*BUSINESS SUPPORT SERVICES: A CRUCIAL ELEMENT IN THE
INCUBATOR ENVIRONMENT
Fararishah Abdul Khalid
Universiti Teknikal Malaysia Melaka
[email protected]
Salleh Yahya
Universiti Teknikal Malaysia Melaka
[email protected]
Murzidah Ahmad Murad
Universiti Teknikal Malaysia Melaka
[email protected]
Abstract
With the world now moving towards the knowledge-based economy, technology has
become an essential element in the business scenario and one that is constantly
stimulating globalization. Technological progress and entrepreneurship are dynamically
changing the global economic landscape. State and policy makers have a tough task
ahead of them to formulate the most strategic and innovative ways to excite the economic
growth in the long run. With that as a basis, various economic development tools that
would facilitate the growth in new business ventures are constantly thought of and one of
them is business incubators. Firms choosing the incubation system have the leeway to cut
back on costs related to initial investment and overhead costs. Incubators have been
known to provide a variety of business support services to their tenants as part of the
manager-tenant agreement in incubators. Although many of the services rendered are
typically alike, only some of the services are found to be crucial to the success of the
tenant. Contrary to the traditional perception that business incubation is all about
providing office space for the tenants or incubatees, recent incubation management
practices have proven that support services are more crucial in developing self-sustaining
businesses. This paper asserts that business support services are paramount in effective
incubation system in Malaysia. A questionnaire survey method was utilized to solicit the
response from incubator operators and incubatees in Malaysia to determine the ideal
business support services which are deemed crucial for an incubation system success.
From the four types of incubators found in Malaysia, only a few support services were
thought of as crucial for an incubator’s success. Among the services include assistance in
writing up a business plan, networking opportunities, assistance in securing a fund for
research, assistance in new product development and assistance in identifying potential
customers. The findings of this paper serve to highlight the more preferred support
services which the incubatees find useful and contribute to the success of newly
developed firms.
Keywords: Support services, Incubators, business advice
Introduction
The role of incubators as a business accelerator has gained much recognition among the
policy makers in Malaysia. This is supported by the encouraging thrive of both private
and public incubators in the country. Business incubators are not only able to create new
employment opportunities but also encourage the growth of Small and Medium
Enterprises (SMEs), which are seen as the country’s influential economic driver.
Business incubators have become the other reliable source for entrepreneurs because they
have been proven to be a very cost-effective instrument for the promotion of public
policy objectives and also an effective method of promoting knowledge intensive and
new technology-based activities.
In its effort to propagate the positive effects of incubation system, Malaysia has also
played its part in embracing the incubation practices to stimulate the growth of the SME
industry especially in guiding new technology entrepreneurs. Malaysia acquaints itself
with techniques adopted by countries which have already reaped the benefits of business
incubation like the USA and have also become a member of various incubator network
organizations both locally and internationally such as National Incubator Network
Association (NINA), Asian Association of Business Incubation (AABI) and National
Business Incubation Association (NBIA). In Malaysia, incubator development is looked
after by an agency known as the National Incubation Development Program (NIDP)
which among others, have the following objectives:
•
To improve continuously the state of incubation such that incubators can add real
value to technopreneurs and all other relevant stakeholders
•
To promote the value of business incubation and acceleration and help improve
the perceived value of business incubation
•
To build and manage an active network of incubators and associated institutions
and organize it to share ideas and best practices among all members
•
To organize and launch the National Incubator Network Association (NINA)
•
To develop and share incubation best practices
•
To provide strategic and shareable resources to all the "MSC Status Incubators"
(Source: National Incubation Development Program (NIDP), 2007)
The change in the economic landscape in Malaysia has forced the nature of businesses to
shift to more technologically-based and knowledge-based businesses. Entrepreneurs
rising from these areas are becoming more prominent and recognized as new engines of
growth for Malaysia’s economy. The existence of incubators itself is an evidence to
support this effort.
Incubators provide a support system to new entrepreneurs not only in providing office
space and other office needs, but also in business advisory support including preparing a
business plan, opportunity to network with other entrepreneurs and upgrading the
business skills of the entrepreneurs. This clearly shows that the incubators provide a short
cut route for entrepreneurs and enable them to focus on their products. This paper will
look into the softer aspect of the incubation services comprising of business support
services as opposed to physical support. It will lead to identifying the services which are
more crucial in supporting fledgling companies.
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Literature review
Business incubators are seen as a “one-stop place” for new business to thrive in a less
competitive environment. Entrepreneurs at business incubators are usually provided with
the short-cut route to realize their business aspirations without having to incur additional
time and cost as in the case of entrepreneurs who choose traditional way of setting up a
business.
Among the perks that tenant companies would enjoy at the incubator include an already
available office space, complete with office equipment, furniture, facilities such as
wireless Internet, phone, fax, copy machine and others. These are all tangible services
which are made available to tenant companies at a fraction of the cost they would
normally have to fork out if they had chosen to set up their companies from scratch. This
causes an improvement in the survival and growth prospects of start-ups and small firms
at an early stage of development. Although many previous literatures have dwelled on the
services offered at incubators, this paper specifically looks into the more important
services at business incubators – the ones that are intangible. These unquantifiable
services are gaining significance and have been quoted in many literatures as crucial in
ensuring business incubation’s success. In the business incubation world, business
support services can be described as an act of assistantship provided by the incubator
manager to the tenant companies to facilitate and accelerate the progress of business setup and operations.
Voisey et al. (2006) cited from past research of Wiggens and Gibson (2003) that for
incubators to succeed, they must provide entrepreneurial leadership as well as develop
and deliver value-added services to tenants among other things. Business incubation also
helps tackle the obstacles faced by entrepreneurs and facilitates the venture creation
process (Lalkaka, 2003). This is supported by the increasing number of incubation
facilities to around 3,500 worldwide including over 1,500 in the developing countries.
Vedovello, and Godinho (2003) support that business incubators can be seen as a policy
tool aiming at the constant increment of firms' competitiveness and economic
development, through the promotion of technology-based entrepreneurship. The range of
services offered at incubators varies from one type of incubator to another. Zedtwitz
(2003) states whether an incubator operates as a profit or non-profit organization,
business support services still prevail as the crux of the incubation system. Hannon
(2005) cited from Rice and Matthews (1995) in their US study that in order for business
incubation to be successful, a sophisticated array of services and programs need to be
developed and targeted to companies, depending on their needs and stage of
development.
In China, the success of incubators has much been due to the considerable amount of
attention given to value-added services. They believe that providing quality services is
the core value of an incubator and to a large degree determines the success rate of the
tenant companies. Among the services rendered include funding sources, financial
consulting which mainly assists the entrepreneurs in financing by various linkages to the
government, banks, and other related institutions. Incubators with enough capital who see
the potential in these entrepreneurs may also decide to help entrepreneurs to overcome
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financial difficulties (Ma et al., 1999). In addition, incubators also assist in tenants’ daily
financial management in terms of accounting, consulting, and as financial representative
for newly built enterprises.
Training, another form of service provided at Chinese incubators consists training in
policies and laws, business management, marketing, international trade, finance and tax,
which overall objectives are to improve the entrepreneurs’ management skills, and
transform a regular technology personnel to a technology entrepreneur (Ma et al., 1999).
In supporting the need for international exposure and networking, the incubators also
provide opportunities for overseas study tours, negotiation and training, recommendation
for international cooperation projects and seek export channels for products.
The European Commission Enterprise Directorate- General (2002), in its benchmarking
of business incubator report stated that business incubators should charge clients for the
support services they provide but the level at which prices are pitched should be designed
to minimize the risk of ‘crowding out’ private sector providers. The research suggests
that relatively few incubators (around 4%) provide business support services on an
entirely free basis to clients. In addition, the business support services would also have to
take into account the quality of the management team and adoption of a business-like
approach to running incubators and monitoring clients. The European Commission
Enterprise Directorate- General (2002) further suggested that developing high quality
business support services was necessary in motivating incubator’s success. This includes
entrepreneur training, business advice, technology support, financing, etc. Apart from the
services mentioned above, a more recent development in business incubation services is a
virtual dimension for firms not located in incubators.
The incubators in Malaysia have now reached its tenth year in existence. Some of the
incubators managed to stay sturdy in the industry while the weaker ones only lasted for a
period of a few months to a year. This paper looks at the more successful incubators and
their recipe for success in terms of business support services provided to the tenant
companies. The best practices gathered from these incubators may be used by future
incubators in formulating their business services whether generic or specific to the tenant
companies.
Methodology
The study reported in this paper is focused on the business support services at the
incubators that are deemed crucial for new entrepreneurs. Within the context of this
study, the term “business support services” is used to refer to the services and facilities
provided at the incubator for the benefit of incubatees. The full study of this research
aims at encapsulating the business incubation process taking into account various aspects
of the incubation environment. Among the issues that are considered in this study include
the profile of incubators and incubatees in Malaysia, the determinants of success for
incubators, the measure of success for all incubator types in Malaysia and innovation and
commercialization practices within the incubator environment. This article mainly reports
a specific topic within the realm of success determination for incubators, which are
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business support services. The findings of this aspect of the study are now presented
below.
The study utilizes solicitation of response through questionnaire and interviews with
incubator managers and incubator tenants. The respondents were gathered based on a list
provided online by the Malaysian Development Entrepreneurship and Corporation
(MDeC). A total of 5 incubator facility managers and 47 number of tenant incubators
were gathered as respondents of this study. The questionnaire seeks from the respondents
the typical business service support provided at the incubator and their perceived level of
importance of each service or facility.
Based on the respondents’ feedback, an analysis is conducted to rank which business
support services would outweigh another and finally, a list of ten most crucial business
support services would be delineated based on the respondents’ reply and deemed
suitable for the Malaysian incubation system. We also ask the respondents to indicate on
a scale of 1 to 9 how they rate the performance of the incubator. Based on this, we then
classify what business support services are considered as crucial in contributing to the
success of an incubator in the Malaysian scenario. Respondents were also asked to
furnish other types of services which they feel were necessary and important in making a
smooth transition from business set-up to an independent business entity.
Findings
Respondents were asked to indicate the level of importance of typical services or
facilities provided at the incubator. The list consists of 41 services or facilities most
typically found at incubators as shown in Table 1. Respondents were asked to rate the
services and facilities by their level of importance using the Likert scale of 1 to 5 with 1
being the least important and 5 being the most important.
Table 2 depicts the mean and standard deviation of the ten most crucial services or
facilities as deemed important by the respondents. Based on their response, broadband
services were ranked the most important service or facility that an incubator should offer.
This is not surprising as the Internet has become part of our lives since the last 10 to 15
years. Businesses today rely on the expediency of the World Wide Web to get the latest
information and news pertaining to their areas of businesses. New businesses in particular
need to get as much resources as they can to assist them in setting up their businesses and
this can be easily achieved with the availability of broadband services.
Spurge and Almond (2003) said in simple terms “broadband communications” is the IT
industry’s term given to technologies which enable the high-speed and high-capacity
transmission of electronic data, with transfer speeds of over 2 Mbits per second the norm,
over 35 times faster than a traditional 56 kbit home modem. These broadband services
can be further categorized in different packages, including the basic asynchronous digital
subscriber lines (ADSL), leased lines, fibre and wireless services. This clearly highlights
the benefits of broadband communication to entrepreneurs as not only can they gather
resources in the comfort of their offices, but they are also able to provide their services to
5
the customers in a more effective and time-saving manner. Almond (2001) explained that
it is indeed crucial for businesses to have such technologies in order for them to gain the
first mover advantage. Additionally, Spurge and Roberts (2005) also added that SMEs are
recognized to spearhead the growth in broadband which enables connectivity of the
sector. Some of the benefits that have been recognized for the SMEs include improved
performance, more competitive and enhanced prospects for growth.
The second most important service or facility as deemed by the respondents was use of
meeting room. This shows that most of the incubators in Malaysia do provide the use of
meeting rooms and businesses regard this as an important facility to have. These meeting
rooms are often used for either internal meetings or external meetings with potential
clients, suppliers or partners.
Table 1: Typical services or facilities provided at the incubator
Professional office environment
Office furniture rental
Office equipment (computer, fax, copier)
Broadband services
Assistance in writing up business plan
Assistance in identifying potential customers
Assistance in operations of day-to-day business
Assistance in up scaling the product
Assistance in securing a fund for a research
Assistance in initiating legal agreements
Assistance in accounts of tenant firms
Assistance in conducting market research, sales, and marketing
Assistance in setting up a website for e-commerce purposes
Advice on new product development
Advice on staff recruitment and personnel management
Assistance in providing a platform for networking
Assistance in applying for intellectual property rights
Assistance in basic effective entrepreneurial development
Assistance in providing vision and leadership skills
Developing profitable sales
Launching a venture
Managing the early stages: organization, operations, market development, resource management
Evaluating and re-shaping the business model and target market
Generating ideas and capture them for tenants
Testing ideas and recognizing potential market opportunities
Validating product opportunities
Initial planning and business model concept development
Securing resources/developing partner relationships
Piloting/market testing the product
Advertisement & Media Promotion
Business events, conferences, exhibitions
Referrals from other business support agencies
Direct approach to potential clients
Use of meeting room
Credible business address
Good access to local information and support
Legal/licensed software
Workshops/seminars
Learn/update computer skills
Loan equipment for tenant presentations (laptops, projector, camera)
Others – please specify
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Table 2: Services and facilities deemed as important by respondents
Services/facilities
Mean
Std. Deviation
Broadband services
3.7308
1.23852
Use of meeting room
3.6400
1.25779
Credible business address
3.6327
1.20232
Good access to local information and support
3.4706
1.22234
Professional office environment
3.4615
1.19577
Assistance in providing a platform for
3.4118
1.20294
networking
Business events, conferences, exhibitions
3.3922
1.21784
Assistance in applying for intellectual property
3.3600
1.24146
rights
Assistance in basic effective entrepreneurial
3.3333
1.05198
development
Legal/licensed software
3.3137
1.30369
A credible business address is considered a plus point that an incubator could give to a
tenant. By having a business address that associates the business with a credible entity or
organization, more opportunities for the businesses await. For example, a business that is
located in the Silicon Valley may well receive much higher recognition compared to a
business with other addresses in the United States. In Malaysia, having a business address
that is linked to an incubator be it government type incubators, private incubators or
university-linked incubators gives an added advantage for the business owners as a lot
more opportunities lie beyond these facilities compared to normal business areas.
Businesses are concerned with having a credible business address so that they are able to
attract potential customers who usually perceive incubators as a well-equipped and wellmanaged organization for businesses. Another important service provided by the
incubator is the platform for networking with other businesses and potential partners.
This is supported by Lichtenstein (1992) where in his study, he found that the most
important contribution of business incubators to entrepreneurship is the opportunities
they provide to interact and develop relationships with other entrepreneurs, the incubator
manager and other individuals associated with the incubator. This is also a form of
capacity building on the part of the business incubator which will help enhance business
development in their clients (Duff, 2004).
Limitations and future research
This research may have been limited by constraints such as limited number of
respondents, and unequal representation of incubators and incubatees from around the
country. The respondents were largely made up of incubators and incubatees from the
government-type incubators and university-linked incubators. Respondents from the
private-type incubators were only minimally represented and findings may well change if
the representations were more equal. Future research could focus on determining the
services and facilities which are crucial for specific types of incubators. This could very
well assist incubator managers and developers to accommodate the needs of new business
7
entities without wasting any resources. Additionally, researchers could also study the
differences in crucial services and facilities at different types of incubators.
Conclusion
The article concludes that incubators do indeed play an important role in providing initial
assistance to the startup companies in a number of ways. The environment in which these
companies reside is a well-assisted one and could also bring these companies to a better
platform in terms of business expansion. Among the services of facilities which were
crucial to the entrepreneurs are the availability of broadband services, professional
meeting space and an opportunity for networking. Broadband services are undoubtedly
the most popular services seeked by the incubatees and have become part of the
household name. It has almost become a necessity for every business entity to have a
connection with the World Wide Web if it wants to keep abreast with the rest of the
world. This study also discovers that the need for broadband services transcends all kids
of incubators, be it government, private or university-linked incubators.
Secondly, incubatees also greatly benefit from incubator services such as provision of
office space and credible business address. The provision of physical space is central to
the incubator model and there are standard good practices which now exist with regard to
the most appropriate configuration of incubator space. The European Commission
Enterprise Directorate General (2002) states that European incubators typically have
around 5,800 square meters of space for tenants, sufficient to accommodate some 18
firms at any one time in a variety of units. Smaller incubator space than this is likely to
make it more difficult to generate economies of scale. Another key lesson from the
research is the need to operate at no more than around 85% occupancy levels.
The incubator industry in Malaysia has gone through a learning curve and is showing the
results of the learning process in the form of many newly developed businesses under the
incubators. Malaysian entrepreneurs have clearly understood the benefits of business
incubators and what it can do to help nurture a new business. It is expected that many
more incubators will sprout in the country and many more businesses will result from
these incubators given its positive track records.
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