The Effectiveness of Technology Business Incubation: An Empirical Analysis in the Indian Context

Abstract

Entrepreneurship is key to drive innovation, create wealth and jobs in any economy. Entrepreneurial startups hold the promise of high growth, yet they encounter high failure rates due to uncertainties, particularly in early stages. Hence, supporting entrepreneurship is critical in transitioning economies like India. Even while India is home to several burgeoning entrepreneurial ecosystems, support for entrepreneurship is underdeveloped. This makes case for government support to develop institutions for entrepreneurship support. Technology business incubators emerged as a key vehicle for entrepreneurship support in India. However, there is a dearth of quantitative empirical studies examining effectiveness of incubation support in India. In this study we examine the effectiveness of incubators supported by Department of Science and Technology, Government of India’s institutional mechanisms across six states. We conceptualize incubation support at macro-, meso- and micro- levels corresponding to the main stakeholders viz. the government, the host university and the entrepreneurial startups, respectively. At the macro-level, we look at the government’s objective to develop access and availability of incubation support to startups. Government support has led to qualitative development of market infrastructure and financial access to startups. We report key differences in scale, efficiency and survival among incubated startups based on an incubator typology. We find that university-based incubators have not achieved scale as compared to private-sector incubators. We find that specialized incubators are more efficient and share long term risks with technology startups through their investments. At the meso-level, we look at the universities’ objective to become entrepreneurial by supporting technology startups. We evaluate the efficiency of universities in performing entrepreneurship support through incubators alongside their traditional research and teaching outcomes. We use a slack-based Data Envelopment Analysis (DEA) to compare efficiency of universities across the six states. From our analysis we find that fully efficient universities were only a few and were performing well across all the three outcomes. Moderately efficient universities were mostly teaching oriented and the weakly efficient universities mostly did not show particular orientation towards any of the outcomes. We show the existence of distinct strategies for universities to evolve into active entrepreneurial universities through incubation. At the micro-level, we look at the startups’ objective to develop new products and services utilizing incubation support. At the initiation stage startups exhibit distinct motivations on infrastructure and networking to seek incubation. At the engagement stage, startups utilize incubation services and network with the host universities. We find that such an engagement is contingent on the alignment of startup knowledge areas with the university and the orientation of the university. We argue that this supports knowledge-spill over from the university to the startups through the incubator. At the performance stage, we find that incubation contributes to technology development capability of startups. Based on the analyses, we derive managerial and policy implications for incubator managers, universities, startups and the government. We recommend potential strategies including specialization and public-private partnerships. These strategies can help improve the entrepreneurial ecosystem and drive the growth of genuine, innovative technology startups in India