Business innovation and entrepreneurship are an increasingly essential part of the development agenda of many middle income and developing countries, playing an important role in establishing sustainable growth and capacity building, say the conveners of the 3rd Global Forum on Innovation and Entrepreneurship meeting in Florianopolis, Brazil this week. The role of developing world business incubators in fostering sustainable enterprise is crucial to that development.
The Global Forum
The Global Forum is a triennial meeting of developing world business incubators seeking to improve opportunities for small business entrepreneurs in their countries. This year’s Global Forum is convened jointly by the World Bank-sponsored infoDev program and the Brazilian government. “A country’s ability to harness innovation is an essential part of sustainable development,” says Mohsen Khalil, Director of the World Bank’s Global Information and Communication Technologies Department, which houses infoDev.
“Entrepreneurship can play a fundamental role in developing products and services that are needed by the population and increase enterprise competitiveness, while in the process, creating sustainable incomes and tax revenues that can be re-invested for socio-economic gain,” says Valerie D’Costa, Manager of infoDev
Entrepreneurship and SME Development
Historically, developing and middle income countries have been less likely than developed economies to focus on the potential of entrepreneurs as drivers of economic growth, despite the fact that such innovators are known to play an important role in job creation and the fact that the potential for innovation and entrepreneurship is known to exist equally in all corners of the globe.
A recent infoDev study showed no specific geographic trend in terms of where innovative entrepreneurs can be found and no evidence that developed countries have a higher rate of novel product-market combinations than less developed countries. The study also found no pattern of successful entrepreneurs coming from limited professional backgrounds.
Entrepreneurship can also play an important role in recovery after an economic downturn. A recent Kauffman Foundation report found that more than half of the companies on the 2009 Fortune 500 list were launched during a recession or bear market, along with nearly half of the firms on Inc. magazine’s 2008 list of America’s fastest-growing companies. The Kauffman report also suggests a broader economic trend, with job creation from startup companies proving to be less volatile and sensitive to downturns when compared to the overall economy.
The Role of Business Incubators
Business incubation is a key intervention available to countries that seek to harness innovation and entrepreneurship in support of their development goals. Business incubators typically focus on strengthening dynamic growth-oriented early stage enterprises in their quest to grow and become more competitive. Business incubators offer start up companies important feedback on challenges and needs facing innovative new businesses, but they also offer opportunities for other actors in the system. For example, they can offer financiers a pool of high growth potential investment and lending opportunities at reduced risk, given the on-going assistance that these entrepreneurs receive with overcoming challenges and taking advantage of opportunities. Long popular in developed countries, business incubators have grown in popularity in the rest of the world over the last 20 years.
Since 2001, infoDev has managed the world’s largest network of developing world business incubators, which currently includes nearly 300 incubators in 83 countries. The infoDev network was created partly in recognition of the fact that business incubators have a positive impact on society that is broader than economic growth alone. By helping to commercialize innovations with potentially high impact on human welfare, business productivity, and competitiveness, incubators play a crucial role in changing the face of an economy in the long run. Once an entrepreneur is accepted into a business incubator, the incubator assists its clients as a whole, analyzing the needs of the entrepreneur and designing a program to strengthen and accelerate the business.
The business incubator is thus proactive in assisting its clients and will offer assistance in areas that the entrepreneur may not have discovered poses a challenge to success. While the mix of services depends on local market needs, business incubators generally provide four types of services:
- Shared infrastructure such as office space, meeting rooms, telecoms, reliable electricity, and in some environments, security services;
- Business advisory services assisting the entrepreneur with management issues such as business planning, financial management, marketing, and regulatory compliance such as applications for business registration and licensing;
- Financial services, ranging from brokering services to providing seed loans or taking equity in the enterprise; and
- People connectivity including mentoring by experienced business professionals, knowledge sharing with like-minded entrepreneurs, and links to business relationships and opportunities.
Brazil as Global Leader in the Field
Brazil has risen as a key example of a middle-income country taking a lead in business incubation to foster economic growth. Over the last 20 years, the government of Brazil has invested 150 million Reals in business incubators and technology parks, ultimately becoming and is one of the world’s most entrepreneurial countries, with nearly 13 of every 100 active people involved in a start-up business. The country now has the world’s fourth largest business incubation market, generating more than 400 million Reals in revenues annually.
Indeed, the Global Forum’s host city of Florianopolis is an example of the transformational power of entrepreneurship and innovations through the use of information and communication technologies (ICTs). As a result of the rapid influx and development of private companies since the late 1990s, and its reputation as one of the most innovative cities in Brazil , this "Silicon Valley of Brazil" was recently named one of the Ten Most Dynamic Cities of the World by Newsweek magazine.
About infoDev’s Business Incubator Network
InfoDev’s global network of business incubators was established with a grant from the Japanese government and has grown steadily since its 2001 inception, doubling in the number of incubators between 2008 and 2009 alone. Today, the network includes 288 business incubators located in 86 developing countries. It has incubated 15,000 client companies and created 220,000 jobs worldwide. Many of its incubators have a distinct sectoral or issue area focus, including women, youth, the rural poor, the urban poor, agriculture, ICTs, and manufacturing.
In Latin America, the network is hosted by Brazil’s ANPROTEC. It houses 67 business incubators in 22 countries. It has incubated more than 4000 companies and created 23,000 jobs.
Business incubators in infoDev’s networks report that 75 percent of graduated enterprises are still in operation three years after graduation, a much higher number than the general enterprise survival rate. In Brazil, for instance, the survival rate of incubates is about 80 percent, while 50 percent of all start-up companies do not survive the first year.
Some of the network’s success stories include:
- PV Inova is a Brazilian technology company founded in 2004 that is housed at the Instituto Genesis Incubator. Its products TELO and TELOTrack provide public transportation passengers with inexpensive access to mobile telephones during their commute provides fleet managers with the capabilities needed to quickly identify and react to troubles with public transportation.
- The Jordanian company Focus Solutions has become a leading provider of internal knowledge management systems for law firms, banks and other institutions throughout the Middle East and North Africa. Focus Solutions spent its first four years in the Jordanian Innovation Centre before moving into their own offices. They started with less than $100 dollars, but they have grown to surpass revenue of a quarter million dollars in 2007, and the company now employs 12 people.
- Chile’s GeoCiclos Ltda. has established itself as a leading provider of innovative recycling solutions for homes and industry in the country. Based at the International Institute for Innovation and Entrepreneurship (3IE) at the Federico Santa Maria University of Technology, GeoCiclos’ sale of urban composting products doubled in the first half of 2009, and their efforts have reduced national waste by 200 tons every year.
- In Mozambique, the web and graphic design firm WebCom has been working from the MICTI Technology and Business Incubator since 2003. The company has benefited from assistance with corporate registration, business planning and management, sponsoring of technical and managerial training. Today, WebCom’s clients include the President of Mozambique, Mozambican National Radio, and the National Water Company, and it is currently developing a specialized search engine for Mozambican content.