An analysis of the impact of business incubation on small medium and micro enterprises : an international perspective

Abstract

Following the acceptance of the incubation model in many countries, South Africa has also embraced this form of business incubation. Currently, there are 23 business and technology incubators incorporated under the Small Enterprise Development Agency (SEDA). The intent of the South African government is to enhance the capacity of small enterprises in accordance with the demands facing a modernising and global economy by addressing the outdated technologies employed by many SMMEs, the poor technology support given to SMMEs, the low entry rates of SMMEs into the economy, the high failure rate of start-ups, the poor access to facilities for testing and the promotion of SMME's innovator ideas. The incubation concept is important to the DTI because it is in line with the DTl's mandate and vision which is encapsulated in the National Industrial Policy of South Africa, namely that of "Growth, Equity and Employment". This study reviews lessons learnt from international business incubation professionals and the performances of South African business incubators under the SEDA, specifically the SEDA Technology Programme. The evaluation focuses on impacts in relation to business incubators' contribution to business survival, job creation and revenue generation. A literature review was conducted with the aim of uncovering the process of business incubation as a support model and its impact in internationally and in South Africa. Following the review, a survey was conducted for the purpose of evaluating incubation impacts both internationally and in South Africa. Greater emphasis was placed on South African incubation managers and incubator clients/graduates. The survey consists of three sets of questionnaires. The first was for international business incubation professionals, the second was for South African incubation managers and the third was for South African current incubator clients and graduates. The questionnaire was followed by semi-structured and unstructured interviews with incubation professionals as well as observation of incubation centres and tenant projects both internationally and in South Africa.

Descriptive statistics were used to answer research questions. A t-test was employed for hypothesis testing; that is, testing whether there is a significant difference between the two related samples of job creation and annual revenue before and after joining incubation centres or not. Correlation analysis was also applied to identify any relationships among variables. Content analysis was used to give a thematic summary of the respondents' views. Key findings indicate that 85% of international and 100% of South African respondents agreed that business incubation is a better support model compared to other government support services and schemes. The findings also indicate that the number of clients being served by incubation centres is increasing in South Africa. The rate of graduation is very slow compared to the number of clients available in the country but with a growth trend. From a total of 579 clients admitted from 2001 to 2009, only 128 have graduated. The majority (73 .3%)' of South African incubator client/graduate respondents in this study are currently resident and non-resident clients. The remaining (18.1 %) are anchor tenants and graduates. With regard to business survival, job creation and annual revenues, the results show that 60% of respondents survived for less than two years and the other 40% survived for two and more years. This is relatively low as compared to international business survival rates achieved through business incubation. The number of jobs created has increased by 62% after SMMEs joined incubation centres. Total annual revenues of clients/graduates have also increased from R6, 735,799 to R18, 687,000 after joining incubation centres. This difference shows a statistically significant difference according to the t-test applied for the two hypotheses on job creation and total annual revenue. According to the t-test, the null hypothesis is rejected for both hypotheses. Finally conclusions and recommendations have been given based on the literature review and survey.