Business Incubation and Economic Developnlent. A Study in Saudi Arabia

415 Pages·2011·17.95 MB·English

Business Incubation and Economic Developnlent.
A Study in Saudi Arabia
Submitted by: Abdulatif M. Alsheikh
Supervisor: Professor David A. Kirby
Universit}, of Surrey
School of Management
2009
Acknowledgment
I would like to thank "God" jinit of all/or helping me in cOlllpleting this work hecall,\'e
these past several years have not heen an emy ride, hoth acadel1lical~l' alld per,wJ/lal~l', I
also would like to expre,\',li Ill)' gratitude to Illy parents, Ill)' 1I'~1(' wlto gal'L' lIle tlte great
support during Illy stlll~l'. I will forever be t/ulIlkfitl to HRH, Sultan hin Abdllla:.iz the
crown prince Saudi Arahia who this work would not have seen the light lviI/lOut his
(~r
encouragement.
I alll deep(r indehted to Ill)' supervisor Prof David Kirhy, whose help, suggestions and
encouragement helped me ill all the time of this research.
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ABSTRACT
Business incubators have proved to be effective tools for tackling unemployment.
diversifying economies and creating wealth in numerous developed countries. By providing
timely help and support to new ventures, business incubators hold the potential to create and
develop entrepreneurial talent at the micro level and foster an environment for
entrepreneurship at the macro level. Business incubation programmes represent a popular
approach that many countries have used to assist new business start-ups. Saudi Arabia has
struggled with unfavourable demographic tendencies with a dynamic population growth and
registers a high level of unemployment, notably among students (33% of graduates) and low
skilled manpower. Also, the local economy, that has long been dependent upon the traditional
"transformation industries" needs to be diversified and modernised in order to face the ever
growing fierce international and regional competition. Small and Medium Enterprises (SMEs)
constitute the majority of the Saudi business (in terms of the number of firms), yet a minority
in terms of revenue. SMEs and enterprising university graduates are believed to be the motors
of developing economies. A business incubation programme in theory is fit in dealing with
obstacles facing SMEs and young entrepreneurs.
The research attempts to determine whether the economic conditions for business
incubation in the Kingdom of Saudi Arabia are favourable to a programme of business
incubation, and to suggest directions on the best ways to implement business incubation in the
Kingdom. To meet this objective the study undertook a three -stage approach whereby each
stage contributes to the next. The first stage was two focus groups interviews with Saudi
experts, the second a series of three questionnaire surveys and the third was a case study of
the first Saudi business incubator.
The findings of the research indicate a relatively low level of practical business skills
and business experience exhibited by Saudi graduates and the weak relationship between
academia and the private sector. The links between education and business were also shown
to be lacking. From the results it would seem that, any Saudi incubator programme would
need to take into account these deficiencies. Poor links between academia and business
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deprives business of the expertise and research knowledge. Furthermore, the findings showed
the lack of primary tools that could enable small and medium enterprises (SMEs) to grow and
develop. These include lack of funds and credit options, and poor networking. Thus.
incubators could have the potential to provide an improvement to the Saudi SMEs. The
research shows that numerous business incubation criteria are met in Saudi Arabia and that
the Jeddah Business Incubator has been a success. However, important shortfalls are
identified, e.g. the unsatisfactory university-business cooperation, deficiencies in the
curriculum and the lack of knowledge of the support for SMEs that could be obtained in
Saudi Arabia. Most of the findings of this study are consistent with the previous body of
research in this subject. Based on the study results, it is proposed that; more effort should be
exerted on softer services such as networking; academics business links (closer interactions
between academic research and industry) relative to the provision of physical space and hard
infrastructure. In addition, there should be a clear focus on economic and business
development goals, continuing relationships with external funding agencies will also be
required. Incubators will need to be a source of direct funding for tenants firms. Furthermore,
the business incubator has to market itself, and has to use the media in order to create an
attractive images of it self.
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Contents
Page
AKNOWLEGMENT ................................................................................................ 2
ABSTRACT ............................................................................................................................................ 3
CHAPTER 1: INTRODUCTION ........................................................................................................ 16
Background .......................................................................................................................................... 19
Research Goals and Methodology: ....................................................................................................... 20
Structure of the Thesis .......................................................................................................................... 21
CHAPTER 2 -LITERATURE REVIEW ............................................................................................. 23
2.1 INTRODUCTION .......................................................................................................................... 23
2.2 Descriptive Research ...................................................................................................................... 27
2.2.1 Historical Development ............................................................................................................... 27
2.2.2 Definitions ................................................................................................................................... 28
2.2.3 Incubator Services ....................................................................................................................... 29
A ) Enterprise Development ................................................................................................................. 29
B) Consultancy Network ..................................................................................................................... 30
C) Entrepreneurial Synergy ................................................................................................................. 33
D) Flexible Space ................................................................................................................................ 33
E) Shared Services ............................................................................................................................... 35
2.2.4 Types of Incubator ...................................................................................................................... 37
2.2.4.1 Identifying Key Features of Different Types oflncubators ..................................................... 43
2.2.4.2 University Incubators ............................................................................................................... 44
2.2.5 The Incubator Life-Cycle ............................................................................................................ 46
2.3 Prescriptive Research ..................................................................................................................... 48
2.3.1 Role oflncubators in Economic Development.. .......................................................................... 48
2.3.2 Identifying Features of Successful Incubation Programmes ....................................................... 52
2.3.2.1 Internal Features: ...................................................................................................................... 53
A) An Experienced and Good Management Team .............................................................................. 53
B) Entrance and Exit Policies ............................................................................................................... 54
C) Linkage and Networking ................................................................................................................. 56
D) Access to Funding ........................................................................................................................... 57
E) Commercialisation and Marketing .................................................................................................. 58
F) Location and Goals .......................................................................................................................... 59
G) Intellectual Property Rights ............................................................................................................. 60
2.3.2.2 External Features: ..................................................................................................................... 60
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a) Entrepreneurship, a Culture of Enterprise and Firm Creation .......................................................... 61
b) Education for Entrepreneurship .............................................. , ........................................................ 62
c) Academia and Entrepreneurship Education ..................................................................................... 66
d) Culture of Enterprise ........................................................................................................................ 68
e) Enterprise-Focused Curriculum and Educational Experiences ........................................................ 69
t) Business and Education Linkages .................................................................................................... 72
g) Undergraduate Internships ............................................................................................................... 73
h) Conducive Policy Environment for Employment Creation ............................................................. 75
i) Business Academic Links ......................................................................... '" ..................................... 78
j) Commercialisation of University-Driven Research .......................................................................... 82
k) Government Policy Favourable to Business Development.. ............................................................ 85
2.4 Evaluative Literature ...................................................................................................................... 87
2.4.1 Metrics and 'Benchmarking' ....................................................................................................... 87
2.4.2 Establishing the Metrics for Incubation Programmes ................................................................. 87
2.4.3 Benchmarking University Incubators .......................................................................................... 92
2.4.4 Benchmarking non-Profit Incubators .......................................................................................... 93
2.4.5 Conditions for Success: Case Studies .......................................................................................... 95
2.4.5.1 National Case Study: United States .......................................................................................... 95
Background .......................................................................................................................................... 95
Support Structure and Government Involvement ............... '" ............................... ,. ... ... ... 97
Type and Location ................................................................................................................................ 98
Services ................................................................................................................................................ 98
Problems ............................................................................................................................................... 99
2.4.5.2 National Case Study: China ..................................................................................................... 99
Background .......................................................................................................................................... 99
Support Structure and Government Involvement ...................... ... ... ............. ... ....... ....................... .... ............ ................ ) 00
Types and Services ............................................................................................................................. 101
Conclusions ........................................................................................................................................ 103
CHAPTER 3 - RESEARCH GOALS AND METHODOLOGY ...................................................... 107
3.1 Introduction .................................................................................................................................. 107
3.2 Justification .................................................................................................................................. 108
3.3 Strategy of inquiry and analysis ................................................................................................... 109
3.4 Sources of data ............................................................................................................................. 110
3.4.1 Primary Data ............................................................................................................................. 110
3.4.2 Secondary Data ......................................................................................................................... 111
3.4.3 The application of primary and secondary data in the research ................................................ 111
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3.5 Research Methods ........................................................................................................................ I l--l
3.6 The Research Design: A Step-Wise Approach ............................................................................. 114
Step One: Qualitative Data: Focus Groups ........................................................................................ 117
S . f d .,
tep two: quantIta Ive ata: questIonnaIre surveys ............................................................................. 122
SMEs: Telephone Surveys ................................................................................................................. 122
Universities: Face-To-Face Surveys .................................................................................................. 124
Step Three: Case study: The Jeddah Incubator. Survey and Extended Interviews ............................. 125
3.7 Data Analysis ............................................................................................................................... 126
3.7.1 Ethics and Transcription ............................................................................................................ 126
3.7.2 Justification ofthe Research Design ......................................................................................... 127
CHAPTER 4 - THE SAUDI CONTEXT ........................................................................................... 128
4.1 Introduction .................................................................................................................................. 128
4.2 The Structure of the Saudi Economy ............................................................................................ 129
4.2.1 Economic Priorities ................................................................................................................... 129
4.2.2 Economic Growth ............................... '" ................................................................................... 130
4.2.3 Globalisation ............................................................................................................................. 131
4.2.3 Saudi Indicators ......................................................................................................................... 132
4.2.4 Population and Employment Pressures ..................................................................................... 133
4.2.4 Regional Development and Urbanisation .................................................................................. 135
4.2.5 Economic Policy Priorities ........................................................................................................ 135
4.3 Education and Business in Saudi Arabia ...................................................................................... 137
4.3.1 Public Policy ............................................................................................................................. 137
4.3.2 Universities and Business Incubation: Conditions .................................................................... 138
4.4 Student Skills and Competencies ................................................................................................. 139
4.4.1 Graduate Skills .......................................................................................................................... 139
4.4.2 Education and Employment ...................................................................................................... 141
4.5 Non-Native Labor, 'Saudisation' and 'Insourcing' ........................................................................ 142
The Labor Market .............................................................................................................................. 144
4.6 The Role of Saudi SMEs .............................................................................................................. 149
4.6.1 Background ............................................................................................................................... 149
4.6.2 The Expected Role of SMES in National Economic Development .......................................... 151
4.6.3 The Scope and Scale of Saudi SMES ........................................................................................ 152
4.7 Problems Facing Saudi SMEs ...................................................................................................... 154
4.S SMEs Support .............................................................................................................................. ISS
4.S.1 Government and Public Support ............................................................................................... ISS
The Sixth Development Plan (199S - 2000) ...................................................................................... ISS
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The Seventh Development Plan (2000 - 2005) .................................................................................. 159
The Eighth Development Plan (2005 - 2010) .................................................................................... 159
4.8.2 Chambers of Commerce and SME Support Units ..................................................................... 160
4.8.3 Private Support .......................................................................................................................... 163
4.9 The Development Of Business Incubators In Saudi Arabia ....................................................... 164
4.9.1 The Usefulness of Business Incubators in Saudi Arabia ........................................................... 164
4.9.2 Known conditions for and against incubator success in Saudi Arabia ...................................... 167
a) Known reasons for success ............................................................................................................ 167
b) Known reasons against success ...................................................................................................... 168
4.10 Alternative Options: (University Incubators) ............................................................................. 170
4.11 DISCUSSION ............................................................................................................................ 171
Chapter 5: EMPIRICAL RESULTS .................................................................................................. 173
5.1 Focus Group ................................................................................................................................. 173
Focus Group Results .......................................................................................................................... 174
A) Role of Ministry of Commerce and Industry in Supporting and Encouraging SMEs and the
Degree of Co-Ordination Between SMEs Support Orgnisations ...................................................... 174
B) The perceived problems currently facing Saudi SMES .............. ....... ......................... ...... ............ 177
C) Suggested Initiatives and remedy measures ......................................... ,. .... ...... ............ ........ ........ 179
D) Role ofBI (The specific macro economic Idevelopment role envisaged for incubators) ............ 182
E) The current level of support for incubators and the obstacles they could face .......... ...... ... .......... 184
F) Success factors for business incubators............................................... ................... ...................... 184
5.2 Survey Data ................................................................................................................................. 185
5.2.1 Education and its Relationship with Business in Saudi Arabia ................................................ 185
A) Attitudes Towards business ....................................................................................................... '" 185
B) Graduate Unemployment ................................................ ........ ..................................................... 190
C) Student Skills and Competencies ............. ............. .......... ...... ................ ............................. .......... 192
Graduate Skills.... ..... ...... ........ ............. ............. ...... ......... .............. ........ ............ ................................ 192
Business planning. .............. ....... ...................................... ........................ ............................. ............. 193
D) Business and University Links ..................................................................................................... 200
Student Links ................. ........... ....... ........ ........................... ...... ............ .................... ............. ........... 200
E) Academic Links and Research.............. ....................................... ............ ............ ................. ....... 204
F) Attitudes towards SMES ............................................................................................................... 210
G) Attitudes towards business development ..................................................................................... 213
H) Policy contributions ................. ...... ...... .............................................................. .......................... 214
Education and Business: Discussion ........ ....... .................. ............................. ......... .................... ...... 216
5.2.2 The SME Environment. ............................................................................................................ 221
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A) Industry Type and Structure ......................................................................................................... 222
B) Employees .................................................................................................................................... 224
C) Markets .......................................................................................................................................... 225
D) Business facilities ......................................................................................................................... 226
E) Business Planning ......................................................................................................................... 227
F) Start-up funding ................................................................................... '" ...................................... 228
G) Public funding ......................................................................................................... '" .................. 232
H) Loans................................ ................................................................. ........................... ... ............. 234
I) Chambers of Commerce ................................................................................................................ 237
J) Collaborations and partnerships .................................................................................................... 240
SME environment: discussion ............................................ '" ......................... '" ................................ 25 J
Business Incubation .......................................................................................................................... 255
A) Knowledge and Understanding .................................................................................................... 256
B) Attitudes ....................................................................................................................................... 260
University incubation ........................................................................................................................ 26 J
C) Expectations ................................................................................................................................. 264
Discussion: Knowledge and expectations of Business Incubation .................................................... 267
CHAPETR 6: CASE STUDY (JBI) .................................................................................................. 269
6.1 Introduction ................................................................................................................................. 269
6.2 Incubator Characteristics ............................................................................................................. 269
A) Location and Size ........................................................................................................................ 269
B) Incubator Funding Sources ........................................................................................................... 270
C) Incubator Goals ............................................................................................................................ 271
D) Management and staff. ................................................................................................................. 273
E) Incubator Type ............................................................................................................................. 275
F) Current tenants .............................................................................................................................. 276
G) Incubator Application and Admission .......................................................................................... 278
H) Tenancy and Graduation Criteria ................................................................................................. 281
I) Facilities ........................................................................................................................................ 284
J) Funding........................ ........ .... ........................... ..................... ........... ............... .................... ....... 285
K) Training and technical assistance ................................................................................................. 291
L) Business Collaboration ................................................................................................................. 295
M) Future Developments ................. ........ ................... .......... ............................ ................................ 296
CHAPTER 7 - CONCLUSIONS AND RECOMMENDATIONS ................................................... 298
7. I-Introduction ................................................................................................... 298
7.2- Potential for Success oflncubation in the Kingdom (Focus Group) .......................................... 299
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7.3-t ducatl·on and Busl'lless ............................................................................................ 300
..................
7. 4-The SMEs Environment ............................................................................................................. 305
7.5- Knowledge and Expectations for Business Incubation in Saudi Arabia .............................................. 307
7. 6-The leddah Incubator (Case Study) ........................................................................................... 309
7.7 -Overall Conclusion and Recommendations: ............................................................................... 316
7.8-Implications of Findings ............................................................................................................. 322
7.8.1 Theoretical Implications ........................................................................................................... 322
7.8.2- Practical Implications .............................................................................................................. 324
7.9-Contribution ................................................................................................................................ 325
7.10-Limitations ................................................................................................................................ 326
7.11-Future Research ........................................................................................................................ 327
APPENDIX (A) ................................................................................................................................ 330
APPENDIX (8) ................................................................................................................................. 334
APPENDIX (C) .................................................................................................................................. 338
APPENDIX (D) ................................................................................................................................ 3-L~
APPENDIX (E) ................................................................................................................................. 3..+9
APPENDIX (G) ................................................................................................................................ 362
APPENDIX (1) .................................................................................................................................. 366
APPENDIX (K) ................................................................................................................................ 370
REFERENCES .................................................................................................................................. 396
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