Background of the Study
According to the National Business Incubation Association (NBIA´S):
“Business incubation is a business support process that accelerates the successful development of start-up and fledgling companies by providing entrepreneurs with an array of targeted resources and services. These services are usually developed or orchestrated by incubator management and offered both in the business incubator and through its network of contacts” (Nbia.org, 2009a, p. 1)
Business Incubators were formally initiated in 1959 in Batavia, New York with Charles Mancuso Son (Nbia.org, 2009b) and expanded all over the world; though it is a mature initiative already adopted by many countries, some countries just began to implement it in order to help their micro, small and medium sized enterprises (MSMEs) and entrepreneurial businesses to insert in uncertain economies and develop successfully in terms of performance and survival. One of the countries who recently adopted the business incubator initiative is Nicaragua, located in the center of the Central American Isthmus in the American Continent, between the Republic of Honduras and the Republic of Costa Rica.
In Nicaragua, the MSMEs generate 58% of employment in urban areas according to the Urban Economic Board of the Central Bank of Nicaragua (cited in El Observador Economico, 2011). These enterprises produce nearly 300,000 jobs, over 150,000 establishments of which 55% is managed by women. However, according to the Economic Commission for Latin America and the Caribbean (CEPAL), the mortality rate of MSME´s oscillates between 50%
and 70% in the first 3 years of existence (cited in La Prensa, 2012).
In 2010, Nicaragua joined the initiative of Business Incubators as a response to the needs of MSMEs by creating the first incubator in alliance with the International Finance Corporation (IFC) held by the World Bank, managed by the National University of Engineers (UNI) and the Commercial Science University (UCC), and promoted by the Nicaraguan Committee of Science and Technology.
Since then, many other business incubators were formed to enhance the development of MSMEs. These incubators designed support programs that were sponsored by private, public and nonprofit organizations. Some of these initiatives are: Agora partnership, Dynamic Entrepreneurship, Inspire, Modernize, Prameclin, Conimipyme, Prodef and CENAMI-CADIN. These support programs are intended to provide technological, financial, networking and training assistance to new entrepreneurial ideas and MSMEs owners.
For Nicaraguan MSMEs and entrepreneurs are of high importance to count on a supportive organism that helps them to accelerate the successful development of their businesses in terms of product/service innovation, quality of product/service, capacity of response to market demand and formal organization administration. Even though Nicaragua just initiated the project of Business Incubators, there is a considerable number of business support programs planned to make a significant difference to their clients.
Problem Statement
MSMEs represent a fundamental part of countries’ economies, not only in Nicaragua but all over the world. Business incubators allocate valuable sources in promising enterprises in order to accelerate their development, through their process of selection; business incubators assess the MSMEs needs in order to provide the accurate assistance. This system allows business incubators to almost guarantee the successful development of their client but it is still very important to explore the impact of service offerings of business incubators on
MSMEs performance in order to determine which aspect of performance is more likely affected by the different types of assistance they provide.
Rationale of the Study
The fundamental reason of this research based on the newly initiative Nicaragua is taken regarding Business Incubators. Although Business Incubators have proved to be a helpful source to develop entrepreneurial ideas and micro, small and medium sized enterprises in other countries such as Spain and the United Kingdom (Hannon & Chaplin, 2003; Peña, 2004), it is important to assess the impact on the performance of Nicaraguan MSMEs.
From 2010 to the present time, Business Incubators have designed different business service offerings that adjust to the specific needs the MSMEs may have. Because Business Incubators is at its early stage in Nicaragua, not many studies have been done regarding this topic, nevertheless; the opportunity to explore MSMEs development from the service offerings impact of business incubators is very valuable for both parties, MSMEs and Business Incubators.
Research Questions
The role of Business Incubators is of primary importance in the achievement of MSMEs survival and competent performance in local and international markets; therefore, the following questions were developed in order to assess the relation of MSMEs performance with the service offerings of Business Incubators:
What is the impact of Business Incubators service offerings on MSMEs performance?
• Which aspect of performance is more likely affected if the Business Incubator provides technology assistance?
• Which aspect of performance is more likely affected if the Business Incubator provides financial assistance?
• Which aspect of performance is more likely affected if the Business Incubator provides networking assistance?
• Which aspect of performance is more likely affected if the Business Incubator provides training assistance?
Purpose of the Study
This exploratory study aimed to determine the impact of service offerings of Business Incubators on MSMEs performance in Nicaragua. The indicators of performance considered were: product/service innovation, quality of the product/service, capacity to respond to the market demand and formal organization administration. These factors were studied from the influence of service offerings such as training, technology, finance and networking assistance that business incubators offered to the development of MSMEs in Nicaragua.
Scope of the Study
Because the business incubator is a recent initiative in Nicaragua, it still has a long path to go in order to provide the complete package of services business incubators are intended to give. For this reason, the research was delimited only to the clients of business incubators that receive technological, financial, training and networking assistance separately or partially together, approximately 100 clients.
Contribution of the Study
This research meant to contribute with business incubators in Nicaragua by determining the impact of their service offerings in the performance of their clients.
Furthermore it will serve as reference for those incubators that did not participate in this
research and for future researchers that would want to study the situation of MSMEs as part of business incubators programs in Nicaragua.
By understanding which aspect of performance is more likely affected by the different service offering of Business Incubators, the programs they offer will be more effective. Those MSMEs that have a need to improve their performance in terms of innovation for example, will be adopted by the incubator that provides the assistance that will be more likely to make that happen and so on.
Definition of Terms Business Incubators
According to the National Business Incubation Association (NBIA), Business Incubators are programs that encourage and accelerate entrepreneurs and MSMEs success by providing resources and services that facilitate them to grow and establish in the market. Incubators also intend to revitalize economies by graduating MSMEs with potential to contribute to job creation, local and national financial system, and innovation among others. Incubators are characterized according to the type of service they offer, the target they serve and the structure of their organization. Among the services they offer, there is management guidance or managerial training, technology assistance, networks sharing and support in getting financial funds (Nbia.org, 2009a).
Micro, Small and medium sized enterprises (MSMEs)
According to the Ministry of Promotion, Industry and Commerce (MIFIC) in Nicaragua (law 645, article 4 and decree 17-2008, article 3); all those enterprises that have 1-5 employees will be considered micro, all those enterprises that have 6-30 employees will be
considered small business and those that have 31-100 employees will be considered medium size enterprises.
Business Incubator Service Offerings
For the development of this research, we will consider service offerings those services or assistance that business incubator provides to MSMEs in terms of technology, finance, networking and training as they are the most common ones provided by incubators in Nicaragua.
MSMEs Performance Indicators
For the purpose of this research, the micro, small and medium sized enterprises performance will be measure in terms of the following indicators: product/service innovation, quality of product/service, capacity of response to the market and formal organizational administration. According to Kueng (2000), “a process can be seen as a system or a subsystem consisting of interrelated components that have a common purpose and share a set of goals” (p. 70). This research is looking at a more process oriented approach because in today´s globalized world, the only way businesses and especially small and medium sized businesses can survive and be competitive is by focusing on innovation and quality of the product/service. The capacity to approach unexplored and unexploited markets niches is what will give these MSMEs competitive advantage over other MSMEs. The role of managers is crucial as they represent the leading force that will conduct the business to success. Managers should be competent enough in terms of administration of their business so that they have the tools and instruments for decision making and risk control (Kueng, 2000). The International Organization for Standardization (ISO) defines a process as a “set of interrelated resources (e.g. personnel, finance, IT facilities, equipment, and methods) and activities (working steps) which transform inputs into outputs” (ISO, 1994, p. 2).