Fostering new incubator models

By P. Vikram Reddy

HYDERABAD, OCT. 13. There are 3,000 incubators around the world, of which about 1,000 are in the U.S. alone. A country like China which is stealing a march over other developing countries like India in various sectors has a respectable 200 already.

A small country like Israel, which along with Ireland caught global attention for developing new technologies, already has 28 incubators. Brazil, one of the ten emerging economies, has 130 (started with less than ten a decade ago). About 70 per cent of them are linked to universities.

But India, which has been talking of becoming an information technology superpower, and now a leader in biotechnology, has hardly 20, including those being started by IITs (Delhi and Pawai), Anna University, and another one in Pune. Two of these are funded by the UNDP.

What are the reasons for India lagging behind in such a crucial area, though it has a large number of Government sponsored research institutions of international standard? ``It is clearly political will and something to do with `cultural' aspect. We (Indians) are afraid of taking risks'', says Dr. Rustam Lalkaka, world renowned expert in technology incubators.

Dr. Rustam, Chairman of Shanghai Dot Com Business Accelerator, and President of Business & Technology Development Strategies LLC, New York, has been involved in providing consultancy services in small enterprise development, new venture creation, and technology business incubators for the last 40 years across 35 industrialising and restructuring countries.

A few days ago he joined the board of Advanced Research Centre for Powder Metallurgy and New Materials (ARC International-ARCI) at Hyderabad. ARCI itself is setting up an incubator, which already has three tenants. Proposals for 12 more are being processed.

Speaking to The Hindu, Dr. Rustam, said `There is lot of potential for starting incubators in India. We cannot rest on IT achievements'. But there is an interesting side to it. Worldwide, 75 per cent are `non-profit' incubators, the remaining being `for profit'. While 30 per cent of incubators are in private sector, 70 per cent are by `state agencies', he says. So much so for all the talk of private enterprise and risk taking!

For profit making ones the rate of return on investment has been 30 to 40 per cent. Governments have also got returns like 400-600 per cent, he says. The first generation incubators in the 1980s were focused primarily on providing affordable workspace for start-up companies. In the 1990s, second generation incubators' emphasis was on counselling skills enhancement and networking services.

And the cost of setting up incubators? Going by U.S. standards it would be around $300,000 and could vary from 20,000 sq. ft. for technology incubators to 60,000 for the manufacturing sector. A 20,000 sq. ft. area with 15 to 20 units is the standard model for a successful incubator on a modest scale, where the common equipment is provided by the incubator, and process equipment is brought in by tenants.

Starting in 1996 and gathering momentum in 1998, with the rise of the Internet, the new economy incubation models have emerged in parallel. With the decline of dotcom ventures, some `for-profit' incubators have experienced difficulties. But overall their numbers have grown, he says.

During 1999-2000, about 400 for-profit Internet incubators were added in the U.S. and elsewhere due to perceived opportunities and partly due to unrealistic expectation. No doubt many of them failed. But then, every such cycle takes the number to a higher plane, even after many failures. Any takers for the next round?

Send this article to Friends by E-Mail

Section  : Business
Next     : Further equity dilution by 2003 - IOB CMD