The Comparative Analysis of University Incubators and Non-University

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1 The Comparative Analysis of University Incubators and Non-University Incubators 1 Yongning WANG, 2 Yongming GU * 1 College of Trade and Administration, Chongqing University,Chongqing ,wyn@cqu.edu.cn 2 Technical Centre of Changan Suzuki Automobile Company Limited of Chongqing, Chongqing ,guym@changansuzuki.com Abstract This paper focuses on a comparative study of university incubators (UIs) and non-university incubators in China. It firstly outlines the background of Chinese incubation industry, and then compares university incubators and non-university incubators in terms of sponsorship, types of entrepreneurs, location, and services at a general level. To make a specific analysis, it samples Chongqing University incubators and Caohejing technology business incubator (TBI) as a case study. Our findings show that the mission oriention, type of entrepreneurs, better services in pooling resources, public image, networking and funding help non-university incubator (Caohejing TBI) perform better than university incubators (Chongqing UI) in terms of income creation and survival rate of tenant firms. 1. Introduction Key Words: TBIs, UIs, Incubator, New ventures,ttenant firms When computer and telecommunication technology emerged in the 1980s, China recoganized the importance of this new technology for social and economic development. To follow the development trend of information and comupter technology, China decided to create technology business incubators (TBIs) to promote technology innovation and entrepreneurship. The first TBI was built at Wuhan in The Torch Program (1988) launched by of the Ministry of Science & Technology (MOST) is a key policy tool devoted to the creation of TBIs. Up till 2006, 548 TBIs were created and among which there were 62 UIs. In this paper, non-university incubators represent non-university-sponsored TBIs located in national-level science and technology industrial parks (STIPs). Local bureau of science and technology, STIPs and state-owned enterprises are usually sponsors of non-university incubators. University incubators (UIs) refer to state-level university science parks and they are mainly created in or near university campus. These two types of TBIs are both under the umbrella of the Torch Program. To compare the performance of non-uis and UIs, we firstly review relevant literature, and then present our research methodology. Then we analyze the differences between non-uis and UIs both at a general level. We use Chongqing University Incubator and Coahejing TBI as a case study to test whether UIs and non-uis perform differently. Finally, we will make our conclusion. 2. Relevant Literature Existing literature on incubators mainly studies either business incubators or university incubators. Previous studies about business incubators in the 1980s are primarily descriptive, generally embracing different understandings of business incubator s concepts and functions. Some scholars [1-3] define an incubator as a physical plant with low market rents, shared service, logistical support, and business consulting services. Smilor & Gill[4]extend the incubation concept which seeks to link effectively talent, technology, capital and know-how to leverage entrepreneurial talent; accelerate the development of new technology-based firms, and speed the commercialization of technology. Chan and Lau[5] sample three university incubators (technology incubators located in three university campuses) and three off-university incubators (technology incubators located in three science parks) in Journal of Convergence Information Technology(JCIT) Volume7, Number3, February 2012 doi: /jcit.vol7.issue3.3 18

2 Hongkong, and find university-technology start-ups relationship is more useful than the science parktechnology start-ups with regards to the product development process. However, they do not compare the two types of incubators at a general level and analyze their performance outcome in a quantitative way. Our paper will fill up the limitation. 3. Research Methodology Some researchers [6] [7] have advocated the use of the case study approach for incubator research. To surmount the problem of selective recollection, revisionism, and possible bias, multiple sources of evidence are suggested by Yin (1994) [8] to be used in a case study. The paper study is based on the convergence of information from different sources. Both quantitative and qualitative data is incorporated. It applies Chan and Lau s [5] assessment framework and the European Commission s assessment indicators [9] to compare the quality of services and the performance outcomes of university incubators (Chongqing University incubator) with non-university incubators (Caohejing technology business incubator) in China. 4. Comparison Between University Incubators and Non-University Incubators In this section, we would like to compare university incubators with non-university incubators in terms of mission orientation, types of entrepreneurs, location and services at a general level Mission Orientation Although the ultimate goal of university incubators and non-university incubators is job creation and economic growth, they have different focuses linked to the mission of incubator sponsors. The third mission of universities is to commercialize academic research outputs (indigenous innovation) and entrepreneurship training. University incubators are used as a practical tool to fulfill the mission by offering a favorable environment for fostering university technology-based ventures and academic entrepreneurship. However, exposed to economic pressure, university incubators tend to accommodate non-academic tenant firms with less technology-based ventures but with industrial production potential. Government and state-owned enterprises (SOEs) are the main sponsors of non-university incubators. Job creation and economic growth is the target of the government, whereas the goal of SOEs is to upgrade traditional technology, develop new high-tech industry and strengthen market competitiveness. Hence, government-sponsored non-university incubators pursue the target by creating more new ventures with large industrial production potential, and SOE-sponsored incubators provide supportive infrastructures to nurture industrial technology-based ventures and focus on industrialization of high technology. Non-university incubators prioritize both foreign and domestic technologies with commercial potential Types of Entrepreneurs The types of entrepreneurs of university incubators and non-university incubators are linked to the mission setting of these two types of incubators. University incubators focus on nurturing academic finding-based ventures and entrepreneurship, while non-university incubators prioritize industry research achievement-based ventures both domestic and overseas. The creators of incubated projects in university incubators are mainly professors and students. Venture entrepreneurs in non-university incubators are principally engineers out of enterprises, scientists out of public research institutions as well as returned overseas Chinese. The different background of venture founders indicates that university incubators emphasize fostering indigenous technology-based new ventures and non-university incubators tend to nurture both foreign and domestic technology-based start-ups. 19

3 4.3. Location University incubators are usually located in or around research university campuses, while nonuniversity incubators are often built in science & technology industrial parks (STIPs). The geographic proximity to universities facilitates professors and students to engage in full time or part-time business creation activities. University-background identification assists academic tenant firms to share university resources: libraries, laboratories, university venture capitals, university technology experts and university reputation. In return, universities enjoy tenant firms student recruitment and training, potential for faculty consulting and entrepreneurship, and economic contribution recognition by participating in regional innovation capability construction. New ventures in non-university incubators enjoy STIPs positive public image in terms of high technology, probably professional incubation services, large physical space for potential industrial production as well as possibly the spillover of foreign companies. In return, STIPs benefit from the image building by participating in regional economic development. The establishment of nonuniversity incubators pulles STIPs back to their original orbit as an institution for innovation and promotion of new high-tech businesses rather than large-scale manufacturing of export oriented hightech products, often funded abroad [10] Services The provision of services to ventures by both university incubators and non-university incubators is in the form of The typical shared offices services: reception desk, rental space, electricity, water, building maintenance and security. Business assistance services: business planning, one shop administrative services (business registration, tax registration, etc.), counseling, financing and other value-added services. Although the categories of services are the same, the services provided by university incubators are characterized by university-related resources, Non-university incubators compensate the disadvantages of off-university by developing a wide network with external actors: universities, public research institutions, industry laboratories and experts in certain fields Case studies: Chongqing University incubator and Caohejing technology business incubator After examining the common traits and differences between university incubators and nonuniversity incubators, we sample Chongqing University incubator and Caohejing technology business incubator as a case study to assess the quality of services and the performance outcomes of these two incubators and discuss the role of university linkage on the incubation performance Background of two sampled incubators Chongqing University incubator and Caohejing technology business incubator are both nationallevel technology business incubators and under the same umbrella of the Torch Program. The common ultimate objective of these two incubators is to increase job creation and economic growth through nurturing new technology ventures. But they have different mission focuses. Chongqing University incubator focuses on commercializing academic R&D results (domestic) and on fostering entrepreneurship, while Caohejing incubator emphasizes the industrialization of high technology (both domestic and foreign). The characteristics of these two samples are pictured in the following Table 1. Table 1. Characteristics of Chongqing University Incubator (UI) and Caohejing Technology Business Incubator (TBI) 20

4 Able Chongqing UI Caohejing TBI Status National-level TBI Ultimate Objective Increase job creation and economic growth Objective focus Sponsors Commercialize academic R&D results (indigenous innovation) and foster entrepreneurship Chongqing University Shapingba district government Chongqing Jialing Motor Company Foster high-tech (both domestic and foreign) ventures with industrialization potential Caohejing New High-tech Development Zone Corporation -Local government Foundation year Register capital 2 Million 6.5 Million Incubation surface (m 2 ) Incubation base 1 3 Venture capital investment corporation Quality of services We now employ Chan and Lau s (2005) assessment framework with nine criteria (see Table 2) as an analytical tool to compare the quality of services between Chongqing UI and Caohejing TBI, and also analyze the factors which influence the quality of their services. Table 2. Assessment framework for Chongqing University incubator and Caohejing technology business incubator Assessment criteria Examples of specific indicators Chong Qing UI Caohe jing TBI Pooling Organizing staff train-ing and development activities, Medium High resources marketing events, exhibitions, press conference Sharing Sharing laboratory facilities, office equip-ment, Medium Medium resources testing equip-ment, administrative support (e.g. meeting room, library, recep-tion area ) Consulting Provision of legal, accounting, business, Medium High technical advices at low cost (or free-of-charge) Public image Image of the science park/university/gov-ernment Medium High Networking Access to clients/ Medium High suppliers/subcontract-ors partnership opp-ortunity with other technology firms wi-thin the incubator, knowledge sharing /dissemination Clustering Development of a pool of skill labor, externalities Medium Medium from logistics arrangement, externalities for supp-orting network (e.g. emergence of comp-lementary industry) Costing Rental subsidies, subsidies on telecom Medium Medium /computer network access, other sub-sidies related to cost reduction Funding Access to venture capital (VC) funding, bank loans, Medium High other funding sources (a). Pooling resources 21

5 Chongqing University is one of the top 100 Chinese universities and has rich education resources. Taking the education advantage of Chongqing University, Chongqing UI organizes free training courses for both ventures entrepreneurs and incubator managers. These management levels can benefit from the training in terms of IPR, management and marketing knowledge. Chongqing UI also recommends ventures to participate in High Education S&T Achievements Exhibition and helps ventures present their new products through Press. However, as long as services are payable or even provided on a cost-recovery basis, few ventures ask for such service. As for Caohejing TBI, it is not geographically near universities and public research institutes (PRIs). But it develops a collaborative linkage with them. Professors and business professionals are invited to give lectures or seminars in its specific training center. The training courses are free of charges or token payable for in-house staff and venture entrepreneurs. Additionally, an exhibition hall is equipped in the incubator. Ventures can present their new products or services without moving outside of the incubator. Parallel to organizing domestic exhibition activities, the incubator provides ventures opportunities to attend exhibitions abroad. (b). Sharing resources Geographic proximity to Chongqing University, the close linkage between the incubator and Chongqing University as well as the formal and informal networks between academic entrepreneurs and the university favors ventures to gain an easier access to university resources. Compared to Chongqing incubator, geographic proximity to public laboratories is not the advantage of Caohejing TBI. Thus, Caohejing TBI has established and developped networks with universities and PRIs to overcome the barrier. Moreover, comparatively abundant financial resources of Caohejing TBI assist new ventures to obtain well-equipped offices. (c). Consulting Concerning law and accounting counseling, new ventures can get it easily both in Chongqing UI and Caohejing TBI. Because both incubators host intermediaries, like an accounting agency, an intellectual property rights evaluation bureau, and a law consultancy bureau. The value-added consulting services in Chongqing UI is usually payable because of cost-recovery requirements. Consequently, ventures in Chongqing UI seldom ask for such a payable service. The reasons result from constrained funds and stagnated mentality on one hand; on the other hand, university entrepreneurs tend to use their personally informal networks with colleagues and external experts for counseling. This prevents Chongqing UI from improving management quality and extending its networks for outsourcing external experts. Another reason may stem from person-toperson creditability. Awareness of technology and commercial secrecy leakage hampers the development of consulting services. On the opposite, benefiting from stronger support of local government and broader networks, Caohejing TBI offers specific counseling services to new ventures gratuitously or at affordable cost. Most venture entrepreneurs here enjoy the incubator s counseling services. Obviously, everybody is happy when lunch is free of charge. When the services turn to be payable, there would be more ventures which are willing to pay in Caohejing TBI than those in Chongqing UI. (d). Public image New ventures perceive psychologically image benefits from their location. Caohejing TBI is appraised as the best practice of Chinese incubators and Chongqing UI is appraised as a demonstration incubation base in the West. These two incubators are both regarded as a creditable danwei. Danwei is characterized by specific Chinese features and divided into two categories: Shiye Danwei (translated into public service unit) and Qiye Danwei (translated into enterprise unit). Organizations whose activities are neither production-oriented nor profit-oriented but are for-public-profit service and financed by the government, are defined as Shiye Danwei. Qiye Danwei refers to legal persons or non-legal persons who conduct profit-oriented activities and should self-sustain. State-owned enterprises, collective enterprises, village & township enterprises and private enterprises, all belong to Qiye Danwei. However, state-owned enterprises are semi-qiye Danwei instead of pure Qiye Danwei, Under a planned economy, Shiye Danwei and state-owned enterprises are responsible for building houses, common hospitals and schools for their employees and employee families. Universities belong to Shiye Danwei and have always held a high social status in China, except during the period of Cultural Revolution. The recognized contribution of universities to the society 22

6 helps them gain creditworthiness and reputation as a creditable danwei and knowledge and innovation center. Caohejing TBI is sponsored by the Caojejing New Hi-tech Development Zone Corporation (a state-owned enterprise) and supported by the Shanghai government. The identification of sponsor and supporter along with the recognition by international incubator organizations builds up the creditworthiness of Caohejing TBI. (e). Networkin In China, networks have been set up at different levels: city-based, regional, national and international [11]. However, the players within the networks are mainly incubators. Lack of other relative actors, like industries-potential customers/suppliers/creditors/ven-tures (whose feedbacks are critical to the quality of services), decreases the efficiency of networks. On one hand, little commercial experience of incubator management decreases the provision of qualified value-added services, like business plan design, provision of financing and access to market. On the other hand, the awareness of commercial and technological secrecy leakage hinders knowledge dissemination amongst ventures, incubator managers and external experts. In fact, most Chinese incubators survive on building rentals and some basic services income. Compared to Chongqing UI, Caohejing TBI does better in terms of network services. It is an active player in city-based, regional, national and international networks. Through the broad networks, it learns good experiences from other incubators to improve its own services. Business-background clients in Caohejing require more specific services so that it facilitates the expansion of the incubator s networking. In consequence, Caohejing clients get an access to more external resources because of wider networks in comparison to the Chongqing UI. The actual networking of Chongqing UI is limited to a region. Ventures appear to principally depend on their personal networks. (f). Clustering Compared to Caohejing TBI, Chongqing UI focuses more on developing a pool of innovative talents. Ventures, especially academic ventures, receive university apprentices regularly. Chongqing UI finances and incubates student-based innovative projects on the basis of competitive selection. The knowledge and technology is disseminated through the interactions between students and ventures. Proximity to university provides actual and potential human resources to new ventures. Concerning externalities from logistics arrangement and supporting network, Caohejing TBI demonstrates more advantages than Chongqing UI. Many high-tech firms, especially foreign multinational firms, cluster in Caohejing STIP with large-scale outputs. The development of high-tech industry brings about the cluster of subcontractor/subsupplier/logistic services. New ventures are possibly integrated into the industry cluster near Caohejing TBI. The industry cluster around Chongqing UI is not as strong as that near Caohejing TBI. However, the types of venture activities (see Table 3) in Chongqing UI and Caoheijng TBI show the trend of industry clustering. Table 3. Types of ventures in Chongqing University incubator and Caohejing technology business incubator (2005) Types of ventures Number of ventures Chongqing UI Caohejing TBI IT Optical, mechanical and electronic integration Biotechnology, Pharmacy, medical equipments Environment protection and energy saving, new 26 5 materials Science & technology transfer /consulting service 0 5 Modern agriculture 2 0 Others 16 Total (g). Costing Costing is an important factor which influences the growth of new technology ventures. New ventures are small and have limited cash-flow. Incubators are designed to reduce transaction costs linked to small start-ups. 23

7 At the initial stage, the Chongqing incubator did not get the free land from the local government. The incubator has to rent three buildings left unused near Chongqing University campus. It invited Chongqing Jialing Motor Company (a state-owned enterprise) as a funding partner to monitor the three buildings. Jiaoling Motor Company invested money in equipping these buildings so as to provide physical infrastructure to tenant firms. This unfavorable situation makes the Chongqing incubator unable to offer ventures free space. Ventures are required to pay the rent approaching a market price. However, academic ventures usually get an access to university laboratories, library and equipment and their personal network with university colleagues for problem-solving. The availability of these resources is often free of charge. Thus, their operation cost of total is cut down. The Caohejing incubator receives land donation from the local government and is able to provide free space or charge ventures a rent less than market price. (h). Funding The funding system is relative to the life cycle of start-ups. The Chongqing incubator, at the initial stage, was co-financed by Chongqing University, the district government and Jialing Motor Company. Its sustainable financial source mainly depends on the local government and Chongqing University. Concerning the funding for tenant firms, Chongqing University is a key financial supporter at the initial stage of academic start-ups. It builds a risky asset management company to finance spin-offs with commercial potential. At the development stage of tenant firms, government s funds become the important financial source. The local government sets up high-tech venture investment corporations whose funds come from local budget and tax income of successful graduated start-ups, and from a loan guarantee agency to meet tenants demand for funds. Innofunds at local and national level are applicable to tenant firms through project selection. The incubator helps tenants to get an access to the complex funding system (see Figure 1). Chongqing Shapingba District Government -Chongqing University -Chongqing Jialing Motor Company Chongqing University incubator -Self-collected funds -University venture capital corporation -TBI -Govt. high-tech venture investment corp. -Innofunds New ventures Figure 1. Funding system in Chongqing University incubator In the Caohejing incubator, the funding system source is a little different for the incubator itself and its tenant firms (see Figure 2). -Caohejing new high-tech development zone corporation -Local government Caohejing technology business incubator -Self-collected funds -Foreign venture capital corporation New ventures Figure 2. Funding system in Caohejing TBI According to figure2, Caohejing TBI and Chongqing UI both take their respective advantages to serve ventures. Technology-based business ventures in Caohejing benefit from the incubator s broader network and those in the Chongqing incubator profit from university linkage. Compared to the Chongqing incubator, the Caohejing incubator appears to have more advantages in terms of some assessment indicators, such as pooling resources, consulting, public image, networking and funding, 24

8 because it has developed a broad and complex network with governments, bankers, venture capital, external business experts, firms and other incubators. The advantages of the Chongqing incubator in terms of geographic proximity to Chongqing University play an important role in the development of incubated firms. Ventures obtain easier access to well-trained students, professors and university laboratory equipment, etc. The available physical university resources are often free of charge, which helps reduce the transaction costs for tenant firms. The close contacts with university colleagues provide tenant firms opportunities to get new and frontier knowledge arising from university research outputs. However, the important dependency on sponsored university also restricts the exploration of network for the incubator, especially in consultation service Performance Outcomes We would now like to compare the performance outcomes of these two sampled incubators in a quantitative way. We basically use the European Commission s indicators to evaluate the performance results: incubation funds, incubation surface, number of staff in tenant firms, number of tenant firms, income of tenants, survival rates of tenant firms and number of graduated tenants as the criteria (As show in Table 3). Table 3. Performance outcomes of Chongqing University incubator and Caohejing technology business incubator in 2005 Item Incuba. Incuba. Num.of Num. of Income of Survival Numb.of s Incubator funds (million ) surface (m2) staff in tenant firms tenant firms tenant firms (million ) rate of tenant firms graduated tenant firms Chongqing 0, ,36 <80% 32 Caohejing 3, ,92 90% 69 The Chongqing incubator aims to transfer university technology and to foster innovative entrepreneurship. Creating money is not university s ultimate objective although it has been currently required to do so. The majority of venture entrepreneurs in the Chongqing incubator are university professors and students. They exploit laboratory inventions and conduct indigenous innovation activities. Academic entrepreneurs have a solid knowledge background but less degree of commercial experiences. The incubator is designed to help them get an access to specific commercial advisory. But unfortunately, academic tenant firms prefer personal informal contacts with sponsored university and have a persistent attitude toward payable value-added services. These behaviors save cash flows to some degree but constrict the improvement of the Chongqing incubator s consultation service and the exploration of the network. Furthermore, the institutional framework allows professors to keep their positions in the university when establishing high-tech start-ups. The Caohejing incubator aims to industrialize high-tech and pursue economic income through incubating technology-based firms. Most entrepreneurs here have had an industial background or have already participated in commercial business for a few years. The independency strengthens their willingness to develop successful businesses. The ambition of entrepreneurs along with their business experience helps the Caohejing incubator to upgrade the quality of consultation service and explore its network. In fact, the Caohejing incubator has recruited some professional managers and developed a multi-level network at city, regional, national and international levels. The wide network helps Caohejing continuously learn from best practices. The majority of tenant firms are satisfied with Caohejing services. 5. Conclusion This paper compares university incubators and non-university incubators in terms of mission orientation, type of venture entrepreneurs, location and services. It samples Chongqing University incubator and Caohejing technology business incubator to make a comparative study. 25

9 Based on Chan and Lau s (2005) [11] qualitative assessment framework on the services of technology-based incubators, we find that the Caohejing incubator has more advantages in pooling resources, consultation, public image, networking and funding than the Chongqing incubator. The Chongqing incubator has more advantages in terms of geographic proximity to the university. We also used a quantitative assessment framework on the performance outcomes of the two sampled incubators. Our research results show that the Caohejing incubator is superior to its counterpart in terms of incubation funds, incubation surface, income creation of tenant firms, survival rate of tenant firms as well as the number of graduated tenant firms. The Chongqing incubator has an overwhelming advantage in the number of staff in tenant firms and the number of tenant firms. In short, the differences between the sampled incubators are found in line with those at a general level. Finally, the Chongqing incubator prioritizes the fostering of domestic technology-based firms for upgrading indigenous innovation capabilities, whereas the Caohejing incubator gives preference to both foreign and domestic (mixed) technology-based firms for high-tech industrialization. 6. Acknowledgment We thank Patrick Llerena (professor of Louis Pasteur University), Mireille Matt (associate professor of Louis Pasteur University) and two anonymous reviewers from the Atlanta conference for valuable comments and suggestions. We are responsible for all research limitations and remaining errors. 7. References [1] Allen.D, An entrepreneurial marriage: business incubators and startups, Proceedings of the Fifth Annual Babson College Entrepreneurship Research Conference,1985. [2] Allen,D, Bazan, E, Value added contributions of Pennsylvania s business incubators to tenant firms and local economies, Appalachian Regional Commission and Pennsylvania Department of Commerce,1990. [3] Hansen, J, Sebora, T.C, Applying principles of corporate enterpreneurship to achieve national economic growth, Advance in the Study of Entrepreneurship, Innovation & Economic Growth, Vol.14, pp.69-90,2003. [4] VonZedtwitz, M, Grimaldi, R., Are service profiles incubator-specific? Results from an empirical investigation in Italy, Journal of Technology Transfer,Vol.31, pp ,2006. [5] Chan, K. F, Lau, T., Assessing technology incubator programs in the science park: the good, the bad and the ugly Technovation, Vol. 25, No.10, pp , [6] Mian, S. A, Assessing and managing the university technology business incubator: an integrative framework, Journal of Business Venturing, Vol.12, pp ,1997. [7] Macpherson, A,Holt, R., Knowledge, learning and small firm growth: a systematic review of the evidence, Research Policy 36, pp , [8] Yin, R.K, Case study research: design and methods, Second edition, Sage Publications, [9] Bekkers, R., Gilsing, V, Steen, M.V.D., Determining factors of the effectiveness of IP-based spin-offs: comparing the Netherlands and the US, Journal of Technology Transfer 31, pp , [10] Sutherland, D., China s science parks: production bases or a tool for institutional reform? Asia Pacific Business Review, Vol.11, No.1, pp , [11] Macpherson, A.Holt, R., Knowledge, learning and small firm growth: a systematic review of the evidence, Research Policy 36, pp ,