Small and medium enterprises and the effectiveness of technology business incubators in Saudi Arabia - Essay Example

?Literature Review Technology Business Incubators are considered as the most important and potent tools for economic development. Technology businessincubators actually allow the growth to take place through innovation and use of technology to provide economic development and growth support to small businesses while at the same time ensuring that the option of technology transfer remains at hand. Business incubation is a process to provide temporary support to new enterprises until they become self sufficient and can survive. Since the overall ratio of start-up failure is relatively high it is therefore considered as important to walk through the new start-ups through a complex environment and services to improve their chances of survival. (Phillips, 2002) The literal meaning of word incubation means support and the incubators are the organizations and other infrastructure which actually serve the purpose of providing this necessary support. Thus the overall benefit of the technology incubators for the entrepreneurs is to offer them support, mentoring as well as funding necessary to ensure that the new ventures take off successfully. (Cooper,1985) Technology business incubators within the context of developing countries face relatively tougher challenge. This is owing to the fact that there are certain typical factors associated with the developing countries which may actually not allow the technology business incubators to actually deliver the desired results. This literature review will therefore offer an insight into previous studies conducted on the technology business incubators with special reference to developing countries specially Saudi Arabia. Technology Business Incubators Technology has witnessed an unprecedented growth due to rapid increase in globalization. The globalization trends have allowed the firms to become divergent enough to have access to various sources of competition thus giving them a new way of competing at the international level. Technology so far has proved one of the essential components of operating at global level which can offer firms a distinctive advantage over other firms. It has been argued that there are three important forces which are actually reshaping the way global market is performing today. These forces include technology, entrepreneurship and free competitive markets. The combination of all these forces has set the pace for the progress in global economy and defined the way firms have to operate at the global level. What is also important to note that the combination of these forces has actually resulted into economic progress, equality, democratization, equality in income distribution as well as a renewed focus on knowledge growth? Technology specially has made knowledge based progress an important element of new era where only those can survive who have access to knowledge and who can basically innovate and generate new knowledge. The flourishing of technology has been made possible due to an enormous increase in the computing power coupled with the reduced communication costs which has allowed technology to actually flourish and dominate the current market place. (Phillips, 2002) It has been argued that the technology business incubators are the necessary equipments in order to achieve progress through technology led knowledge base enterprises. Different studies clearly outlines that the use of technology business incubators not only allow the firms to gain access to the technology but also improve their chances of survival thus making them stronger enough to better manage risk and uncertainty. Rice (1995) outlined that the basic purpose of business incubators is to help support the process of creation of new business ventures. This focus therefore categorically suggest that the role of business incubators is only limited to the providing of necessary support to the new ventures to become self sustaining and develop enough to manage risk effortlessly. (Rice, 1995) The basic nature of a business incubator is to provide the shared support, training, counseling, funding as well as access to external groups. Such nature of the role therefore outlines that the business incubators perform a temporary support role for the new ventures in order to help them to establish themselves.( Patton and Warren, et al. 2009). Evidence therefore suggest that such support can increase the chances of survival of such firms and the initial grants and funding provided to such firms often returned as taxes back to the government.  Vedovello & Godinho (2004) suggested that the business incubators seem to be one of the most effective policy tools which can be aimed at constantly increasing the overall competitiveness of the small firms. Vedovello & Godinho (2004) further argued that the business incubators are the possible policy tool which can increase the competitiveness of the firms while at the same time improving the chances of survival of the technology oriented firms. (Vedovello & Godinho 2004) Business incubators and role they perform also create necessary social change which is considered as essential for the developing countries. Selective firms which have been provided support to become self sufficient not only create employment but they also bring the required social change which is considered as essential for the long term economic sustainability of any economy. This can only happen mostly due to the rise of entrepreneurship within such societies. The evolution of research on the technology business incubation gradually increased as governments of developed countries realized the potential role of business incubators in encouraging and sustaining new enterprises. The real academic effort to outline the role of business incubators started to begin during 1984. The initial effort was actually focused upon defining business incubation while working further towards defining the policy prescriptions. The later work remained mostly focused upon defining the conceptual frameworks, new venture development, outcome and measures of success etc (Allen, and McCluskey, 1990) What is important to understand however is the fact that since 1980s business incubators has become one of the most effective policy instruments available to foster entrepreneurship within the society? Developed as well as developing countries have focused upon development of infrastructure necessary to build better business incubators so that they can deliver effectively towards the sustaining of new ventures. (Allen, and McCluskey, 1990) Incubators generally vary according to three different criteria including their selection strategies, the kind of business support they can offer and their mediation capabilities. Most of the incubators whether business related or technology business related therefore can be categorized according to these three criteria. Incubators with same objectives however, can be different in their overall delivery mechanism and how they actually deliver the support required for the new ventures. It is also critical to understand that there are different players involved in the growth and development of technology business incubators. The most important role has to be played by the government followed by industry, educational institutions as well as other research institutes which can help foster the development of such vehicles of change. Government is important because it can provide necessary support as well as funding to ensure that the business incubators perform to their best. The ultimate aim therefore is to make sure that the incubators help the new enterprises to develop enough business competitiveness to survive and grow in complex business environment. (Lalkak, 2002) The collaboration of different stakeholders in the development of business incubators has almost made them sufficient enough to perform their basic objectives. What is however, still needed is how such technology incubators can actually be improved to serve the interests of larger group of stakeholders. Since the overall requirements or demand for the incubator services vary according to the region and typical requirements of new firms, it is important that the different stakeholders provide their due support. The need for services of technology business incubators change according to the regions and presence of different stakeholders within a particular region requires relatively more support. Universities are considered as effective supporters for providing access to latest technology while research firms as well as already established technology firms can further provide support to new start-ups to sustain themselves. Small and medium enterprises form the basic backbone of any economy and it is also in this sector of the economy where overall failure rate is higher. As such technology business incubators for technologically oriented firms can offer them a valid mechanism through which they can acquire the necessary tools, resources as well as funding to sustain themselves in the long run.( Bergek, and Norrman, 2008) Technology business incubators are primarily the vehicles for the technology oriented small and medium enterprises and help them to evolve and grow as success business ventures. The overall aim of such SMEs is to actually commercialize the results of their R&D and profit from their overall efforts. Allen & Rahman (1985) suggested that the technology business incubation for smaller firms is taking its roots and gaining more attention of policy makers, universities as well as other research institutions. SMEs are vulnerable to failure because of two reasons i.e. management issues and under-capitalization. Small firms therefore, if off-incubator, may face relatively more hardships to overcome these problems. This vulnerability of SMEs therefore makes them important enough to be supported given the fact that SMEs form one of the significant part of the economy of any country. Selection of the firms by the technology business incubators is considered as important criteria which need to be strictly enforced. Most of the business incubators therefore, rather than supporting all the firms, set strict criteria against which small firms are evaluated before they can be taken for the incubation process. The need for selection process is based upon identifying the closer fit between the kind of services provided by a technology business incubator and the overall requirements of the firms. This is considered as essential as it allows better allocation and utilization of resources while at the same time fulfilling the objectives of business incubator. (Aerts, K., Matthyssens, P., et al. 2007). It has also been argued that most of the technology business incubators employ screening methods which are mostly focused upon assessing the management of the firm. Such approach therefore suggests that small firms with better management practices have the higher chances of being screened out for support. Though, studies have clearly outlined that the success rate for the small firms to survive increases if they are screened out based on balanced criteria however, small firms are still screened out based on the quality of their management. (Cooper, 1985) Developing countries share peculiar factors which may not be as relevant to developed countries as may be considered. As such it is important to understand that the success of technology business incubators in developing countries largely depend upon certain factors. One of the key issues for successful implementation of technology business incubators is the role of incubators itself. It is argued that if incubators fail to produce the desired social change through supporting SMEs, they may not be able to fulfill their role expected from them in a developing economy. (Phillips, 2002) Further, technology business incubators are also supposed to provide regional support as SMEs are often concentrated geographically in any particular area. The combination of technology business incubators as well as SMEs therefore can perform better if SMEs are supported regionally. Developing countries are also required to develop a definite and clear strategy for defining the role of technology business incubators and how SMEs can actually benefit from them. The lack of definite strategy may not translate into appropriate policy response therefore it is critical that political will is manifested through effective policy response. Governments in developing countries are also required to create an environment which is conducive for technology business incubation. Creation of such environment therefore requires input from different stakeholders and how they can actually contribute towards the development of an environment which is conducive for such development. Developing countries owing to lack of funds as well as political will therefore may not be able to invest into the development of infrastructure which can support such environment. (Bergek, and Norrman, 2008) This may also be due to fact that demand for different incubators critically depend upon the overall service requirements of the SMEs. If the overall SME sector is quite diversified, it may not be entirely possible for incubators to provide all the services and in such situations, the overall scope and role of incubators may reduce to specific services. Developing countries however may not be able to afford such requirements and therefore may fail to provide the desired support to new small and medium firms. Developing countries also lack the skilled and qualified human resource which is considered as essential for the establishment and running of the business incubators. One of the key challenges therefore faced by developing countries in terms of rolling out effective technology business incubators is their failure to appoint competent management which can run business incubators. Competent management not only become effective in running the incubators successfully but can also impart upon necessary tools and resources required by SMEs to become successful businesses in long run. (Lalkak, 2002) Various studies have suggested the importance of universities in providing support and creating required infrastructure for technology business incubators. However, to be effective, universities are also required to form a formal as well as informal network with other incubators also. This can help small and medium firms to actually have an access to multiple resources at the same time which help them to better understand the whole process. Developing countries may lack in this area as most of universities in such countries are not resourceful enough to provide such support. Developing countries therefore need to provide support to their universities in order to upgrade their resource level so that they can serve as valid link between SMEs and other incubators. (Lalkaka, 2004) Technology business incubation can only become successful if it is people oriented as human resource is considered as essential and far superior than having access to technology. People centric technology business incubation is one of the essential conditions for their successful implementation. Developing countries lacking skilled human resource base may therefore not be able to develop better technology business incubators because lack of human resource base may be one of the greater impediments in the progress towards developing and implementing successful technology business incubators. Conclusion Business incubators are formed to provide support and resources to the new start up businesses in order to upgrade their ability to survive. Numerous studies have suggested that when new start up firms is passed through incubators, their chances for survival increase. Technology business incubators are focused on providing support for the technology oriented start up businesses to provide them necessary support. Studies have suggested the role of different stakeholders in formation, development and running of business incubators. Further, studies have also been mentioned which focused on different criteria which are used by business incubators to select the firms for support and development. Developing countries face different factors and environment under which they have to develop their technology business incubators. Developing countries like Saudi Arabia therefore will have to improve their human resource base as well as upgrade the resource level of its universities to make them equipped enough to provide support. Further, the need for appointing appropriate management to run incubators has also been discussed. This has been discussed with special reference to developing countries and how they can actually visualize different factors which may be considered as necessary to ensure that SMEs are duly supported by technology business incubators. The failure to properly integrate such factors into policy response may not result into desired results of social change and economic progress for developing countries. References 1. Aerts, K., Matthyssens, P., et al. (2007). Critical role and screening practices of European business incubators. ‘Technovation.’ 27: 254-267 2. Allen , D. and Rahman, S. (1985) Small Business Incubators: A Positive Environment for Entrepreneurship, Journal of Small Business Management,, 23(0). 3. Allen, D. N. and McCluskey, R. (1990) Structure, Policy, Services and Performance in the Business Incubator Industry. ‘Entrepreneurship theory and practice.’ 15(2): 61-77 4. Bergek, A. and Norrman, C. (2008) Incubator best practice: A framework. ‘Technovation.’ 28: 20-28 5. Cooper, A. (1985) The role of incubator organizations in the founding of growth-oriented firms, Journal of Business Venturing, 1(1), p.75-86. 6. Lalkak, R. (2002) Technology business incubators to help build an innovation-based economy ,Journal of Change Management, 3(2), p.167–176  7. Lalkaka, R. (2004) Business incubators in developing countries: characteristics and performance, International Journal of Entrepreneurship and Innovation Management,3(1), p.31-55. 8. Patton, D., Warren, L. et al. (2009) Elements that underpin high-tech business incubation processes. ‘Journal of Technology Transfer.’ 34: 621-636. 9. Phillips, R. (2002) Technology business incubators: how effective as technology transfer mechanisms?, Technology in Society, 24(3), p.299-316 . 10. Rice, M. P. (2002) Co-production of business assistance in business incubators: An exploratory study. ‘Journal of Business Venturing.’ 17: 163-187 11. Vedovello, C. and Godinho, M. (2004) Business incubators as a technological infrastructure for supporting small innovative firms' activities, International Journal of Entrepreneurship and Innovation Management,3(1), p.4-21. 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