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Overcoming cultural obstacles to incubator development

October 2006

Incubator developers in the United States share many of the same challenges and experiences as their counterparts in some other regions, especially those regions with similar political, economic and educational systems, such as Western Europe. However, once beyond the borders of North America and Western Europe, incubator developers face increased and diverse challenges, ranging from cultural barriers to regulatory issues.

One component of the development process that absolutely must be studied closely is whether the local culture will be accepting of those who pursue entrepreneurship. “Inaccurately assessing the needs of the entrepreneurial culture, the resources available in the community, and the ability of potential entrepreneurs to carry out the steps of starting a business can mean serious trouble for an incubation program,” says Dinah Adkins, NBIA president & CEO.

While researching NBIA’s recent publication, Developing a Business Incubation Program: Insights and Advice for Communities, author Kathleen Boyd spoke with several experts about cultural challenges to incubator development. Following are some excerpts from the book.

Cultural roadblocks

Chuck Wolfe, principal of consulting firm Claggett Wolfe Associates in Auburn, Calif., noticed something interesting while working in Saudi Arabia: Some entrepreneurial Saudis were moving to Dubai or Bahrain because the environment there was more conducive to starting businesses than in their native country. Wolfe explains that in Saudi Arabia, most growth businesses outside the retail sector are controlled by the country’s prominent families. In this male-dominated society, new business opportunities are developed by a brother, son, nephew or cousin; senior members of the family provide financing, mentorship and resources as a means of expanding their reach into new products or markets – somewhat like an incubator.

Cultural dynamics may have a significant impact on the feasibility or ultimate design of an incubation program due to differing levels of comfort and experience with entrepreneurship. Some cultural issues that can lead to a lack of incubator clients and can threaten the ultimate success of a program include:

  • Aversion to individual risk/loss of face or status if you fail. “In Japan, your job and business relationships are part of your inclusive family or group. If you leave the group, you have basically left your family and can have difficulty returning [if your business fails],” Wolfe says. “In the Middle East, it is culturally unacceptable to fail or admit failure.”
  • A social structure that favors an elite group based on lineage, heritage or connections versus knowledge, innovation or entrepreneurial drive. “This was actually very common in the United States in places like Austin, Boston and Washington, D.C., as late as the 1980s – before the more entrepreneurial technology booms in these areas,” Wolfe says.
  • A lack of cultural understanding of or appreciation for protecting intellectual property.
  • An inflexible social structure. For example, incubator managers in some parts of the former Soviet Union have difficulty finding qualified incubator clients because the people are typically risk-averse. This stems, in part, from their educational systems, which tend to be very structured. “There is only one ‘right’ answer, and failure to get that answer right is met with severe punishment,” says June Lavelle, president of the consulting firm Lavelle & Associates in Slomczyn, Poland. “As a result, the people are naturally very risk-averse. They are obsessed with getting everything ‘perfect,’ which, in a fast-moving entrepreneurial environment, is not practical.”
  • A culture that is averse to adhering to World Trade Organization and other global business standards.
  • Government corruption.
  • Language barriers or an unwillingness to learn new languages. “A very prominent Japanese business person and speaker at a conference I once presented at in Japan said that one of the nation’s major economic impediments is its unwillingness to learn English, which is the global language of business,” Wolfe says. “China has recognized this and is now requiring its youth to learn English.”

Meeting the challenges

A nonentrepreneurial culture does not necessarily mean an incubation program is infeasible; rather, the program must be developed in a way that meets the challenges. “It’s not that a particular culture or country ‘lacks’ X, Y or Z,” says Dinyar Lalkaka, a partner in consulting firm Business & Technology Development Strategies in New York, N.Y. “It’s just that their cultural and historical context is different. It’s a bit like asking, ‘Why can’t we replicate Silicon Valley in Ohio?’ If you take Northern California as a standard, it would be easy to find Ohio ‘lacking.’ But Ohio is no ‘better’ or ‘worse’ than Northern California; it just has different endowments and a different history.”

Wolfe agrees. “You have to adapt to people and the way business is conducted in their country,” he says.

Often cultural obstacles to business incubator development are rooted in a lack of history of entrepreneurial activity. Many would-be entrepreneurs, especially in centrally governed economies, see working in small businesses as degrading and therefore want to start big businesses. “They simply hate the idea of starting something small and growing it,” Lavelle says.

A similar situation exists in some countries in the oil-rich Middle East, but for different reasons, according to Adkins. For example, in Kuwait nearly 95 percent of all Kuwaiti nationals work for the government. Expatriates from Sri Lanka, Bangladesh, Lebanon and other nations perform much of the nongovernmental work. With a sufficient salary guaranteed by government, easy working hours, and guaranteed education and health care, few Kuwaiti natives have an interest in taking on the risks associated with starting a company. In addition, while it might be seen as prestigious to own a company, a Kuwaiti generally would not be interested in working in any but the highest management levels. This can put an excessive strain on a fledgling start-up where everyone, including the owners and senior managers, is called on to do menial tasks to get the business off the ground.

What’s more, a lack of entrepreneurial history typically means that people have extreme difficulty coming up with good business ideas, Lavelle says. In Eastern Europe, when someone does come up with a good idea, it is not uncommon for many others to copy it and flood the market, putting each other out of business. And with the imminent European Union accession of many Eastern European countries, they will soon have to meet higher standards of quality than they did previously. For example, a butcher may have a good understanding of cutting meat but may lack the expertise and facilities necessary to meet requirements for shipping meat into other European nations.

In South Africa, many entrepreneurs, especially those from disadvantaged backgrounds, lack the necessary business and technical skills to develop their projects. “Many are sole proprietors with ideas that require a great deal of input from incubator staff,” says Steve Giddings, executive committee member of the South African Business and Technology Business Incubator Association. Often this is because of poor education or lack of opportunities to gain relevant experience. (Government-backed incubators are tasked to support these individuals to address societal imbalances brought about by the history of apartheid.) “Individuals fortunate enough to have received a good education are very readily snapped up by a job market that is keen to redress past imbalances, and this robs the incubation community of skills,” Giddings says.

In Bulgaria, successful entrepreneurial role models are almost nonexistent in the majority of neighborhoods, housing projects and small villages, according to Elena Panova, program officer with the United Nations Development Programme in Sofia, Bulgaria. There simply are few individuals engaged in entrepreneurship. This lack of role models dampens the desire of others to start their own companies; thus, entrepreneurship is not an option for many people.

Is there an answer to this cultural challenge? South African incubators put a lot of effort into attracting prospective clients. They run business plan competitions, promote their programs through various media outlets, provide workshops for entrepreneurs, and offer space at below-market rates. “This combination of activities has seen an increase in client numbers in incubators and a slow, but steady increase in incubated businesses attracting finance,” Giddings says.

Business incubation practitioners in Bulgaria have worked to create entrepreneurs from individuals with no entrepreneurial background, explains Adkins, who was asked to evaluate Bulgarian business incubators and who met with incubator managers and entrepreneurs there. “I interviewed a merchant seaman who opened a successful bakery and an expert in small animals who developed and manages a hotel; I also heard of a former military officer who runs a successful funeral business,” she says. “While Bulgaria doesn’t have a recent history of entrepreneurship, entrepreneurial individuals exist there, and the incubators have successfully attracted these people.” Having each incubator colocated with a business center that offers a wide variety of business training and Internet access has helped. Equipment-leasing programs and government-sponsored grant programs for start-up and emerging companies that are administered by the business centers/incubators have also served to ensure that they are local hubs of business support and attract the attention of individuals who are considering starting a business.

Looking forward

Clearly it is important to consider many factors in looking at incubator feasibility: whether your community or country has a sufficient number of entrepreneurs, whether community residents are risk-averse, the education level of potential entrepreneurs, and what the incentives or disincentives to entrepreneurship are. You may want to consider what you could do to jump-start entrepreneurship. Perhaps the problem is a lack of entrepreneurial role models. On the one hand, a lack of employment opportunities will actually encourage well-educated individuals who are inherently entrepreneurial to consider starting a business to support their families and a better lifestyle (thus creating new role models). On the other hand, if life is already good as it is, as in Kuwait, it may be necessary to focus on starting businesses that will produce enough revenues to attract individuals from the government sector. In South Africa, especially with poor and uneducated populations, some programs may need to focus on supporting small companies that can provide livelihoods for one or two people. These programs would need to be prepared to provide lots of hands-on support and education to budding entrepreneurs. As is usually the case with incubators, the solution can be found only in tailoring the program to fit the unique needs of each community.

Read more about incubator development

NBIA’s newest publication, Developing a Business Incubation Program: Insights and Advice for Communities, offers a comprehensive look at the incubator development process. Although the book largely discusses incubator development experiences in the United States, the information is applicable to incubator development everywhere. Additionally, numerous in-depth sidebars, such as the one reprinted on these pages, discuss international considerations. For more information or to purchase the book, visit www.nbia.org/store, e-mail publications@nbia.org or call (740) 593-4331.

Keywords: entrepreneurial pool, international incubation, policy

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