property management but create
conducive business environment to tenant companies.

Linking business and technology: The combination of these elements and the linking of business and technology
constitute important channels for the distribution of knowledge and tools for business success.

REFERENCE

“Commerce asset ventures”, <http://www.commerce-ventures.com.my>.

“Malaysian exchange of securities dealing and automated system”, <http://www.mesdaq.com>.
“Malaysian Science and Technology Information Centre (MASTIC)”, <http://www.mastic.gov.my>.
Manan, Haji Abdul Aziz Abdul, 2000. “Technology Business Incubators – Bringing Technology to the Market
Place”, paper presented at the International Conference on Business Incubation and Technology Innovation,
Shanghai, 2000 (<http://waitro.dti.dk/Publications/Seminars/China2000/manan,htm>).

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V. STRENGTHENING TECHNOLOGY INCUBATION SYSTEM FOR
CREATING HIGH TECHNOLOGY-BASED ENTERPRISES
IN NEPAL

215
 I. INTRODUCTION

Even though the share of agriculture to the national gross domestic product is decreasing over the years
in favour of manufacturing and service sector, agricultural sector remains the source of principle and/or additional
employment for almost 90 per cent of the population in Nepal. The growth in agriculture has been almost
a standstill at 2.3 per cent (average annual growth) during the period 1990-1998. The manufacturing sector also
has not grown as desired, contributing about 12 per cent (1999) to GDP of which SMEs alone contribute around
9.3 per cent. So the creation and growth of enterprises is paramount, not only from income generation point of
view, but is crucial in the context of employment for additional 0.3 million people entering job market each year.
A report on registered industrial units during 1991 to 1998 shows that 98 per cent of the total industrial
establishment fall under SME sector alone signifying its overall role in the national economy in terms of income
generation and employment. As almost all of these SMEs are private sector initiatives, enterprise development
and private sector promotion can be taken as two sides of a coin. Private sector promotion in Nepal, therefore,
should necessarily mean enhancing their competitiveness to attain (a) increase in non-agriculture value-addition
(b) improvement in trade balance and (c) increase in non-traditional export. The private sector led economic
development through increased investment and production, employment promotion and income generation has
become the basic policy thrust in Nepal. This is evidenced by deeper domestic macroeconomic adjustments
since the 1990s, in Nepal, resulting mainly due to rapid pace of globalization. One of the opportunities provided
by globalization has been the unrestricted flow of capital and technology, mainly on private sector initiative. In
order for the domestic private sector to become more effective in making the industrial sector vibrant and also to
attract foreign direct investment (FDI), it is necessary to have strong domestic entrepreneurial capacities along
with efficient technicians, managers, accountants and a disciplined labour force. Apart from sound macroeconomic
measures and facilitation in creating conducive industrial and business environment by the government, it has to
take the lead in human resource development and updating, leading to overall competence enhancement with
active private sector participation. The networking of various agencies in effective imparting of competitive and
sustainable promotional activities and business development services (BDS) needs to be accorded immediate
attention in Nepal.
At the backdrop of the above, the following sections with deal in BDS and Business/Technology Incubation,
Policy and Measures, Institutions that are supposed to play contributory role in the field of technology development,
transfer and commercialization of innovations and R&D activities in Nepal.

II. BUSINESS DEVELOPMENT SERVICE AND BUSINESS/TECHNOLOGY

INCUBATION IN NEPAL

The supply of BDS and access to them, particularly by SMEs, can be regarded as one of the determinants
for the overall enterprise development in a country. The number of BDS providers in public and private sector
and the availability of quality BDS products, their outreach and periodical attempt to assess their impact together
with their sustainability determine the state of enterprise start-ups and growth in Nepal. Evidences elsewhere
suggest that there is a positive correlation between usage and volume of quality BDS products consumed and
industrial development. There is no reason why it should not hold true in the case of Nepal too.
Countries like Nepal with domination of SME sector may need business development as follows:1
(a) Information: on technology, markets, regulations, sources of supplies, training facilities, etc.;
(b) Training: in business creation and development and skills training;
(c) Advice and consulting services: on choice of products and processes, finding new markets,
improving quality, increasing productivity, business management, skills training, accessing financial
services;
(d) The provision of specialized services: product testing, technology upgrading, leasing of equipments,
capacity to better organize and participate in trade fairs, advocacy/representation, information
technology (computer), etc.; and
(e) Incubation services: business, technology, etc.2

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 For simplicity purpose, technology incubation and business incubation are treated almost synonymously
here in this paper. Incubation activities in the true sense of term are virtually negligible in the absence of
integrated services under one roof/compound and proper networking among various organizations providing one
or a set of services that make some sort of incubation activities.

Lalkaka and Lalkaka3 have defined the development process of incubators as “the first generation of
business incubators in the 1980s were essentially offering good, affordable space. In the 1990s the need was
recognized for counseling, skills enhancement and networking services, for tenants in the facility and affiliates
outside. Starting in 1998, with the maturing of the Computing and Communications Revolution, new third
generation incubation models have emerged. These are intended to mobilize ICT and serve the New Economy,
towards creating livelihoods and economic growth”. In this context, various industrial units operating in the
government-sponsored industrial estates in Nepal can be considered as first generation type. The second-generation
type is virtually non-existent while efforts are going out to have third generation type, particularly with the recent
establishment of an IT Park in Nepal. The IT Park, a government initiative, has yet to take-off but has already
acquired necessary land and envisaged a framework to link entrepreneurs (internet-based) with Kathmandu
University and local governments and community in the true sense, this can be considered an information
technology-based incubator in Nepal.

From “The technology incubation process in the Republic of Korea”, paper presented by Mr Song4
during an ESCAP mission to IEDI, Nepal may serve as an indicative process for Nepal. It is presented below:

Commercialization by
R&D activities Technology incubation
technological entrepreneurs

Technology transfer

Like other BDS, incubators also need to be assessed in terms of their performance. But the desired
outcomes to be assessed depend upon the motives of the leading sponsors, e.g. government, community, university/
research institutions, outward-looking sponsors, international donors, private/for-profit based, etc.5 Likewise, the
main areas in which incubators performance needs to be assessed are impact, outreach, effectiveness and
sustainability.

III. CATALYTIC FACTORS FOR SUPPORTING AND EXPEDITING

TECHNOLOGY INCUBATION FOR HIGH
TECHNOLOGY-BASED ENTERPRISES

In this section, various national policies in industry and S&T as spelled out as specific policy and in
national development plans and enactment in Nepal will be discussed.

A. National policies in industry and technology

1. National development plans

The Eighth Plan (1992-1997) states the need of strengthening the economy based on agriculture and
mobilization of labour, capital and natural resources available in the country. Similarly, it states the need of
developing industries which can compete in the national and international markets with the promotion of competitive
industries. Consequently, there is a need of deeper reform in the customs, trade, foreign exchange, industry and
foreign investment. There is also a need to further develop infrastructure including human resource development
and institutional strengthening together with the elimination of procedural hurdles. Similarly, in order to encourage

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private sector participation in the economy, it identifies the need of open market and sound competition. The
plan further states the need to develop and expand cottage and small-scale industries, taking into account the
situation of limited market, low level of technical know-how, position of transportation and the overall geographical
structure of the country. Consequently, the Eighth Plan has set the following three objectives relevant for the
development of enterprises:

1. To enhance interrelations between production oriented industrial sector and other economic activities
in order to generate extra income and employment;
2. To improve quality, productivity and production of exportable items in the industries;
3. To improve cottage and small-scale industries which use locally available resources in order to
fulfil internal demands.
Similarly, the Ninth plan (1997-2002) has the main objective of poverty alleviation. Therefore, the plan
states that various industrial, commercial and tourism activities that are most suited the rural area and based on
local raw materials, labour and skills should be emphasised to support employment generation and poverty
alleviation. Economic activities that are related to industry, trade and tourism development should mainly be
based on the principles of market economy and the private sector should play a lead role in such activities.

Among other policies and strategies relating to small scale and cottage industry development, the current
plan states the following direct policies and strategies:

1. Integrated programme relating to manpower, production, loan and technical services required for
cottage and small-scale industries will be developed and expanded.
2. Weaknesses in the existing policies and laws will be overcome to protect the interest of national
industries, consumers and small-scale industries and laws relating to anti-dumping, anti-trust/
monopoly and restrictive trade practices will be introduced and implemented.
3. Special emphasis will be laid on the establishment of small scale and cottage industries in every
village development committee on the basis of feasibility studies.
4. A policy of giving a proper incentive to the large-scale national and multinational industries will
be adopted if these industries involve small and cottage industries in their production process.
5. Additional financial resources will be made available through the banking sector in order to increase
the production, processing and exports of the identified export-oriented commodities and to develop
cottage industries.

2. Industrial policy, 19928

This policy incorporated deeper liberalization of the economy as its main agenda. It states that the
government will make no interference in fixing the price of industrial products in order to create an open and
competitive business atmosphere. A policy of determining wages on the basis of productivity will be encouraged.
The main characteristics of this policy are briefly outlined below:

(i) Emphasis to develop industries which use local labour, skill, and resources and which are of
national significance;
(ii) Increase the pace of the development of the economy through the export of industrial products;
(iii) Attract foreign investment and lay emphasis on the transfer of higher technology and efficient
management;
Some of the strategies enunciated to attain the above-mentioned policy objectives are outlined below:
(i) Make liberal and simple arrangements for the establishment, expansion and modernization of
industries;
(ii) Arrange all types of service to be provided to industries through a single-window system;
(iii) Build up human resources required by industries within the country itself as far as possible and
make necessary arrangements to operate related training and research programmes in an integrated
manner;

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 (iv) Make institutional arrangements in order to develop productivity by upgrading the level of
technology and efficiency of industries so as to gradually make Nepali industrial products competitive
in the world markets;
(v) Operate skill-oriented programmes for the development of skilled manpower;
(vi) Reserve cottage and small industries for Nepali nationals only but allow the transfer of foreign
technology there in;
(vii) Provision of Technology Development and Transfer Agency in order to make the process of
development and transfer of technology more effective as well as to provide concrete help to the
process of industrialization by regulating the import, development and management of technology.

The policy development also has identified 31 industrial activities regarded as priority industry for
promotion.

3. The Foreign Investment and Technology Transfer Act, 19929

This Act has defined ‘foreign investment’ as investment made by a foreign investor in any industry in the
form of equity, reinvestment of the earnings derived from earlier equity participation and loan or loan facilities.
Whereas ‘technology transfer’ is described as any transfer of technology to be made to under an agreement
between an industry and a foreign investor on the following:

(i) Use of any technological right, specialization, formula, process, patent or technical know-how of
foreign origin;
(ii) Use of any trademark of foreign ownership;
(iii) Acquiring any foreign technical, consultancy, management and marketing services.

The feature of this Act, in terms of facilities and concessions provided to this process are as follows:

(i) No income tax shall be imposed on the interest income earned by a foreign investor from foreign
loans. Income tax at the rate of 15 per cent only shall be imposed on the income earned by
a foreign investor through foreign technical and management services fees and royalties.
(ii) A foreign investor making investment in foreign currency shall be entitled to repatriate the following
amount outside Nepal: The amount received by the sale of the share of foreign investment as
a whole or any part thereof, the amount received as profit or dividend in lieu of the foreign
investment, the amount received as the payment of principal and interest on any foreign loan.
(iii) A foreign investor shall be entitled to repatriate outside Nepal the amount received under an
agreement for the transfer of technology in such currency as set forth in concerned agreement.

In addition to the above, the Act has the provision for arbitration for the settlement of disputes that may
arise during or after the agreement period.

4. National Science and Technology Policy, 198910

This policy document has recognized the insufficient acknowledgement of the S&T sector manifested by
inadequate investment, inefficient usage and distribution of available resources and lack of vision in relation to
the overall development of this sector. It has been envisaged through this policy that the following programmes
are to be implemented:

(i) Resource and Development: assessment on utilization and development of domestically available
technology, enhancement of capabilities to develop industrial technology, enhancement of level of
S&T by utilizing available opportunities and modern technique in R&D activities.
(ii) Technology Transfer: Encourage domestic technology, emphasis on software and intermediate
hardware technology in case of importation, experiment on TT, evaluation, selection and regulation
of transfer of technology in order to develop technology adaptation capacity.

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 (iii) Quality Manpower Development: adequate investment in education and skill development,
encourage human resources available with academic and scientific institution to involve in S&T
research.
(iv) Promotion and Extension: secure social participation in S&T development, create linkage between
scientists/technicians and entrepreneurs/business community.

The policy document has given emphasis on integrating the process of development of science with that
of technology and provision of a framework for smooth diffusion of information and knowledge. It has envisaged
the National Planning Commission to take a lead role in the formulation of policy, preparation of programmes,
monitoring and coordination of these activities by taking support and advice from National Science and Technology
Council. Royal Nepal Academy of Science and Technology (RONAST) is to support the monitoring activities by
taking into account updated knowledge and technology development achieved within and outside Nepal. Support
from business communities, international communities, bilateral agencies is expected in the process of technology
development and transfer.

5. National Policy on Technical Education and Vocational Training11, 1999

The policy to prepare a nationwide network of the technical education and vocational training (TEVT)
centres, schools and polytechnics for the overall development of TEVT sector was highlighted in the Higher
Education Commission Report – 1988. The purpose of this policy is to prepare human resources and infrastructure
which would help alleviate poverty, unemployment, underemployment and promote economic development of
the nation. In order to achieve these aims, different training related ministries and non-governmental organizations
will be coordinated through supervision of skill instruction and quality assurance. The various objectives as
mentioned in TEVT policy are as follows:

(i) Ensure justifiable returns from these investments in the both short and long run by meeting
manpower needs in the country as well as cater the need of these human resources in the international
market;
(ii) Up to the extent possible, the involvement of government in the operation of TEVT institutions
will be minimized while increasing the involvement of business sector, local governments and
private sector in general;
(iii) Ensure the TEVT services to poor and underprivileged segment of the population in the country.

B. S&T infrastructure (R&D institutions and parks) in Nepal

Before going into the details of some of R&D institutions and parks, it is contextual to look at the
investment done by the government in R&D activities in the field of science and technology. Table 1 shows that
importance of investment in R&D is virtually not realized by the government despite all positive policy formulation.

Table 1. Allocation of budget by HMG/N on R&D in science and technology

GNP R&D
Year Per cent of GNP
(NRs million) (NRs million)
1995/96 254 349 686 0.270
1996/97 204 899 655 0.327

}
1997/98 214 939 703 0.327
1998/99 225 894 752 0.333
1999/00 236 771 801 0.338 Projected
2000/01 247 573 851 0.347
2001/02 258 306 901 0.349
Source: RONAST, “R&D investment in Nepal, 1998” (Unpublished).

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 1. Research Centre for Applied Science and Technology (RECAST)

RECAST is one of the research centres established by Tribhuvan University (TU), a pioneer university in
Nepal, with a view to take academic/scientific findings to the application of it by the users for better and efficient
production of goods and services. Though established in the mid 1970s, the centre is somehow in decline mainly
due to a high turnover of trained manpower. However, it has done some encouraging work, particularly in the
field of alternate energy, agro-processing etc. It gets its annual budget from TU and is still not in the forefront in
terms of recovering expenses from the users (beneficiaries).

2. Royal Nepal Academy of Science and Technology (RONAST)12

RONAST was founded in 1982 and provided with autonomous status in 1992 when both houses of
parliament passed RONAST Act. The main objectives of RONAST are as follows:

(i) Develop National Science and Technology Policy of Nepal and advise the government as a national
S&T apex body in the country. It should act for the advancement of S&T for the all-round
development of nation;
(ii) Improvement and Promotion of indigenous technologies;
(iii) Promotion of research in S&T;
(iv) Identification and facilitation of appropriate technology transfer.

Various activities are being undertaken by RONAST to further the achievement of its objectives. Some
research programmes currently undertaken are in the field of Biotechnology, Natural Products, Environment,
Scientific Instrumentation, Radiation Monitoring, Alternate Energy, High Altitude S&T, etc. In collaboration
with national and international agencies, it is providing some fellowship and research grants to individual and
institutions, in addition to support services like Central Research Laboratory, Instrumentation Centre, Radiation
Monitoring Unit, Computer Unit, Library and Documentation Centre, Electronic Database and Information Centre.

Despite all these, RONAST is yet to generate interest in it from the business community. The research
and development result has not sufficiently reached the workplace or production place.

3. Information Technology Park (IT Park)

The initial responsibility to set up an IT Park in Nepal was entrusted to IEDI in 1996 basically for
arranging the physical acquisition of land in cooperation with local government, municipality and community in
the place called Dhulikhel/Banepa some 25 km east of Kathmandu. Now this is under Ministry of Science and
Technology who is finalizing IT policy in Nepal in order to attract private entrepreneurs, both from Nepal and
outside, to start their venture in the Park and enable the country to earn income from exporting software. The
significant feature of the Park is the proximity to Kathmandu University, a private university which is a pioneer
in providing Bachelor and Master level course in information technology. A framework has been designed by
which the students will do their internship with enterprises to be established there. It is hoped that some of them
can start their own enterprises in future. A seed money of around NRs 10 million is being provided by the
Government each year. If implemented properly, this could well become an incubation centre in the field of
information technology based business development.

C. Technical entrepreneur development

In the field of technical entrepreneur development in Nepal there are few organizations which are involved
in training and also in some cases in incubation activities. This section will highlight activities of some of these
organizations.

1. Balaju Yantrashala (BYS) (Pvt. Ltd.)13

BYS was registered with HMG/N in 1960 as a joint venture project of Nepal Industrial Development
Corporation (NIDC), an industrial development bank in the public sector, and Swiss Association for Technical

222
Assistance (SATA), now converted into HELVETAS, Nepal. The prime objective of establishing the company
was to help industrialization of the country and to attract the private sector. It has now become a leading
mechanical engineering Pvt. Ltd. Company of Nepal equipped with all the required machineries and other
auxiliary service units. It has, at present, 147 employees including mechanical engineers and related technical
staff. The turnover of this company, in 1999, was NRs 42 million from services rendered in the field of
hydropower technology, steel construction, machine construction, sheet metal products and repair and maintenance.
Due to the competitive price and quality, some of its products are also exported outside Nepal. Many of its past
staff have become entrepreneurs themselves, especially in the field of production of turbine for micro hydro
project, solar heater, etc.

2. Council for technical education and vocational training (CTEVT)14

CTEVT was formed legally under the Technical Education and Vocational Training (TEVT) Act in 1989
with a further amendment in 1993 as an apex body of TEVT sector which formulates policies, ensures quality
control, coordinates all the technical education and vocational training related stakeholders and provides services
to facilitate TEVT programmes in the preparation of basic and middle level skilled human resources for economic
development of Nepal.

The present contributor to its budget are HMG/N, the Japan Government and the Swiss Government
CTEVT has under it 15 technical institutes in various parts of country and 165 affiliated training institute run in
private sector. Since the inception, its own trade schools alone have produced about 870 personnel in the field of
agriculture, construction, mechanical, electrical, sanitation, cooking, health assistant, assistant health worker,
nursing, automobiles, electronics, refrigeration and air-conditioning and secretarial science.

D. Intellectual property assistance/Technical consultant assistance

Department of Industry (DoI) under Ministry of Industry, Commerce and Supplies is the designated
agency to look after foreign investment in terms of registration, monitoring and aspects related to intellectual
property rights. It has been almost 10 years since Nepal became a WIPO member. Now, efforts are being made
to become member of the Paris Convention of Protection of Intellectual Property. So far, it has 17 national and
27 international patent registered with DoI. In the case of registered design and mark registration, it is 5 and
10,063 for national while for international one, it is 24 and 4,724 respectively. The patent is registered in DoI
after paying NRs 6,000 while renewal charge is NRs 4,000 per year.

The rapid pace of globalization followed by deeper reforms in Nepal has attracted some foreign investment
in different projects. The actual investment, however, is far below the initial interest/inquiry. The following
tables show the categories of industry in which investment is made, and also the volume of investment and
generation of employment from these investment projects along with the countrywise breakdown of these joint
ventures.

Table 2. Summary sheet of foreign investment projects in Nepal

– categorywise from the beginning to July 2000
(NRs million)
No. of Total Total fixed Foreign Total
Types of industries
industries project cost investment investment employment
1. Agriculture 11 341.54 304.46 79.48 811
2. Manufacturing 295 26 831.42 20 808.34 5 976.29 50 171
3. Tourism 144 14 521.07 13 857.27 3 663.80 12 779
4. Service 122 10 017.04 8 437.48 3 792.60 8 753
5. Construction 5 293.59 262.06 93.42 570
6. Energy based 8 14 228.51 13 470.43 2 376.44 4 047
7. Mineral based 3 1 153.14 1 068.32 45.98 1 129
Total 588 67 386.31 58 208.36 16 028.01 78 260
Source: Department of Industry, HMG/N

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 Table 3. Summary Sheet of Joint Venture Industries in Nepal
– Countrywise from the Beginning to July 2000
(NRs million)
Total Project Fixed Foreign
Country No. of Industries Employment
Cost Investment Investment
1. Australia 7 134.70 105.43 89.56 348
2. Austria 6 149.79 112.90 30.09 337
3. Bangladesh 9 328.27 174.04 98.92 3 401
4. Bermuda 6 195.25 1 694.03 118.27 1 474
5. Belgium 1 7.00 5.98 5.95 30
6. Bhutan 3 27.26 20.58 3.61 98
7. British Virgin Islands 3 2 739.78 2 636.19 961.42 1 018
8. Canada 5 24.81 19.90 9.69 827
9. China 38 4 799.53 4 103.90 1 469.94 4 286
10. Democratic 1 44.82 41.20 12.55 71
People’s Republic
of Korea (the)
11. Denmark 3 518.62 465.38 26.84 226
12. France 19 429.64 368.20 101.41 993
13. Germany 29 606.14 507.72 226.36 2 254
14. Hong Kong, China 12 1 357.03 1 155.09 495.62 2 085
15. India 201 23 441.35 19 332.86 5 407.27 31 554
16. Ireland 1 5.00 1.00 1.50 40
17. Italy 10 1 223.77 1 112.97 183.48 268
18. Japan 65 2 606.31 2 245.73 810.94 4 390
19. Malaysia 3 25.76 24.04 12.34 40
20. Netherlands (the) 7 1 037.02 868.13 389.90 2 001
21. New Zealand 5 276.65 223.94 11.59 1 954
22. Norway 5 6 533.59 5 912.04 983.31 150
23. Pakistan 7 272.27 205.99 106.14 2 166
24. Panama 1 83.28 65.17 24.98 121
25. Philippines (the) 3 932.23 859.02 49.58 1 329
26. Republic of Korea (the) 21 1 416.88 1 175.56 574.82 2 169
27. Russian Federation (the) 2 85.25 56.18 33.43 163
28. Singapore 5 1 565.99 1 520.06 309.78 1 104
29. Spain 1 13.72 12.98 13.72 25
30. Sri Lanka 2 66.15 45.04 25.06 22
31. Switzerland 14 442.18 389.96 99.85 219
32. Taiwan, Province 5 327.64 299.00 138.37 487
of China
33. Thailand 7 950.22 810.68 90.64 1 106
34. United Arab Emirate 1 178.54 37.24 45.00 93
35. United Kingdom 19 1 790.30 1 546.74 91.49 4 918
of Great Britain and
Northern Ireland (the)
36. Ukraine 1 90.00 82.00 14.70 18
37. United States
of America (the) 60 10 859.69 9 971.51 2 961.62 6 475
Total 588 67 386.31 58 208.36 16 028.01 78 260
Source: Department of Industry, HMG/N

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 E. Strategic business alliances (SA) and networking

“The term ‘SA’ refers to a situation in which an enterprise/company combines outstanding in-company
management resources with external management resources with a view to: (a) expanding its business and
market, (b) improving the efficiency and quality of product/services, (c) diversifying activities, and (d) developing
new products.”15

Some of the illustration of SA practices in Nepal are as follows:

(i) Association for Craft Producers (ACP): Established in 1984 as an NGO, ACP is a local private/
professional group providing design, market management and technical services for low income
primarily female craft producers. ACP has about 900 member producers with 19 to 20 groups,
among them 85 per cent being women from 17 districts. The past year’s annual turnover was
NRs 30.3 million.
(ii) Women Entrepreneurs’ Association of Nepal (WEAN): Since its establishment, (some 8 years)
WEAN has been engaged in forming alliances/linkages with micro and small entrepreneurs and
supports them with capability enhancement training, information dissemination, counselling and
advocacy.
(iii) Bhaktapur Crafts Printers (BCP): Promoted by UNICEF, BCP is a manufacturing concern of
allied products from handmade paper and supports and keeps alliance with small handmade paper
producer and lokta collectors from some districts.
(iv) Lotus Holdings (P) Ltd. (LH): LH promotes and supports small enterprises through alliance
activities. This is a for-profit organization undertaking supply of raw materials, design information,
management support and makes buyback arrangement and is involved in export. LH has alliance
with various enterprises and community based units involved in producing herbal based products,
handmade lokta paper, lotus paper, crafts, carpets, pashmina, etc.

Besides, there are other examples of SA like Knot-Craft, Fair Trade Group, Cottage Industry and Handicraft
Emporium (in public sector). Alliance in the form of joint venture in larger enterprise sector, franchise, licensing
is in hotels and restaurant, beverages and beer with multinational and regional large enterprise.

F. Standardization, metrology and quality control (SMQC)

and marketing in Nepal

The activities related with SMQC are regulated by Nepal Bureau of Standard and Metrology (NBSM)
under Ministry of Industry, Commerce and Supplies. It also issues Nepal Standard (NS) to those who apply for it
and fulfill all the quality requirement. By January 1999, NBSM has already awarded NS mark to 409 industries
comprising food, chemical, construction materials, beverages, steel, paints etc. Apart from providing NS mark,
various calibration services are provided by NBSM for the benefit of entrepreneurs and consumers. Regular
quality assurance test is also conducted. This organization is the national focal point in the field of all ISO
related activities. NBSM has been conducting regular workshops and awareness training on ISO.

IV. RECOMMENDATIONS FOR FUTURE ACTION

The overall awareness on the role of technology in the development of industrial and other business
activities has been quite low in Nepal. The entrepreneurs, until now, seem to be satisfied with the status quo and
there is not much enthusiasm for future growth. The opening of markets and immediate threats from a vast range
of products and services coming from India has compelled business people to seek cost-effective technology. In
terms of policies and programmes, they are not properly implemented thus not producing tangible results.

In view of the above and the general situation where there are virtually no technology incubation activities,
some of the recommendations are outlined below:
(1) There is a need for constant review of policies adopted so far in the field of business development
and technological development in order to position them with fast changing environment.

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 (2) The proposed IT policy need to be immediately finalized and put into place so that potential
investors no longer remains in confusion.
(3) Certain mechanism needs to be in place in order to avoid contradictions among various sectoral
policies. This asks for regular interactions between concerned agencies and beneficiaries or target
groups.
(4) The research activities and other R&D activities have not sufficiently been accessed by users,
mainly business communities. A situation has to be created in which the business community
becomes a stakeholder in related R&D institutions and their activities and partially invests in the
development and commercialization of technology and skills.
(5) In the context of SMES’ overwhelming role in the industrial development of Nepal, the technology
development policy and programmes need to seriously address the requirement of this sector.
(6) Some of the agencies could be developed as business/technology incubation centres in the true
sense, by accessing other BDS, so that the efforts are more focused and coordinated.
(7) Networking among various agencies is crucial so as to make BDS more demand driven and
tailor-made. The tailor-made and demand driven services have better prospects of being paid.
(8) In the context of many organizations becoming ‘white elephant’ and on the verge of closure once
government withdraws financial support, any new initiative has to seriously take into account the
factor of long-term sustainability.
(9) The university/college classes and laboratory activities which are, at present, isolated from business
and industrial communities have to be brought together. The industries encouraging internship to
the business or technology student or trainee have to be compensated through policy measures of
the government.
(10) Some of the successful incubation cases outside Nepal need to be replicated here with some
adaptation.

V. CONCLUDING REMARKS

The above sections and discussion in highlight that the state of S&T, in general, and technology incubation,
in particular, is still in its infancy in Nepal. The budgetary allocation in human resource development and, more
specifically, in R&D activities are inadequate. This shows the hitherto low profile given to this sector in contrast
to the need of the present environment. A serious matter of concern is the virtually non-existent interlinkage
between S&T sector with the business community. The existing limited activities through various organizations,
particularly government organizations have not been able to address the present needs of society, thus failing to
utilize market opportunities. There are, however, smaller organizations run in the private sector like Lotus
Energy (for solar panel, drier, solar energy operated vehicle and their commercialization), Centre for Rural
Technology (in the field of development and commercialization of products related to alternate energy), etc.
which are carrying out technology development activities in meaningful way.

Like other BDS, some promotional activities need to be undertaken so that demands for these services
are created. Not only this, the capabilities of these service providers need to be enhanced so that they can offer
quality services in a sustainable manner.

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 REFERENCES
1
Maurice Allal, “Business development services for micro and small enterprises in Thailand”, in Gerry Finnegan,
ed. series, Micro and Small Enterprise Development and Poverty Alleviation in Thailand, Working paper
No. 1 (ILO, ISEP, UNDP, July 1999).
2
Jacob Levitsky, ed., Business Development Services: A Review of International Experience Intermediate
Technology Publications (UK, London, 2000).
3
Rustam Lalkaka and Dinyar Lalkaka, “New incubators for the new economy”, paper presented at the
Springfield Centre’s BDS-2000 Training Course, Glasgow, UK, July-August 2000.
4
Song Woo – Geung, “The technology incubation process in the Republic of Korea”, paper prepared for
ESCAP during a mission to IEDI, Nepal, 1998.
5
Carl Tiedemann and Rustam Lalkaka, “Managing business incubation for financial sustainability: case
example of Lexington Business Centre, USA”, paper presented at the International Conference on Business
Incubation, Hong Kong, 18-19 November 1998.
6
Nepal, National Planning Commission (NPC), The Eighth Plan (1992-1997).
7
Nepal, National Planning Commission (NPC), The Ninth Plan (1997-2000).
8
Nepal, Ministry of Industry (MOI), Industrial Policy, 1992.
9
Nepal, Ministry of Industry (MOI), The Foreign Investment Technology Transfer Act, 1992.
10
“The National Science and Technology Policy, 1989”, Nepal Gazette, August 1989.
11
National Policy on TEVT (Kathmandu, CTEVT, 1999).
12
RONAST, “Science and technology policy of Nepal”, paper presented at the Third Asian Science and
Technology Congress organized by the Science Society of Thailand, Chiang Mai, Thailand, 17-18 October
1997.
13
Balaju Yantrashala Private Ltd., Company Profile (Kathmandu).
14
Op. cit. 11
15
Institute for Integrated Development Studies (IIDS), Strategic Alliance in SME Sector in Nepal (February
2000).

227
VI. STRENGTHENING TECHNOLOGY INCUBATION SYSTEM
FOR CREATING HIGH TECHNOLOGY-BASED
ENTERPRISES IN PAKISTAN

229
 I. INTRODUCTION

A. Pakistan a wonderful country to visit

Pakistan is the land for the lovers of adventure and culture and its appeal is universal. It is an inexpensive
country especially for visitors from the developed world. It is the home for many great civilizations over a long
period of history. The Indus valley civilization flourished here 5,000, years ago. The ruins of Moenjodaro in
Sindh (one of the four provinces of Pakistan) and of Hrappa in the Punjab (province) tell the tales of highly
cultured people dwelling in these areas around 3,000 to 5,000 BC. Then there is Taxila, a beautifully hilly area
partly in Punjab and partly in NWFP (provinces). Taxila holds layers of various Gandhara kingdoms unsurpassed
as a treasure house of the Greco-Buddhist sculpture and artefacts. This civilization flourished around 300 BC.
Pakistan also homes Mughal (1500 AD to 1857 AD) monuments which are strewn all over the country. Pakistan
has a varied landscape ranging from high mountains to low coastal planes. It is blessed with lush green
mountains, planes, deserts and magnificent rivers. During all four seasons of the year the country always offers
some place where one can have a pleasant holiday.

B. Brief review of economy

Pakistan, like many other developing countries, has been deficient in domestic resources to finance the
investment necessary to sustain rising per capita income and, thus, relied heavily on external economic assistance
to bridge resource gap since the early 1950s. There has been a positive and significant contribution of foreign
economic assistance in sustaining higher growth rate in Pakistan. It also helped in providing an established
infrastructural base for growth. Power communications, education and healthcare sectors are reasonably developed.
Agriculture forms the largest sector of economy contributing more than 24 per cent of the GNP. The country is
facing severe balance of payment problems, which are caused by a narrow export base. The economy is heavily
dependent on the agriculture sector. The conventional industrial base revolved mainly around textiles, cement,
and sugar. Agriculture still has huge prospects for improvement. The country is fully capable of producing
self-sufficient quantities of edible oil and tea, which presently form a considerable percentage of imports. This
area, however, needs acquisition of and development of new methods for selection of crops, sowing practices and
processing techniques. The manufacturing sector is passing through a turbulent and disruptive period, it is due to
the shocks inflicted by economic sanctions, which weakened recovery in this sector since 1997-1998. During
1997-1998, large-scale manufacturing grew by 2.7 per cent as compared to 6.7 per cent growth in the previous
year. The growth in small-scale manufacturing remained at 8.4 per cent. The government intensified its efforts
to improve the investment environment in the country through various policy initiatives. These initiatives include
creation of a better environment to provide access to capital market for SMEs and to improve and mobilize the
country present research and development infrastructure in service of SMEs.

C. Relevance of incubation concept for Pakistan

In modern times, rapid and unprecedented changes are taking place which determine productivity success
of a business. Therefore, establishing a new competitive business is not only a matter of business skills. It has
now become more like a science where an initial educational time can guarantee the success of the enterprise.
This period is spent in specialized incubation centres where common infrastructure facilities are available on
rent. It also saves a lot of expenditure on capital investments during the development phase and makes it less
risky to start developing new ideas into marketable products. Incubators provide a conducive atmosphere to
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 service. They also offer entrepreneurial firms shared office services, access to equipment,
flexible leases and expandable space all under one roof. According to studies on the impact of incubated
investments (1997) carried by National Incubation Association (NBIA) about 87 per cent (Entrepreneurial Center,
Birmingham, Alabama, <http://www.entrepreneurialctr.com/index.htm>) of incubated businesses were rated as
success.

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 The concept of incubation when seen in the perspective of Pakistan seems viable and practicable. This
concept can help to achieve the desired goals of development in manufacturing and services sectors. In Pakistan,
there is a pronounced gap in the interests of our educational and research sector and the activities and actual
practices of manufacturing and services sectors which are shy to accept new concepts and ideas. It is necessary
to break the monotony of conventional practices and introduce new concepts and technologies, broadening the
scope of Pakistan’s economy. This requires the development of a strong partnership between the research
community and a visibly more productive sectors of the national economy including manufacturing and service
sectors. Having scarce resources, Pakistan needs to pool its resources in a more economical way and at
a reduced risk factor. Incubation concept, therefore, suits Pakistan for a gradual conversion from conventional to
a more dynamic and developing business society and to broaden the base of her economy.

As a policy, the Pakistan Government, has decided to encourage small and medium scale manufacturing
and to select areas where employment to investment ratio is higher. These include assembly and manufacturing
of electronics products and systems. Software development and improvement of some conventional industries.
The country has embarked upon the development of an information society in a short time. To achieve this,
a comprehensive information technology policy and action plan has been designed and is being implemented. It
is expected that this action plan will put pressure on the present communications infrastructure and may need
manyfold expansion in the near future. Therefore, this will create a lot of opportunities in the business of
software, electronics systems electronics components and materials and other related goods. In order to generate
useful employment within the country, the government plans to increase these opportunities and to encourage the
private sector to participate actively in these areas. In order to facilitate investors to grow against the odds of
large risks in non-conventional high-tech areas of electronics and software industry, the following incubation
centres have already been either approved or established.

II. TECHNOLOGY PARKS AND INCUBATION CENTRES

A. Software Technology Park, Islamabad

The Software Technology Park of Islamabad is now well established. A covered area of about 40,000 sq ft,
with all infrastructural requirements is available on nominal rent. The Software Technology Parks provide
conducive conditions for software stop shops. It provides a large band width communication with reliable power
supplies, high flexibility buildings, minimized regulatory overheads and maximum flexibility in the choice and
use of space. The Park management is developing similar Parks at Lahore and Karachi, the two largest cities of
the country.

B. High-technology township (techtown)

High-tech township was approved by the government in 1996 at a total cost of Pakistan Rupees (PRs)
1,396 million (US$ 24 million). The implementation of this scheme had been delayed due to financial constraints.
Recently, the government has constituted a committee to consider early execution of the township. The scheme
envisages the development of a whole town into a closely associated industrial community. The town will
provide space to investors for setting up high tech industries based on electronic technologies. The township will
provide centralized infrastructure facilities and also an incubation centre for new entrepreneurs. The capital
development authority of Islamabad has been given the responsibility of handling this project. The authority is
well versed with the development work of similar nature. The town plans to create 247 plots for SMEs and
about 64 multistoried buildings for stop-shops type enterprises. It also includes 14 Blocks for incubation centres
and electronics goods and component shops.

C. Electronics industries promotion centre

The National Institute of Electronics (NIE) situated in Islamabad is involved in research and development
of electronics systems and components. It has established an incubation centre for the development of its own
lab prototypes into pilot production lines. The centre is supported by the research and development groups of the
Institute and has the following main objectives:

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 (i) Set up Pilot production lines for electronic and high technology products developed by NIE or any
other interested entrepreneurs;
(ii) Provide labs for the development of production techniques/processes, methodologies, materials
and equipment suited for the local electronics manufacturing industry;
(iii) Provide labs for development of materials/devices and boards, etc. for the training of manpower to
enhance productivity;
(iv) Prepare marketing strategies for local products;
(v) Adaptive redesign, maintenance and manufacturing of electronics instruments;
(vi) Provide consultancy in setting up electronics related industries.

D. Indus information technology park

The Government of Sindh has recently started the establishment of an Information Technology Park at
Karachi, the largest industrial city of the Country. The development work for the park is in progress, the park
envisages the establishment of software houses, Incubation Centres, hardware manufacturing and setting up of
other related facilities. The park would be declared an export free zone to encourage foreign investments and
export of software. This would be the first complete IT Park in Pakistan providing all necessary facilities to the
start up companies and entrepreneurs of IT business.

III. POLICY FRAMEWORK

Pakistan has adopted a well-defined science and technology policy guided by a high level National
Commission for Science and Technology. The government is committed to increase investment in science and
technology from a meager 0.07 per cent to a 0.5 per cent of the GNP in three years. In the fiscal year 1999-2000
PRs 15.7 billion (US$ 270 million) are committed for science and technology. The Present Minister for Science
and Technology is deeply interested in the promotion of research for economic development and is steering
research to uplift the present state of industry, in particular, and the economy, in general. A detailed programme
is under preparation to upgrade and revitalize educational and research institutions. The following science and
technology policies are in practice.

A. IT Policy and action plan

The vision of the policy is to harness the potential of information technology as a key contributor in
development. The policy envisages participation of all stakeholders to achieve a sustainable information society
in Pakistan. The policy strategies have been proposed under several focus areas.

(i) Establishment of technology parks and incubation centres

(ii) Human resource development
(iii) Infrastructure development
(iv) Software industry development
(v) Hardware industry development
(vi) Internet services development
(vii) Provision of incentives
(viii) Promotion of awareness for efficient use of IT
(ix) Development of legislative and regulatory systems

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 B. National Technology Policy and Action Plan

The National Technology Policy envisages measures like, legislative and regulatory procedures, provision
of incentives and development of R&D structures to facilitate exploitation of technology by all sectors of the
national economy under market driven forces. Under the technology policy, the following strategies are being
followed:

(i) Provide incubation opportunities for small and medium industries;

(ii) Promote viable MSTQ Systems within the country;
(iii) Development of efficient R&D structure responsible to industrial needs;
(iv) Dissemination of techno-commercial information;
(v) Promotion of foreign investments for technology transfer;
(vi) Technical Manpower development;
(vii) Dialogue between the private and public sector, where public sector participates as a catalyst to
promote private sectors initiatives;
(viii) Promote modern technologies in materials development biotechnologies, information and renewable
energies.

C. Science and technology infrastructure

1. Research institute

Pakistan has developed a broad-based infrastructure for research and development. There are 164 research
institutes working in many fields of basic and applied research. The ministry of Science and Technology
administers twelve of these institutes. These institute cover a vide range of modern disciplines and are mostly
involved in basic research work. Until now there had been very little effort on their part to actually market their
research. Some of these institutes tried to develop marketing sections and organized their programmes in accordance
with market needs. Unfortunately, their efforts failed due to uneven development of administrative, marketing
and research sections. All these institutes have the potential to contribute effectively in creating variety in the
development of the national economy. These institutes can be used as problems-solving centres for new experiments
and assist the end users in initiating new technologies. It would be great help for these institutions if they are fed
with problems of industrial processes target-oriented development jobs, testing and standardization assignments,
etc.

Established incubation centre can utilize these institutes as a source for technology development by
feeding them tasks on payment which will, in turn, strengthen their financial position and broaden the scope of
their activities. A Combination of incubation centres and the research institute can work to create much needed
diversity in the manufacturing sector.

2. Education

With a literacy rate of 45 per cent and about 1.68 million students attending senior secondary level
schooling, Pakistan has 26 universities, which provide access to higher knowledge for 3 per cent of its young
citizens. There is an extended network of professional training college for engineering medical and other disciplines
working under these universities. Enrolment in the secondary vocational institutions was 85,000 in 1999, in Arts
and Sciences colleges 760,000, in professional colleges 135,680 and in universities 93,608. The overall participation
rate at primary stage (Class I-V) is estimated at 77 per cent. At the middle stage (Class VI-VIII) it is estimated at
51 per cent and at higher secondary level (IX-X) it is 36 per cent.

Vocational training

Presently Pakistan has training capacity of 46,452 persons per year in more conventional trades. A skill
development council has been set-up recently which has a broad mandate. It will assess overall training needs of
the country and will reorganize present training programme adding modern technology concepts wherever needed.

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 D. Financing of Projects

In addition to above-stated schemes, which have technical orientation, the government has instituted
following facilities, which cater for the access of an average entrepreneur to capital.

1. Small Business Finance Corporation

The SBFC is a development financial institution established by the Government of Pakistan. It provides
financial assistance on soft term loans to small business enterprises. The main objective of the project is to
encourage development and promotion of small business enterprises in manufacturing as well as services areas.
The SBFC has sanctioned loans of PRs 2,208.7 million (US$ 370) million against 11,435 cases upto March 1999.

2. PM’s Self-employment Scheme

Under this scheme all the state owned banks and SBFS provide facility of loans ranging from
PRs 500,000 to 54,000,000 for small industrial enterprises. They have disbursed PRs 3,820.8 million up to
March 1999.

3. Small and Medium Enterprises Development Authority (SMEDA)

A Small and Medium Enterprises Development Authority has also been set up for growth and development
of SMEs in Pakistan SMEDA has started functioning recently and its programme includes, designing training
programmes for fresh entrepreneurs, organizing workshops and seminars dissemination of knowledge in critical
areas and development of project proposals in new areas such as fisheries. These areas include business skills
development, product development, and the development of management skills for the utilization of technical
advances in industries.

4. Scientific and Technological Development Centre

STEDEC has been established to facilitate R&D Organization in commercialization of the R&D results.

The STEDEC provides finances for matured projects by the R&D organizations for commercialization of
their outcomes as soft loans with a comfortably long period of recovery.

Another such scheme has been launched by the Ministry Science and Technology (MOST) under the
name “Contractual Research”. Under this scheme, MOST funds private entrepreneurs for practicable ideas or
initiate, schemes involving high priority commercial projects. The concept is to involve R&D infrastructure in
the development of such commercially valued products which have definite sponsors.

5. Metrology, Standard, Testing and Quality Assurance System (MSTQ)

Under the science and technology policy, Pakistan has initiated a comprehensive programme for
strengthening of MSTQ infrastructure. The following measures are taken to make manufacturers more quality
conscious and to build infrastructure for an effective quality assurance system:

(i) Ministry of Science and Technology (MOST) and sister organizations conducts countrywide training
programmes for Auditors and Consultants in ISO-9000 and ISO-14000-quality system.
(ii) Industries and institutions are given special incentives to go for ISO certification.
(iii) A national accreditation body is in the final stage of operationalization. This body will initially
work under the ministry of science and technology.
(iv) An existing National Physical Standard laboratory is being upgraded for a National Metrology
Centre. There are many other labs already working in various areas which can effectively provides
in calibration testing services.

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 IV. RECOMMENDATIONS

Pakistan has reasonably developed the basic infrastructure to embark upon a meaningful strategy for the
promotion of high tech based small and medium scale industry. The present government had already launched
a Technology Development programme in various sectors such as electronics engineering, textile, biotechnologies,
etc. With a view to diversify economic base, the government has committed a hundred fold increase in the
budget allocation for science and technology, in three years National Commission, for science and technology,
a high level commission will be set up to implement government priorities. The commission has full powers to
reorganize, update, redirect and utilize all present R&D infrastructure.

Incubation centres for high-tech projects is one of the government’s priorities. However, a plan is still to
be prepared with details. It would be highly desirable if a coordinated programme utilizing the existing research
and development infrastructure is chalked out considering inputs from all other stakeholders.

(a) Stress Areas

(i) Electronics (hardware development, automation)

(ii) Information technology (software development)
(iii) Medicines
(iv) Upgrading of conventional industries
(v) Agro bases industries
(vi) Energy
(vii) Biotechnology
(viii) Textiles
(ix) New materials
(x) Engineering
(xi) Ocean Resources
(xii) Defence

(b) Objectives

The programme should deal with the high risk factors involved in the implementation of innovative
technological ideas by providing incubation centres for specific industries. It should provide:

(i) Technical help through all R&D resources available in that field throughout the country with
Internet speed.
(ii) Provide access to capital market as soft loans during incubation period and also provide access to
loans after successful graduation of the project for its commercial implementation.
(iii) It should provide special skills required for marketing of the product.
(iv) It should provide space flexible enough for making changes and should be equipped with common
infrastructure on a rental bases.
(v) For electronics, the incubation centre should have following facilities available on a rental basis:
❏ Small scale PCB fabrication unit capable of economically producing PCBs in small numbers
❏ Small scale stuffing and soldiering stations on rent
❏ Test equipment and other instruments available for hiring
❏ Access to injection moulding and other plastic and metal casing fabrication on rent
❏ Electronic component shop within the facility premises.
A similar requirement is worked out for other stress areas.

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 V. CONCLUSIONS

Pakistan has a reasonably developed R&D infrastructure. Despite of financial constraint the country is
ready to increase investments in science and technology. Presently emphasis is being given to human resources
development through training and to upgrading the existing R&D infrastructure. The programme of incubation
of technical ideas into commercial products is carried out; by involving most of the R&D institutes in productive
research. They can initially provide consultancies and even reorient their research programmes according to the
requirements of industries. It will help the country to achieve its already-defined priorities and, also, make it
more self-supporting.

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VII. STRENGTHENING TECHNOLOGY INCUBATION SYSTEM
FOR CREATING HIGH TECHNOLOGY-BASED
ENTERPRISES IN PHILIPPINES

239
 I. INTRODUCTION

It is indeed a great opportunity for me to be here in the Republic of Korea to participate in this very
important and timely meeting. Not only will we be able to know the developments and strategies pursued by
other participating countries as far as creating high technology-based enterprises are concerned, we hope to be
able to also assess how networking with other countries can further strengthen efforts in the Philippines towards
this end. For this we are very thankful to ESCAP.

In recent years, we have seen dramatic economic growth in the region brought about by rapidly expanding
trade opportunities around the world matched by the high rate of growth of high-technology based enterprises in
the area.

For the most part, the development of science parks and business incubators has been considered as
a catalytic factor in this rapid growth. In the Philippines, the same strategy has been pursued and, while probably
relatively minimal, some positive impact could already be felt.

The paper will, therefore, trace and discuss efforts of the country particularly the Department of Science
and Technology (DOST) in this area.

II. TECHNOLOGY INCUBATORS AND BUSINESS INCUBATORS FOR

CREATING HIGH TECHNOLOGY-BASED ENTERPRISES

The root of science and technology parks in the Philippines can perhaps be traced from early efforts to
establish science communities within the various campuses of the University of the Philippines and at DOST. It
was in 1982 when the then National Science Development Board (NSDB), later the National Science and
Technology Authority (NSTA) and now the DOST launched four science communities in three campuses of the
University and at DOST with specific sectorial/scientific focus depending on the relative strength of the host
campus in the field:

(a) Diliman Science Community hosted by the University of the Philippines (UP), Diliman for basic
and engineering sciences;
(b) Bicutan Science Community hosted by DOST for industrial technology;
(c) Los Banos Science Community hosted by UP Los Banos for agriculture and biotechnology; and
(d) Ermita Science Community hosted by UP Manila for health services.

The communities, which continue to exist at present with expanded membership to include other
science-based institutions in the area, introduced the concept of concentrated S&T activities at least in the areas
covered.

In 1986, the idea of establishing S&T Parks at UP was broached with the participation of some professors
in the first ASEAN S&T Week celebration in Kuala Lumpur, Malaysia. In 1987, the National Research Council
of the Philippines (NRCP), another agency under DOST, provided funds for the conduct of a feasibility study on
establishing S&TParks. DOST allocated funds in 1993 for the establishment of two S&T Parks, one in UP
Diliman and another in UP Los Banos. An S&T Park was later established in UP Visayas focusing on Aquatic
and Marine Resources.

It was, however, only in 1990 when Secretary Ceferino L. Follosco took the helm of DOST that the
Department pursued concerted effort towards the establishment of Technology Business Incubators vigorously.
In 1991, a technology business incubator was launched in Bicutan with 30 tenants working very closely with two
Research and Development Institutes of the Department. However, recognizing that while the government can
initiate moves to help encourage the establishment of technology business incubators, it is the private sector
which can sustain operation of the same. Thus, linkages with the private sector were pursued so that they can
initiate and sustain investments in this area.

241
 In 1991, through pure private initiative, the Laguna International Industrial Park (LIIP) was built
adjacent to the South Expressway with a total land area of 117 hectares. Of this, 30 hectares is devoted for the
export-processing zone and 87 hectares for the industrial zone. In 1999, an additional site was opened in
Calamba, Laguna, a few kilometres from the original site.

Among the incentives provided to locators are:

(a) investment liberalization Ð extending land lease to 75 years and allowing 100 per cent foreign
ownership for selected investment areas;
(b) fiscal incentives Ð include income tax holidays for 4-6 years, tax and duty free importation of
capital equipment and spare parts, tax credit on domestic capital requirement and tax credit for
duties and taxes on raw materials used in manufacturing and processing of export products;
(c) non-fiscal incentives Ð simplified custom procedures, unrestricted use of consigned equipment,
employment of foreign nationals, waiving of nationality requirement for regional ASEAN.

Managed by Starworld Corporation, LIIP focuses on:

(1) electric/electronics products manufacturing

(2) chemical/machinery and components
(3) computer software
(4) Textile manufacturing
(5) Packaging

Other parks and industrial zones have since opened in various parts of the country managed and operated
by the private sector, the latest of which is the Ayala IT Park in Cebu where DOST has an existing collaborative
project on the establishment of an IT learning hub.

III. CATALYTIC FACTORS FOR SUPPORTING AND

EXPEDITING TECHNOLOGY INCUBATION FOR
HIGH TECHNOLOGY-BASED ENTERPRISES

A. National policies in industry, science and technology

Science and technology has always been envisioned to play a catalytic role in supporting the countryÕs
development efforts and in providing services that would enable it to contribute in uplifting the lives of every
Filipino. This was initiated with Executive Order 128 passed in 1989 which reorganized NSTA and elevated the
DOST into a cabinet level position playing a direct role in policy and decision making in the country.

The S&T Master Plan (STMP), which was prepared in 1990, served as the framework for the development
of S&T in the country. The plan specified three broad strategies to attain this goal:

(a) modernization of the production sector through technology transfer and commercialization;
(b) upgrading of research and development capabilities; and
(c) development of the S&T infrastructure.

To translate these broad strategies into specific activities, the Science and Technology Agenda (STAND)
was formulated and subsequently approved by the President in 1993. STAND spells out the focal areas of
national scientific and technological efforts for the plan period. As expected, the development and operation of
Science Parks and Technology Business Incubators is one of the specific strategies laid out under STAND.

The Medium-Term National Action Agenda for Productivity 2000-2004, that was just recently approved
by the President, further reaffirms the need to sustain S&T efforts in the country. S&T shall be harnessed to
improve overall productivity and competitiveness of industry. To achieve this goal, the following strategies will
be pursued:

242
 (a) strengthen networking of innovation resources among private industry, academe, and government;
(b) increase private sector investments in S&T;
(c) upgrade S&T support service facilities, equipment, and product standards;
(d) regionalize S&T services;
(e) develop and maintain a critical pool of technology managers and R&D experts;
(f) strengthen technology promotion and information dissemination; and
(g) privatize the acquisition and installation of support services.

Consistent with this vision, the Department has launched various programmes aimed primarily at developing
a competent and competitive science and technology community:

(a) Comprehensive programme to enhance technology enterprises (COMPETE):

The programme hopes to catalyze R&D activities in the private sector by forging partnerships among
private firms and government Research and Development Institutes through a mechanism called the Virtual
Centre for Technology Incubation (VCTI) which will be established in three (3) areas Ð microelectronics,
information technology and biotechnology.

(b) Establishment of a packaging R&D Centre:

This includes the setting up of a common service facility on packaging accessible to industry particularly
the small and medium scale enterprises. The centre now offers testing and related services for industry, conducts
training programmes and information dissemination campaigns, facilitate technology transfer to industry, and
develops and maintains a regional industry network on packaging technology and services particularly for SMEs.

(c) Expansion of regional metrology centres:

Hopes to develop a pyramidal metrology infrastructure for the country and upgrade the capabilities of
public and private calibration laboratories in the region to match the requirements of various users. The programme
includes the development, through the upgrading and expansion of regional calibration laboratories, of a national
measurement system; establishment of a metrology training centre; and the development and adoption of
a laboratory proficiency evaluation programme.

(d) Establishment of an integrated programme on clean technologies:

This hopes to promote sustainable development and strengthen competitiveness of Philippine industries
by providing them with technical information and assistance in adopting clean production technologies, waste
minimization techniques and solid waste management, among others.

(e) Establishment of a technology clearinghouse:

This will serve as a one-stop-shop for technology scanning, assessment, selection and forecasting.

In support of the pivotal role of private sector investment in the countryÕs growth, the government has
developed and pursued several investment policies which can play a major role in ensuring the success of private
sector initiated Technology Business Incubators.

(a) Executive order No. 26 otherwise known as the omnibus investment code of 1987:

The Code defines the major incentives in establishing foreign investments in the Philippines. In addition
to the basic rights and guarantees to foreign investments, the Code allows/provides the following:

(i) income tax holidays for four years for registered new non-pioneering firms and six years for
registered new pioneering firms;

243
 (ii) tax and duty exemptions on imported capital equipment and its accompanying spare parts;
(iii) tax credit on domestic capital requirement;
(iv) tax credit for taxes and duties on raw materials used in the manufacture, processing or production of export
products;
(v) simplified custom procedures for import of raw materials, equipment, and spare parts;
(vi) employment of foreign nationals in supervisory/technical positions for five years from registration;
(vii) access to bonded manufacturing/trading warehouse system;
(viii) tax and duty exemption on imported spare parts and supplies for export producers with
custom-bonded warehouse exporting at least 70 per cent of their production.

(b) Republic Act No. 7844 otherwise known as the Export Development Act

Among the incentives available to companies that export at least 50 per cent of their products are
exemption from advance payment of custom duties, zero per cent duty on imported machinery and equipment
and accompanying spare parts, tax credits on imported raw materials for a period of five years, tax credit for
increase investments in current year, and tax credits of 25 per cent of duties on local raw materials and/or spare
parts for a period of three years extendable for another three years.

(c) Republic Act 7916 otherwise known as Special Economic Zone Act of 19951

Provided the legal framework and mechanisms for creating, operating, and managing Special Economic
Zones (ECOZONES) in the Philippines and created the Philippine Economic Zone Authority (PEZA). ECOZONES
offer the following incentives to developers/operators:

(i) Income tax holiday;

(ii) Incentives under the Build-Operate-Transfer Law, which includes government support for accessing
Official Development Assistance and other sources of financing;
(iii) Provision of vital off-site infrastructure facilities;
(iv) Option to pay a special 5 per cent Gross Income Tax in lieu of all national and local taxes;
(v) Permanent resident status for foreign investors and immediate family members within the zone as
long as the enterprise exists; and
(vi) Employment of foreign nationals.

A separate set of incentives is also available to ecozone locators that include, among others, domestic
sales allowance equivalent to 30 per cent of total sales, income tax holidays for four years, extendable to
a maximum of eight years, exemption from wharfage dues and export taxes and fees.

B. S&T infrastructure (R&D institutions and parks)

To a large extent, the success of Technology Business Incubators depend on how organized and efficient
the R&D system is. For technologies to create impact and realize their full potential, technology adoption must
also be at a level that is at par with technology development. In most cases, however, technology generators are
beset with institutional rigidities that prevent them from transferring technologies most effectively and efficiently.
Technology users or investors may also be a wary of the risks associated with new technologies. This predicament
continuously feed the vicious cycle of irrelevance of S&T efforts, dependence of industry on imported technologies
and very low, if not total lack of, private sector investments in S&T.

1
As cited in the paper of Mr Wilhelm G. Ortaliz, Deputy Director General for Policy and Planning, Philippine Economic Zone
Authority entitled ÒIncentives and opportunities of IT/Park ZoneÓ presented at the Information and Communications Technology
Conference, Cebu City, Philippines, 25-26 July 2000.

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 Sadly, this seems to be the situation for the Philippines which, according to the 1999 World Competitiveness
Yearbook, slipped from 26th place in 1996 to 33rd in 1999 from among 47 countries assessed.

1. Inadequate R&D personnel

In 1994, the Philippines had only 157 scientists and engineers directly involved in R&D per million
population. Based on this ratio, the country ranked 73rd out of 91 countries surveyed. There is also a mismatch
between the demand for science and engineering related graduates by local industries to the number of graduates
produced by tertiary schools.

To help address this problem the government, through DOST, borrowed funds from the World Bank to
implement the Engineering and Science Education Programme (ESEP) which was aimed primarily to addressing
this imbalance and upgrading the quality of science education in the country. To date the programme is completed
and the country is currently negotiating for a second phase focusing on technology enterprise development
making it safe to assume that there has been a significant improvement in the statistics compared with 1994.

2. Low R&D expenditures

The Philippines normally spends less than 0.2 per cent of its GNP on R&D. Of this, the private sector
accounted for only 21.8 per cent. This means that the government, with its limited resources, shoulders much of
the burden of funding R&D activities in the country.

The seeming lack of support from the private sector, however, can be traced to the countryÕs economic
structure, which is dominated by small and medium scale enterprises with very limited funds for investment,
especially for R&D. Like most developing countries, SMEs in the Philippines depend heavily on imported
sources of technology. They, likewise, lack technical competence to undertake R&D and/or evaluate alternative
technologies from foreign sources. This, often results in SMEs acquiring obsolete and/or inappropriate technologies
further worsening their skepticism over new technologies.

It is, therefore, towards this end that project COMPETE, discussed earlier, focuses its efforts, particularly
for the three special areas mentioned. The challenge is to develop a competent, competitive and efficient S&T
community that addresses industry needs adequately.

3. Weak R&D institutions

There is a perceived weak linkage between users and suppliers of technologies. As a result, only few
government R&D projects find commercial application. This is further compounded by the very limited financial
and manpower resources available to the R&D institutes.

The Department, therefore, has focused efforts not only in upgrading S&T services available but also in
enhancing information dissemination and technology adoption all over the country.

At present, there are five (5) sectorial councils attached to the Department handling the policy-making,
monitoring and review of R&D activities as well as manpower development in the respective sectors.2 There are
also seven Research and Development Institutes specializing on R&D in various fields like advanced science,
food and nutrition, textile, forest products, industrial technologies, metals industry and nuclear research.

There are about 61 ecozones/industrial estates/parks managed by either private or government owned
corporations.

While there are weaknesses, the government remains firm in strengthening these critical factors for
developing high technology enterprises in the country. There is much to do but there has also been significant
headway in the past few years.

2
The five sectoral councils attached to the Department are: the Philippine Council for Agriculture, Forestry and Natural Resources
Research and Development; the Philippine Council for Aquatic and Marine Research and Development; the Philippine Council for
Industry and Energy Research and Development; the Philippine Council for Advanced Science and Technology Development; and
the Philippine Council for Health Research and Development.

245
 C. Technical entrepreneur development

In addition to improving science education, the country pays special attention to improving the skills and
absorptive capacity of the labour force for new technologies. The Technical Education and Skills Development
Authority (TESDA) created through Republic Act 7796 for example, shifted from simple manpower skills
development to technological skills development to address the needs of industries.

To address the mismatch between industry requirements and graduates of the educational system, the
government has pursued efforts to strengthen linkages among TESDA, academic institutions, industry associations,
the Department of Education Culture and Sports (DECS) and the Commission on Higher Education (CHED).

Similarly, the Department through the Technology Application and Promotion Institute (TAPI) launched
the DOST-Academe Technology Based Enterprise Development Programme (DATBED) to develop entrepreneurial
competencies among students and young professionals from selected academic institutions while at the same time
creating income-generating projects for the involved institutions.

The programme provides funds to participating students so that they can start a technology-based enterprise
while on their final year of studies. The funds, which come in the form of a soft loan, are payable to the school.
The school, which upon submission of approved projects, can re-use the funds for new enterprises of other
students. To date, the programme has graduated 361 students engaged in over 120 enterprises generating additional
employment opportunities for some 197 personnel.

In the long run, the DATBED hopes to improve the entrepreneurial courses offered by academic institutions.
Recently, the academic institutions themselves have started entering into loan agreements with the Institute to
maximize utilization of the available resources of the University.

D. Innovative financing support system

There has been a significant change in the financing structure of the country in response to the increasing
need of technology-based enterprises. This can be seen in terms of the increase in the number of active venture
financing companies now operating in the country attesting to the relatively robust growth of high technology
based enterprises.

Even traditional commercial financing institutions have adopted measures to boost lending to a new
breed of entrepreneurs. For example, the Development Bank of the Philippines (DBP) has opened its Window III
programme to provide funding for companies engaged in commercializing technologies, especially those generated
locally. Loans under this window charge preferred interest rates (6 per cent for R&D activities compared with
24 per cent commercial rates).

While limited, the institute likewise strengthened efforts in bridging the gap between technology
development and commercialization. Empowered by its mandate to provide venture financing and/or grants to
emerging technologies, the Institute expanded financial assistance for:

1. Prototype development and testing

Funds have been allocated by TAPI to facilitate the development of commercial prototypes that can best
attract investors using the results obtained in the laboratories of research institutes and academic institutions.

2. Pilot plant assistance

In addition, funds are made available to assist in the initial commercial operation of the technology.
These are very soft loan packages that are non-interest bearing and are meant to prepare investors for the
commercial loans available from financing institutions as the technology is being debugged.

246
 3. Preparation of technology packages

To expand the possibilities of technologies finding commercial operation in the shortest possible time,
funds have also been set aside by the institute to facilitate the preparation of technology packages and/or business
plans. The idea is to translate R&D results to investment portfolios that can attract private investors.

4. Investors forum

We have likewise facilitated the dissemination of technologies as well as strengthened linkages with the
private sector by sponsoring various investorsÕ forum in the country. The forum provides a venue for exchange
of information among technology generators and potential investors or users of the technology providing significant
input or feedback for improving the technology or directing future research efforts of the scientists.

E. Intellectual property assistance/technical consultancy services

It is sometimes disappointing that lack of appreciation on the value of intellectual property protection
prevents scientists from aggressively transferring technologies to target clients. Thus TAPI also initiated the
provision of financial support to encourage scientists to secure intellectual property protection. This will not
only give assurance to scientists that their efforts will be properly acknowledged, it can also give potential
investors some level of confidence that the technology licensed/assigned to them will not be easily available to
potential competitors.

Two technical consultancy services were likewise launched by the institute with funding support from
DOST. This includes the S&T Experts Volunteer Pool Programme (STEVPP) that provides SMEs access to
expert services at no cost. The programme has enlisted more than 800 scientists and experts from the government
and private sector that render technical services for free. If recommended, the stopgap solutions are followed up
by a longer-term technical productivity consultancy service through the Manufacturing Productivity Extension
Programme for Export Promotion (MPEX).

The programme fields productivity consultants and specialized technical experts to assist the entrepreneur
at the production floor. To date the programme has assisted more than 900 manufacturing companies including
selected contract producers of these companies.

IV. RECOMMENDATIONS FOR FUTURE ACTION

An analysis of the performance and growth of technology business incubators assisted by DOST indicate
serious problems on sustainability particularly in terms of available funds to upgrade facilities and even continue
day to day operation. It is, therefore, imperative that the following be pursued:

(a) Strengthen venture financing activities especially for high impact, high risk technology-based
enterprises;
(b) Plans to establish an IT Venture Fund to finance research activities such as development of proof-
of-concept and strategic technologies should be pushed to augment limited funding available for
the development and commercialization of advanced technologies;
(c) Certifiable training and advocacy can be pursued to receive critical political support and will to
establish technology business incubators for promising areas;
(d) Interest groups or clusters on areas such as distance education, e-commerce, convergence,
information systems development and security shall be pushed to provide the support group to
pursue and sustain efforts;
(e) Continue to build a critical mass of S&T manpower which can be further enhanced through
networking locally and internationally.

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 V. CONCLUSIONS

The rapidly changing knowledge-based economy offers not only a wide range of opportunities but also
challenges that no single agency in the government can handle. Recognizing the role of the private sector in this
endeavour and the pivotal role of government, it has become critical that strategic alliances are established and
sustained among all stakeholders to maximize benefits from rapid technological change. This depends on
a strong commitment and focused vision in the sector complemented by a strong political will. We are hoping
that this regional consultative meeting can help us shape our strategies together.

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 VIII. STRENGTHENING TECHNOLOGY INCUBATION SYSTEM
FOR CREATING HIGH TECHNOLOGY-BASED ENTERPRISES
IN THE REPUBLIC OF KOREA

Abstract

High-tech start-ups of the Republic of Korea in 2000 form the third generation, characterized by
creating a global business, since the first generation struggled for survival in 1980 and the second generation
spin-offs from universities and research, institutes incubated in technology business incubators in late
1990s. Starting a new paradigm of research and business, researchers adjusted their goals to create
profitable technologies. Such a change may not be self-motivated but commensurated by both of the
government-driven venture policy and expected spin-offs. The major taskforces consisted of researchers
and engineers, called ‘technopreneurs’, who were accommodated in the technology innovation centres and
business incubators. The start-ups in incubators may have several advantages, such as access to management,
marketing development and information flows, and incubators develop a successful service model for
supporting these growing companies.

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 I. SIGNIFICANCE OF HIGH-TECH START-UPS

Technology-based venture business is now recognized as the driving engine for the Korean economy
after the from economic crisis in 1997. Also, social and economic sectors are undergoing major structural
changes to increase efficiency of production and marketplace. The replacement of the old structures and customs
by new global standards, and the creation of venture firms possessing unique technology as the core competence
have just begun to improve international credit. In this respect, the revitalization policy of the Government of the
Republic of Korea is to promote technology innovation with two primary goals in mind: in the short-term, to
overcome economic difficulties through the commercialization of technology and, in long-term, to develop potential
for long-term growth in the knowledge-based information society.

Knowledge-based industries will contribute to most of the growth in national wealth in most countries in
the 21st Century and high-tech firms are recognized as the nuclei of the industrial paradigm shift. The firms will
be the building blocks for the shift. The venture requires new idea and technology for creating a new market,
while venture capitals rated it as a risky project. For engineers venture is to create value from technology and
knowledge and the creation of knowledge-based high tech firms is the most appropriate selection for up-grading
the value of technology.

Knowledge includes the method of creating values not simply additive but synergetic. Therefore, it is
almost impossible to decrease the gap in technology between the developed and the undeveloped countries. In
this century, it is believed, that the necessary key to be developed is to develop high-tech ventures from knowledge.
Industries and the national economy, therefore, can be strengthened from the technology incubation system and
by creating high-tech businesses. It is no wonder that the growth of the American economy is driven by the
mobilization of high-tech companies grown in Silicon Valley.

Another important factor is to cultivate entrepreneurship for creating venture and then triggering the 2nd
growth. The young businessperson may develop a new core competence for growth and competitiveness. In
fact, high-tech companies will drive the transformation of the industrial paradigm from labour and capital to
knowledge.

In this report, we focus on the trends and status of venture and incubation systems for nurturing venture
and the effort of the government to initiate the revitalization programme.

A. Trends and growth of Korean venture

1. Growth of venture

The second generation (1996-)

The first generation (1980-) The third generation (1999-)
◆ Internet and information
◆ own technology ◆ IPO through NASDAQ
technology
◆ qunix and the Sambo ◆ Thru-net and Mirae
◆ venture capitals, TBI,
Computer, Medison Industry
KOSDAQ

Figure 1. Venture generations in the Republic of Korea

(a) The first generation

The first generation of Korean venture started in early 1980 when the creation of high-tech companies
were not in business-friendly environments. The pioneering engineers founded Qunix Computer and Sam Bo
Computer after the launch of Apple Computer in the United States of America and, thereafter, Taeil Precision,
Medison, Hangul, Duin Electronics and so on were founded. Even if these companies started with their own
technology, they have weak competition compared to their competitors in the United States of America, and,
therefore, the initial strategies focused to replace imports. Later, however, the accumulation of technology was
successfully enabled to create new products and to meet the global market.

251
(b) The second generation

The second generation of venture started in 1991-1992 and the firms were founded in two different ways:
one started the companies according to the Silicon Valley model, if they had ideas and funds, while the other
started at incubators in research centres or universities where the technologies were developed. The first incubator
in the Republic of Korea started to operate at Korea Research Institute of Industrial Technology and KAIST
started TIC/TBI in 1992. In 1997, after special articles for venture promotion, the Korean government initiated
programmes to support the ventures and directly supported venture capitals, TBI, KOSDAQ, etc., which form the
infrastructure for the creation and growth of venture. The Internet and information technology of so-called
dotcom companies have been highlighted after Korean economic crisis. The companies also manage new strategy
and cultures, different from the classical “jaebol” model.

(c) The third generation

Now the technology and culture of venture are upgraded for a global standard and competitiveness. The
companies having high-tech products and Internet solutions are now announcing IPO, not only at KOSDAQ but
also NASDAQ. In 1999, Thru-net and Mirae Industry announced IPO through NASDAQ and several others are
in preparation for IPO in the United States of America. At the same time, foreign capital companies are
interested in directly investing in Korean venture companies.

2. Recent trends

(a) Number and human resources

Since 1997, the number of venture companies increased drastically at the rate of 250 per month and led
the reengineering of social and economic structure of business. The total number of companies blessed by
SMBA (Agency for Small and Medium-size Business) was 7,110 in May 2000; compared to 4,700 in Japan;
1,200 in Taiwan, Province of China and 1,000 in Israel. Table 1 shows the trend of the ratio of creation and
failure of small and medium-size companies in the Republic of Korea.

Table 1. Numbers of companies created and failed

(Unit: number, ratio)
Class Monthly Average 1999 May 2000 Jun 2000 Monthly Average 2000
Created 2 498 3 757 3 948 3 875
Failed 207 211 223 219
Ratio 12.1 17.8 17.7 17.6

Table 2 shows the recent trend of creating venture companies and indicates more than 500 companies are
founded every month that in every month. Table 3 shows the composition of venture by way of getting certification
by SMBA (maybe the Republic of the Republic of Korea is the only country to count the number of venture
companies) and Table 4 for business area. In the Republic of Korea, venture is defined by law as
(1) companies invested by venture capital, (2) companies which have R&D investment over 5 per cent of total
sales volume, (3) companies which commercialize products based on patents and newly-developed technology
and (4) companies certified by evaluation institutes. However, there are about 3,000 seed companies, which have
no certification from SMBA.

Table 2. Recent trend of venture companies

Class 1999 Jan-Feb 2000 Mar 2000 Apr 2000 May 2000
Number of venture 4 934 5 546 6 004 6 547 7 110
Monthly growth 241 306 458 543 563

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 Table 3. Composition of venture companies defined by law
(Unit: number)
Patent &
Classification Venture capital Research Certified KOSDAQ Total
new technology
Number 1 116 1 106 1 881 2 834 173 7 110
Per cent 15.7 15.5 26.5 39.9 2.4 100

Table 4. Business field of venture companies

(Unit: number)
Info. tech. & Res., Constr. & Whole & Agr., fishery
Classification Manufg. Others Total
software service Transp. retail sales & mining
Number 4 733 2 051 124 99 45 24 34 7 110
Per cent 66.6 28.9 1.7 1.4 0.6 0.3 0.5 100

Recently, college graduates prefer to have job at venture companies rather than at conventional large
companies. A survey of SMBA (1999.1) showed that the 53.8 per cent of college graduates in 37 Universities
take the first priority in venture and 73.9 per cent in the field of information technology and software. This
number does not represent the difficulty of taking a job as taking a job at a venture company is highly recognized
as having a new opportunity for the future.

(b) Venture capital

The 2nd Korean stock market, KOSDAQ was heated and the trade volume of stock soared up since
February 1999. The heat of KOSDAQ initiated to fuel the venture and then angels. In the first half of 2000,
55 capital companies were founded, so that the number reached 141 as shown in table 5, and the number of
investment associations increased to 101, and the total fund was US$ 6.9 billion. Another noticeable change is
the investment of jaebol companies in venture and the increase of direct investments. Direct investment increased
to 75 per cent in 1999, 63 per cent in 1998 and 51 per cent in 1997. Table 6 shows that the investment by
venture capitals increased drastically in the past year, and 76.7 per cent of club investment was distributed to the
young companies less than 3 years old. Also 16 angel clubs supplied US$ 3 billion to fund the initial stage of
companies. This is expected to grow by 10 times by 2002.

Table 5. Number of venture capitals

(Unit: number, 100 million won)
Classification End of 1998 End of 1999 End of Jul 2000
Number (New) 72 (12) 87 (15) 141 (55)
Fund (Cumm) 21 747 27 918 42 777

Table 6. Investment by venture capital

(Unit: number, 100 million won)
Classification 1998 Jan-Jun 1999 Jul-Dec 1999 Jan-May 2000
Number comp. 420 327 1 130 1 042
Investment 2 168 2 089 7 413 8 109

Table 7 shows the number of companies and capital increased by public offering. KOSDAQ is now
recognized as the outlet of investment. In spring 2000, the number of venture companies listed in the market as
public companies was 173 out of a total of 538 KOSDAQ companies. However, this is only about 2.4 per cent
of venture companies.

253
 Table 7. Capital liquidized through KOSDAQ
(Unit: number, 100 million won)
Class Average in 1999 Jan 2000 Mar 2000 May 2000 Jun 2000
Number registered 453 460 492 526 538
Capital increase with
2 570 3 630 5 306 6 178 3 372
consideration
Public offering 1 771 1 072 641 1 678 9 546
Total 4 341 4 702 5 947 7 856 12 918

The investment of foreign capital drastically increases such as CDIB, H&Q, ADL, etc. plan to invest
more than US$ 1 billion and Jadin Fleming Electra invest US$ 160 million to Locus. Thru-net and Mirae Ind.
were listed at NASDAQ in 1999 and many others are in consideration.

(c) Paradigm shift

Figure 1 indicated the motivation and phenomena of venture growth in the Republic of Korea. As the
Silicon Valley model spread over the global economy, the flexibility and speed of enterprise management became
highlighted and replaced the conventional management. Jeffrey Timmons of Harvard Business School was
called this change as “Silent Revolution”. Now it becomes a global rule for new industry at Sinchu in Taiwan,
Province of China, Bangalore in India, and Tel Aviv in Israel. The Republic of Korea has invested in technology
development for more than 30 years and now it is the time to harvest high-tech and well-trained researchers, who
will provide technology and manpower for creating venture, especially in information science and semiconductor
industries. Universities such as KAIST, and research institutes such as ETRI and other institutes, trained high
tech researchers in Taejon area. Spin-offs from large companies, such as Apel Telcom and the dongari, the
venture club of college students, added to this parade. People believe that venture may provide a solution for
unemployment and economic recession and promise high growth and employment. Presently, it was reported
that employment in venture is already over 100,000 and the production volume over US$ 12 billion.

Influence Increase
of of
ventures current capital
(USA)

Growth
Paradigm of
shift venture

Foundation of Spread
industry of
(technology, success
manpower)

Figure 2. Backgrounds of venture booming

Another interesting feature is the flow of capital to venture and KOSDAQ. Government policy for
cultivating venture triggered cash flow and venture was seen as “flower of 21 C”. Most of ventures listed in
KOSDAQ have high income of average 10.2 times, while it is 24.3 for information and telecommunication, and
13.1 for electronics.

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 II. TECHNOLOGY BUSINESS INCUBATION SYSTEMS

A. Incubators

In the first generation period, there were no incubation systems established, but a new concept of incubating
firms was introduced by Professor Lee Jin-Ju in KAIST. He proposed incubation systems as a tool of technology
transfer and initiated the first incubation centre at Korea Research Institute of Industrial Technology (He was
later appointed as the president of this institute) and Institute for the Promotion of Small and Medium Business in
1991 and Software Promotion centres as well. While in University, KAIST first decided to establish TIC/TBI
(Technology Innovation Centre/Technology Business Incubator) in 1992. Darim Vision, the first company in
KAIST, was housed in 1994 with 4 others. Later in 1996, Hoseo University founded the technology business
incubator. In 1997, the Government of the Republic of Korea decided to support venture as a new paradigm of
economy in the Republic of Korea and nominated incubators in University nationwide and 320 incubators in
2000. 223 incubators by SMBA, 40 by MOCIE, 20 by MIC, 17 by KOMS, and 1 by MOST are in operation at
universities, research centres and private companies and the Korea Business Incubator Association (KOBIA) was
established in 1999.

250 226

200
Number of Incubator

150

100

40
50 20 17
1

0
SMBA MOCIE MIC KOMS MOST

Figure 3. Business incubation in the Republic of Korea

In addition to the incubators by universities and research centres, venture capital and service companies
started to operate incubators for their member companies. Also, incubators of large companies started to service
for their spin-offs. Hyundai constructed the Beijing incubator, Automobile incubator and Mokdong Incubator,
Kosin Technology Incubator in Beijing by LG, Samsung SDS incubator, Socho, Ilsan Incubators by KT, IPP by
Kolon, Taejon Incubator by Doosan, and SK global, Hanwha Incubator, etc. Ipark in Silicon valley is operated
by Government.

B. Technopreneurs

There are no data available about the number of spin-offs from the research labs but a survey of Taejon
city and KAIST, showed more than 80 per cent of enterpreneurs have experiences in R&D, engineering backgrounds
(figure 4). They are called “Technopreneurs”. However, spin-offs were slow and delayed, and the research
activities of TST (Taeduk Science Town) faced some difficulties similar to the national economy. Therefore,
nurturing ventures at TST has become a hot issue within provincial and national governments (Kang 1997). It
was recognized, however, that spin-offs from research institutes start after 20-30 years of the science park
construction (Lin 1996, Massey and others 1992).

255
 12%

10% R&D Engineers

Private Companies
57% Management
Technician
8%
Students
4%

Figure 4. Work experiences of entrepreneurs

Here, the trends of creating a venture at TST will be discussed by reviewing three branches: Taeduk 21st
Century Club, ETRI spin-offs (EVA, ETRI venture association), and KAIST spin-offs.

Taeduk 21st Century Club is a venture association working in Taejon and has increased its membership to
67 since 1988. The market volume of the club members was about 10 billion won in 1997. Most of them
(except 10) are still seed companies and no one is estimated to be in steady state (Min 1999). The member
companies of EVA have also increased to 104. The graduates of KAIST founded about 126 venture companies
and the tenant companies of KAIST High Tech Venture Centre (HTVC) are now about 117 in number. The total
number of high tech ventures working at TST is estimated to be about 350 in 2000.

In KAIST, the first venture company, Qunix Computer, which now merged and acquisited to Microsoft
Korea, was started in 1980 by Prof. B.C. Lee, a KAIST graduate and professor of KAIST. Medison, founded in
1985 by Dr. M.H. Lee, who is a KAIST Ph.D. and the president of Korea venture society, marketed ultrasonicators
over US$ 100 million in sales volume in 1998. Dr. Y.D. Kim, founded Darim Vision in 1994, has the MPEG
technology, which is rated as a top technology of the world by European consumers, and housed in HTVC,
performed over US$ 5 million last year. From ETRI, the telephone for persons with hearing problems, was
commercialized in 1997 and named as one of one hundred best products of the market in the United States of
America in 1998.

C. Business area

Figure 5 showed the results of a survey by the Taejon SMB centre and KAIST (1998). The types of
firms consist of software and IT at 45 per cent, computer and multimedia at 15 per cent, fiber and chemicals at
10 per cent, medical and industrial instruments at 6 per cent, semiconductor at 5 per cent, mechines and metals at
3 per cent, and others at 16 per cent. Considering that IT industry gets more gain, it is no wonder for more than
60 per cent of firms are involved in information and communication.

16%
Software & IT
3%
Computer & Multimedia
5% 45% Fiber & Chemistry
6% 10% Medical & Industrial Equipments
15% Semiconductors
Material & Machines
Others

Figure 5. Business area of companies in incubators

The high-tech businesses have the lowest rate of failure (Compbell 1988) and further, the rate of success
can be expected to increase if the science park or incubator is in service. However, it may not be of enough size
to predict the success rate but is expected to increase the success rate. A survey by Dun and Bradstreet (1986) in
1985 listed the failure of 57,067 companies; 14.5 per cent in the first year, 14.1 per cent in the second year,
11 per cent in the third year, 16.7 per cent in 4th-5th year and 23.5 per cent in 6th-10th year. Only 20.2 per cent

256
lasted more than ten years. The KAIST incubator offers an incubation period of three years and limits the
maximum duration to five years. The main objective of such services is to reduce the failure rate.

III. CASE STUDY: INCUBATORS AT TST AND KAIST

A. Service model

It is meaningful to analyse the strength, weakness, opportunity and threats of venturing in order to
observe the dynamics of the present state (Lee 1999). For increasing the success rate, the strategy should be
focused on overcoming weaknesses and threats, and maximizing the strength and opportunity. Even if the needs
of incubators are different from place to place, the areas of support to SME ranked in European countries are as
follows (De Donong and others 1992) by (1) Technology development, (2) Facilitation of start-up enterprise,
(3) Financing and exports, (4) Training, and (5) Information and counselling.

The incubator should develop its own service model depending on the conditions provided by the
environments such as university police, technology service, entrepreneurs, funding, marketing, staff training,
management service, relationship with local government, and other special requirements. KAIST offers the
companies free rental fee, minimal operating cost, management consulting and other support of creating companies
while companies provide the research grant and donation within 1 per cent of their stocks. Figure 5 suggested
a model for an undeveloped country, which is a guide for HTVC.

Figure 6. Technology business incubator model

B. Factors at TST

1. Resources and education

Among all identifiable factors, Dominique Fache (1992) attributes the success of innovation to the cultural
and human adaptabilities at a science park. Usually, however, there is little managerial experience on this radical
change of the global transition economy, which leads to SMB and incubators suffering from the lack of competence.
Most research institutes are in the field of science and technology, and the spin-offs lack management, financing,
and marketing.

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 The four universities in TST take the initiative of cultivating technology and enterpreneurship for young
students; KAIST, Chungnam National University, The Graduate School of Information and Telecommunication,
and Taeduk University. Among them, KAIST runs the undergraduate programme for science-gifted students and
the graduate programme for top-notched researchers. The total number of students is 2,500 for undergraduates
and 4,000 for graduates. About 150 KAIST graduates founded venture companies nationwide and some of them
have been successful. KAIST provides graduates with master and Ph.D. degree adequate to perform national
projects. Some of Ph.D. holders in TST have relocated from the USA and other countries.

Since enterpreneurs of high-tech start-ups, technopreneurs, are not educated as businessmen, they are
required to have the education of management or the support of TBIs. The graduate school of management
offers the Advanced Venture Mangement (AVM) programme (Bae 1998). This programme provides comprehensive
information of start-ups and management including a field trip, and a one-week seminar and tour to the Silicon
Valley. HTVC runs the venture school for start-up businessmen and holds a business plan competition for
college students every year.

2. Technology and facilities

In TST, sixteen national research institutes with their specialties and KAIST, a top-notched university, are
ready to support technical services. In fact, national research institutes have registered 4,125 Korean patents and
623 international patents, and 1,178 projects have been commercialized with loyalties of about US$ 60 million,
according to the report by Shul and others (1999). There is no doubt that the research assistance of TST is of the
highest priority for high-tech venture businessmen relocated to TST. However, there are still some problems like
mixing researchers and businessmen and having no room to develop coprojects. KAIST-HTVC operates
a technical and managerial assistance programme for solving problems by linking venture companies and researchers.

Taejon city plans to construct several new venture facilities in the Taejon Science and Industrial Park
near TST and research institutes start to provide new spaces and build new incubators for their spin-offs. Such
institute-affiliated incubators can provide the space and facilities, research project, and information for their
tenants.

3. Financing and information

Most of start-ups in Korea initially suffer financial problems because the traditional investors are not
accustomed to high-risk projects. Even if it is a venture capital, the evaluation ability of projects is not sufficient
for funding, requiring a security fund named ‘technology credit’. Most capital companies and angel groups do
not have the evaluation ability of technology value, hindering technology transfer and cash flow to venture.
SMBA established the venture license system providing some benefits to ventures and recently
nominated 11 institutes, one of which is KAIST COTAC, the COmpetitive Technology Assessment Centre.
Technology-based ventures, in some cases, require large capitals but the traditional banks do not want to take this
perceived risk. Venture capitals can initiate funding by evaluating the merits of management, market, and
innovation. Technology-based ventures are linked to the sources of knowledge, i.e. universities and laboratories.

The KAIST library is one of the largest national libraries subscribing to 2,000 science and engineering
journals, and KORDIC has developed a database for national researchers. National databases for academic
research by KERIS, industrial technology and information by KINITI, and patent information KIPRIS are also in
service. Most of research institutes have equipped their specialized collections in the individual libraries, which
serve for guest users.

Technopreneurs also lack technical and managerial skills, resulting in the delay of the growth of the
company, and need to upgrade the skills of owner-managers, technicians, and supervisors. Not only financial
partners but also management or marketing partners are required. Incubators regularly open the consulting
sessions with lawyers, accountants, management consultants, and patent lawyers. Enterprise Forum of investments,
and product shows and technology/management seminars are opened. The problems can be overcome by
outsourcing or sharing of profits.

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 4. Networking and infrastructure

A business incubator is one of the major instruments for stimulating enterpreneurship and venture in the
science park. Business incubators provide facilities for new and small firms by providing affordable space,
shared office services, financial service, management assistance, and local and national network. TST and the
Taejon city have made special efforts for networking through World Technopolis Association. Since 1996, the
Mayor of Taejon has organized a conference inviting the mayors of Technopolises around the world to discuss
the cooperation of science parks every year and to promote academic and business linkage. A technomart,
academic conferences, cultural mix and exhibitions follow the mayors’ meeting. There are several Venture
Exhibitions by MOST, MITEE, and SMBA. Under SMBA, SME Service Centre has developed a one-stop
service for creating a venture firm. KOSDAQ provides the funding and investment opportunity for ventures and
investors, and The Korea Venture Association was founded. For an international link, an incubator is operating at
the Silicon Valley to support the soft landing of software companies in the United States of America.

The Taejon Expo Foundation and the Taeduk Science and Cultural Foundation provide the linkage between
TST and the boundary organizations in services including marketplace, mass communication, and business
association. Expo Foundation Co. operates the facilities of the expo, convention centre, and trade centre, while
Science Cultural Foundation supports the athletic facilities, hotel, and cultural events. The SME Service Centre
serves venture and SMEs for management and government policy, and Technology Credit Co. offers funding.
The MOST supports the KAIST Electronic Library and KORDIC database for research information. Taeduk
Angel Club and KAIST Angel club started to fund ventures and Taeduk venture families and plaza started in
2000.

C. TIC/TBI projects in KAIST

KAIST established TIC/TBI to assist technological innovation and business incubation for small &
medium-sized industries and to drive the spin-offs to success in the market place. Therefore, several projects
were launched, such as TIC, to induce the technology innovation of small and medium-sized companies, TBI for
technology business incubation, technology diffusion project, and technology assessment project at COTAC.

1. Strategy of incubator

Now it is time to discuss the strategy for success at the Technology Business Incubator/Technology
Innovaion Centre in KAIST. In figure 7, a strategic vision for success is illustrated, including ten strategic
checking points to achieve technological innovation and market development for tenant companies.

(a) Strategic vision

Successful companies start with a comprehensive review of their strategic vision and link business
strategy to the process. Especially, the first impression of venture in market comes from strategic vision, which
will provide the sales point of future values and potentials.

(b) Synergy effect in technology development

The tenants of the incubator consist of companies related to software, electronics and telecommunication,
mechanical and materials, energy/environment, and biotechnology. Technoprenuers are encouraged to participate
in a variety of seminars and conferences, and to participate in possible joint project between companies of
different areas.

(c) Fund Raising

Technopreneurs usually have funding problems within 1-2 years because the start-up fund runs out but
the companies still have no products to the market. Venture capitals or angels will seek to fund such companies
with some risks, but with highly expected profits. The incubator helps the fund raising via R&D projects,
investment forum, angel group, and technology accessment.

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 Technology
Networking
Development

Education
Strategic &
Vision Management

Fund Intellectual
Raising Properties

Enterprise

Marketing Information
Flow

KOSDAQ COTAC

Figure 7. Strategic Vision Model

(d) Networking and outsourcing

The know-how of operating a small firm is not different from that of the operation of a large company,
but no venture company has manpower and specialty to support the top management. It is common to fulfill the
needs of ventures with networking and outsourcing.

(e) Marketing and brands

Since the products of ventures are not validated in quality, it is very difficult to develop credibility in the
market. Incubator launch COTAC (COmpetitive Technology Assessment Centre) to evaluate the potentials of
technology in the future market. The centre will select valuable technologies, nominate the CT mark as
an advanced technology with high value and permit the use of the common brand.

(f) Education and manpowers

The manpower of well-trained technicians is crucial for developing a new technology but hiring the
people with right technology is extremely difficult. Therefore, the companies should train their own persons and
give stock option for high-tech engineers.

(g) KOSDAQ

As a venture gets market value, usually the company announces the IPO (Initial Public Offering), and its
stock can be traded with high premium at the stock market. Timing is also very important to go for KOSDAQ.

(h) Information flow

The input of information on technology, market, policy and management may revitalize the activity of
a venture but a leak of information on technology and market may make serious problems for the immature

260
market of the company. However, it is sometime inevitable to raise fund and recruit. Incubators organize the
Enterprise Forum for capital investment.

(i) Intellectual properties

Usually a high-tech venture has some intellectual properties, i.e. patents, and the license and brand name
for a venture. It is also important for tax and other support policies.

(j) COTAC (COmpetitive technology assessment centre)

The centre evaluates the technology value for promoting technology transfer, funding of venture capitals,
partnership, and marketplace. The centre reports technology innovation, market, and competitiveness as raw
materials for decision-making.

2. Selection criteria

KAIST has facilities of about 130 rooms at its campus and HTC (high-tech complex). Any potential
tenants would be selected on the basis of open competition by reviewing its proposal and interviewing with the
committee. The general criteria and evaluation items are listed in table 8.

Table 8. Selection criteria

A. Personal project performance
(a) Work experiences Business area
(b) Managing attitude Strategy, R&D, training, trends sensitivity, driving forces, credit
(c) Managing abilities Managing workers, material flow, production, accounting
(d) Financing abilities Starting fund

B. Technology innovation
(a) R&D environments Man powers, facilities, experiences
(b) Innovativeness Core technology, potential, and competitive technology,
innovativeness and complexity
(c) Adaptability Importance of production, stability of process, life of technology,
and sales, marketable technology
(d) Effect of technology Application and extension to other technology or product,
impact of social transition, effect in trade
C. Marketability
(a) Prospect of market Scale of market, potential of market, stability, growth prospect,
exportability
(b) Sales volume and planning Sales volumes, planning, customer, sales strategy
(c) Competitiveness of products Quality of products, price and protection of right

D. Special considerations
(a) Special issues on manager Technology, and market
(b) Government awards
(c) License holders
(d) Project Leaders physical conditions
(e) Credit enterpreneur This may not add to the total but result in failure if not recommended.
The competition points and remarks of Categories B (60 per cent) and C
(40 per cent) are important for selection. If the evaluation committee
recommends, the steering committee will accept the company as
a successful would-be tenant. In this process, the most important one is
the evaluation of Category B during the interview.

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 D. Incubation and graduation

Since 1994, 150 companies were selected and incubated in KAIST incubators. Figure 8 showed the
number of tenants selected and graduated or project drops at KAIST and 13 companies left KAIST in various
reasons. Five companies cancelled the projects, four projects failed but five companies graduated in 19 August
1999. These included as MariTelecom, Darim Vision, Intersys, Setri and Intelligent Telecommunications.

120
114
Number of Tenants

90
81

60
39
23
30 24
15 17
8 8
5 10 4 6
0 2 2
1994 1995 1996 1997 1998 1999
Year

Tenants Graduated & Project drop Resident

Figure 8. Incubation and graduation in KAIST

Composition of 117 tenants companies appears in figure 9 as 14 per cent in software, 21 per cent in
electronics and communication, 25 per cent in precision machine and materials, 30 per cent in environment and
life science, 11 per cent in some supporting companies.

For graduation, the committee reviews the activity of the company and the conditions; (1) the period of
tenancy, 3-5 years, (2) sales volume of 5 billion won/year, (3) number of employee 50, (4) the credit of other
agreements. Based on these categories, the committee evaluates the performance of company, whether it manages
an independent business or not, because after graduation, HTVC offers the same software services if requested.

14 21
Software
11
Electronic & Communication
25 Precision machines & Materials
30
Environment & life science
Others

Figure 9. Business area of tenant in KAIST (September 1999. Number in per cent)

KAIST provides varieties of benefits for the tenant companies. First, the companies are permitted to
relocate the office and working place to KAIST campus without requiring mortgage for space and facilities.
They are charged only a part of the expense for running their office. They use the space for at least 3 years,
extendable for an additional 2 years. Second, we support the direct funding for product developments. In 1999,
26 projects were selected and in 2000, 60 projects were supported. Third, we also provide a variety of services
such as counseling, seminars and education. Fourth, we provide office facilities such as copy machine, common
workplace, and seminar rooms.

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 IV. FACTORS OF SUCCESSFUL BUSINESS IN
THE REPUBLIC OF KOREA

Figure 10 summarized the success factors of venture in the Republic of Korea such as business item,
start-up team, ledge market, outsourcing, and entrepreneurship.

A. Business item

The successful companies must have the income and growth model of business. During the past few
years, Internet, information and telecommunication, and semiconductor industries expanded their market volumes
and, therefore, any related items got the better sales volume. Market entry of new technology provided a lot of
opportunity for engineers or technopreneurs to reduce risks. In 2000, bioventure companies were attracted by
venture investors.

B. Strong team of start-ups

Start-up team must have not only business mind and professional attitude, but also unity and common
goal. Entrepreneur should be open-minded, and may have a better distribution of benefits and maintain the
partnerships.

C. Ledge market

Ledge market, of which large companies cannot take the merit, is the main target of venture, but the
stability and potential success of the initial stage would be increased if blessed by large companies.

D. Outsourcing

All the venture companies also need to supply resources for products and employ them efficiently and
cost-effectively. The small companies, however, cannot have all of necessary resources, but this can be supplied
by outsourcing even all the human resources and facilities.

E. Entrepreneurship

The entrepreneur must have the desire, leadership and vision of business as well as the technology
foresight. The leadership is very important to make an uncertain project successful.

Successful
Business

Item Strong Out- Entrepren-

Market
team Sourcing eurship

Figure 10. Factors for successful venture

263
 REFERENCES

Bae, J.T., 1998. “Education programme of venture management and enterpreneurship”, Venture Management, 1,
pp. 155-179.
Campbell, C., 1988. Change agents in the new economy, business incubators and economic development
(Mineapolis, University of Minnesota).
De Donong, J. Snyder and J. Vianen, 1992. “SME policy in the European community”, Netherlands Outlook
(Research Institute for Small and Medium-sized Businesses).
Fache, Dominque, 1992. Cultural and enterprenuerial success: innovation in science park, the technopolis
phenomena (Maryland, Rowman Littlefield Publishers, Inc.), p. 193.
Kang, B.S. and P.W. Kim, 1997. “Nurturing venture business in Taeduk Science Park”, in Proceedings of the
International Symposium on the Technopolis and Regional Economic Development Strategies, (Taejon, WTA),
pp. 299-329.
Kim, J.H., 1999. Science & Patent Forum (Spin-offs from research institutes, KAIST).
Kim, J.D., I.S. Kim, and J. Namkung, 25 June 1999. “Role of research institutes for business incubators at TST”,
A strategy for venture and TBIs in Korea (STEPI).
Kim, J.D., “A new wave: creating technology-based businesses at TST”, paper presented at the 3rd Conference
of East Asia Science parks, Hsinchu, Taiwan Province of China, 20-21 October 1999.
Lalkaka, R., 1977. Supporting the start and growth of new enterprise (UNDP, N.Y.).
Lalkaka, R., 1996. “Technology business incubators: critical determinants of success”, Annals of the New York
Academy of Sciences, vol. 798, pp. 270-290.
Lee, S.H., 1999. “Support policies for venture and technology-based SME”, in The 3rd Science and Patent
Forum (KAIST), pp. 37-75.
Lin, C., 1996. “Hsinchu Science Park and its impact on local development”, in Proceedings of the International
Symposium on the Technopolis: its Vision and Future (Taejon), p. 87.
Massey, D., P. Quintas and Wield, 1992. High-Tech Fantasies (Routledge).
Min, W.K., 1999. “Trends of ventures in Taejon and their revitalization-Spin-offs from TST”, Bulletin of Society
of Technology Innovation.
Shul, S.S., W.K. Min, and D.H. Shin, 1999. “Long-term strategy for Taeduk Science Town”, STEPI, 99-3.
Taejon SME Centre, a survey in 1998 12.24-1999 1.18, respondents 113 companies.
<http://htvc.kaist.ac.kr>
<http://www.kordic.re.kr>
<http://www.kipris.go.kr>
<http://www.kitini.re.kr>
<http://riss.keris.or.kr>
<http://www.wtanet.org>

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IX. STRENGTHENING TECHNOLOGY INCUBATION SYSTEM
FOR CREATING HIGH TECHNOLOGY-BASED
ENTERPRISES IN SRI LANKA

265
 I. INTRODUCTION

Sri Lanka, known as the pearl of the Indian Ocean is located 880 km north of the equator, adjacent to the
southern tip of India. With an area of 65,610 sq km or 6.5 million hectares, the country is inhabited by
18.8 million people (1998)1 who speak several languages and profess four main religions. Sinhalese comprise of
74 per cent of the population and Buddhism is the religion of 69 per cent of the people (1981).1

The commercial capital of Sri Lanka, Colombo is situated in the western region of the country. With
a per capita GNP of US$ 823 in 1998,1 Sri Lanka is gradually approaching the income level of a middle income
country. The country ranks high on the Physical Quality of Life Index (PQLI) and the Human Development
Index (HDI). In 1997, the HDI was 0.7211 (maximum of 1.0). Sri Lanka has a literacy rate of 91.8 per cent1
(1998), one of the highest in the south Asian region, a low infant mortality rate of 1.7 per cent1 (1996) and a high
life expectancy of 72.5 years1 (1998).

Sri Lanka is primarily an agricultural country with a wide range of crops ranging from tropical to
semi-temperate grown on about one-third of the country. The chief crop is rice, which is the staple diet of the
people. Tea, rubber, coconut and spices are important agricultural crops. The country has a reasonably
well-developed economic infrastructure whilst continuing to be an export-import economy. Although the country
has a limited industrial base, manufacturing industry has grown significantly over the last few years, and in 1999,
approximately 16 per cent2 of Sri Lanka’s domestic output was derived from manufacturing (which consists of
processing of tea, rubber and coconut and factory industry). Textiles, wearing apparel and leather products,
constituting 44 per cent, accounted for the largest value of industrial production in 1999.3

SMIs in Sri Lanka operate in almost all areas of manufacturing industry other than in the area of
petroleum-processing which is predominantly carried out by a large public sector enterprise. The major area of
manufacturing4 is light engineering followed by textiles and apparel, food and beverages, rubber and plastics,
wood and wood products and leather and leather products. The other major sectors in which SMIs contribute are
in sectors of metal products, construction material (mineral based), printing and paper products, agri products,
animal husbandry and horticulture and chemical products.

Similar to other developing countries, Sri Lanka has reached the stage where the ability of SMIs to
generate socio-economic benefits, add value to indigenous raw materials, generate employment and contribute
towards the industrial development of the country has been recognized by successive Governments. However,
there has never been any targeted development of this sector. Even though a large number of organizations that
can provide services to SMIs are in existence in the country, there is no ‘one-stop’ shop for providing this
assistance. Therefore SME entrepreneurs have to face difficulties arising from their inherent weaknesses in
accessing finances, skills, information, business concepts and markets as well as from the lack of cost-effective
business development services and well-managed workspaces, thereby leading to problems of survival.

The incubator concept though well established in many neighbouring countries such as India, China,
Hong Kong, China and Malaysia is yet in its infancy in Sri Lanka. Thus, start-up as well as existing SMIs have
yet to get a competitive advantage from such a facility even though several catalytic factors are in existence for
the setting up and support of such incubators. The targeted development and sustenance, therefore, of the
incubator concept will no doubt assist in minimizing the many constraints that are faced by the SME entrepreneurs
in Sri Lanka.

II. DEVELOPMENT SCENARIO OF INCUBATORS

The concept of incubators probably originated in Sri Lanka in late 1998 when the Ministry of Industrial
Development had discussions with officials of a visiting JICA (Japan International Cooperation Agency) team to
obtain their observations and recommendations on their experiences on incubators in Japan. At this meeting it
was suggested that Sri Lanka should study Incubator programmes in other countries and designs a programme
suitable to local conditions to make this a successful activity.

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 A. Nawabima Company Ltd.

The Ministry of Industrial Development (MOID) had simultaneously set up a Steering Committee on
Incubators and also made arrangements to acquire a state owned building on a 30 year lease basis to set up
an Incubator Centre in Moratuwa in the Western region of the country. The identification was done taking into
consideration the availability of the abandoned building as well as the proximity to a University and a SME
support institution. The Incubator centre was to be established on a private/public partnership with the private
sector as well as NGOs providing the working capital. A Company named Nawabima Ltd., facilitated by MOID
and launched by the Sri Lanka Chamber of Small Industry, was thus formed in early 1999 to run and manage the
proposed Incubator centre. Stakeholders for this Incubator, though identified to a certain extent, have yet to
make a definite commitment. The various other steps of the initial phase of the incubator development process
such as (a) conducting a needs assessment, (b) estimating basic construction costs of renovation to suit the needs
of the tenants, (c) evaluating organizational issues such as the legal structure of ownership, (d) evaluating
potential sources of finance for development and operation, (e) determining the business support services necessary,
(f) selection of a team and (g) finalizing a business plan have yet to be done. An initial advertisement calling for
incubator tenants was made in early 1999, and seven responses had been received. However, since the concept
of business incubators was fairly unknown in the country at that time it was felt that prior planning and awareness
had not been sufficiently provided to attract the right entrepreneurs.

Subsequently, in July 2000, the Chamber received assistance from an International Executive Service
Corps (IESC) consultant from the USAID funded TIPS (Technology Initiative for the Private Sector) project to
carry out a Feasibility study on Industrial incubators. This study reported5 on the suitability of the already
identified location, provided a renovation estimate for the earmarked building, an economic and financial analysis
for a three-year period and also provided guidelines for the recruitment of an incubator Manager. The report
concluded that the incubator can succeed provided, of course, that the recommended criteria for a Manager,
Boards of Directors, Business plan etc. were adhered to. The Consultant also emphasized that further assistance
through TIPS during the latter part of 2000 would be forthcoming for training of the Manager and drawing up the
Business plan, if funding has been received and other formalities finalized.

B. UNIDO funding

In mid 1999, with the finalizing of the programme for the UNIDO funded Integrated Industrial Development
Support programme for Sri Lanka, UNIDO funding of US$ 88,000 was committed for feasibility studies on
setting up Business incubators. An International Consultant was to be thus commissioned for the preparation of
an overall study on the feasibility and options for using business incubators as a tool for economic development
of the country. The Terms of Reference of this Consultant included a study of the economic environment in the
country, the size and characteristics and legal and policy framework for development of the private sector and the
government strategy and existing planned programmes for private sector (especially SMIs) promotion and
regulation. Through meetings with Chambers, Trade Associations, Banks, Universities and R&D organizations,
the consultant was to identify problems facing entrepreneurs, including those interested in technology-based
businesses. With this study, the consultant had the major responsibility of determining the possible types of
incubators appropriate for the specific regions of Sri Lanka and for the preparation of an implementation work
plan for the start-up of one pilot business incubator in the country.

The UNIDO consultant arrived in the country in early May 2000 and his findings that were reported in
6
July, emphasized that the incubator should be a public/private partnership. The study also provided findings of
the assessment of four possible locations in the country and identified interested parties and sponsors, resources
available for incubator development and factors affecting incubator feasibility. UNIDO has already committed
financial assistance and will provide inputs for policy formulation and institutional and legislative framework to
set up one business incubator in the Southern region of the country. The Southern province was identified
because of the major development disparity in Sri Lanka due to the concentration of industrial activity in and
around Colombo and neighbouring districts. Hopefully, this incubator will come into operation in 2001. UNIDO
has indicated that funding from the Commonwealth Science Council (CSC) may be forthcoming for setting up of
another incubator in the Central or North-western region of the country.

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 C. JICA recommendations

In November 1999, the fieldwork of the Phase II study on the Japan International Cooperation Agency
(JICA) Master Plan for Industrialization and Investment Promotion in Sri Lanka commenced. The Interim
Report of January 2000 has recommended the establishment of two Incubator Centres as follows:

(a) Electro Incubator Centre7

This Centre is considered very important for the development of the electric/electronic industry in
Sri Lanka. The Centre is conceived to locate Plastic injection mold-making, Metal-processing and Dye-making
companies and an office of ‘International Procurement Operation’ as joint venture companies and a ‘PCB (Printed
Circuit Board) Design and Sample Centre’ and an ‘Electro Technology Centre’ as Government supported
organizations. It is envisaged that the concentration and integration of these major functions would promote
interactive and collaborative activities and would also provide the tenant companies with advanced infrastructure
and some public assistance and incentives. In this public/private partnership, the government will be responsible
for the setting up of basic infrastructure, purchasing major equipment and securing foreign experts for technical
assistance while the private sector will be responsible for all other operational expenditure.

(b) Software Business incubator8

This incubator is to be introduced to create new businesses in the IT industry. It is anticipated that the
several bottlenecks in this sector of industry such as limited manpower resources and infrastructure, markets and
organizations to promote the IT industry can be overcome by setting up such an incubator. The potential tenant
organizations/individuals with small seed money and good ideas are expected to receive incubator support as
well as experienced partner assistance with respect to merchandising, development, marketing and management
of their technology.

D. IT incubator

In the meantime, in July 2000, a business oriented Information Technology (‘IT’) incubator was launched
in Colombo with the main objective of stimulating the growth and development of emerging IT companies. The
incubator with the formal name Sri Lanka Technology Incubator (Pvt) Ltd. is a public/private partnership and has
already received funding for an initial three-year initial period. One-third of this funding is being provided by
the public organization, the Sri Lanka Institute of Information Technology (SLIIT), and the balance from
a Venture Capital Company, a Software Development Company and a Holding Company, all operating in the
Private sector. This incubator seems to have made a head start by advertising for the post of the Manager as well
as by the appointment of a very progressive and active four-member Board of Directors.

The incubator hopes to invite applications from entrepreneurs and start-up companies in the IT sector.
Applications will be evaluated for innovation, marketability and, initially, up to 15 start-up companies will be
selected as Resident Companies. The RC companies will have access to business and technical expertise,
financial resources with access to venture capital funding and will also benefit from the network of local and
international industry contacts brought to the fore by the promoters. The RCs will also be provided office
facilities inclusive of a high speed Internet connection. This incubator hopes to grow and nourish IT start-ups to
keep pace with the rapid growth of the IT industry around the world.

E. Young Entrepreneurs Incubator

The Young Entrepreneurs of Sri Lanka (YESL) who were also assisted for a feasibility study by the same
USAID consultant as earlier are expected to receive a state building in the suburbs of Colombo for setting up of
a business incubator. The YESL has already received a commitment of US$ 450,000 distributed over a period of
three years from USAID to set up the above incubator as well as five other sectorial incubators that will
hopefully be distributed throughout the country. This, once again, is a public/private partnership and is anticipated
to mainly assist young entrepreneurs of Sri Lanka.

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 F. Sabaragumuwa Incubator

The Sabaragamuwa Chamber of Industry (SCI) is planning to set up a business incubator in a new
building, which the Chamber hopes to build in the near future. A feasibility study will be carried out by the
Small and Medium Enterprise Developers (SMED) mainly to assess the needs of the area. This Chamber even
now assists entrepreneurs with training, drawing up of business plans and providing Internet and e-mail facilities.
SCI also expects to set up an incubator in collaboration with the Gem and Jewellery Authority of Sri Lanka to
assist start-up entrepreneurs in the field of gemstone setting by providing building space and basic facilities. Yet
another incubator is planned by this Chamber for the leather-based industries in the area.

III. CATALYTIC FACTORS AVAILABLE FOR SETTING UP AND

SUPPORTING INCUBATORS

As incubators will necessarily support SMIs in the country, this section of the paper will concentrate on
SMIs as well as policies and facilities available to this sector in anticipation that these policies and facilities will
be afforded to the SMI tenants of the proposed incubators.

A. National policies

1. National Industrial policy

There is no cleary-stated policy for the development of SMIs in the country, neither is there an authority
with statutory powers to assume responsibility to coordinate the development of this sector. However, the
Government’s “New Industrialization Strategy for Sri Lanka”,9 set out by the Ministry of Industrial Development
in November 1995, recognized that Small and Medium industries need development. Some of the areas that
were identified for attention were facilitating expansion, access to funds, infusion of new technology, improving
products, skills training, local and export marketing, promoting linkages with large firms and improving productivity.
However these ideas were not translated to action due to the non-availability of any organization to coordinate
the needs and develop the SMI sector.

In 1997, Sri Lanka’s Industrial policy significantly changed when it shifted from import substitution to
the promotion of private sector-led export oriented industries. This change was considered necessary from the
economic point of view. It resulted in considerable changes in the industrial and export structure and strengthened
manufacturing subsectors with comparative advantages such as garment production that enjoyed rapid growth
with the help of the quota system. However, the change also hindered local industries, especially the SMIs
that could not grow enough to match foreign competition. With the most liberal economic environment on
South Asia, foreign direct investment flowed into the country. Most of the companies that were set up were
labour-intensive and self-sufficient and hardly disseminated their technology to local industries. Therefore
knowledge-based industries have yet to develop in the country in spite of Sri Lanka’s advantageous human
resources. Insufficient investment by the government for R&D activities has also contributed to a great extent to
this shortcoming.

2. National Science and Technology policy

The Science and Technology Development Act No. 11 of 199410 came into effect in April 1998. With
respect to the application of S&T for industrial development, the Act provides for promoting the use of S&T to
achieve rapid economic development, supporting development of indigenous technology whilst promoting the
import, adaptation and assimilation of technology for rapid growth in industry and to identify priority areas of
S&T likely to be of benefit to Sri Lanka.

However, the resources and facilities afforded to this sector by the Government are sadly insufficient
with the allocation being only 0.18 per cent of GDP in 1996.11 Hence the S&T policy of the country cannot be
totally effective for the development of the industrial sector.

270
 3. Concessions, exemptions and fiscal incentives12

In Sri Lanka, there have been no policies or incentives especially for SMIs. Incentives were available
across the board until 1998 when the Government extended a concessionary rate of tax on profits for the SMI
sector. Some of the other concessions, exemptions and incentives that are available to the industrial sector are as
follows:

(a) Advanced technology

This scheme encourages the use of advanced technology. It offers duty free import of approved machinery
and equipment for new and existing enterprises and tax exemptions on incremental profits. The scheme, which
was available to large industries with a minimum investment requirement, is presently available to SMIs as well
with a view to encourage SMIs to acquire advanced technology.

(b) Thrust industries

Industries such as electronics and components for assembling, ceramics and glassware, rubber based
industries, light and heavy engineering, cutting and polishing of gems, diamonds and manufacture of jewellery
have been declared as “thrust industries” and are given various duty free, tax and exchange control benefits.

(c) Export oriented industries

Businesses engaged in the manufacture and export of non-traditional products, export trading and export
of services are eligible for concessionary rates of tax and are exempt from import and excise duties of imported
items as well as those purchased locally.

(d) Regional industrialization

To promote regional industrialization, the government has introduced an incentive scheme aimed at
promoting geographical dispersion of industries. Accordingly, enterprises setting up an expansion unit or relocating
in a zone designated as a difficult area, employing a minimum of 150 persons and exporting 50 per cent of the
output are provided with fiscal incentives.

(e) Textile sector

A Restructuring programme for the textile industry was introduced after the liberalization of textile
imports in 1998. This encourages domestic textile manufacturers in introducing new generation technology to
increase efficiency and competitiveness.

(f) Gem and jewellery sector

Profits arising from export and sale of gems to the State Gem Corporation are exempted from taxes. The
import of rough gemstones, machinery equipment and tools are duty free.

(g) Computer software

A tax holiday and duty free import of all project-related items are extended for the development of
software for commercial purposes.

It is not known, if and how far the SMI sector in the country makes use of these concessions, exemptions
and fiscal incentives.

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 B. S&T infrastructure

The S&T infrastructure in the country basically consists of 17 research institutions13 and 12 universities,14
all in the public sector. Since Sri Lanka is predominantly an agriculture-based country, most of these research
institutes have been set up to serve this sector. The universities scattered in the different regions of the country
are mainly geared to provide academic and technical training for students. Very few of these universities have
specific programmes to provide services for the SMI sector.

Two of the major SMI support R&D institutions that are in existence are as follows:

(a) Industrial Technology Institute (ITI)

The ITI has the main objective of elevating the level of technology in Sri Lanka to the level required for
rapid industrialization. The institute supports SMIs by technology transfers, adaptation of technologies and
development of new technologies. The Institute is actively, involved in developing and transferring suitable
technologies in areas of food-processing chemicals, rubber, plastics, wood and paper based products.

(b) National Engineering Research and Development Centre (NERDC)

The NERDC provides expertise on engineering designs, indigenous technology in areas of energy, transport,
building and techno economics.

Both these organizations operate in the Government sector and, as funding from the Government is
always limited, services even to the SMI sector are provided on a cost recovery basis with no sliding scale
facility. Due to the financial limitations of SME entrepreneurs, the services of these institutes are not freely
accessible.

1. Technical entrepreneur development

Several programmes targeted at technical entrepreneur development are provided by the following major
Government institutions:

(a) Clothing Industry Training Institute (CITI)

The CITI is the only Institute in the country that provides training to those engaged in the garment
manufacturing industry. The Institute also assists enterprises to formulate training programmes for their special
requirements.

(b) Industrial Development Board (IDB)

The IDB is the principal SMI development Institution and is responsible for the development of subsectors
other than textile and cottage industries. Special subsector schemes operate in areas of rubber products, building
materials and light engineering.

(c) National Apprentice and Industrial Training Authority (NAITA)

NAITA is the main institution providing skills training to the employable. Under the NAITA programmes
SMIs have the opportunity of skills training for technicians and craftsmen.

(d) National Institute of Business Management (NIBM)

The NIBM conducts training programmes to train and educate managerial and supervisory staff of SMIs
in modern management and productivity aspects.

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(e) Textile Training and Services Centre

The centre conducts training programmes on textiles, marketing, international trade and also provides
quality assurance and other services to the textile industry.

(f) Vocational Training Authority of Sri Lanka (VTA)

The VTA conducts training programmes through several national, regional and rural level training centres,
mainly targeted at vocational development of potential entrepreneurs and micro, small and medium scale enterprises.

The Industrial Technology Institute (ITI) and the Export Development Board (EDB) also provide various
programmes for entrepreneur development. Skills development programmes are available through Small Industry
Chambers, Women’s Chambers and the Sarvodaya Movement which is a voluntary non-government organization
active mainly in the rural areas, providing leadership and skills training to SMIs.

2. Innovative financing support system

Several schemes of financial assistance are available to the industrial sector and some specifically to the
SMI sector. Some of these are through credit lines that are in operation and others through credit facilities and
Venture capital.

(a) Short and long term financial support systems

SMIs in Sri Lanka have access to long and medium term financial facilities in the form of direct loans
and equity participation from The National Development Bank (NDB) and the Development Finance Corporation
of Ceylon (DFCC). Short-term as well as medium and long-term credit facilities as working capital are provided
mostly by commercial banks.15 However no concessionary rates or simplified procedure are available to SMIs
with respect to this facility.

The long and medium term financial scheme for SMIs has been in operation since 1979 when the World
Bank/Asian Development Bank sponsored Small and Medium scale Industry (SMI) lending scheme became
operational in Sri Lanka. Four lines of credit operated during the period 1979 to 1996. On the completion of
these four SMI schemes, the National Development Bank succeeded in raising two other credit facilities amounting
to a total of US$ 96 million enabling the continuation of the support to the SMI sector.

This facility is now channelled through two schemes. Under these schemes, the bank lends directly as
well as through several participating credit institutions and also plays the role of refinancier and provides assistance
to almost all sectors of SMI operation. Both start-up projects and expansions are considered under the scheme.
The SMI has to provide 25 per cent of the overall cost of the project in the form of equity. The bank, at
competitive interest rates, provides 75 per cent of the cost of the project subject to a maximum. The basis for
granting the assistance is the economic and commercial viability of the project, experience, integrity and managerial
capability, market competitiveness of the product, technical feasibility and the profitability. The two schemes in
operation are as follows:

(i) The SMILE scheme

The Small and Micro Industries Leader and Entrepreneur Promotion Project (SMILE) came into operation
in 1996 when the Government of Sri Lanka initiated a credit line amounting to US$ 46 million from
the Overseas Economic Cooperation Fund of Japan specially for the promotion of Small and Micro
enterprises. These enterprises are defined as those where fixed assets (excluding land and building) does not
exceed SL Rs 10 million (approximately US$ 0.13 million).

(ii) The SMAP scheme

Small & Medium Enterprises Assistance Project (SMAP) came into operation in 1997 when a credit
facility of US$ 50 million was successfully negotiated from the ADB. Enterprises where the value of the fixed

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assets (excluding land and building) on completion of the project does not exceed SL Rs 20 million (approximately
US$ 0.26 million) are benefited by this scheme.

These loan schemes, even though in operation are not easily accessible to SMIs due to high interest rates,
having to rely on securities and most SMIs not being well versed in loan scheme options available. SMIs also
generally lack managerial and financial discipline and are, therefore, not in a position to provide the details
required by the banks prior to obtaining financial assistance.

(b) Venture capital16

In 1999, seven Venture Capital Companies (VCCs) were in operation. These companies provide
long-term capital for the commencement of new business, expansion of existing ventures, acquisition of buyouts
in addition to investing in shares etc. Most of the companies also provide added services such as financial
advice, planning, introducing foreign technology, formulation of marketing strategies and introducing joint ventures
and marketing partners. In 1999, the VCCs assisted a large number of projects under the Graduate Entrepreneurs
Loans programme and the Non-graduate Educated Youth programme. The manufacturing sector and the services
sector are the major recipients of funds. VCCs are required to invest in specified risk ventures under the Inland
Revenue Department guidelines. However, at present, VCCs can opt out of the tax holiday by expanding
investments in diversified activities such as priority sectors and the software industry.

(c) Angel capital

Private capital sources such as Angel capital is unavailable in the country at present.

3. Intellectual property assistance/Technical consultant assistance

Intellectual property assistance is available through the National Intellectual Property Office in Sri Lanka.
This office deals with almost all activities of intellectual property including inventions, designs, trade and service
marks, copyright etc. A Sri Lankan patent provides protection for an invention only in Sri Lanka. However, as
Sri Lanka is a party to the international cooperation treaty, protection is possible in other countries as well.
Sri Lanka’s Inventors Commission assists inventors in locally patenting an invention, patenting procedures and in
making contact with local and foreign investors.

Technical consultant assistance is available through R&D institutes and private individuals. However, no
specifically targeted assistance is planned as yet for technology and business incubation.

(a) Strategic business alliances and networking

SMIs in Sri Lanka have access to a range of business and technical services support from Government
institutions as well as various donor-funded activities. The performance of various agencies in providing technical
assistance to SMIs has been mixed. Weaknesses have included a “supply driven” approach in providing technical
assistance rather than an assessment of the real needs of the sector.

Several Chambers of Commerce and Trade Associations are in existence promoting entrepreneurial and
trade related activities. E-mail and Internet are also increasingly accessible to entrepreneurs. Some of the
institutions that have been set up with the major objective of assisting SMIs in establishing business alliances and
networking are as follows:

(i) Industrial Development Board (IDB)

The IDB is one of the largest as well as an important implementation institute for the improvement of
technology and management skills of industries, especially SMIs. The IDB is in charge of the development of
regional industries as it operates through several provincial and district offices and also manages 10 industrial
estates.

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 (ii) Project SMED (Small and Medium Enterprise Developers)
SMED is a joint collaboration with Friedrich Naumann Foundation of Germany and the Federation of
Chambers of Commerce and Industry in Sri Lanka. It has the primary objective of strengthening SMIs. The
project provides consultancy services with respect to technology requirements in specialized areas and business
alliances.

(iii) Sri Lanka Business Development Centre (SLBDC)

The SLBDC is a private non-profit organization established to develop, strengthen and stimulate business
and industry. Amongst the goals of the centre are fostering entrepreneurship and upgrading and expanding
management training and development.

(iv) Sri Lanka Export Development Board

The Sri Lanka Export Development Board has a special scheme for developing SMIs for export through
a network of regional offices and through awareness programmes on export products, procedures, markets and
export packaging. Assistance is also provided for participation in trade fairs, contact promotion programmes and
inward/outward buying missions.

(v) Sri Lanka German Private Sector Programme (PSP)

PSP assists private enterprises in export marketing, productivity, quality improvement and cooperation
with German companies in selected sectors. The project is implemented under the auspices of the Ministry of
Industrial Development with the technical assistance of the German Development Corporation (GTZ).

(vi) Technology Initiative for the Private Sector (TIPS)

TIPS, which is funded by USAID, is designed to increase the international competitiveness of Sri Lanka’s
private sector and generate employment in industries. TIPS assists in searching, acquiring and mastering
technologies with assistance form the International executive service Corps of the United States of America.

4. Standardization, metrology quality control (SMQC) and marketing

(a) Standardization, metrology and quality control (SMQC)

Standardization, Metrology and Quality control facilities are fairly well developed and available through
two major institutions the SLSI and the ITI. However, one major disadvantage with respect to SMIs is that both
these institutes operate mainly from the capital Colombo even though a branch of the SLSI provides some
services in the north-western region of the country.

(i) Sri Lanka Standards Institution (SLSI)

The SLSI provides laboratory facilities for standardization and quality control, promotes these activities
through educational consultancy, operates a certification marks scheme and is responsible for the preparation of
national standards. The institute also provides metrology facilities.

(ii) Industrial Technology Institute (ITI)

The ITI provides standardization, metrology and quality control facilities to almost all sectors of SMI
activity.

Both the SLSI and ITI are presently being assisted through the UNIDO Integrated Industrial Development
Support programme for Sri Lanka on the component Quality, Standardization and Metrology. This is mainly
with the objective of strengthening these areas as well as the testing capabilities in the country, with particular
emphasis on quality systems and environmental management systems and development of accredited chemical
and microbiology testing laboratories mainly for providing quality services to SMIs.

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 A large number of organizations in the country have obtained ISO 9000 certification. However, only one
private sector laboratory and two ITI laboratories have obtained laboratory accreditation as per the ‘ASTEL’
accreditation scheme which is based on the internationally recognized ISO ISO/IEC Guide 25 Quality system for
testing and calibration laboratories and operated by the Sri Lanka Standards Institution (SLSI).

(b) Marketing

Assistance for SMIs for marketing of their products is available through the several Chambers of Commerce
and Industry and Trade Associations and a few other institutions. These are as follows:

(i) The Department of Small Industries

This is one of the oldest institutions that has been set up to promote small industry especially in the
handicrafts sector and to directly undertake marketing for SMIs. The Department has offices in every district.
A few other allied institutions, viz The National Crafts Council, the Sri Lanka Handicrafts Board (Laksala) and
the National Designs Centre have been set up to support the handicraft sector. Laksala, which has several
branches islandwide, also directly undertakes marketing for SMIs.

(ii) The Export Development Board

The Export Development Board provides assistance with respect to export marketing.

(iii) The National Exporters Association (NEA)

The NEA encourages SMIs to enter the export markets and expand existing operations. The association
shows considerable commitment to develop export markets for non-traditional industries.

However, there is no established organization where SMIs can obtain information on global markets.
Regular awareness programmes for SMIs to determine prospective local and foreign markets through participation
in Trade fairs, exhibitions, visits to technology parks, study tours, etc. with full access to industries are rarely
available to SMIs as these programmes usually require a financial input from the SMI.

IV. RECOMMENDATIONS FOR FUTURE ACTION

A. Incubation system

With the several catalytic factors that are targeted towards the development of SMIs in the country,
prospects for developing and facilitating the incubation system in Sri Lanka appear positive. It is recommended,
however, that the feasibility of setting up new incubators be determined mainly based on demand, the possibility
of seeking strong partners and also after identification of the incubator purpose and type. The incubators that
will be set up must be managed as a business operation as far as possible even though “not for profit” incubators
may be considered. It must be borne in mind that the incubators can only succeed with a well developed
business plan, a dynamic and competent manager with business experience, a progressive and active Board of
Directors, well-defined policy for entry and exit of tenants and, of course, sufficient sources of revolving funds.
The incubator managers must necessarily resist political pressure from stakeholders to recruit companies that do
not meet the necessary criteria.

The operation of the new incubators that will soon be set up must provide potential for the services of the
incubators to be modified to meet the changing needs of client companies. It is also recommended that the
performance of the incubators that are being developed presently be continuously evaluated and corrections
promptly identified and made so that new incubators can benefit from the lessons learned by the pioneers.
Developing linkages to industry, R&D and university networks for quality services and, very importantly, looking
outward towards export and networking, both nationally and internationally, is also recommended.

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 It is recommended that the facilities of the SMI Development Corporation (SMIDEC) be fully utilized by
the incubators for the benefit of the SMI incubator tenants when this corporation is established. The establishment
of SMIDEC has been recommended by the JICA study team17 that is drawing up a Master plan for industrialization
and investment promotion in Sri Lanka. This corporation is envisaged to provide assistance with respect to
technology, finances, marketing, venture and incubation promotion and credit guarantee. This new organization
will also, hopefully, coordinate the work of the multiplicity of the SMI development institutions in the country
and provide every possible assistance to make policies and regulations SMI-friendly.

B. High-Technology based enterprises

With respect to setting up high-technology based enterprises, the R&D institutions in the country must be
more demand-oriented in catering to the high-technology areas. The government should allocate additional funds
to subsidize the R&D efforts of these institutions to make the results freely available in general to the SMI sector
and, more specifically, to incubator tenants. Agriculture-based research institutes as well universities should
promote specific agro-industrial high-technology projects that can be commercialized by incubator tenants. The
government must also make sufficient investment for commercializing these technologies and other scientific
results that is, at present, lacking in the country. It is also recommended that direct foreign investors should be
given necessary incentives to transfer appropriate high technologies to their local counterparts so that these
enterprises will be knowledge based rather than labour intensive as at present.

The curricula of universities and other training institutions should be modified to meet the technological,
leadership and business demands and needs of the SMI sector. This will not only encourage S&T entrepreneurship
but can also lead to the formation of “graduate companies” in incubators.

Quality control and standardization procedures should be improved for obtaining ISO certification with
state assistance, private sector associations and chambers of industry. Development of computerized Wide Area
Networks (WAN) covering the regions, relevant agencies and organizations to provide up to date information to
SMIs should be provided.

Most importantly, the high-technology enterprises and incubator systems must be structured so as to
effectively compete in the global economy.

V. CONCLUSIONS

It is encouraging to note that the development of incubators in Sri Lanka is proceeding at quite a rapid
pace considering the fact that the concept was introduced to the country only a little more than a year ago. It is
hopeful that, in the near future, Sri Lanka can boast of some well established and successful incubators that will
be examples to countries in the region that have yet to benefit from the incubator concept.

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 REFERENCES
1
Economic and Social Statistics of Sri Lanka, vol. XXI (Central Bank of Sri Lanka 1999), p. 1.
2
Annual Report (Central Bank of Sri Lanka, 1999), p. 5.
3
Annual Report (Central Bank of Sri Lanka, 1999), p. 48.
4
Sri Lanka Small and Medium Industries: Impact of Liberalization and Constraints of Development (Project
SMED, May 1999), p. 14.
5
Johnston, Norbert B., Industrial Incubator Feasibility Study (Sri Lanka Chamber of Small Industry, July
2000), pp. 2-5.
6
Bearse, Peter, “Assessment of the feasibility and logistics of industrial business incubators”, in Report of the
UNIDO Mission to Sri Lanka (July 2000), p. 6.
7
Japan International Cooperation Agency (JICA) and Ministry of Industrial Development Democratic Socialist
Republic of Sri Lanka, Master Plan Study on Industrialization and Investment promotion in Sri Lanka
(Phase II): Interim Report (January 2000), pp. G-43.
8
Japan International Cooperation Agency (JICA) and Ministry of Industrial Development Democratic Socialist
Republic of Sri Lanka, Master Plan Study on Industrialization and Investment promotion in Sri Lanka
(Phase II): Interim Report (January 2000), pp. H-24.
9
Sri Lanka, Ministry of Industrial Development, New Industrialization Strategy for Sri Lanka, (November
1995), pp. 17.
10
National Science Foundation, comp., Science & Technology Statistical Handbook 1996 (September 1998),
p. 1.
11
Sri Lanka, Parliament of the Democratic Socialist Republic of Sri Lanka, Science & Technology Development
Act No. 11 of 1994, pp. 1-2.
12
Annual Report (Central Bank of Sri Lanka, 1999), pp. 62-64.
13
National Science Foundation, comp., Science & Technology Statistical Handbook 1996 (September 1998),
p. 8.
14
National Science Foundation, comp., Science & Technology Statistical Handbook 1996 (September 1998),
p. 39.
15
Annual Report (Central Bank of Sri Lanka, 1999), p. 200.
16
Annual Report (Central Bank of Sri Lanka, 1999), p. 61.
17
Japan International Cooperation Agency (JICA) and Ministry of Industrial Development Democratic Socialist
Republic of Sri Lanka, Master Plan Study on Industrialization and Investment promotion in Sri Lanka
(Phase II): Draft Final Report (March 2000), pp. 18-19.

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X. STRENGTHENING TECHNOLOGY INCUBATION SYSTEM
FOR CREATING HIGH TECHNOLOGY-BASED
ENTERPRISES IN TAJIKISTAN

279
 First of all we would like to express our gratitude and say that it is great honour for us to be invited to
participate in the “Regional Consultative Meeting on Strengthening Technology Incubation System for Creating
High Technology-based Enterprises”, held in Seoul, the Republic of Korea, during 29-31 August 2000.

As a newly-emerged economy in the process of transition towards a market-oriented economy, Tajikistan

has to learn from developed countries on technology incubation schemes.

Due to the long-lasting civil war and its aftermath we did not have an opportunity to create an incubation
system in Tajikistan.

We are in the initial stage of creating such a system and are establishing contacts with countries having
an experience in this field. Therefore, it is very necessary for us to participate in the above-mentioned meeting.

At the Agency for Support and Development of Small Entrepreneruship, under the Government of the
Republic of Tajikistan, there is a Department on the Development of Entrepreneurship dealing with the creation
of a technology incubation system in the country.

For instance, from the experience of the Russian Federation, theoretically, we have come to the following
conclusions:

Private enterprises are considered to be one of the principals driving forces in economic development.
They stimulate private ownership and entrepreneurial skills, generate employment, help diversify economic activity
and make a significant contribution to exports and trade.

Promoting entrepreneurship has a vital role to play in improving competitiveness of businesses and
improving Tajikistan’s employment situation. In spite of the fact that the promotion schemes of the advanced
market economies and the countries in transition are different, entrepreneurship is being encouraged, especially
by eliminating spatial disparities and by fostering technological development and new innovative enterprises.
Business incubators are growing rapidly over the world, from 200 at the beginning of the 1990s to around 3,000
today. The majority of the countries in transition (CITs) have acknowledged that private entrepreneurship is
crucial for economic restructuring and is an important element of the reform process. Governments in the CITs
play a crucial role in the development of support services for enterprises. Some of these support institutions are
in an initial phase while some institutions have acquired vast experience of both success and failure, depending
on the needs to be analyzed. Experiences should be exchanged by similar organizations and lessons drawn for
the future. It is generally recognized that these support institutions are newcomers to the market economy, lack
entrepreneurial skills and need human and financial resources to be effective. Business incubators are a major
component of the infrastructure of SME support and development. The major aims of the BI are:

◆ To provide scientific and methodical assistance to the business incubators

◆ To establish information support infrastructure for SMEs
◆ To represent the interests of small business in the government and in public.

Business incubation is a tool for enterprise development – an important one but still only a tool that
needs to be used for the purposes of the institution in question. This could be an incubator breeding new
enterprises, or a science park for an industrial zone where the incubation services are included in a wider
programme.

Depending on the type and purpose of the institution, the main benefits include, among others, the
following:

◆ The business incubator can become a long-term economic development tool for a community.
It helps to diversify the economy and expand the tax base.
◆ The business incubator helps in changing attitudes towards personal initiative, innovation,
risk-taking and entrepreneurship.
◆ The business incubator helps entrepreneurs to start their own businesses and gives them an advantage
over non-incubator new firms.
◆ The business incubator creates job opportunities.

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 ◆ The business incubator greatly increases the likelihood of business survival for new small and
medium sized start-up firms.
◆ The business incubator allows tenants to participate in exchanging information and discussing mutual
commercial interests.
◆ The business incubator helps retain individuals who would otherwise leave the area due to a lack of
job opportunities.
◆ The business incubator helps to rehabilitate and re-use existing buildings.
◆ The business incubator helps to enhance the community’s image as a centre for innovation and
entrepreneurship.
◆ The business incubator promotes the clustering of SMEs which helps to overcome their major
weaknesses-isolation and powerlessness-and raise their competitive potential through the emergence
of linkages between firms providing economies of scale and scope.
◆ The business incubator is itself a dynamic model of a sustainable, efficient business operation.
◆ The business incubator provides additional jobs and income beyond those directly employed and
paid through the incubator’s tenants.

Thanks to the assistance of the business incubator, the tenants are able to employ a larger workforce and
increase their own revenues. This increase has a direct consequence in state revenue growth through the taxes
an enterprise has to pay. This extra income can be used by the local government to fund business incubators.
The most common constraints are given below:

◆ Entrepreneurs criticize the business incubator for only helping a handful of firms;
◆ The incubator does not fully cover their operational costs and makes it compulsory to take part in
special programmes;
◆ Lack of office space; poor communication, limited financial opportunities for young entrepreneurs;
◆ Large expenses for public utilities, poor opportunities for monocompany, financial difficulties;
◆ Expense-related activities of technology business incubator, limited investment and credit
opportunities;
◆ Limited financial opportunities for clients, relations with the landlord regarding rent of office space;
◆ Large expenses for public utilities, limited investment and credit opportunities, limited financial
opportunities for young entrepreneurs;
◆ Large office rent for management group, limited investment and credit opportunities;
◆ Human resources (in 1997);
◆ No financial opportunities for dynamic development of the business incubator;
◆ Large expenses for public utilities, limited investment and credit opportunities;
◆ Financial limitations of consumers;
◆ Large expenses for public utilities, no working capital;
◆ Limited investment and credit opportunities;
◆ Expenses for public utilities, limited investment and credit opportunities.

Taking into consideration the above-mentioned advantages and disadvantages of the business incubation
system, we will try to create a unique business incubation system in Tajikistan.

We hope to have the benefit of your cooperation.

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XI. STRENGTHENING TECHNOLOGY INCUBATION SYSTEM
FOR CREATING HIGH TECHNOLOGY-BASED
ENTERPRISES IN UZBEKISTAN

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 I. INTRODUCTION

A. General information

Business-incubators of Uzbekistan were set up in January 1994. The experience of a UNIDO project
on the establishment of two pilot business incubators in Tashkent and one in Samarkand has shown that
well-organized business incubators may render effective assistance to an enterprise during its formation, thus
increasing opportunities of survival and leading to success.

These results were the basis of a decision by the Government of Uzbekistan to set up a network of
business incubators in all regions of the country. In this connection, a project document was signed between the
State Committee for State Property Management of Uzbekistan, acting on behalf of the Government, and the
Regional Representation of UNDP on setting up and developing business incubator network in Uzbekistan.

According to the project, the Republican Business Incubator (RBI) was established in January 1996 as
an organizational and coordinating centre for the whole business incubator system of the Republic. In April 2000
the functions of RBI were transferred to the newly set up Association of Business Incubators and Technoparks of
the Republic.

For a period from January 1996 to April 1997, a general republican network of 23 business incubators
was established. At present the Association includes all existing business incubators and technoparks.

A concept of business incubator (hereinafter referred to as BI) in Uzbekistan defines the following
directions of its activity:

◆ Business consultations to entrepreneurs on general issues of law, taxation, finance, management;

◆ Assistance in state registration of firm’s constituent documents;
◆ Assistance in obtaining credit and attracting direct investment, as well as partners for project
realization;
◆ Preferential leasing furnished and computerized office and technical services;
◆ Information accumulation on available offers of domestic and import equipment for making it
available to a wide circle of businessmen;
◆ Transformation of entrepreneurial idea into a concrete project, help in its development and realization;
◆ Work on training and skills development;
◆ Attraction of necessary experts to project work;
◆ The basis of macroeconomic aspects of the concept is the following;
◆ Setting up and complex development of new enterprises;
◆ New working place creation;
◆ Mobilization of society investment resources and their use for solution of priority tasks of economic
development;
◆ Development of entrepreneurial ability of the population;
◆ Creation of technical and managerial knowledge and skills of personnel of incubators and
tenant-firms;
◆ Commercialization of scientific researches;
◆ Development and strengthening of scientific and production links.

B. Total number of operating incubators

The total number of operating incubators is 23.

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 C. Incubator typology

Number of BI: 23 including 2 specializing in technological development issues as well as scientific

research commercialization.

D. Incubator’s legal status

◆ State enterprise (100 per cent state property) – Republican business-incubator

◆ Limited Liability Company (mixed form of property) – 20 BI
◆ Joint-stock company (mixed form of property) – 2 BI

E. Main factors offering technological and business incubation

(1) National policy regarding science, engineering and production 1

(2) R&D entities and HEE 3
(3) Businessmen occupied in engineering 4
(4) Financial system of innovation support 1
(5) Assistance in the sphere of intellectual property/technical consultations 2
(6) Business development 1
(7) Scientific and technological parks 5
(8) Strategic business alliances and network development 5
(9) Standardization, metrology, quality control and marketing 2

II. CATALYTIC FACTORS FOR SUPPORT AND ASSISTANCE TO

TECHNOLOGICAL AND BUSINESS INCUBATION

A. National policy regarding science and technology

Business incubators’ activity (including two of them specializing in problems of technological development
and scientific research commercialization) is based on project document “Business-incubator network development
in the Republic of Uzbekistan” signed by UNDP and the Government of Uzbekistan. There is also additional
normative and instruction base determining conditions and priorities of business incubator network’s activity and
development prospects.

In the whole, innovative, scientific and technological activity in the Republic is based on the following
main legal and normative documents:

◆ Laws of the Republic of Uzbekistan “Towards standardization”, “Towards certification of products

and services”, “Towards metrology”, “Towards informatization”, “Towards inventions, useful models
and industrial samples”, “Towards intellectual property right protection”, “Towards trademarks and
service marks”, etc.
◆ Resolutions of the Cabinet of Ministers “Towards measures on state support of science and innovative
activity development”, “Towards formation of national calibration basis and metrology development”,
“Towards state support of development international scientific and technical links, science programmes
and projects on grants of international and foreign organizations and foundations”, “Towards
temporary provision on industrial property”, etc.
◆ Decrees of the President of Uzbekistan “Towards state support of science and development innovative
activity”, etc.
◆ Departmental normative acts: Resolutions of the State Committee on Science and Technology
(SCST) “Towards developing innovative entrepreneurship and improving technology transfer

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 procedure for domestic and foreign industries”, “Towards creation of system of commercialization
of scientific and technical development works and innovative projects”, “Towards order of formation
and realization of programmes of basic researches”, etc.

B. The main state programmes of support of innovative

and scientific and technical activity

◆ Programme of business incubator network development for a period to 2001 within the framework
of the state programme of support and development of small and medium-sized business aimed at
the creation of favourable economic conditions for setting up and development of new enterprises,
and business projects, and, in particular, innovative ones
◆ 14 priority state scientific and technical programmes aimed at the solution of problems of the
development of intellectual potential, resources conservation, new technologies, materials and
facilities
◆ 18 scientific and technological programmes aimed at the solution of problems of public health,
ecology, informatization, architecture and construction, agriculture and forestry, etc.
◆ 11 programmes of basic research in the field of mathematics, physics and astronomy, biology,
chemistry, economy, sociology, etc.
◆ Programme of innovative works of the SCST RUz aimed at the solution of critical problems of
economic and social development of branches of national economy and regions of Uzbekistan

C. Main directions of state support of innovative activity

◆ Development and improvement of normative and legal provision of innovative activity, mechanisms
of its promotion, system of institutional transformation, intellectual property protection in the
innovation field and its introduction to economic cycle of operation;
◆ Creation of system of complex support of innovative activity, development production and export;
◆ Development of infrastructure of innovative process including system of information provision,
expertise, financial and economic system, production and technical support, systems of certification
and promotion development work, staff training and retraining;
◆ Promotion of development of small innovative businesses by creation of favourable conditions for
formation and successful operation of small high-tech organizations and rendering state support to
them in the initial stages of work;
◆ Improvement of competition system of selection of innovative projects and programmes for support
of the most worthwhile industries and organizations, attraction of extra budget investments;
◆ Use of technologies for double purpose, conversion technologies for the development of high-tech
products and technological processes in civil branches;
◆ Stimulation of international cooperation of the Republic of Uzbekistan in the field of innovation
and technology transfer.

D. Forms of state support of innovative activity

◆ Allocation of direct state budgetary funds for carrying out basic researches, realization of scientific,
technological and innovative programmes and projects of general national character (state order);
◆ VAT exemption of:
(i) scientific and technological and innovative works performed by state orders;
(ii) patent duties, registration fees, license payments for purchase of intellectual property object
rights;

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 ◆ Temporary profit tax exemption of patentees (licensors) and users (licensees) of industrial property
objects patented in the Republic of Uzbekistan;
◆ Exemption from gross income of physical persons of amount of grant obtained by them from
international organizations and foundations as well as within the framework of international
agreements on scientific and technological cooperation;
◆ Exemption from VAT, excise, custom duties on equipment received through grants of international
organizations and foundations within the framework of international agreements on scientific and
technological cooperation;
◆ Attraction of foreign investments and credits on security of government;
◆ De jure recognition of intellectual property objects as investment resources committed to objects of
economic and other activities;
◆ De jure recognition of intellectual property right commitment, including copyright, patents, trademarks,
useful models, industrial samples, trade names, know-how, goodwill, as one of forms of foreign
investments on the territory of the Republic of Uzbekistan;
◆ Accelerated depreciation of Capital fund;
◆ Preferential national duties for industrial property objects patenting formed within state order.

E. Intellectual property object tax privileges

Business-incubators of Uzbekistan do not have any special tax privileges connected with their own
activity or activity of BI tenant firms. They also do not handle any financial resources allocated to them, besides
those transferred as basic funds for material and technical base creation. Moreover, business incubators may,
alongside with other objects of national economy enjoy the following system of tax privileges on intellectual
property objects:

◆ According to Tax code of the Republic of Uzbekistan put into force from 1 January 1998,
contributions, shares and other targeted fixed capital investment pooled for general task solution are
not legal personal income set up specially for these tasks solution and are not objects of taxation;
intangible costs are liable to aggregate income deduction as depreciation in the next period.
◆ Intangible costs are liable to aggregate income deduction as wearing-out monthly at the rate calculated
by a legal person proceeding from their original value and useful life (no longer than legal person
validity). On intangibles, when it is impossible to determine a period of rational use, depreciation
norms are defined proceeding from five years (no longer than legal person validity).
◆ The following legal persons are exempted from income tax:
❏ Patentees (licensors) from IPO use in own production as well as from license sell on
them-from the date of the use start within their validity:
(i) invention and selective achievement on patent-during 5 (five) years;
(ii) invention on preliminary patent and selective achievement on a certificate, industrial sample
on patent-during 3 years;
(iii) industrial sample on preliminary patent-during 2 years.
❏ Licensors (persons entitled to use an object of license agreement) from IP0 use from the
beginning of the use:
(i) inventions and selective achievements on patent-during 5 years;
(ii) inventions on preliminary patent, selective achievements on certificate, industrial sample
on patent-during 3 years;
(iii) industrial sample on preliminary patent, useful model on certificate-during 2 years.
❏ Trademark and service mark on certificate-during 1 year (at production of a licensor).

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 ❏ In accordance with Tax Code of the Republic of Uzbekistan, income sum obtained by
a patentee (licensor) from IPO use in own production or from sale of licenses on them from
the day of coming into use within the validity, as well as licensee from IPO use is not included
in taxable income of physical persons from the date of coming into use of:
(i) invention and selective achievement on patent – during 5 years;
(ii) invention on preliminary patent and selective achievement on certificate, industrial sample
on patent-during 3 years;
(iii) industrial sample on preliminary patent and useful model on certificate-during 2 years.

F. Expenses on scientific developments

The total volume of expenses on researches and development in 1999 amounted to 76,292,915 thousand
soums. This index, as the object of financing belongs to the main scientific research base or subsidiary organization,
consists of two components: internal and external expenses. In the structure of total expenses, internal ones
were 70,684,449 thousand soums or 93 per cent, external expenditures totalled 5,608,466 thousand soums or
7 per cent. However, internal expenses are also divided into operating expenses (salary, acquisition of working
assets) and capital investments (acquisition of buildings, facilities, machinery, equipment, etc.), with prevailing
operating costs forming 98 per cent of all internal expenses on researches and development. This figure shows
an insignificant replenishment of special equipment that at the moment implies a big problem for the scientific
institutions in Uzbekistan. In 1999, internal operating expenses amounted to 69,371,796 thousand soums and
had relatively even distribution to three groups of expenses: 34 per cent – applied researches, 34 per cent –
scientific and technical developments, 15 per cent – fundamental researches, and 17 per cent – other branch
expenses. Dynamics of change of the absolute expenses on scientific and technical developments in Uzbekistan
within 1997-1999 has a very positive tendency: total expenses for this period increased by 142 per cent, internal
operating expenses by 143 per cent, the volume of capital investments by 239 per cent, and external expenses by
110 per cent. Of course, it is necessary to take into account the influence of inflation on these indexes (according
to the UNDP Report on human development for 1999, in 1997 – 27.7 per cent, in 1998 – 17.9 per cent),
however, a positive tendency in financing scientific and technical projects has been observed.

Considering financing of internal expenses on researches and developments on sources of funds, one can
conclude that the state budget funds (42 per cent) prevail, financing from the customers of scientific and technical
products (39 per cent), and financing at the account of own funds of scientific organizations (16 per cent). Other
financing sources have small specific gravity: the means of non-budget funds (less than 1 per cent), foreign
investments (less than 1 per cent), etc. A change in these indexes within the recent years attests a constant
growth of the federal budget role in financing scientific and technical programmes (from 1997 to 1999, the
volume of financing increased 2.6 times), as well as growth of budget assignation for keeping institutions of
higher education (1997 – 45,183 thousand soums, 1999 – 1,544,221 thousand soums, i.e. 34 times).

Expenses on scientific and technical developments in the Republic of Uzbekistan are cited in table 1.

The information on internal financing expenses on researches and developments are given in table 2.

G. Science organizations

The Scientific complex of the Republic of Uzbekistan includes 452 scientific organizations and 56 ministries
and departments involved in scientific and technical works. Its organizational structure consists of scientific and
research institutions (181), design organizations (28), project and project-prospecting organizations (27), institutions
of higher education (55), scientific and research and design organizations at the industrial enterprises (7) as well
as other scientific organizations (154). These are scientific, experimental stations and fields, state archives,
institutions on nature protection, museums, libraries, geological and prospecting organizations, organizations on
serving scientific institutions.

On the whole, the branch “Science and Scientific Service” includes 1,000 organizations, but only
one-third is engaged in scientific research and development. In 1999, they generated scientific and technical
work of more than 8 million soums. Their share in the GNP is 0.4 per cent. About half of the given volume, i.e.

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3.7 million soums, consists of scientific research. 70 per cent of them (2.6 million soums) are applied research,
and 30 per cent fundamental development (1.1 million soums).

Analysis of statistical data for the last 3 years shows permanent increase of the number of branch
structures. From 1997 to 1999, the number of scientific organizations increased by 57 per cent, and the volume
of the work executed by them increased by 135 per cent. At the same time, the share of scientific and technical
work in the GNP also increased by 21 per cent.

The number of organizations involved in scientific research and development in the Republic of Uzbekistan
is given in table 3.

The number of organizations involved in scientific research and development and grouped based on the
number of their employees is given in table 4.

H. Training of personnel

In 1999, the number of scientific organization employees in the Republic was 36,900 people. 66 per cent
of them or 24,300 are researchers-specialists. The rest 34 per cent are technicians, supporting personnel and
other workers.

In Uzbekistan, there are 40 people, having degrees such as doctor of science and kandidat of science, per
100 scientists. The number of specialists having doctor of sciences degree is 1,929 people, kandidat of sciences
– 7,934 people. In 1999, for training specialists of higher qualification, there were functioning 138 post-graduate
studies (83 in scientific organizations and 55 in higher educational establishments), with about 4,000
post-graduates, and 77 doctors of science studies (44 in scientific organizations and 33 in higher educational
establishments) with 337 people where they trained specialists on more than 20 branches of sciences.

At present, in Uzbekistan, there are no special state programmes on enhancing qualification of entrepreneurs
specializing in technology development. However, there is a wide network of specialized business schools,
courses, training centers and other institutions for training and enhancing qualification of entrepreneurs in market
economy and individual market subjects.

I. System of financial support of innovations

Nowadays, financing of innovation activity in Uzbekistan is undertaken by the State Committee on

Science and Technology that makes preferential investments into innovation projects for 1-2 years in terms of
reimbursement of funds invested. Typically, financing of scientific and technical developments is undertaken at
the level of scientific research work and scientific research, experimental and design developments, and there is
no financial infrastructure required to introduce them into practice.

The existing model of state financing of innovation projects is inadequate to the character and duration of
an innovation cycle that forms 5-7 years of work. Also, finished innovations cannot be introduced to the local
market because of a shortage of funds. Therefore, they either become obsolete a “go away” abroad. Besides, it
is burdensome for the Government to act as a main investor and this does not correspond with the global practice
of financing innovations on the base of commercial and mainly venture capital. In the most countries of the
world, this problem is solved by the creation of a system of consistent financing, when the government finances
the initial and the most risky part of the scientific research, experimental and design developments and then
venture capital funds finance it further.

Commercial financing of innovation projects also does not meet requirements of the market. Access of
small and medium innovation firms to the loan commercial capital is limited due to the absence of pledged
security, impossibility to present own share required by banks in project capital and shortage of working assets.
Also, banks need collateral before making decisions on loans. As a result, banks allot credits, not against the
idea but against concrete property guarantees, and for a relatively short period of time. This is a key problem for
the innovation companies to which, in spite of the attractive commercial prospective of technologies developed
by them, bank credits are not available or unattractive.

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 Taking into consideration the situation, it is extremely important work towards the creation of innovation
projects venture financing institutions in Uzbekistan. Unfortunately, in the country, there is no a single structure
involved in the organization of the total complex of works and services for the creation of venture funds:
development of normative, legal and constitutive documentation; methodological and informational literature;
presentation of information; advisory, training and educational services.

In this connection, business incubators generated an initiative to create a centre of venture financing
institutions development as the basis for all further work on this subject.

This project is prepared at the level of feasibility studies and is being now discussed with the International
Eurasia Foundation in order to attract a grant. Participation in the project is also offered to the Asian Pacific
Center on Technology Transfer (APCTT) and the first steps have already been undertaken to start cooperation.

The key project objectives are as follows:

1. Creation of a centre of venture financing institutions development as the organizational technical,

managerial, training and methodological basis for the formation of a system of venture capital institutions.

2. Creation of a highly professional team of experts in sphere of financing innovation investment

projects that will form the basis of the managerial section of all further work.

3. Development of:
❏ a conception of creating and developing institutions for innovation projects venture financing
as a basis of the innovation entrepreneurship support system
❐ drafts of normative and legal acts that regulate venture financing institutions activities in the
country
❏ package of standard constitutive documents required for the state registration of these structures

4. Formation of training and methodological basis for training and enhancing qualification of specialists
in the sphere of venture financing of investment projects in scientific and technical fields.

J. Standardization, metrology, and quality control

In the Republic of Uzbekistan, there is a state system of standardization and metrology that regulates
general organizational and technical rules of carrying out work on standardization and metrology. Organization,
coordination and provision of works on standardization, are implemented:

◆ In national economy branches – Uzbek state center of standardization, metrology and certification
under the Cabinet of Ministers of the Republic of Uzbekistan (Uzgosstandard)
◆ In sphere of construction, building industry, including projecting and designing – State committee
for architecture and construction (Goskomarhitekstroy)
◆ In sphere of regulation of usage of natural resources and environment protection from pollution and
other harmful influences – State Committee for Nature Protection (Goscompriroda)
◆ In sphere of medical products, articles of medical technology, medicinal means, as well as in the
issues of determining content of matters harmful for human in products manufactured by the industry
of the country, including imported products – Ministry of Health (Minzdrav)

According to the Law of the Republic of Uzbekistan “About standardization” dated 28 December 1993,
state governing bodies, within their competence, develop, approve, register, issue standards and terms of references
as well as instructions and interpretation on the application of normative and legal acts.

Bodies that approve standards create and manage information funds of standards and provide interested
consumers with information on international standards, standards of the republic of Uzbekistan, national standards
of foreign countries, as well as with information on international agreements on standardization, state classifiers
of technical and economic and social information, rules, norms and recommendations on standardization.

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 If an international contract or agreement fixes rules other than those provided in the legislation of
Uzbekistan, the rules of international contract or agreement are applied.

Production and sale of the products without any normative documentation is not allowed. In order to
secure protection of the interests of the Republic and competitiveness of products manufactured, in well-grounded
cases preliminary requirements for future forestalling possibilities of traditional technologies are determined in
standards. The government guarantees economic support and stimulation of tenants of economic activity, which
manufacture products marked with the sign of conformity to the standards, including the standards with preliminary
requirements for future forestalling possibilities of traditional technologies.

Objects of state metrological control and inspection are as follows: standards of weight and measures,
means of measurements, standard samples of content and property of matters and materials, informational and
measurement systems, methodology of measuring, etc.

State metrological control and inspection is applied in the following fields:

◆ Public health, veterinary medicine, environmental protection

◆ Inventory-making of material, values and energy resources
◆ Trade and commercial, customs, post and tax operations
◆ Storage, transportation and destruction of toxic, easily catching fire, explosive and radioactive matters
◆ Provision of state security
◆ Provision of security of labour and transportation
◆ Definition of security and quality of certified products
◆ Geodesic and hydrometrical works
◆ State testing, inspection, calibration, repair and metrological attestation of measurement means
◆ Extraction of minerals
◆ Other spheres of activity fixed by normative acts.

In the Republic of Uzbekistan, quality control, certification of manufactured products and services are
provided by “Uzgosstandard”, which defines the list of products subject to obligatory certification; accredits
agencies certifying similar products and testing laboratories (centers); makes state rolling of certified products,
accredits certifying agencies and testing laboratories, and experts; assumes state control of certification rules
observance, certified products, as well as of accredited certifying agencies; takes decisions on joining international
certification systems; represents Uzbekistan in interrelations with other states and in international organizations
on the certification issues, etc.

Rendering support to the small and medium business representatives in solving problems of certification
and standardization of their products, business incubators of Uzbekistan actively interact with competent state
bodies. Unfortunately, there are no accredited certifying laboratories (centres) within the business incubators
framework and, when necessary, services of other organization are used.

K. Best practice in business incubating

During more than 5 years of business incubators operation, over 400 business projects were prepared and
about 100 production enterprises and enterprises of service sphere have passed the process of incubation. At
present, 245 small and medium-sized enterprises operate as business incubator tenants and more than 2,800 jobs
have been created.

Within the period from 1996 to 2000, business incubators and their tenants generated products (works,
services) for the amount of about 3 million soums and 200 thousand USD. More than 100 business incubators
tenants received support in implementing investment projects (credits, grants, creation of a joint venture) for
a total amount of about 300 million soums and US$ 1 million. More than 12,000 people were trained within the
framework of short-term courses, seminars, training and educational programmes created under business incubators,
on such subjects as market economy, accounting, computer literacy, foreign languages, farming, etc.

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 Some significant examples of business incubation are:

(a) Ecological Enterprise “Greentech”

(Date of creation is 1996; Main sphere of activity is development and production of equipment and
devices for water and air purification).

The enterprise cooperates with the business incubator “STBI” (Tashkent city). Experts developed
a business plan of enterprise development within the period by 2000. Support was rendered in preparation and
enhancing personnel qualification, organization of the management system, marketing of raw material and material
suppliers and buyers of finished products, technical documents for manufactured products were prepared and
submitted to the bodies of certification and standardization. The most important factor of organizational and
advisory support was preparation of documentation and carrying on negotiations on the subject of testing products
of the enterprise by independent scientific organizations of the United States of America, Germany, Republic of
Korea, India, and Malaysia.

Since 1996, the enterprise has expanded its range of manufactured products (installations for filtering,
skimming, desalting, softening and desalination of potable water for individual and industrial use, installations
for special water preparation in liqueur and wine making, installations for preparing water in heating systems,
installations for purification of industrial, house-keeping sewage and purification of industrial gas wastes, fibrous
sorbents for water and air purification) by five times and the volume of production has increased 15 times.

(b) “Orom-biopreparat” Co. Ltd.

(Date of creation is 1990, Sphere of activity is development and output of lacto-, biphido-, propione-,
coli-containing bacterial preparations, ferments and products on their basis, infants food on the base of local
untraditional raw material).

The enterprise became a tenant of business incubator “STBI” (Tashkent city) in 1997. To that moment,
the enterprise accomplished scientific researches and developments on a number of innovation subjects and was
at the stage of organization of its production activity. The management of the firm, jointly with the business
incubator, developed feasibility studies for enterprise development. According to the programme of action,
experts rendered support in:

◆ Search of necessary production site and additional equipment for the organization of production;
◆ Marketing of suppliers of raw materials, materials and consumers of finished products, in preparation
and implementation of the initial contract documents;
◆ Patenting, certification and standardization of the applied technological process and finished products;
◆ Creation and state certification of laboratorial complex to control the quality of raw materials,
materials, and finished products.

Within the period from 1997 to 1998, experts worked as managers of the enterprise and managed to
attain stabilization of production, financial and economic activity. Nowadays, they have a developed business
plan and are searching for a foreign partner for the creation of a joint venture for packaging medical preparations
and bacterial ferments.

(c) Private Firm “D-4”

(Date of creation is 1992. Sphere of activity is development of science-intensive technologies in the field
of physiological active matters for application in medicine and agriculture).

The enterprise became a tenant of business incubator “STBI” (Tashkent city) in 1997. A business plan
for the enterprise development was developed with assistance of business incubator’s experts, according to which
the firm rendered assistance in:

◆ Development of investment project “Enhancing sustainability of wheat to lodging in the conditions

of farming requiring irrigation with the help of D-4-2 – stimulator of growth and development” for

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 obtaining a grant of the State Committee of Science and Technology of the Republic of Uzbekistan
(GKNT), negotiations and conclusion of financial agreement;
◆ Organization and conducting of field tests of the developed preparations;
◆ Organization and conducting of laboratory researches and certification and standardization of finished
products;
◆ Organization of advertising campaign, search of consumers and presenting interests of the enterprise
at the level of different state institutions.

The enterprise has implemented two grants of the State Committee of Science and Technology within the
framework of which a unique immune-stimulator – “Timonin” was developed and allowed to apply as a stimulator
of growth and for increasing the yield of technical crops (the yield increases on average by 25-30 per cent, with
seeds keeping the property for one more year).

(d) Training Centre “NetDec” Co. Ltd.

(Date of creation is 1996. Sphere of activity is training and enhancing qualification in sphere of computer
literacy).

In 1996, 4 persons, graduates of the Tashkent State Institute of Connection, came for consultation to the
Republican Business Incubator with an idea to create a firm for training in computer skills. As a result of joint
work with the business incubator experts, a business plan was developed for the creation and development of
such an enterprise. Business incubator’s experts implemented this project and started to work as managers of the
firm. During implementation of the business plan, the following measures were undertaken:

◆ Presented furnished office, telephone and fax, possibility to use computer and office equipment,
secretary and accountant services in favorable terms;
◆ Prepared a package of constitutive documents for state registration;
◆ Prepared an inquiry to the Russian Office of “Microsoft” in Moscow for receiving requirements on
certification of authorized training centre in Uzbekistan. On the base of data received, a business
plan was worked out for “Microsoft”, a classroom was adapted to the current requirement and the
firm’s representatives were sent for training to Moscow;
◆ A business plan was developed for obtaining credit from a local bank and necessary negotiations
were arranged with the bank. The project is at the level of obtaining credit;
◆ Support was rendered in searching for an optimal proposal for the procurement of computers and
registration of contract documents;
◆ Assistance was given in marketing, advertising campaign and attracting students.

As a result, in 1997, the training centre formed a material and technical basis and received authorization
from “Microsoft”. At the moment, it is a well-known and constantly developing firm in Uzbekistan, having
9 employees, 4 classrooms equipped with 22 up-to-date computers and promoting several directions of investment
activity. More than 600 people were trained in the centre.

III. RECOMMENDATIONS AND CONCLUSIONS

Today, in the Republic of Uzbekistan, a significant system of scientific and production organizations,
scientific and research institutions, higher educational establishments, etc. has been formed. There is a number
of state programmes directed to the development of scientific, technical, and innovation developments. There is
also great intellectual potential. Moreover, most industrial enterprises possess all necessary production resources
for practical implementation of innovation projects. However, there is a lack of organizational, technical and
financial systems providing an interlink between science and production. A considerable number of the most
interesting innovation projects need investments, venture capital, and advisory support for accomplishing scientific
and research work, and for implementing scientific research and experimental design developments and in
introducing these technologies into industrial production.

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 In this connection, one of the main elements of the present and future planning is the preparation of
institutional, methodological, normative and legal, managerial (personnel) basis for creating a system of venture
financing of innovation, scientific and technical programmes (as mentioned above), development of a “spin-off”
system as well as of a network of technology business incubators and technoparks.

There are good reasons to hope that this work will acquire concrete practical character in the near future.
The Government of Uzbekistan pays great attention to the promotion of the business incubator system and small
industrial complexes, with the functions of technological parks, in the country. It is expected to establish ten
additional business incubators within 2000-2001. Privatization of large industrial enterprises being implemented
at present is expected to restructure industrial complexes and create networks of small enterprises within the
framework of a single zone of technological development. Such kind of techno-polices will be organized with
the active participation of foreign investments, technologies, equipment, experience of technological development
management, etc. The main providers of these programmes are the State Committee of Science and Technology
of the Republic of Uzbekistan and State Committee for State Property Management and Entrepreneurship Support.
Business incubators take direct participation in this work. There is a conception of applying business incubators
as a primary organizational model in creating large scientific and technological parks. A circle of international
partners was determined in this field. They are the International Eurasia Foundation, Agency on international
cooperation of Turkey and other organizations. The interest in promoting this subject in Uzbekistan was showed
by the United Nations Industrial Development Organization, and first steps were taken to build up relations with
APCTT.

This makes our participation in the seminar held on 29-31 August 2000 in Seoul, extremely important
and useful. We hope to gain maximum information, documentary materials and to establish necessary business
contacts with foreign colleagues intensify and qualitatively improve the work carried out by us.

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XII. STRENGTHENING TECHNOLOGY INCUBATION SYSTEM
FOR CREATING HIGH TECHNOLOGY-BASED
ENTERPRISES IN VIET NAM

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 I. BACKGROUND ON VIET NAM INDUSTRY AND SMALL AND MEDIUM
SIZED ENTERPRISES FOR THE LAST YEARS

You may know that Viet Nam is in the process of transition from a centrally-planned economy to a free
market economy driven by the government under light of the renovation, open-door policy which commenced in
1986. In the whole economy, generally, and in industry, particularly, Viet Nam has accomplished certain
achievements.

Viet Nam industry witnessed an annual growth rate of 11.23 per cent; it increased by 14.1 per cent in
1996 and 13.2 per cent in 1997. Due to the negative impact of the regional financial – economic crisis, industry
grew at the rate of 12.1 per cent in 1998 and decreased to 10.41 per cent in 1999. In 1999 alone, the proportion
of state-owned sector, which mostly are Small and Medium-sized Enterprises (SMEs), accounted for 43.48 per
cent of the total industrial production, equivalent to an increase of 4.52 per cent as compared to the 1988 figure.
The proportion of non-state sector whose enterprises are SMEs was 21.7 per cent (increased by 8 per cent) while
foreign invested sector contribution accounted for 34.75 per cent (increased by 20 per cent) of the total industrial
production. For the first 6 months of 2000, statistics showed that the situation is better than that in the first
6 months of 1999.

Before 1995, industrial export turnover was only a few billion US$ but this figure has increased
considerably during the following years. In 1997, industrial export turnover increased by 20.38 per cent as
compared to 1996, in 1998 it increased by 7.27 per cent and in 1999 by 33.91 per cent as compared to the
previous year.

To the end of April 2000, there were 2,991 projects that received foreign direct investment (FDI) in the
whole economy for a total investment of US$ 42.75 billion, in which there were 643 projects in heavy industries
with a total capital of US$ 7.24 billion, 41 projects in oil and gas sector which accounted for US$ 2.92 billion,
14 industrial and export processing zones with total investment of US$ 0.95 billion, 653 projects in light industry
with US$ 4.20 billion, 160 projects in food processing industry with total capital of US$ 2.53 billion.
59 countries are currently investing in Viet Nam. Viet Nam and foreign investors have cooperated in setting
up 67 industrial and export processing zones and licensed 916 enterprises with total capital invested of
US$ 7.8 billion in those zones.

In regard to the legal environment, the National Assembly of Viet Nam has ratified a number of laws to
enable a favourable environment for economic and industrial development and international cooperation. These
laws include the Law on Foreign Investment in Viet Nam (revised and adjusted), Law on Oil and Gas, Mineral
Law, Corporate Law, Private Business Law, Cooperatives Law etc., in which Private Business Law and Cooperatives
Law are an important legal base for SMEs development in Viet Nam and for restructuring the economy.

Regarding industrial restructuring for the purpose of gaining higher efficiency, the number of
state-owned enterprises (SOEs) has decreased considerably. However, there is little decrease in the proportion of
this sector’s contribution in the total industrial output. Meanwhile the non-state enterprises have increased, both
in number of enterprises and in their proportion to the total industrial production. It means SMEs increased their
number and proportion to the whole economy.

II. SMALL AND MEDIUM SIZED ENTERPRISES (SMES)

DEVELOPMENT

In the process of integration of Viet Nam to the regional and global economy, the role of SMEs became
more important. The official definition of SMEs has been recognized in the official letter of Government
No. 681/CP-KTD in June 1998 and other policies on SMEs are under process of elaboration and approval.
According to the definition, an enterprise which has less than 200 employees and capital of less than 5 billion
Viet Nam dong (about US$ 380,000) can be defined as a SME.

SMEs are both state-owned and non-state.

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 In process of restructuring the Vietnamese economy, the number of SOEs decreased from about 12,000
before 1990 to 5,873 in 1995 and 5,280 in 2000 and will be reduced to 3,000 in 2003. About 54 per cent of
restructured SOEs (1,233 enterprises) have the capital from VND 1 up to 10 billion (equivalent to US$ 88,000 up
to 880,000); 36.5 per cent of them have capital less than VND 1 billion (equivalent to US$ 88,000). Equitization
is the priority form of restructuring SOEs. Up to 2003, about 1,498 SOEs will be equitized. At present, this
figure is only about 500. Another 380 state owned enterprises will be merged and 368 will be dissolved. The
number of non-state enterprises have increased considerably. Before 1990, this figure was 390,756, in 1995 was
612,977. Another form of restructuring is to set up services incidental to manufacturing, production, agriculture,
fishery, forestry and mining. In previous years, production in almost all enterprises has been organized under
a closed cycle. It means each enterprise had to do everything in a production process in order to produce the
finish products and, therefore, productivity and quality were very low. Restructuring helps in the establishment
of SMEs under existing laws and in manufacturing and services sectors.

The number of foreign owned enterprises, including joint venture companies, in 1995 was 692 and more
than 50 per cent of them met the definition of SMEs.

The number of private enterprises was 1,096 in 1995 and more than 95 per cent of them were SMEs.

The number of Limited and Stock Companies in 1995 was 4,360 and more than 95 per cent of them were
SMEs.

Almost 1,888 million of family enterprises in 1995 were SMEs.

In Viet Nam, since 1998, many initiatives have been launched in favour of SMEs. For example, centres
for assisting SMEs have been established in Viet Nam Chamber of Commerce and Industry (VCCI) and in the
Ministry of Labour, War Invalids and Social Affairs. Also, some professional associations have been set up to
have dialogue with government agencies non-discriminatory treatment between state owned and private companies
and between SMEs and big enterprises. For assisting SMEs, there is a need to elaborate on policies for a legal
framework, organization, founding family enterprises, land management, export promotion and promotion of
technology and complementary industries along with human resources development.

In order to promote technology and complementary industries for SMEs the following tasks should be
undertaken:

◆ improve production management and product quality control;

◆ diversify and openly contact big enterprises and foreign owned enterprises;
◆ support production of prototypes;
◆ assist in accessing to all information sources;
◆ develop industrial clusters;
◆ broadly apply traditional technology;
◆ promote technology transfer from State owned Enterprises and foreign enterprises to SMEs;
◆ However, SMEs in Viet Nam are lacking capital, human resource and expertise to do these tasks
and, therefore, development and strengthening of technology incubation systems are very important.

III. TECHNOLOGY INCUBATION SYSTEM

In Viet Nam, some activities of technology development in favour of SMEs are underway. Some science
and technology centres and research institutes (see Annex) are assisting SMEs, under contracting arrangements,
on designing, manufacturing prototypes, technology process design, training new production lines, upgrading
and expanding of existing production lines, training etc. For example, the Mining and Metallurgy Institute
helped a Province Mineral Production Enterprise by designing and developing a mineral beneficiary equipment
and now the equipment is operating successfully and brings job and good salaries for local people. The Agricultural
Machine Research and Designing Institute helped some cooperatives to manufacture a prototype of Agro-product
processing machine and the cooperatives can now produce such machines and sell them to many farmers. In
Viet Nam, 75 per cent of the population are farmers. Therefore, various machines including small diesel engines,

300
pumps, small electrical generations, power tillers should be developed. The Technology Institute helped
a foundry cooperative in upgrading its traditional foundry technology and, as a result, its product quality improved.

Institutes Centres assist such activities daily. But, because of the constraint of the government budget,
researchers and engineers of those Institutes in Viet Nam usually receive about 50 per cent of standard salary.
Their contracts with SMEs, therefore, are on the basis of negotiation on prices. This means SMEs would not
enjoy any preferential treatment in pricing. If some international organizations, other countries or the Government
of Viet Nam assists in compensation of contract prices (say, 20-30 per cent of contract prices), more SMEs would
benefit from such links with research institutes.

From the point of view of management, the Ministry of Industry of Viet Nam would appreciate learning
experiences from the other countries, ESCAP or other international organizations on how to effectively and
officially organize the technology incubation systems for SMEs. Also, assistance on the functions and tasks of
an Institute or Centre on becoming an official member of a technology incubation system and on necessary
conditions to set up an official technology incubation system, for example in the Ministry of Industry of Viet
Nam would be of great use. Viet Nam would be happy to submit proposals on this issue, especially for funding
for price compensation of technology development proposals of SMEs.

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 Annex
POSSIBLE MEMBERS OF TECHNOLOGY INCUBATION SYSTEM OF
THE MINISTRY OF INDUSTRY FOR SMALL AND MEDIUM SIZED
ENTERPRISES IN VIET NAM

1. Viet Nam Institute of Electronics, Informatics and Automation

Address: 156A Quan Thanh Street, Hanoi, Viet Nam
Tel: (84.4) 8456 380/fax (84.4) 8232 958

2. National Research Institute of Mining and Matallurgy

Address: 30 Doan Thi Diem Street, Hanoi, Viet Nam
Tel: (84.4) 8232 986/fax (84.4) 8456 983

3. National Research Institute for Mechanical Engineering

Address: Mai Dich Commune, Tu Liem District, Hanoi, Viet Nam
Tel: (84.4) 8343 29/fax (84.4) 8347 883

4. Research Institute of Geology and Mineral Resources

Address: Km 9+300 Hanoi, Hadong Road, Thanh Xuan District, Hanoi
Tel: (84.4) 8544 386/fax (84.4) 8542 125

5. Food Industry Research Institute.

Address: Km 8 Nguyen Trai, Thanh Xuan, Hanoi, Viet Nam
Tel: (84.4) 8585 107/fax (84.4) 8584 554

6. Oil Plant Institute

Address: 171-175 Ham Nghi, District 1, Ho Chi Minh City
Tel: (84.8) 8297 336/fax (84.8) 8243 528

7. Institute of Ferrous Metallurgy

Address: Quan Ganh, Thuong Tin District, Ha Tay Province
Tel: (84.34) 853 094/fax (84.34) 853 972

8. Institute of Mining Science and Technology

Address: Phuong Lien, Dong Da Street, Hanoi
Tel: (84.4) 8642 024/fax (84.4) 8641 564

9. Institute for Machinery and Industrial Instrument

Address: 34 Lang ha, Dong Da District, Hanoi, Viet Nam
Tel: (84.4) 8344 372/fax (84.4) 8344 975

10. Research Institute for Agricultural Machinery

Address: Km 9 Nguyen Trai Street, Dong Da District, Hanoi, Viet Nam
Tel: (84.4) 8544 429/fax (84.4) 8547 366

11. Research Institute for Machinery Technology

Address: 219 Lang Ha Street, Dong Da District, Hanoi, Viet Nam
Tel: (84.4) 8533 322/fax (84.4) 8547 366

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 PART FOUR

SPECIAL PRESENTATION ON KOREAN EXPERIENCES

I. THE GROWTH AND DEVELOPMENT OF

THE KOREAN VENTURE CAPITAL INDUSTRY

BY

KWON SUNG-MOON
PRESIDENT OF KTB NETWORK
THE REPUBLIC OF KOREA

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 By rapidly responding to and engaging in the global change, the economic paradigm shift to the new
digital economy, and miraculously recovering from the financial crisis that engulfed the nation in late 1997, the
Republic of Korea has recently emerged as one of the leading venture powers in the Asian region.

The dramatic headway made by the Korean venture capital industry was set in motion by various factors:
corporate and financial restructuring, the growth and development of the IT/Telecommunications and Internet
industries, vitalization of the KOSDAQ market, and the government’s strong support for venture companies and
venture capital firms. During the expansion period, venture capital firms greatly contributed to the Republic of
Korea’s meteoric rise as a venture power by providing the necessary financing and business resources to support
the growth and development of venture companies.

This report will provide an overview of the growth of Korean venture capital firms, their role in the
recent venture boom and the future horizon of the industry by focusing on the pioneer of the VC industry, KTB
network, to illustrate the impact that venture capital firms have made on the industry.

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 I. INTRODUCTION

A. Origin of the Korean venture capital industry

The Korean venture capital industry can be traced back to the establishment of the Korea Technology
Advancement Corporation (KTAC) in 1974 with the purpose of commercializing R&D efforts of the Korea
Institute of Science and Technology (KIST). However, investment activity during this period was severely
limited due to the lack of both venture companies and investment funds. It can, therefore, be said that the origin
of today’s venture capital firm was established in 1981 in the form of the Korea Technology Development
Corporation (KTDC), the predecessor of KTB network. During this period, the economy was in the midst of the
second oil crisis and was dominated by a handful of powerful conglomerates. To overcome these existing
challenges KTDC was established by the government to help create greater economic stability through the
fostering of a more balanced industrial environment.

In 1986, the Government enacted the “Regulations to Support the Establishment of Small and
Medium-Sized Enterprises” to promote the growth of competitive technology companies and to overcome the
limitations of the previous existing “Chaebol-oriented” economic policies. The regulation helped build the
foundation for the present growth of the Korean venture capital industry through its support of investment firms
and associations that primarily focused on the financing of small and medium-sized enterprises (SMEs).

However, the majority of these investment firms and associations, with the exception of a limited number
of companies such as KTB network, were relatively small in scale and did not actively engage in investments
due to the slow growth of the venture market. Furthermore, investments from these firms were unlike true
venture capital investments in that much of the financing was in the form of loans rather than equity investments.

1995 1996

investment 45% investment 46%

ban 55% ban 54%

Source: Small and Medium Business Administration (2000).

Figure 1.1. Classification of venture capital financing as of the end of 1995 & 1996

B. Building the foundation for growth and development

Since the IMF Crisis in 1997, the economic policy targeting large business conglomerates (“Chaebols”)
to lead the nation’s globalization came into question as a result of their inefficiencies of high costs and low
margins. The alternative business paradigm manifested itself in the form of venture companies, particularly,
high-technology ventures. In order for the Republic of Korea to accelerate its global competitiveness, consensus
from society in August of 1997 prompted the Government to respond by replacing the existing “Venture Support
for Small and Medium-Sized Enterprises Act” with the new “Special Measures for Establishing and Supporting
Venture Companies”. The purpose of the new act was to effectively foster the development of ventures by
addressing key issues critical to growth of venture companies such as financing, technology, human resources,
and geographical location.

Government policy changes provided a more favourable investment climate for financial institutions and
pension funds to participate in venture capital investments. Also, participants from certain qualified investment
associations were no longer subject to investigations in regards to the source of their funds and the return on their
investments received preferential tax treatment. Furthermore, the introduction of additional policies helped

306
further the growth of the industry such as relaxing regulations for the establishment of Angel investment and
venture capital associations, a limited liability system for venture capital associations, and the expansion of
investment scope for venture capital firms.

Concurrently, the Government provided measures to vitalize the KOSDAQ market. Although, the
KOSDAQ market was established in July 1996 to provide direct financing opportunities to venture companies
and SMEs, the market’s trading volume did not begin to show signs of life until March 1999 when investment
sentiment was bullish. Robust market activity encouraged the Government in May 1999 to enact measures to
sustain the growth of the KOSDAQ such as the relaxing of listing requirements for venture companies. As
a result, the KOSDAQ has become a haven for venture companies with the listing of an unprecedented number
of venture companies. The KOSDAQ had finally matured into a true exchange for investment activity and
provided the necessary market infrastructure for the growth of venture companies and their future valuation.

300 900
10 Mar 2000
800
250
700
(Composite Index)

KOSDAQ

(Venture Index)
200 600
Composite Index
500
150
400
100 300

KOSDAQ 200
50
Venture Index 100
0 0
18 Jan 99

5 Jan 00
27 Oct 98

13 Jul 99

3 Jul 00
7 Oct 99

31 Mar 00
13 Aug 98
1 Jun 98

19 Apr 99

Source: The KOSDAQ Stock Market, Inc.

Figure 1.2. KOSDAQ index

The wealth of private funds amassed during the nation’s economic heyday prior to the IMF Crisis was
largely secured in the financial sector. The existing level of distrust investors had for financial institutions during
the course of the corporate and financial restructuring further fueled the flow of funds from the banking and
investment trust institutions to the venture industry. The crisis in late 1997 and the aftermath of the IMF Era,
proved to be underlying factors contributing to the growth of the industry.

C. The recent rapid growth of the industry

The venture boom of 1999 was defined by a dramatic increase in the number and size of capital investments
from venture companies due in large part to the Government’s preferential tax treatment for investments.

One method to actively participate in venture investments in the Republic of Korea is to be approved as
a New Technology Support Financing Company (NTSFC) under the “Loan Specialization Financial Business
Act”. Until 1987, there were only 2 companies engaged in this specialized activity including KTB network, but
during the period from 1998 to the end of June 2000, the total number had risen to six (figure 1.3). In addition,
12 financing corporations specializing in loans including BC Card, KDB Capital Corporation and Development
Leasing Corporation were granted limited business involvement in the new technology financing activities. As
of the end of 1999, the total financing received by venture companies is approximately KRW 5.3 trillion comprised
of KRW 0.8 trillion in investments and KRW 4.5 trillion in loans.

Thanks to the New Technology Support Financing Companies and the “Small and Medium Enterprises
Establishment Support Act” (SMEESA), small and medium venture capital firms and associations were able to
grow. Among the 137 venture capital firms and 248 associations established by the end of June 2000, more than
half were established after 1999. The trend is expected to become more pronounced during 2000 as 20 new
venture capital firms and 40 venture capital associations have been established in a single month.

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 6

Companies
3

0
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Source: Korean Financial Supervisory Commission.

Figure 1.3. The Growth of new technology support financing companies

Table 1.1. Number of investment firms and associations by year

(Units: W billion)
1986-1996 1997 1998 1999 June 2000
No. of investment firms 54 60 72 87 137
Paid-in Capital 799 886 1 026 1 240 1 866
No. of investment association 71 84 93 149 248
Total amount of financing raised 719 869 920 1 072 1 786
Source: Small and Medium Business Administration (2000).

Investments from venture capital firms and associations established under the SMEESA accelerated and
reached 950 billion won (W) in 1999, and are continuing to grow. The financing method has also altered. While
more than half of the financing in 1996 was in the form of loans, 90 per cent of the financing for 1999 was
provided through equity investments. This, in turn, allowed the venture capital firms to be true to their appellation,
venture capitalists seeking out investment opportunities based on future growth potential and valuation.

1 600
ban
1 400
1 200
(billion won)

1 000
800 investment

600
400
200

1996 1997 1998 1999

Source: Small and Medium Business Administration (2000).

Figure 1.4. Annual investments balance from investment firms and associations

The Korean Venture Investment Association defined under the “Special Enforcement on Promoting Venture
Businesses” has been operating the “Korean Venture Fund” since September 1999. The total size of the fund is
US$ 80 million with a 50:50 investment ratio between the Small and Medium-Sized Business Promotion
Corporation and foreign investors. In addition, approximately W 128 billion was raised by Angel investors
comprised of 17,874 individual investors and 13 Angel associations as of the end of March 2000.

308
 The venture boom that started in 1999 helped alter the industrial landscape and transform the nation into
one of the leading venture powers in the Asian region. The following pages of this report will further examine
the contributions made by Korean venture capital firms in terms of the factors contributing to the growth and
development of the industry and the primary role played by these firms during the expansion period.

II. MAJOR FACTORS IMPACTING THE GROWTH OF THE INDUSTRY

AND THE PRIMARY ROLE OF VENTURE CAPITAL

A. Major factors impacting the growth of the industry

In the wake of the Financial Crisis many of the nation’s largest corporations were left insolvent or in the
process of major corporate restructuring. The economic malaise was a turning point for the nation and the
aftermath made it painfully evident for the Government to redress its economic policy and pursue reforms
focused on large business enterprises. In contrast, the United States of America was experiencing its greatest
economic expansion since the end of World War II. The growth was largely attributable to the boom in the
venture and telecommunications industry. The global telecommunications revolution, particularly wireless
communications, and the Internet proliferated at great speed, transcending national borders and finding new
market opportunity in the Republic of Korea. To actively participate in the global technological market, the
Korean government enacted the “Special Enforcement Act on Promoting Venture Businesses”1 to provide the
necessary support for the development of technology-based companies. The objective of the Act was twofold:
(1) to accelerate the nation’s economic recovery via the growth of new technology venture companies and (2) to
restructure the industrial landscape from the Chaebol dominance of the pre-IMF Era.

As a result, Government action accelerated the exponential growth in the number of venture companies
which, in turn, brought new life to the KOSDAQ market in 1999. The new enterprises fulfilled the underlying
expectations of the advancement of the nation’s technological prowess and economy.

Table 2.1. Number of venture companies in the Republic of Korea by year

1998 1999 Jan 2000 Feb 2000 Mar 2000 Apr 2000 May 2000
No. of ventures 2 042 4 934 5 212 5 546 6 004 6 547 7 110
Source: Small and Medium Business Administration (2000).

Table 2.2. Korean venture companies’ contribution to the national economy

1999 2005 (Projection)
Per cent of GDP contribution by venture companies 4.8 per cent 18 per cent
Number of professionals employed at venture companies 173 000 1 200 000
Source: LG Economic Research Institute (2000).

The rapidly growing number and scale of venture companies created a great demand for funds. At the
time, conventional financial institutions including banks were undergoing financial restructuring and it was nearly
impossible for them to provide financing to the high-risk venture companies. This void was filled by venture
capital firms and “Angel” investors who financed the high-risk companies for potential high returns, providing
momentum for rapid growth in the industry and individual firms.

1
The “Special Enforcement Act on Promoting Venture Businesses” was enacted in the Republic of Korea in October 1997.
Prior to this Act, the general concept of venture businesses though understood, had never clearly been defined. Today, the scope of
venture businesses is defined as follows:
1. A company with more than 10 per cent equity investment from a venture capital firm.
2. A company which spends more than 5 per cent of its sales revenue on R&D.
3. A company that has commercial patents, utility model rights, etc.
4. A company that has been approved by a venture business vitalization committee such as the industry-based technology
development business.

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 Government policy support
for the VC industry
Rapid growth of Exponential growth of
venture industry VC firms

IT/telecommunications &
internet revolution

Transformation of the industry Accumulation of private funds Financial restructuring

structure to SMEs & ventures

Figure 2.1. Primary factors for the development of the Korean VC industry

B. Primary role of venture capital

The objective of venture capital firms is to realize capital gains through the future growth and valuation
of venture companies. In addition to financing, VC firms provide management consulting services and monitor
the company’s business performance, thereby playing a major supporting role for venture companies.

1. Provision of funds to venture companies

Venture capital firms provide the funds required at the time by ventures during various stages of their
development in order to foster the growth of these companies.

Korean venture capital firms provide financial assistance to venture companies in the form of investments
through the acquisition of stocks and convertible bonds and financing through general and Government
policy-based funds. As of the end of 1999, the investment amount provided by new venture capital firms and
technology support financing companies is estimated to be W 6.8 billion. The amount, excluding loans, is
approximately W 2.3 billion, of which W 1.9 billion was through stock acquisitions.

Table 2.3. Classification of financing

As of the end of 1999 (Units: W billions)
Investments
Acquisition Convertible Loans Total
Others
of stocks bonds
VC Firms 1 128 202 84 71 1 485
NTSFC 749 55 39 4 453 5 296
Amount 1 877 257 123 4 524 6 781
Total
Ratio 27.7 per cent 3.8 per cent 1.8 per cent 66.7 per cent 100.0 per cent
Source: Korean Venture Capital Association (2000).

In theory, venture capital firms provide a small amount of seed financing during the early stages of the
company, and also participate in the latter financing rounds of the company’s development, thereby providing
comprehensive financing at each stage of development. In the Republic of Korea, as of the end of 1999, 36 per
cent of the total investments were provided to those venture companies that had been established for three years
or less.

This is the equivalent of 44.5 per cent of the total number of venture companies. When taking into
account that those companies that have been established for three years or less represent 45.9 per cent or 2,976,
compared to a total of 6,485 venture companies as of the end of 1999, a large number of venture companies have
received financing from venture capital firms, demonstrating the increased role that they are playing.

310
 Among the leading venture capital nations including the United States of America, investing in high-risk
venture companies is generally taken on by angel investors, the government or corporations. The role of venture
capital firms is usually to provide most of the financing for the latter operation stages of the venture companies.
Lately, the number of angel investors has been rapidly proliferating in Korea with a total investment amount of
W 128 billion as of March 2000. Although the growth is dramatic, the demand for financing from the rising
number of ventures far exceeds the actual supply of investment funds.

Table 2.4. Status of newly established VC firms providing financing support

As of the end of 1999 (Units: W billions)

After establishment Number of companies Amount of financing

Ratio Ratio
Within 1 year 535 19.5 21 14.0
2~3 685 25.0 33 22.0
4~5 418 15.2 29 19.3
6~7 313 11.4 20 13.3
8 ~ 14 774 28.2 46 30.7
Over 14 years 18 0.7 1 0.7
Total 2 473 100.0 150 100.0
Source: Small and Medium Business Administration (2000).

Table 2.5. Number of angel investors and total amount of investment by year
1998 1999 Jan 2000 Feb 2000 Mar 2000
Number of Angel Investors 349 4 253 8 215 11 171 17 874
Investment Amount
2.4 52.1 88.5 98.3 127.9
(Unit: W billion)
Number of Investee 12 86 128 132 190
Source: Korean Venture Capital Association (2000).

(a) Provision of management consulting services for the growth of venture businesses

Although there are some chief executive officers (CEOs) of ventures who have had experience in
establishing and managing a company, the majority is inexperienced in business management. A recent study
indicated that 28.1 per cent of CEOs of ventures had been researchers, university professors or otherwise did not
have any experience working in a company. Among the 71.9 per cent who did have such experience, most had
actually worked in technical or research related areas and did not have adequate management expertise.

Table 2.6. Professional experience of venture CEOs

Small and
Category Large Cos. Researcher Professor Other Total
Medium Cos.
No. of CEOs 3 211 1 705 610 306 1 006 6 838
Ratio 47.0 per cent 24.9 per cent 8.9 per cent 4.5 per cent 14.7 per cent 100.0 per cent
Source: Client Survey conducted by KTB network in December 1999.

According to a survey conducted by KTB network for investee companies at the end of 1999, 68 per cent
of the respondents stated that they were strong in technology, but 42 per cent stated that they lacked marketing or
sales experience. Furthermore, in a survey regarding services besides financing from venture capital, a large
number of companies responded that they would like to receive information on trends in the venture industry
along with greater support in external promotional activities. In summary, today’s Korean venture companies are

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 Table 2.7. Strengths and weaknesses of venture companies
Strengths Weaknesses
Technology 68 per cent 4 per cent
Marketing/Sales 28 per cent 42 per cent
Organizational Management/Human
0 per cent 2 per cent
Resources
Fund Procurement/Operation 0 per cent 16 per cent
Other 4 per cent 36 per cent
Total 100 per cent 100 per cent
Source: Client survey conducted by KTB network in December 1999.

very interested in receiving not only management consulting services but also diversified information from
venture capital firms.

Most Korean venture capital firms, however, have a short history and venture investment practices in the
past were focused simply on financing and there is very little experience in providing comprehensive management
support. In addition, in the past, venture entrepreneurs themselves regarded venture capitalists’ participation
in the company’s decision-making process as a violation of the rights of management. In some cases, the Board
of Directors, the official channel for venture capitalists to participate in the company’s management became
a non-functioning body due to a few self-righteous entrepreneurs.

Lately, however, surveys indicate that the views of venture entrepreneurs on venture capital firms and
venture capitalists are changing. The trend is such that a greater number of venture entrepreneurs are requesting
information from the venture capitalists with regard to business management and the venture capitalists, in turn,
are providing the requested business services. Also, the emergence of consulting companies providing services
exclusively to venture companies such as business techniques and business strategy consulting, formerly provided
by existing venture capitalists, has raised the level of competition. As a result of the changing environment, the
progress of the venture industry has accelerated and a strong complementary relationship between venture
entrepreneurs and capitalists is mutually beneficial.

(b) Business performance monitoring and supporting public offering

The exit strategy of most venture capital firms is to realize high returns on their initial investment by
selling their equity stake in the investee company. Therefore, it is essential to monitor the performance and
growth rate of the company. Also, this allows for the venture company to objectively judge and measure its own
business performance and development. This evaluation process, in turn, leads to greater recognition and adds
higher value to the company in the event of a future public offering.

Business performance is usually determined by comparing the profit yield for a specified period with the
profit projections made at the time of the investment or by estimating the market value of the initial public
offering. During the investment contract process, the provision of necessary financial and non-financial information
is stipulated as a precondition to the contract agreement. However, the formality does not resolve the fundamental
problem of the information flow between the investee company and the venture capital firm. In the event that
the flow of information is inhibited, venture capital firms have taken several precautionary measures.

One of the most common financing practices in the Republic of Korea is to provide funds on a stage-by-
stage basis contingent on the venture company’s business performance and development. Another form is
through the acquisition of convertible bonds, and if the investee company does not meet business performance
expectations, then it is possible for the venture capital firm to receive its principal after a defined time period.
Also, the existence of put-options allows the investor to re-sell its equity stake to the investee company if
expectations are not met. In addition, providing stock options to top management is another measure to help
ensure successful business operations of the company.

Venture capital firms’ high returns from their high-risk investments are made through various exit strategies
common to the industry such as the initial public offering, selling of equity stake to a third party and mergers and

312
acquisitions (M&As). The public offering of the investee company’s equity shares is the most widespread
method. The listing of the company is not only crucial for venture capital firms, but also for the future of the
venture company. Since 1999, the KOSDAQ has become not only the market for venture companies, but it is
also essential for their future valuation. Furthermore, the Third Market was opened this year with relaxed listing
requirements to allow companies not listed on the major exchanges access to financing. Though this market
provides an additional exit strategy for venture capital firms, trading is not yet very active. Also, limitations to
utilize this market exist for institutional investors who have an equity stake in a large number of investee
companies.

Utilizing M&As as an exit strategy for venture capital firms at this point in time is still a difficult issue in
the Republic of Korea. It is not so much a question of legality but more of a matter of morality. In the Republic
of Korea, M&A activities are perceived as undermining the company’s interests and usurping management’s
control of the company and, therefore, inherently immoral. The concept of M&As is poorly understood as are
their benefits such as the retirement of inefficient management, the creation of synergy from the merger or
acquisition and the expansion of market dominance. Since market expansion via M&As is directly linked to the
enhancement of value for dot.com companies, the M&A market holds great potential as a viable exit strategy for
venture capital firms as they invest more heavily in the dot.com companies.

Table 2.8. Annual growth of the KOSDAQ market

(Units: million shares, W billion)
1996 1997 1998 1999 June 2000
No. of listed companies 331 359 331 453 538
(Venture companies) (52) (86) (114) (173) (191)
Capital stock 3 102 3 495 5 408 13 062 15 119
Market capitalization 7 606 7 069 7 892 98 704 65 080
Transaction Transaction volume 35 47 206 8 674 23 154
Performance Transaction amount 535 1 166 1 607 106 808 391 174
Increase of shares
to be issued 124 87 1 873 3 084 3 227
Fund
Procurement Public offering 27 129 6 2 125 1 609
Total 151 216 1 880 5 210 4 836
Source: The KOSDAQ Stock Market, Inc.

III. EXPERIENCE OF KTB NETWORK

A. KTB network’s status in the venture capital industry

1. The pioneer in the Korean venture capital industry

The nation’s first venture capital firm, Korea Technology Development Corporation was established in
1981 by the Government to offset the policies centred on large conglomerates by fostering the development of
venture companies. The KTDC was established at a time when the concept of venture capital firms was not even
defined, but the very precedent of the company helped create the foundation for the growth of the Korean
venture capital industry.

The Korea Technology Development Corporation was a public corporation established under a government
mandate, the Korea Technology Development Corporation Act. In 1992, the Korea Technology Development
Corporation Act was replaced by the Korea Technology Banking Corporation Act, which effectively enhanced
the scope of operations and resulted in the change in company name to the Korea Technology Banking Corporation
(KTB, presently KTB network). In 1999, with the repeal of the Korea Technology Banking Corporation Act and
incorporation of the Loan Specialization Financial Business Act, the company was transformed into the present
KTB, a private loan specialization financial business institution.

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 When KTB network first began operation, the Korean venture capital industry was practically non-
existent. KTB network initially raised venture capital funds, essentially Government policy-based funds, to
promote the venture industry and provided loans and investments to venture companies that had difficulty obtaining
financing from banking institutions. The financing of small and medium-sized venture companies was the first
attempt of its kind in the Republic of Korea. The financing policy with an emphasis on technology-oriented
venture companies highlighted the importance of technology in the Korean economy.

Table 3.1. KTB network’s annual venture investments

(Units: W billions)
1981-1985 1986-1990 1991-1995 1996-2000
No. of companies 288 537 1 601 1 975
Amount 87 403 1 958 3 736
Source: KTB network database (2000).

2. The first and largest venture capital firm in the Republic of Korea

KTB network is the pioneer of the domestic venture capital industry and has been the largest venture
capital firm in the Republic of Korea since its establishment in all respects including total assets, total investments,
and number of employees. In addition, as a public corporation, KTB network, has played a pivotal role in the
diffusion of Government policies through policy-based funds for the specific purpose of supporting ventures.

Table 3.2. Profile of the leading venture capital firms

(Units: W billions)
Date of Paid-in Number of
Major shareholders
establishment capital employees
KTDC May 1981 48 121 Government, Private Companies
KTF October 1984 38 59 The Korea Development Bank, etc.
KDI December 1982 12 25 7 Short-term Financing Companies
KT September 1974 7 14 KAIST
Source: KTB network database (2000).

In addition to the company’s size and investment volume, KTB network takes great pride and responsibility
as the leading venture capital firm in the Republic of Korea for making quality investments in venture companies
through its fair and rigorous appraisals. As a result of KTB network’s superior investment performance, client
companies are recognized as having great potential for stability and growth. Consequently, KTB network has
invested in most of the leading domestic venture companies.

As of March 2000

KTB
22%

Other KDBV
56% 9%

TGV
KTIC 8%
5%

Source: Korea Venture Capital Association.

Figure 3.1. Market share of KTB network (balance of investment)

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 Furthermore, thanks to its high recognition and reputation as the leading venture capital firm, KTB
network was able to build an extensive information network. This network provides valuable information and
resources to client venture companies, and creates a synergy effect of scale resulting in numerous successful
ventures. Approximately 30 per cent of the companies listed on the KOSDAQ are investee companies of KTB
network.

Table 3.3. Comparison of the leading venture capital firms in Korea

As of the end of 1999 (Unit: W billions)
KDB Capital
KTB KTIC TGV
Corporation
No. of employees 246 194 49 33
Asset 2 078 3 860 456 219
Investment/financing balance 1 270 664 339 201
Operating income 502 1 495 75 42
Net income 111 73 44 23
Source: KTB network database.
Note: In the case of KDB Capital Corporation, leases are included (lease asset of W 1,879 billion).

Table 3.4. KTB network investee companies listed on the KOSDAQ

As of the end of June 2000 (Units: companies)
Classification No. of companies Venture companies
(a) KOSDAQ listed companies 485 191
(b) KTB network investee companies 82 56
Percentage (b/a) 16.9 per cent 29.3 per cent
Source: The KOSDAQ Stock Market, Inc. and KTB network database (2000).
Note: KOSDAQ stocks are categorized into three sectors of non-venture companies,
venture businesses, and securities investment companies.

KTB network’s growth and status in the market helped sustain the Korean venture industry, which had
not recorded any tangible growth for the past 20 years. Also, thanks to KTB network, those venture entrepreneurs
who do not have a strong presence in the economy can now aspire to become independent and successful
companies armed with their technology.

Furthermore, KTB network, the indisputable leading venture, contributed greatly not only to the recent
dramatic growth of the venture industry, but also to the nation’s recovery from the financial crisis in 1998. In
addition, the company played a vital role in supporting the Korean venture industry, breathing new life into the
economy. Paving the way to support the companies maturing in this changing economic paradigm has produced
an alternative to the large business conglomerate-oriented economic growth.

B. Change in financing from loans to investments

1. Role of government policy-based funds

When KTB network was first established, the role of venture capital firms was limited to providing funds
to small and medium-sized companies that were experiencing difficulty in raising funds unlike their larger
counterparts. In the early days, financing provided by venture capital firms was not an investment in the future
valuation of the company, but a mere distribution of funds from the Government’s Promotion Funds for Small
and Medium-Sized Companies.

Since the company’s establishment and up until its recent privatization, KTB network also performed the
same general role of raising the Government’s venture company promotion funds and essentially sublending the

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 Table 3.5. Percentage change of KTB network’s loans and investments
(Unit: W billions)
1981-1985 1986-1990 1991-1995 1996-1999 June 2000
Investments 6 62 136 409 313
Loans 81 341 1 822 2 978 37
Total 87 403 1 958 3 387 350
Percentage of Loan 93.1 per cent 84.6 per cent 93.1 per cent 87.9 per cent 10.6 per cent
Source: KTB network database (2000).

loans to venture companies at favourable terms. KTB network’s business operations to support venture companies
were primarily focused on loan financing, which accounted for 90 per cent of the total financing provided to
venture companies.

(a) Technology-oriented loan business

It should not be overlooked that KTB network’s loan operations are very different from that of ordinary
banking institutions. The most important factors for conventional banking institutions in determining loan appraisals
are collateral and credit guarantee of a company. In KTB network’s case, loan eligibility is determined by
focusing mainly on a company’s technology and its future growth potential. When these conditions are met,
KTB network provides the loans even if the company lacks collateral or credit guarantees. In such a way, it has
become an important source of financing for Korean venture companies in the Republic of Korea.

Even though most of the venture capital financing was initially in the form of loans, KTB network
actively sought out promising venture companies and evaluated both their growth potential and future valuation.
The valuation of the company was accepted in place of any security for the loans, thereby providing the financing
needed for technological start-ups to face and overcome future challenges with new technology. This form of
financing is unique to the Korean venture capital firms.

(b) KTB network’s investments gives rise to venture legends

In conjunction with its loan operations, KTB network also carried out and performed the duties and
responsibilities of a venture capital firm. It made direct equity investments in venture companies that had
financial difficulties but possessed superior technology and growth potential. The equity investments reduced the
financing burden for venture companies and helped to promote the spirit of venture entrepreneurship in a business
environment in which the development of new technology can grow without financial burdens. KTB network’s
investments in promising venture companies have supported the venture industry for the past 20 years and helped
build the foundation for the recent rapid growth of today’s venture industry in the Republic of Korea.

2. Growth in investments-based on future valuation

KTB network’s financing of venture companies was based on the existing practices at the time, which
were predominantly focused on loans. During the nation’s financial crisis in 1998, the company faced its own
dire financial crisis as a result of a loan extended to a company that subsequently became insolvent. Then, in
March 1999, the Government sold its equity stake in KTB network to the Will-Bes Company, Ltd., marking the
beginning of KTB network’s privatization.

The change in management and a new major shareholder transformed the KTB network into a completely
new company. Management transformed business operations from the risk avoidance of the company’s former
loan operations to the role of a true venture capital firm, seeking out promising ventures and taking on high risks
for potential high rewards.

The transformation into an investment-oriented company was initiated by the resolute determination of
the new management. Management’s mid to long-term vision and belief in the Korean venture industry and its
enormous growth potential, despite the grave situation at the time, provided new hope for the company. At the

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 Case Study 1: Investment in the pioneer of Korean venture companies, Cas Corporation
i) Company overview at the time of investment
◆ Established in 1983, as a manufacturer of industrial automatic control devices, industrial equipment, and
industrial robots.
◆ After failing in robot manufacturing, the company changed its product to electronic scales and was in need
of development funds.
◆ In 1984, KTB network provided W 250 million in loans for the localization and development of electronic
scales that were previously imported from industrialized nations.
◆ KTB network grew together with the company and financed a total of W 50 billion until 1998.

ii) Growth and influence within the industry

◆ After developing electronic scales in 1985, sales revenues reached W 980 million (a 1,650 per cent increase
from the year before).
◆ Market share of 45 per cent in 1986, exported products in 1987 and annual export growth rate was 100 per
cent up to 1989.
◆ As of 1999, sales revenues were W 46.5 billion; market share of 70 per cent; number of employees of 336;
local subsidiaries in the United States of America, Turkey and China.
◆ In early 1980s, at a time when the concept of ‘venture’ was unfamiliar, this company became a myth among
venture companies thanks to financing from KTB network and its own technology.
◆ By interacting continuously with KTB network, the company grew and became a prime example of how
a venture company and a venture capital firm can grow together.
◆ By becoming the first successful venture company in the Republic of Korea, to many Korean venture
companies it demonstrated that a knowledge-based industry can succeed even in the Republic of
Korea and inspired then to succeed, which led to the Korean venture boom.

same time, the Korean venture industry boom quickly turned KTB around from its precarious situation into
a company that posted over W 100 billion in net income. The dramatic recovery supported management’s faith
in the company and future of the industry.

Table 3.6. KTB network’s recent investment performance

(Unit: W billions)
Acquisition Cost Profit/loss from Valuation Total profit/loss Profit ratio
Period
(a) sales profit/loss (b) (b/a)
1999 47 369 55 424 902 per cent
First half of 2000 21 127 85 212 1 010 per cent
Total 68 496 140 636 935 per cent
Source: KTB network database (2000).

3. Expansion of investments in the IT/telecommunications

and Internet industry

KTB network’s recent investments targeting IT/telecommunications and Internet companies have paved
the way for the formation of a new economic paradigm. IT/telecommunications and Internet have become
buzzwords and will ultimately alter the world as we know it. In order to actively and effectively compete in the
world economy, a country or a company must have a competitive edge in IT/telecommunications and Internet.

Korea’s IT/telecommunications and Internet industries have already become competitive in the global
market with regards to technology, public interest and increasing popularity. The growth of these core industries
has the potential to advance the nation into a leading global player.

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 Table 3.7. KTB network before and after privatization
(Unit: W billions)
Before (1998) After (1999) Variance
Number of employees 131 147 12.2 per cent
Net income -129 111 186.7 per cent
Paid-in capital 91 302 231.9 per cent
Capital
Capital 47 697 1 383.0 per cent
Annual investment 23 163 608.7 per cent
Investment
Number of investee 29 113 289.7 per cent
Investment assets 238 584 145.4 per cent
Asset Loan assets 1 453 802 -44.8 per cent
composition Investment assets as
a per cent of total assets 10.9 per cent 26.6 per cent 15.7 per cent
Investment revenue 15 296 1 873.3 per cent
Profit Loan revenue 223 100 -55.2 per cent
composition Investment revenue as
a per cent of total revenue 3.6 per cent 59.0 per cent 55.4 per cent

Note: KTB network invested W 356.4 billion in 208 companies during the first half of 2000 realizing W 201 billion in net income,
which is twice the amount of its net income in 1999.

KTB network also makes aggressive investments and provides various services to IT/telecommunications
and Internet companies playing a vital role not only in the development of the Korean economy, but also the
world economy. KTB network’s investments focus on the IT/telecommunications and Internet sectors have
resulted in recent major technological developments from its investee companies in these industries. High
investment performances in these industries continue to improve as a result of KTB network’s active role in the
venture industry.

Table 3.8. KTB network’s investments by industry

(Unit: W billions)
Sector 1998 1999 Jan - Jun 2000
Electronics, IT/telecommunications 3 63 72
Internet – 22 50
Machinery 0 7 4
Multi-media – 4 34
Bio/Environment 1 6 6
Restructuring – 20 105
Other 2 17 35
Total 6 138 247

4. Implementation of corporate restructuring and

overseas investment businesses

KTB network is expanding its scope of operations to include corporate restructuring and overseas
investment businesses in addition to its telecommunications and Internet investments.

The corporate restructuring business objective is to provide the necessary financing to revive those
companies that became insolvent during the financial crisis. These companies share similarities with venture
businesses in that they also possess superior technology and require greater financing. In this respect, KTB
network is advantageously positioned to apply its unparalleled venture experience to the corporate restructuring
business.

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 Case Study 2: Early Investment in Daou Technology Inc., a Leading Internet
software company in Korea
i) Company overview at the time of investment
◆ Daou Technology began developing IT software in the early 1990s at a time when the importance of
software programmes was not fully recognized in the Republic of Korea
◆ Daou Technology’s exceptional grasp of the leading software programmes in the United States of America
and understanding of domestic needs led to the localization of such programmes
◆ KTB network’s investment in Daou Technology was based on the growth projections of the Korean IT
industry
◆ KTB network’s total initial investment amount was W 1.3 billion in the form of convertible bonds and
provided further mezzanine financing in the amount of W 8 billion
◆ Numerous visits made to the company as a non-standing director to provide management consulting

ii) Growth and influence within the industry

◆ Despite the stagnant KOSDAQ market, Daou Technology was the first software company to be successfully
listed in 1997 with the strong support of KTB network’s management and investment
◆ The company has since become one of the largest software companies with a total market capitalization
of W 500 billion, leading the Korean Internet companies
◆ Daou Technology’s talented professionals play a key role in the development of the Korean software
industry
◆ KTB’s realized return on investment was 769 per cent with an investment amount of W 1.3 billion and an
investment return of W 10 billion

Case Study 3: Kisan Telecom, leading developer of telecommunications equipment

i) Company overview at the time of investment
◆ Kisan Telecom, is a leading developer of telecommunication equipment such as switchboards, wireless data,
PCS, etc.
◆ In 1998, the domestic telecommunications equipment market’s future looked very bright, but lacked the
necessary financing and business management skills
◆ The decision to invest in the company by KTB network was based on Kisan Telecom’s recognized leading
technology within the Korean telecommunications industry.
◆ In May 1998, KTB network’s investment amount was W 1.8 billion (with a face value of W 500 and
expected offering price of W 9,000) and in KTB network provided Kisan Telecom with consulting services
on stock options, employee stock ownership associations, staffing, and public offering. The comprehensive
consulting services began several months before the actual public offering in regards to closing, corporate
statute changes, company briefing session, etc.
➡ The initial offering price had increased from W 8,000 to the final offering price of W 12,000.

ii) Growth and influence within the industry

◆ In November 1999, the company listed on the KOSDAQ
◆ The total return on investment was 14 times the principal over a two-year period.
◆ The company was highly recognized for its superior technology. It recorded the highest growth rate
among venture IT/Telecommunications equipment producers in Korea, but it, unfortunately, lacked
strong management. KTB network’s participation helped the company become the leading
telecommunications equipment company in the Republic of Korea.
◆ KTB network realized a return on investment ratio of 1,433 per cent and W 25.8 billion in realized gains.

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 In addition, KTB network is in the process of expanding its overseas investment operations in the United
States of America, the global leader in the venture industry, and Japan and South-East Asia where future growth
is expected. Together with a full understanding of these world-wide venture trends, KTB network will further
enhance its presence in the global venture market and become a leading global venture capital firm through
investments in promising ventures. Recently, the company has been active in investment operations such as
carrying out venture investment in the Democratic People’s Republic of Korea.

Case Study 4: Restructuring business implementation

i) Overview of the corporate restructuring business
◆ Normalizing business operations of technology companies with high growth potential through emergency
financing. Many of these tech companies became insolvent during the financial crisis due to a temporary
liquidity shortage.
◆ Corporate restructuring investments are of less risk and have stable returns relative to venture investments.

ii) Scope of corporate restructuring

◆ Attract direct investment from domestic and overseas investors through acquisition of stocks and convertible
bonds
◆ Mediation of debt through negotiations with the creditor bank
◆ Provision of management consulting services in business strategy, sales strategy, sale of business division,
etc.

iii) Performance
☞ Maxon Electronics Co., Ltd.
◆ Size of Investment: W 18 billion
◆ Acquisition of Convertible Bonds
◆ First corporate restructuring investment in Korea
☞ Korea PTG
◆ Size of Investment: W 14 billion
◆ Acquisition of New Shares
◆ Guarantee settlement, acquisition after establishment of new company
☞ Dong Yang Total
◆ Size of Investment: W 49 billion
◆ Acquisition of New Shares
◆ Largest investment in a single company
☞ Wise Control
◆ Size of Investment: W 5 billion
◆ Acquisition of Convertible Bonds
◆ Successful in avoiding court mediation

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 Case Study 5: Globalization via overseas investment
i) Leader in overseas investments among venture capital firms
◆ In 1983, KTB invested in Advent V.L.P., an American venture fund, the first overseas investment for
a venture firm in Korea
◆ In 1990, KTB invested US$ 0.9 million in Quickturn Design System, a high-tech company located in
Silicon Valley
◆ Total investment amount of US$ 25.6 million in 27 overseas venture companies including investments in the
United States of America, Israel, and Indonesia.
◆ Investment of US$ 0.3 million in 5 venture funds in countries including the United Kingdom of Great
Britain and Northern Ireland and Singapore.

ii) Present status of foreign investments

☞ Venture Company Investments
◆ Total Investment: W 18 billion
◆ Investment Balance: W 16 billion
☞ Venture Funds
◆ Total Investment: W 3 billion
◆ Investment Balance: W 2 billion

iii) Best performance of overseas investment

◆ Presently, 12 companies have realized capital gains either through initial public offerings on the NASDAQ
or M&As.
◆ During the first half of 2000, Centillium and Sonus are expected to go public while VailCert and iAsiaWorks
are to be listed in the second half of the year.

C. Providing value-up service via network

1. Building the venture network

In today’s society, the exchange of information and cooperation has become critical to the successful
growth and development of the IT/Telecommunications industry. This trend is more apparent in the venture
industry as it relies heavily on knowledge and information. Therefore, no matter the superiority of a technology,
it could become obsolete if one fails to understand and keep abreast of the trends in the industry.

In order to reflect such societal changes and trends in the venture industry, KTB network provides
a network to investee companies, thereby redefining the role for venture capital firms. KTB network has been at
the forefront of building this venture network system since the first half of this year.

The venture network refers to a systematic network that links all relevant and related parties of the
venture industry such as individual investors and government entities that determine industry policies, as well as
venture entrepreneurs and venture capital firms. Once the network is fully in place, all the participants in the
venture industry will be well equipped with an effective information resource for the exchange and sharing of
information to ensure greater business success.
In order to provide the requisite infrastructure, KTB network operates the “KTB n-Club,” an informal
organization comprised of about 3,600 portfolio companies, to promote and support venture entrepreneurs with
the exchange and sharing of information and resources. Also, KTB network has established strategic alliances
with leading universities and R&D institutes to promote the growth of the industry through the exchange of
resources as well as to offer financing support for start-ups. Furthermore, KTB network has been building the
network in conjunction with large business corporations so as to allow its investee companies to explore and
penetrate overseas markets.

It is predicted that the venture network mentioned above will evolve into a more effective system by
linking up with the Value-Up services that KTB network has been promoting since the end of 1999, supported by
an infrastructure that provides comprehensive services for the success of a venture company.

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 Table 3.9. Status of KTB network’s venture network
Category Company (organization) name Major functions and roles

Law 3 law firms including Kim & Chang and 1 online company Legal advisory and consulting
called Venturetopia services
Tax/Accounting Ahn Kwon & Co., Kim Jong Rul Tax office, etc. Tax/Accounting advisory and
consulting services

Human resource/labour Unico, Hong-Ik Labour Firm, etc. Human resource support and
consulting services
PR/Advertisement 8 agencies including Thomson Digital KTB, Hankyeorye IT PR, IR Support

Management consulting Vision & Consulting, SPR, etc. Management consulting and
management integration solutions
Incubating KTB-I, 7 universities Venture education centres Start-up service
including Hoseo university, Yonsei university

Overseas marketing Hanwha Co., Hyundai Corporation, etc. Export agency, exploration of
overseas channels

Company evaluation Korea Investor Service, Bizi.com, etc. Company and

technology evaluation
Education International Management Institute of Venture start-up education, etc.
the Federation of Korean Industries

E-business Han secure, Ubiz system, Internet Empire, etc. Provide web and online services
* Linked system: off-line; Weekly and monthly meetings as well as various events, on-line; KMS (in Bank).

2. Building infrastructure for value-up service

KTB network has made tremendous efforts in building the network and the value-up service infrastructure
to meet the changes in the new venture industry.

Value-up service is essentially service provided throughout the company’s development, from the start-up
stage to the venture company’s listing on the KOSDAQ. This is a major move forward in the evolution of
services provided by venture capital firms from the mere investment of capital. Moving forward in this direction,
KTB network has established institutions or companies to develop and evaluate new technology, provide human
resources and conduct advertisement/public promotion as well as create strategic partnerships with existing
companies to provide such value-up services.

In addition, KTB network is securing qualified human resources as part of the infrastructure of seamless
follow-up management service for investee companies. Fortunately, the required personnel are migrating from
universities, research institutes and large business conglomerates to the venture industry, providing the talent and
resources for the venture industry.

The on-going effort of KTB network mentioned above is shifting the domestic venture industry to a new
direction. The undertaking of a comprehensive value-up service infrastructure is the first of its kind in the
Republic of Korea. More importantly, KTB network provides these services through its infrastructure at no cost
or at a nominal amount to maintain the infrastructure services.

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 <Current status of KTB network value-up service infrastructure>

Stage Deal Sourcing Start-up Growth Stage Maturity

Service Tech. Develop. Establishing Marketing, IPO,

Estimation & Business Planning Recruiting Service IR/PR Service
Marketability

– KTB-i – Financing – nClub – IPO Service

Infra – Venture Advisory – Account, Law – Second Round – IR/PR Service
– Committee Advisory Financing – M&A Boutique
– Internet Advisory – Business – Recruit
Committee Consulting
– E-business – KTB119
Estimate Centre

3. Investment criteria suggestions for venture companies

KTB network has defined the objectives of the domestic venture industry while recommending a future
direction for the Republic of Korea Korea’s venture capital. KTB network’s investment criteria for Korean
venture companies are as follows:

(a) First, is there a market or can the company create a market?

With regards to the market, it is important to ask whether the company can satisfactorily contribute to the
existing market demand. In other words, an exceptional technology is of no value if it brings no practical benefit
to society or cannot create demand in the market. Even if a market already exists, it is better to have an
independent market. In addition, the greater the market share the better chances for growth of the company. For
example, if a company’s market share is consistently 40 per cent-50 per cent with revenues of W 100 billion, the
company is more efficient in terms of revenue generation than a company with sales revenue of
W 1 trillion with only 1 per cent share of a large market.

(b) Second, is the company market competitive?

The days when the so-called Cut-line2 concept was the name of the game are long gone. Nowadays,
a company should have at least one distinct comparative advantage. In other words, it must have an overriding
competitive edge in the market compared to other companies, in terms of technological superiority, patents,
and/or market share.

Recently, competitive edge has become more important than technological muscle when it comes to
market dominance. In Daum’s case, the company has the largest Internet portal site in the Republic of Korea and
enjoys a high stock valuation even though it has not been profitable. Why is that? Daum has laid the foundation
to expand further into new businesses through its high brand awareness and large market share.

(c) Thirdly, is management open-minded and aggressive?

Whether a market exists for the company and whether there are factors which set it apart from other
companies, KTB network places great importance on the open-mindedness of the company’s management. In
other words, it is critical that the CEO has the willingness to step aside and allow outside professional management
to take the helm of the company for the growth and development of the company.

2
Cut-line: Minimum required capabilities in each business area for a company to survive and grow.

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 Statistics for the KTB network’s investee companies last year show that the less open-minded a CEO is,
the greater the chances for the company’s revenues to be low even if it has a sound business model and excellent
technology. Our definition of open-mindedness is an individual who understands the importance of having
highly qualified professionals manage the company and is willing to offer appropriate compensation for his or
her services, even if it is more than that of the CEO.

(d) Fourthly, does the company have an influential sponsor?

Whether a company has a good sponsor or not is also considered to be of consequence when KTB
network reviews an investment decision. If a company has a good sponsor, it can have a positive influence over
all the above mentioned points. Also, in case the CEO and/or the company should temporarily get in trouble,
a good sponsor can provide the support needed to weather the storm.

Venture companies do not in general meet the Survival Cut-line, but rather excel in only one area, so at
times external support is crucial to the success of the company. KTB network, as its name implies, is fully aware
of the importance of the network of comprehensive services that are provided through its infrastructure, and
supports companies from the start-up stage to the listing of the company as well as establishing subsidiaries and
listing in overseas markets.

(e) Fifthly, how do we get our return on investment?

Listing on the KOSDAQ provides an alternative means for the company to raise financing. The company
can receive financing through an increase in paid-in capital and may be in a better position to issue corporate
bonds. Since venture companies, in particular, have far higher risk from an investors’ perspective, the longer the
period for the return on investment, the greater the risk. In this respect, it is necessary for venture companies to
meet the IPO requirements as soon as possible, while taking into consideration such things as the selection of
directors and/or auditors.

The objective of KTB network in establishing its investment criteria is to unearth venture companies
with higher competitiveness. Through these investment reviews, the expectations are that venture companies can
equip themselves with the tools needed to succeed in the market and for the Korean venture industry to gain
competitiveness in the international market.

IV. PROSPECT AND CHALLENGES OF

KOREAN VENTURE CAPITAL FIRMS

A. The future of the venture industry in the Republic of Korea

1. Becoming a venture power based on sound infrastructure

The Republic of Korea is concentrating all its efforts and competencies in the IT/telecommunications
industry, especially the Internet and wireless communications sectors. The number of Internet users in the
Republic of Korea, as a result, has surpassed 10 million or nearly one quarter of the entire population of
43 million, and 1 out of 2.4 people in the Republic of Korea own a cellular phone. Venture enterprises are at the
forefront of investments in the IT/telecommunications sector in Korea. Technically, the Republic of Korea still
lags behind industrialized countries such as the United States of America or Europe in the pure and applied
sciences, but the activities of venture enterprises in the IT/telecommunications sector are considered to be the
second most dynamic following the United States of America.

There are several advantages that work in favour of the Republic of Korea in the telecommunications
industry. The first advantage is the fact that the basic infrastructure for the development of telecommunications
is in place thanks to the continuous progress made in the electronics industry since its inception in the 1970s
when it began with simple product assembly. The second advantage is that the Republic of Korea has
an abundance of highly qualified and educated human resources. Lastly, the easily excitable temperament of
Koreans allows them to adjust easily to the rapidly changing technological and industrial environment.

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 At the end of 1997, following the outbreak of the foreign exchange crisis, the government devised a legal
and systemic foundation for fostering venture businesses. Consequently, private, not government-owned venture
capital firms were born, spurring the rapid development of venture businesses. Also, with the emergence of
successful venture enterprises and venture entrepreneurs, the social atmosphere is undergoing changes. The
deep-rooted closed social structure in the Republic of Korea is breaking down and a new culture placing more
value on originality and individuality is accelerating the growth of the venture industry.

The Republic of Korea now has the infrastructure to back venture enterprises and help them to become
successful. Furthermore, there are more venture enterprises in which venture capital firms can make investments.
The future of the venture industry and venture capital firms can be said to be very promising when the future of
venture capital firms hinges on the success of venture enterprises.

2. Major points when looking at the Korean venture industry

With the recent slump in the KOSDAQ market, concerns about the entire Korean venture industry are
being expressed. The following three points, however, need to be considered when looking at today’s Korean
venture industry.

(a) Mid to long-term outlook of the venture industry

The stock prices of venture enterprises may be volatile in the market for the short-term but, in the long
run, the outlook for venture companies show strong and steady growth with the development of the
IT/Telecommunications and Internet industries. If, as part of the overall trend, stock prices skyrocket, a national
adjustment period is bound to ensue. The KOSDAQ market is currently undergoing such an adjustment.

With investors wanting quick returns on their investments, venture entrepreneurs have been concentrating
too much on generating year-end profits rather than proposing their mid to long-term visions, and the government
has implemented measures that actually weakened the competitiveness of venture companies such as enforcing
restrictions on stock issues and strengthening listing regulations. These knee-jerk reactions to the market will
work as obstacles to the growth of the Korean venture industry in the long run.

Despite the moribund venture market and while all other venture capital firms were reducing
their investments, KTB network, the largest venture capital firm in the Republic of Korea, invested a total of
W 360 billion in 210 companies during the first half of the year. This figure is more than double the
W 160 billion invested during the latter half of last year. This shows that KTB network is investing in ventures
with a mid to long-term perspective.

(b) The limitations of venture entrepreneurs

In many cases, venture entrepreneurs have not been able to keep up with the growth rate of their
businesses. More and more cases show that entrepreneurs who had no difficulties managing a company with 10
to 20 employees were unable to continue to do so when the company grew larger. With 10 to 20 employees, one
on one leadership can work, but with 100 to 200 people, leadership no longer works because the system needs to
be managed.

There is only a slim probability that the founding CEO will continue to be an excellent leader in a bigger
company. Therefore, most companies choose the option of employing a professional CEO when a company
grows large.

(c) Dominance in the market

Venture companies have recently tended to rely more on market dominance than technology in order to
be competitive. This clearly indicates that it is very difficult to maintain a competitive edge in the market with
technology and, if the competition becomes fierce, it is difficult to generate profit no matter how fast the market
grows.

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 Many online companies continue to provide services even when they are not generating a profit. The
reason why these companies provide free services or services that are costly for the company is to strengthen
their position in the market. If they can secure a certain level of market dominance, they can influence the price
and once they can do so, they eventually can generate a profit.

In order to dominate the market, M&As must become pervasive within each industry. It can even be said
that the global competitiveness of the Republic of Korea will depend on the smooth incorporation of M&A
strategies in the Republic of Korea during the latter half of this year.

B. Challenges and tasks of venture capital firms to sustain growth

1. Expansion of investment in mid to long-term future value

With an excessive number of companies listed on a sluggish KOSDAQ market, not only are sales
revenues of venture companies dropping, but start-ups of venture capital firms and investment in venture companies
are also nose-diving.

In the case of online companies with their base in the Internet, most of the funds procured from venture
capital firms or the capital market are spent as marketing expenses so as to secure market competitiveness.
However, it is difficult to generate immediate sales profits using the Internet since it was first conceived to
provide free services to the public. Accordingly, the stock prices of dot.com companies which have enjoyed
unrestricted escalations have plummeted more than 50 per cent compared to early this year.

The stock prices of venture enterprises may fluctuate in the short run, but the general trend of the
telecommunications and Internet-related industries leading the 21st century will not change. After examining the
industry, venture capital firms basically invest in the future of the investee companies with a mid to long-term
outlook despite the stagnant KOSDAQ market.

2. A venture company support system through networks

In the past, companies could be sustained and grow only when all management factors were developed in
a balanced manner. Companies needed to have resources in research and development, production technology,
finances, marketing, as well as production facilities such as research centres, manufacturing plants, offices, and
distribution channels. Nowadays, however, a company can survive by standing out in only one or two areas and
even become successful since other management factors such as funds and production facilities can be acquired
from outside.

Most venture enterprises today do not have management resources but only a specific technology or idea.
In the future, venture capital firms in the Republic of Korea must be able to provide the information and the
resources these venture enterprises require. Naturally, not all venture capitalists can be or need to be specialists
in all areas. Venture capital firms need to be able to connect their know-how with those with management
resources. This will be possible by building a network that can provide all the resources required for the venture
company to grow.

C. Venture capital firms creating the future together with the world

As a result of the recent changes in the industry paradigm and the emergence of the venture industry as
the locomotive driving economic development, Korean venture capital firms have been transformed and have
assumed a new role distinguishing them from venture capital firms of the past.

Needless to say, the recent rapid growth in the Korean venture industry was possible thanks to the efforts
of several venture capital firms, including KTB network. With their assistance, venture enterprises were able to
overcome management difficulties during the long stagnant period in the venture industry. Korean venture
capital firms in the past were unable to perform their fundamental task of taking risks and investing in the future.

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 However, Korean venture capital firms today fulfill their responsibility as venture capital firms in the
truest sense by defining their own role, helping venture enterprises to succeed as well as by building a corporate
environment that encourages the success of venture enterprises by providing business items and management
structure that suit the venture enterprises. In addition, the venture capital firms can reach a stage where they will
be able to develop their own technology and independently establish a venture enterprise.

Moreover, the venture environment in the Republic of Korea is conducive to its progress in several ways.
In the future, telecommunications and the Internet will be the driving economic force, and the Republic of Korea
has a stimulating environment for venture businesses who will be at the forefront of the telecommunications era.
This, therefore, indicates that there is a strong possibility that the Republic of Korea will become a leader in the
future world economy.

Venture capital firms in the Republic of Korea will be able to provide considerable momentum for the
advancement of all venture businesses and venture capital firms throughout the world if they prepare for the
coming era with a mid to long-term perspective and take advantage of venture opportunities available in the
Republic of Korea and worldwide. Based on these experiences and technology, Korean venture capital firms will
accelerate the era of telecommunications digitalization and redefine a more meaningful role of cooperation with
global venture businesses and venture capital firms.

327
II. THE SUCCESSFUL EXPERIENCES OF BIONEER

BY

PARK HAN-OH
PRESIDENT OF BIONEER CORPORATION
THE REPUBLIC OF KOREA

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 I. CEO

Dr Han-Oh Park graduated from the Department of Chemistry, Seoul National University, and entered
the graduate programme of Chemistry in KAIST. During his graduate studies, he participated in a DNA synthesis
project to produce the basic material for genes, and from 1986 he simultaneously conducted research at both the
biomaterials lab in KRIBB (Korea Research Institute of Bioscience and Biotechnology) and the molecular biology
lab in KAIST. While working in both research organizations he noticed that virtually every research apparatus
was of foreign creation and felt the need for research tools developed and produced domestically. He gathered
plans for a venture company that would contribute to the development of the field of biotechnology in the
Republic of Korea.
In February 1992, he received his Ph.D. at KAIST, and founded “Korea Biotech, Inc.” in August. With
his experience from numerous projects at KRIBB at KAIST, he has directly and actively participated in the
research and development in his company, and holds 23 of patents and pending patents up to now.

Educational background
1980.3 - 1984.2: BS in Chemistry, Seoul National University
1984.3 - 1986.2: MS in Biochemistry, KAIST
1987.3 - 1992.2: Ph.D. in Biochemistry, KAIST

Career
1984.3 - 1986.2: Researcher, KAIST
1986.3 - 1992.8: Senior Researcher, Molecular Cell Biology, KRIBB
1992.8 - Present: President, BIONEER Corporation

Research achievements prior to founding BIONEER

1984 - 1987: DNA chemical synthesis project
1986 - 1987: Development of mass DNA extraction method, from the spermatogonium of a frozen
pollack
1987 - 1988: Development of mass phosphatase production method, from Bovine intestine
1989 - 1992: Development of the method to synthesize glycoside by glycosidase Miscellaneous

Awards
1987: KRIBB Outstanding Researcher Award
1996 - Present: Applied for 23 patents
2000.5: Selected as the best scientist of the year by SMBA (Small & Medium Business
Administration)

II. COMPANY OUTLINE

Bioneer was founded in August 1992 by a research scientist from KRIBB as a bioventure company and,
at present, is a leading company in the field with W 4.3 billion in capital and 107 employees. In the DNA
Research Institute of Bioneer, 55 per cent of the employees are working as research scientists, most holding
advanced degrees and having many years’ experience.

Numerous research products of all types have been developed by Bioneer, as exemplified by its main
products, such as oligonucleotides, gene amplification reagents, gene amplification apparatus, gene analysis
reagents, DNA and RNA extraction reagents, DNA Chip machine, automatic DNA extractor, etc. We hold
patents to these reagents and apparatus, which are core tools required for functional genomics research in the
post-genomic era. The market value of our patented automated functional genomics tools such as the DNA chip
synthesizer are especially rising each year.

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 The main fields undergoing R&D in the DNA Research Institute of Bioneer are functional genomics
tools such as the Mass Oligo, DNA Chips, Automatic DNA Analyzer, Gene Screening Kit, and novel drug
candidate genes such as for obesity and cancer.

III. COMPANY OBJECTIVES

1992 2000 2002 2005

1st Phase

To establish the Biotech infrastructure in

Korea by completely domesticating
all DNA research products

2nd Phase

To open overseas markets and gradually extend

market share by the mass production of high quality
of cutting-edge reagents and equipment

3rd Phase

To obtain patents over the genes that cause diseases and

compounds that can be used for new medicines through
development of new technology and analysis of
a large volume of target genes

At the time of foundation, the first objective was to establish the Biotech infrastructure in the Republic of
Korea by completely domesticating all DNA research products. By 1999, Bioneer has completed development of
most tools for genomics research, so the first objective has been successfully achieved.

In the second phase, the objective is to open overseas markets and gradually extend market share by
developing a system for mass producing high-quality, cutting-edge reagents and equipment. Mass production
systems for some reagents have been set up and efforts for further system development will continue.

In the third phase, the goal is to obtain patents over important disease-related genes and compounds
which can be used as new drugs, through the development of revolutionary technologies and the systematic
analysis of a large volume of target genes. We plan to gather gene resources through gene patents, and prepare
for the gene competition era.

IV. FOUNDING BIONEER

Bioneer was founded by Han-Oh Park, Ph.D., who felt the need for the independent, domestic development
and production of research tools while working at KRIBB. After working for many years as a research scientist,
he gathered ideas to create better domestic equipment and reagents.

At the time, a venture support programme was offered by the Ministry of Science and Technology, and
Dr Park took the opportunity to take venture business courses and construct more concrete business plans.

In August 1992, W 80 million in business funds was gathered for founding the company. Although
a pitiful amount, Dr Park put the money to good use. Because it was difficult and expensive to locate the
company in the customer-rich Taejon Science Complex region, he rented an agricultural warehouse located in
a farm area outside of Taejon, and converted it to a research facility and office headquarters and “Korea Biotech,
Inc.” was established on 28 August. An oligonucleotide synthesis service was planned as the first business, and

332
two oligonucleotide synthesizers were purchased, which nearly consumed all the business funds. At the time, the
sales from oligonucleotide synthesis made up over 90 per cent of total sales.

Employers and employees alike spent all day conducting regular business and conducted research and
experiments at night. Although equipment and location was lacking, all company members cooperated in
a family atmosphere to lead the company in the right direction.

Thanks to the Venture Founding programme for Researchers at KRIBB, he was able to use the equipment
at KRIBB, money was saved on equipment and used for research and development, greatly helping the company.

The oligonucleotide synthesis business was the initial revenue provider. The revenues gained were
invested in development of new products and, as a result, numerous apparatus were produced domestically.

At the time of the founding of “Korea Biotech, Inc.”, biotechnology in the Republic of Korea was almost
nonexistent, as there was not a single domestic company that produced biotechnological equipment. Because
Dr Park had gathered many ideas while working at KRIBB, he was able to successfully produce a large number
of products in a short period of time. Bioneer provided products of equal or higher functional level at 20-30 per
cent lower cost, so there was no reason to select otherwise. Bioneer gradually found its way into more and more
research laboratories and, thus, the early market strategy has succeeded.

V. BIONEER’S PAST, PRESENT, AND FUTURE

A. A brief history of Bioneer

1992.8.28 Korea Biotech, Inc. established

1995.6.29 Selected as the first Technology Development Model Company
(Technology Credit Guarantee Fund)
1995.7.19 Research Institute established
1996.5.29 Relocated headquarters and factory to Cheongwon, Chungbuk Province
1996.7.15 Company name changed to BIONEER CORPORATION
1997.5.22 Selected as Promising Company with Advanced Technologies
(Small & Medium Business Administration)
1998.1.20 DNA Research Institute – construction completed
1998.12.22 Quality Management System ISO 9001 certified by IQNet and
KSA-QA (IQNet Registration No.: KR-01415)
1999.1.19 Gene amplification Kit (AccuPower PCR Premix Kit),
US Patent Registered/US Patent & Trademark Office
1999.1.19 Designated as Predominent Company with Competitive Technologies
(Small & Medium Business Administration)
2000.3.26-30 First participation ever by a Korean company in Bioindustry & Technology International
Exhibition by BIO (Biotechnology Industry Organization,
the United States of America)/Boston Convention Centre
2000.3.30 Selected as Promising Product – PCR Premix Kit, DNA Silver Staining Kit, GM Soybean
Screening Kit, GM Maize Screening Kit/Supply Administration
2000.7.21 Obtained factory in Taejon (31,183.1 sq m land, 9,833.2 sq m actual factory)

As stated above, “Korea Biotech, Inc.” was established in August of 1992, and successfully developed
various products. It was selected as the first official Technology Development Model Company from the
Technology Credit Guarantee Fund. A Research Institute was established in July.

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 Four venture companies got together to form the Hi-Tech Company Collaboration Complex in the
Chungbuk Chongwon, near Taejon City, and Bioneer moved there in May 1996.

In July 1996, to enter the world market, the trademark name was changed from Korea Biotech, Inc. to
Bioneer Corporation. The Bioneer derives its name from Bio-Engineer and Bio-Pioneer, and reflects the corporate
ambition to become a world leader in the Life Sciences field.

In May 1997, Bioneer’s technological competitiveness was acknowledged, as it was designated the
Promising Company with Advanced Technologies by the Small & Medium Business Administration.

In January of 1998, Bioneer’s DNA Research Institute building was constructed next to the new Bioneer
Building, and equipped with the best research equipment and reagents, researchers were provided with the best
research environment.

For the quality and excellence of its products to be acknowledged not only in the Republic of Korea but
throughout the world, the staff at Bioneer focused on receiving the ISO quality certificate from April 1998, and
on December they succeeded. Now Bioneer has an excellent quality control system, ensuring the quality of
every product and the satisfaction of every customer.

In January 1999, one of Bioneer’s key products, the gene amplification reagents, received patents in both
the Republic of Korea and the United States of America, and Bioneer was acknowledged as a highly competitive
company.

In March of 2000, the BIO 2000 Exhibition was held in Boston, the United States of America, by the
BIO (Biotechnology Industry Organization) of United States and Bioneer participated by displaying its products,
which was a first for a Korean company. This exposition is held every year in the United States of America, has
about 7,000 business leaders and 2,000 companies participating, making it the world’s largest international
Biotech-related event. Besides product displays, various symposiums, business partnerships, investor-company
meetings, etc., are held. In this exposition, Bioneer displayed its self-developed Automatic Gene Extractor and
DNA Chip Synthesizer, capturing the interests of biotechnologists from all over the world, and received praise
after its comparison with similar products from other companies. Bioneer plans to participate next year also, and
has already reserved two booths.

In March 2000, 4 products, the Gene Amplification Reagents, DNA silver staining reagent, GMO Bean
Detection kit, GMO Corn Detection kit, were designated outstanding products from the Supply Administration.
In view of this designation being awarded only to patented technologies or products of high export potential, we
can say that the excellence of the above products is acknowledged by the government of the Republic of Korea.

On 21 July 2000, Bioneer acquired to Taejon Factory.

B. Awards received

1997.12.23 The Grand Prix Award at the 7th Small and Medium Business Awards Ceremony/Ministry
of Trade & Industry
1998.4.27-28 The Excellent Poster Award from the First International Workshop on Advanced Genomics,
Tokyo International Forum, Japan
1998.11.5 2nd Venture Company Grand Award/the Prime Minister
1998.12.2 ’98 Korean Patent Technology Gold Prize/Ministry of Commerce, Industry and Energy
(Gene amplification reagent – AccuPower® PCR PreMix Kit)

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 C. The company at its founding

This is the company at its foundation, which was built from a farm warehouse. With a pitiful “Korea
Biotech, Inc.” sign, it is hard to tell if this building is a company.

Company at its foundation, formed from The DNA synthesis room at the beginning
a farm warehouse

However, employers and employees alike endeavoured at setting up the company, with shovel and hoe in
hand. As all members had the same goal in mind, they were able to help each other and achieve the goal in
minimal time.

The gene synthesis room was also small and pitiful, and employers and employees fixed everything that
needed fixing themselves. The gene synthesis business became profitable at 3-4 months following foundation,
and, at the beginning formed 90 per cent of the sales, and currently comprises about 50 per cent of Bioneer’s sales.
Customers in the vicinity received the ordered oligos directly from our representatives while customers located
further away received the oligos by packaging services. All customers received their order in minimal time.

D. Bioneer at present

4 years after foundation, the company moved to

Chungwon, right outside of Taejon, along with 3 other venture
companies, forming the Hi-Tech Business Collaboration Complex.

Here, there is 4,630 sq m of land and 1,158 sq m of

factory space, and here the research, development and production
of various life sciences reagents and equipment is being carried
out. The headquarters and factory was built first, followed by
the DNA research centre.

At the time of the moving, employees of all fields were

Bioneer at Chungwon. DNA Research Centre
placed in the building shown left. This was a large improvement
at right, headquarters at left
over the first building, but the numerous production, research
tasks made the space insufficient. The picture on the right shows when the second floor of the building was used
as a laboratory.

335
 In January 1998, The DNA Research Centre was
established. This 3-story building holds various machines and
equipment for life sciences research and holds 50 research
employees. Here, cutting edge research such as genome analysis,
disease-related gene SNP analysis, DNA chip development,
enzyme development by genetic recombination, development of
a system for the detection of mush-room/fungus transgenesis,
full-length cDNA library construction, novel drug development,
etc., are being carried out, and tasks such as reagent and kit
development, functional genomics automation equipment
development are being carried out. Results from the research are
immediately applied for patents, connecting research to information ownership.

E. Taejon site, to be moved into in 2000, and future visions

At the end of last year, when investment in Life Sciences was skyrocketing, Bioneer was acknowledged
as the bioventure company having the most advanced technology and the highest potential in the Republic of
Korea, and managed to obtain 28 billion won in investment funds, an enormous sum for a venture company.

This fund was obtained by selling W 5,000 face value stocks at W 400,000 per share, to investment
companies such as Korea Technology and Banking (KTB), Samsung Life and Hyundai Investments Trust and
Securities, which were attracted by the high potential of Bioneer.

While the Bioneer Organization was solidifying and growing, there was a need for more space and
equipment than was provided by the Cheongwon company site. With the investment funds, a new company site
was purchased. Located at Taejon Industrial Complex, the site is large-scale, with total area of 31,183 sq m and
building area of 9,833 sq m. Currently, we are preparing to operate a world class-scale factory, which will hold
oligo synthesis and analysis, DNA chip synthesizer facilities. Also, a system for the mass production of automated
equipment for functional genomics will be set up by August 2000, and fully moved to the Taejon site.

In this site, a megascale oligo synthesis system of 200 oligo synthesizers developed by Bioneer will be
set up by 2001. 200 large-capacity oligo synthesizers will allow the synthesis of 100,000 oligonucleotides
per year, and 30,000,000 oligonucleotides per year. Once this is set up, Bioneer will have the world’s
largest oligonucleotide synthesizing capacity. Also, Bioneer is developing an automatic gene analysis apparatus
and, once completed, at the Taejon site will be a world-class DNA sequencing system capable of sequencing
10,000,000 bases per day.

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 VI. ACHIEVEMENTS AND RECORDS

A. Introduction to main products

PCR Equipment

• AccuPower PCR, RT, RT/PCR PreMix • DNA ChipBuilderTM Microarrayer

• GeneFinderTM • RoboPrepTM Automated DNA Extractor
• Taq DNA Polymerase • MyGenleTM 32 Themal Block
• AccuPower GMO Screening Kit • Gene RunnerTM
• Econo SequencerTM
• Agaro-PowerTM
• Centra EvaporatorTM
Sequencing • BloPowerTM II
• CellFarm 3B
• AccuPower DNA Sequencing Kit • EasyComTM Solid Phase Synthesis
• AccuPower Automated DNA Sequencing Kit System & Rotating Incubator
• Top DNA Sequencing Kit • Gene GunTM II
• Top DNA Polymerase • JetgeneTM
• Silverstar Staining Kit • Imager IIITM
• Multi-CrackerTM

DNA/RNA Preparation
Services
• AccuPrepTM Plasmid Extraction Kit • Oligonuceotide Synthesis Services
• AccuPrepTM Genomic DNA Extraction Kit • DNA Sequencing Services
• AccuPrepTM Viral Extraction Kit • Gene Synthesis Services
• AccuPrepTM PCR Purification Kit • DNA Library Construction Services
• AccuPrepTM Gel Purification Kit • Gene Cloning Services
• AccuPrepTM GMO Extraction Kit • Site-directed Mutagenesis Services
• AccuPrepTM Stool DNA Extraction Kit
• DNA PrepMateTM II
• DNA PrepMateTM -M Etc.
• Genomic DNA PrepMateTM
• Viral RNA PrepMateTM • Enzymes
• Blood RNA PrepMateTM • Tissue Bank (DNA, RNA, Protein)
• Tissue RNA PrepMateTM • Primers & Controls
• Buffers & Chemicals

Bioneer has striven to develop creative and revolutionalry products which are easy to use and provide
reproducible results. Various reagents, enzymes, kits and simple research apparatus up to cutting-edge automated
equipment have been developed and there are currently over 100 products.

To state simply, Bioneer’s products can be divided into Gene amplification-related reagents, gene
analysis-related reagents, DNA extraction/purification-related reagents, and equipment, and customer-order services.
Of the customer-order services, the Oligonucleotide Synthesis Service provides the oligo DNA of the sequence
that the customer desires, and comprises 50 per cent of Bioneer’s sales. Also, there are a variety of other services
available, such as a sequence analysis service, gene cloning service, and DNA Library construction service. Of
Bioneer’s products, a few examples are:

ChipBuilderTM Microarrayer
◆ DNA chip synthesizer that can spot and produce up to 100 DNA chips per run
◆ 27,000 different sample solutions can be spotted (world’s highest capacity)
◆ Rapid and Precision spotting (5 µm resolution)
◆ High capacity Rack System (384 x 72 plates)
◆ Extensive Washing Station
◆ A must tool for DNA chip-related research and to compete in DNA chip market

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RoboPrepTM Automatic Nucleic Acid Extractor
◆ Automatically and quickly extracts DNA from samples such as cells, blood
◆ DNA can be extracted from as many as 960 samples simultaneously
◆ High-purity extraction of DNA
◆ Whole extraction process automated by PC-driven GUI system
◆ DNA extraction by hand is obsolete; there is a demand for fast and large-scale extraction of DNA
for large-scale genomics research

AccuPower® PCR PreMix Kit (Gene amplification Kit)

◆ Components for PCR are premixed and freeze dried; stabilizer greatly increases reagent stability
◆ Convenient and Reproducible
◆ Patented in the United States of America and the Republic of Korea
◆ High amplification rate even for genes not easily amplified
◆ World’s first PCR kit that is stable at room temperature

AccuPower® DNA Sequencing Kit & Silverstar® Staining Kit (gene analysis reagent)
◆ Components for gene analysis are premixed and freeze dried; after gene analysis reaction with DNA
sequencing kit, Silverstar Staining Kit allows easy examination of results
◆ Convenient and Reproducible
◆ Safe components (conventional kits use radioisotopes)
◆ Silverstar Staining Reagent has world’s highest sensitivity
◆ Determination of gene analysis results in minimal time

AccuPrepTM DNA/RNA Purification Products (DNA/RNA extraction and purification)

◆ Allows convenient, quick extraction of high-purity DNA from various samples such as E.coli,
blood, tissues, cultured cells
◆ High-purity, high-concentration DNA or RNA is obtained
◆ Fast and convenient DNA/RNA extraction
◆ Different kit types allow customers to select the optimal kit

MyGenieTM 32 well Thermal Block (gene amplification equipment)

◆ Korea’s first Heat-Block type gene amplification apparatus, allows easy control of heating and
cooling steps using semiconductor-type heat transfer peltire
◆ High-speed gene amplification, up to 32 samples can be amplified simultaneously
◆ Precise temperature control, resulting in high reproducibilty
◆ Many additional functions

B. Main research achievements

A world leader in DNA synthesis technology, to lead world

Bioneer has developed the world’s fastest DNA synthesizer, which is patent pending. This machine can
synthesize 256 different oligonucleotides simultaneously, which is about 100 times more productive than
conventional synthesizers. Also, Bioneer self-produces the twenty or so chemicals used in DNA synthesis,
reducing the oligo production costs by half, giving Bioneer’s oligo synthesis system the highest competitiveness
in the world market. Bioneer’s research staff has developed a technology of mass-extracting deoxynucleoside,
the core material in DNA synthesis, and has patented it. Thus Bioneer is able to self-provide materials for DNA
synthesis to fulfill world market demands.

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Complete Development of all required Genomics Research Reagents

As stated above, Bioneer has completed development of all reagents required in the genomics research
field. The DNA amplification kit (patents in the United States of America and the Republic of Korea), RNA
amplification kit (patents in the United States of America and the Republic of Korea), DNA sequencing kits
(American patent and two patents in the Republic of Korea), DNA/RNA purification kit, high-performance DNA
staining kit (The Republic of The Republic of Korea patent, 4 patents pending as international patents (PCT)),
among about 100 other products have been fully developed and commercialized, and these reagents and tools are
used in Bioneer’s own life sciences research, reducing research funding costs.

Bioneer will continue to produce products that are convenient, time-saving, reproducible and low-cost by
researching how to reduce production costs.

Development of all required Genomics Research Equipment

The Automatic Gene Extractor, Large-scale Gene Amplification Device, DNA Chip Synthesizer, Liquid
Dispensing Robot, and Large-Scale gene cloning system have already been completely developed, while the
automatic DNA sequencer is about 60 per cent developed. Also, as the fermenting device, gene image analyzer,
electrophoresis devices, cell culture devices have also already been developed, and the completion of the
development of the automatic DNA sequencer will mean we have developed all equipment required for gene and
genomics research.

C. Main research fields

Novel Drug Development

Obesity, Diabetes – related drug development
Cancer-related drug development
Chemical screening for new drug candidates

Novel Gene Screening and Gene Patents

Novel gene screening in various organisms

Novel gene functions research
Applications for gene patents
Procurement of gene resources

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 D. Financial highlights and R&D investment

These are the financial highlights of Bioneer since its foundation.

(Unit: W million)

(Forecast)

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Sales 19 287 557 1 105 1 730 1 964 2 353 2 268 5 852 24 550 49 984 135 941
Selected
Net income -15 34 53 278 317 124 71 -599 2 168 12 218 30 595 70 171
income
statement Per cent to -77 12 10 25 18 6.3 3 -26 37 49 61 52
sales per cent per cent per cent per cent per cent per cent per cent per cent per cent per cent per cent per cent

Assets 77 191 439 981 2 470 3 643 4 413 5 338 70 170 310 999 376 848 451 109
Selected
Liabilities 12 92 246 526 1 235 2 283 2 983 3 344 34 807 2 445 3 199 7 289
balance
sheet Equity 65 99 192 455 1 235 1 360 1 430 1 994 35 362 308 554 373 649 443 820
(paid-in-capital) (80) (80) (120) (120) (620) (620) (620) (1 783) (4 350) (5 655) (5 871) (5 871)

R&D 250 613 640 884 1 500

R&D
14.45 31.23 27.20 38.98 26
investment R&D/Sales
per cent per cent per cent per cent per cent

Total Sales and R&D investment

Sales/R&D
6 000 Sales
R&D

5 000

4 000

3 000

2 000 26%

39%
1 000 31% 27%
15%

0
1992 1993 1994 1995 1996 1997 1998 1999 2000

There is a constant increase in sales since its foundation up to 1998. Although the effort to increase sales
is very important, Bioneer believes that intensive investment in R&D is more important than efforts to increase
short-term sales and has invested greatly in the R&D of new products and technologies.

In 1999, during the nationwide economic crisis, Bioneer had a slight decrease in sales (W 70 million) for
the first time. The staff was reduced and the remaining crew focused even more on R&D. During 1998 and
1999, cutting-edge equipment in the genomics field were successfully developed, which was a proud achievement.

All members at Bioneer proudly believe that following the successful development of cutting-edge genomics
reagents and equipment, Bioneer’s technology is at a world-class level. Now is the time to advertise and market
at a world level these technologically advanced and high-quality products. Bioneer has formed a marketing team
from the beginning of 2000 and is conducting regional representative marketing system. Elite scientists with an
MS or higher degree in Life Sciences have been recruited and will meet customers on a one-to-one basis to

340
 Future Projected Sales

140 000

120 000

100 000

80 000

60 000

40 000

20 000

0
2000 2001 2002 2003

discuss the customer’s specific needs and to quickly provide services and products. Bioneer currently has
8 overseas sales headquarters, where it conducts export sales, but plans to greatly increase the number of overseas
headquarters for a greater share of the world market.

Bioneer achieved W 2,268 million in sales in 1999 and predicts W 5.8 billion in sales in 2000. As
Bioneer’s new products, the DNA Chipbuilder (DNA Chip synthesizer) and RoboPrep (Automatic Gene extractor)
are high-price products costing over 100 million won, they will play a large role in the increase in Bioneer’s
sales. Also, as these equipments also require consumable reagents, sales of the equipment will directly result in
sales of the reagents for a steady sales source.

Sales Breakdown

1998 1999
20% 12%
54% 48%
Oligonucleotide Oligonucleotide
12%
AccuPower Premix-PCR, AccuPower Premix-PCR,
RT, RT-PCR RT, RT-PCR
Instrument Instrument
14%
Others Others

12% 28%

Looking at the 1998 sales composition, Oligo sales comprised 54 per cent, AccuPower Premix kits (gene
amplification reagents) 12 per cent, and equipment 12 per cent. In 1999, Oligos comprised 48 per cent, Oremix
kits 28 per cent, and equipment 12 per cent.

In 2000, we predict that Oligos will comprise approx. 36 per cent, AccuPower Premix kits 21 per cent,
and equipment and devices about 22 per cent. Thus, we predict that the fraction held by oligos will continue to
decrease, while equipment increase for a short while. In 2003, we picture a different situation where DNA chips
comprise 53 per cent of sales, while Oligos comprise 32 per cent, AccuPower PreMix kits 8 per cent, and
equipment 5 per cent.

2003
5% 2%
8%
53%
DNA Chip

Oligonucleotide
AccuPower Premix-PCR,
RT, RT-PCR
Instrument
32%
Others

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 In 2000, the market for DNA chips is about 780 million dollars, while it is predicted to be about
W 1,250 million in 2003 (by Frost and Sullivan, 1997). Oligonucleotides, which are the material for DNA chips,
can be mass produced by our oligo mass synthesis system, and these will be used to create DNA chips using the
DNA ChipBuilder, forming the hypothetical sales composition graph shown above. We plan to hold 5 per cent of
the DNA chip market in 2003.
We at Bioneer hope to establish the best marketing strategies to increase Bioneer’s future sales as
planned and we plan to hold significant shares of the world Oligo and other Life Sciences-related markets.

E. Strategic alliances and joint research organizations

Seoul National University Medical Center

– Tissue Serum Bank

Korea Research Institute Samsung, LG &

of Bioscience & Seoul National University
Biotechnology (KRIBB)
BIONEER – DNA Chip Development

Korea Research Institute of

Chemical Technology (KRICT)
National Institute
– Obesity & Diabetes
of Health

Seoul National University

Pohang University of Science & Technology
National Institute of Agriculture Science
and Technology (NIAST)

Bioneer has not only developed products through the years but also carried out government-funded
research projects. Also, collaborative research relations with outstanding research organizations or universities
were formed, accelerating the research effort and benefiting both sides. By reaching a business agreement with
the Seoul National University Clinical Medicine department and the tissue plasma bank, Bioneer receives the
materials from the Clinial Medicine Research centre, and processes and markets the product. Thus, Bioneer
effectively runs a tissue plasma bank. Also, Bioneer collaborates with KRIBB (Korea Research Institute of
Bioscience and Biotechnology) in a G7 project, The Korean Chemical Research centre in research to develop
a next-generation obesity-diabetes treatment, and Samsung and LG in a joint development project to develop
DNA chips. All these projects are government funded projects and are awarded only to the most outstanding
companies. There are additional joint research projects with the Korean NIH, Seoul National University, Pohang
University of Science and Technology, and other outstanding research institutes.

F. Patents received
Domestic International Total
Registered 4* 1 * (USA) 5
Patents Pending 23 3 26
Total 27 4 31
Registered 4 4
Trademarks Pending 7 7
Total 11 11
Note: * Registered patents:
1. Production method for DNA polymerase reaction mixture.
2. Apparatus for scanning and analyzing solution run through a capillary.
3. Lyophilized Reagent for Polymerase Chain Reaction.
4. High-sensitivity Silver Staining Method.
5. PCR primers for the simultaneous detection of Human papillomavirus type
16, 18, and a detection method using these primers.

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 Bioneer’s policy is to immediately apply for patents for any successful research results. Although the
application process is expensive, and no immediate profits are visible, licenses through the patents can be of
greater value than actual product sales. Patents held by Bioneer are 1 United States of America patent and
4 domestic patents for a total of 5 patents. Currently, 26 patents are pending, and Bioneer’s R&D will be
continued to be linked to patents. In the patent wars, it will be important to protect Bioneer’s own intellectual
property as Bioneer becomes a world-class company.

VII. THE BIONEER ORGANIZATION

Bioneer is an organization with a high fraction of researchers in the workforce.

Bioneer’s success in its many R&D projects can be accredited to Bioneer’s outstanding research workforce
and organization. Of the total workforce of 107, There are 7 Ph.D.s from Life Sciences fields such as Biochemistry
and Molecular Biology, and 38 M.Sc.s from various science fields, and over half of the total workforce are
employed as researchers.

In the DNA research centre, researchers in various fields besides Life Sciences, such as chemistry,
electronics, and computer programming, who have many years of experience, are team leaders, and each team is
composed of researchers in the same field. The development of automated genomics tools is a complex task that
requires cooperation between researchers of many scientific fields and Bioneer operates an effective research
organization where these researchers of many fields can cooperate freely. This system gives Bioneer success in
product development and competitiveness in the world market.

Bioneer is the only company in the country where cutting-edge technology from Chemistry, Biochemistry,
Molecular Biology, Mechanics, Electronics, and Software is combined to form an organized system, giving it the
competitive ability to develop cutting-edge equipment independently.

Current organization of Bioneer

343
 Organic relationships within the Research Institute

Chemistry System
(Organic Synthesis) Engineering

Computing &
Biochemistry High-Tech Programming
Instruments

Instrument Design
Molecular Biology & Manufacturing

Electronics Control

VIII. FACTORS BEHIND THE SUCCESS OF BIONEER

◆ Clear founding objective and well-planned beginning stages

◆ Timely founding (allowing Bioneer to become leader in Korean Biotech)
◆ Commercialization of high-value items
◆ Product development geared at customer satisfaction
◆ Understanding between the company and customer
◆ Extensive investment in R&D and R&D geared towards the future
◆ Effective operation of the research organization, talented workforce
◆ Accurate prediction of the future situation in the field of Life Sciences
◆ Strategic alliances and research collaborations

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 III. TECHNICAL ENTREPRENEURSHIP DEVELOPMENT

BY

BAE ZONG-TAE
PROFESSOR
GRADUATE SCHOOL OF MANAGEMENT
KOREA ADVANCED INSTITUTE OF SCIENCE AND TECHNOLOGY (KAIST)
THE REPUBLIC OF KOREA

Abstract
This paper presents successful experiences in technological entrepreneurship development in the
Republic of Korea. Korea Advanced Institute of Science and Technology (KAIST) has been a major
source of highly successful technical entrepreneurs sine 1980s. With the establishment of KAIST
TBI-TIC (Technology Business Incubator/Technology Innovation Centre) in 1994, KAIST started
entrepreneurship development programmes for potential entrepreneurs and real world entrepreneurs.
Especially KAIST Graduate School of Management (KGSM) has started Advanced Venture Management
(AVM) programme in 1998, as the first executive programme specifically for entrepreneurs in the Republic
of Korea. This four-month programme has gained very good reputation among entrepreneurs and venture
capitalists in the Republic of Korea. This paper will explain successful experiences of the AVM programme
and present policy implications for other developing countries.

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 BIOGRAPHY

Zong-Tae Bae is an Associate Professor of entrepreneurship at the Graduate School of Management at

Korea Advanced Institute of Science and Technology (KAIST). He received a B.Sc. degree in Industrial
Engineering from Seoul National University, and a Ph.D. degree in Management Science from KAIST in 1987.
He served as a visiting faculty at the School of Management, Asian Institute of Technology in Thailand from
1989 to 1991. Also, he spent one year at the Stanford Business School as a visiting scholar from 1999 to 2000.
His research interests include various aspects of R&D/technology and venture management. He has published
several articles in IEEE Transactions on Engineering Management, R&D Management, Journal of Product
Innovation Management, Journal of Engineering Technology Management, Science & Public Policy, World
Development, International Journal of Innovation Management and Technovation. He has been involved in
establishment and management of the KAIST Technology Business Incubator located in Taedok Science Town
since 1992. He is a founder and director of the Advanced Venture Management programme.

I. INTRODUCTION

As a new engine of technological innovation and economic development, high-tech ventures are attracting
greater attention from government, industry and universities in the Republic of Korea. Now fostering
entrepreneurship and promoting new venture creation have become priority policy actions.

Korea Advanced Institute of Science and Technology (KAIST) has been a major source of highly successful
technical entrepreneurs since 1980s. With the establishment of KAIST TBI-TIC (Technology Business Incubator
/Technology Innovation Centre) in 1994, KAIST started entrepreneurship development programmes for potential
entrepreneurs and real world entrepreneurs.

In recent years, many new ventures have been spun off from university, industry and government-
sponsored research institutes. KAIST, as a leading science and technology (S&T) university, has been a pioneer
in cultivating entrepreneurs and educating entrepreneurship in the Republic of Korea. Also, a higher rate of new
venture creation from spinning off from universities is expected in the future, because universities are considered
as sources of incubating organizations in the Republic of Korea.

Especially KAIST Graduate School of Management (KGSM) has started Advanced Venture Management
(AVM) programme in 1998, as the first executive programme specifically for entrepreneurs in the Republic of
Korea. This four-month programme has gained a very good reputation among entrepreneurs and venture capitalists
in the Republic of Korea. This paper will explain successful experiences of AVM programme and present policy
implications for other developing countries.

II. THEORY AND PRACTICE OF ENTREPRENEURSHIP

DEVELOPMENT

A. Definitions of entrepreneurship

The term “entrepreneurship” has become a well-defined domain of management. Entrepreneurship is

defined as “the pursuit of opportunities regardless of the resources currently controlled” (Stevenson and others
1994). The key concepts of entrepreneurship can be explained as follows:

(1) Strategic orientation

(2) Commitment to opportunity
(3) Commitment of resources
(4) Control of resources
(5) Management structure
(6) Reward philosophy

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 B. Entrepreneurship development programmes

Many universities have entrepreneurship programmes. Stanford University is operating Centre for
Entrepreneurial Studies. Recently Professor Karl H. Vesper of University of Washington and Professor William
B. Gartner of University of Southern California conducted an intensive survey on University Entrepreneurship
Programmes, which provides a convenient source of information about university programmes in entrepreneurship.
They surveyed 126 schools that grant a four-year or graduate degree in conjunction with an entrepreneur
programme. The results shows that a total of 104 out of the 126 responding four-year schools seemed to have
programmes truly focused on entrepreneurship. There was still a wide range of programmes, however, from
schools like Iowa and Wichita State which clearly had many entrepreneurship courses to those which squeaked
by the threshold of three courses by counting small business management as one of them. Table 1 lists courses
that seemed to us to be most likely focused on start-up or entry into business. Table 2 lists courses that were
primarily oriented toward the management of ongoing firms.

In spite of many entrepreneurship courses for undergraduate and graduate programmes, a limited executive
programme on entrepreneurship can be found. They offer an executive programme as a form of seminar and
intensive short courses such as Babson College.

KAIST AVM programme is very unique in the Republic of Korea as well as in the world. The education
model should be developed and diffused into other universities, especially into the universities in developing
economies.

Table 1. Frequency count of entrepreneurship courses

Number of Schools Offering
Course
Total Undergrad Grad Both Not Sure
Entrepreneurship, Start-up 120 16 35 63 6
Venture Finance 83 19 45 16 3
Venture Plan Writing 42 7 21 12 2
Venture Marketing 35 4 22 8 1
Technology Transfer 30 4 21 5 0
Product Development 19 0 18 1 0
Opportunity Finding/Screening 24 2 12 8 2
International Venturing 21 6 11 1 3
Innovation Evaluation 19 4 15 0 0
Law For Entrepreneurs 18 3 12 2 1
Creative Thinking 16 4 10 2 0
Entrepreneurship Research 12 2 9 1 0
Entry via Acquisition 11 0 10 1 0
Franchise Development 10 3 3 4 0
Venturing in Arts, Software, etc. 9 2 6 1 0
New Product Marketing 8 1 6 1 0
Entrepreneurship for bankers, biologists, etc. 7 1 2 4 0
Entrepreneurship for non-business majors 6 3 1 2 0
New Venture Lab 5 1 4 0 0
Entrepreneurial Economy 4 1 3 0 0
Social Entrepreneurship 3 0 2 1 0
Sociology of Entrepreneurship 2 0 1 1 0
Total 504 83 269 134 18
Per cent 100 per cent 16 per cent 53 per cent 27 per cent 4 per cent

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 Table 2. Ongoing firms management courses
Number of Schools Offering
Course
Total Undergrad Grad Both Not Sure
Small Business Management 72 32 15 20 5
Field Project, Consulting 42 17 15 8 2
Starting & Running 38 8 19 9 2
Managing Fast-Growing Firms 37 5 23 8 1
Family Business 25 9 6 8 2
Corporate Venturing 24 5 15 4 0
Internships 16 5 7 4 0
Comprehensive Analysis/Strategy 10 2 7 1 0
MIS for Small Business 8 4 4 0 0
Joint Ventures 5 0 5 0 0
HRM for Small Business 4 1 2 1 0
Entrepreneurship in Service Organizations 4 0 3 1 0
Turnarounds 3 0 3 0 0
Total 288 88 124 64 12
Fractions 100 per cent 31 per cent 42 per cent 23 per cent 4 per cent

III. HISTORY AND OBJECTIVES OF KAIST ADVANCED VENTURE

MANAGEMENT (AVM) PROGRAMME

A. Need for the AVM programme

Within a few years after its creation, a venture firm goes through the most vulnerable stage that will
ultimately determine is success. It is this stage where management knowledge and skills are crucial. In response
to these needs, KGSM has established Advanced Venture Management (AVM) Programme, which was started in
October 1998 as a four-month non-degree executive programme.

B. Objectives of the AVM programme

The AVM programme offers top executives of new high-tech ventures and venture capitalists the opportunity
to learn management approaches and techniques in the process of [foundation – growth – maturity], and to
understand management of innovation and change, principles and practices of opportunity identification, financing,
marketing and venture capital operation.

C. History of the AVM programme

The AVM programme started in October 1998 with 40 executives. Since then, four batches of executives
have graduated, and the number of alumni has reached 133. Table 3 shows the history of the AVM programme.

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 Table 3. History of the AVM programme
(1) First batch AVM programme
◆ October 1998 First Batch Programme Started (40 executives)
◆ October 1998 Site Visit & Workshop
◆ January 1999 Silicon Valley Field Trip
◆ February 1999 Graduation (33 executives)
(2) Second batch AVM programme
◆ March 1999 Second Batch Programme Started (40 executives)
◆ March 1999 Site Visit & Workshop
◆ May 1999 Silicon Valley Field Trip
◆ June 1999 Alumni Seminar
◆ July 1999 Graduation (32 executives)
(3) Third batch AVM programme
◆ September 1999 Third Batch Programme Started (40 executives)
◆ September 1999 Site Visit & Workshop
◆ November 1999 Silicon Valley Field Trip
◆ February 2000 Graduation (29 executives)
(4) Fourth batch AVM programme
◆ March 2000 Fourth Batch Programme Started (40 executives)
◆ March 2000 Site Visit & Workshop
◆ May 2000 Silicon Valley Field Trip
◆ July 2000 Graduation (39 executives)
(5) Fifth batch AVM programme
◆ August 2000 Fifth Batch Programme Started (45 executives)
◆ September 2000 Site Visit & Workshop
◆ October 2000 Silicon Valley Field Trip
◆ December 2000 Graduation

IV. CHARACTERISTICS AND STATUS OF

KAIST AVM PROGRAMME

A. Characteristics of the AVM programme

The management environment of the venture companies is vastly different from that of the mature firms.
Creative problem solving ability is to be cultivated to meet the ever-changing role of the managers. The
curriculum of the AVM programme is balanced between theory and application and emphasizes participation and
practices through lectures, business clinic sessions, case studies, and thesis thereby enhancing problem solving
and adaptive abilities. The AVM programme can be characterized by two principles.

(a) Differentiation with other executive programmes in quality and target

(b) Specialization and focus on entrepreneurship issues

The AVM programme is very unique and differentiated in several aspects.

First, the AVM programme is specialized by participants. Targeted audiences of the AVM programme
are entrepreneurs of venture companies who have been in business more than 3 years. Generally, they have
engineering backgrounds and lack management capability, which is a vital factor especially in the growing
companies. This programme is dedicated to entrepreneurs who already created new ventures.

Second, AVM programme is specialized by programme contents. The AVM curriculum is customized to
entrepreneurs in the growing companies. The curriculum pursues a balance between theory and practice and
focuses on venture management issues. Major contents include entrepreneurship and venture management,
opportunity identification, changing roles of entrepreneurs, stage financing, high-tech marketing, technology

350
management, creativity, business valuation and harvest issues. Also, a Silicon Valley field trip is included as
a part of the AVM programme.

Third, AVM programme is specialized by education methods. In addition to lectures, the AVM programme
has business clinic, case presentation and analysis, thesis writing, and field trip. Also, participants meet every
other week on Friday afternoon and Saturday morning to give more flexibility to participating CEOs in time
management. In Friday afternoon, one CEO of a successful high-tech venture is invited as a speaker and
presents the case of the company. In the business clinic session of Friday night, all the participants discuss as
a team on the situation of one company and try to find solutions.

Fourth, the AVM programme is specialized by resource persons and education level. Speakers of the
AVM programme are mainly industry experts to deliver practical knowledge, although KAIST professors teach
management concepts. The contents of the programme are very extensive, structured and of high level. The
summary of the programme is presented in table 4.

Table 4. The AVM programme summary

(1) Target audiences of AVM programme
◆ CEOs of new ventures
◆ Venture capitalists and business angels
◆ Executives of internal corporate ventures of large firms
◆ CEOs of middle-sized companies who want to reform a firm into new venture
◆ Government officials and social authorities who are interested in nurturing new venture firms
(2) Programme period: twice a year
◆ Spring semester (March – June)
◆ Fall semester (September – December)
(3) Structure of programme
◆ Total of 63 hours in 4 months and Site Visit of Silicon Valley for 7 nights/8 days
◆ The class meets Friday and Saturday of every other week (6 hours on Friday, 3 hours on Saturday)
(4) Number of participants per batch
◆ 40 persons per batch

B. Current Status of the AVM programme

Currently 45 students are enrolled in the KAIST AVM programme. The average age of participants’
firms is 5, and average size of sales is about W 3.4 billion (US$ 3 million). Table 5 shows the participants’
distribution by organization type.

Table 5. Typical demographics of AVM participants:

distribution by organization
Type of organization Number Percentage
High-tech ventures 30 75
Large corporations 2 5
Venture capitalists 4 10
Supporting firms 4 10
Total 40 100

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 C. Alumni activities

The first batch of AVM graduates organized KAIST AVM Angel Fund immediately after graduation,
and it became a new tradition of AVM alumni. They raised about US$ 2 million and invested in more than
20 start-up companies. In addition, AVM Board activities have been carried out regularly. AVM programme has
graduated four batches and the total number of alumni reached 133 as of July 2000.

D. Performance of the AVM programme

This programme has received high reputation from industry and applicants for this programme are
continuously increasing. The level of satisfaction from participants has been more than 4.5 out of 5 point.

V. CURRICULUM OF KAIST AVM PROGRAMME

A. Structure of contents of the AVM programme

AVM programme was designed to differ from other general executive programmes and to focus on the
needs of new ventures. It is differentiated in terms of curriculum, target audience, education methods, and the
level of learning. The AVM programme addresses all the stages of venture development but puts more emphasis
on the growth stage. The structure, contents and time schedule of AVM programme curriculum are shown in
table 6, table 7 and table 8, respectively.

B. Field trip to Silicon Valley and Los Angeles

As a part of the programme, AVM participants join one-week field trip to Silicon Valley and Los Angeles.
The purposes of the field trip are (1) to understand the habitat and the operating mechanism of Silicon Valley,
(2) to search strategies of the United States of America’s market entry by Korean venture enterprises, and (3) to
acquire hand-on experience and practical skills. The field trip programme is composed of three parts.

Table 6. Structure of the AVM programme curriculum

(1) Special lectures
◆ Acquiring expertise in each field
◆ Introduction to core theory and methodology in venture management
(2) Case study
◆ The foundation and growth process of successful new ventures
◆ Learning through case analysis
(3) Business clinic
◆ Learning business clinic
◆ Talking about the problems confronted in real situation
◆ Problem identification and solution search (based on worksheet)
(4) Thesis
◆ Applying acquired knowledge into real world business
◆ Identifying problems and finding solutions
(5) Networking activities
◆ Networking and synergy creation through alumni activities
◆ Mutual understanding and cooperation through group activities
◆ Invitation and linkage to professional group for new ventures
(6) Field trip to Silicon Valley
◆ Special lectures: CEOs of start-ups and venture capitalists
◆ Site Visits: Start-up companies, venture capital, law firm, business incubator
◆ Visit to Stanford University: campus tour and lecture
◆ Discussion and networking among participants

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 Table 7. Contents of the AVM programme curriculum
1. KAIST AVM Curriculum (I): Content Approach
◆ Who are you?
❏ Venture management and entrepreneurship (the 1st week)
◆ Why to do?
❏ Strategic management (the 3rd week)
◆ What to do?
❏ Opportunity recognition (the 2nd week)
◆ How to do?
❏ Marketing (the 4th week)
❏ Fund raising, accounting, financial analysis (the 5th week)
❏ Understanding the Silicon Valley (the 6th week)
❏ Management of technology and organization (the 7th week)
◆ When to do?
❏ Management of growth and harvest (the 8th week)
2. KAIST AVM Curriculum (II): Process Approach
◆ Setting vision and goals
❏ Venture management and entrepreneurship (the 1st week)
❏ Strategic management (the 3rd week)
◆ Evaluating the opportunity
❏ Identifying the opportunity (the 2nd week)
◆ Developing the business concept
❏ Marketing (the 4th week)
◆ Building venture strategy and assessing required resources
❏ Strategic management (the 3rd week)
❏ Fund raising, accounting, financial analysis (the 5th week)
◆ Acquiring necessary resources
❏ Fund raising, accounting, financial analysis (the 5th week)
◆ Managing the venture
❏ Understanding the Silicon Valley (the 6th week)
❏ Management of technology and organization (the 7th week)
◆ Harvesting and distributing value
❏ Management of growth and harvest (the 8th week)

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 Table 8. KAIST AVM programme curriculum for
2nd Batch (March – June, 1999)
Week Date Curriculum
2:00-3:20 Orientation Introduction to AVM programme
1 Mar 12 3:30-4:50 Lecture I Leadership and changing roles of entrepreneurs
Venture (Fri.) 5:00-6:00 Case study Case analysis methods and thesis writing
management 7:00-9:00 Business clinic Business game
Mar 13 9:00-10:20 Lecture II New management strategy of Korean new ventures
(Sat.) 10:40-12:00 Lecture III Entrepreneurship and venture management
2:00-3:20 Site Visit Visit to KAIST High Tech Venture Centre
2
Mar 26 3:30-4:50 Lecture I Patent strategy of new ventures
Recognition
(Fri.) 5:00-6:00 Case study PSD TECH
of business
opportunity 7:00-9:00 Business clinic Business clinic (1): Lecture and introduction of company
(Workshop) Mar 27 9:00-10:20 Lecture II Venture promotion policies in Korea
(Sat.) 10:40-12:00 Lecture III Technology innovation and creativity enhancement
2:00-3:20 Lecture I Competitive analysis
Apr 9 3:30-4:50 Lecture II Strategic management
3
(Fri.) 5:00-6:00 Case study LOCUS
Strategic
management 7:00-9:00 Business clinic Business clinic (2): Strategic analysis
Apr 10 9:00-10:20 Lecture III How to write business plan
(Sat.) 10:40-12:00 Lecture IV Case study of business plan writing
2:00-3:20 Lecture I High-tech marketing
Apr 23 3:30-4:50 Lecture II Marketing of new ventures
4 (Fri.) 5:00-6:00 Case study MEDISON
Marketing
7:00-9:00 Business clinic Business clinic (3): High-tech marketing
Apr 24 9:00-10:20 Lecture III Marketing strategy of new ventures
(Sat.) 10:40-12:00 Lecture IV Internet marketing
2:00-3:20 Lecture I Financial management for new ventures
May 7 3:30-4:50 Lecture II Venture capital
5 (Fri.) 5:00-6:00 Case study HUMAX
Financing 7:00-9:00 Business clinic Business clinic (4): Financial analysis
May 8 9:00-10:20 Lecture III Capital flow management of new venture
(Sat.) 10:40-12:00 Lecture IV Valuation of high-tech new ventures
6 May 23 (Sun.) to 30 (Sun.) Visit to Silicon Valley
2:00-3:20 Lecture I
Jun 11 Management of organization and human resources
7 3:30-4:50 Lecture II
Organization/ (Fri.)
5:00-6:00 Case study TURBOTEK
Technology 7:00-9:00 Business clinic Business clinic (5): Organization and human resources
management Jun 12 9:00-10:20 Lecture III Strategic management of technology
(Sat.) 10:40-12:00 Lecture IV Life corporation: New paradigm of management
2:00-3:20 Lecture I Informatization and customer value creation
Jun 25 3:30-4:50 Lecture II M&A
8 (Fri.) 5:00-6:00 Case study HANDYSOFT
Change
7:00-9:00 Business clinic Paper presentation
management
Jun 26 9:00-10:20 Lecture III Service competence in manufacturing and service companies
(Sat.) 10:40-12:00 Lecture IV Korean venture management and globalization

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(a) Morning sessions:

Special lectures by

◆ CEOs of start-ups ( Korean-American or American)

◆ Venture capitalists and Stanford professors

(b) Afternoon sessions:

Site visits to

◆ Stanford University: campus tour and lecture

◆ Start-up companies (private companies, public companies)
◆ Supporting organizations: business incubators
◆ Subsidiaries of Korean large companies in Silicon Valley and Los Angeles.

Through the field trip, participants could understand how Silicon Valley works. The typical schedule of
the programme is presented in table 9.

Table 9. Typical schedule for site visit of Silicon Valley and Los Angeles
Date Places Time Schedule
Seoul Evening Depart from Seoul
Arrive at San Francisco
1st Day (Sun.) SF Afternoon San Francisco Tour
San Jose
Move to San Jose
Special lectures (I) (II)
Morning Silicon Valley: Past, present and future
2nd Day (Mon.) San Jose Roles of venture capitalists in Silicon Valley
Site visits (I) (II)
Afternoon
Visit two start-up companies
Special lectures (III) (IV)
Morning Silicon Valley way: Management style and culture
Most common mistakes of start-ups
3rd Day (Tue.) San Jose Site Visits (III) (IV)
Visit one business incubator
Afternoon Visit Stanford University
Special lectures (V)
Silicon Valley and Stanford University
Special lectures (VI) (VII)
San Jose
Morning What makes Silicon Valley unique: case study
4th Day (Wed.) Strategies for entering into the US market
Site visit (V)
Los Angeles Afternoon Visit one start-up company
Move to Los Angeles
Special lectures (VIII) (IX) (X)
Globalization of Korean venture companies
Morning
Internet business
5th Day (Thurs.)
Los Angeles Wrap-up and discussions
Site visits (VI) (VII)
Afternoon Visit one venture capital firm
Visit one start-up company
6th Day (Fri.) Los Angeles Morning Free time
7th Day (Sat.) Los Angles Morning Depart from Los Angeles
8th Day (Sun.) Seoul Afternoon Arrive at Seoul

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 C. Regular Courses for entrepreneurship

In addition to the AVM programme, KAIST Graduate School of Management is offering two courses on
entrepreneurship for graduate and undergraduate students. The contents of the courses are presented in table 10
and table 11.

Table 10. Entrepreneurship and new venture creation – for graduate students
(1) Course overview
New Venture Creation (NVC) explores the skills and knowledge needed to design a new venture. Student teams are
requested to design business concept and to prepare a business plan. NVC is offered as an elective course for students
both in MBA programme and in Ph.D. track. While the course stresses entrepreneurial start-ups, it is also relevant to those
interested in general management, project management, business development and internal corporate venturing.
(2) Course objectives
New Venture Creation (NVC) focuses on how to design and launch an effective and sustainable new venture. The
emphasis is on both concepts (the elements of a well-designed venture) and actions (how to plan and design a venture,
write an effective business plan and implement it) required for successful start-up.
(3) Course contents and organization
Team projects and classroom exercises (cases, panel discussions, and presentations) provide students multiple opportunities
to examine both the large issues of venture design and the micro-level decision points of implementation that play
a critical part in new venture creation. To provide students with the operational practices, professionals having experience
in related fields are invited. The project requires each student team to develop a business plan that provides sufficient
operational detail to show how a new product or service can be brought to market, as well as to create the strategic vision
that will attract the resources needed for launching and growing the enterprise.
(4) Results and performance of the course
NVC has been opened once a year since 1993. NVC has an enrollment of over 50 in each offering. This course is
intended for students expecting to design and launch new ventures at some point during their careers. So, those who
participate in this course have various educational backgrounds.

Table 11. Entrepreneurial management – for undergraduate students

(1) Course overview
Entrepreneurial Management (EM) explores the start-up process for new ventures and the issues faced in the growing
stage. PEM introduces the concept of entrepreneurship and business strategies and management tools for solving the
problems faced by venture firms at the growth stage. This course is intended for students who are interested in the process
of starting and managing a new venture. This is an elective course for undergraduate students who have various academic
backgrounds.
(2) Course objectives
The objectives of EM are to provide the comprehensive understanding of the entrepreneurship and the entrepreneurial
process for new ventures, and to provide the opportunity to address the venture management practice in the real situation.
(3) Course contents and organization
EM covers the entire spectrum of the entrepreneurial process from the development of the idea into a workable business
model, to getting started and grow up and eventually harvesting. The contents include:
◆ Developing a framework for understanding and evaluating opportunity;
◆ Creating alternative strategies for resource acquisition;
◆ Facing the challenges associated with managing a growing enterprise; and,
◆ Harvesting value.
Students will build teams to analyze the management practices of a real venture case and create alternative strategies to
cope with the problems faced by the company. Through these case studies, students will review the issues discussed in
class.
(4) Results and performance of the course
EM has been opened once a year from 1998. For each offering, over 60 students with various majors participate in this
course.

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 VI. OPERATING PRINCIPLES OF THE KAIST AVM PROGRAMME

A. Quality control for the AVM programme

To maintain the quality of the programme, the members of the AVM programme committee meet regularly.
In the selection process for new students, the programme accepts only qualified applicants even though it could
not fill up regular T/O. Also the requirements for graduation – more than 75 per cent of attendance and thesis
submission – have been applied strictly.

B. Learning as first priority, networking as second priority

The KAIST AVM programme emphasizes integrative learning as the first priority and networking as the
second priority – NOT the reverse. To pursue this principle, the following activities have been carried out.

First, the programme focuses on performance through customized course design, course evaluation and
feedback and the Silicon Valley field trip.

Second, the programme focuses on practical application through business clinic and case studies.

Third, the programme provides opportunities for networking through several group activities, workshop
and garden party. KAIST AVM programme is expanding the network of entrepreneurs of growing companies,
through the growing number of AVM alumni.

C. Financially self-sufficient operation

The KAIST AVM programme has been contributing financially to KAIST Graduate School of Management.
Tuition fee for the programme is W 5 million (US$ 4,500).

VII. FUTURE DIRECTIONS FOR ENTREPRENEURSHIP PROGRAMME

A. Problems of entrepreneurship programmes

There can be several problems faced by entrepreneurship education. First, entrepreneurs can be sources
of problems, such as: (1) lack of understanding on the importance of management, (2) lack of understanding on
their own management capabilities, (3) lack of time to learn, and (4) misunderstanding on executive programme.

Second, some problems arise from training organizations, such as: (1) lack of contents and experience,
(2) difficulties in finding eligible resource persons, and (3) lack of PR activities.

B. Directions for entrepreneurship programme

To develop a successful entrepreneurship programme, some approaches and actions are needed such as:
(1) developing specialized programme, (2) analyzing success/failure cases, (3) changing mindset of entrepreneurs,
and (4) changing attitudes of government.

First, specialized entrepreneurship programmes targeted for each entrepreneur group should be developed.
For example, training programmes for CEOs, middle managers, and potential entrepreneurs need to be designed
differently.

Second, in designing the programme, analysis of successful or unsuccessful programmes can bring useful
lessons. Through analysis, key success factor can be identified. The AVM experience shows that the reputation
of training organization, the quality of the programme and resource persons, and alumni activities are some of
key success factors.

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 Third, some entrepreneurs think they have some years of experience in managing companies and
they know how to manage the company. But the most widely recognized reason for unsuccessful business plans
by venture capitalists is the lack of management capability. The CEOs of ventures should be adaptive to the
rapidly-changing environment and the capability for change management and entrepreneurial management are
very important assets for venture CEOs. They should be ready to learn management.

Fourth, government officials could be very reluctant to support an entrepreneur programme for “growing”
or already grown companies. Because they think the entrepreneurs of growing companies are already rich, they
are active only in promoting venture formation and in supporting potential entrepreneurs. But, entrepreneurs of
growing venture companies need support from infrastructure and habitat, and indirect policy support for
entrepreneurship programme as well.

VIII. CONCLUSIONS AND IMPLICATIONS

A. Conclusions

The AVM programme puts more emphasis on practical and collective learning rather than human
networking. To do this, a business clinic session has been devised and participating CEOs can discuss their
problems in each group. Development of success and failure cases is needed for more practical learning in the
local context.

Summing up, this paper discussed successful experiences of the AVM programme and policy implications
for other developing countries. The KAIST Advanced Venture Management (AVM) programme, the first executive
programme specifically for entrepreneurs in the Republic of Korea, has gained a very good reputation among
entrepreneurs and venture capitalists in the Republic of Korea. But, it still has many unsolved problems.

B. Implications for developing countries

Some implications for other developing countries can be drawn from Korean experience and the case of
the AVM programme.

First, although entrepreneurship development needs appropriate habitat and culture of community, diverse
entrepreneurship programmes are needed to promote entrepreneurship and new venture creation in developing
countries.

Second, cultivating potential entrepreneurs and developing entrepreneurs can be the starting point of
entrepreneurship development in developing countries. In designing the programmes, the objectives and targets
of trainees should de clarified and programme contents should vary according to participants’ needs.

Third, university-industry cooperation is the most important part of success in designing and implementing
entrepreneurship development programme. University should take a very important role in shifting the traditional
and conservative society into a dynamic and entrepreneurial society. The entrepreneurship course should be one
of the core courses for engineering and business school students in universities.

Fourth, entrepreneurship education should be very practical and it needs commitment from industrial
experts. To pursue this, professors and industry leaders should offer entrepreneurship programmes with joint
efforts.

Fifth, because high-tech ventures should compete in global markets, entrepreneurship development
programmes should contain global perspectives and increase the exposure to global business environment.

Sixth, learning from successful experiences from Silicon Valley and other successful high-tech regions
can be useful, but the programmes need well-organized approaches based on cooperation with key persons and
institution in those high-tech regions.

Seventh, cooperation among developing countries in entrepreneurship programme development and research
can promote opportunity identification and cooperation in the real business world.

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 C. Guidelines in designing entrepreneurship programmes

In designing entrepreneurship programme, the following programmes with different targets, lengths, and
contents can be considered.

(1) Degree programmes (1-2 years)

◆ Interdisciplinary Entrepreneurship Programme
◆ Venture Management Programme (Venture-MBA)
(2) Non-degree Executive Programmes (1-4 months)
◆ Advanced Venture Management Programme
◆ Venture Capitalist Training Programme
(3) Short-term Training Programmes (1-3 weeks)
◆ Technological Entrepreneurship Seminar
◆ Potential Entrepreneurs Internship Programme
◆ New Venture Forum

For each programme, some frameworks will be very useful in designing and sequencing the detailed
contents on entrepreneurship. For example, Timmons’ model (1999) of entrepreneurial process can be a good
example of framework as shown in figure 1.

Founder and Opportunities

Team

Fit and Gap

Resources

Figure 1. Framework for entrepreneurship education

Harvard Business School, Babson College, and Stanford Business School have been very successful in
entrepreneurship education. The entrepreneurship management programme at Harvard includes the following
topics: (1) entrepreneurial finance, (2) entrepreneurship, creativity and organization, (3) real property asset
management, (4) venture capital and private equity, and (5) entrepreneurial marketing.

Also Babson College has designed the entrepreneurship curriculum according to the stages of venture
development, such as: (1) before founding, (2) at founding, and (3) after founding.

The AVM experience shows some guidelines in designing entrepreneurship programme, such as:
(1) designing the curriculum based on objectives and target of the programme, (2) inviting prominent industrial
experts as speakers and for case presentation, (3) building human networking through team activities, (4) providing
global perspectives through field trip to Silicon Valley or other high-tech regions, as one-week intensive programme

359
(15-20 lectures or site visits), and (5) promoting application of knowledge into business realities through individual
research.

Recently, online education for larger group of audiences has emerged as a new opportunity for
entrepreneurship education. Also, intensive internship programme has evolved and some companies are looking
for business opportunities on executive education. Entrepreneurship education is getting greater attraction from
universities and industry.

REFERENCES

Bae, Zong-Tae, 1998. “Developing education programmes for entrepreneurship and venture management”, The
Korean Venture Management Review, vol. 1, No. 2 (October 1998) [in Korean], pp. 155-182.
Stevenson, Howard H., Michael J. Roberts and Irving H. Grousbeck, 1994. New Business Ventures and the
Entrepreneurs, 4th ed. (Irwin, Burr Ridge).
Timmons, Jeffery A., 1999. New Venture Creation: Entrepreneurship for the 21st Century, 5th ed. (Boston,
McGraw-Hill).

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 PART FIVE
INAUGURAL STATEMENTS

I. MESSAGE OF MR KIM HAK-SU

EXECUTIVE SECRETARY
UNITED NATIONS ECONOMIC AND SOCIAL COMMISSION
FOR ASIA AND THE PACIFIC
(ESCAP)

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Your Excellency, Distinguished Participants, Ladies and Gentlemen,

While I regret that I cannot be personally present, it gives me great pleasure to welcome you to
the Regional Consultative Meeting on Strengthening Technology Incubation System for Creating High
Technology-based Enterprises in Asia and the Pacific Region, which is organized by ESCAP in cooperation with
the Korea Advanced Institute of Science and Technology (KAIST) with the generous financial support from the
Government of the Republic of Korea. At the outset, I wish to express our sincere appreciation to Honorable
Dr Eui-Jin Jun, Deputy Minister, Science and Technology Policy, Ministry of Science and Technology, Republic
of Korea, who, despite his heavy workload, has found time to inaugurate this Meeting. Our sincere appreciation
also goes to the High-Tech Venture Center, Korea Advanced Institute of Science and Technology (HTV/KAIST),
in particular its President, Dr Choi Duk-In, and High-Tech Venture Centre Director, Dr Kim Jong-Duk, whose
cooperation proved vital in organizing this event in Seoul.

In addition, I would like to express my gratitude to the resource persons, Dr Gerhard Raetz, ADT
Association of German Technology and Business Incubation Centres in Germany, Mr Shigeki Sadato, Project
Director of Venture Incubator, Kyoto Research Park Co., Ltd. in Japan, Mr Dinyar Lalkaka, President of Business
and Technology Development Strategies in the United States of America and Dr Jurgen Bischoff from Asian and
Pacific Centre for Transfer of Technology (APCTT), for their participation in this Meeting to present their
valuable experiences on technology incubation system.

As the forces of globalization intensify, knowledge and technological capabilities are becoming increasingly
crucial for national development in order to respond effectively to emerging challenges and opportunities. In an
increasingly competitive international trading environment, there is an imperative need for industrial restructuring
and strengthening of technological capabilities in developing countries. This is even more important as developing
countries appear to be losing their traditional comparative advantages such as those based on cheap labour,
natural resources, production by Small and Medium Enterprises (SMEs), and so on.

Furthermore, SMEs risk further marginalization or absorption by large companies, in particular transnational
corporations (TNCs) which are creating economies of scale and scope in technology development and innovation
through mergers and acquisitions. Governments can no longer afford to allow the SME sector to be neglected
and discriminated against in terms of a supporting policy framework, access to finance, management, marketing
expertise and technology. In order to guarantee their survival and improve their international competitiveness,
supportive programmes need to be given priority attention. One such supportive programme to increase the
international competitiveness of SMEs is to strengthen and promote technology venturing through incubation
programmes for new technology-based enterprises. An incubation programme aims to produce successful businesses
that are financially viable and freestanding when they graduate from the incubator, usually in two to three years.

ESCAP has been taking various initiatives to strengthen technological and industrial capabilities for
integrated development and to promote cooperation among the economies of the region. A new initiative taken
by ESCAP is for creating high technology-based enterprises under the project, “Mechanism for Strengthening
Technology Incubation System for SMEs in Asia and the Pacific”. Nodal agencies and representatives of
participating countries have been identified to take the responsibilities of promoting technology and business
incubation. A survey based on questionnaires had been undertaken to identify the current status of technology
and business incubators and catalytic factors for supporting and facilitating technology and business incubation
which participating countries had initiated for creating technology-based enterprises. Additionally, a study mission
was launched by ESCAP to survey technology incubation systems in selected countries such as Malaysia, Singapore,
Republic of Korea and Japan.

According to the ESCAP survey and study mission, it is estimated that about 600 business incubators
exist in Asia and the Pacific region. Japan started its incubator programme in 1988 and has 140 science parks
and 40 incubators. China set up its first incubator in Beijing in 1989 and has now more than 110 incubators,
based on the China Torch Programme, to promote technology business incubators. In addition, there are 53
national science and technology and industrial parks in China. Malaysia has about ten technology parks/incubators/
innovation centres. The Republic of Korea which established the first technology incubator in 1994, during past
two or three years, has created about 300 incubators for technology-based small enterprises. Philippines has
68 technology and business incubators. Uzbekistan has 2 technology and 21 business incubators. India has
31 incubators including 15 technology incubators. This number of incubators in Asia and the Pacific is almost

363
similar to that of the United States of America. However, technology incubators in least developed countries or
some of the developing countries may be of a general type. The major problem in developing and least developed
countries is to revitalize and restructure the local industries including SMEs and create employment through
development and applications of new and high technologies in traditional sectors. Industrially advanced countries
and industrializing countries are focussing on establishing their technological leadership in selected sectors and,
consequently, promoting high technology corporations through sound global technology incubation systems.

The survey also indicates the factors influencing technology incubators. Technopreneurs, national policies
and financial support are most important among the catalytic factors for supporting and proliferating technology
incubation for technology-based enterprises. Technology incubators are especially capital intensive, equipped
with simple to sophisticated science and technology facilities, and mostly aimed at developing intellectual property.
Technopreneurs are relatively young and have high level education in science and technology and are acquiring
technical and administrative expertise from their incubating companies such as universities, research and
development institutions. Thus, the governments are making efforts in providing a conducive and coordinated
national policy environment, strong R&D institutions and research-oriented academic institutions, technical
entrepreneurship development and support measures and in developing innovative financing systems. Developed
countries, in general spend large amounts on national R&D, about 2-3 per cent of their GNP, out of which
50-80 per cent is contributed by the industry. On the other hand, in developing countries, the total R&D
expenditure is generally in the range of 0.1 per cent to 1.0 per cent. In absolute terms, these expenditures are
even at subcritical levels for meaningful R&D.

In this background, this meeting will enable a thorough discussion on the current position of technology
incubation for creating technology-based enterprises and develop policy guidelines and recommendations for
cost-effective and user-friendly technology incubation to promote efficiencies and competitiveness of SMEs.
This would involve a review of existing policy guidelines, best practices, methodologies and constraints with a
view to establish effective and efficient technology incubators and to suggest a model technology incubator for
economies at various levels of development in the region.

Based on the findings of the study and the recommendations of this meeting, ESCAP will, through
a follow-up project, support and facilitate national initiatives towards an enabling policy framework for the
development of technology and business incubators.

I wish the meeting great success and look forward to the outcome of your deliberations and
recommendations. Thank you.

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 II. CONGRATULATORY SPEECH OF MR EUI-JIN JUN
DEPUTY MINISTER FOR SCIENCE AND TECHNOLOGY POLICY
MINISTRY OF SCIENCE AND TECHNOLOGY (MOST)
THE REPUBLIC OF KOREA

365
 Honorable Dr Dhungana, Chief of Industry Section of International Trade and Industry Division of
ESCAP, Dr Duk In-Choi, President of Korea Advanced Institute of Science and Technology and Ladies and
Gentlemen.

I am honoured to be with you at this gathering hosted by ESCAP and the Korea Advanced Institute of
Science and Technology (KAIST) and to make a congratulatory speech on behalf of Dr Jung Uck Seo, Minister
of Science and Technology.

Significance of high tech-based venture business

If a nation is to have a sustainable competitive edge in this knowledge-based economy of the

st
21 century, intellectual firepower becomes a must, not only to creatively generate knowledge but also to use it
in an innovative way.

One force of this power is high technology-based venture businesses, which, involved in commercialization
of scientific and technological innovations, are emerging as the backbone of an economy.

S&T policies of the Republic of Korea for the knowledge-based economy

Ladies and Gentlemen,

On the threshold of a full-blown knowledge-based economy of the 21st century, the Government of the
Republic of Korea is working hard to lay the groundwork for a more innovation-encouraging socioeconomic
environment to facilitate the creation, dissemination, and utilization of scientific and technological knowledge.

Let me tell you about several steps that the government is taking.

In 1999, “The National Science and Technology Council”, chaired by the President, was crated to coordinate
national S&T policies.

In the same year, the Council established “Vision 2025: the Long-Term Plan for S&T Development”
with a view to creating a national management system that emphasizes science and technology.

Currently, we are about to introduce “The Basic Law on Science and Technology” as a fundamental legal
framework.

In addition, to secure competitive high technologies, the Government is initiating national R&D projects
in such areas as information, mechatronics, energy, environment, new materials, and bioengineering.

To support these ambitious projects, we plan to increase the share of the Government budget for R&D
from the current 4.1 per cent to 5 per cent by 2002.

Finally, as creative ideas for technological innovation come from scientists and engineers, we are running
special educational programmes for the gifted in science.

We are also nurturing excellent higher educational institutions like KAIST and Kwang Ju Institute of
Science and Technology, as well as Science Research Centres, Engineering Research Centres, and Regional
Research Centres to help fully develop the limitless potential of the human resources in S&T.

Nurturing high tech-based venture business

Ladies and Gentlemen,

At this important time of a paradigm shift in the world economy, Republic of Korea is trying to
establish a national innovation system required for the effective commercialization of R&D outputs from
Government-supported Research Institutes (GRIs) and universities.

To nurture high technology-based venture businesses, the Government is supporting them in getting easy
access to capital, technology, skilled human resources and building sites.

367
 For example, we are:

◆ Transforming the Dae Duk Science Town, which you will be visiting this Thursday, to make it fully
functioned as a high-tech venture valley where industry, research institutes and academia can cooperate
effectively;
◆ Supporting the establishment and operation of Business Incubation Centres, especially within the
Dae Duk Science Town;
◆ Facilitating the creation of spin-offs from the researchers of GRIs and universities and encouraging
researcher start-ups;
◆ Financially supporting promising technology-based venture businesses; and
◆ Introducing a technology-value assessment system to streamline technology transfer, expansion of
technology-secured loans and others.

Expectation and prospect of further cooperation

Ladies and Gentlemen,

This Meeting will discuss ways to strengthen “Technology Incubation System for Creating High
Tech-based Enterprises”, by sharing each country’s experience and best practices.

I am sure that this Meeting will provide a unique opportunity to discuss and exchange ideas for effective
technology incubation system, and that this meeting will pave the way for more active international cooperation
in the development of venture industry.

I hope that ESCAP will implement follow-up projects in the near future to assist member countries in
strengthening technology incubation systems and I promise Republic of Korea will be an active participant in
these projects.

Closing remarks

Last but not least, I would like to express my heartfelt thanks to all the guest speakers, participants, and
hosts ESCAP and KAIST who have worked so hard to make this Meeting a great success.

Ladies and Gentlemen,

Let me conclude my speech by saying, “Welcome to Korea” and wishing you an enjoyable stay here.

Thank you.

368
III. WELCOME SPEECH OF MR CHOI DUK-IN
PRESIDENT OF KOREA ADVANCED INSTITUTE
OF SCIENCE AND TECHNOLOGY (KAIST)
THE REPUBLIC OF KOREA

369
Ladies and Gentlemen,

On behalf of KAIST and the Korean delegation, I would like to welcome all of you to the International
Symposium of “Regional Consultative Meeting on Strengthening the Technology Incubation System for Creating
High Technology-based Enterprises”. I am very pleased to speak with you, the distinguished experts from
various countries.

The International Symposium, organized by the United Nations Economic and Social Commission for
Asia and the Pacific (UN/ESCAP) and KAIST, has aroused enormous interest and is a matter of concern to the
countries which are trying to revitalize their economies through the cultivation of venture business.

In an era of knowledge-based economies, venture companies play a key role in improving internal and
international competitiveness in industry. Technology venturing through incubator activity is regarded as
an important tool for the commercialization of R&D outputs and the transfer of technology. Further, technology
incubators accelerate the creation of new enterprises and the development of jobs.

From this point of view, the nurturing and revitalizing of the ventures is seen as a key factor in sustaining
economic development. Understanding the importance of nurturing venture enterprises, the Korean Government
has been fully and resolutely supporting the idea of the technology incubation system in aspects of financing,
locating, technology, and marketing for example.

With the help from the government, high-tech start-ups have been booming and spread nationwide in
a short period. As of the end of May 2000, the number of venture companies reached 7,110. Frequently, the
amount of transaction in KOSDAQ, where venture companies raise money, has amounted to 4 trillion won,
exceeding the amount in the Korea Stock Exchange.

The Technology Business Incubators are considered as the most important factor in promoting the growth
of the venture industry. There are about 320 incubators in the Republic of Korea which actively support
entrepreneurs and small technology-based enterprises.

Thus, we are hoping that today’s meeting on Strengthening the Technology Incubation System will give
us the chance to review policy guidelines, practices, methodologies, and constraints based on the actual experiences
of various nations. And, through this meeting, we will not only be able to suggest effective and efficient models
for technology incubation for various levels of economies in the region, but to come up with a suitable mechanism
for strengthening networking and cooperation among relevant institutions.

In particular, the experts from the Asia and the Pacific region will make presentations on technology
business incubation system based on their real experiences. I believe that this symposium will help to establish
national policy for economic revitalization, in more general terms.

Ladies and gentlemen,

Once again, I thank you for participating in this symposium and I sincerely hope that this meeting will
bear fruitful results and help to promote more active exchanges among the countries of Asia and the Pacific.

Thank you.

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 ANNEX I
LIST OF PARTICIPANTS

373
 LIST OF PARTICIPANTS

CAMBODIA

Mr IN Sambo, Deputy Chief of Laboratory, Laboratory Office, Department of Industrial Technique, Ministry of
Industry, Mines and Energy (MIME), Phnom Penh

CHINA

Ms Luo Hui, Deputy Director, Division of International Development, Torch High-Technology Industry
Development Center, Beijing

INDIA

Mr P.K.B. Menon, Adviser, Department of Science and Technology, Ministry of Science and Technology,
New Delhi

MALAYSIA

Ms Maznah Ibrahim, Manager, Technology Park Malaysia Corporation, Resource Centre, Kuala Lumpur

NEPAL

Mr Nirmal Kumar Bista, Executive Director, Industrial Enterprise Development Institute (IEDI), Kathmandu

PAKISTAN

Mr Abdul Rashid, Joint Technological Adviser, Ministry of Science and Technology, Islamabad

PHILIPPINES

Ms Maripaz L. Perez, Director, Technology Application and Promotion Institute (TAPI), Department of Science
and Technology (DOST), Metro Manila

REPUBLIC OF KOREA

Mr Jun Eui-Jin, Deputy Minister of Ministry of Science & Technology (MOST), Seoul

Mr Choi Duk-In, President, Korea Advanced Institute of Science and Technology (KAIST), Taejon

Mr Kim Jong-Duk, Director, High-Tech Venture Center, Korea Advanced Institute of Science and Technology
(KAIST), Taejon

Mr Kim Ji-Soo, Director, Advanced Venture Management Programme, Professor, Graduate School of Management,
Korea Advanced Institute of Science and Technology (KAIST), Seoul

Mr Bae Zong-Tae, Professor, Graduate School of Management, Korea Advanced Institute of Science and
Technology (KAIST), Seoul

Mr Kwon Sung-Moon, President, KTB Network, Seoul

Mr Pak Han-Oh, President, Bioneer Corporation, Cheongwon

SRI LANKA

Ms Nirmala M. Pieris, Head, Corporate Services Division, Industrial Technology Institute, Colombo

TAJIKISTAN

Mr Davron Yuldashev, Director, The Agency for Support and Development of Small Entrepreneurship under the
Government of the Republic of Tajikistan, Dushanbe

375
 UZBEKISTAN

Mr Karapetov Alexander, UNDP National Expert on Investments, UNDP Office in Uzbekistan, Deputy of the
Officemen of Association of Business Incubators and Technoparks of Republic of Uzbekistan, Tashkent

VIET NAM

Mr Quan Thang, Deputy Director General, International Cooperation Department, Ministry of Industry, Hanoi

OBSERVER

Mr Yu Sung-Su, Director, Industrial R&D Innovation Division, Ministry of Science & Technology, Seoul

Mr Oh Young-Jei, Director, Technology Business Incubator Center, Korea Institute of Science & Technology,
Seoul

Mr Kim Soung-Hee, Dean, Korea Advanced Institute of Science and Technology (KAIST), Graduate School of
Management, Seoul

Mr Paik S. Jong, Director, Center for Technology Partnership Programme, Korea Research Institute of Standard
and Science, Taejon

Mr Choi-Gye-Ho, Director, Kongju National University Business Incubators (KNUBI), Chungnam

Mr Lee Kum-Bae, Director, Kongju National University Business Incubators (KNUBI), Chungnam

Mr Jun Yong-Du, Manager, Kongju National University Business Incubators (KNUBI), Chungnam

Mr Yang Kap-Seung, Business Incubator, Chungnam National University, Chungnam

Mr Choi Wook, Director General, Korea Federation, WASME, Seoul

Mr Park In-Bok, Vice-President Korea Federal, WASME, Seoul

Mr Rhee Guhn, President, Intellectual Property Valuation Center Co. Ltd., Seoul

Mr Lee Hyung-Chill, Director, Intellectual Property Valuation Center Co. Ltd., Seoul

Mr Hwang Jong-Hwan, President, Intellectual Property Valuation Center Co. Ltd., Seoul

Mr Min Byung-Soo, Auditor General, Intellectual Property Valuation Center Co. Ltd., Seoul

Mr Han Min-Goo, Director, Koje Business Incubator, Koje College, Seoul

Mr Kim Jin-Hwan, Manager, Overseas Business Team, Internet TV Networks, Seoul

Mr Cho Bong-Jin, Director, Business Incubator enter, Keimyung University, Taegu

Mr Lee Jong-Sung, Mnager, Kwangju Chonnam Technopark, Chonnam

Mr Chang Hong-Yul, CEO & President, Kyongki Small Business Center, Seoul

Mr Baek Yoon-Su, Director, Yonsei Technology Business Incubator, Yonsei University, Seoul

Mr Kim Dong-Jin, Director, Technology Business Incubator Center, Hallym University, Chun-Chen

Mr Lee Seag, General Manager, Kwangju-Chonnam Technopark, Chonnam

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 SECRETARIAT

Mr B.P. Dhungana Chief

Industry Section
International Trade and Industry Division

Mr Song Woo-Geun Expert on Industrial Development Policies and Planning,

Industry Section
International Trade and Industry Division

Resource Persons

Mr Dinyar Lalkaka Partner, Business & Technology Development

Strategies, New York, U.S.A.

Mr Shigeki Sadato Project Director of Venture Incubator

Kyoto Research Park Co. Ltd., Japan
Kyoto, Japan

Mr Gerhard Raetz Representative

ADT Association of German Technology and
Business Incubation Centres
Berlin – Adlershof, Germany

Mr Surya Prakash Agarwal Adviser

Department of Scientific and Industrial Research
Ministry of S&T, Government of India
New Delhi, India

Mr Jurgen Bischoff Director

Asian and Pacific Centre for Transfer of Technology (APCTT)
New Delhi, India

Mr Vadim Y. Kotelnikov Adviser

Asian and Pacific Centre for Transfer of Technology (APCTT)
New Delhi, India

377
ANNEX II
AGENDA

379
 AGENDA

1. Opening of the meeting.

2. Election of officers.

3. Adoption of the agenda.

4. Presentations by ESCAP secretariat on “Strengthening technology incubation system for creating high
technology-based enterprises in selected countries” (Malaysia, Singapore, the Republic of Korea and Japan).

5. Presentations by Experts from Japan, Germany and the United States of America on experiences in
“Technology incubation system for creating high technology-based enterprises”.

6. Presentation by APCTT on “Project selection, monitoring and evaluation for technology incubation in
developing countries”.

7. Country presentations on “Technology incubation system” by representatives from Bangladesh, Cambodia,

China, India, Malaysia, Nepal, Pakistan, Republic of Korea, Sri Lanka, Philippines, Tajikistan, Uzbekistan and
Viet Nam.

8. Special presentations by Korean Experts on “Successful experiences in venture capital, venture businesses
and technical entrepreneurship development in the Republic of Korea”.

9. Other matters.

10. Adoption of the report.

381
 ANNEX III
PROGRAMME OF ESCAP AND HIGH-TECH VENTURE
CENTER/KOREA ADVANCED INSTITUTE OF SCIENCE AND
TECHNOLOGY (HTV/KAIST)
REGIONAL CONSULTATIVE MEETING ON STRENGTHENING
TECHNOLOGY INCUBATION SYSTEM
FOR CREATING HIGH TECHNOLOGY-BASED ENTERPRISES

29-31 August 2000

SEOUL

383
 PROGRAMME OF THE INAUGURAL SESSION

Tuesday, 29 August 2000

0800-0900 Registrations

0900-0930 ◆ Welcome Statement by

Dr Choi Duk-In, President of KAIST

◆ Statement of
Dr Kim Hak-Su, Executive Secretary, ESCAP,
delivered by Dr B.P. Dhungana, Chief, Industry Section
International Trade and Industry Division, ESCAP

◆ Inaugural Speech of
Dr Jun Eui-Jin, Deputy Minister for Science and Technology
Policy, Ministry of Science and Technology (MOST),
the Republic of Korea

◆ Vote of Thanks – ESCAP

0930-1000 Coffee/Tea

385
 PROGRAMME OF WORKING SESSION

Tuesday, 29 August 2000

1000-1030 Election of Officers

Adoption of the agenda

1030-1100 Presentation by Dr S.P. Agarwal, ESCAP’s Consultant, on “Strengthening

technology incubation system for creating high technology-based
enterprises in selected countries” (Malaysia, Singapore, the Republic of
Korea and Japan)

1100-1110 Discussion

1110-1140 Presentation by Dr Gerhard Raetz, ADT Association of German

Technology and Business Incubation Centres, Berlin-Adlershof, Germany,
on “Technology incubation system in Germany”

1140-1150 Discussion

1150-1220 Presentation by Mr Shigeki Sadato, Project Director, Venture Incubator,

Kyoto Research Park Co. Ltd., Japan, on “Technology incubation system
in Japan”

1220-1230 Discussion

1230-1330 Lunch

1330-1400 Presentation by Mr Dinyar Lalkaka, President, Business & Technology

Development Strategies, New York, on “Technology incubation system
in the United States of America”

1400-1410 Discussion

1410-1440 Presentation by Dr Jurgen Bischoff, Director, APCTT, on “Project

selection, monitoring and evaluation for technology incubation in
developing countries”

1440-1450 Discussion

1450-1500 Coffee/Tea break

1500-1830 Country presentations by

Mr IN Sambo, Cambodia
Ms Luo Hui, China
Dr P.K. Menon, India
Ms Maznah Ibrahim, Malaysia
Dr Nirmal Kumar Bista, Nepal

Wednesday, 30 August 2000

0900-1230 Country presentations by

Mr Abdul Rashid, Pakistan
Dr Maripaz L. Perez, Philippines
Dr Nirmala M. Pieris, Sri Lanka
Mr Davron Yuldashev, Tajikistan
Mr Alexander Karapetov, Uzbekistan
Dr Quan Thang, Viet Nam

1230-1330 Lunch

386
 1330-1350 Country presentation by Dr Kim Jong-Duk, Director, High Tech Venture
Center/Korea Advanced Institute of Science and Technology (HTV/
KAIST), on “Technology incubation system for creating high technology
based enterprises in the Republic of Korea”

1350-1400 Discussion

1400-1500 Special presentation by Mr Kwon Sung-Moon, President of KTB Network,

on “Successful experiences in venture capital in the Republic of Korea

1500-1530 Discussion

1530-1630 Special presentation by Dr Park Han-Oh, President, Bioneer Corporation,

on “Successful experiences in venture businesses in the Republic of Korea”

1630-1700 Discussion

1700-1800 Special presentation by Dr Bae Zong-Tae, Professor, Graduate School of

Management, KAIST, on “Successful experiences in technical
entrepreneurship development in the Republic of Korea”

1800-1830 Discussion

Adoption of Conclusions and Recommendations

◆ Closing of Meeting
(Closing remarks by ESCAP and KAIST)

Thursday, 31 August 2000

0700 Depart Seoul for Dae Duk Science Town

0900 Arrive Dae Duk Science Town

0900-1500 Visit High-Tech Venture Center of KAIST

1500 Depart Dae Duk for Seoul

1700 Arrive Seoul

387
 ANNEX IV

SURVEY ON NODAL AGENCIES, STATUS OF INCUBATORS AND

CATALYTIC FACTORS FOR SUPPORTING AND FACILITATING
TECHNOLOGY AND BUSINESS INCUBATION IN SELECTED
COUNTRIES UNDERTAKEN BY ESCAP UNDER THE PROJECT OF
“MECHANISM FOR STRENGTHENING TECHNOLOGY
INCUBATION SYSTEM FOR SMEs
IN ASIA AND THE PACIFIC”

ESCAP under the project on “Mechanism for Strengthening Technology Incubation System for SMEs
in Asia and the Pacific”, identified the nodal agencies and representatives who were responsible for
promoting technology and business incubation in the participating countries.

Questionnaires were prepared and sent to nodal agencies to identify the current-status of technology
and business incubators and catalytic factors for supporting and facilitating technological development.

Based on the response to the questionnaires, this document has been prepared for the information of
the participants.

389
 I. QUESTIONNAIRE RESPONDENT

Questionnaires were received from the following 11 countries: Bangladesh, Cambodia, China, India,
Nepal, Pakistan, Philippines, and the Republic of Korea, Sri Lanka, Uzbekistan and Viet Nam. They were not
received from Indonesia, Malaysia and Tajikistan.

Representatives and nodal agencies of participating countries

Bangladesh

Mr M. Mosihuzzaman, Chairman, Bangladesh Council of Scientific and Industrial Research (BCSIR),

Dr Kudrat-e-Khuda Road, Dhanmondi, Dhaka 1205, Bangladesh. Tel: 880-2-502000, Fax: 880-2-8613022.

Cambodia

Mr IN Sambo, Official of Ministry of Industry, Mines and Energy (MOIME), Industrial Technical
Department, Phnom Penh, Cambodia. Tel/Fax: 855-23-428263.

China

Ms Luo Hui, Deputy Director of China Torch High Technology Industry Development Center, Beijing,
China. Tel/Fax: 0086-10-6851-4068, 0086-10-6851-1868.

India

Mr P.K.B. Menon, Joint Advisor, Department of Science and Technology, Ministry of Science and
Technology, Government of India, New Delhi 110016. Telefax: 011-651-7186.

Malaysia

Puan Maznah Ibrahim, Manager, Technology Park Malaysia Academic, Kuala Lumpur.

Nepal

Mr Nirmal Kumar Bista, Executive Director, Industrial Enterprise Development Institute (IEDI),
Kathmandu. Tel: 977-1-523012, Fax: 977-1-261241.

Pakistan

Mr Abdul Rashid, Joint Technological Adviser, Ministry of Science and Technology, Islamabad.
Tel: 92-51-9201786, Fax: 92-51-9205971, 92-51-9210734.

Philippines

Ms Maripaz L. Perez, Director, Technology Application and Promotion Institute, Department of Science
and Technology (DOST), Metro Manila. Tel: 837-6188, 837-2071, Fax: 837-2936.

Republic of Korea

Mr Kim Jong-Duk, Director of High-Tech Venture Center, Korea Advanced Institute of Science and
Technology, Taejon 305-701. Tel: 82-42-869-2013, Fax: 82-42-869-4780.

Sri Lanka

Ms Nirmala M. Pieris, Head, Corporate Services Division, Industrial Technology Institute, Colombo.
Tel: 94-1-697994, Fax: 94-1-697994, 94-1-686567.

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Uzbekistan

Mr Karapetov Alexander, The Republican Business Incubator, Tashkent 700060. Tel: 371-1363726,
Fax: 371-1363774.

Viet Nam

Mr Quan Thang, Deputy Director General, International Cooperation Department, Ministry of Industry,
Hanoi. Tel/Fax: 84-4-826-0411.

II. STATUS OF INCUBATORS IN PARTICIPATING COUNTRIES

A. Typology and total number of incubator

Country Technology Business Other Total
Bangladesh 3 – – 3
Cambodia – – – –
China 110 – – 110
India 15 10 6 31
Nepal – – – –
Pakistan – – – –
Philippines 7 61 – 68
Republic of Korea 291 10 – 301
Sri Lanka – – – –
Uzbekistan 2 21 – 23
Viet Nam 5 5 – 10
Total 433 107 6 546

B. Ownership of incubator

Country Public Private Joint Total

Bangladesh 3 – – 3
Cambodia – – – –
China 110 – – 110
India 31 – – 31
Nepal – – – –
Pakistan – – – –
Philippines 7 61 – 68
Republic of Korea 291 10 – 301
Sri Lanka – – – –
Uzbekistan 1 – 22 23
Viet Nam 8 1 1 10
Total 451 72 23 546

392
 C. Influencing factors to technology incubation
{(1) as most important, (8) at least important}

National R&D Techno- Financing Property S&T Alliance SMQC/

Country policies Institute preneur support and parks and marketing
consulting networking
Bangladesh 2 5 3 1 6 1 1 2
Cambodia 1 5 1 1 1 1 5 5
China 1 6 3 4 8 2 5 7
India 5 3 1 2 8 7 6 4
Nepal 2 1 3 4 – – 5 –
Pakistan 1 2 2 2 3 3 – –
Philippines 1 3 2 3 4 4 5 4
Republic of Korea 3 2 1 4 6 7 3 5
Sri Lanka 1 2 1 1 2 3 1 2
Uzbekistan – – – – – – – –
Viet Nam 1 – – 2 3 – 4 5
Output 2 5 1 3 8 4 7 6

D. Success factor of incubator

{(1) as most important, (6) at least important}

Government Location of Entrepreneur

Country Service Management Networking
support incubator development
Bangladesh 1 5 3 2 1 1
Cambodia 1 1 5 5 5 5
China – – – – – –
India – – – – – –
Nepal 1 4 – 5 3 2
Pakistan – – – – – –
Philippines 1 4 2 3 5 3
Republic of Korea 6 5 4 2 1 3
Sri Lanka 1 2 2 1 2 1
Uzbekistan – – – – –
Viet Nam 1 4 – 3 5 2
Output 1 6 2 4 5 3

393
 III. CATALYTIC FACTORS FOR SUPPORTING AND FACILITATING
TECHNOLOGY AND BUSINESS INCUBATION

A. National policies in industry, science and technology

1. Name of basic legal framework

Bangladesh, Cambodia, China, Nepal, Pakistan and Sri Lanka

(a) For technology incubation: None

(b) For business incubation: None

India

(a) For technology incubation: Appropriate institutional mechanisms, venture capital, and technology
back up.

(b) For business incubation: Infrastructure, escort services, less government control.

Philippines

(a) For technology incubation: Executive Order No. 128 otherwise known as the Reorganization of the
National Science and Technology Authority (NSTA) now. Department of
Science and Technology (DOST) is mandated to formulate policies, plans,
programmes and projects for the development of S&T and for the
promotion of scientific and technological activities for both the public
and private sector and ensure that results of S&T activities are properly
applied and utilized to accelerate economic and social growth legislative
bills are also pending in Congress.

(b) For business incubation: (1) Republic Act No. 7919 – Legal framework for the creation, operation,
administration and coordination of Special Economic Zones in the
Philippines and the creation of the Philippine Economic Zone
Authority (PEZA).

(2) Republic Act 7844 otherwise known as Export Development Act.

Republic of Korea

(a) For technology incubation: The science and technology Promotion Law (Law No. 1864, 1967) to
promote S&T systematically at the national level as a basic law. Major
provisions of this law include the establishment of policies and plans for
S&T and the overall support mechanism for related projects and agencies.

(b) For business incubation: Law for Special Measures to support New Technology and Knowledge
Intensive Business (1997) to transform SMEs into venture businesses and
encourage new small venture businesses.

Uzbekistan

(a) For technology incubation: None

(b) For business incubation: Business-incubators’ activity (including 2 of them specializing in problems
of technological development, scientific research commercialization) is
based on project document “Business-incubator network development in
the Republic of Uzbekistan” signed by UNDP and the Government of
Uzbekistan. There is also additional normative and instruction base

394
 determining conditions and priorities of business-incubator network’s
activity and development prospects. In the whole, innovative, scientific
and technological activity in the Republic is based on the following main
legal and normative documents:
❏ Laws of the Republic of Uzbekistan “Towards standardization”,
“Towards certification of products and services”, “Towards
metrology”, “Towards informatization”, “Towards inventions, useful
models and industrial samples”, Towards intellectual property right
protection”, Towards trademarks and service marks”, etc.
❏ Resolutions of the Cabinet of Ministers “Towards measures on state
support of science and innovative activity development”, Towards
formation of national calibration basis and metrology development”,
Towards state support of development international scientific and
technical links, science programmes and projects on grants of
international and foreign organizations and foundations”, “Towards
temporary provision on industrial property”, etc.
❏ Decrees of the President of Uzbekistan “Towards state support of
science and development innovative activity”, etc.
❏ Departmental normative acts: Resolutions of the State Committee
on Science and Technology (SCST) “Towards development
innovative entrepreneurship and improvement technology transfer
procedure to domestic and foreign industries”, “Towards creation of
system of commercialization of scientific and technical development
works and innovative projects”, “Towards order of formation and
realization of programmes of basic researches”, etc.

Viet Nam

(a) For technology incubation: Definition and classification of SMEs (No. 681/CP-KIN dated 20 June
1998)
(a) For business incubation: None

2. Major programmes provided by Government,

based on the above legal framework

Cambodia, Nepal, Sri Lanka, and Viet Nam

(b) For technology incubation: None

(c) For business incubation: None

Bangladesh

(a) For technology incubation: (1) R&D projects

(2) Annual Development Projects, (GOB)
(3) Project under S&T special allocation
(b) For business incubation: None

China

(a) For technology incubation: Preferential tax policies. Technology Innovation Fund for Small and
Medium-sized firms.
(b) For business incubation: None

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India

(a) For technology incubation: (1) Establishment of institutional mechanisms such as the STEPs, TBIs,
STPs and encouragement of other University-Industry interactions.

(2) Creation of venture capital agencies such as Technology Development

Board and other financial institutions in public and private sector.

(3) Availability of competent technology back up from premier

institutions like Indian Institutes of Technologies (IITs), Indian
Institute of Science (IISc), National R&D laboratories and Regional
Engineering Colleges (RECs).

(b) For business incubation: (1) Creation of state-of-the-art infrastructural facilities such as STPs,
STEPs and other mechanisms for encouragement of business
incubation.

(2) Escort services through Entrepreneurship Development Training

programme and other follow-up services by expert institutions in
this area.

(3) Establishment of one window clearance of the business proposals

by the government.

Pakistan

(a) For technology incubation: (1) Technology policy

(2) Industrial policy and action plan

(b) For business incubation: Trade policy and industrial policy – Economic and financial reforms.

Philippines

(a) For technology incubation: The Science and Technology Agenda for National Development (STAND)
is part of a series of measures that was pursued to realize the vision of
making the Philippines a newly industrialized country (NIC). STAND
emphasizes the development and utilization of superior technologies to
a level of competitive advantage. STAND shall be market-oriented and
private-sector led. The programme has been reiterated as a continuing
activity that should be strengthened under the new S&T Development
Plan.

(b) For business incubation: (1) Development the CALABARZON – its master plan includes
expansion and upgrading of infrastructure support facilities and
harness human resources towards a more conductive investment
climate for a sustainable development in Subregion IV, sound
environmental and ecological management links both industry and
agriculture.

(2) Subic Bay Metropolitan Authority (SBMA) – whose vision is to

develop the Subic Bay Freeport into a globally competitive
self-sustaining environment-friendly centre for industry, commerce,
finance, investment and tourism in the Asia Pacific Region.

(3) With the creation of PEZA a number of Special Economic Zones,

Industrial Estates, Export Processing Zones, Free Trade Zones were
established and provide incentives for the establishment of business
incubators.

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Republic of Korea
(a) For technology incubation: Technology Development Assistance Programme for SMEs. Technology
Credit and Assessment Programme for Promoting Investment. Special
Service Programme with Military Exemption.
(b) For business incubation: None

Uzbekistan
❏ Programme of business-incubator network development for a period to 2001 within the framework of
state programme of support and development small and medium-sized business aimed at the creation of
favourable economic conditions for setting up and development of new enterprises, business projects, in
particular, innovative ones.
❏ 14 priority state scientific and technical programmes aimed at the solution of problems of the development
of intellectual potential, resources conservation, new technologies, materials and facilities.
❏ 18 scientific and technological programmes aimed at the solution of problems of public health, ecology,
informatization, architecture and construction, agriculture and forestry, etc.
❏ 11 programmes of basic researches in the field of mathematics, physics and astronomy, biology, chemistry,
economy, sociology, etc.
❏ Competition scientific and technical programme and programme of innovative works of the SCSTRUz
aimed at the solution of critical problems of economic and social development of branches of national
economy and regions of Uzbekistan.

3. Financial support and tax incentives provided by Government for

incubation activities for emerging high technology-based enterprises

Cambodia, Pakistan and Sri Lanka

(a) Financial supports: None

(b) Tax incentive: None

Bangladesh
(a) Financial supports: Through ADP projects.
(b) Tax incentives: None

China
(a) Financial supports: Each year, Ministry of Science and Technology allocates 10 million
technology business incubators. Each year, Central Government allocates
1 billion Innovation Fund for technology-based small firms.
(b) Tax incentives: Local Government will refund the local tax to tenant companies in
technology business incubators.

India
(a) Financial supports: The technology-based enterprises in the STEPs mobilize the financial
resources through financial institutions and banks. The STEP provides
the following facilities to the entrepreneurs: nursery space; testing and
calibration, consultancy, training, research, precision tool room/central
workshop; prototype development, business facilitation; computing,
databank, library and documentation; communication, Internet and
E-mail; seminar hall, conference room; common facilities such as phone,
telex, fax, Xerox; etc.

397
 The STP entrepreneurs also mobilize the finance through the existing
financial institutions and banks. The STP’s role is promotional and
catalytic. It provides the infrastructure, customized solutions in data
communication and networking, and interface with industry and
government.

The EHTP entrepreneurs also mobilize their investment by themselves.

Foreign equity up to 1,000 per cent is permitted.

(b) Tax incentives: There are no special tax incentives for STEP entrepreneurs. The STP
programme provides the following: Duty free imports, Excise on domestic
purchase exempted, Income tax holiday for a block of 5 years in first
eight years, DTA sale of 25 per cent of value of software exported, No
location constraints, Infrastructural support provided inside complexes,
Datacom services offered at selected locations, Custom Bonding assistance,
Import certificate.

The EHTP provides the following:

(1) duty free import of capital goods, raw materials, components and
other imported inputs permitted;

(2) no minimum value addition required for export market;

(3) complete tax holidays for 5 years.

Nepal

(a) Financial supports: Access to loan from Government owned banks with collateral.

(b) Tax incentives: None

Philippines

(a) Financial supports: Financial support for the development/improvement of existing science
and technology parks and development of road networks and utilities for
new ones.

(b) Tax incentives: (1) Tax and duty-free importation of capital equipment and spare parts.
(2) Tax credit for taxes and duties on raw materials in the manufacture,
process and production of export goods.
(3) Tax credit on domestic capital equipment, and income tax holiday
of 4-6 years.

Republic of Korea

(a) Financial supports: ◆ Start-up fund, reengineering, etc.

◆ Venture capital, Technology financing, angle, etc.
◆ Technology mortgage.

(b) Tax incentives: Tax reduction.

Viet Nam

(a) Financial supports: Government fund for investment in agricultural machines manufacturing.

(b) Tax incentives: Import duty 0-5 per cent for aico products; 5 per cent VAT for agricultural
machines manufacturing; 0 per cent for FDI projects with high-tech.

398
 B. R&D expenditures by year and sector

Public sector Private sector Total Per cent of GNP

Country Year
(%) (%) (%) (%)
Bangladesh 1995-1996 0.18 – – 0.01
Cambodia – – – – –
China – – – – –
India – – – – –
Nepal – – – – –
Pakistan – – – – –
Philippines – – – – –
Republic of Korea 1998 27% 73% 100% 2.50
(W million) (3 060 234) (8 276 383) (11 336 617) (–)
Sri Lanka 1996 n/a n/a – 0.18
Uzbekistan – – – – –
Viet Nam – – – – –

C. R&D institutions
(Unit: number)
Research institution University college
Country Year Total
Subtotal Public Private Subtotal Public Private
Bangladesh 1994-1995 83 73 73 – 10 8 2
Cambodia – – – – – – – –
China – – – – – – – –
India 1999 – – – – – –
Nepal 2000 8 7 2 5 1 – 1
Pakistan – – – – – – – –
Philippines 1994 198 5 – (nat) 5 79 40 39
Republic of Korea 1998 2 869 2 602 183 2 419 267 49 218
Sri Lanka 2000 31 19 19 – 12 12 –
Uzbekistan – – – – – – – –
Viet Nam 1999 17 17 17 – – – –

D. Technical entrepreneurs
(Unit: person)
Country Year Doctor Master Bachelor Others Total
Bangladesh 1996-1997 1 382 2 804 1 911 3 825 9 922
Cambodia – – – – – –
China – – – – – –
India 1999 – – – – –
Nepal – – – – – –
Pakistan – – – – – –
Philippines 1992 6 10 382 114 512
Republic of Korea 1998 281 601 2 204 922 4 008
Sri Lanka – – – – – –
Uzbekistan – – – – – –
Viet Nam – – – – – –

399
 E. Any programmes provided by the Government for
the capability building of technical entrepreneurs?

Bangladesh

(i) Human Resource Development

(ii) Banga Bandhu Fellowship

Cambodia

None

China

Torch programme

India

The Government of India has established a National Science and Technology Entrepreneurship Development
Board (NSTEDB), under the Ministry of Science and Technology, to promote entrepreneurship among S&T
persons and use the development in S&T to encourage gainful employment among youth. A number of programmes
and activities have been evolved to achieve the following broad objectives of the NSTEDB:

(i) To promote entrepreneurship among S&T persons;

(ii) To facilitate and conduct various informational services relating entrepreneurship development
among S&T persons;
(iii) To network various Central and State government agencies and non-governmental organizations in
technical entrepreneurship;
(iv) To develop institutional mechanisms for technical entrepreneurship;
(v) To involve technical institutions in entrepreneurship activities.

The programmes and activities that have evolved in the past include, among others, establishment of
STEPs in the vicinity of technical and R&D institutions, include establishment of Entrepreneurship Development
Cells in academic institutions and universities, creation of information networks to help the start-up technical
entrepreneurs, organization of entrepreneurship development training, organization of entrepreneurship awareness
camps, conduct of skill development training in the emerging technology areas.

Nepal

Skill development training. Polytechnic institutes.

Pakistan

Ministry of Science and Technology had launched at national level HRD Programme. So far, more 1,300
have completed Ph.D. in different field. To produce 100 Ph.D., the programme is going on.

Philippines

The government through its educational/technical training institutions specializing in developing skills
for the manufacturing, agricultural, mining, infrastructure, etc. and service sectors offer trainings to interested
parties to enhance capability building.

400
Republic of Korea

KAIST operates AVM (advanced venture management programme) and Venture Class. SMBA performs
Technology Venture Class, Training Abroad Programme, Scientist Exchange Programme, etc.

Sri Lanka

Some programmes are provided by the following major Government institutions viz. The National
Apprentice & Industrial Training Authority (NAITA), Clothing Industry Training Institute (CITI), Textile Training
and Services Centre and the Sri Lanka Business Development Centre (SLBDC). Ad-hoc programmes are also
provided by the Industrial Technology Institute (ITI), the Industrial Development Board (IDB) and the Expert
Development Board (EDB). Skills and vocational training programmes are also available.

Viet Nam

Not yet.

F. Innovative financing support system

(a) Venture capital companies available? If “Yes”, please describe in details?

(b) Private capital source (Angel) available? If “Yes”, please describe in details?

Bangladesh, Cambodia, Pakistan and Viet Nam

(a) None

(b) None

China

(a) Yes, but most venture capital companies are funded by government money.

(b) Yes, but not many.

India

(a) The Government of India has a set up a Technology Development Board (TDB) as a venture capital
agency. The TDB invests in equity capital or gives soft loan to industrial concern attempting development
and commercial application of indigenous technology, or adapting imported technology to wider domestic
application. All India Financial Institutions such as the Industrial Credit and Investment Corporation of
India (ICICI) has floated a Technology Development and Information Company of India (TDICI Ltd.) in
collaboration with Unit Trust of India (UTI). The Industrial Finance Corporation of India (IFCI) has
a subsidiary named Risk Capital and Technology Finance Company, which provides venture capital to
innovation based companies. To assist innovative ventures in the small-scale sector, having good scope
for commercialization but having characteristics of high risks and high gains, Small Industries Development
Bank of India (SIDBI), operates a venture capital scheme.

To encourage the setting of venture capital funds, Government extended several incentives like capital
gain tax concession under the Income Tax Act.

Some Public Sector banks have also set up venture capital companies and a few venture capital funds
were instituted in the private sector.

(b) Presently, about 30 institutions have floated venture capital companies or venture capital fund.

401
Nepal

(a) None

(b) Yes, finance companies and private banks.

Philippines

(a) In support of the industries development programme, the government and private banking systems
established several venture capital corporations to provide equity capital to industries. VCC form part of
the management of the project.

(b) Private capitalists develop the area with infrastructure and utilities requirements and lease area to
would-be locators where both parties agree upon terms and conditions.

Private capitalists develop the area and would-be locators provide infrastructures/utilities according to
their needs conditions of which are agreed upon by the developer and locator.

Republic of Korea

(a) Venture capital companies in 71 in 1998 and 114 in 1999.

(b) Number of angel clubs was 6 in 1998 and 20 in 1999. The number of members is ranged between one to
ten thousands.

Sri Lanka

(a) In 1999 seven Venture Capital Companies (VCCs) were in operation. These companies provide
long-term capital for the commencement of new business, expansion of existing ventures, acquisition of
buyouts, in addition to investing in shares etc. Most of the companies also provide additional services
such as financial advice, planning, introducing foreign technology, formulation of marketing strategies
and introducing joint ventures and marketing partners. In 1999, the VCCs assisted a large number of
projects under the Graduate Entrepreneurs Loans programme and the Non-graduate educated youth
programme. The manufacturing sector and the services sector are the major recipients of funds. VCCs
are required to invest in specified risk ventures under the Inland Revenue department guidelines. However,
at present VCCs can opt out of the tax holiday by expanding investments in diversified activities such as
the priority sectors and the software industry.

(b) Not available at present.

G. Intellectual property assistance/technical consultant assistance

If available, please describe outlines for technology and businesses incubation

Bangladesh, Cambodia, and Viet Nam

None

China

Yes, in Chinese business incubators we have these organizers to provide professional service.

India

The Ministry of Science and Technology has set up a Patent Facilitating Centre to help scientists,
technologists and industries in their patenting requirements.

402
 Technical Consultancy Organizations, public sector as well as private has been set up in different parts of
the country, covering all sectors of industry. In addition, the faculty of premier technical institutions such as the
ITTs, RECs and National Laboratories also undertake consultancy jobs for the industry and entrepreneurs.

Nepal

Yes, private sector organizations are in technical consultancy but almost non-existent in incubations.

Pakistan

Law is under preparation.

Philippines

The Intellectual Property Office of the Department of Trade and Industry is mandated to administer and
provide lawful protection for the copyrights, patents, trademarks, industrial design, etc.

The Department of Science and Technology (DOST) through the Technology Application and Promotion
Institute’s (TAPI), Intellectual Property Rights (IPR) Assistance Programme provides assistance in securing
intellectual property protection for patents and copyrights. Forms of assistance include consultancy services
covering the filing of application, prosecution of patents and complete package of patenting assistance through
the services of the Philippines Association of Certified Patent Agents.

Republic of Korea

Government supports the technical assistance for SMEs by professors and researchers in public institutions
by SMBA and the technical consulting programme by MOST.

Sri Lanka

Intellectual property assistance is available through the Intellectual Property Office in Sri Lanka. Technical
consultant assistance is available through R&D Institutes and private individuals. However, no specifically
targeted assistance is planned so far for technology and business incubation.

H. Science and technology parks

If available, describe outlines

Bangladesh, Cambodia, Pakistan, Sri Lanka, and Viet Nam

None

China

There are 53 national science and technology industrial parks in China.

India

The STEP, which has been described as an incubator above, has various facets. It has the following
major objectives: (1) To forge a close linkage between universities/R&D institutions on the one had and industry
on the other. (2) To promote entrepreneurship among S&T persons. (3) To provide R&D support and other
facilities to small scale sector.

STEP provides a reorientation in approach to innovation and entrepreneurship involving education, training,
research, finance, management and government. It creates the necessary climate for innovation; for sharing of
ideas, experience and facilities and opens up avenues for students, teachers, researchers and industrial managers
to grow in a common transdisciplinary culture, each understanding and depending on others inputs for starting
a successful economic venture.

403
Nepal

Under construction (information technology).

Philippines

The Department of Science and Technology supported and helped maintain three (3) S&T parks and
seven (7) technology business incubators which provided a conducive environment for academic institutions and
private institutions to interact and work collaboratively for innovation and contract research and spin-off
technologies from laboratories to industries. Spaces are offered to startup industries who lack capital to put up its
own company. Common service facilities/equipment are also offered to locators. Use of space and equipment
charged at minimal costs.

Republic of Korea

In the Republic of Korea, we have three different types of science park-related projects launched. The
first one is Taeduk Science Town in Taejon city, which started in 1971 and now has 67 research institutes. The
number of researchers is about 14,000. The second is the technopark programme by Ministry of Commerce,
Industry and Energy, by a special article for Industrial Technology Support in 1989 and now 6 parks are in
operation. The third is local high tech industrial parks initiated by local governments and private sector.

I. Strategic business alliance and networking

If available, describe outlines by item

Cambodia, India, Nepal, Pakistan, and Sri Lanka

None

Bangladesh

BCSIR has contacted with Dhaka Chamber of Commerce and Industries in greater Dhaka area and with
Federation of Bangladesh Chamber of Commerce and Industries throughout the country.

China

City Business Incubator Network, Western Business Incubator Network and China International Business
Incubator Network.

Philippines

To facilitate the actualization of the industrialization thrusts, the government has established institutional
linkages at various levels with international institutions for both technical and financial assistance. Requesting
parties submit proposals to international institutions for their consideration. Upon approval of the project,
a memorandum of agreement is prepared to include terms and conditions of assistance.

Republic of Korea

Networking is one of the most important infrastructures. Korea organized KOBIA (Korea Business
Incubators Association) After KOSDAQ booming, many consulting companies supporting venture companies by
providing service, management support, technology evaluation, patent and legal service firms, were created.

Viet Nam

Not yet for SMEs.

404
 J. Standardization, meteorology and quality control (SMQC)
and marketing

If available, describe outlines

Cambodia, China, India

None

Bangladesh

Bangladesh Standard and Testing Institute (BSTI) is engaged in testing and quality control of industrial
products. It also provides standardization certificate before marketing the product. In some specific cases
BCSIR is involved in testing and standardization.

Nepal

Government Sector: Nepal Bureau of Standardization and Meteorology, Central Food Laboratory.

Pakistan

Pakistan has set up Pakistan Standard and Quality Control Authority and NFSL to take necessary measures
standardization, meteorology and quality control (SMQC).

Philippines

The Department of Science and Technology (DOST) has established a state-of-the art Meteorology Center
through the Japanese government assistance. Standards maintained at DOST are calibrated or intercompared
with standards of other international laboratories abroad. TAPI’s programme on Manufacturing Productivity
Extension for Export Promotion (MPEX) Programme extends assistance to SMEs in the manufacturing sector to
attain high productivity. Promotion of products through fairs and participation in international fairs and exhibitions
are provided support by TAPI. Marketing assistance for exportable products are being extended by the Department
of Trade and Industry.

Republic of Korea

After success in pilot test of product and marketing, the failure of quality control was often reported, but
no special measures and standardizations were designed.

Sri Lanka

Standardization and Meteorology and Quality Control service are available through the Sri Lanka Standards
Institution (SLSI) and the Industrial Technology Institute (ITI). Assistance with marketing is available through
the Sri Lanka Institute of Marketing (SLIM) and the several Chambers of Commerce and Industry and Trade
Associations. The Export Development Board (EDB) provides assistance with respect to export marketing.

Viet Nam

Vietnamese Government encourages SMEs to apply ISO, but only a small number of SMEs, got ISO
certificates.

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 IV. BEST PRACTICES IN TECHNOLOGY INCUBATION

Bangladesh, Cambodia, India, Nepal, Pakistan, Sri Lanka and Viet Nam

None

China

Combine angel fund with technology business incubation project.

Philippines

(1) Commercialization of new and emerging technologies;

(2) Creation of technology-based enterprises;
(3) Creation of employment/job opportunities.

Republic of Korea

KAIST operates HTVC since 1992 and the number of tenant companies is 120 in information technology,
biotechnology, environment and energy, mechatronics and semiconductors. Among the companies, Darim Vision,
Dr Y. Kim, KAIST graduated with Ph.D., was housed in 1994, and graduated in 1999 with sales volume of
US$ 6 million and in preparation for KOSDAQ.

V. RECOMMENDATIONS AND FUTURE NEEDS

Bangladesh, Cambodia, China, India, Nepal

None

Pakistan

Pakistan is in the process of establishing Science Park incubator centre. On the basis of experience
gained in the Republic of Korea, necessary technical/financial assistance in this regard may be extended.

Philippines

(1) Continued government support for existing science and technology parks/incubators;
(2) Government assistance in sourcing financing support for the commercialization of technologies
developed by R&D institutions.

Republic of Korea

Issues should be discussed to understand the infrastructure for venture:

◆ venture capital
◆ consulting and incubation
◆ legal and patent
◆ technology assessment
◆ marketing
◆ information flow
◆ outlet policy (IPO, M&A, etc.)

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Sri Lanka

Similar to other developing countries, Sri Lanka has reached the stage where the ability of SMEs to
generate socioeconomic benefits, value addition to indigenous raw material and employment generation have
been recognized. However, S&M entrepreneurs need much assistance to face the difficulties arising from their
inherent weaknesses in accessing finances, skills, information, business concepts and markets. Even though
a large number of organizations that can provide services to SMEs are in existence in the country, there is no
‘one-stop’ shop for providing this assistance. Therefore, cost effective business development services and
well-managed workspaces are a necessity to the S&M entrepreneurs. Business incubator development in the
country, following the setting up of a successful pilot incubator that will need to be adjusted and adopted to
improve performance before replication will no doubt fill this need.

Viet Nam

Policies on SMEs are new in Viet Nam. Besides survey, Ministry of Industry needs international assistance
and guideline for setting up network of SMEs, their technology and business incubation system, including their
funding.

407