Elsevier

Technovation

Volumes 41–42, July–August 2015, Pages 11-24
Technovation

Knowledge flow in Technological Business Incubators: Evidence from Australia and Israel

https://doi.org/10.1016/j.technovation.2015.03.002Get rights and content

Highlights

  • Graduated incubatees are active source of knowledge for incubators.

  • Universities are important for R&D process, less as a source for ideas for incubators.

Abstract

The study of the contribution of incubators to economic growth started to gain momentum in the 1980s, following the growth of the incubation phenomenon. While acknowledging the challenge of evaluating incubators׳ outcomes, we shift the focus from incubators׳ performance to their internal processes, in particular, the interrelationships through which the incubator stakeholders share knowledge. The literature suggests that small new ventures tend to fail because they lack managerial experience and ability to raise capital in an early stage. Incubators are expected to overcome these obstacles by offering experienced monitoring skills and by enhancing access to capital at a firm׳s early stage. However, empirical results of incubators׳ ability to perform their role are often contradictory, making policy makers question their effectiveness. We provide evidence from Australian and Israeli incubators. Our findings suggest that collaborations between incubatees, graduated incubatees, and incubator management increase the incubatees׳ knowledge of technology and market in both countries. Collaboration between incubatees and incubator management also increase incubatees׳ financial knowledge and their likelihood of raising capital. We also found that universities played a modest role as a source of new ideas for incubatees, but a more important role in later stages of incubatees׳ new product development processes.

Introduction

The study of the contribution of Technological Business Incubators (BIs) to economic growth started to gain momentum in the 1980s, following the growth of the business incubation phenomenon (Smilor and Gill, 1986, Temali and Campbell, 1984). In the 1990s the majority of studies analyzed data from the US, where technology clusters and technopoles evolved around technology generators such as universities, national laboratories, private research and development (R&D) laboratories and other high-tech enterprises (Markley and McNamara, 1995, Sherman and Chappell, 1998). In recent years an increasing number of studies have been conducted outside the US. For example Bøllingtoft (2012), Carayannis and von Zedtwitz (2005), Clausen and Korneliussen (2012), Kim and Ames (2006), Malek et al. (2014), Peña (2004), Ratinho and Henriques (2010), Sofouli and Vonortas (2007), Totterman and Sten (2005) and VonZedwitz and Grimaldi (2006) provide evidence from Canada, Denmark, Greece, Italy, Korea, Norway and Portugal.

In a broad sense, the literature suggests that firstly, small new ventures tend to fail because they lack managerial experience and ability to raise capital at an early stage (Allen and Rahman, 1985; Smilor and Gill, 1986). BIs stimulate the innovation process by creating a bridge between these market failures and improving access to capital at a firm׳s early stage, (Allen and McCluskey, 1990, Smilor and Gill, 1986, Tornatzky et al.,). Secondly, although the literature acknowledges the existence of knowledge transfer barriers (e.g., Hall et al., 2001, Siegel et al., 2003a), it also acknowledges the knowledge spillover from government funded research institutions to absorptive entities – high tech firms that reside in proximity to universities, some of whom are associated with BIs.

In part because universities have transformed from being conventional research and education hubs to being innovation promoting knowledge hubs (Youtie and Shapira, 2008), most of the readily available BI research arguably put the university in the center of their studies, and focus on the University–Industry Technology Transfer (UITT) where knowledge is transferred from universities to the individual firms inside incubators (hereafter called incubatees) (Debackere and Veugelers, 2005, Lumpkin and Ireland, 1988). However, as argued by Rothschild and Darr (2005) this research approach is insufficient because a university is only one of several potential knowledge sources for incubatees. Other external sources such as consultancy firms, customers and graduated incubatees may also have the potential to serve as significant knowledge sources. A growing body of literature acknowledges this variety of knowledge sources (Malek et al., 2014), and the networking behavior and collaboration practices of incubatees are increasingly often suggested to explain their success (Bøllingtoft, 2012, Ebbers, 2014). At the same time the importance of BIs׳ ability to provide incubatees with valuable networks is increasingly acknowledged (Peters et al., 2004, Schwartz and Hornych, 2008).

However, there is a lack of in-depth studies examining the different knowledge agents that surround the incubators, and the nature of knowledge that flows between these knowledge agents and incubatees (Bøllingtoft, 2012, McAdam and McAdam, 2006). The existing studies in this area typically rely on survey data and have a narrow focus on technological knowledge flows, particularly from universities (McAdam and McAdam, 2006). In this article, we aim to contribute in filling this gap in the literature by acknowledging that a university is only one potential source of knowledge for incubatees, and also by exploring the nature of other types of knowledge flows experienced by incubatees. As a consequence we ask the following explorative research question:

RQ: What is the nature of the knowledge that flows through the endogenous and exogenous interrelationships experienced by incubatees?

To explore this question we analyze BIs in Israel and Australia. These two OECD countries differ in their public/private knowledge sectors and in their incubation working models and government support. Consequently, Israeli and Australian BIs work in quite different environments. The Israeli high-tech industry is the most successful instance of the Silicon Valley diffusion model outside of North America (De-Fontenay and Carmell, 2004). It is ranked first among OECD countries in its business expenditure on R&D per GDP and it has higher ratio of VC investment to GDP than any other OECD country (Baygan, 2003). However, it has a declining R&D funding for its higher education sector. Australia is lacking in private investment in R&D. However, its higher education sector is a major R&D funding sector (Collier, 2007, Garrett-Jones et al., 2005), and it is ranked 5th among OECD countries, which makes this sector a major source of research activities (Australian Bureau of Statistics, 2008).

Regarding the differences in incubator models and government policies to promote incubators, Israel has the Technology Incubation Program (TIP) that was established in 1991 and has expanded significantly since, while Australia has no coordinated technology incubation program. In these two countries different incubation models are applied. Israeli incubator managements typically invest in their firms and provide very close monitoring services (even after the incubatee graduates), while Australian incubator managements are mostly providing a portfolio of services and charge the tenants for the services. They typically hold little or no equity in their firms.

The rest of this article is arranged in the following manner: we first provide the theoretical background for our empirical inquiry, by reviewing the relevant research literature. Following the review, we describe our research method, including the selected cases. In the following section we present our empirical findings. Our findings are then discussed in light of existing literature and based on this discussion we offer five propositions and an incubator interrelationship model that should be the basis for future research.

Section snippets

Literature review

Studies that analyze incubators can be grouped into two general areas. The first is studies of incubator performance and the second is studies of the internal processes within incubators. The first area is more common and it is often used by policy makers to evaluate incubators׳ impact in terms of knowledge and job creation. However, the second method is favoured by the authors, in part due the challenges of measuring incubator performance (Bergek and Norrman, 2008), but primarily due to the

Method

Our approach in this study is to systematically identify the interrelationships in BIs, and try to understand how knowledge flows through these interrelationships, directly and indirectly through the BI’s management. While a more common approach is looking at a linear process – primarily technological knowledge coming from the university – our approach looks at other knowledge agents that provide the incubatees with not only technological knowledge, but also other types of knowledge. All of

Findings

We started this article by asking what is the nature of the knowledge that flows through the endogenous and exogenous interrelationships experienced by incubatees? On the whole our findings suggest that incubatees׳ endogenous and exogenous interrelationships take different forms depending on whether it is technological knowledge, market knowledge or knowledge about financial resources that is being transferred or shared with other entities. Thus, based on this empirical observation we call the

Discussion

Due to the inductive and explorative nature of this study we are not able to test theoretical relationships based on our findings. However, our empirical findings do provide a solid basis for discussing and developing a new theory, in the form of theoretical propositions. These propositions, that should also serve as tentative managerial prescriptions, and in turn should lay the foundation for future research on incubator interrelationships, are now discussed.

Concluding remarks

In this article we shift the focus in the existing incubator research from incubator outcome to the processes and interrelationships within incubators. Based on our empirical findings in eleven case studies, eight in Israel and three in Australia, the interrelationships were classified into three knowledge bearers used by the incubator stakeholders: (1) technological knowledge bearer, (2) market knowledge bearer and (3) financial resources bearer.

We found that the technological knowledge bearer

Acknowledgment

We would like to acknowledge the financial support of the Faculty of Business and Economics at Macquarie University, NSW Australia.

Dr. Tzameret H. Rubin is a Senior Researcher at the Samuel Neaman Institute for National Policy Research, Technion, Israel Institute of Technology, and a Business and Technology Consultant to the New South Wales Office for Science and Research in Sydney, Australia. Her major research interests focus on knowledge transfer between government-funded research organizations and the private sector, R&D impact measurement and public policies promoting innovation.

References (106)

  • D. Felsenstein

    University-related science parks – ‘seedbeds’ or ‘enclaves’ of innovation

    Technovation

    (1994)
  • R. Grimaldi et al.

    Business incubators and new venture creation: an assessment of incubating models

    Technovation

    (2005)
  • F. Hansson et al.

    Second generation science parks: from structural holes jockeys to social capital catalysts of the knowledge society

    Technovation

    (2005)
  • D. Hicks et al.

    Highly innovative small firms in the markets for technology

    Res. Policy

    (2005)
  • K. Malek et al.

    A typology of clean technology commercialization accelerators

    J. Eng. Tech. Manag.

    (2014)
  • G.D. Markman et al.

    Entrepreneurship and university-based technology transfer

    J. Bus. Ventur.

    (2005)
  • M. McAdam et al.

    High tech start-ups in University Science Park incubators: The relationship between the start up׳s lifecycle progression and use of the incubator׳s resources

    Technovation

    (2008)
  • S.A. Mian

    Assessing and managing the university technology business incubator: An integrative framework

    J. Bus. Ventur.

    (1997)
  • J. Phillimore

    Beyond the linear view of innovation in science park evaluation: an analysis of Western Australian technology park

    Technovation

    (1999)
  • T. Ratinho et al.

    The role of science parks and business incubators in converging countries: Evidence from Portugal

    Technovation

    (2010)
  • F.T. Rothaermel et al.

    University–incubator firm knowledge flows: assessing their impact on incubator firm performance

    Res. Policy

    (2005)
  • F.T. Rothaermel et al.

    Incubator firm failure or graduation? The role of university linkages

    Res. Policy

    (2005)
  • L. Rothschild et al.

    Technological incubators and the social construction of innovation networks: an Israeli case study

    Technovation

    (2005)
  • D.S. Siegel et al.

    Assessing the impact of organizational practices on the relative productivity of university technology transfer offices: an exploratory study

    Res. Policy

    (2003)
  • D.S. Siegel et al.

    Commercial knowledge transfers from universities to firms: Improving the effectiveness of university–industry collaboration

    J. High Technol. Manag. Res.

    (2003)
  • M. Schwartz et al.

    Specialization as strategy for business incubators: an assessment of the Central German Multimedia Center

    Technovation

    (2008)
  • F.W. Swierczek

    Strategies for business innovation: evaluating the prospects of incubation in Thailand

    Technovation

    (1992)
  • J. Vanderstraeten et al.

    Service-based differentiation strategies for business incubators: exploring external and internal alignment

    Technovation

    (2012)
  • A. Vohora et al.

    Critical junctures in the development of university high-tech spinout companies

    Res. Policy

    (2004)
  • R. Aernoudt

    Incubators: tool for entrepreneurship

    Small Bus. Econ.

    (2004)
  • D.N. Allen et al.

    Structure, policy services, and performance in the business incubator industry

    Entrepreneurship: Theory Pract.

    (1990)
  • D.N. Allen et al.

    Sall business incubators: a positive environment for entrepreneurship

    J. Small Bus. Manag.

    (1985)
  • K. Arrow

    The economic implications of learning by doing

    Rev. Econ. Stud.

    (1962)
  • Australian Bureau of Statistics, 2008. Research and Experimental Development, Higher Education Organisations, Australia...
  • Australian Government Productivity Commission, 2009. Australian Government Productivity Commission, Submission to the...
  • Australian Private Equity & Venture Capital Association Limited-AVCAL, 2010. Venture Capital...
  • G. Avnimelech et al.

    Entrepreneurial high-tech cluster development: Israel׳s experience with venture capital and technological incubators

    Eur. Plan. Stud.

    (2007)
  • G. Avnimelech et al.

    From direct support of business sector R&D/innovation to targeting venture capital/private equity: a catching-up innovation and technology policy life cycle perspective

    Econ. Innov. New Technol.

    (2008)
  • G. Baygan

    Venture Capital Policies in Israel

    (2003)
  • S. Birley

    The role of networks in the entrepreneurial process

  • M. Bullock

    Academic Enterprise, Industrial Innovation and the development of high technology financing in the United States

    (1983)
  • C. Campbell et al.

    The small business incubator industry: micro-level economic development

    Econ. Dev. Q.

    (1987)
  • P. Castells et al.

    Technopoles of the World: The Making of the 21st Century Industrial Complexes

    (1994)
  • Center of Incubators for Technological Initiative, 2006. 〈http://www.incubators.org.il/program.htm〉 (accessed...
  • H.W. Chesbrough

    The era of open innovation

    (2003)
  • A. Collier

    Australian framework for the commercialisation of university scientific research

    Prometheus

    (2007)
  • C. De Fontenay et al.

    Israels Wadi The Forces behind Cluster Formation

  • G. Dosi

    Sources, procedures, and microeconomic effects of innovation

    J. Econ. Lit.

    (1988)
  • J.J. Ebbers

    Networking Behavior and Contracting Relationships Among Entrepreneurs in Business Incubators

    Entrepreneurship Theory Pract.

    (2014)
  • K.M. Eisenhardt

    Building theories from case study research

    Acad. Manag. Rev.

    (1989)
  • Cited by (0)

    Dr. Tzameret H. Rubin is a Senior Researcher at the Samuel Neaman Institute for National Policy Research, Technion, Israel Institute of Technology, and a Business and Technology Consultant to the New South Wales Office for Science and Research in Sydney, Australia. Her major research interests focus on knowledge transfer between government-funded research organizations and the private sector, R&D impact measurement and public policies promoting innovation.

    Tor Helge Aas is an associate professor at Department of Management, School of Business and Law, University of Agder. He has a Ph.D. in strategy and management from Norwegian School of Economics, and a M.Sc., in information and communication technology from University of Agder. Dr. Aas' research concentrates on topics such as innovation strategy, management of innovation processes, management control of innovation activities and innovation collaboration.

    Andrew Stead is a highly experienced commercialisation professional who has worked extensively with startup founders and investors. He is the Director New Ventures at NICTA, the co-founder and director of investment group Sydney Angels and serves on several company boards. His primary interest is the creation and growth of spinouts and managing equity portfolio.

    View full text