Business Incubation in the United States, China and Brazil: A Comparison of Role of Government, Incubator Funding and Financial Services

Abstract

INTRODUCTION Business incubators are viewed by many country governments as dynamic tools for fostering new ventures with the macro objective of economic development and job creation. Small businesses are engines of growth in many dynamic economies. The research in areas related to business incubators is still in its nascent stages, primarily due to the fact that business incubation as a form of support did not gain currency until the late 1980's and 1990's in many parts of the world. Incubation is a vital component of an entrepreneurial infrastructure and this concept is moving mainstream with increased interest and awareness of the power of this support mechanism. As business incubators gain ubiquity in various parts of the developed and developing world, incubator models have evolved in sophistication, variety and complexity. The services that are offered and the configurations they take vary widely, since they are highly sensitive to local environmental conditions and to the unique entrepreneurial ecosystem in that country (Lalkaka, 2002). While incubators have been in existence in the United States since the 1960's, business incubators in developing countries have really only been in evidence in any significant way in the last decade (Scaramuzzi, 2002). Incubator growth in China and Brazil started in the late 1980s to early 1990s. The purpose of this paper is to describe and compare key elements of the incubation landscape in the United States, China and Brazil to provide an understanding of the similarities and differences in incubation systems across the three countries, as well as the opportunities and challenges inherent in the macro-environmental and institutional environments for new business creation with special emphasis on incubator funding approaches and financial services provided by incubators to client firms in each country context. For instance, compared to the United States and Brazil, Chinese incubators tended to be relatively more monolithic in terms of business models, due to their high level of dependence on the government for direction and support. At the macro-level incubation systems in the three countries were compared to discuss institutional / environmental / contextual influences on incubator models. Incubation approaches were then described and compared along key dimensions which include strategic objectives, incubator financing / incubator sponsorship, the incubator's service mix with an emphasis on financial services provided by incubators to client firms. The role of government and its impact on incubator strategy as well as its role in supporting the environment for new business creation is discussed. BACKGROUND Incubators in the United States, China and Brazil were selected for this study (N = 30) and interview and archival data were collected by the author from the incubators through semi-structured interviews over a two year period from 2004-2006. The United States has the oldest and largest incubation system with approximately 1000 incubators, which has evolved into an incubation ecosystem with a plethora of incubator models ranging from public to private incubators. Interestingly, a majority of U.S. incubators operate as non-profit entities and many are university- affiliated. China and Brazil were chosen for this comparative study because these are fast growing emerging markets with the third and fourth ranking business incubation markets in the world. Both China and Brazil have experienced extensive changes in their economic, institutional and financial infrastructures, especially in terms of market development by opening up to global competition, and deregulating their markets to reduce the predominant role of the State. Although China has only promoted the creation of small business through the incubation model since the late 1980's, it is the world's largest emerging market and has had an average growth rate annually of over 10 percent for the last decade (Konana, Doggett & Balasubramanian, 2005); it is second only to the U. …