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Racking up honors: Taiwanese incubator receives second major award in a year

by Linda Knopp

October 2006

When NBIA named the Industrial Technology Research Institute Incubator Center as its Randall M. Whaley Incubator of the Year in May, it marked the second time in a year that the Taiwanese incubator had received a major business incubation award. In August 2005, the program received the Asian Association of Business Incubation’s most prestigious award, the AABI Award, for accumulating the highest point total among Asian incubators in six categories: management, services, clients, graduates, outcomes and finances. Those who attended the 2006 NBIA awards luncheon in St. Louis heard representatives of the ITRI Incubator Center give a heart-felt speech in acceptance of NBIA’s top honor.

It’s not surprising that the ITRI Incubator Center has achieved two international honors recently; since opening in 1996, the incubator has recorded some pretty impressive numbers.

  • 80 – Number of ITRI incubator graduates in 10 years. This figure includes Phison Electronics Corp., which in 2001 developed the Pen Drive – the world’s first USB flash removable disk.
  • 12 – Number of ITRI-assisted companies that have had initial public offerings within the last three years.
  • $15 million – U.S. dollars invested in 30 incubator clients by the Industrial Technology Investment Corp., an in-house venture capital fund owned by ITRI.
  • $18 million – Profits (in U.S. dollars) resulting from ITIC investments.
  • 2,800 – Number of workers employed by incubator clients since the incubator opened its doors. Most of these employees are researchers and technicians, many of whom hold master’s degrees or higher.
  • 90 percent – Current occupancy rate for the 10-year-old incubator.

ITRI – a nonprofit R&D organization with close ties to the Taiwanese government and local industry – began operations in 1973 with a three-pronged mission: to create innovative technology, develop emerging industry and enhance industrial competitiveness in Taiwan. Throughout its early years, the organization racked up an impressive track record of spinning off high-tech companies, so adding programs to nurture Taiwanese entrepreneurs seemed a logical next step. But the incubator’s story didn’t start out brightly.

A rocky start

In its first two years of operation, the ITRI Incubator Center lost nearly US$1 million, primarily because of a low occupancy rate. Although ITRI was a well-established research and development organization in the region, the business incubation concept was unfamiliar to Taiwanese entrepreneurs.

Determined to continue operations, incubator management decided to leverage the abundant resources – and brand name – of ITRI to better market the incubator and attract more start-up clients. These resources included access to first-class research facilities and lab space, a library, a health clinic, a gym and numerous other amenities. And for those firms that needed funding help, there was the Industrial Technology Investment Corp., an in-house venture capital fund owned by ITRI.

“In the beginning of operation, we only had a huge space with bare necessities of service,” says Michael Lin, manager of the ITRI Incubator Center. “So the management began to integrate ITRI resources into the incubator, to invite service providers into the program and to break through government regulations to reduce clients’ burden.”

The incubator relied on a traditional marketing campaign with radio, magazine and newspaper advertising – coupled with word-of-mouth promotion from incubator clients – to tell other entrepreneurs about the incubation program and the ITRI resources. And the efforts paid off. As more successful – and more satisfied – clients graduated from the incubator, word spread and the program took off. “The brand name of the ITRI Incubator is attracting newcomers and increasing occupancy rates,” says Da-Tung Liang, director of the ITRI Incubator Center.

By its third year of operation, the incubator made a small profit of US$4,000, and by 2004, revenues reached US$1.45 million – US$1.2 million of which came from rent alone. Today, the incubator derives 80 percent of its revenue from rent; the remainder comes from donations, utility charges, and program and service fees. For example, the incubator often helps clients collaborate with one of ITRI’s 13 research laboratories when they run into problems in new product development. Charging a modest fee for this service generates another steady revenue stream, Liang says. ITRI also reserves the right to hold between 5 percent and 10 percent of the equity shares of each incubator client – which could provide additional revenue as clients and graduates achieve more success.

Facilitating business success

The ITRI Incubator Center now operates two distinct programs: an incubation program through which its five full-time staff members and external service providers nurture start-up firms, and a collaboration program through which the incubator helps emerging Taiwanese companies partner with ITRI’s research center for R&D projects.

Through its incubation and collaboration programs, ITRI has helped launch 134 new businesses. Nearly 100 of those firms have joined the incubator; others have participated in its collaboration program. Over the last 10 years, clients of these two programs have created 6,650 jobs and attracted US$1.5 billion in investments.

The key to achieving impressive results lies in selecting the right clients, Liang says. Therefore, all prospective ITRI Incubator Center clients must pass a stringent review process, through which an ITRI senior engineer, a university professor, an experienced management consultant and a venture capitalist examine the firm’s business plan to help the incubator staff determine whether the business would be a good fit for the program.

“They look to see whether a business meets the incubator’s selection criteria, NIII, a New company with Innovative technology that will make a huge Impact on existing industry by joining ITRI’s In-house incubation program,” Liang says.

Once clients are accepted into the program, they receive management advice, technical consulting services and access to the facilities and infrastructure of ITRI. The incubator also hosts an extensive series of free training courses for clients through its Technology Innovation and Entrepreneurship Forum, launched in 2002.

“The program offers courses on a range of topics, often provided by companies prominent in their fields who want to develop connections with young start-ups,” Lin says. Recent courses have included a session on tax issues for small businesses, conducted by accounting firm Diwan, Ernst & Young, and a program offering advice on how to list a company on the stock market, led by Yuanta Core Pacific Securities.

Perhaps most useful to clients, however, are the connections the incubator provides them. When Phison Electronics Corp. moved into the ITRI Incubator Center in 2000, it had no credit and no products. With a guarantee from the incubator, the start-up received a bank loan that allowed it to develop its products at a critical stage, Liang says. Then, the incubator staff introduced Phison officials to representatives of JEFCO, the largest venture capital firm in Japan, which later invested in the company.

“ITRI’s Incubator has acted as a coordinator and accelerator in Phison’s case, by easing their cash flow problems and enabling them to focus on their cutting-edge technology,” Liang says. Today, Phison is the world’s second-largest maker of flash memory controller devices and employs more than 150 people. In 2004 company revenues topped US$120 million.

Taking the lead

When the ITRI Incubator Center opened in 1996, it was the first incubation program in Taiwan. Since then, the high-tech incubator has taken a lead role in developing the country’s incubation industry. “By identifying key incubation processes through interviews with entrepreneurs, the ITRI Incubator has developed knowledge of incubation program management,” Liang says. “It enables ITRI to duplicate [these processes] in incubators around the island.”

ITRI assisted with feasibility studies and setup of two incubators in other regions of the country: Nankang IC Design Incubator in Taipei and Southern Taiwan Innovation & Research Park in Tainan.

Now, ITRI is extending its reach even further through ITRI International, a Silicon Valley, Calif.-based program designed to help North American entrepreneurs market their products and services in the Asia-Pacific region. The Silicon Valley center offers entrepreneurs technical support and trade consulting services.

In an effort to strengthen Taiwan’s competitiveness, ITRI International hopes to forge cooperative relationships with U.S. universities, research organizations and corporations. Current ITRI International partners include Corning, Dow Chemical, Rockwell Scientific, Stanford University, UCLA, University of California-Berkeley and Carnegie Mellon University.

With a successful 10-year track record and two international awards, the ITRI incubator is finding it easier to attract clients and partners. “People believe in us now; they trust us,” Liang says. “When we first started, we were the only incubator in the country, so people didn’t know what to think of us. Now, we’re full and we’re able to choose the best of the best.”

Randall M. Whaley Incubator of the Year

Industrial Technology Research Institute Incubator Center
195 Chung Hsing Road
Section 4 Chu Tung
Hsinchu County, Taiwan 310
www.itri.org.tw/eng/index.jsp

Year Opened: 1996

Size: 156,200 square feet

Focus: Technology

Current Number of Clients: 23

Number of Graduates: 80

Organizational Structure: A component of Industrial Technology Research Institute, a nonprofit R&D institute with close ties to the Taiwanese government and local industry.

Mission: To nurture high-tech start-up companies through ITRI’s resources and to assist traditional industry through ITRI’s R&D capabilities.

Keywords: practices, economic impact of incubation, international incubation, technology incubator

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