Literature Review
2.3 The Role of Government in Business Incubators
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indirect employment after leaving BIs. Their incomes and assets in turn contribute to
economic growth.
Moreover, the Silicon Valley in the U.S., Tel Aviv in Israel, and Zhongguancun
in China are surrounded by universities, S&T and innovation parks as they encourage
their partnerships with graduates to start new businesses with innovative ideas (Ogutu
& Kihonge, 2015; Liefner et al, 2006). It is clearly that any forms/models of BIs have
capacity to stir development in the surrounding neighborhood.
2.3 The Role of Government in Business Incubators
In terms of government aspect, Lalkaka (1996) pointed out that the success of the
BIs is not only in the strength of the technopreneur, but also in the state policies. Both
of them stimulate innovation and contribute to the BIs' performance. The boom of BIs
is also fueled by Chinese government support. The central and local governments have
taken unprecedented steps to develop incubating system. The government put resources
in place to encourage their young generations enter into this new startup system. When
the Chinese government wants something, it seems to always happen. This might be
one of the reasons for this massive growth of the startups scene across China. The
government’s roles include supporting BIs in the initial stage, providing supportive
policy and sound infrastructure, and offering financial support.
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Supporting Business Incubators in the Initial Stage. In view of the structural
barriers in the environment to the creation of private sector, coupled with the need to
have effective transition to the market system, the Chinese government uses BIs as
policy tools of market creation by offering financial support for construction and
operations (Chandra, 2007).
Lalkaka (2000) argued that the government, universities or other sponsors should
support BIs at its very early stage, in the form of a low (or no) rent vacant building and
operating subsidies, until rents and fees from incubatees grow to match operating
expenses. The support providers can see this an investment in the social infrastructure
while also obtaining tax income, foreign investment, culture change and other benefit.
BIs will need strong government support in the initial years, and the private
associations, such as entrepreneurial and commercial institution could be brought in as
partners from the start. All the available networks could play an overall role in
promoting BIs concept and mobilizing wide support. In fact, BIs will have a better
chance of sustainability if getting the political support of government agencies as well
as financial and substantive involvement of local sponsors and the state, particularly at
the initial startups stage (Lalkaka, 2000).
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Supportive Policy and Sound Infrastructure Provider. BIs are one of the strong
sources of creating SMEs. The survival of SME’s is seen as an important component
of economic growth and development especially among developing countries.
Ayyagari et al. (2007) showed that governments support enterprise development by
providing a suitable business environment for creation, growth and proliferation of
SME's rip high dividends in terms of increased job creation especially for the youth
entrepreneurship, economic growth and poverty reduction.
Lalkaka (2000) argued that the supportive state policies and sound technical
infrastructure are the prime responsibilities of governments, such as a good financial
system. A sound environment could greatly support BIs facilities and services that
could tailor to their special needs when the technology-oriented businesses encounter
difficulties from technical, financial, personnel or other resources.
Ogutu & Kihonge (2015) discussed economic growth in some countries like Brazil,
Israel, South Korea and Spain. The key factors in the rapid economic growth is clearly
an enabling operating environment, entrepreneurship support policies, government
support to technology diffusion, market access and business support services, such as
BIs and startups centers. Business environment in Germany is closely related to
composition of startups entrepreneurs. It showed that enterprises in Germany are
supported by an integrated business support ecosystem that involves universities,
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national and local government, sources of funding and existence of technology, startup
centers and incubators devolved all over Germany.
Financial Supporter. In addition to providing a sound infrastructure, supporting
the initial funding is essential for incubators successfully starting its businesses.
Lalkaka (2000) indicated that for the financial structure of a for-profit incubator in the
U.S. state and city governments has an important role in the capital investment. In the
initial support and prudent management, several states of the U.S. brought annual profit
to its owners which is ploughed back in to expansion and improvement of facilities.
Those state and city governments also benefited by the creation of local jobs, tax
collection and an entrepreneurial culture in the community.
In China, the government plays a predominant role in BIs funding, supporting and
operation. The Chinese government impacts BIs including model, organization,
funding and strategy (Scaramuzzi, 2002; 顾军, 2005; 王咏, 2016). The differences of
the development and distribution decided the level of development in eastern, central
and western China (李具恆 & 張美玲, 2009). Chinese government is not only
managing the majority of BIs but is the main financial provider. Funding is one of the
essential elements for Chinese BIs sustainability. The government involvement could
sustain BIs operation, it causes the lack of BIs' own profitability as BIs heavily rely on
the government's financial support and management (顾军, 2005).
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In the U.S., the government is also one of the main financial supporter in BIs
industry, the other sponsors are universities and corporates along with rental and
consulting income. The government funding sources includes the State economic
development agencies, capital funds from the State’s legislative allocation, and State's
competitive and matching grants (Knopp, 2007).
BIs in the U.S. have several types of formal and informal financial supports. The
formal sources are mainly from public support including capital funds from the State’s
legislative allocation for BIs infrastructure, competitive grants from the State to select
BIs, matching grants for service support for new ventures and funds that were
channeled through the State Economic Development Agency. The informal support
included tax incentives in BIs, private partnership funding for BIs operational funds etc.
(Chandra & Fealey, 2009).
Concluding Remarks. As the concept of BIs are a relatively new, popular and the
phenomenon mixed different background and environment, many scholars discussing
and arguing over the roles, factors and evaluation underlying its accomplishment. It
could be observed that many studies have discussed the roles of BIs and the roles of
governments in economic and social development. However, few of them investigated
the role of Chinese BIs in specific case study, and the role of Chinese government in
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leading the emergence of the development of Chinese BIs, partly due to the lack of
relevant materials. In light of this, this research is thus aiming to provide more insight
about the connection of BIs, economic development and the role of Chinese
government by examining representative cases and policies analysis.