Technology Business Incubators (TBIs) are a new form of social institution, which provide services to hi-tech companies during their start-up and early growth phases. They are designed to create a favorable entrepreneurial environment and facilitate the transfer of technology, catalyze a company’s early growth, and enhance the success rate of enterprises. During the processes, a group of entrepreneurs will be nurtured. TBIs have proved to be effective in fostering technology-based SMEs, accelerating the development of the hi-tech industry, nurturing new sources of economic growth and generating job opportunities, and are therefore recognized as one of the most important tools for promoting sustainable economic growth worldwide. In recent years, the dynamic growth of Chinese TBIs has made them an important force in speeding up the hi-tech industry.
1. General Development Status of Chinese Technology Business Incubators
The first TBIs appeared in China back in the late 1980’s, with models based on best practices used in developed countries and adapted to meet China’ s unique business conditions. The Wuhan East Lake Technology Business Incubator, established in 1987, was the first one of its kind. The mission of China’s TBIs is to offer hi-tech startups with optimal incubation services and an environment for market exploration and international cooperation, helping them grow into successful enterprises at the same time as training founders of the companies (usually researchers or scientists) to become mature entrepreneurs. Chinese TBIs are an integral part of the hi-tech industry’s support system, and an important component of China Torch Program (a program to promote China’s hi-tech industrialization), and form part of major measures to help develop China’s hi-tech industry.
After 15 years of development there are now around 400 various types of TBIs in China, including 280 Innovation Service Centers, 44 Pioneer Parks for Returned Overseas Scholars, 48 University-related Science Parks, and 22 Software Parks. Of these incubators, 72 have been identified as state-level innovation service centers. According to statistics, by the end of 2001, 280 incubators covered a total area of 5,090,000 square meters, hosting 12,821 tenant enterprises (of which, 5,048 were admitted in 2001), and have produced 3,964 graduate enterprises. The tenants and graduates employ over 260,000 people. In 2001, 22 state-level Torch Program software parks accommodated 3,700 software companies with 170,000 employees, generating 65 billion RMB in total income, with 45 billion from sales of software products and services and 35 billion from proprietary software sales. Export earnings rose to US$200 million. In addition to creating economic benefits, incubators have fostered a host of entrepreneurs and hi-tech enterprises. According to a survey, more than 30 graduate enterprises have been listed on stock markets, including famous organizations like Dikang Pharmaceutical in Chengdu, Kaidi Ltd. in Wuhan and Yunda 120 in Kunming. The first batch of graduate public companies has become the backbone of the local hi-tech industry.
2. Features and Experiences of Chinese Technology Business Incubators
Currently, Chinese TBIs are embarking on a trend of diversifying operational models, focusing on a specific sectors, multiplicity of ownership and intensifying networks.
Diversification in operational models. A group of university-related incubators such as those affiliated to Tsinghua University, Shanghai Jiaotong University, Shanghai Tongji University, Chongqing University and Sichuan University have been established. Twenty two software parks have been set up to cater to small and medium software development enterprises. More than 40 pioneer parks have been established in places like Beijing, Shanghai, Suzhou, etc. for returned overseas scholars, providing them with a comprehensive package of services to support their entrepreneurial activities.
Focus on sector-specific tenants. More and more incubators are beginning to cater to tenants of a specific industry sectors. Examples include, Shanghai Zhangjiang Bio-medicine Incubator, Beijing Medical University Incubator, Beijing 863 Software Incubator, Beijing Internal Combustion Engine Manufacture Incubation Base, Beijing Advanced Material Incubator, Shaanxi Yangling Agricultural Incubator, and Tianjin Tanggu Marine Technology Incubator, which all focus on their respective industry fields.
Multiplicity of ownership. The owners of Chinese TBIs run the gamut from government, SOEs, large and medium private enterprises, to VCs and multinationals. A survey of 25 incubators in Beijing, the city boasting of the largest number of incubators, in the year 2000 shows that 5 are funded by universities, 7 by SOEs, 1 by private enterprises, 7 by government, 2 by foreign companies, and 3 by other sources.
Intensifying networks. The need to enhance the synergy between TBIs so as to achieve mutual development calls for organizational networks. 1993 witnessed the establishment of the Professional Committee on Hi-tech Innovation Service Centers, the first national level TBI network. Until now, it has recruited more than 100 formal members and stages annual workshops, seminars and exchange visits to build partnerships among domestic incubators and their foreign counterparts. Local and regional incubator networks perform similar functions on a smaller scale in intelligence intensive cities and provinces like Beijing, Shanghai, and Hubei. Twelve provinces and cities in China’s mid-west jointly set up the Technology Business Incubator Network in Western China in 1997, and 6 provinces in China’s mid-north and north east followed suit in 1998, attracting over 30 incubation members to date. This year, more than 100 incubators from 6 provinces and 1 city in eastern China launched the Eastern China Incubator Network. In addition, TBIs in China actively take part in events organized by international incubator networks.
TBIs have braved many difficulties and uncertainties to try out various measures to improve their services. At present, about 50 percent of incubators provide financing services to their tenants in the form of equity investment, loan interest subsidies and credit guarantees. By the end of 2001, TBIs incubation funds reached 1.09 billion RMB, and a group of VC management professionals have were trained in the process. Many incubators invited intermediary agencies to move into incubation to provide management, financing, tax and trade services to tenant companies and ensure that they benefit from a comprehensive package of services.
The achievements and experiences of TBIs in China have attracted attention from around the globe. Many influential business incubation associations and organizations as well as representatives from business incubators worldwide have flocked to China to study and exchange research on the subject. International organizations such as UNDP, ESCAP, APEC and UNESCO have all promulgated China’s experiences in this field and advocated them to other countries and regions on various occasions.
The successful development of China’s TBIs can be attributed to many factors; however, the underlying reason is that China has chosen a development path based on its own conditions while drawing on the experiences and lessons of other countries. Therefore, China has developed a distinctive approach toward building TBIs both in theory and practice. Traditional business incubators mainly provide space, shared facilities and non-profit services to tenants within a designated location. In the initial development phase of Chinese TBIs, the majority of incubated businesses were non-profit enterprises founded by government at various levels to provide assistance in terms of incubation space, shared facilities, training, financing and market research. During this period, the operation mechanism and growth pattern of incubators were largely identical. With the deepening of reform and further transition toward the market economy, Chinese TBIs are faced with diverse and pressing demands, thus necessitating a variety of different incubators. In this context, sector-specific incubators, incubators for returned overseas scholars, international incubators, university-related incubators and SOE-run incubators have sprung up all over the country. Incubators are owned by both public and private investors, and are no longer limited to serving only tenants, but may also extend their reach to research institutes, from where many technological enterprises have come from, and to domestic and overseas markets, where the products of these enterprises may ultimately end up. As Chinese incubators improve their managerial skills, they are increasingly consulted by their foreign counterparts to share experiences. China has organized several training workshops to train more than 100 incubator managers, and has dispatched experts, at the invitation of UNDP, ESCAP, UNESCO and other organizations under UN, to other developing countries to assist these nations build business incubation centers.
After 15 years of development, Chinese TBIs are armed with good infrastructure in terms of real estate, information network and VC, and have developed a four-step incubation process to incubate a project into an enterprise, then into a larger corporation with considerable scale, and finally into a multinational corporation. TBIs are becoming increasingly specialized. The development of TBIs provides abundant lessons and resources to draw on during China’s campaign to reform systems of science, technology and economy and promote the development of technological and economic intermediaries. The boom of the technology business incubation industry in China foreshadows bright future prospects and the potential to assume a decisive status in the nation’s economy.
3. China’s TBI Development Strategy’s Priorities During “the 10th Five-year Plan” Period
At present, China’s TBIs are in a transitional phase from general-purpose to specialized business incubation, from government owned non-profit institutions to mixed non-profit and profit ownership, from reliance on technology resource transfer to integrated technological and industrial resources, from offering simple real estate and secretarial services to comprehensive services including networking, access to VC and research institutes.
During “the 10th Five-year Plan” period, development of China’s TBIs will adhere to a principle whereby government takes the lead in providing support, and the majority of TBIs take the form of non-profit organizations. The majority of TBIs will remain non-profit. Where market conditions permit, enterprises and venture capital institutions are encouraged to set up non-profit or for-profit incubators. Better-off incubators are encouraged to initiate new management and operation mechanism in an attempt to constantly boost the quality of management teams and services. Efforts will be made to further promote the diversification of operation models, specialization in technology sectors, multiplicity of ownership, intensifying networks, provision of market-oriented services at the international level, cultivation of an entrepreneurial culture and the creation of better entrepreneurial environment.
“The 10th Five-year Plan” period is a crucial period of comprehensive and rapid development for China’s TBIs. The Ministry of Science and Technology will continue to provide policy guidance and financial support to further upgrade the operational quality of TBIs, give full play to incubators as nodal points for hi-tech enterprises, elevate the innovative capabilities of tenants, and develop several distinctive technology incubation systems. By the end of 2005, it is estimated that number of TBIs in China will exceed 500, with an incubation space of 8 million square meters, incubation funds of 2 billion RMB and a well-disciplined team of fund managers. The 1000 incubators will accommodate 20,000 tenants, and generate a total of 8000 graduates. In the process, incubators will educate a contingent of high-caliber entrepreneurs, transfer a number of state-level research results and produce a batch of hi-tech enterprises at the international level. The development of Chinese TBIs will make significant contributions to technology transfer, the development of technology-based SMEs, an increase in job opportunities, sustainable growth of the national economy and the construction of a well-to-do society.
(The author of the article is Zhao Yuhai, director general of the Torch High Technology Industry Development Center, Ministry of Science and Technology)
(China.org.cn December 18, 2002)
