The effect of incubation on business performance: A comparative study in the Centro region of Portugal.
| Autor | Almeida, Rita Isabel da Silva |
I Introduction
The global economic crisis has led to high unemployment rates, triggering a wave of entrepreneurs looking to create an innovative business, promoting the creation of jobs through the implementation of projects that can withstand instability. In turn, the number of business incubators has grown significantly in recent years, becoming strong allies in the creation of new businesses through legal, financial, and technological support, as well as providing facilities for setting up new firms (Aerts, Matthyssens, & Vandenbempt, 2007).
Industrialization plays an important role in economic growth, and the political system has to create the conditions for its development. Among these, business incubation is an institutional system that helps economies to industrialize, playing a relevant role, particularly in the creation of SMEs. The uncertain environment in which companies operate has led to the establishment of institutions that help companies to overcome their initial difficulties (Ayatse, Kwahar, & Iyortsuun, 2017) and to develop their entrepreneurial spirit.
As defined by Miller (1983, p. 771), an entrepreneurial firm is one that "engages in product market innovation, undertakes somewhat risky ventures, and is first to come up with proactive innovations, beating competitors to the punch." In helping to develop entrepreneurial spirit, business incubators make an important contribution to the survival and growth of companies in increasingly competitive environments (European Commission, 2002).
Entrepreneurial companies perform better than those that adopt a conservative approach (Rauch, Wiklund, Lumpkin, & Frese, 2009). Several studies (Chow, 2006; Coulthard, 2007; Keh, Nguyen, & Ng, 2007; Madsen, 2007) report that entrepreneurial firms significantly improve their performance. However, other authors (Matsuno, Mentzer, & Ozsomer, 2002; Morgan & Strong, 2003; Naldi, Nordqvist, Sjoberg, & Wiklund, 2007) do not identify any impact of entrepreneurship on business performance.
The impact of incubators on the development of new projects has received increasing attention from the scientific community (Albort-Morant & Ribeiro-Soriano, 2016; Baraldi & Havenvid, 2016) as they help to create a welcoming (Bollingtoft & Ulhoi, 2005; Markovitch, O'Connor, & Harper, 2017) and protected environment (Allen & Rahman, 1985), allowing start-ups to get the resources, services, and assistance they need (Vanderstraeten & Matthyssens, 2012). They are an important support for identifying new business opportunities and are strategic players in the development of the first business activities (Albort-Morant & Ribeiro-Soriano, 2016; Pauwels, Clarysse, Wright, & Hove, 2016). They can facilitate initial product development (Bollingtoft & Ulhoi, 2005; Patton, 2014), promote entrepreneurship in specific industrial sectors and regions (Schwartz & Hornych, 2010; Sofouli & Vonortas, 2007), support the development of new technologies (Roig-Tierno, Alcazar, & Ribeiro-Navarrete, 2015), identify markets (Rong, Wu, Shi, & Guo, 2015), or support the marketing of products and services (Clausen & Korneliussen, 2012; Wonglimpiyarat, 2010).
However, it has been difficult to obtain a consensus on this issue. The literature (Kellermanns, Eddleston, Barnet, & Pearson, 2008; Zahra, 2008) suggests that the institutional environment plays a relevant role, so it is essential to deepen the study of this issue in the universe of Portuguese companies, which we believe is not sufficiently addressed. This was a decisive motivation for carrying out this study.
The phenomenon of incubation in Portugal emerged in the 1990s and there has been a significant increase in the number of incubators since then, but it is still scarcely studied. In this context, it is critical to understand the role that these institutions play (Caetano, 2012). The Centro region of Portugal has witnessed, over the last decades, a social transformation, having developed its business environment. It is important to assess the extent to which business incubators have contributed to this development.
The objective of this paper is to evaluate if business incubation provides benefits, assessing whether incubated companies in the Centro region of Portugal perform better than others. To this end, and according to the literature review, a comparative analysis of return on assets (ROA) and turnover variation (TV) will be performed. For this study, two samples were collected:
i) companies incubated in the Central Region Business Incubators Network (RIERC) (https://rierc.pt, retrieved in May, 2018) and ii) companies with similar characteristics that did not undergo any incubation process. The sample of non-incubated companies was collected through the Iberian Balance Sheet Analysis System (SABI). This was also the source of economic and financial variables of the incubated companies.
Thus, this study seeks to contribute to the existing literature by providing empirical evidence of the benefits of incubation. It concludes that incubation provides better business performance; however, as companies mature, this benefit begins to dissipate.
This paper is organized as follows. Following this introductory part, the next section is devoted to reviewing the literature on incubation issues. Section 3 presents the data, the variables, and the methodology used. Section 4 presents the results. Finally, the conclusions of this study are discussed in section 5.
2 Literature Review
Since 2000, there has been a steady stream of studies seeking to assess the impact of incubation on startup performance in different contexts (Amezcua, Grimes, Bradley, & Wiklund, 2013; Barbero, Casillas, Ramos, & Guitar, 2012; Barbero, Casillas, Wright, & Ramos, 2014; Dvoulety, Long, Blazkova, Luke, & Andera, 2018; Gonzalez-Uribe & Leatherbee, 2017; Hallen, Cohen, & Bingham, 2019; Lasrado, Sivo, Ford, O'Neal & Garibay, 2016; Yu, 2020).
Research on the topic faces a number of challenges and the results obtained are not always consensual (Yu & Nijkamp, 2009). There are a number of reasons for this:
i) the lack of data as, for start-ups, available data are scarce and difficult to collect (Sherman & Chappell, 1998);
ii) the difficulty in defining an appropriate control group as all start-ups face a set of limitations (Hallen et al., 2019);
iii) the different contexts in which they operate affect the results and the best way to evaluate them (Amezcua et al., 2013; Dvoulety et al., 2018); and finally iv) the nature and objectives of incubators are not always coincident (Barbero et al., 2014).
The incubation process involves the provision of a set of services and activities for start-ups that should contribute to their development. However, recent studies show that incubators do not always contribute positively to the development of start-ups (Colombo & Delmastro, 2002; Lukes, Longo, & Zouhar, 2019). They can even have a negative effect, due to the high number of events and activities in which start-ups are involved, as a result of competition for resources among start-up companies, and due to the opportunity costs of being integrated in the incubator (McAdam & Marlow, 2007; Oakey, 2007; Patton & Marlow, 2011).
In this sense, some studies report that incubation does not improve start-up performance (Chan & Lau, 2005; Oakey, 2007; Soetanto & Jack, 2016). Others also argue that incubation does not lead to better performance in the early stage of start-ups (Hughes, Ireland & Morgan, 2007; Patton, 2013). These contradictory results may originate from the heterogeneity of incubation practices (Aernoudt, 2004), differences in the socio-economic and legal context (Soetanto & Geenhuizen, 2010), or result from different performance assessments. These contradictory results are obtained in specific contexts, making it difficult to compare them through an aggregating analysis.
Another issue that remains open in the literature is that it is not clear how negative effects can be compared with positive effects. Identifying a set of services and activities alone does not explain how incubators can influence start-ups, as it is the dynamics and the behavior of entrepreneurs that can explain business performance. This justifies the concern in the literature with developing theoretical mechanisms that help to understand the true role that incubators can play (Ahmad & Ingle, 2013; Weele, 2016).
The literature review allows us to identify a set of activities and services that incubators provide to start-ups; however, there is still a lack of understanding of how incubators condition the performance of start-ups. Namely, there remains a need for research to identify the inducers that can improve initial performance and whether these mechanisms explain the differences between incubated and non-incubated start-ups.
The first business incubator appeared in the United States of America in the 1950s. This period was characterized by the economic recovery after the Great Depression of the 1930s and World War II (1939-1945). Batavia Industrial Center was the first US incubator, founded in New York, in 1959. Charles Mancuso decided to rent out part of his manufacturing and industrial facilities to small companies at low cost, some of which were starting up, with the aim of stimulating the local economy, which was going through a serious unemployment crisis, resulting from the relocation of various industrial activities (Aerts et al., 2007).
Until the 1980s and 1990s, the main concerns of incubators were centered on technological and management aspects. From then on, innovation and incentives for the creation of new companies has become relevant, with a significant increase in internationalization. Still in the 1980s, two strategies were developed: i) providing space and capacity for incubation and ii) offering resources that would allow companies to grow (Mian, 1996).
In the late 1990s, incubators provided a strong stimulus for the creation of...
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