ABSTRACT
This paper aims to contribute to the business incubation literature, focusing on the questions of “how”, “why” and “in what context” business incubators operate. These questions are discussed based on interviews conducted in Dar-es-Salaam, Tanzania, in 2013. The conclusions show that the questions are connected and that there are a variety of reasons to “why” people engage in business incubation. If the whole process is not understood properly there is a risk that the purpose of the business incubator will not be achieved, implying that business incubation may not be the preferred support structure for entrepreneurs in Dar-es-Salaam.
INTRODUCTION
Entrepreneurship in Africa1 is enacted in a variety of ways from micro-enterprises with only a few employees to corporations employing hundreds of people. Businesses exist in the informal and formal sector, they are traditional and modern, local and owned by foreigners, and spread in both rural and urban areas (McDade and Spring, 2005). Most economies in Sub-Saharan Africa are small compared to the per capita GDP in countries such as China, India or Indonesia (Ramachandran et al., 2009) which leads to a concentration of market power among powerful groups that are often connected to governments and have an interest in keeping the conditions unchanged. As a consequence it has become more difficult for others to enter the market and to expand their businesses (Gelb et al., 2014). This paper is set in the context of Tanzania, where its previous socialist government, was reluctant to develop a local business class that could compete for political power (Pedersen and McCormick, 1999). In addition, there are a variety of factors of production that slow down the increase of productivity and affect survival and growth of companies in Sub-Saharan Africa. These factors are for example the business climate including infrastructure and finance (Iacovone, 2013), the relation between government and the business world in small markets, and firm ownership and management capacity. The roots of these factors can be found in both geography and history that have contributed to a political economy which sustains a poor business climate. However, it is important to remember that Sub-Saharan Africa does not lack productive sectors and companies and some countries have areas where they are known to be the most competitive in the world or famous for innovative technology, such as M-pesa payment systems (Gelb et al., 2014).
The purpose of this paper is to make a contribution to the business incubation literature which is often focused on efficiency and “what” the business incubators are doing in an attempt to identify success factors that may be shared between business incubators. A summary of such previous research will be briefly presented in the theory chapter. Furthermore, this paper aims to reach beyond the success factors and focus on the questions of “how”, “why” and “in what context” business incubators are operating instead of continuing exploring “what” they are doing (Hackett and Dilts, 2004, Maital et al., 2008). “How” and “in what context” are mainly studied based on the empirical material from Dar-es-Salaam and “why” is reflected on in the perspective of the empirical material and theories on diffusion and transfer of organizational ideas. Thus, the purpose of the paper is also to explore the transfer and diffusion of business incubation to Dar-es-Salaam based on institutional theory and Lillrank’s transfer model.
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Business incubation has more than one definition and is commonly accepted as an umbrella term for activities that support entrepreneurs, start-up companies and organizations (Aernoudt, 2004). The aim of a business incubator will be further explained in the theory chapter. Transfer of economic activities and organizational innovations, such as the business incubator, over cultural, national and industry borders are challenging, slow and complicated. Moreover, it is often difficult the longer the social and cultural distance is between origin and end. The consequence is a risk of an establishment that does not fit into the environment and does not contribute as expected. Institutional theory is utilised to describe diffusion of organizational ideas and why organizations become similar over time. In relation to institutional theory, Lillrank’s model may be recognised from previous research on knowledge transfer (Nonaka and Takeuchi, 1995) and innovation diffusion (Abrahamson, 1991, Czarniawska and Sevón, 1996) and has a similar way of explaining the transfer, packaged in a specific model that may facilitate the explanation of the diffusion of business incubation around the world.
The focus of this paper is on the three questions of “how”, “why” and “in what context” business incubators in Dar-es-Salaam operate. Empirical findings give insights to the specific context and how different business incubators work in such context. Moreover, the transfer of the concept of business incubation, as a tool for economic growth, from its original setting to Tanzania is explored from a theoretical perspective of institutional theory and a related transfer model by Paul Lillrank (1995).
The concept of business incubators has been established since 1959 when the first known business incubator was opened in the US (Hackett and Dilts, 2004, Lendner and Dowling, 2007). The oldest established incubator was opened in Kenya as early as in 1967 (Meru and Struwig, 2011), nevertheless, business incubation is still considered a rather new phenomenon on the African continent. The purpose of business incubation is to diversify economies, commercialise technologies and to create jobs and wealth (Elena, 2002). Typically, business incubation is in vogue as a tool for economic growth when unemployment is increasing (Amezcua et al., 2013, Meru and Struwig, 2011). With the high unemployment rates in many African countries and a large number of youth entering the workforce (Iacovone, 2013), there has been a tendency to establish new business incubators during the recent years which has meant that there are a plethora of relatively new organizations supporting local entrepreneurs, but older business incubators also exist.
Entrepreneurship and private enterprise is considered an important part of research on economic development in Africa. The focus of this research has been on micro- and small-scale enterprises in the informal and formal sectors (McDade and Spring, 2005). Furthermore, there has been a variety of research on business incubators and their functions, attempts to categorise, models, and especially critical success factors (Maital et al., 2008). However, almost all research covers the US and Europe and comparisons between business incubators in these two parts of the world (Aerts et al., 2007, Aernoudt, 2004, TamÁSy, 2007). Although business incubation is increasing all over the world, studies on business incubation and entrepreneurship in Sub-Saharan Africa are still rather unusual and scarce (Sriram and Mersha, 2010, Kshetri, 2011, Ndabeni, 2008, Kiss et al., 2012) compared to similar studies in developing countries outside Africa (Akçomak, 2009, Lalkaka, 2003, Elena, 2002, Lalkaka and Abetti, 1999). Such limited focus is an issue because there is a large difference in conditions depending on the country where business incubators are established. Moreover, the original idea of business incubation is developed for the specific business environment in the US.
The empirical material forming the foundation of this paper consists of interviews with entrepreneurs and business incubator managers and staff in Dar-es-Salaam. These interviews will be interpreted with an embeddedness perspective to explain the connection between business incubation and the local context. Embeddedness enables an understanding of how social relations influence economic transactions in a specific context (Granovetter, 1985). Based on the purpose of exploring transfer and diffusion of business incubation, an interpretative research design has been applied.
The structure of the paper is organised as follows. The theoretical background of institutional theory and the transfer model by Lillrank (1995) is described in the next section, ending with a brief background on what business incubators do and how they are embedded in their local context. The following section presents the methodology behind the paper and then there is a section where the
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findings from Dar-es-Salaam are introduced. The last sections discuss the findings and make some short conclusions.