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Entrepreneurship networks and high technology firms: the case of Aragon
~ Pergamon
Technovation, 18(5) (1998) 335-345 © 1998 Elsevier Science Ltd. All rights reserved
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Entrepreneurship networks and high technology firms: the case of Aragon Angel Martinez Sanchez* and Olga Urbina Perez University of Zaragoza, Centro Politecnico Superior de Ingenieros, Departamento de Economia y Direccion de Empresas, Maria de Luna 3, Zaragoza 50015, Spain
Abstract
This paper contains data from a survey given to 50 'high tech' entrepreneurs and their companies in Aragon, a region in northeast Spain. The characteristic entrepreneur has a self-employed father, a Master's degreee, and is in hislher mid-30s at the time founding the company, with nine years of work experience before founding. The number of co-founders, work development experience and a need for achievement are factors influencing the company's success. The paper also describes the regional entrepreneurship network. © 1998 Elsevier Science Ltd. All rights reserved
l INTRODUCTION There is growing recognition among European policy-makers that regions can no longer compete simply by offering a crude combination of semiskilled labour, on the one hand, and financial incentives for inward investment on the other: Today, all the most dynamic regions in Europe are of the view that to accelerate the development and utilization of technological advantages, a community needs to create, attract, develop and retain a self-sustaining critical mass of fast-growing ventures based on diversified technologies, serving a broad spectrum of regional and broader markets. To achieve this goal, a community should first plan and then build a local infrastructure for technological entrepreneurship that will help to integrate synergistically the full range of economic development initiat-
*To whom correspondence should be addressed.
ives, incentives, and programmes available from the public sector (local, state and national government, public universities, national laboratories) and the private sector (industry, business and academe). Thus, rather than attempting a purely 'top-down' strategy design, an entrepreneurship network should focus on a 'bottom-up' approach in order to integrate business needs and enhance existing support institutions. This paper studies the entrepreneurship network of Aragon, a region in northeast Spain. Using data from a survey of high tech entrepreneurs and companies, the paper describes the characteristics of the high tech entrepreneurs, the development process of the high tech companies, and the support that high tech entrepreneurs and companies receive throughout the entrepreneurship network developed in the region.
2. INNOVATION NETWORKS AS AKEY TO ENTREPRENEURSHIP In the past it was thought that decisions about innovation had to be made by the central government. The
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'technopole' idea, once the leading innovation concept, was a good example of this, but this is no longer leading the field. In its place is an emergent set of developmental practices which are commonly described as 'networking' or 'the network paradigm' (Cooke and Morgan, 1991). Table I shows the key elements of networking. Intraregional networking must be activated across a range of firms, private and public institutions and existing programmes to make an impact upon innovative activity. While implanting wholly new innovation activities is extraordinarily difficult, developing them out of existing sectoral competences is less so. A good example of this can be found in the German steel industry, where Ruhr-based firms spawned large numbers of innovation activities themselves, and in their suppliers, as they diversified into innovative technologies after the 1980s steel crisis. Regional technology policies in the most dynamic regions of Europe involve, first, the creation of an innovation network (or enhancement if it exists) composed of agencies, firms, research centres, etc. Second, it implies undertaking a review or audit of existing research competence and capability in relation to regional economic structure, skills, and global emergent technology trends. The third element concerns developing actions with associated monitoring and evaluation instruments. Finally, there are the implementing actions, as appropiate to different regional settings. What benefits do firms receive from an innovation networking? First, technical resources: many firms need basic testing equipment, measurement, calculation and problem-solving support since these are usually too expensive to have in-house. A second benefit is expert technological advice on the use of sophisticated technologies such as new telecommunication networks. Third, there are benefits to be derived from information services on, for example, patents, exploitable technologies, technical partners, and possible joint venture partners. Fourth, gateway services that enable small firms to be brought into partnership with leading edge firms and research instiTABLE I.
tutes. Finally, network services which encourage small firms to form groups and alliances so they may afford services together which they would be unable to individually. However, not every firm is willing to join in an innovation network. There are reasons that discourage many firms to do so. First, firms are protective of their know-how because this is the source of their competitive advantage. Second, firms are fearful of divulging pricing information which can easily be undercut by a competitor in the know. Finally, firms, especially small firms, cannot map advantage without the existence of a public support infrastructure, at least in the short term. This is because of market failure, particularly pronounced in the innovation field with its lengthy lead times and variable rate of return on investment. There are a number of key conditions that have to be present to mobilize the necessary parts of an innovation network (Cooke, 1996): (1) identification: it is vital that the base upon which
an innovation network is to be constructed has a high degree of self-identification, political coherence, policy commitment and capacity to deliver; (2) intelligence: this means that innovation networks have to provide quality information, capacity to self-monitor and evaluate, and learning capacities; (3) institutions: key institutions are, for example, strong chambers of commerce, business associations, innovation centres, training agencies, development agencies, higher education institutions and firms themselves. The denser the mass of institutions, the greater the likelihood that business will gain access to the intelligence for innovation; and (4) integration: the key to a successful innovation architecture is that these institutions must organize a division of responsibilities between each other so that a firm or customer approaching any point on the network can be successfully and accurately relayed to the optimum information point on (or beyond) the regional network.
Key elements of networking
Reciprocity Trust Learning Partnership Decentralism Source: Cooke, 1996.
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A willingness to exchange information. know-how, proprietary knowledge and goods A willingness to risk placing faith in the reliability of others A recognition that knowledge develops and best practice should be learned A preparedness to solidify reciprocal relationsbips preferentially A realization that centralized information and decision-processing is inefficient
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3. HIGH TECHNOLOGY, TECHNOLOGY POLICY AND ENTREPRENEURSHIP The growth and development of high tech regions is determined by interrelated production networks of large and small enterprises, by endowments of production factors such as qualified labour and risk capital, by the demand for new knowledge-intensive products, by implicit and explicit technology policies, and by entrepreneurial strategies and competition (see Table 2). Policy oriented toward promoting R&D-intensive firms in peripheral and lagging regions has not been very successful. This is to be expected since R&D is only one of the factors affecting the development of a high tech region. If other factors are missing, then we might not expect that government R&D expenditures will be sufficient to promote industrial development (Feldman, 1994). Following Gordon (1991), publicly influenced high tech regions can be divided into three types. First are state-led high tech regions that are the results of explicit technology policy with intended regional goals. This propagates technology-based growth poles such as the Technopolis in Japan, or in the form of a linkage of high technology and existing industrial potential. The second type is a state-facilitated high technology complex which endeavours to utilize the comparative advantages of their specific area on an international scale, while receiving subsidies from the central and regional governments. The Scottish high tech region 'Silicon Glen' is the best known example of this type of influence (Sutherland, 1993). The third type are state-dependent high tech regions where the political influence is indirect rather than direct. This
Entrepreneurship networks and high technology finns
kind of influence results from massive government investments and R&D expenditure especially in the military field; it does not, however, intentionally pursue regional goals (Sternberg, 1996). Government R&D expenditures play an important role, especially in the early stage of technology-oriented growth. There is a fundamental correlation between the age of the region-the time elapsed since high tech industry became established-and the impact of state policies. In relatively young regions, such as the Silicon Valley in the late 1950s and the 1960s, the Research Triangle (USA) in the 1970s or Kyushu (Japan) in the 1990s, policies have a greater impact. In more established high tech regions, by contrast, commercial markets gain importance and the significance of government R&D is reduced. Apart from R&D government support, there are other key necessary elements to facilitate the creation and development of successful technological enterprises. Certain of these key elements will already be in place to a greater or lesser degree in any area. Other elements will, of course, be lacking, particularly in less industrialized regions. To achieve successful regional development throughout entrepreneurship, it is necessary that all these key elements co-exist. Key elements are (Abetti, 1992): (1) sources of technical expertise and potential tech-
(2) (3) (4)
TABLE 2.
Selected determinants of the genesis and growth of high tech
regions
Research and educational infrastructure (and. therefore, availability of qualified labour) Entrepreneurial spirit and technology-based spinoffs Innovation Centres, science parks Government policies Government R&D expenditure Technology policy of the region Private demand for technology-intensive new products Public demand for technology-intensive new products Amenities (environment, culture, living conditions, etc.) Availability of large enterprises and their attitude toward small and young technology-oriented firms lntraregional production networks Location of major inventions
Availability of venture capital Role of key persons Decentralization processes in large agglomerations Source: Sternberg, 1996.
(5)
nological entrepreneurs, e.g. technical universities and R&D institutes; availability of business entrepreneurs and managers as well as skilled factory and office workers; grounds and buildings with the required support services in an attractive environment, such as innovation centres and technology parks; networks for obtaining the required human, technical and business assistance resources; and a variety of financing sources.
For maximum efficiency and effectiveness the above elements should be integrated and developed synergistically according to an overall plan. As such, two additional factors should be included: (1) an executive champion (an individual or group of
leaders) who will ensure the planning, development and successful implementation of the required infrastructure; and (2) a favourable business climate set by the business, labour, political and financial leaders of the community. The next section describes the structure of the
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entrepreneurship network and the role it has played in the development of high tech industry in Aragon.
during the interviews: questions concerning the entrepreneur and the foundation of the company, and questions related to the company's operations. The first section following describes the characteristics of the high tech entrepreneur, the second section deals with the development of the firm and its external linkages, and the third and final section describes the support of the public sector to create an entrepreneurship network.
4. HIGH TECHNOLOGY AND ENTREPRENEURSHIP IN ARAGON The Aragon community is a region in Spain consisting of three provinces: Zaragoza, Huesca and Teruel, situated in the northeast of the Iberian Peninsula. In many respects, this region represents 3.5% of the economic and demographic variables of Spain. Some aspects of the region's economic activity are worthy of mention, such as the fact that there exists a marked preponderance of small and medium sized firms which are specialized in specific activities: automotive and other transport equipment, metal products, and food production. However, the participation of Aragon in Spanish technological activities is lower than its economic potential: 2% of Spain's R&D 1% of EU technology projects; and 1.5% of Spain's high tech employment.
4.1 Entrepreneurs in high teclllology This section describes the characteristics of the entrepreneur according to family background, education, age, work experience, and motivation and personality. 4.1.1 Family background
Understanding the new technology-based entrepreneurs begins with an examination of their home environments or family backgrounds. Table 4 shows that the largest percentage (56%) of technical entrepreneurs came from families where the father was a professional such as an engineer or a lawyer. A professional typically possesses a degree of independence not held by a manager or a white-collar employee. After witnessing his professional father's independence, the child is more likely to find it appealing to obtain some type of occupational independence him- or herself.
The high tech industries in Aragon represent only 2.5% of manufacturing firms and 9.2% of industrial employment in the region. The degree of diversification of high technology in Aragon is low because the participation of industries such as aeronautics, computing and biotechnology is merely symbolic. Aragonese high tech firms are concentrated mainly in electronics, scientific instruments, electrical equipment and pharmaceuticals (Table 3).
Whether or not the entrepreneur's father was self-
Fifty of these high tech companies (31 % of total high tech enterprises and 4.2% of high tech employment) were contacted during the last quarter of 1996 and the first quarter of 1997. There were two interviews made at each company at different times with the original entrepreneur or with the general manager when the entrepreneur was no longer in the company. Following the methodology developed by Roberts (1991), two groups of questions were asked
TABLE 4.
Father's occupational status
Father's occupational status Professional Managerial Skilled labour Unskilled labour Total
High tech entrepreneurs (%) 56 8 20 16 100
TABLE 3. High tech industries in Aragon in 1996 High tech industries" Biotechnology Pharmaceuticals Advanced electrical equipment Electronics Computing Aeronautics Scientific instruments
Software Total high tech industry
Number of firms 2 38 47 23 8 I
25 18 162
%
1.2 23.4 29.0 14.2 4.9 0.6 15.5 11.2 100.0
Number of employees 17 3% 4122 1218 125 5 1618 93 7594
%
0.2 5.2 54.3 16.0 1.6 0.1 21.4 1.2 100.0
"High tech industries are those which simultaneously invest more resources to R&D and have more qualified personnel than the average manufacturing industry.
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TABLE 5.
Entrepreneurship networks and high technology linns
Whether or not father was self-employed
Father self-employed
High tech entrepreneurs (%)
Yes No
54 46
employed is a second aspect related to the father's occupation. As shown in Table 5, the majority of high tech entrepreneurs had self-employed fathers. This finding is also supported by prior research in other geographic settings (Roberts, 1991. The general image and example of a father as a self-employed professional or as an independent business owner provides the role model for the child, not any specific technical or managerial knowledge. 4.1.2 Education
Table 6 indicates the educational level of surveyed high tech entrepreneurs. Fifty-seven percent had a Master's degree in some technical discipline and 20% had a Bachelor's degree. Doctoral education is much less frequent (10%). A general comparison of the educational levels of these entrepreneurs with the local population indicates that entrepreneurs are much better educated than the general population because only 8% have a Bacherlor's or Master's degree. The entrepreneurial sons of self-employed fathers tend to be educated to at least the BS degree but not more than the MS degree, possibly because going beyond those degrees was unnecessary in order to establish a technically based enterprise. Most firms were founded by more than one person. Ninety-one percent of firms had two or more co-founders, with an average of 3.8 founders per company. Co-founders are also very qualified to complement the ability of the principal entrepreneur. 4.1.3 Age
The range of ages in Aragonese high tech entrepreneurs is 23 to 44, with an overall median of 33 years. Examined separately, the ages of faculty TABLE 6.
founders range from 27 to 44 with a median of 39 at the time of company formation. This difference may reflect the longer educational periods required by faculty members for entry into their primary career roles, combined with the long term then needed to secure their faculty position. In those high tech companies founded by teams of several people the range of ages is 29-41 with a median overall age of 33 years. 4.1.4 Work experience
Table 7 presents the distribution of work experience of high tech entrepreneurs before starting the company. Eighty-eight percent had from three to 16 years of work experience, 26% had less than three years and only 6% had more than 16 years experience. The mean number is 8.7 years. This total work experience can be broken down into three segments: work if any prior to the technology 'source organization', work at the 'source organization', and work if any between the 'source organization' and the new high tech company. The mean number of years of work experience in each segment is 1.1, 6.3 and 1.3 years, respectively. Sixty percent of high tech entrepreneurs went directly from the 'source organization' to the new enterprise and the other 40% worked at the 'source organization' and the new enterprise. It is in the 'source organization' where the majority of the entrepreneurs acquire the technical knowledge and experience that enables them to create their own companies. The typical entrepreneur spent 6.3 years at the 'source organization', longer by five years than the average years worked before the 'source organization' and between the 'source organization' and the new enterprise. Fifty-three percent of the entrepreneurs spent over four years at the 'source organization'. Table 8 shows that in those high tech enterprises (the majority) formed by multiple founders, the number of founders correlates strongly with total years experience in sales and administration work (Pearson coeffcient of 0.97 and 0.94, respectively), but not significantly (0.62) with total years experience in technical work. This indicates the more business-oriented
High tech entrepreneur's educational level TABLE 7.
Educational level
High tech entrepreneurs
Work experience (years)
(%)
High school BS BS plus courses MS MBA PhD Total
8 8 12 57 5 10 100
Work experience before starting the new enterprise
Self-employed fathers
0 40 57 64 33 33
0-3 >3-{) > 6-9 > 9-12 > 12-15 > 15-18 > 18
High tech entrepreneurs (%) 26
20 50 10 8
2 4
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TABLE 8.
_
Work experience composition as function of number of founders Average years/firm in:
Number of founders
Sales
l
0.0 1.0 1.4 4.1 5.0 2.7
2 3 4 5 Average firm
TABLE 9.
Technical 6.2 13.5 15.5 13.3 13.3 13.5
Measurement of technical entrepreneur's needs
Need
5.8 5.5 3.0
Finally, Table 11 displays the features of going into business that were attractive to the high tech entrepreneurs surveyed. The specific characteristic of independence is the most appealing feature to 50% of entrepreneurs as a primary or secondary feature. In contrast, only 4% of entrepreneurs stated monetary appeal to be of prime importance and 12% of secondary importance.
nature of the larger teams, with sales and managerial experience gradually displacing technical experience among larger groups. 4.1.5 Motivation and personality Table 9 indicates the scores for the three needs related to entrepreneurial motivation. These needs are primary factors that influence interpersonal behaviour, affecting company performance. Data indicate that the median high tech entrepreneur has moderate need for achievement and power, and low need for affiliation (i.e. the establishment, maintenance or restoration of positive relationships with other people).
4.2 Development of the high tech company Initially, high tech companies are focused either on the technology or on the market. Companies focused both on technology and markets are rare because one of the entrepreneurs usually has more influence than the other founders and determines the strategic orientation of the company. Therefore, a company focused on technology or market must supplement their abilities (Raffa et al., 1996). Sixty percent of the high tech companies in Aragon were focused on technology. This strategy allows more flexibility to introduce changes in the company products which increase market share and help to develop new applications. There were 20% of high tech entrepreneurs who started only in consulting or in contract R&D before engaging in their own product development, manufacture and sales.
Table 10 shows the percentage distribution of high tech entrepreneurs according to the number of years between the first occurrence of the idea to go into business and the founding of company. Only 18% of the entrepreneurs first thought about going into business within the same year they actually decided to form their companies. An additional 36% thought about going into business more than one year but less than five years before forming their new enterprises. At the other extreme, 24% of the entrepreneurs had thought of going into business for more than 10 years. These results indicate that business creation is a long TABLE 10.
Years between thinking of going into business and founding company
High tech entrepreneurs
0
1-2
3-4
18
16
20
(%)
340
0.0 3.0 3.1 4.3 5.3 3.6
process since it takes a mean number of seven years for the entrepreneur between thinking of going into some business and founding of company. However, once the specific thought occurred the entrepreneurs more or less immediately formed their companies. Nearly 75% of the firms were formed within less than two years after the specific thought for them occurred.
Mean
Achievement Power Affiliation
Finance and administration
T....aIioR Vol 18 N•. 5
Number of years between 5--{j 7-8 13
9-10
11-15
16--20
6
12
12
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Entrepreneurship networks and high technology finns
TABLE Ii.
Attractiveness of business initiation
Features of going into business
Primary feature
Secondary feature
4
12
14 16
14
Monetary I. Salary or wealth Challenge 1. Do something that others could not 2. Taking on and meeting broader responsibilities Independence 1. Being own boss 2. Freedom to explore new areas 3. See things through to completion Other Total
28 10 4
22 12
12 100
12 100
Table 12 shows the relationship between the degree of technology transfer from the 'source organization' and certain variables. The first variable is the time of company formation after termination of employment at the 'source organization'. Ninety-two percent of high tech companies were formed within four years after their founder left the 'source organization'. The relationship between time after leaving and degree of transfer of technology is strong because the majority of companies have a greater degree of technology transfer when the company is founded immediately after the entrepreneur leaves the source organization. As time elapses, the technological advantage that a scientist or engineer possesses from being part of a frontier R&D organization is in part lost (Jones, 1997). The second variable is the entrepreneur's age at company founding. According to Table 12, direct and partial technology transfer statistically decrease as age increases. Older entrepreneurs are more reluctant to create their own companies immediately after leaving the 'source organization'. They tend to take TABLE 12.
8
8
another job and later start up the company. This elapsed time is then the cause of the decrease in technology transfer. Finally, the third variable-nature of prior work-indicates that as the entrepreneur's prior work becomes more developmental, an increasing proportion of direct technology transfer occurs. Since the high tech entrepreneurs had a technical background, mainly in engineering, and had nil or little management experience, they devoted most of their time to engineering and manufacturing activities during the first six months (Table 13). For this reason, TABLE 13. Effort allocation by founders during first six months Percent of total work time
Operational area Engineering Sales and marketing Manufacturing Finance and administration
30 25 30 15
Degree of technology transfer
Years between source and new enterprise Inmediately 0 1-2 3-4 5-6 >6 Total Age of entrepreneur (years) 21-26 26-30 31-35 36-40 41-45 Total Nature of source work Basic research Applied research Development Total
Direct
Partial
Vague
8 8
22 15 8
15 8 8
16
9 7 3 19
None
Total
8
45 31 16 8 100
45
31
8
9 15 11 7 5 47
15 5 5 3
3 3
28
6
5
5
5
15 25 100
to
to
15 100
5
o o
5
100
100
9 42 26 12 13 100
20 35 45 100
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TABLE 14.
Early effort allocation based on awareness of competition Engineering
Sales and marketing
Manufacturing
Finance and administration
20 10
30 18
25 43
25 29
More aware Less aware
TABLE l5.
_
Sources of finance used by high tech firms in Aragon Percentage of firms
Financial sources Capitalist partners Founder's and family's savings Private loans Public support
45.0 28.7 15.0 l1.3
the biggest problems they faced initially were in obtaining financial resources, opening up distribution channels, and finding suppliers and more qualified technical staff as the firm's technological level rose. However, those firms that were more aware of competition had a more balanced effort allocation across the operational areas even during the first few months of the firm's existence (Table 14). The main financing sources used to set up these firms (Table 15) were the contributions of capitalist partners and the savings of the founders and their families. In contrast with other regions with more high tech activities, public or private venture capital was not used. The percentage of firms formed with government support was small. Therefore, most high tech firms developed from traditional industries. For example, electronics and scientific instruments high tech firms in Aragon have arisen from electrical equipment and metalworking firms. The entrepreneurs who created those high tech firms worked at these traditional industries at the time when they acquired the technological expertise required to start up the company. The high tech companies in Aragon are not very closely linked with the regional economy. Table 16 shows that these companies' trade is made mostly outside the regional boundaries. The main destination for their sales is the richer regions around Aragon. TABLE l6. in Aragon
Percentage distribution of sales and purchases of high tech firms
Origin/destiny Region Other Spanish regions Foreign markets
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Purchases
Sales
21
24 66 10
n 7
High tech companies are concentrated in the city of Zaragoza from where they have easy access to the markets from which its supplies come and to which its products go. Nevertheless, this dependence does not mean that these firms are subcontractors or dependent suppliers of firms located in richer regions. Actually 85% of high tech firms sell their own products and the other 15% make customized orders like software. The small size of the high tech regional market is the main reason for the low regional economic linkages between high tech firms, but the surveyed firms made their own designs and product innovations and they did not work as subcontractors. The development and growth of the high tech companies surveyed worked well even though there were not any advantages of labour and raw materials in the region. The entrepreneurs founded their companies because of strong links in their home region and because the firm's type of production was economically viable in the region in spite of the early restrictions on personnel and some industrial services in the area. Since the technological level of their products did and does not require agglomeration with other high tech firms, the high tech companies surveyed were able to work to a great extent with large firms outside the region, to which they sell intermediate components. This type of product enables these firms to locate in areas which are distant from existing R& D complexes. It is then necessary that the distance from the markets is not an economic disadvantage. In high tech products like electronics and scientific instruments-high value and low unit weight-transportation costs are not normally an entry barrier or a competitive advantage, and so entrepreneurs have more flexibility to locate their companies.
4.3 The entrepreneurship network in Aragon Regional technology policy in Aragon has traditionally focused on improving the technological base of local industries. But even though there has not been an specific programme for high tech companies, these firms have gained access to government financing and support services to carry out research activities, buy or develop new equipments and technology, and expand their activities to new markets. The first step in Aragonese technology policy in the
--
mid-1980s was to stimulate and coordinate the participation of local firms in national and international R&D programmes and to finance grants, soft loans and subsidized interest rates for companies to do R& D or upgrade their technological base. These government efforts continue today, but the main focus changed to a more 'hands-on' approach. By the late 1980s and early 1990s a network of government financed R&D and technological institutes had been set up. This was the second stage to be implemented in the regional technology policy. The main institute is the Technological Institute of Aragon which develops new technologies, promotes their diffusion among regional firms, and also carries out R&D projects for other firms located outside the region in order to optimize its R&D resources. There are several other institutes within the regional R&D public network which focus on specific activities or industries such as footwear, textile, new materials, and a few others. These sectorial institutes carry out many activities such as applied research, education courses, technological advice and guidance, quality testing, certification and standarization, guidance in design and in information and documentation. The institutes, through the provision of support services to regional firms, constitute a basic element of the regional entrepreneurship network because they centralize information and expertise useful in the early stage of the entrepreneurial firm. The third phase was to consolidate in the late 1980s the administrative support network provided by regional and local governments. Key government agencies to help entrepreneurs are the Government Industrial Promotion Service (regional government), the Industrial Development Company (central and regional governments), and the three Technology Transfer Points (university, business organization, and regional government). However, the number of high tech companies created through this administrative network has been very small: one or two firms each year since the late 1980s. Spinoffs in particular from university faculties and from existing companies have been almost non-existent. Although the network has improved other industries' performance, their efforts become insufficient to stimulate regional economic development. For example, the Government Industrial Service has assisted firms and evaluated the technological and financial flexibility of their projects but without a distinct focus on high tech firms. Any regional entrepreneurship network must play an active role in order to fully identificate and use most of the regional potentials. Entrepreneurship networks are of no use without
Entrepreneurship networks and high technology firms
technologically educated and trained human resources. In the late 1980s and early 1990s new technical studies were initiated at the regional universities. To name just a few we should highlight telecomunications engineering, computer and software engineering and chemical engineering. From these and other technical courses come the people who will become entrepreneurs in a few years' time. Even though a 40% average of new engineers find their first jobs in large companies located in the adjoining richer regions, they usually come back after four or five years to settle down at small and medium sized Aragonese firms. Some of them are even able to create new companies by taking advantage of their past work at the 'source organization'. The regional government has played a key role in the promotion of new university careers as well as in the development of specialized courses throughout the technological institutes and the Technology Transfer Points. The final step in the development of the entrepreneurship network and the first turning point to a more active involvement of regional technology policy in entrepreneurship was the creation of a Business Innovation Centre (BIC) in 1992. The BIC has support measures of its own, but it also coordinates and integrates support mechanisms and initiatives already existing in the network. Any potential entrepreneur who approaches the BIC is also relayed to the optimum point in the entrepreneurship network to get expertise and information. The BIC also provides temporally subsidized business space and support services to 20 high tech entrepreneurs in areas like microelectronics, software and scientific instruments. Besides these companies, there are a number of entrepreneurs who also receive support throughout feasibility studies and business plan advice at the BIC. Table 17 shows the evolution and provincial distribution of the entrepreneurship projects that were analysed from 1992 to 1996. The majority of the entrepreneurs behind these projects were young: 45% ranged from 20 to 30 years, 34% range from 30 to 40 years, and the remaining 21% range from 40 to 60 years. Most of them were male (83%), and concerning their education 39% had a Master's degree and 27% had a Bachelor's degree. These results are quite similar to those obtained from the survey even though the population included in Table 17 are potential entrepreneurs and not actual entrepreneurs. Not every one of these projects materialized in a new company. Table 18 indicates the actual number of business projects that were given support by the BIC. From 1992 to 1996 there were 194 new busines projects-high tech and non-high tech-that were sup-
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TABLE 17.
Distribution of entrepreneurship projects analysed at the Business Innovation Centre of Aragon
Province Huesca Teruel Zaragoza Total region
TABLE 18.
1992
1993
1994
1995
1996
3 0 15 18
28 14 377 419
13 4 115 132
5 54 124 183
102 64 192 358
Evolution of the Regional Entrepreneurship Programme in Aragon
Number of projects Number of entrepreneurs Percentage of women Mean age
TABLE 19.
_
1992
1993
1994
1995
1996
6 16 20
26 74 22 31
32 88 28 35
55 155 25 31
75 176 25 33
1992
1993
1994
1995
1996
0.23
6.22
1.63
2.17
3.45
27
Entrepreneurship network performance
Enterprises ratio"
'The enterprises ratio is the number of enterprises created throughout the network (multiplied by 100) divided by the total number number of enterprises created in Aragon.
ported throughout financial aid and management services. To evaluate the effectiveness of the entrepreneurship network we have calculated the ratio of enterprises created directly throughout the network to the total number of enterprises created in Aragon from 1992 to 1996. Table 19 shows that this ratio has been increasing since 1992 in response to the efforts of the BIC and other key elements of the entrepreneurship network such as the Technology Transfer Points. Another positive result obtained throughout the entrepreneurship network has been the collaboration established between the BIC and the School of Engineering. The BIC supports these engineering students who develop software and other 'high tech' products in collaboration with some of the engineering departments. The BIC helps these students to develop their projects further into business ideas. Even though there has been only a very limited number of university spinoffs throughout their collaboration scheme, the experience has been positive because there are nowadays an increasing number of engineering students who are interested in creating their own businesses. These students have many more opportunities than ever because the regional entrepreneurship network provides them with access to services and facilities not available just a few years earlier.
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5. CONCLUDING REMARKS This paper has briefly studied the 'high tech' entrepreneurs and their companies in a peripheral Spanish region. The characteristic entrepreneur has a self-employed father, a Master's degree, and is in his/her mid-30s at the time of founding the company, with nine years of work experience before founding. The number of co-founders, work development experience and a need for achievement are factors influencing the company's success. The paper also reveals the difficulty of high tech endogenous development in peripheral regions and the small contribution of the entrepreneurship network to the creation of regional high tech companies.
REFERENCES Abetti, P. (1992) Planning and building the infrastructure for technological entrepreneurship. International Journal of Technology Management 7, 129-139. Cooke, P. (1996) The new wave of regional innovation networks: analysis, characteristics and strategy. Small Business Economics 8, 159-171. Cooke, P. and Morgan, K. (1991) The Intelligent Region: Industrial and Institutional Restructuring in Emilia-Romagna. Regional Industrial Research Report No.7, University of Wales, Cardiff.
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Feldman, M. (1994) The Geography of Innovation. Kluwer, London. Gordon, R. (1991) Innovation, industrial networks and high technology regions. In: Camagni, R. (Ed.), Innovation Networks: Spatial Perspectives. Belhaven Press, London/New York, pp. 174-195. Jones, D. (1997) Technical entrepreneurship, experience and the management of small technologybased firms. Entrepreneurship and Regional Development 9, 65-90. Raffa, M. (1996) The development process of small firms. Entrepreneurship and Regional Development 8, 359-371. Roberts, E. (1991) Entrepreneurs in High Technology. Oxford University Press, Oxford. Sternberg, R. (1996) Technology policy and the growth of regions: evidence from four countries. Small Business Economics 8, 75-86. Sutherland, E. (1993) Silicon Glen: a technological brigadoon? An analysis of the electronics and IT industries in Scotland. IIR Discusion Papers No. 48, Interdisciplinary Institute of Urban and Regional Studies, University of Economics and Business Administration, Vienna.
Angel Martinez Sanchez is an Associate Professor of Business and Economics at the University of Zaragoza (Spain). He holds a PhD in Engineering and an MBA. Dr Sanchez has been a Research Fellow in universities in Europe, North America, Australia and Japan. He has conducted research and consulted on R&D management and technology policy. He has published over a hundred articles and books on these topics.
Olga Urbina Perez is a Senior Lecturer of Business Administration at the University of Zaragoza (Spain). She holds an MBA. She has conducted research on efficiency analysis, health economics, and business creation and regional development, and has published several articles on these topics.
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Technovation, 18(5) (1998) 335-345 © 1998 Elsevier Science Ltd. All rights reserved
PH: 80166-4972(98)00007-8
Printed in Great Britain 0166-4972/98 $19.00 + 0.00
Entrepreneurship networks and high technology firms: the case of Aragon Angel Martinez Sanchez* and Olga Urbina Perez University of Zaragoza, Centro Politecnico Superior de Ingenieros, Departamento de Economia y Direccion de Empresas, Maria de Luna 3, Zaragoza 50015, Spain
Abstract
This paper contains data from a survey given to 50 'high tech' entrepreneurs and their companies in Aragon, a region in northeast Spain. The characteristic entrepreneur has a self-employed father, a Master's degreee, and is in hislher mid-30s at the time founding the company, with nine years of work experience before founding. The number of co-founders, work development experience and a need for achievement are factors influencing the company's success. The paper also describes the regional entrepreneurship network. © 1998 Elsevier Science Ltd. All rights reserved
l INTRODUCTION There is growing recognition among European policy-makers that regions can no longer compete simply by offering a crude combination of semiskilled labour, on the one hand, and financial incentives for inward investment on the other: Today, all the most dynamic regions in Europe are of the view that to accelerate the development and utilization of technological advantages, a community needs to create, attract, develop and retain a self-sustaining critical mass of fast-growing ventures based on diversified technologies, serving a broad spectrum of regional and broader markets. To achieve this goal, a community should first plan and then build a local infrastructure for technological entrepreneurship that will help to integrate synergistically the full range of economic development initiat-
*To whom correspondence should be addressed.
ives, incentives, and programmes available from the public sector (local, state and national government, public universities, national laboratories) and the private sector (industry, business and academe). Thus, rather than attempting a purely 'top-down' strategy design, an entrepreneurship network should focus on a 'bottom-up' approach in order to integrate business needs and enhance existing support institutions. This paper studies the entrepreneurship network of Aragon, a region in northeast Spain. Using data from a survey of high tech entrepreneurs and companies, the paper describes the characteristics of the high tech entrepreneurs, the development process of the high tech companies, and the support that high tech entrepreneurs and companies receive throughout the entrepreneurship network developed in the region.
2. INNOVATION NETWORKS AS AKEY TO ENTREPRENEURSHIP In the past it was thought that decisions about innovation had to be made by the central government. The
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'technopole' idea, once the leading innovation concept, was a good example of this, but this is no longer leading the field. In its place is an emergent set of developmental practices which are commonly described as 'networking' or 'the network paradigm' (Cooke and Morgan, 1991). Table I shows the key elements of networking. Intraregional networking must be activated across a range of firms, private and public institutions and existing programmes to make an impact upon innovative activity. While implanting wholly new innovation activities is extraordinarily difficult, developing them out of existing sectoral competences is less so. A good example of this can be found in the German steel industry, where Ruhr-based firms spawned large numbers of innovation activities themselves, and in their suppliers, as they diversified into innovative technologies after the 1980s steel crisis. Regional technology policies in the most dynamic regions of Europe involve, first, the creation of an innovation network (or enhancement if it exists) composed of agencies, firms, research centres, etc. Second, it implies undertaking a review or audit of existing research competence and capability in relation to regional economic structure, skills, and global emergent technology trends. The third element concerns developing actions with associated monitoring and evaluation instruments. Finally, there are the implementing actions, as appropiate to different regional settings. What benefits do firms receive from an innovation networking? First, technical resources: many firms need basic testing equipment, measurement, calculation and problem-solving support since these are usually too expensive to have in-house. A second benefit is expert technological advice on the use of sophisticated technologies such as new telecommunication networks. Third, there are benefits to be derived from information services on, for example, patents, exploitable technologies, technical partners, and possible joint venture partners. Fourth, gateway services that enable small firms to be brought into partnership with leading edge firms and research instiTABLE I.
tutes. Finally, network services which encourage small firms to form groups and alliances so they may afford services together which they would be unable to individually. However, not every firm is willing to join in an innovation network. There are reasons that discourage many firms to do so. First, firms are protective of their know-how because this is the source of their competitive advantage. Second, firms are fearful of divulging pricing information which can easily be undercut by a competitor in the know. Finally, firms, especially small firms, cannot map advantage without the existence of a public support infrastructure, at least in the short term. This is because of market failure, particularly pronounced in the innovation field with its lengthy lead times and variable rate of return on investment. There are a number of key conditions that have to be present to mobilize the necessary parts of an innovation network (Cooke, 1996): (1) identification: it is vital that the base upon which
an innovation network is to be constructed has a high degree of self-identification, political coherence, policy commitment and capacity to deliver; (2) intelligence: this means that innovation networks have to provide quality information, capacity to self-monitor and evaluate, and learning capacities; (3) institutions: key institutions are, for example, strong chambers of commerce, business associations, innovation centres, training agencies, development agencies, higher education institutions and firms themselves. The denser the mass of institutions, the greater the likelihood that business will gain access to the intelligence for innovation; and (4) integration: the key to a successful innovation architecture is that these institutions must organize a division of responsibilities between each other so that a firm or customer approaching any point on the network can be successfully and accurately relayed to the optimum information point on (or beyond) the regional network.
Key elements of networking
Reciprocity Trust Learning Partnership Decentralism Source: Cooke, 1996.
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A willingness to exchange information. know-how, proprietary knowledge and goods A willingness to risk placing faith in the reliability of others A recognition that knowledge develops and best practice should be learned A preparedness to solidify reciprocal relationsbips preferentially A realization that centralized information and decision-processing is inefficient
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3. HIGH TECHNOLOGY, TECHNOLOGY POLICY AND ENTREPRENEURSHIP The growth and development of high tech regions is determined by interrelated production networks of large and small enterprises, by endowments of production factors such as qualified labour and risk capital, by the demand for new knowledge-intensive products, by implicit and explicit technology policies, and by entrepreneurial strategies and competition (see Table 2). Policy oriented toward promoting R&D-intensive firms in peripheral and lagging regions has not been very successful. This is to be expected since R&D is only one of the factors affecting the development of a high tech region. If other factors are missing, then we might not expect that government R&D expenditures will be sufficient to promote industrial development (Feldman, 1994). Following Gordon (1991), publicly influenced high tech regions can be divided into three types. First are state-led high tech regions that are the results of explicit technology policy with intended regional goals. This propagates technology-based growth poles such as the Technopolis in Japan, or in the form of a linkage of high technology and existing industrial potential. The second type is a state-facilitated high technology complex which endeavours to utilize the comparative advantages of their specific area on an international scale, while receiving subsidies from the central and regional governments. The Scottish high tech region 'Silicon Glen' is the best known example of this type of influence (Sutherland, 1993). The third type are state-dependent high tech regions where the political influence is indirect rather than direct. This
Entrepreneurship networks and high technology finns
kind of influence results from massive government investments and R&D expenditure especially in the military field; it does not, however, intentionally pursue regional goals (Sternberg, 1996). Government R&D expenditures play an important role, especially in the early stage of technology-oriented growth. There is a fundamental correlation between the age of the region-the time elapsed since high tech industry became established-and the impact of state policies. In relatively young regions, such as the Silicon Valley in the late 1950s and the 1960s, the Research Triangle (USA) in the 1970s or Kyushu (Japan) in the 1990s, policies have a greater impact. In more established high tech regions, by contrast, commercial markets gain importance and the significance of government R&D is reduced. Apart from R&D government support, there are other key necessary elements to facilitate the creation and development of successful technological enterprises. Certain of these key elements will already be in place to a greater or lesser degree in any area. Other elements will, of course, be lacking, particularly in less industrialized regions. To achieve successful regional development throughout entrepreneurship, it is necessary that all these key elements co-exist. Key elements are (Abetti, 1992): (1) sources of technical expertise and potential tech-
(2) (3) (4)
TABLE 2.
Selected determinants of the genesis and growth of high tech
regions
Research and educational infrastructure (and. therefore, availability of qualified labour) Entrepreneurial spirit and technology-based spinoffs Innovation Centres, science parks Government policies Government R&D expenditure Technology policy of the region Private demand for technology-intensive new products Public demand for technology-intensive new products Amenities (environment, culture, living conditions, etc.) Availability of large enterprises and their attitude toward small and young technology-oriented firms lntraregional production networks Location of major inventions
Availability of venture capital Role of key persons Decentralization processes in large agglomerations Source: Sternberg, 1996.
(5)
nological entrepreneurs, e.g. technical universities and R&D institutes; availability of business entrepreneurs and managers as well as skilled factory and office workers; grounds and buildings with the required support services in an attractive environment, such as innovation centres and technology parks; networks for obtaining the required human, technical and business assistance resources; and a variety of financing sources.
For maximum efficiency and effectiveness the above elements should be integrated and developed synergistically according to an overall plan. As such, two additional factors should be included: (1) an executive champion (an individual or group of
leaders) who will ensure the planning, development and successful implementation of the required infrastructure; and (2) a favourable business climate set by the business, labour, political and financial leaders of the community. The next section describes the structure of the
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_
entrepreneurship network and the role it has played in the development of high tech industry in Aragon.
during the interviews: questions concerning the entrepreneur and the foundation of the company, and questions related to the company's operations. The first section following describes the characteristics of the high tech entrepreneur, the second section deals with the development of the firm and its external linkages, and the third and final section describes the support of the public sector to create an entrepreneurship network.
4. HIGH TECHNOLOGY AND ENTREPRENEURSHIP IN ARAGON The Aragon community is a region in Spain consisting of three provinces: Zaragoza, Huesca and Teruel, situated in the northeast of the Iberian Peninsula. In many respects, this region represents 3.5% of the economic and demographic variables of Spain. Some aspects of the region's economic activity are worthy of mention, such as the fact that there exists a marked preponderance of small and medium sized firms which are specialized in specific activities: automotive and other transport equipment, metal products, and food production. However, the participation of Aragon in Spanish technological activities is lower than its economic potential: 2% of Spain's R&D 1% of EU technology projects; and 1.5% of Spain's high tech employment.
4.1 Entrepreneurs in high teclllology This section describes the characteristics of the entrepreneur according to family background, education, age, work experience, and motivation and personality. 4.1.1 Family background
Understanding the new technology-based entrepreneurs begins with an examination of their home environments or family backgrounds. Table 4 shows that the largest percentage (56%) of technical entrepreneurs came from families where the father was a professional such as an engineer or a lawyer. A professional typically possesses a degree of independence not held by a manager or a white-collar employee. After witnessing his professional father's independence, the child is more likely to find it appealing to obtain some type of occupational independence him- or herself.
The high tech industries in Aragon represent only 2.5% of manufacturing firms and 9.2% of industrial employment in the region. The degree of diversification of high technology in Aragon is low because the participation of industries such as aeronautics, computing and biotechnology is merely symbolic. Aragonese high tech firms are concentrated mainly in electronics, scientific instruments, electrical equipment and pharmaceuticals (Table 3).
Whether or not the entrepreneur's father was self-
Fifty of these high tech companies (31 % of total high tech enterprises and 4.2% of high tech employment) were contacted during the last quarter of 1996 and the first quarter of 1997. There were two interviews made at each company at different times with the original entrepreneur or with the general manager when the entrepreneur was no longer in the company. Following the methodology developed by Roberts (1991), two groups of questions were asked
TABLE 4.
Father's occupational status
Father's occupational status Professional Managerial Skilled labour Unskilled labour Total
High tech entrepreneurs (%) 56 8 20 16 100
TABLE 3. High tech industries in Aragon in 1996 High tech industries" Biotechnology Pharmaceuticals Advanced electrical equipment Electronics Computing Aeronautics Scientific instruments
Software Total high tech industry
Number of firms 2 38 47 23 8 I
25 18 162
%
1.2 23.4 29.0 14.2 4.9 0.6 15.5 11.2 100.0
Number of employees 17 3% 4122 1218 125 5 1618 93 7594
%
0.2 5.2 54.3 16.0 1.6 0.1 21.4 1.2 100.0
"High tech industries are those which simultaneously invest more resources to R&D and have more qualified personnel than the average manufacturing industry.
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TABLE 5.
Entrepreneurship networks and high technology linns
Whether or not father was self-employed
Father self-employed
High tech entrepreneurs (%)
Yes No
54 46
employed is a second aspect related to the father's occupation. As shown in Table 5, the majority of high tech entrepreneurs had self-employed fathers. This finding is also supported by prior research in other geographic settings (Roberts, 1991. The general image and example of a father as a self-employed professional or as an independent business owner provides the role model for the child, not any specific technical or managerial knowledge. 4.1.2 Education
Table 6 indicates the educational level of surveyed high tech entrepreneurs. Fifty-seven percent had a Master's degree in some technical discipline and 20% had a Bachelor's degree. Doctoral education is much less frequent (10%). A general comparison of the educational levels of these entrepreneurs with the local population indicates that entrepreneurs are much better educated than the general population because only 8% have a Bacherlor's or Master's degree. The entrepreneurial sons of self-employed fathers tend to be educated to at least the BS degree but not more than the MS degree, possibly because going beyond those degrees was unnecessary in order to establish a technically based enterprise. Most firms were founded by more than one person. Ninety-one percent of firms had two or more co-founders, with an average of 3.8 founders per company. Co-founders are also very qualified to complement the ability of the principal entrepreneur. 4.1.3 Age
The range of ages in Aragonese high tech entrepreneurs is 23 to 44, with an overall median of 33 years. Examined separately, the ages of faculty TABLE 6.
founders range from 27 to 44 with a median of 39 at the time of company formation. This difference may reflect the longer educational periods required by faculty members for entry into their primary career roles, combined with the long term then needed to secure their faculty position. In those high tech companies founded by teams of several people the range of ages is 29-41 with a median overall age of 33 years. 4.1.4 Work experience
Table 7 presents the distribution of work experience of high tech entrepreneurs before starting the company. Eighty-eight percent had from three to 16 years of work experience, 26% had less than three years and only 6% had more than 16 years experience. The mean number is 8.7 years. This total work experience can be broken down into three segments: work if any prior to the technology 'source organization', work at the 'source organization', and work if any between the 'source organization' and the new high tech company. The mean number of years of work experience in each segment is 1.1, 6.3 and 1.3 years, respectively. Sixty percent of high tech entrepreneurs went directly from the 'source organization' to the new enterprise and the other 40% worked at the 'source organization' and the new enterprise. It is in the 'source organization' where the majority of the entrepreneurs acquire the technical knowledge and experience that enables them to create their own companies. The typical entrepreneur spent 6.3 years at the 'source organization', longer by five years than the average years worked before the 'source organization' and between the 'source organization' and the new enterprise. Fifty-three percent of the entrepreneurs spent over four years at the 'source organization'. Table 8 shows that in those high tech enterprises (the majority) formed by multiple founders, the number of founders correlates strongly with total years experience in sales and administration work (Pearson coeffcient of 0.97 and 0.94, respectively), but not significantly (0.62) with total years experience in technical work. This indicates the more business-oriented
High tech entrepreneur's educational level TABLE 7.
Educational level
High tech entrepreneurs
Work experience (years)
(%)
High school BS BS plus courses MS MBA PhD Total
8 8 12 57 5 10 100
Work experience before starting the new enterprise
Self-employed fathers
0 40 57 64 33 33
0-3 >3-{) > 6-9 > 9-12 > 12-15 > 15-18 > 18
High tech entrepreneurs (%) 26
20 50 10 8
2 4
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TABLE 8.
_
Work experience composition as function of number of founders Average years/firm in:
Number of founders
Sales
l
0.0 1.0 1.4 4.1 5.0 2.7
2 3 4 5 Average firm
TABLE 9.
Technical 6.2 13.5 15.5 13.3 13.3 13.5
Measurement of technical entrepreneur's needs
Need
5.8 5.5 3.0
Finally, Table 11 displays the features of going into business that were attractive to the high tech entrepreneurs surveyed. The specific characteristic of independence is the most appealing feature to 50% of entrepreneurs as a primary or secondary feature. In contrast, only 4% of entrepreneurs stated monetary appeal to be of prime importance and 12% of secondary importance.
nature of the larger teams, with sales and managerial experience gradually displacing technical experience among larger groups. 4.1.5 Motivation and personality Table 9 indicates the scores for the three needs related to entrepreneurial motivation. These needs are primary factors that influence interpersonal behaviour, affecting company performance. Data indicate that the median high tech entrepreneur has moderate need for achievement and power, and low need for affiliation (i.e. the establishment, maintenance or restoration of positive relationships with other people).
4.2 Development of the high tech company Initially, high tech companies are focused either on the technology or on the market. Companies focused both on technology and markets are rare because one of the entrepreneurs usually has more influence than the other founders and determines the strategic orientation of the company. Therefore, a company focused on technology or market must supplement their abilities (Raffa et al., 1996). Sixty percent of the high tech companies in Aragon were focused on technology. This strategy allows more flexibility to introduce changes in the company products which increase market share and help to develop new applications. There were 20% of high tech entrepreneurs who started only in consulting or in contract R&D before engaging in their own product development, manufacture and sales.
Table 10 shows the percentage distribution of high tech entrepreneurs according to the number of years between the first occurrence of the idea to go into business and the founding of company. Only 18% of the entrepreneurs first thought about going into business within the same year they actually decided to form their companies. An additional 36% thought about going into business more than one year but less than five years before forming their new enterprises. At the other extreme, 24% of the entrepreneurs had thought of going into business for more than 10 years. These results indicate that business creation is a long TABLE 10.
Years between thinking of going into business and founding company
High tech entrepreneurs
0
1-2
3-4
18
16
20
(%)
340
0.0 3.0 3.1 4.3 5.3 3.6
process since it takes a mean number of seven years for the entrepreneur between thinking of going into some business and founding of company. However, once the specific thought occurred the entrepreneurs more or less immediately formed their companies. Nearly 75% of the firms were formed within less than two years after the specific thought for them occurred.
Mean
Achievement Power Affiliation
Finance and administration
T....aIioR Vol 18 N•. 5
Number of years between 5--{j 7-8 13
9-10
11-15
16--20
6
12
12
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Entrepreneurship networks and high technology finns
TABLE Ii.
Attractiveness of business initiation
Features of going into business
Primary feature
Secondary feature
4
12
14 16
14
Monetary I. Salary or wealth Challenge 1. Do something that others could not 2. Taking on and meeting broader responsibilities Independence 1. Being own boss 2. Freedom to explore new areas 3. See things through to completion Other Total
28 10 4
22 12
12 100
12 100
Table 12 shows the relationship between the degree of technology transfer from the 'source organization' and certain variables. The first variable is the time of company formation after termination of employment at the 'source organization'. Ninety-two percent of high tech companies were formed within four years after their founder left the 'source organization'. The relationship between time after leaving and degree of transfer of technology is strong because the majority of companies have a greater degree of technology transfer when the company is founded immediately after the entrepreneur leaves the source organization. As time elapses, the technological advantage that a scientist or engineer possesses from being part of a frontier R&D organization is in part lost (Jones, 1997). The second variable is the entrepreneur's age at company founding. According to Table 12, direct and partial technology transfer statistically decrease as age increases. Older entrepreneurs are more reluctant to create their own companies immediately after leaving the 'source organization'. They tend to take TABLE 12.
8
8
another job and later start up the company. This elapsed time is then the cause of the decrease in technology transfer. Finally, the third variable-nature of prior work-indicates that as the entrepreneur's prior work becomes more developmental, an increasing proportion of direct technology transfer occurs. Since the high tech entrepreneurs had a technical background, mainly in engineering, and had nil or little management experience, they devoted most of their time to engineering and manufacturing activities during the first six months (Table 13). For this reason, TABLE 13. Effort allocation by founders during first six months Percent of total work time
Operational area Engineering Sales and marketing Manufacturing Finance and administration
30 25 30 15
Degree of technology transfer
Years between source and new enterprise Inmediately 0 1-2 3-4 5-6 >6 Total Age of entrepreneur (years) 21-26 26-30 31-35 36-40 41-45 Total Nature of source work Basic research Applied research Development Total
Direct
Partial
Vague
8 8
22 15 8
15 8 8
16
9 7 3 19
None
Total
8
45 31 16 8 100
45
31
8
9 15 11 7 5 47
15 5 5 3
3 3
28
6
5
5
5
15 25 100
to
to
15 100
5
o o
5
100
100
9 42 26 12 13 100
20 35 45 100
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TABLE 14.
Early effort allocation based on awareness of competition Engineering
Sales and marketing
Manufacturing
Finance and administration
20 10
30 18
25 43
25 29
More aware Less aware
TABLE l5.
_
Sources of finance used by high tech firms in Aragon Percentage of firms
Financial sources Capitalist partners Founder's and family's savings Private loans Public support
45.0 28.7 15.0 l1.3
the biggest problems they faced initially were in obtaining financial resources, opening up distribution channels, and finding suppliers and more qualified technical staff as the firm's technological level rose. However, those firms that were more aware of competition had a more balanced effort allocation across the operational areas even during the first few months of the firm's existence (Table 14). The main financing sources used to set up these firms (Table 15) were the contributions of capitalist partners and the savings of the founders and their families. In contrast with other regions with more high tech activities, public or private venture capital was not used. The percentage of firms formed with government support was small. Therefore, most high tech firms developed from traditional industries. For example, electronics and scientific instruments high tech firms in Aragon have arisen from electrical equipment and metalworking firms. The entrepreneurs who created those high tech firms worked at these traditional industries at the time when they acquired the technological expertise required to start up the company. The high tech companies in Aragon are not very closely linked with the regional economy. Table 16 shows that these companies' trade is made mostly outside the regional boundaries. The main destination for their sales is the richer regions around Aragon. TABLE l6. in Aragon
Percentage distribution of sales and purchases of high tech firms
Origin/destiny Region Other Spanish regions Foreign markets
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Purchases
Sales
21
24 66 10
n 7
High tech companies are concentrated in the city of Zaragoza from where they have easy access to the markets from which its supplies come and to which its products go. Nevertheless, this dependence does not mean that these firms are subcontractors or dependent suppliers of firms located in richer regions. Actually 85% of high tech firms sell their own products and the other 15% make customized orders like software. The small size of the high tech regional market is the main reason for the low regional economic linkages between high tech firms, but the surveyed firms made their own designs and product innovations and they did not work as subcontractors. The development and growth of the high tech companies surveyed worked well even though there were not any advantages of labour and raw materials in the region. The entrepreneurs founded their companies because of strong links in their home region and because the firm's type of production was economically viable in the region in spite of the early restrictions on personnel and some industrial services in the area. Since the technological level of their products did and does not require agglomeration with other high tech firms, the high tech companies surveyed were able to work to a great extent with large firms outside the region, to which they sell intermediate components. This type of product enables these firms to locate in areas which are distant from existing R& D complexes. It is then necessary that the distance from the markets is not an economic disadvantage. In high tech products like electronics and scientific instruments-high value and low unit weight-transportation costs are not normally an entry barrier or a competitive advantage, and so entrepreneurs have more flexibility to locate their companies.
4.3 The entrepreneurship network in Aragon Regional technology policy in Aragon has traditionally focused on improving the technological base of local industries. But even though there has not been an specific programme for high tech companies, these firms have gained access to government financing and support services to carry out research activities, buy or develop new equipments and technology, and expand their activities to new markets. The first step in Aragonese technology policy in the
--
mid-1980s was to stimulate and coordinate the participation of local firms in national and international R&D programmes and to finance grants, soft loans and subsidized interest rates for companies to do R& D or upgrade their technological base. These government efforts continue today, but the main focus changed to a more 'hands-on' approach. By the late 1980s and early 1990s a network of government financed R&D and technological institutes had been set up. This was the second stage to be implemented in the regional technology policy. The main institute is the Technological Institute of Aragon which develops new technologies, promotes their diffusion among regional firms, and also carries out R&D projects for other firms located outside the region in order to optimize its R&D resources. There are several other institutes within the regional R&D public network which focus on specific activities or industries such as footwear, textile, new materials, and a few others. These sectorial institutes carry out many activities such as applied research, education courses, technological advice and guidance, quality testing, certification and standarization, guidance in design and in information and documentation. The institutes, through the provision of support services to regional firms, constitute a basic element of the regional entrepreneurship network because they centralize information and expertise useful in the early stage of the entrepreneurial firm. The third phase was to consolidate in the late 1980s the administrative support network provided by regional and local governments. Key government agencies to help entrepreneurs are the Government Industrial Promotion Service (regional government), the Industrial Development Company (central and regional governments), and the three Technology Transfer Points (university, business organization, and regional government). However, the number of high tech companies created through this administrative network has been very small: one or two firms each year since the late 1980s. Spinoffs in particular from university faculties and from existing companies have been almost non-existent. Although the network has improved other industries' performance, their efforts become insufficient to stimulate regional economic development. For example, the Government Industrial Service has assisted firms and evaluated the technological and financial flexibility of their projects but without a distinct focus on high tech firms. Any regional entrepreneurship network must play an active role in order to fully identificate and use most of the regional potentials. Entrepreneurship networks are of no use without
Entrepreneurship networks and high technology firms
technologically educated and trained human resources. In the late 1980s and early 1990s new technical studies were initiated at the regional universities. To name just a few we should highlight telecomunications engineering, computer and software engineering and chemical engineering. From these and other technical courses come the people who will become entrepreneurs in a few years' time. Even though a 40% average of new engineers find their first jobs in large companies located in the adjoining richer regions, they usually come back after four or five years to settle down at small and medium sized Aragonese firms. Some of them are even able to create new companies by taking advantage of their past work at the 'source organization'. The regional government has played a key role in the promotion of new university careers as well as in the development of specialized courses throughout the technological institutes and the Technology Transfer Points. The final step in the development of the entrepreneurship network and the first turning point to a more active involvement of regional technology policy in entrepreneurship was the creation of a Business Innovation Centre (BIC) in 1992. The BIC has support measures of its own, but it also coordinates and integrates support mechanisms and initiatives already existing in the network. Any potential entrepreneur who approaches the BIC is also relayed to the optimum point in the entrepreneurship network to get expertise and information. The BIC also provides temporally subsidized business space and support services to 20 high tech entrepreneurs in areas like microelectronics, software and scientific instruments. Besides these companies, there are a number of entrepreneurs who also receive support throughout feasibility studies and business plan advice at the BIC. Table 17 shows the evolution and provincial distribution of the entrepreneurship projects that were analysed from 1992 to 1996. The majority of the entrepreneurs behind these projects were young: 45% ranged from 20 to 30 years, 34% range from 30 to 40 years, and the remaining 21% range from 40 to 60 years. Most of them were male (83%), and concerning their education 39% had a Master's degree and 27% had a Bachelor's degree. These results are quite similar to those obtained from the survey even though the population included in Table 17 are potential entrepreneurs and not actual entrepreneurs. Not every one of these projects materialized in a new company. Table 18 indicates the actual number of business projects that were given support by the BIC. From 1992 to 1996 there were 194 new busines projects-high tech and non-high tech-that were sup-
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TABLE 17.
Distribution of entrepreneurship projects analysed at the Business Innovation Centre of Aragon
Province Huesca Teruel Zaragoza Total region
TABLE 18.
1992
1993
1994
1995
1996
3 0 15 18
28 14 377 419
13 4 115 132
5 54 124 183
102 64 192 358
Evolution of the Regional Entrepreneurship Programme in Aragon
Number of projects Number of entrepreneurs Percentage of women Mean age
TABLE 19.
_
1992
1993
1994
1995
1996
6 16 20
26 74 22 31
32 88 28 35
55 155 25 31
75 176 25 33
1992
1993
1994
1995
1996
0.23
6.22
1.63
2.17
3.45
27
Entrepreneurship network performance
Enterprises ratio"
'The enterprises ratio is the number of enterprises created throughout the network (multiplied by 100) divided by the total number number of enterprises created in Aragon.
ported throughout financial aid and management services. To evaluate the effectiveness of the entrepreneurship network we have calculated the ratio of enterprises created directly throughout the network to the total number of enterprises created in Aragon from 1992 to 1996. Table 19 shows that this ratio has been increasing since 1992 in response to the efforts of the BIC and other key elements of the entrepreneurship network such as the Technology Transfer Points. Another positive result obtained throughout the entrepreneurship network has been the collaboration established between the BIC and the School of Engineering. The BIC supports these engineering students who develop software and other 'high tech' products in collaboration with some of the engineering departments. The BIC helps these students to develop their projects further into business ideas. Even though there has been only a very limited number of university spinoffs throughout their collaboration scheme, the experience has been positive because there are nowadays an increasing number of engineering students who are interested in creating their own businesses. These students have many more opportunities than ever because the regional entrepreneurship network provides them with access to services and facilities not available just a few years earlier.
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5. CONCLUDING REMARKS This paper has briefly studied the 'high tech' entrepreneurs and their companies in a peripheral Spanish region. The characteristic entrepreneur has a self-employed father, a Master's degree, and is in his/her mid-30s at the time of founding the company, with nine years of work experience before founding. The number of co-founders, work development experience and a need for achievement are factors influencing the company's success. The paper also reveals the difficulty of high tech endogenous development in peripheral regions and the small contribution of the entrepreneurship network to the creation of regional high tech companies.
REFERENCES Abetti, P. (1992) Planning and building the infrastructure for technological entrepreneurship. International Journal of Technology Management 7, 129-139. Cooke, P. (1996) The new wave of regional innovation networks: analysis, characteristics and strategy. Small Business Economics 8, 159-171. Cooke, P. and Morgan, K. (1991) The Intelligent Region: Industrial and Institutional Restructuring in Emilia-Romagna. Regional Industrial Research Report No.7, University of Wales, Cardiff.
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Feldman, M. (1994) The Geography of Innovation. Kluwer, London. Gordon, R. (1991) Innovation, industrial networks and high technology regions. In: Camagni, R. (Ed.), Innovation Networks: Spatial Perspectives. Belhaven Press, London/New York, pp. 174-195. Jones, D. (1997) Technical entrepreneurship, experience and the management of small technologybased firms. Entrepreneurship and Regional Development 9, 65-90. Raffa, M. (1996) The development process of small firms. Entrepreneurship and Regional Development 8, 359-371. Roberts, E. (1991) Entrepreneurs in High Technology. Oxford University Press, Oxford. Sternberg, R. (1996) Technology policy and the growth of regions: evidence from four countries. Small Business Economics 8, 75-86. Sutherland, E. (1993) Silicon Glen: a technological brigadoon? An analysis of the electronics and IT industries in Scotland. IIR Discusion Papers No. 48, Interdisciplinary Institute of Urban and Regional Studies, University of Economics and Business Administration, Vienna.
Angel Martinez Sanchez is an Associate Professor of Business and Economics at the University of Zaragoza (Spain). He holds a PhD in Engineering and an MBA. Dr Sanchez has been a Research Fellow in universities in Europe, North America, Australia and Japan. He has conducted research and consulted on R&D management and technology policy. He has published over a hundred articles and books on these topics.
Olga Urbina Perez is a Senior Lecturer of Business Administration at the University of Zaragoza (Spain). She holds an MBA. She has conducted research on efficiency analysis, health economics, and business creation and regional development, and has published several articles on these topics.
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