25 November 2024

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A BREEDING GROUND FOR STARTUPS

Development of IT technologies is a promising approach to the formation of a system of business incubators in Azerbaijan

Author:

25.02.2014

Development of the non-oil sector, and especially its innovative segment, as well as stimulation of small and medium-sized businesses has been the cornerstone of most of the government economic programmes in recent years. To try out such projects in Azerbaijan, a number of technology parks of various profiles have been created and a system of business incubators is being formed, which is intended for teaching young entrepreneurs competent development of business ideas and projects.

 

Help and support

In general, about 40 per cent of the world's business incubators are designed for the development of high technologies, primarily in the IT sector, while others carry out "multifunctional" activities including the development and small-scale production of medical devices and biotechnologies, composite materials and nanotechnologies, equipment for alternative energy and purification technologies. Of equal importance in the activity of such entities are the advancement of the services sector and the expansion of various Internet services - from computer software development to the promotion of e-commerce including tourism and cooking projects.

Experience of the advanced countries of the world has proven that the creation of business incubators of all kinds without exception fosters growth of the share of small and medium enterprises (SMEs) in the economy. This is the main purpose of formation of the system of training and support for starting business ventures in Azerbaijan. As a sidenote, one of the first training business centers was formed in 2002 with the assistance of British Petroleum, which created the EU Enterprise Centre where local entrepreneurs were taught the basics of mediation - business project development, procurement and supply procedures, compliance with technical parameters and modern management standards.

However, the dominant role in the formation of business incubators in Azerbaijan nonetheless belongs to the state. Thus, the first entity with some of the functions of the business incubator was established in Sumqayit in autumn 2004, on the initiative of the Infotek NGO and with the assistance of executive authorities of the city. Subsequently, entities with similar tasks emerged in Baku, Ganca, Quba and several other cities that were the administrative centers of the economic regions of the country. The creation of such entities is supported by the Ministry of Economy and Industry in accordance with the Action Plan for 2011-2015, approved by Azerbaijani President Ilham Aliyev, which is geared towards the implementation of the State Program on Poverty Reduction and Sustainable Development in 2008-2015.

Key activities of business incubators include helping individuals in their first steps in setting up companies and providing them with modern offices and specialized facilities. Business incubators provide assistance to entrepreneurs in finding partners and customers, conducting specialized training, testing business ideas and implementing pilot projects. In particular, SME representatives get affordable consulting services in marketing, accounting and taxes and a possibility to train their employees in training centers staffed with skilled local and foreign experts. In the longer term, the potential of business incubators can be used for the implementation of pilot investment projects in the sphere of production, services or scientific developments.

Until recently, such entities primarily provided consulting services, still lacking the capacity of a business center in its full meaning.

 

Wider access

The idea of creating an enlarged commercial business incubator was proposed by the Ministry of Economic Development more than ten years ago. The project involved the construction of an industrial town near the village of Yeni Yasma, some 47 km away from the capital. The original concept was to ensure the full functioning of about 80 small enterprises capable of producing competitive import-substituting products. However, excessive spending on infrastructure rendered the project unprofitable from the outset. Later, the idea of forming incubation centers designed for large-scale production assumed the form of technology parks, and this project has successfully been implemented in Sumqayit since 2009, mainly due to public investment.

Meanwhile, despite the concentration of modern industrial enterprises and knowledge-intensive industries in the Sumqayit technology parks, both state bodies and private companies have not abandoned the idea of developing classical forms of incubators in the country. One such project called Barama, which is aimed at the development of creative and innovative ideas in the field of information and communication technologies (ICT), was launched in 2009 on the initiative of one of the mobile operators in the country and with the support of the CISCO Institute of Entrepreneurship. The implementation of a similar ICT project was started by the Ministry of Communications and Information Technology a few years ago, in cooperation with another cellular operator.

Development of IT technologies is probably the most promising approach to the formation of a system of business incubators in Azerbaijan. And President Ilham Aliyev's decree on the establishment of a High-Tech Park (HTP) on Pirallahi Island, singed in November 2012, was most important in this respect. Here, a 50 ha land plot has been allocated for the construction of a park. Work has started on the creation of its infrastructure and logistics. The Business Incubation Centre recently established in the capital is expected to become the main component of the HTP prospective zone. "It was decided to establish the Pi-Campus incubation center straight in Baku for the early implementation of startup projects in the field of high technologies."Pi" stands for the first two letters in the name of Pirallahi Island; it is also a known mathematical constant. Pi-Campus will become operational in February this year. Currently, the process of compiling a list of projects to be implemented first of all is in progress. They include 13 ongoing projects and two projects that are in the planning stage," HTP director Seymur Agayev said. Eligible for development in the incubation center are only promising startup projects (business ideas designed for quick implementation). A two-step mechanism will make it possible to try out all pilot projects in the Business Incubation Center, thereby eliminating ineffective concepts and transferring startup projects that proved their viability and market relevance to the HTP for further development.

 

Money needed

In the meantime, not only ICT-related projects are attractive for testing in the system of business incubators. A large-scale project implemented by the Ministry of Youth and Sport with the support of the Youth Fund under the President of Azerbaijan and a large private company bears witness to this fact. In particular, I am referring to the first phase of the Youth Inc. program of support for young entrepreneurs and business incubation that has been implemented since 2013. This project is carried out within the framework of the Azerbaijani Youth in 2011-2015 state programmes and aims at supporting business activity among young people. As part of a five-year program, four business incubators were set up in Baku, Sumqayit, Ganca and Saki, which provided training for about two thousand young people. Based on the results of the first phase of program implementation, a dozen business projects has come into being, several young entrepreneurs have been able to attract new investment, and the youthinc.az website has been created through which young entrepreneurs can share information and experience as well as present their products and services.

Summarizing the above, it can be asserted that a stable system of business incubators has been set up in Azerbaijan, and the next strategic step should be to expand access of new entrepreneurs to concessional financing. This involves a mandatory element of the successful operation of incubation centers, i.e. the establishment of venture capital funds providing projects with "long and low interest" financial resources. Unlike banks, such entities have higher risk tolerance because they provide early-stage companies with financial resources not in the form of a loan but on the basis of participation interest. The advantage of this type of financing is that the role of venture capital funds is not limited to the provision of financial resources to entrepreneurs. The funds are directly involved in the management of companies and, thanks to their extensive experience and business ties, help entrepreneurs succeed. Unfortunately, the number of companies specializing in venture capital financing is negligible in Azerbaijan...

 

 

NOTE

The first prototypes of modern business incubators emerged in Great Britain in the middle of the last century. However, the formation of such entities in the modern sense of this term began in 1959, when Joseph Mancuso bought a factory warehouse in the town of Batavia and founded the first in the US incubator for entrepreneurs - Batavia Industrial Center. Its goal was to create new jobs in the city which was going through hard times because of the economic depression. For a long time, this form of training entrepreneurs and promoting business ventures remained an exclusive feature of the US market. In particular, as recently as 1985, there were only 70 business incubators in the world, with the vast majority of them located in North America. The large-scale formation of such centers coincided with the beginning of an economic boom in Southeast Asia and was greatly enhanced after the collapse of the socialist system and the beginning of market reforms in Eastern Europe and the former Soviet Union. Thus, in 1992, the number of business incubators was in excess of 470, and in the first decade of the 21st century there were already more than 2,000 such entities the world over. Most of them are united in the National Business Incubation Association.

The structure of business incubators and their purposes were in marked contrast in different regions of the world: for example, in the United States, which is still the leader in the number of business incubators, such entities were mainly established for reviving blighted urban areas and regions and promoting innovation in universities. In the Asian region, the establishment of such centers was aimed at creating a favorable environment for private investors and attracting foreign technology and capital. Finally, in the post-Soviet space, business incubators focus their activity on training young entrepreneurs and trying out market mechanisms for certain industrial or research projects.


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