Description
Stimulating Industrial Development In Uganda Through Open Innovation Business Incubators
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Stimulating Industrial Development in Uganda
through Open Innovation Business Incubators
Joshua Mutambi
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Blekinge Insitute of Technology Licentiate Dissertation Series
No 2011:10
ISSN 1650-2140
ISBN 978-91-7295-213-3
School of Planning and Media Design
Department of Technology and Aestetics
Blekinge Institute of Technology
Sweden
Stimulating Industrial Development in Uganda
through Open Innovation Business Incubators
Joshua Mutambi
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Blekinge Institute of Technology
Blekinge Institute of Technology, situated on the southeast coast of Sweden,
started in 1989 and in 1999 gained the right to run Ph.D programmes in technology.
Research programmes have been started in the following areas:
Applied Signal Processing
Computer Science
Computer Systems Technology
Development of Digital Games
Human Work Science with a special Focus on IT
Interaction Design
Mechanical Engineering
Software Engineering
Spatial Planning
Technosicence Studies
Telecommunication Systems
Research studies are carried out in faculties
and about a third of the annual budget is dedicated to research.
Blekinge Institue of Technology
S-371 79 Karlskrona, Sweden
www.bth.se
© Joshua Mutambi 2011
School of Planning and Media Design
Department of Technology and Aestetics
Graphic Design and Typesettning: Mixiprint, Olofstrom
Publisher: Blekinge Institute of Technology
Printed by Printfabriken, Karlskrona, Sweden 2011
ISBN 978-91-7295-213-3
um:nbn:se:bth-00501
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Table of Contents
List of Figures
List of Tables
List of Abbrevations and Acronyms
Abstract
Acknowledgements
PART 1
Chapter 1 - INTRODUCTION
1.1 Background
1.2 Research Problem
1.3 Objectives
1.4 Signifcance
1.5 Research Questions
1.6 Expected Outputs
1.7 Research Scope
Chapter 2 - CONCEPTS DISCUSSIONS AND THEORETICAL
FRAMEWORK
2.1 Conceptual Framework
2.2 Various Concepts Discussions
2.2.1 Industrialization
2.2.2 Entrepreneurship
2.2.3 Entrepreneurship and Industrialization
2.2.4 Science, Technology and Innovation
2.2.5 Open Innovation
2.2.6 Triple Helix and Clusters
2.2.7 Business Incubators
2.3 Industrialization in Uganda
2.3.1 An Overview of Micro, Small and Medium Enterprises
in Uganda
2.3.2 Building Entrepreneurial Communities in Uganda
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Chapter 3 - METHODOLOGICAL CONSIDERATIONS
3.1 Introduction
3.2 Participatory Action Research
3.3 Data Sources
3.3.1 Secondary Data Review
3.3.2 Primary Data Collection
3.3.3 Analysis
PART II
Chapter 4 - INTRODUCTION TO THE PAPERS
4.1 Paper I
4.2 Paper II
4.3 Paper III
4.4 Paper IV
PART III
Chaper 5 - DISCUSSIONS AND CONCLUSIONS
5.1 Brief Summary of the Papers
5.2 Concluding Discussions
5.3 Scientifc Contributions and Originality
5.4 Way Forward
References
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List of Figures and Tables
Figures
Figure 1-1: A Conceptual Framework for the Study on the Role of Open
Innovation Business Incubators
Figure 2-2: Pillars of Growth
Figure 3-2: Sectorial Contribution to GDP
Figure 4: Te Evolution of Business Incubator Model
Figure 5: Business Incubator Model
Figure 6: Growth of Business Incubators in Brazil
Figure 7: Growth of Incubators in China
Tables
Table 2-1: Primary and Secondary Enrollment
Table 2-2: Higher Institutions Enrollment 2006-2007
Table 2-3: Defnition and Classfcation of MSMEs
Table 3-4: Number of Innovative Firms by Employee Size
Table 3-5: Percentage Share of Firms that Introduced Innovation and per
formed R&D among Innovators
Table 3-6: Percentage Share of Firms that Introduced Totally New to the
Ugandan Market and their Turnover by Year
Table 3-7: Gross Domestic Expendure on R&D (GERD) as an Indicator
of R&D Activities in Uganda
Table 8: Growth of Incubators in China
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List of Abbrevations and Acronyms
AGOA African Growth and Opportunity Act
BDS Business Development Services
BTTB Background to the budget
BTVET Business, Technical and Vocational Education Training
CICS Te Competitiveness and Investment Climate Strategy
COMESA Common Market for Eastern and Southern Africa
EAC East African Community
EU European Union
EUG Enterprise Uganda
FDI Foreign Direct Investment
GDP Gross Domestic Product
GoU Government of Uganda
ICT Information, Communication Technology
ISCP Innovation Systems and Clusters Program
LDCs Least Developed Countries
MAAIF Ministry of Agriculture, Animal Industry and Fisheries
MDG Millennium Development Goals
MES Ministry of Education and Sports
MFI Micro Finance Institutions
MFPED Ministry of Finance, Planning & Economic Development
MGLSD Ministry of Gender, Labour and Social Development
MSMEs Micro, Small & Medium Enterprises
MTAC Management Training and Advisory Centre
MTCS Medium Term Competitiveness Strategy
MTTI Ministry of Tourism, Trade & Industry
MUBS Makerere University Business School
NAADS National Agricultural Advisory Services
NCHE National Council for Higher Education
NDP National Development Plan
NGOs Non-governmental Organizations
NPA National Planning Authority
OECD Organization for Economic Co-operation and Development
PAR Participatory Action Research
PEAP Poverty Eradication Action Plan
PFA Prosperity for All
PPP Public Private Partnership
PSFU Private Sector Foundation of Uganda
R & D Research and Development
SBIR Small Business Innovation Research
S&T Science and Technology
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SME Small & Medium Enterprise
STI Science, Technology and Innovation
UBOS Uganda Bureau of Statistics
UEPB Uganda Export Promotion Board
UGT Uganda Gatsby Trust
UIA Uganda Investment Authority
UIRI Uganda Industrial Research Institute
UMA Uganda Manufacturers Association
UN United Nations
UNBS Uganda National Bureau of Standards
UNCCI Uganda National Chamber of Commerce and Industry
UNCST Uganda National Council for Science & Technology
UNECA United Nations Economic Commission for Africa
UNIDO United Nations Industrial Development Organization
UPE Universal Primary Education
UPPET Universal Post Primary Education Training
URT United Republic of Tanzania
USA United States of America
USE Universal Secondary Education
USSIA Uganda Small Scale Industries Association
WTO World Trade Organization
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Tis work is dedicated to the memory of my late father Rev. Canon Boaz Muntu who passed
away immediately after submission of the concept proposal for this research to University
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Abstract
Uganda is an agro-based land locked country with a population of about 30 million
people. It is well endowed with natural resources and salubrious climate. Her indus-
trial profle is still dominated by agro-industry and not innovation led, predominantly
micro, small and medium scale enterprises (MSMEs). Facing the challenges of poverty
alleviation, a high population growth rate (3.5% p.a), climatic change and environ-
mental impacts among others, Uganda identifed exploitation of natural resources,
value addition as well as industrialization to transform the country and reduce poverty
in her National Development Plan 2010/11-2014/15 (NDP).
In this respect, there are many existing programs and initiatives in the country sup-
porting small businesses, but tend to sufer from a number of weaknesses. In particular
typically small businesses fnd it difcult to do research and development; commer-
cialize their results in markets (innovation) as fast as they should. For micro, small &
medium enterprises to be dully competitive in a competitive economic environment
requires that they develop internal capabilities to efectively assimilate, use and adapt
product and process technologies for their businesses to survive on an ongoing basis.
To overcome this drawback, the concept of Business Incubation has been proposed.
Tis concept has gained large interest in the research community. Te key idea is to
create and nurture new businesses for growth by providing services and infrastructure
required by utilizing the external knowledge sources (open innovation) and triple-helix
model which assist formation of business and industrial clusters. A business incubator
is an organization that supports the creation and growth of new businesses by provid-
ing services and infrastructure that is required by the targeted clients.
Given that most frms in developing countries start too small to compete especially
in international markets, a pre-requisite to industrial development, governments and
policy makers should give particular attention to the constraints and needs of MSMEs.
Tis can be done by adopting a mix of policies and framework conditions to reduce
on the obstacles that hamper technological innovation, collaboration and business
growth. In particular is access to fnance and enhancing technology and business ca-
pacity development through training, linkages and networks.
Tis Licentiate thesis discusses and reviews the initiatives and programs aimed at sup-
porting the development of MSMEs with a view to stimulate industrial development
in Uganda. Te main aim of this research is to examine the process of business incu-
bation and explain the contribution of open innovation business incubators to entre-
preneurs/ start-up frms within the broader context of developing entrepreneurship,
promoting science, technology and innovation and creating employment.
Tis research focuses on the roles and relationships of government, university and
research institutions and the private sector as sources of knowledge for technological
innovations. Literature review, theory understanding, and participatory methods in-
cluding group discussions with questionnaires, meetings and interviews, were used to
achieve the objectives.
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From the fndings, it was revealed among MSMEs that due to their sizes, limited man-
agerial and technological skills, and inadequate functional business support services
have had adverse efects on their upgrading and growth. Tere was little linkage and
follow up between industry and other public research sectors i.e. government agencies
and higher institutions although there are quite a number of support institutions with
poor coordination. Te research analyzed a wide range of issues that are related to the
desired structural transformation of the Ugandan economy towards industrialization
process. Finally it will propose strategies for the most appropriate model for Uganda.
Keywords: Business Incubation, Industrialization, Open-Innovation, Triple-Helix,
Uganda
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Acknowledgements
First of all, I would like to thank the Almighty God for enabling me throughout
this licentiate degree period since I started. A special acknowledgement goes to my
late father, Rev. Canon Boaz Muntu who encouraged me to start this PhD program
even when there was no sponsor yet. I further give my appreciation to Prof. Barnabas
Nawangwe and Prof. Lena Trojer for their support during the Innovation Systems and
Clusters Program activities and towards securing this sponsorship of which I have been
able to carry on with my research.
I would like to express my gratitude to my two main supervisors Prof. Lena Trojer,
Assoc. Prof. Joseph K. Byaruhanga and my other co-supervisor Dr. B. Kariko Buhwezi
for their professional guidance and support through this process. Special thanks go to
the Ministry of Tourism, Trade and Industry for their support and allowing me time
of ofce schedule to attend to my research work.
I am thankful to Dr. Mackay Okure, Dr. Yasin Naku Ziraba, Dr. Peter Okidi-Lating,
Dr. J. B. Kirabira, Dr. Samuel B. Kucel and my other colleagues and friends at Maker-
ere University and BTH Mr. Julius Ecuru, Ms. Fatuma Simba, Ms. Lydia Mazzi Kay-
ondo Ndandiko, Gideon Mbiydzenyuy and Mr. George Kisakye to mention a few for
many helpful ideas and discussions. I want also in particular to thank Ms. Imelda Atai
Musana of Uganda Bureau of Statistics and Mr. Richard Lutalo of National Council
for Science and Technology who assisted me in conducting the STII surveys.
I want also to thank my family, my mother, sisters, brother, in-laws, relatives, friends
for their support and most especially my wife Barbra Babweteera Mutambi and our
lovely two children Samuel and Esther for their love, patience and understanding dur-
ing the period of this work and while am away from home.
Lastly but not least, am very grateful to the support from Sida, Makerere University,
the College of Engineering, Design, Art and Technology, Blekinge Institute of Tech-
nology Karlshamn and all staf inside and outside of these institutions for their con-
tributions. I thank you.
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PART I
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Chapter 1 - INTRODUCTION
1.1 Background
Uganda is an agro-based land locked country with a population of about 30 mil-
lion people. It is well endowed with natural resources and salubrious climate, but the
industrial profle is still dominated by agro-industry and not innovation led. Facing
the challenges of poverty alleviation, a high population growth rate, climatic change
and environmental impacts among others, Uganda identifed exploitation of natural
resources and value addition as one of its main strategies to transform the country and
reduce poverty (MTTI, 2008).
With her vision of transforming the society from a peasant to a modern and prosperous
country within 30 years, (GoU- NDP, 2010), the main focus is private sector driven
economy. Te government of Uganda also signed up to the Millennium Development
Goals (MDGs) under the UN Millennium Declaration15. Te MDGs include: 1)
eradication of poverty; 2) achieving universal primary education; 3) promoting gender
equality and empowering women; 4) reducing child mortality; 5) improving maternal
health; 6) combating malaria, HIV/AIDS and other diseases; 7) ensuring environmen-
tal sustainability; and 8)developing a global partnership for development (MFPED,
2004). Te government is therefore aggressively promoting private sector develop-
ment, value addition, employment creation, country’s competitiveness improvement
and industrialization to levels associated with middle income countries.
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Uganda is a member of East African Community (EAC) with a market of over 120
million people with access to the sea. Even more attractive is being a member of the
Common Market for Eastern and Southern Africa (COMESA) with over 400 million
people (Ngwenya et al., 2010). Furthermore, it’s well advanced trading partners and
international markets that include mainly World Trade Organization (WTO) mem-
ber states, European Union (EU) countries, Asian countries and USA/AGOA. Te
country therefore highly desires value added agriculture, value addition industries and
investors/entrepreneurs to take advantage of such opportunities.
Industrial development is fundamental for economic growth. Both theoretical and
empirical literature shows that a high degree of efciency in the industrial sector can
contribute to increased production, product innovation, high value manufactured ex-
ports and high foreign earnings. It is through industrialization and innovation that
wealth can be created and higher incomes realized from natural resources and raw
materials transformation. Business incubators can promote innovation and accelerate
industrialization through encouraging business start-ups, information and technology
transfer, commercialization of research results, and implementation of science, tech-
nology, innovation and industrial development policies.
Business incubation is referred to as complex services and special environment pro-
vided temporarily for start-up enterprises with the aim of improving their chance of
survival in the early phase of the life span and establishing their later intensive growth.
Tere are numerous approaches in the literature and in industrial –economic develop-
ment practice to defne business incubation (Lalkaka, 1997; EC-CSES, 2002; Sun et
al., 2007).
Uganda, due to the unstable political situation and economic mismanagement in the
1970s and 1980s, experienced varying growth rates, policies and regulatory instru-
ments. All these resulted into a signifcant decline in industrial and commercial sectors
and negatively impacted on the gains made during the previous years from independ-
ence to 1970 (UNIDO, 2007).
During the past two decades Ugandan economy has established a strong record of pru-
dent macro-economic management and continues to undertake private sector oriented
structural reforms. It experienced sustained economic growth averaging seven percent
per annum generated by diferent economic sectors. Te government in collabora-
tion with other development partners has been trying to support small and medium
enterprises (SMEs) by various means, including technical assistance, capacity building
programs, and incentive schemes. However, unfortunately, industrial development in
Uganda until now has not been successful in following the pattern of industrial devel-
opment in the region.
In spite of the economic structural transformation over the past two decades, the econ-
omy still faces challenges (MFPED, 2010). Tese challenges include : persistently high
unemployment particularly of the youth; inadequate skills development which limits
entrepreneurship and innovation; inadequate infrastructural networks such as roads,
railway, energy, waterways, and internet usage which raises the cost of doing business
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and undermine private sector competitiveness; and a low manufacturing base. Tese
constraints have undermined achievement of faster socioeconomic transformation and
sustainable development.
Indeed for industrialization process to be sustainable, it requires a set of core compe-
tences such as skilled human resource, technological innovation and enhanced knowl-
edge capacity, access to afordable fnance and infrastructure, comprehensive and co-
herent policy processes and a culture of entrepreneurship and competitiveness. Te
creation and subsequent growth of enterprises with a substantial growth potential is
vital to the economic prosperity of industrialized countries (NAEC, 2004) Similar
to other developing countries in this respect, Uganda recognizes the ability of micro,
small and medium scale enterprises (MSMEs) to generate socio-economic benefts,
value addition to local raw materials, employment creation, income generation oppor-
tunities and wealth, promotion of entrepreneurship and enhancing of exports. Tey
constitute an important dimension in the innovation process (Beal, 2003; Hammer et
al., 1997; Byaruhanga, 2005; Tirthankar, 2007).
Te International “Doing Business Survey 2010” report ranks Uganda 129th out of
183 countries on a wide range of business indicators. Problems are identifed in par-
ticular registering property, trading across borders, protecting investors, starting a busi-
ness, enforcing contracts, and getting credit. Tese impediments, among others, are
afecting the competitiveness of the economy, with the main issues being access to
fnance, infrastructure, tax administration, work ethics, and government bureaucracy
(World Bank, 2011).
In Uganda, the industrial sector predominantly consists of MSMEs which accounts for
95% of the entire sector and employs more than 2.5 million people. Tese MSMEs
constitute 90 percent of the private sector, contributes 20% of GDP and are very dy-
namic with 80 percent being located in urban and peri-urban areas country wide and,
are largely involved in trade, agro-processing, and small scale manufacturing (GoU,
2010). With the majority focusing on low-value services, its unlikely therefore that
if left alone will be a platform for signifcantly transforming the economy as the case
in the rest of the world. Tese small businesses have several disadvantages that hinder
their success. Tey have difculties in securing the resources they need for survival
(Ferguson and Olofsson, 2004). Because of this, over 80-90% of the new businesses
started each year fail worldwide within the frst fve years of operation (Aerts et al.,
2007).
Although the private sector has grown rapidly between 2001 and 2007, growth in the
number of frms has been concentrated in small frms with low value addition. Te
number of registered businesses in Uganda in 2007 was 25,000 from 800,000 in 2001
with majority located in central region of the country (GoU, 2010; Kasekende et al.,
2003). Te service sector is the fastest growing in Uganda predominantly in telecom-
munications, hospitality and trade sub-sectors (MFPED, 2010). Due to globalization,
internal challenges and international competition, MSMEs have faced global chal-
lenges and like the rest of the world, less than 30% of the start-ups are not able to see
their frst birth day in Uganda (Hatega, 2006).
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Yet the rest of the world that has tried business incubation have claimed success rate
of over 85%. Incubators have been considered as a remedy for the disadvantages that
small and new frms encounter by providing numerous business support services. Tey
are useful in fostering technological innovation, entrepreneurship, commercialization
and industrial renewal. For this reason many countries have increasingly been engaged
in establishing business incubators (Akcomak, 2009; Lalkaka, 1997). It is also widely
acknowledged that incubators are a technology transfer mechanism, means of promot-
ing entrepreneurship and the commercialization of new knowledge and innovations
(Phillips, 2002).
Uganda Government’s past Poverty Eradication Action Plans (PEAP I &II) (MFPED,
2004), and in the recently launched National Development Plan 2010/11 -2014/15
(NDP, 2010), its strategy for poverty eradication is based on the transformation of the
economy through private sector investment, industrialization and export led growth
(i.e. emphasis focused on economic transformation and wealth creation). Tis calls
for commitment to continue harnessing synergies and inter/intra sectoral linkages;
encouraging foreign investments and exports with high-value addition and enabling
the innovative entrepreneurship by working closely with the private sector, civil society
and the academia in order to achieve the NDP objectives, the Country’s vision and
the MDGs.
Recently EAC & COMESA launched Customs Union and Common Market pro-
tocols (Mugisha, et al., 2009; Lunegelo et al., 2009), that abolish any kind of trade
protectionism and streamlines the fow of goods and services within the region. Te
economy will however be faced with other kinds of non-tarif barriers such as stand-
ards and regulations, and physical barriers at borders. Tere is a fear that stronger and
well equipped regional enterprises will out-compete struggling SMEs. What remains
to be done therefore is to focus on business development services, implement policy
measures and institution building mechanisms geared to facilitate and promote do-
mestic frms in their quest for competitiveness. Also strengthening public institutions
and policy makers in dissemination of a set of regularly produced and standardized
indicators including Science, Technology and Innovation indicators.
With the regional integration and an increasingly competitive environment, there is
strong need for industrial restructuring and strengthening of technological capabilities
in Uganda for innovations, diversifed production and value addition to take place.
However, the Ugandan experience in the incubation process is still at an early stage and
this research aims at better understanding and innovative ways of business incubation
in respect to the impact, coordination, design, development and management proc-
esses as well as the entire science, technology and innovation system.
Te Author has been involved in facilitating cluster initiatives under the Innovative
Systems and Clusters Program of Makerere University, industrial development policy
formulation, and technology transfer programs in the country. During this period, it
was observed that lack of infrastructural facilities, adaptation of science, technology
and innovation; and poor business support services are the major complaints hin-
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dering industrial transformation and entrepreneurship development. Tis is the main
objective of this research and it is in line with the vision and objectives of the National
Development Plan and the objectives of the Millennium Development Goals.
Tis research is motivated by the emerging importance of innovative clusters and the
realization that Science, Technology and Innovation are fundamental to understand-
ing the feld of business incubation. One of the strategies that this research proposes
government should adopt in enabling innovative entrepreneurship; promoting sci-
ence, technology and innovations; value-addition, changing peoples’ mindset and cul-
ture; business services and global industrial network for the industrialization process
is through innovative institutions and services such as Business incubation systems.
Tis thesis summarizes research within the feld of entrepreneurship and industrial de-
velopment. It is organized in three parts with the frst part presenting the introduction-
background information, problem statement, objectives, signifcance for the research
and research questions. A review of the key concepts from the industrial development
and business incubation literature as it pertains to this research; and, a description of
the methodological considerations, data collection methods used and analysis. Te sec-
ond part presents the papers on which the research is based that have been published or
presented in refereed journal and conference proceedings respectively. Finally, the third
part contains the summary discussions, conclusions, the way forward and references.
1.2 Research problem
Te micro, small and medium sized enterprises and start-up businesses in particular,
especially in the manufacturing sector in Uganda are faced with major challenges for
survival and success. Tere are many artisans with potential to start-up enterprises or
better improve on their products production processes and prototypes if technically
supported.
Uganda has a latent mass of trainable workforce, a large base of educated workers, sci-
entists, potential innovators who would contribute towards private sector job creation
through research and development; and starting commercial enterprises, yet it is not
happening. Many Ugandan training institutions and agencies have ofered business
management and technical courses, business plan competitions for graduate students
and entrepreneurs, but little further support to implement the skills and knowledge
acquired during training into commercial opportunities.
Attempts were made to introduce the concept of business incubation in Uganda in
1960s, and from the late 1990s up to to-date, other institutions and organizations
have been established to implement the concept. However, the world of incubation
is not-well known in Uganda. Tere is little information (no academic comprehen-
sive study) on the process of creating an efective incubator, i.e. coordination, design,
development and management processes as well as the entire science, technology and
innovation system in Uganda. Tis situation has necessitated a research to investigate
how to overcome these mentioned gaps, re-examine the current approaches to de-
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veloping enterprises, the potential role of business incubation strategy in stimulating
entrepreneurship and fostering industrial development in Uganda.
1.3 Objectives
Te main objective of the research is to come up with a model of small business incu-
bation for open innovation that can stimulate industrialization in Uganda.
To achieve the main objective, the research has the following specifc objectives;
(i) To study experiences in other countries worldwide in respect to business incubation,
industrial development and government support
(ii) To identify factors that afect performance of business incubators and growth of incubated
businesses in Uganda
(iii) To link open innovation approaches to an appropriate Ugandan business incubator
model
Tis Licentiate is covering the work done in order to achieve objective one and partly
objective two. Te other specifc objectives will be covered in the Doctoral thesis.
1.4 Signifcance
Start-up frms or small businesses that start in business incubators stand a higher rate of
survival and success by benefting from the business support services provided. Rising
factor costs and intensifying competition has promoted cost and risk sharing schemes
among frms leading to networks of frms and R & D alliances. Tese networks and
alliances, in turn stimulate the growth of institutions/enterprises designed to identify
problems and provide solutions involving specialized knowledge. Business incubators
as a high value-added services environment if successfully implemented, together with
the clustering program, can play a key role in addressing the mentioned challenges in
the process of industrialization. Te incubators can also strengthen the efective part-
nership between the government, researchers (academia) and the business community
(triple helix).
Te research objectives are in line with the objectives of the Uganda national devel-
opment plan and its specifc development indicators; i.e. employment creation and
value addition, increasing the level of industrial sector development, promoting sci-
ence, technology, innovation and ICT to enhance competitiveness, and improving the
country’s competitiveness position.
Te research is seeking to develop a set of appropriate strategies of how to address the
key issues from assessing the inexperienced or potential entrepreneurs’ ideas until their
visions are realized. It will focus mainly on the business incubation process and appli-
cation of methodologies and tools.
Te research fndings will therefore;
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(a) Provide credible information for entrepreneurship development, promotion of science,
technology and innovation system in Uganda
(b) A business incubator model that will provide a basis for Uganda government to realize
her vision in promoting science, technology and innovations (commercialization of tech-
nologies including new products developed from universities (spin-ofs)); public private
partnerships in industrialization process,
(c) Contribute to the literature and thorough understanding of the incubation concept and
processes especially best suited to the Ugandan situation. In addition, fully academic re-
searched knowledge on the entire incubation system will lead to addressing the implemen-
tation gaps not only in Uganda, but also regionally.
1.6 Research Questions
During the research study, the research seeks to answer the following questions:
1) What factors afect industrialization process, the performance of business incubators and
growth of small and medium industrial businesses in Uganda?
2) What are the general emerging trends in incubation industry in terms of supply and
demand services and practices?
3) To what extent has the triple helix (academia, government and Industry) helped in facilitat-
ing the start-ups, open innovations and growth of SMEs?
4) What lessons can be applied to the Ugandan situation for the business incubators to be
developed further?
Tis licentiate thesis is ofering answers to questions 1, 2 and partly 3 and 4
1.7 Expected Outputs
(i.) Te research will provide some useful insights; defne policy recommendations for the
government, Universities/ Research Institutes and private sector frms, business incubator
managers, and the synergies between the triple helix actors
(ii.) Te research will contribute to the literature of business support services, innovation
and entrepreneurship development and will enhance the knowledge and skills within the
incubation industry
(iii.) Te research output will be used to create awareness to the policy makers and fnanciers,
researchers and the business community in Uganda. As business incubators for open in-
novation pick up in Uganda and become efective, the manufacturing base will broaden
which inevitably builds industrial competence and frms will be competitive.
(iv) Tere will be both Licentiate and Doctoral thesis, publications in peer reviewed journals
and conference proceedings.
(v) A business incubation model for industrial development of Uganda
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1.8 Research Scope
Te research will focus on the Ugandan small and medium sized industrial manu-
facturing frms. Te sample will include metal and non-metal manufacturers, Agro-
processing and ICT services, i.e. fabricated metal and non-metallic products, wood
and wood related products, electrical and electronic products; foods and beverages,
textile fashion and clothing. To enhance the research results, the researcher will take
into consideration of the development of the incubation systems in Sweden, as an ex-
ample of developed countries, Tanzania and Uganda, serving as developing countries
in East African Region.
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Chapter 2 - CONCEPTS DISCUSSIONS AND THEORETICAL
FRAMEWORK
2.1 Conceptual Framework
Te World in which research, development and innovation take place has changed
fundamentally. Today, open science and open innovation co-exist, creating new op-
portunities and interdependences. New management practices are required to handle
the situation (Verheugen, G. and Potocnik, J. (2005). Tis research focuses on the role
of open innovation business incubators in the commercialization and industrialization
of scientifc fndings. Figure 2-1 shows the input variables into the incubation process.
Te research will investigate how the incubation process should be done to enable the
creation of successful start-ups.
Sources of Knowledge
& Ideas, and
Resources
Business
incubation model
for Ugandan
industrial
development,
Educated and
trained
professionals in
high-tech
businesses
Open Innovation
Business
Incubators –
Processes and
Management
issues
-[Transferring
knowledge; -creating
synergies; and
promoting
entrepreneurship].
Public and private
partners;
Institutions and
communities;
Books; Authors own
academic and
practical
experiences
Inputs Process
Expected Outputs
professionals
in high-tech business
Figure 1-1: A Conceptual Framework for the Study on the Role of Open Innovation Business Incubators
Source: Author (2011)
practical experiences
28
In this conceptual framework, a business incubator is a means to an end, and not an
end in itself. Open innovation business incubator is proposed as an organization pro-
viding infrastructure to support innovative companies overcome the barriers linked to
the complexity of the innovation process and creation of new ventures. Attention is
on the fundamental incubation process and the incubation outcomes.
It’s assumed that for the incubators to create an impact, it needs a holistic approach of
all resources, i.e. the inputs, the processes within in order for the outputs to realize (in
other words, taking ideas from inception to impacts).
Te supply of knowledge, ideas and resources (knowledge, skills, capital) and transfer
of all these within the incubator environment is essential in the process of supporting
entrepreneurs and new venture businesses. In this research, we are concerned with
the ideas or theories employed collectively in order to enable open innovation busi-
ness incubators produce the desired outcomes, in particular, the relationship between
knowledge, individuals and organizations.
2.2 Various Concepts Discussions
When we talk about industrial development, a number of concepts play a pivotal role
in the analysis. In this section, some main concepts related to industrial development
and used in this study are as mentioned below.
2.2.1 Industrialization
Industrialization has been described as closely associated with technological progress, a
series of profound socio-economic change in the organization of production and work,
and has been instrumental in giving shape to the modern political landscape (Bairoch
et al., 1996; UN/ECA, 2000). Tat is, in most advanced countries, industrialization
has been a process of transformation from a traditional to a modern society based on
industrial outputs and manufactured exports indicators (UNIDO, 2005). Industrial
development is the process of building technological capabilities through learning and
translating them into product and process innovations in the course of continuous
technological change.
Technological capability refers to the ability to make efective use of technological
knowledge in production, engineering, and innovation in order to sustain competi-
tiveness in price and quality. Such capability enables a frm to create new technologies
and to develop new products and processes in response to the changing economic
environment (Linsu, 2000; Page, 2010- Wiegratz, 2009).
True success, accordingly is created through establishing dynamic economies, the con-
cretization of economies of scale, establishing of more export processing/ special eco-
nomic zones/ industrial parks, the encouragement of diversifcation and improvement
in access to markets ( Page, 2009). John Page (2009) further acknowledged that the
29
success of the manufacturing industry is pivot in the achievement of Africa’s develop-
ment initiative.
Furthermore, importantly for industrial development is capability. Te ability to make
capacity operate competitively requires something more: the tacit knowledge, skills
and experience related to specifc technologies that is collected by enterprises and can-
not be imported or bought in. Te process involves creating new skills, partly by for-
mal education but, usually more importantly, by training and the experience of new
technologies. It requires obtaining technical information, assimilating it and improv-
ing upon it. It entails building institutional rather than individual capacity, with new
managerial and organizational methods, new ways of storing and disseminating infor-
mation and of managing internal hierarchies. It also needs intense interaction between
enterprises and support institutions. Finally, it requires the factor markets that provide
skills, technology, fnance, export marketing and infrastructure to respond to the new
needs of enterprises.
2.2.2 Entrepreneurship
Te word “entrepreneur” is derived from a French word that describes people who
provide a service (Todorovic, 2006). Many researchers recognize entrepreneurship
as being of fundamental importance for economic development (Wiklund, 1999).
Te defnition of entrepreneurship has evolved over time as the world’s economy has
changed as well. Tere are many defnitions of entrepreneurship that can be found in
the literature describing business processes. Entrepreneurship is the act of being an
entrepreneur, which can be defned as one who undertakes innovations, fnance and
business acumen in an efort to transform innovations into economic goods.
Some scholars have defned entrepreneurships as: the process of initiating a business
venture, organizing the necessary resources, and assuming the risks and rewards. While
in 1934 Schumpeter who popularized the concept defned it in terms of a person’s
ability to be innovative, in terms of goods and services produced, methods of pro-
duction, markets, sources of supply and industrial organization. Te underlying en-
trepreneurial attitudes and behaviors are three key dimensions: Innovativeness, risk
taking and proactiveness (Morris et al., 1999). Innovativeness refers to the seeking of
creative, unusual or novel solutions to problems and needs. Tese solutions take the
forms of new technologies and processes, as well new products and services. Risk tak-
ing involves the willingness to commit sufcient resources to opportunities having a
reasonable chance of costly failure. Proactive is concerned with implementation with
doing what is necessary to bring an entrepreneurial concept to fruition.
Entrepreneurship is considered as an approach to management, defned therefore as
a process by which individuals – either on their own or inside organizations – pursue
opportunities without regard to the resources they currently control in an innovative,
risk-taking and proactive manner (Todorovic, 2006; Brown et al. 2001; Morris et al.,
1999)
30
From the above defnitions, entrepreneurship covers an individual’s motivation and
capacity independently or within an organization to identify an opportunity and to
pursue it in order to produce new value or economic success. Entrepreneurs pursue
opportunities to grow a business by changing, revolutionizing, transforming or intro-
ducing new products or services. (Davidsson et al., 2009). Te three important themes
in this defnition are (1) the pursuit of opportunities, (2) innovation, and (3) growth
link entrepreneurship to industrialization process. For both start-up companies and
existing frms, entrepreneurship spurs business expansion, technological progress and
wealth creation (Lumpkin & Dress, 1996).
2.2.3 Entrepreneurship and Industrialization
Industrialization is both the process of building up a country’s capacity to convert raw
materials into new products and the system that enables production to take place.
Te issue of entrepreneurship and its relationship to the industrialization process has
long occupied the attention of development planners. In particular, the key role of
manufacturing industry for growth based mainly on technology driven increase of
productivity and some essential co-factors, like human skills, capital or appropriate
institutions is globally undisputed.
International literature suggested that operating in clusters may help small enterprises
to overcome their growth constraints (McCormick, 1999; Andersson et al., 2004;
Solvell, 2009). Creating favorable conditions for entrepreneurship does indeed help
the process of industrialization, and business incubation focusing on national/regional
strengths through clustering and networking is believed to help small enterprises grow
and contribute to industrialization. Terefore small enterprise development has been
linked to the industrialization process (McCormick, 1999; Romijn, 2001).
What is needed thus is to create favorable conditions to achieve the above objectives.
Facilitating entrepreneurs will contribute to industrial development which is a key role
of the developmental state. Te emergence of the cluster based development strat-
egy termed as “new innovation system” based on the cooperation among universities
(research institutions), industry and government has been reported to have brought
a wide range of support services worldwide for development of knowledge based busi-
nesses, with linkages to universities, research institutes, venture capital and interna-
tional joint ventures. Clusters afect competitiveness within countries as well as across
national borders (Porter, 1998).
Te major problems in Africa such as; inadequacy of infrastructure and skilled indus-
trial human resource, lack of technological capacities (industrial, technological infor-
mation and innovation, low investment or the inability to exploit and process immense
natural resources), and technological knowledge all contributed towards the down
turn of industrial production throughout the 1980s, 1990s and 2000s. Te industrial-
ized countries success is explained from history to have lied mainly in their ability to
learn how to improve performance in a variety of felds, including, macro-economic
31
environment, institutional development, technological adaptation, competitive and
productive infrastructure development, use of natural resources, organization, mar-
kets, and their strong focus on improving their skills as a way to solve problems and
competitiveness. Figure 2-2 shows the pillars of growth as explained above.
Figure 2-2: Pillars of Growth
2.2.4 Science, Technology and Innovation
Science and technology are essential tools in meeting development goals, especially
those contained in the United Nations Millennium Declaration (UNSC, 2009). Sci-
ence, Technology and Innovation (STI) activities have been one of the driving forces
of economic and social change for centuries. Similarly, STI activities have accelerated
growth and brought about social change through the movement of people, goods and
services and an increased capacity to generate, transmit and use STI knowledge (Ertl
et al., 2007; OECD, 2006)
Science, technology and innovation are important and necessary to increase competi-
tiveness, prosperity and quality of life. STI is used to mean the generation, use and
difusion of all forms of useful knowledge as well as the evolution of associated insti-
tutional arrangements (UN, 2003; Gault, 2008; OECD, (2007)). Technology change
is at the heart of development worldwide. Technology is hereby defned as knowledge
that contributes to the creation, production and improvement of economically and
socially useful products and services. Such knowledge thus relates not only to physical
artifacts but also to forms of organization for their production, distribution and use.
POLICY CO-ORDINATION
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Technological knowledge relies heavily on the mode of learning, on adapting to new
technologies, on educational systems, the STI as well as the industrial policies, the na-
ture and composition of the private sector and the capabilities already inherent in the
public sphere. Science, technology and innovation are often considered as important
drivers for economic development and growth. Particularly indigenous capabilities in
STI are essential for the achievement of both short- and long-term development goals.
Innovation is seen as one of the most important ingredients in the success of organiza-
tions, the producer of solutions to problems that are not entirely understood or widely
perceived and the generator of opportunities that may not have existed before or were
not exploited. In other words, it is the process of doing or introducing something new
either an idea or an invention translated into a good or service for economic gains ir-
respective of whether they are new to their competitors, countries, or the world. Inno-
vation could be subdivided into many types, for example process innovation, market
innovation, product innovation, factor innovation, and even organizational innova-
tion (OECD, 2005; Pittaway et al., 2004; Hippel, 1988; Hanel 2007; Mairesse and
Mohnen, 2007).
It often involves new technologies or technology applications. It increases the produc-
tivity and choice of goods and services available to the consumer. It cannot directly
be measured but instead be inferred using indicators for example, number of patents
flled, number of new products introduced, or expenditure on R & D. Te body of
policies, regulations, institutional and infrastructural arrangements and activities con-
cerned with the creation, acquisition, dissemination and utilization of scientifc and
technological knowledge, is generally referred to as the national science, technology
and innovation (STI) system.
Tracking the emergence of new technologies, products or processes can provide valu-
able feedback and information on the rate and nature of technological innovation.
Terefore, STI indicators are also key elements in industrialization process. Te devel-
opment and difusion of new technologies plays a central role in improved productiv-
ity and competitiveness. While the global economy is being reshaped by new ICTs and
by radical technological changes in a number of other S&T disciplines, understanding
the process that leads to innovations and to their dissemination, their indicators both
within and across sectors, is still defcient in Uganda’s situation.
Uganda, like many other African countries has not been developing primary science,
technology and innovation indicators and to make them accessible to public and pri-
vate sector decision makers for social economical development and investment pur-
poses. Uganda sufers many limitations and inadequacies in relation to institutional
arrangements, infrastructure and policies seriously hindering her ability to innovate in
many directions. Terefore, national plans aimed at the creation of STI capabilities will
need to allocate a great deal of attention to the evaluation of innovation at the level of
business enterprises, the level of individual segments and sectors. Activities related to
enterprise creation, incubation and promotion undertaken in universities and research
centers of a country like Uganda, must receive adequate attention in initiative design,
to improve national STI monitoring capabilities and develop innovation culture.
33
2.2.5 Open Innovation
Open innovation can be defned as ‘the use of purposive infows and outfows of
knowledge to accelerate internal innovation, and expand the markets for external use
of innovation, respectively’ (Chesbrough et al., 2006, 2003). Depending on its busi-
ness model, a frm decides whether or not external and internal knowledge is valuable
to be further developed and commercialized into a new business. Open Innovation
means that valuable ideas can come from inside or outside the company and can go
to market from inside or outside the company as well. Tis approach places external
ideas and external paths to market on the same level of importance as that reserved for
internal ideas and paths to market in the earlier era.
According to Penin (2009), open innovation must encompass three constitutive ele-
ments: (i) Voluntary knowledge disclosure from “participants”; (ii) knowledge being
open (which is equivalent to say that “spillovers are not controllable”, and (iii) con-
tinuous and dynamic interactions among “participants” (open innovation means that
anybody can participate and is therefore potentially a participant). Tere are several
advantages that frms can beneft working in an open innovation style and practices
according to Vanhaverbecke et al., (2008); Keupp and Gassmann, 2009; Laursen and
Salter, 2005);-
• Innovating frms beneft from early involvement in new technologies or business op-
portunities. Open innovation allows innovating companies to sense developments in a
wide range of externally developed inventions by buying minority stakes in (high-tech)
start-ups, participating in venture capital funds, or by providing educational investments
in promising projects at universities or research labs
• Innovating frms also beneft from delayed entry or delayed fnancial commitment.
Open innovation practices ofer frms more fexibility about when to start the internal
portion of the innovation process: a company can start exploring the commercial pos-
sibilities of a technology outside initially, via relationships with universities, SMEs and
other innovation sources
• Open innovation ofers frms the advantage of an early exit, and the ability to realize
some value from projects that do not go forward internally. Open innovation is charac-
terized by the possibility that innovating frms can always license or sell technologies or
spin-of ventures that are not promising enough and/or that do not ft with their busi-
ness model or core competencies.
• Open innovation allows frms to beneft from delaying an exit. If the frm chooses
to syndicate its investment in the venture and invite other investors in, the frm also
benefts from ‘other people’s money’ supporting the development of the venture. Tis is
capital efcient for the frm, though it does relinquish a substantial degree of strategic
control to the outside investors. In this way, the open innovation paradigm allows frms
to maintain fexibility while keeping their diferent venture options open.
Terefore, for the developing countries such as Uganda that are disadvantaged in terms
of science, technology and innovation activities (low level and low value-added indus-
try position) adopting open innovation or collaborative innovation practices would
enhance intentions for industrial transformation.
34
2.2.6 Triple Helix and Clusters
Te ‘Triple Helix’ is a spiral model of innovation that captures multiple reciprocal re-
lationships at diferent points between industry, academia and the public sector in the
process of knowledge capitalization and social development (Etzkowitz, 2002; Jerome
et al., 2010; Gunasekara, 2006; Simba, 2010). Te triple helix denotes the university-
industry-government relationship as one of the relatively equal, yet interdependent,
institutional spheres which overlap and take the role of the other. Emerging literature
that examines university-industry-government networked infrastructures supports
these triple-helix collaborations as the key to improving the conditions for innovation,
productivity, and wealth in a knowledge-based society (Campbell, 2005; Leydesdorf,
2001).
Te university is a frm founder through incubator facilities; industry is an educator
through company universities and government is a venture capitalist through small
business innovation research (SBIR) and other programs. Innovation clusters are the
linkages, interactions, relationships and development of diferent but inter-dependent
entities (i.e. education, research, and development, industries, fnancial institutions)
to form a virtuous circle of innovation and entrepreneurship. A cluster is a geographic
concentration of competing and cooperating companies, suppliers, service providers,
and associated institutions (Porter, 1998; Solvell, 2009; Ketels, 2009).
Clusters constitute important knowledge spillovers for businesses. Clustering is gener-
ally defned as a process of frms and other actors co-locating within a concentrated
geographical area, cooperating around a certain functional niche, and establishing
close linkages and working alliances to improve their collective competitiveness. Te
physical proximity of the factors outlined above furthers the creation of formal and
informal linkages and networks among frms, higher education and research institu-
tions, fnancial establishments, public agents and other local organizations, where in-
formation can easily fow and propagate. Clustering is seen as a key means of driving
regional development by building private and public sector partnerships to mutual
beneft through government and regional investment in innovation incubators, science
parks and cities, and technology transfer ofces (Slovell et al., 2003).
2.2.7 Business Incubation
Business Incubation is a unique and highly fexible combination of business develop-
ment processes, infrastructure and people, designed to support entrepreneurs and nur-
ture and grow new and small businesses, products and innovations through the early
stages of development and/or change (Rice, 2002; Philips, 2002). Tere are several
defnitions and approaches to business incubators available in academic literature and
many have been adopted by industry associations and policy makers in diferent coun-
tries refecting local cultures and national policies. However, the general defnition of
business incubator by the National Business Incubation Association as mentioned on
their website (www.nbia.org) is:
35
Business incubators nurture the development of entrepreneurial companies, helping them
survive and grow during the start-up period, when they are most vulnerable. A business
incubator’s main goal is to produce successful frms that will leave the program fnancially
viable and freestanding. Te most common goals of incubation programs are creating jobs
in a community, enhancing a community’s entrepreneurial climate, retaining businesses in
a community, building or accelerating growth in a local industry, and diversifying local
economies.
Despite the eforts to develop a general defnition for business incubation, there are
still a variety of models of business incubators. In business incubation, there is some
degree of Government, Academia and industry involvement (Chandra, 2007). Te
most common classifcation of business incubators is based on funding. Tere are
those that are: (i) public funded such as those set up by government agencies in sci-
ence/technology/business parks, research institutions and universities (ii) privately
funded such as those in privately run organizations and enterprises. Recent studies
introduced the mixed-models of business incubators such as public-private partner-
ships incubators (Lalkaka, 2000).
Te term ‘incubator’ was derived from the fundamental meaning of the term: Te
artifcial nurturing of the chicken egg in order to hatch them faster in a sheltered en-
vironment. Te same hatching concept is applied to the incubating of companies; it
speeds up new ventures’ establishments and increases their chances of success. An in-
cubator thus hatches new ideas by providing new ventures with physical and intangible
resources (Becker and Gassmann, 2006).
Business incubation concept rests on the argument that if weak but promising new
businesses with a potential of growing into successful ventures can be identifed at an
early stage and helped, failures, loss of resources can be reduced and more ideas can
be developed (Hamdani, 2006). Business incubation originated in the U.S in the late
1950s in an efort to re-use abandoned or underutilized buildings, create wealth and
employment and contribute to local and regional economic development (Wiggins
and Gibson, 2003; Hackett and Dilts, 2004). However, the concept has evolved over
time contrary to what was originally claimed.
Incubators are of basic importance in the process of establishing links between research
and business. Tey provide support services to start-up frms, “temporarily’; enabling
young entrepreneurs with a scientifc background to build up their business manage-
ment know-how and develop their innovative businesses. Incubation takes place in
both physical and virtual incubators. Te later use the internet to provide support
services to the enterprises, which could not be located in the limited physical space
available for start-ups. Across the incubator movement, the management problems of
incubator clients are met with the delivery of a variety of value-added management
services. Te driving force (in incubator programs) is the supply of expertise, capital
and support that comes from assistance activities directed towards flling the voids in
entrepreneurs’ abilities (Duf, 1994).
36
2.3 Industrialization in Uganda
Te country is well endowed with natural resources and a healthy climate. Although,
there is abundance of raw materials, they are not exploited and efectively utilized.
Te industrial sector occupies a central position in the Government’s vision and the
policy actions are geared towards economic and social transformation. Te industrial
sector is contributing 24% of the country’s GDP, while agriculture, services and others
contribute 22%, 48%, and 6% respectively (UBOS, 2010). Te relative small share
of industry’s contribution and the larger share of services are uncharacteristic of a low-
income country in terms of value added and employment.
Industrial Development in Uganda is an integral part of the Government’s overall
National Development Plan, 2010/11 -2014/15 that is to be achieved by transforming
Uganda into a modern and prosperous/industrial country. Te economy is predomi-
nantly agricultural and heavily reliant on the export of primary raw commodities with
a relatively small industrial sector whose share of GDP has increased steadily over the
past decade through expansion, diversifcation and establishment of new industries.
Apparently, the manufacturing sector in Uganda has difculties realizing the potential
for innovation, productivity improvement and sectoral growth (product diversifca-
tion, and market penetration). Tese inadequacies undermine the country’s ambition
to industrialize and the competitiveness of industrial and related sectors in Uganda.
Te basis for Uganda’s future prosperity and its ability to invest in the improvements
desired will depend on the competitiveness of its existing and future industries as
well as strong policy implementation capacity. Tis can only be done by advancing
knowledge, value addition, promote high performance and governing practices, sci-
ence, technology and innovation, as well as building the skills of the manufacturing
workforce.
Figure 3-2: Sectoral Contribution to GDP
Source: Uganda Bureau of Statistics Database, 2010
37
In Uganda, the industrial sector is dominated by MSMEs which accounts for 95% of
the entire sector and employs more than 2.5 million people. Te MSMEs constitute
90 percent of the private sector, and are very dynamic with 80 percent being located
in urban and peri-urban areas country wide. Tey are largely involved in trade, agro-
processing, and small scale manufacturing. MSMEs represent one of the most viable
vehicles for sustainable grass-roots economic growth in the country (GoU, 2010).
Te New Policy Framework and investment priorities outlined in the recently pub-
lished National Development Plan (NDP) are expected to increase the pace of struc-
tural transformation of the economy. Te current national industrial policy also spells
out aspects of national development and proposes several interventions targeted at
improving the performance and contribution of the industrial sector. Te policy focus
includes:
1. Extracting and developing natural domestic resource – based industries such as petro-
leum , cement, and fertilizer industries; and promoting competitive industries that use
local raw materials
2. Agro-processing; focusing on food processing , leather and leather products, textiles and
garments, sugar, dairy products, and value addition in niche exports
3. Knowledge –based industries such as ICT, call centers, and pharmaceuticals that exploit
knowledge in science, technology and innovation
4. Engineering for capital goods, agricultural implements, construction materials, and
fabrication/ Jua Kali operations (MSMEs)
Under the economic priorities in the recently launched NDP was enhancing economic
development opportunities and not only in major urban centers but throughout the
country. Towards this goal, the government is developing an industrial park in every
regional center to support investors with work spaces, serviced with the necessary fa-
cilities such as electricity, road networks and water. So far, development of 25 parks is
in progress, with the three Kampala industrial and business parks located in Namanve,
Luzira and Bweyogerere.
Generally countrywide, the government is working to improve the road network, en-
ergy supply, ICT and much improvement in water supply. Uganda has in addition
shown a comparative advantage in providing education services in the region. For
instance, Uganda has one of the top ranked universities in Sub-Saharan Africa ex-
cluding South Africa, Makerere University. Tere is an advantage of highly educated
and trained labor force, with availability of land for both industrial and agricultural
development.
However, with the comparative advantages mentioned above, Uganda is still con-
strained from manufacturing of capital goods and services due to weaker business
environment, high costs of infrastructure and high trade costs. To this efect, attention
should be given to human resource development; skills and technology development
for components of value chains; innovative institutions and services; provision of ef-
fcient infrastructure services, fostering regional integration and coordination, rein-
forced fnancing and risk mitigation mechanisms; and enabling policies.
38
It is worth noting that Ugandan population growth rate is rapidly expanding and ac-
cessibility to education continues to improve, employable citizens being churned out
of the education institutions overfowing the job market, hence the rise in unemploy-
ment. Universal Primary Education (UPE) was formally launched in Uganda in 1997
and has to date resulted in the enrollment of over 8 million pupils from Primary One
to Primary Seven (UBOS, 2010). In addition, the government also commenced the
Universal Secondary Education/Universal Post Primary Education Training [USE/UP-
PET] Programme in 2006 and the rate of transition from primary to post primary has
increased by 30%. Te secondary school enrollment is over One million from Senior
One to Senior Six.
Te government policy to liberalize the education system has led to an increase in the
number of private higher learning institutions. Uganda has a total of 27 universities,
out which 5 are publically owned and 22 are privately owned while the total number of
institutions is 139 including universities, colleges and other tertiary (Non-University)
institutions.
Table 2- 1: Primary and Secondary Enrollment
Category of
School Enroll-
ment
2005 2006 2007 2008 2009
Primary 1-7:
Grand totals 7,223,879 7,362,938 7,537,971 7,963,979 8,297,780
Secondary S1-S6 728,393 814,087 954, 328 1,088, 744 1,194,454
Source: UBOS Abstract 2010
Table 2-2: Higher Institutions Enrollment 2006-2007
2006 2007
Institutions No. Male Female Total Male Female Total
Universities 26 46,475 34,712 81,187 55,169 41,880 97,049
University colleges 12 46,475 34,749 81,224 11,094 8,939 20,033
Technical Colleges 6 1,848 132 1,980 1,844 116 1,960
Commercial Colleges 48 9,786 9,053 18,839 8,512 8,671 17,183
Management 8 2,000 2,156 4,156 1,789 2,046 3,835
Health/Medical 15 2,108 1,024 3,132 2,167 1,116 3,283
Agricultural & Forestry 6 1,370 281 1,651 1,305 407 1,712
Teological Colleges 2 850 248 1,098 1,024 64 1,088
Law Devt Centre 1 500 300 800 500 300 800
Grand Total 124 111,412 82,655 194,067 83,404 63,539 146,943
Source: Uganda Bureau of Statistics Abstract 2010
39
Due to the increase in the number of higher education and tertiary institutions, more
graduates are getting out of these institutions. With the government’s policy of fo-
cusing on disciplines key to national development, the enrollments in science and
technology has continued to rise, for instance there was a 5 percent increase rate from
2005 to 2006 (NCHE, 2007). Tere is need for a serious efort to have internships
with the labour market and practical training in the world of work. It is therefore
imperative for higher education institutions and the economy to develop mechanisms
for continuous and sustainable interface between institutions, R&D, and the market.
In spite of the commendable economic performance, the country continues to face
some challenges which have undermined achieving much faster economic growth and
socio-economic transformation. In particular, although the industry sector now ac-
counts for 24 percent of GDP, industrial development in Uganda is still faced with
inter alia, the following constraints
• Inadequate technologies for the processing of agricultural and mineral products
• Inadequate industrial institutional support services for the development of a competitive
industrial sector
• Lack of entrepreneurship development and MSMEs support institutions
• Limited scope and linkages for forward and backward integration of industries
• Lack of engineering industries, especially industries producing capital goods, interme-
diate goods, spare parts and components, all of which have restricted Uganda’s choice
of technologies for industrialization, in particular for product design, production and
maintenance know how
• Inadequate skilled industrial human resources including managerial and critical skills
such as entrepreneurial capabilities, engineers, technologists, and technicians
• Inadequate infrastructure conducive for industrial development and utility services,
especially insufcient energy supply, poor road networks, lack of railway networks, little
piped water for production, etc.
• High cost of accessing capital and low technology development; all of which contribute
to the high cost of production for domestic industries and are barriers to industrializa-
tion
Te industrial sector is for instance contributing 24% of the country’s GDP, while
Agriculture, services and others contribute 22%, 48%, and 6% respectively (UBOS,
2010) compared to Tanzania with 24.2% industry sector contribution to GDP, (URT,
2010). Te low contribution of the industrial sector to the annual GDP is attributed
to slow growth in the manufacturing sector.
With the need to change the mindset of Africans and Ugandans in particular with
respect to doing business and work attitudes, business and technology incubators will
contribute to addressing the above constraints.
40
2.3.1 An Overview of Micro, Small and Medium Enterprises in Uganda
Tere is great diversity in the defnition and classifcation of micro, small and me-
dium sized enterprises (MSMEs) among countries. Several criteria are used to defne
small businesses. Te most widely used key criteria in categorizing enterprises include
number of employees, annual sales turnover, and capital/total assets. Te Ministry
of Finance, Planning and Economic Development (GoU, 2007) gave the following
defnitions:
Table 2-3: Defnition and Classifcation of MSMEs
CRITERIA
MICRO
ENTERPRISE
SMALL
ENTERPRISE
MEDIUM
ENTERPRISE
Number of employees < = 4 employees < = 50 employees > = 50 employees
Sales Turnover < = 12 million UGX < = 360 million UGX > = 360 million UGX
Total Assets/Capital < = 12 million UGX < = 360 million UGX > = 360 million UGX
By these defnitions, MSMEs contribute approximately 75 percent of Uganda’s gross
domestic product (GDP) and employ approximately 2.5 million people, signifying
their importance in the economic development of Uganda. But, at the same time,
MSMEs have operational and structural challenges. Studies have shown that 70% of
the new frms in Uganda don’t survive frst year (Hatega, 2006), while in Europe they
don’t survive the third year and that the number considerably falls to 15-20% among
those that are incubated (Akcomak, 2009).
Te obstacles that afect MSMEs’ ability to compete favorably include: limited infor-
mation on fnancing products; poor managerial practices; lack of technical training
and advice in small businesses; problems in accessing resources and inputs, technol-
ogy, skills; inability to access product/process standard and certifcation services; con-
straints of packaging, labeling, branding and marketing; and other infrastructural
support (lack of work place and storage facilities, etc.) required for efective operations
as business enterprises. Many of which operate in the informal sector with little col-
laborative relationships (MFPED, 2007; MTTI, 2008).
Micro, small and medium enterprise development is the responsibility of a wide range
of government ministries and institutions, private sector associations and agencies. A
large number of non-governmental organizations are also included in MSME develop-
ment. A well coordinated policy framework and institutional mechanism to support
MSME development is still lacking. However, the promotion and development of
micro, small and medium enterprises is the responsibility of the Ministry of Tourism,
Trade and Industry with the support of the Ministry of Finance, Planning and Eco-
nomic Development, but the role clarity is somewhat lacking.
Terefore the ultimate responsibility for the development and promotion of MSMEs
sector in Uganda cannot be pointed out in perhaps a clear manner. Despite the ex-
istence of business, vocational, management skills institutions, member business as-
sociations, chambers of commerce up to the grass-root levels and other donor support
41
programmes for MSME development in the country, there is sometimes duplication
of work/programs across agencies, government departments and ministries - which
certainly derails eforts to develop the MSME sector.
It is stressed that technological innovation and the associated institutional adjustments
underpin long-term growth and must be at the center of any strategy to strengthen
the private sector (UN, 2005). Te emergence of the cluster based development strat-
egy termed as “new innovation system” based on the cooperation among universities
(research institutions), industry and government has been reported greatly to have
brought a wide range of support services worldwide for development of knowledge
based businesses, with linkages to universities , research institutes, venture capital and
international joint ventures. Clusters afect competitiveness within countries as well as
across national borders (McCormick, 1999; Porter, 1998)
Additionally, business incubation focusing on national/regional strengths through
clustering and networking is believed to help small enterprises grow and contribute
to industrialization (McCormick, 1999). Business Incubators often provide young
frms with a shared space business and professional services, and access to sources of
funding that are difcult for young frms to acquire on their own. A great majority of
incubators are connected to institutions such as universities, communities, research
institutes, consortiums, government administration councils, and Non-government
organizations.
2.3.2 Building Entrepreneurial Communities in Uganda
Enterprise Development is growing in popularity as an approach to community eco-
nomic development. Its goals are to create wealth for owners and employees by helping
entrepreneurs start and grow their businesses. Conceptually, entrepreneurial functions
and activities may be performed by individuals or by corporations. Tey may involve
relatively small amount of resources as in the case of family small scale enterprises or
they may be large scale venture capital operations. Tey may be conducted by a new
business enterprise established for the entrepreneurial tasks or carried out within an
established frm as a new line of activity, hence intra-preneurship.
Entrepreneurship and entrepreneurs are usually associated with the initiation of busi-
ness ventures that promise to be proftable, the responsibility of making basic business
policy decisions that determine the course of the enterprises and the innovations con-
cerning new products or new production methods or forms of business operations. An
entrepreneur is invariably the one who commits the capital and bears the risk (Sieh,
1989; Lichtenstein et Al., 2004)
Tis defnition highlights two important attributes of the entrepreneurial process: op-
portunity and innovation. Micro, small and medium enterprises have been recognized
in the national economies for their contributions, employment creation, skills devel-
opment, regional economic growth. Uganda’s entrepreneurship sector is among the
most vibrant in the world according to the recent global entrepreneurship surveys, but
faces a challenge of keeping businesses afoat.
42
Uganda has also taken strong considerable eforts in restructuring the existing higher
institutions of learning and supported establishment of new ones with particular em-
phasis on building entrepreneurial skills, started promoting students capacity to trans-
form ideas into business proposals, application of information and communication
technologies, as well as actual products and services for local and regional markets.
However, with the students/ graduates developing practical skills in enterprise creation
and tested innovative ideas, they will need support institutions and infrastructural fa-
cilities, such as fnancial institutions, venture capitalists, business and technology incu-
bators to nurture new enterprises through providing critical services in the early stages
of enterprise development. Importantly, entrepreneurs would be better equipped to
succeed in their investment plans if they have available the required skills and capa-
bilities at the level of frms and support institutions. With this approach, the benefts
of BIs can be attained in a distributed manner and can efciently stimulate industrial
development.
Uganda has got a number of business support organizations ofering services intended
to help SMEs/frms grow and break even. Tese organizations include those set up by
private sector operators and those that are afliated to the government. Te key among
government ministries and agencies include: Ministry of Tourism, Trade and Industry,
Ministry of Agriculture, Animal Husbandry and Fisheries, Ministry of Finance, Plan-
ning and Economic Development, Uganda Investment Authority, Uganda Revenue
Authority, Uganda National Bureau of Standards, Uganda Export Promotion Board,
Uganda Industrial Research Institute, Management Training and Advisory Center, etc.
while the private organizations include: Private Sector Foundation of Uganda, En-
terprise Uganda, Uganda Manufacturers Association, Uganda National Chamber of
Commerce and Industries, Microfnance institutions, Uganda Small Scale Industries
Association, and Non-Government Organizations.
Te services that they ofer vary and they include:
• Entrepreneurship training programs that range from marketing and selling strategies to
fnancial and business management;
• Tey also facilitate and structure business linkages especially linking small and medium
enterprises to larger and older organizations;
• Tey also help frms install and implement quality control systems to improve the prod-
ucts and services.
• Tey also ofer business start up training to youth planning to set up businesses and help
SMEs to participate in international trade fairs where they market and create awareness
for their products.
• Te government has also promoted the policy of microfnance as a tool for powering
micro, small and medium enterprises in ofering credit facilities.
• Some ofer grants as seed money for acquiring machinery, rent ofces, training, etc.
Tere have been some good results from these programs, but there are also a large
number of problems. Tus, with all the above interventions, the statistics on SMEs
43
failing are appalling. In order to propel businesses forward and support their opera-
tions to higher and acceptable standards which will lead to productivity, sustainable
growth and industrialization, investing in infrastructure especially in the institutional
and support infrastructure/ facilities is more appropriate and only then will the above
measures attain the sustainable impact. One of the proposed institutional support in-
frastructures is through business incubation centers.
44
Chapter 3 - METHODOLOGICAL CONSIDERATIONS
3.1 Introduction
Tis chapter introduces the research strategy and the methodological techniques ap-
plied. Te limitations have been also defned. Te research strategy adopted was in-
spired by Participatory Action research. It also involves interviews and surveys from
diferent stakeholders within Uganda, Tanzania and Sweden. Te work presented so
far is what has been done within the Ugandan situation and in literature review. Such a
focus led to involve many stakeholders including representatives of several government
ministries and agencies, community based and business development organizations or
associations, environmental organizations, academia, private businesses and coopera-
tive societies. It is both practice- and theory-driven research for potential benefts. An
action research approach was seen to be appropriate.
3.2 Participatory Action Research
Action research is known by many other names, including participatory research,
collaborative inquiry, emancipatory research, action learning, and contextual action
research/ action learning, but all are variations on a theme. “Action research...aims
to contribute both to the practical concerns of people in an immediate problematic
situation and to further the goals of social science simultaneously. Tus, there is a
dual commitment in action research to study a system and concurrently to collaborate
45
with members of the system in changing it in what is together regarded as a desirable
direction (Dick, 2000) Accomplishing this twin goal requires the active collaboration
of researcher and client, and thus it stresses the importance of co-learning as a primary
aspect of the research process” (O’Brien, 2001; Dan MacIsaac, 1996).
Participatory Action Research provides means to measure results against initial goals
and identify critical elements within a project to advance the desired outcome (Ryd-
hagen, 2002; Simba, 2010; Otine, 2011; Lating 2009). Te methodological approach
was inspired by the Participatory Action Research (PAR), as a collaborative approach
which involves all partners in the process and recognizes their strengths. It is moti-
vated by the triple helix concept and trans-disciplinary knowledge production (Mode
2) (Gibbons et al., 1994). Te research has adopted both quantitative and qualitative
methods (Yin, R. K., 2009; Creswell, J.W. 2008; Driscoll et al., 2007).
To address and achieve objective one, and partly two of the research, in addition to
updating the earlier information gathered during the previous studies, the following
studies and surveys were done;
(i) Formulation of the National Industrial Policy
(ii) Needs Assessment survey for the artisans, handicraft and small agro-processors under the
innovation systems and clusters program
(iii) Te Science, Technology and Innovation Indicators status in Uganda
(iv) Introduction of the Value addition and utilization of locally available resources program
named ‘One Village One Product Program’ in Uganda
3.3 Data Sources
Multiple data collection methods were employed for data collection from the primary
data and secondary data sources. We administered questionnaires and conducted in-
terviews with stakeholders, held group discussions and analysis. Te purpose and focus
of the data and information collection was to identify the relevant literature and back-
ground information concerning the subject; the approved policies, proposed initiatives
and the implementing agencies/ service providers and how they can deliver efectively
to meet the needs of their clients.
Te main objectives were to add to the existing knowledge of the needs of the MSMEs
and start-ups, identify awareness, requirements and barriers particularly when starting
or growing a business in order to fnd most appropriate ways to enhance service de-
livery, promote science, technology and innovation and how best to engage the triple-
helix for efective business support services.
Ultimately, the research is investigating the elements, strengths, and weaknesses of the
existing BIs locally, regionally and internationally. It is also focusing on the actors, the
linkages and the factors that afect the successes or failures. Te research has limita-
tions particularly in obtaining data during the interviews and surveys. Access to some
private companies and some sensitive institutions like banks, security organizations,
46
and health centers for their organizational and internal issues was not possible. Where
they did agree, it was sure that data was not genuine and this could undermine the
accuracy of the information.
3.3.1 Secondary Data Review
An extensive literature review from a wide range of selected articles from journals,
government policies and publications, technical documents, reports and books was
carried out to inform both the approach used, the focus of the work and analysis of
the content. Tis involved conceptual and literature review on industrialization, en-
trepreneurship and business incubation and triple-helix; and their impact on business
development and industrialization process. Tis led to an in-depth understanding of
the incubation process, the actors and the environment. It helped in identifcation of
the problem and the mitigating factors to improve the situation in Uganda. Te analy-
sis also informed the design and conduct of interviews and surveys.
3.3.2 Primary Data Collection
Primary data collection covered informal group discussions in diferent workshops and
meetings attended to introduce the research topic and the scope in order to buy their
support when it comes to data collection.
Semi-structured Questionnaires for the interviews and Surveys were developed, pre-
tested and used to collect data face –to – face from the stakeholders in Uganda to en-
able the collection of in-depth qualitative information i.e. views and experiences from
business owners and stakeholder organizations/ support service providers. Informal
sessions with stakeholders were organized whereby stakeholders were randomly se-
lected based on the sub-sectors selected and interviewed according to the set question-
naires. Te semi-structured interview format was selected and used since it allowed
those interviewed to add comments and issues to those already identifed in prepared
sub-sections and questions.
Tis research coincided with the earlier plan for conducting the Research and Devel-
opment, and innovation survey, which were very relevant to this research. So these
surveys were conducted to give background information. Te innovation survey as-
sembled data on innovators and non-innovators, depending on the structure of the
questionnaire and the nature of the data. “Innovators” were defned as enterprises or
institutions or organizations that have over the last three years introduced a new prod-
uct or a new process, have tried, or are still in the process of doing so, where “new”
was defned as signifcantly improved and completely new, and where a distinction is
made between products new to the frm (but not necessarily new to the market) and
products new to the frm and to the market. A sample of stakeholders in this case for
R & D and Innovation surveys, included; government, businesses, education institu-
tions, business support service providers and associations.
47
3.3.3 Analysis
Although, data collected was mixed, some with incomplete quantitative data, informa-
tion about funds and expenditure and thus important data to assess genuine situation
was jealously guarded. Te analysis of data was done based on the data collected, the
qualitative and quantitative and conclusions were drawn. Analysis of the data col-
lected helped the authors to develop strong evidence from the investigations and in
generation of the papers that were published and presented in the conferences and
workshops. Tis contributed in the dissemination of the results and obtaining further
comments for future improvements.
All the ethical rules and regulations have been followed bearing in mind the confden-
tiality issues. Te Analysis methodology mentioned above was inspired by distributed
knowledge processes (Nowotny et al., 2011). It is focusing primarily on the issues of
long term strategies, innovation indicators as well as collaboration and partnerships.
Te references for this Part I are found at the end of Part III (page 87)
48
49
PART II
50
51
Chapter 4 - INTRODUCTION TO THE PAPERS
Tis licentiate thesis is a compilation of four papers as outlined below.
Paper I: Mutambi, J. (2008). Advancing Value Addition and Competitiveness through
Standardization to Promote Manufacturing.
Proceedings of the 2008 Annual International Standards Conference (AISC) June
09th – 12th, 2008, Kampala Uganda
Given today’s increasingly competitive business environment, this paper introduces
the importance of manufacturing sector as the main engine of structural transforma-
tion and critical to changing and modernizing Africa’s economic structure. Manufac-
turing and processing of value added products for domestic consumption and export
is important for Uganda’s economy and Africa in general to realize Millennium De-
velopment Goals.
Te paper gives the overview of manufacturing and how it can be the driver of growth
and productivity in other activities: agriculture, information-based services, fnance,
construction, logistics and so on. It further explains Africa’s relatively weak position
and performance with reference to determinants of industrial development, in particu-
lar human resource development, infrastructure, technological efort and government
policy frameworks.
Although Uganda has taken major initiatives to improve the enabling environment
for private sector led industrialization, it is still faced with major obstacles for sus-
52
tainable industrial development and investments in the country. Te key drivers for
investment, productivity improvement, and competitiveness all in the perspective of
advancing manufacturing and value addition and their linkage to globalization were
discussed.
It concludes by providing recommendations to the constraints which include: Govern-
ment to recognize the catalytic role of manufacturing; consider factors for advancing
value addition, productivity and standardization; Formulation of strategic policies and
adaptation of modern technologies; and promotion of cluster based approaches.
Paper II: Mutambi, J. (2009). Institutional and Support Environment to Cluster Based
Development Approach in Uganda.
Proceedings of the 12th TCI Learning Clusters Annual Global Conference, 13th Oc-
tober 2009, Jyvaskyla, Finland
Due to globalization and liberalization, the business environment has become so com-
petitive and demanding in terms of quality, speed of response, price and volume. Most
of the SMEs in Africa and in Uganda in particular have not been able to respond
to this challenge. Uganda government while recognizing the contributions made by
SMEs, like any other developing country has no choice but to provide policy and
institutional support towards development of SMEs. Tis paper presents the related
support initiatives and institutions and the kinds of support to cluster based develop-
ment approach in Uganda.
It further discusses the specifc areas that need to be addressed in order for the small
and medium frms to become competitive and improve their productivity especially
those involved in manufacturing activities and services sector through clustering con-
cept. It concludes by recommendations, among them strengthening networking and
collaboration between the frms and among the cluster key actors.
Paper III: Mutambi, J., Byaruhanga, J. K., Buhwezi, B. K., Trojer , L. and Lating, P.
O. (2011). Transferring Best Practices for Uganda Technological Innovation and Sustain-
able Growth
Proceedings of the 2nd International Advances in Engineering and Technology Con-
ference of Makerere University, 31st Jan-2nd Feb, 2011, Entebbe- Uganda. ISBN:
978-9970-214-00-7
Uganda is not alone in the drive to promote Science, Technology and Innovation
(STI) as a means to social economic development. Promotion of STI is high on the
Agenda of African Union countries. Indicators are useful not only for monitoring glo-
bal scientifc and technological development trends but also for formulating, adjusting
and implementing STI policies. Scientifc and industrial development evaluations and
policy-relevant assessments are based on relatively sophisticated combinations of statis-
tics on science, technology and innovation, such as various inputs, outputs, and proc-
53
ess indicators. Tis paper indicates how Uganda has not been producing primary STI
indicators like many of other African countries. Te STI indicators paper is aimed at
providing primary indicators using a survey and questionnaires methodology to evalu-
ate the performances of businesses, institutions and government agencies in respect to
technological innovations, human resource development and training, expenditure on
Research and Development, etc.
Te paper discussed the core indicators of Research and Development (R&D), and
Innovation. Te paper further explored the potential benefts of business incubation.
It concludes by indicating that most innovations take place in small and medium
enterprises, and that more support is needed for Research and Development and in-
novation activities.
Paper IV: Mutambi,J., Byaruhanga, J. K., Buhwezi, B. K. and Trojer , L. (2010).
Research on the State of Business Incubation Systems in Diferent Countries: Lessons for
Uganda.
African Journal of Science, Technology, Innovation and Development, Vol.2, No.2,
2010, pp. 190 – 214.
Uganda, like any other country in the world recognizes and promotes micro, small
and medium size enterprises for their role in economic and social development. A lot
of support programs such as technical assistance, capacity building-training programs
and other incentive schemes have been provided, but this has not created an impact on
business growth and industrial development. One strategy proposed to nurture new
venture small frms and foster their survival and growth which can lead to industrial
growth is through business incubation.
In this paper, an overview of the status of business incubators in diferent countries,
developed and developing was presented. Te role played by business incubators was
discussed and the main lessons learned for Ugandan situation were presented in the
fnal part of this paper.
54
4.1 Paper 1
Advancing Value Addition and Competitiveness through
Standardization to Promote Manufacturing
Joshua Mutambi
Abstract
Te Manufacturing Sector is one of the main sectors in the Uganda economy and it is
divided into formal and informal manufacturing. Te total contribution of the manu-
facturing sector to GDP was 8.4 percent in 2006. (Business Register Report 2006/07-
UBOS). Overall there was an increase of 32% of the manufacturing businesses in
2006/07 compared to 2001/02 in Uganda. Manufacturing is the process of taking
resources and through packaging, processing, fabrication and/or assembly transform-
ing the resources to a physical product demanded in the market place.
Te businesses in this sector include those engaged in the following activities: Process-
ing of meat, fsh and dairy products; cofee processing; grain milling; tea processing;
bakery and manufacture of other food products; manufacture of beverages & tobac-
co; manufacture of textiles and leather products; sawmilling, printing & publishing;
chemicals and chemical products; manufacture of plastics; manufacture of metal prod-
ucts; and manufacture of furniture.
A thriving manufacturing sector is vital to the developing economies and their citizens
as manufacturing businesses generate jobs, hence incomes to support service indus-
tries and public services. However, the sector is faced with changing challenges, and
advancing value addition and competitiveness through standardization will respond to
the sector’s value and opportunities, which will promote high performance practices,
Science, Technology and Innovation, as well as building the skills of the manufactur-
ing workforce.
Manufacturers in Uganda like their counterparts in the region face stif global compe-
tition and must continually improve their products and processes to stay competitive.
Teir success will depend on continuously integrating new technologies and innova-
tions, adding increasing value to products, reducing waste to processes and having
access to resources such as capital, raw materials and most importantly a high skilled,
fexible and involved workforce. (Supply chain).
To maintain the growth of the manufacturing sector, both the public and private sec-
tors need to respond by creating new high performance work environments (infra-
structure development) and providing fexible, responsive education and job training
programs that are competency-based, responsive to the demands in a rapidly changing
labour market and are tied to new technologies, customer needs, and evolving produc-
tion processes.
55
From the commonly available indicators and factors of competitiveness in compara-
tive framework, it is evident that most African business environments still have serious
short comings compared with their international competitors. Tis paper will discuss
factors needed to improve productivity, value addition and competitiveness for the Af-
rican and the global markets. To achieve manufacturing that meets customer specifca-
tions and delivery dates (value addition and competitiveness), the paper suggests broad
benchmarks and initiatives that are linked with the solution of problems.
Keywords: Clustering; Competitiveness; Innovation; Manufacturing, Value addition
1. Introduction
Since the industrial revolution, manufacturing has helped defne economic devel-
opment. Manufacturing is the process of taking resources and through packaging,
processing, fabrication and/or assembly transforming the resources to a physical prod-
uct demanded in the marketplace. In developing nations, manufacturing has consisted
primarily of processing raw resources into semi-processed goods. Tese goods are then
further processed into products. Te additional processing usually takes place in areas
close to the marketplace resulting in a clustering of the required technology, capital,
services, management and workforce. Over time this centralization of value added pro-
duction made regions and cities with large urban populations strong in manufactur-
ing development while developing nations remained dependent on primary resource
production.
Manufacturing has been, and remains, the main engine of structural transformation.
While its contribution to GDP in most countries reaches a peak at 30-40 percent and
then declines as modern services grow, its contribution to development is much more
signifcant. It is this contribution that Africa has failed to tap. Manufacturing is criti-
cal to changing and modernizing Africa’s economic structure. It is the main avenue
for applying new technologies to production and for raising technical and managerial
capabilities. It is crucial to raising and diversifying exports, moving the region from
its continued dependence on low value-added and unstable primary products. It is
necessary to create new skills, work attitudes and institutions. And it can be the driver
of growth and productivity in other activities: agriculture, information-based services,
fnance, construction, logistics and so on.
Te manufacturing sector in Uganda is still very young, small and dependent on im-
ported goods. It is characterized mainly by processing of agricultural raw material and
production of basic consumer goods. Around 40 percent of all manufacturing frms
are engaged in agro-industries, only very few are operating in capital goods industries
often with rather low value added, the rest are in industries such as plastics, steel and
construction products (Mugisa 2004, 24-5). Te sector is preliminary concentrated
on small manufacturing, production for the domestic market and by little standardiza-
tion of products, thus being afected by specifc market characteristics such as small
market size, high level of smuggling, and insecurity in the North. A few have success-
56
fully penetrated regional (Rwanda, Burundi, eastern Congo) markets, or global (EU,
USA) markets. Tose engaged in for instance neighboring markets are generally well
aware of regional competitive factors and gradually seek to enhance their competitive
position. Te recent opening of business opportunities in southern Sudan has resulted
in a fairly active and strategic response.
Manufacturing has undergone signifcant change in an era of global competition, new
information and production technologies and corporate re-structuring for economic
use of resources. For governments, industry associations and community development
organizations seeking to foster manufacturing sector development, a key lesson is the
ability to take a coordinated and sustained approach to necessary conditions which will
greatly increase the chances of success in expanding the sector in order to stay competi-
tive or improve competitiveness in the global markets.(Dr. Aleef Suleman-2005)
Competitiveness in this case means the ability of enterprises to take advantage of the
opportunities ofered by globalization trends. Society has changed from a closed mar-
ket and a closed manufacturing place to an open one. It is no longer necessary to have
centralized manufacturing facilities. Functions could be distributed. Designs could
be done in France, manufacturing done in Mexico, Malaysia or some other country
where the costs possibly could be kept low; production planning could be done in
USA, marketing strategies evolved in Hong Kong and service parts produced in China
or South Africa. Such a globalization leads to a cross cultural dialogue between re-
gional blocks, governments, corporations, societies and most importantly individuals.
Manufacturing researchers have concentrated on manufacturing processes, materials
and methods. Tough these are still extremely important, it is becoming increasingly
apparent that we also need to focus on the additional dynamics which is a result of
globalization and information explosion.
We need to be aware of the procurement, production and distribution along with the
feedback as the main components of manufacturing lifecycle in this globalization proc-
ess and in order to accomplish this, it is necessary to be aware of the current technolo-
gies which includes required standards. (Standardization is the process of developing
and agreeing upon technical standards. A standard is a document that establishes uni-
form engineering or technical specifcations, criteria, methods, processes, or practices)
Globalization has shifted the paradigm for manufacturing. Te customer is involved
with the manufacturing of the product. Te most important characteristics of manu-
facturing due to globalization are:
• Customers involved with the production of the part from cradle to grave (from design to
usage: life cycle)
• Customers have access to data instantly
• Customers have access to diferent manufacturers
• Experts need to cooperate and collaborate with the customers
• Customers will get what they have requested.
57
Te basis for Uganda’s future prosperity and its ability to invest in the improvements
desired will depend on the competitiveness of its existing and future industries. Com-
petitiveness is not defned as the ability of the country to compete on the basis of its
raw materials, cost of labor or other domestic resource costs. Rather, it is based on the
ability to strategically position the industries in attractive markets and with attrac-
tive products; and this can only be done by advancing value addition, promote high
performance and governing practices, Science, Technology and Innovation, as well
as building the skills of the manufacturing workforce. An example is Mozal Project
Scheme in Maputo –Mozambique (Masaki Miyaji, 2007)
Key Drivers for Investment:
Te private sector will have to adopt a more competitive approach, focusing on higher
value products and services, where value is added because of better market linkages,
as the main outputs. Te classic industrial engineering defnition of Value Added is,
“actions or activities that change the form, the ft, the function of the product being
manufactured and, this is important, the changes are something the customer is will-
ing to pay to have happen.”
In addition, Productivity, which is simply defned as the value per unit of input, the
better use of human, capital, and natural resources will all be increasingly the deter-
mining factors for Uganda’s success and the region as well. Individual frms cannot
become competitive and stay competitive in the global market on their own; building
competitiveness involves sustained change throughout the value chain: Tis close in-
terplay between frms, their suppliers and the business environment is why competi-
tiveness theorists and practitioners focus on “clusters” as the locus of action.
April 2003 June 2000
Operation start
?
June 2001 May 1998
Construction start
?
280,000 tons
Maputo/Mozambique
Location
?
Production Capacity
Business
Mozal Phase 2 Mozal Phase 1 Mozal S.A.R.L
Aluminium Ingot Smelter ?
US$710 Mil US$1,200 Mil
Total Cost
?
Mozambican Govt
IDC
BHP Billiton
Mitsubishi Corp
?
?
?
?
?
?
25 ?
Shareholders & Equity
47 ?
24?
4?
Supplied from South Africa
Electricity Supply
AP35? Pechiney Technology? ---Upgraded in 2006 from AP30
Reduction Technology
1,135 ? as of Aug 2006?
Employee
Supplied from Australia
Alumina Supply
Pro-rata basis
Aluminium Ingot Offtake
280,000 tons ?
April 2003 June 2000
Operation start
?
June 2001 May 1998
Construction start
?
280,000 tons
Maputo/Mozambique
Location
?
Production Capacity
Business
Mozal Phase 2 Mozal Phase 1 Mozal S.A.R.L
Aluminium Ingot Smelter ?
US$710 Mil US$1,200 Mil
Total Cost
?
Mozambican Govt
IDC
BHP Billiton
Mitsubishi Corp
?
?
?
?
?
?
25 ?
Shareholders & Equity
47 ?
24?
4?
Supplied from South Africa
Electricity Supply
AP35? Pechiney Technology? ---Upgraded in 2006 from AP30
Reduction Technology
1,135 ? as of Aug 2006?
Employee
Supplied from Australia
Alumina Supply
Pro-rata basis
Aluminium Ingot Offtake
280,000 tons ?
58
Clusters are “geographical concentrations of interconnected companies, specialized
suppliers, service providers, and associated institutions in a particular feld” (Porter,
1998) .Associated institutions might include: educational and training institutions
that build the workforce; research institutions that generate scientifc knowledge for
technological change; banking and fnancial institutions; government institutions,
whose policies and practices have an impact on the industry including standards de-
velopers and regulators (National Bureaus of Standards or Commissions of Standards);
and providers of infrastructure, both public and private.
Te ability of African countries to develop competitive manufacturing sectors will
therefore depend on the quality of African business environments, and labor forces
relative to those of the export powerhouses of the developing world. Tus, to advance
manufacturing competitiveness, numerous major bottlenecks need to be addressed
that will focus on manufacturing modernization, including policy uncertainty, poor
access to fnance, insufcient energy supply, slow technology transfer, focused training
and general business support with governance as a cross-cutting theme.
2. Status of Manufacturing Sector in Africa
Manufacturing sectors in most African countries remain small compared to other de-
veloping countries and have remained inward looking with the exception of Mauritius
and recently Madagascar. For the sample of African countries, growth in manufactur-
ing over the period 2000 – 2002, was in the range of 3-5 % range annually with the
exception of Mozambique which grew at over 9 %. In Mozambique, high growth rates
could be attributed to Mega –investments in capital intensive projects like Mozal. In
addition, few African frms export at least 20% of their sales, particularly given the
smaller size of their domestic markets.
Generally, the manufacturing sector in Africa is characterized by the smaller share con-
tribution in GDP than the average LDCs, smaller size of manufacturing export than
the average LDCs and a smaller contribution of the textile industry. Te manufactur-
ing development in Asia (East and South East Asia), for instance, started from the
textile industry and shifted to the capital intensive and technologically sophisticated
industries (i.e. Automobile and electric appliances industries). Te Asian LDCs in-
come levels are quite similar to the African countries, yet African countries have lagged
behind in industrial development. Is the diference in business environment, human
capital, or industrial policies?
After trade liberalization, massive imports have been realized in African markets in-
cluding those from South Asia. A few countries had realized increase in exports due
to FDI, but have since stagnated or reduced at all in others. Terefore, free trade has
not facilitated growth in local frms in Africa unlike in Asia. In a liberalizing world,
export success is a good indicator of industrial competitiveness. Te table below shows
selected economic indicators from the World development indicators which gives the
fgures and clearly can be seen how low levels of percentages of GDP are for manufac-
turing growth and exports of African countries.
59
Slow growth and low export levels in manufacturing imply that African frms are char-
acterized by low (though varying) levels of competitiveness. Tis is borne out in the
data on specifc obstacles to frm development and is also illustrated by a number of
broader benchmarks.
Value added per worker (Y:L), the traditional measure of labor productivity Y:L is not
a measure of the intrinsic productivity of workers or a direct benchmark of success or
efciency, in part it refects the level of capital intensity.
Capital intensity measures the success of African countries in fostering labour intensive
manufacturing along the lines of their potential competitive advantage in low cost
labour. It’s noted that capital intensive countries have smaller labor costs as a share of
total costs.
In addition, African frms use their large quantities inefciently; labour costs are one
candidate for the source of African frms’ lack of competitiveness, high capital inten-
sity and low efciency. Unit Labor costs measures the average cost of labor per unit of
output defned in U.S dollars, as (wL/Q)*1/e; where w is the manufacturing wage; L
is the amount of labour employed; Q is the physical measure of output; and e is the
exchange rate (domestic currency per US dollar).
By defnition, Unit labor costs are high in countries that have high wages and low
value added per worker. For a country to have low (competitive) ULC it has to do a
combination of three things.
(i) Keep nominal wages low,
(ii) Keep its exchange rate competitive, or
(iii) Increase its labor productivity.
60
From the above discussions, the following facts can be concluded;
• African frms face relatively high labor costs relative to productivity
• Aggregate costs across African economies are very high, pushing up frms’ costs and
pushing down workers’ real wage incomes.
• African workers’ real wage incomes are in fact very low
• Labor costs account for a relatively small share of the total costs of African frms.
Terefore, Competitiveness must come from increased productivity and largely from
lower non-labor costs and greater development of worker skills. Emphasis on improv-
ing productivity must include the business environment factors that drive up non-
labor costs and drive down productivity in Africa. Such factors are associated with
weak fnancial systems, macroeconomic instability, concentrated market structure,
infrastructure and service defciencies, over regulations, corruption, and poor security
in some areas.
3. Enabling Environment: Necessary Conditions for Invest-
ments and Exports in Africa
Te Policies, institutions, and infrastructure maintained by African governments and
the efects they have on transaction costs are crucial in encouraging or discouraging,
frm specifc learning and the development of competitive advantage and exports
industries. Tis section discusses the diferent aspects of the enabling environment,
including fnance and macro-economic stability; market structure, infrastructure; hu-
man capital; and Good governance and policies.
PILLARS OF GROWTH
POLICY CO-ORDINATION
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3.1 Access to and cost of Finance
One of the most important bottlenecks facing industrial frms in Africa is access to reli-
able, inexpensive fnancing. By and large, compared with other developing nations say,
East Asia, China and India, most African frms have less access to loans and overdrafts,
use more internal funds, and retained earning to fund investments and operating costs,
pay much higher interest rates, and are required to register many more assets as col-
lateral. Market failures are rampant, small frms are less likely to get loans, cash fow
problems are enormous, as funds are tied up in raw materials, fnished goods invento-
ries, overdue payments, and refunds owed by the governments. Weakness in banking
sector, supplier-credit facilities, poor information, communication and weak contract
enforcement have led to a heavily cash based environment. Ugandan frms still report
serous difculties with fnance. Interest rates and collateral requirements are still very
high compared to other developing nations. However, some African governments and
the government of Uganda in particular are progressively trying to address some of
these concerns.
3.2 Macro-economic certainty
Although most African countries have made the most progress in basic macro eco-
nomic stabilization, there are many more that have along way to go in building macro-
economic environments conducive for private sector development. Te uncertainty
generated by rapid and variable infation and exchange rate volatility increases transac-
tion costs and hampers the abilities of frms to plan for the future in Africa compared
to other developing countries where infation and exchange rate volatility are low and
external balances are stable. Tis afects productivity and competitiveness of African
frms.
To fx the macroeconomic uncertainty, good monetary policies should be in place:
(exchange rate policy, interest rate policy, and government borrowing policy), Fiscal
policy-by limiting trade price distortions and have tax policies, strengthen banking
sector, strengthen commercial courts and contract enforceability, and creation of in-
dustrial fnance institutions.
3.3 Market access and adjustment Support
Te Manufacturing industry in African countries has faced both market access and
adjustment constraints; such as lack of inputs and costs, high local focus, low pro-
ductivity, limited exports, and high competition. Market access and competition is
key in producing efcient outcomes and incentives for value addition and innovation.
African markets have remained highly concentrated, due to demand constraints, i.e.
low incomes, high interest rates, un-sophisticated consumers, and lack of marketing.
However, some African governments have made some progress in advocating for in-
creased market size and access; and establishment of industrial parks, Export Process-
62
ing Zones, and recently promotion of industrial clusters to address production of suf-
cient and high quality volumes for the increasing markets, which in turn require larger
amounts of raw materials. Tere are now some market access opportunities, such as
AGOA, EU-EBA, and regional markets, (EAC, COMESA, SADC).
3.4 Infrastructure Constraints
Tere is a dire need of competitive and productive infrastructure in Africa. Economic
sparseness is a considerable obstacle to the quality of infrastructure services on the
continent, but it is clear the quality of management of infrastructure systems makes
a big diference as well. Te sector has sufered greatly due to poor service providers
such as electricity, and railway transport. Te most recent progress has been made
in telecom industry where the successful incorporation of private providers of cellu-
lar infrastructure in Uganda, Mozambique, Kenya, Zambia and other countries, has
extended coverage and improved service quality signifcantly. Te least progress has
been made in electricity generation and supply with severe consequences for industrial
frms. Defcient electricity service severely hurts competitiveness.
Many frms have their own generators, but the cost of privately supplied power is two
or three times as high as that of public grids. In some types of production, especially of
continuous process items like plastics and soap, the unexpected cessation of power can
lead to weeks of lost production while machines are being cleaned.
Little progress has been made so far. Uganda has moved forward with restructuring
and has redesigned policies to allow some private participation in energy development
but the efects are yet to be seen. Furthermore, domestic transport costs are very high
in Africa, and hurt exporters’ competitiveness. It is more severe for land locked coun-
tries like Uganda, Zambia and Burundi.
3.5 Labor force skills and human capital development
Te Quality of labor force and the accumulation of human capital are just as relevant
for competitiveness as is physical infrastructure. Many African countries have difcul-
ties in retaining highly educated workers or attracting skilled expatriates. Its observable
that increasing efciency is a key to frms being able to enter export markets, such
efciency will be linked to observable skills frms posses, amount of education and
tenure of the workforce.
4 Concluding Discussion and Lessons for Uganda
(i). To be competitive in domestic and international markets (export markets), frms/
countries need to advance value addition, standardization and productivity by;
• Absorbing technology from the developed countries, either by attracting FDIs or im-
provement of the business environment
63
• Upgrading of the production systems, introduce new high-tech equipment and cleaner
technologies, employing skilled and experienced human resource personnel, invest in
skills development, R&D for new products, and improve on quality of products.
• Encourage sub-contracting terms from large companies to small and medium frms.
Labour intensive industries, including service industries must also be encouraged as it
improves the conditions for transfers of technology and know-how.
• Invest in marketing research and market information systems
• Policy support and harmonization of technical standards and regulations, because
standards have increasingly become crucial elements in facilitating transactions and trade
within and between countries.
• Establish a national fnancing fund and support institutions to facilitate the commer-
cialization of R & D.
(ii). Te catalytic role of manufacturing industry needs to be acknowledged. It is vital
or center for the following;
• Application of technological progress to production,
• Innovation,
• new skills and attitudes,
• modern institutions and legal structures,
• benefcial externalities from innovation and skill creation for other activities,
• direct demand stimulus,
• internalization of the economy, and
• modernization of national industrial enterprises
(iii). Modernization of equipments and strategic policies: In the advanced countries,
where all the above mentioned constraints have been addressed, a new technology or
a new approach to manufacturing and way of doing business has been adapted. Tis
is the computer integrated manufacturing developed in 1974 by Joseph Harrington,
(Advanced Manufacturing Technology, 2002). It encompasses all of the activities and
processes necessary to convert raw materials into fnished products, deliver them to the
market, and support them in the feld. Tese activities include the following:
• Identifying a need for a product
• Designing a product to meet the needs
• Obtaining the raw materials needed to produce the product
• Applying appropriate processes to transform the raw materials into fnished products
• Transporting products to the market
• Maintaining the product to ensure proper performance in the feld
Technology, measurements or standards are basic industrial needs. Cooperation and
collaboration remain key to developing the required tools and capabilities. In modern
manufacturing, integration is accomplished by computers and the benefts are as fol-
64
lows: Product quality increases; Lead times are reduced, direct labor costs are reduced,
product development times are reduced, inventories are reduced, design quality in-
creases, and overall productivity increases.
(iv). Promotion of cluster based industrial development: A new approach to doing
business and economic development planning to continually be able to compete glo-
bally has been introduced. Tis is the Industry Cluster concept. Te cluster model
emphasizes internal linkages, whereby cluster gains are furthered by local frm coop-
eration, local institutions, and local social capital. External linkages also matter, global
buyers can help local clusters access distant markets, acquire new forms of knowledge
and upgrade.
Porter argues that it is the competition between rival frms in the cluster that drives
growth because it forces frms to be innovative and to improve and create new tech-
nology. Tis, in turn, leads to new business spin-ofs, stimulates R&D, and forces the
introduction of new skills and services.
Local proximity to frms in all aspects of the production process, such as the suppliers,
machine builders, assemblers, distributors, and fnal customers allows the cooperating
frms to adopt new technology and innovations rapidly, therefore increasing the overall
efciency of the production process. Tis approach not only emphasizes growth of
manufacturing sector but also more importantly concomitant growth of the support-
ing industries which incorporate the services sector
In short, cluster development is attributable to several key factors, including technol-
ogy transfer, knowledge transfer, development of a skilled labor force in related indus-
tries, the benefts of agglomeration economies, and social infrastructure. Terefore,
governments should build multilayered regional systems, to encourage cluster forma-
tions and the creation of high value chains.
In conclusion, to advance manufacturing competitiveness, numerous major bottle-
necks need to be addressed; manufacturing modernization, policy uncertainty, poor
access to fnance, inadequate infrastructure, focused training and general support to
National bureaus of Standards and other related standards service providers to achieve
international standards equivalency (Accredited labs, skilled standards ofcials, and
harmonized regulations and conformity standards).
References:
1. Benn Eifert & Vijaya Ramachandran. 2004: Competitiveness and private sector development
in Africa
2. Chang, Y. (2002). Advanced Manufacturing Technologies and Changes in Work Organiza-
tion. Science, Technology and Policy Institute
3. Hitoshi Shoji. 2007: Comparative Analysis on Infrastructure Development South East Asia
and Sub-Sahara Africa
4. Mugisa, E. 2004: Uganda’s Competitiveness in the EAC and COMESA Region, Report for
the PSFU and UPTOP
65
5. Masaki Miyaji. 2007: Experiences and Instructions of FDI (Foreign Direct Investment in
Mozal Project, Mozambique
6. Report on the Uganda Business Register 2006/07
7. Suleman, Aleef. 2005: Generic problems experienced on African continent.
66
4.2 Paper II
Institutional and Support Environment to Cluster Based Devel-
opment Approach in Uganda
Joshua Mutambi
Abstract
Similar to other developing countries, Uganda recognizes the ability of Micro, Small
and Medium scale enterprises to generate socio-economic benefts, value addition to
local raw materials, and employment generation. To enhance competitiveness, innova-
tion and networking within producer frms, clustering concept needs to be promoted
and strengthened. Clusters drive productivity and innovation. Clusters are geographi-
cal concentrations of frms, suppliers, support services providers, infrastructure, pro-
ducers of related products, and specialized institutions that arise in particular felds in
particular locations.
Clusters can be initiated or emerge spontaneously based on market forces and the
process of cluster formation will occur naturally as new frms form, suppliers develop,
infrastructure investments respond to local needs, and specialized institutions and
frms locate their operations in the growing cluster area and grow. Tis therefore calls
for policy and public attention.
Te key actors in the cluster development are referred to as “triple helix”: Government
for policies and support institutions; Private sector –business enterprises, large and
SMEs, NGOs’ and Foundations; and Academia – Universities, and R& D institutions
Tis paper highlights a number of measures that government has done aimed at stimu-
lating economic growth with a demonstration of facilitating the cluster based develop-
ment concept in Uganda
Keywords: Clusters; Institutional Support; Small-Medium Enterprises; Triple-Helix;
Uganda
1. Introduction
Clusters commonly known as geographical concentrations of interconnected enter-
prises and associated support institutions are fertile environments for the development
of inter-frm linkages, as spatial proximity and shared business interest facilitate col-
laboration.
Te Government of Uganda (GOU) emphasizes on enhancing the performance of the
local business community while also promoting the transfer of skills and knowhow
to the entire value-chain actors through the Public-Private Partnership. In its pursuit
to achieve high and sustainable economic growth and prosperity for All Ugandans,
67
the GOU has the responsibility to create conducive environment for investment and
growth (PEAP)
In recognition of the importance of small scale frms that require initial support to
enter far- reaching business networks, the government has initiated various appropri-
ate policies and programs. As a member of the EAC, it’s stipulated in the EAC Treaty
as well. Article 80(1)(c) of the Treaty for the Establishment of the East African Com-
munity provides that one of the strategy and priority areas for regional cooperation in
investment and industrial development in the EAC region shall be facilitating the de-
velopment of small and medium scale industries including sub-contracting and other
relations between larger and smaller frms. To me that is the cluster based concept,
which should be taken advantage of.
Tere is a political will to promote clusters; the government highly supports research-
ers and scientists in areas that are relevant to transforming the economy. GOU recog-
nizes that Science and technology are key in the improvement of health, agriculture,
industrial development, economic competitiveness and environmental sustainability.”
For instance, every year a national science week is held to raise awareness on the es-
sential role of science and technology in Uganda’s socio-economic development and
to award prizes to the best innovative role models including medical doctors, teachers,
technologists, researchers, engineers, nutritionists and science and technology-related
entrepreneurs.
2. Related Support Initiatives to Cluster-Based Development
Approach
Based on the above policy strategies, the government wishes to strengthen the SMEs
or frms with the capacity to a collective vision of the opportunities available to them,
and seize these opportunities through coordinated collective initiatives. Te following
programs and institutions are in place explicitly intended to promote capacity build-
ing in formal or informal income-generating activities at the national as well as at the
local levels of government. Te areas of support include; access to fnance, access to
knowledge and skills, and others like marketing access.
Te identifed existing programs and institutions supporting the operations of cluster
- based frms and individual frms including associations to improve their efectiveness
among others are;
a) Te Competitiveness and Investment Climate Strategy (CICS)
Te Competitiveness and Investment Climate Strategy (CICS), 2006-2010 Under
Ministry of Finance, Planning and Economic Development. Te CICS whose theme
is ‘Enhancing competitiveness through Public-Private Partnership’ seeks to position
Uganda to deal with the next generation of competitiveness challenges, by building
on earlier eforts to improve the business environment, boost domestic activity and
increase participation in the global marketplace. It also emphasizes the development
68
and facilitation of clusters as a strategy. CICS has organized the cluster forum group
meetings, the fourth one was held recently in august to discuss the popularizing of
clusters development concept.
b. Presidential Science awards (2004)
In 2004, H.E the President of Uganda Yoweri Museveni introduced the Presidential
science awards to promote the development and application of science and technology
for economic transformation. Te frst Presidential Science and Technology Excellence
Awards were presented to winning scientists in 2006. Te second set of awards was an-
nounced in 2007 and presented to the winners at the closing ceremony of the National
Science Week in 2008.
Achievements in scientifc and technological innovation and application in the felds
of agricultural sciences, veterinary sciences, military sciences, natural sciences, engi-
neering, biotechnology, earth sciences, medical sciences, space sciences and informa-
tion and communication sciences are also recognized. Tere is a potential of having
these researchers attached or assisting clusters in all these felds.
c. Prosperity for All Programme
In order to improvise fnances and capacity building for a number of people in rural
areas the President of Uganda initiated the Prosperity for All Programme being his vision
to try and put in place varied but integrated socio-economic programmes that mainly
target the rural poor in order to transform them into productive and prosperous com-
munities. It is prosperity for all through production, value addition, agro-processing,
improved marketing, savings and accessibility to afordable credit.
Tis programme today has enabled the creation and development of a number of
SMEs in both the Urban and Rural areas as it has enhanced resource accessibility both
fnancially and socially.
d. Microfnance Outreach Plan- Ministry of Finance, Planning and Economic Devel-
opment
Microfnance Outreach Plan is a major initiative of Government of Uganda and Stake-
holders in microfnance industry. Te Matching Grant Facility Capacity (MCAP), an
important component, is intended to facilitate accelerated growth of a sustainable and
working microfnance capacity building market with well-informed consumers and
better equipped suppliers of the services.
Tis component is intended to expand the outreach of fnancial services to rural areas.
Te interventions would involve the penetration of rural areas to increase the presence
and accessibility, of MFIs and fnancial services, as well as developing, testing and
promotion of new products to meet the needs of small holders and rural communities.
e. One Village One Product (OVOP) program - Ministry of Tourism, Trade and
Industry (MTTI)
Ministry of Tourism, Trade and Industry (MTTI), through its Department of Industry
and Technology, mandated to promote, expand and diversify an environmentally sus-
69
tainable industrial base in collaboration with its statutory institutions, such as UNBS,
UIRI, MTAC, has launched and established an institutional mechanism to promote
and coordinate One Village One Product (OVOP) program this year which will in-
clude the cluster –based approach activities. Cluster -based development approach to
promote SMEs was approved in the National Industrial Policy (2008). Te modalities
of coordination will soon be fnalized between Makerere and Ministry.
Te (OVOP) programme (2009) is being implemented through improving the pro-
duction, value addition and marketing of Value added products that can compete
locally, regionally and internationally by utilizing primary agro-products and natu-
ral resources in which communities have comparative advantages. Tis program will
strengthen the development of clusters in the country.
It is built on three principles, namely (i) self-reliance and creativity (ii) human re-
sources development, and (iii) thinking locally but acting globally. Local people take
the lead, independent of external prompting and largely on their own creativity and
self-reliance, to make unique products from local resources for their own good and
to capture markets external to their locality. In the process they develop their exper-
tise through production of competitive products, their livelihoods improve due to
enhanced incomes, and their communities develop closer bonds at the same time.
With reference to value addition and job creation the Government has promised to
support where possible all small and medium industries/enterprises in terms of tech-
nology acquisition, skills development and market linkages. Te clusters will again
beneft out of this initiative.
Additionally, as a sign to improve agricultural productivity and agro-processing, Gov-
ernment has allocated Ush60b to agricultural enterprises through the commercial
banks.
f. Private Sector Foundation of Uganda (PSFU)
PSFU is Uganda’s apex body for the private sector. Right from its inception, PSFU
has been Government’s implementation partner for several projects and programmes
aimed at strengthening the private sector as an engine of economic growth.
PSFU runs various programmes that beneft SMEs including clusters such as; the im-
plementation of the Business Uganda Development Scheme (BUDS), Enterprise Skills
linkage program, etc.
g. Enterprise Uganda
Enterprise Uganda ofers a comprehensive range of integrated and tailor-made busi-
ness support services which begin with diagnostic Studies on the businesses promoted
by the participants including rural outreach. Te ‘Business Health Check’ is a comple-
mentary service to the participants to establish constraints that may be holding back
the realisation of their business potential. Te post-entrepreneurship services include
general management training; export market development and sourcing of credit and
other business advisory services.
70
h. Uganda Export Promotion Board (UEPB)
Uganda Export Promotion Board coordinates all activities that lead to export growth
on a sustainable basis. To accomplish this, the Board carries out market studies, de-
velop products to suit market place requirements, undertake promotional programs
in target export markets, conducts exporter training for international trade, engages
in various export policy formulation and development activities and generates critical
market information for the country’s business community.
Te Board facilitates SMEs and other Ugandan companies’ participation in trade fairs,
arranges trade support missions, and conducts market studies and training for export-
ers amongst various activities to promote exports. It manages an Information Centre
for generation and dissemination of market information to SMEs. UEPB has mostly
been helping SMEs and the clusters in the handicraft and honey sectors.
i. Uganda National Chamber of Commerce and Industry (UNCCI)
Uganda National Chamber of Commerce and Industry (UNCCI) is the umbrella or-
ganization of the business private sector in Uganda. It draws its members from sev-
eral economic and social sectors including Industry, Trade, Agriculture, Tourism and
Services and Agricultural Processing. Tey have hosted international forums to create
market linkages, give business development grants, and capacity building support to
business community.
j. National Agriculture Advisory Service (NAADS)
Realizing the importance of agriculture to the economy and to place greater emphasis
on extension delivery, NAADS was established. NAADS mission is to increase farmer’s
access to information, knowledge and technology for proftable agricultural produc-
tion. Te NAADS programme operations are guided by Commercialization, Farmers
Empowerment, Fostering Farmers Participation, Increasing Institutional Efciency, as
well as Gender Mainstreaming. Trough Commercialization, the farmers are expected
to shift from subsistence through market-oriented production in the medium term
and ultimately to commercial production in the long term.
Farmer participation involves all categories of farmers identifying agricultural advisory
needs, setting priorities, formulating plans, and monitoring and evaluating outputs
and outcomes.
k. Uganda Investment Authority
UIA is a One-Stop facilitator for investors of various levels of investment foreign and do-
mestic, mandated by an Act of Parliament (1991) to attract, promote and facilitate invest-
ment. UIA assists investors at various levels to expediently implement their business plans.
As such, UIA markets Uganda’s investment opportunities to targeted investors all over
the world, coordinates the national investment marketing program, monitors inter-
national investment trends and serves as the frst and most comprehensive point of
contact for investors in Uganda.
Among the services rendered to SMEs by UIA include but not limited to,
71
i. Helping SMEs to implement their project ideas through professional training and advice
and assistance in locating relevant project support services;
ii. Assisting SMEs in seeking joint venture partners and funding;
iii. Ensuring protection for intellectual property and trade secrets where technology transfer is
involved;
Te following clusters have benefted in one way or another from the above initiatives;
Katwe metal Fabricators, Jinja maize-millers, Luwero Basketry and handicrafts, Textile
and garments, Lira bee keepers, etc.
3. Discussion and specifc areas of focus
(i) Tere is need to create strong institutional linkages at various levels. Networking is
one of the most important infrastructures in cluster development. Te academic insti-
tutions should seriously support the benefciaries of the above programs in technology
evaluation, management support and consulting services.
(ii) Marketing assistance for exportable products are being extended by the Ministry
through holding trade fairs and exhibitions or supporting potential frms to attend the
major exhibitions locally and internationally.
(iii). Te Ministry is developing the Standards and Quality Policy that will give stra-
tegic guidance in product standardization and certifcation. However, the UNBS and
UEPB are there to facilitate and do the necessary measures in respect to Standards and
quality control, and marketing of the products internationally respectively.
(iv) Need to support for infrastructure development, (i.e. energy, transport, water, etc)
and the Public Private Partnership policy
(v) Strengthening of the Standards and testing laboratories infrastructure for industrial
competitiveness
4. Conclusions
• A Cluster initiative is an organizing mechanism, focusing on collaborative activities to
upgrade the cluster’s competitiveness
• Cluster initiatives are complementary to industry associations, and not competitors
• For transformation, all problems are well known what is required is to focus and address
them
• Emphasis should shift from strategic planning to strategic doing
• As the government and other support organizations are implementing the cluster devel-
opment in diferent programs and approaches, the role of the academia in development
of the cluster concept needs to be scaled up more to support research and innovation.
72
6. References
1. Government of Uganda (GOU)-“Budget Speech Financial year 2009/10” by the Ministry of
Finance, Planning and Economic Development.
2. GOU-“National Industrial Policy 2008” by Ministry of Tourism, Trade and Industry
3. GOU-“Ministerial Policy Statement 2009/10” by the Ministry of Tourism, Trade and Indus-
try
4. Ministry of Finance, Planning and Economic Development, Competitiveness and Investment
Climate Strategy (CICS), 2006-2010, December 2006
5. Ministry of Finance, Planning and Economic Development, Poverty Eradication Action Plan
(PEAP), 2004/5 – 2007/8, December 2004
6. UNIDO, Uganda Integrated Industrial Policy for Sustainable Industrial Development and
Competitiveness, 2006
73
4.3 Paper III
Transferring Best Practices for Uganda Technological Innova-
tion and Sustainable Growth
Joshua Mutambi, Joseph. K. Byaruhanga, Bernard K. Buhwezi, Lena Trojer, Peter Okidi-Lating.
Abstract
Uganda, like many other African countries has not been developing primary science,
technology and innovation Indicators and to make them accessible to public and pri-
vate sector decision makers for social economic development and investment purposes.
Indicators have not been given serious attention as engines of long-term development.
Tis paper reports the results of a research undertaken to develop a set of relevant sci-
ence, technology and innovation Indicators for Uganda. From a population of 7,336
frms, 300 frms were sampled for innovation surveys and 200 institutions for the Re-
search and Development survey. Te data collected were represented in tables and was
grossed up. Data entry was taken in CSPRO and the analysis was done using STATA
statistical software
Tere is a global perception that businesses in developing countries like Uganda are
generally dominated by Small and Medium enterprises; and that is where most in-
novations were happening. Tis paper will discuss the core indicators of Research and
Development (R&D) and Innovation; the empirical data of the state of Uganda’s Sci-
ence, Technology and Innovation Indicators. Te paper further explores the potential
benefts and the best practices in incubation process.
Te major conclusions are; prioritizing science and technology policy will create more
opportunities and build capabilities for innovations and technology. Te monitoring
of industry, government and university R&D programs is crucial to successful policy
making and analysis.
Keywords: Business Incubation, Innovation Indicators, Research and Development In-
dicators, Triple Helix, Uganda
1 INTRODUCTION
1.1 Background
Uganda is an agro-based land locked small open economy country with a population
of about 30 million people. With its endowment of natural resources and salubrious
climate, Uganda’s industrial profle is still dominated by agro-industry and not innova-
tion led. However, the government is aggressively promoting value addition, competi-
tiveness and industrialization as whole. Both theoretical and empirical literature shows
that a high degree of efciency in the industrial sector can contribute to increased
74
production, product innovation, high value manufactured exports and high foreign
earnings. It is through industrialization that wealth can be created and higher incomes
realized from natural resources and raw materials transformation. Tis requires a set
of core competences such as skilled human resource, technology, access to fnance and
infrastructure which enable competitive transformation of inputs into outputs (prod-
ucts or services) which can be traded in markets. Technology ofers the possibility for
increased quality, productivity, speed to market and the potential for satisfying unmet
human needs.
1.2 Measuring Science, Technology and Innovation Indicators
Innovation is not a one way sequence unleashed by scientifc development only, but
rather an interactive process that largely exceeds the boundaries of formal R&D activi-
ties. Innovation requires talent and talent is mobile which can be attracted anywhere
in the world. Te development of new information and communication technologies
(ICTs) opens up unprecedented opportunities to ensure universal and access to scien-
tifc data and information to enhance the global knowledge pool. Tis new perspective
of innovation process is well captured in the so called “Open Innovation” according to
Chesbrough (2003).
Evaluations and policy-relevant assessments are based on relatively sophisticated com-
binations of statistics on R&D and innovation, such as various input, output, and
process indicators. With the recently developed National Development Plan (NDP),
2010 for Uganda and her Vision of ”A transformed Ugandan society from a peasant to
a modern and prosperous country within 30 years”, Uganda’s industrial development can
be best assessed when put in the context of global trends. Achieving the NDP strate-
gies, the New Economic Partnership for African Development (NEPAD) Consoli-
dated Plan of Action, etc. involves focusing on performance of outputs, outcomes and
impact. Te comparison can be disconcerting but without a reality check it is hard to
appreciate what is at hand and the remedial strategies required.
1.3 Problem Statement
Science, Technology and Innovation Indicators are crucial for monitoring global sci-
entifc and technological development trends. Indicators are useful for formulating,
adjusting and implementing STI policies. Uganda like many other African countries
has not been developing primary science, technology and innovation indicators and to
make them accessible to public and private sector decision makers for social economic
development and investment purposes. Without indicators, little will be known about
R&D activities, status of innovation, performance and position of the state within lo-
cal and global markets will be missing
75
1.4 Main Objective
Te purpose of this research was to develop and establish a set of relevant science, tech-
nology and innovation indicators for Uganda. It will make important contributions
to both intellectual understanding and broader practical developments for STI policy.
2. METHODOLOGY
2.1 Study Approach
Te survey followed the Frascati Manual Guidelines and Oslo Manual developed by
the Organization for Economic Co-operation and Development (OECD). Te survey
was carried out through interviews in the form of questionnaires for both qualitative
and quantitative questions. Te qualitative questions covered information about prod-
uct and process Innovation as well as organizational and marketing innovation, source
of information and partners in R&D and innovation activities. Te quantitative ques-
tions covered the basic economic information of the institution or business, the expen-
ditures, number of personnel, the outputs and sales, among others. Tough the survey
was both qualitative and quantitative, the paper has focused on the quantitative results.
A population of 7,336 frms for the survey, covered years 2006, 2007 and 2008.
2.2 Sampling Method
Te sampling frame was the VAT register, formal sector. Te average annual turnover
was the stratifcation variable for size. Te sample for R & D had a sectoral coverage of
9 sectors: Agriculture and Fishing; Mining and Quarrying; Manufacturing; Electric-
ity, gas and water; Trade; Transport; Finance and Insurance; Real estate and business
services; Community, social and personal services.
A total of 300 businesses were sampled for Innovation surveys while a total of 200 in-
stitutions including, Government, NGOS, Higher education & Research Institutions,
and business sector/Private companies were sampled for the R & D survey.
For Government both budgetary and non-budgetary institutions were sampled.
2.3 Data Collection
Tree diferent questionnaires were designed to cover the following;
Business, Government, NGOs and Public Institutions, Universities and Research In-
stitutions for Research and Development survey. For Higher institutions of learning
questionnaires were administered to specifc selected faculties in both public and pri-
vate universities; and research Institutions.
Te approach to measuring innovation and Research and Development indicators was
based on empirical survey results from public and private sectors and academia with
76
structured questions including size of the frms, technological innovation, expenditure
on R&D, source of funding, researchers by sector and factors constraining innova-
tions. Stakeholder workshops were also conducted in 2009/10.
2.4 Data Analysis
Questionnaires were checked for completeness and consistence and information was
requested from respondents where further clarity was required.
Data entry was taken in CSPRO and the analysis was done using STATA statistical
software.
Te data collected were represented in tables and was grossed up. Once data was ana-
lyzed, it was matched with the available data from other administrative data sources
and this was the frst major innovation and R&D survey in the country.
3. RESULTS
Te following paragraphs summarize the results of the investigation through surveys.
(a) Innovation Survey Indicators
(i)Number of Innovative frms by employment size
Table 3.4: Number of Innovative frms by employee size
Employment Size Innovative Firms Non-innovative frms
2006 2007 2008 2006 2007 2008
Between 1-9 904 996 936 674 396 316
10 - 49 928 952 1,103 1,375 1,447 1,813
50 - 249 382 489 526 1,614 1,713 505
>250 108 110 110 0 52 182
(ii) Percentage share of frms that introduced innovations and performed
R&D among innovators
Table 3. 5: Percentage share of frms that introduced innovations and performed R&D among innovators
Product In-
novation
Process
innovation
Service In-
novation
Performed
R&D
Percent share of frms that introduced 28.2 7.5 11.8 9.5
(iii) Totally new to the Ugandan market (product, service and process) by
year
77
Table 3. 6: Percentage share of frms that introduced totally new to the Ugandan market and their
turnover by year
Year 2006 2007 2008
Share in percentages 45.3 50.2 68.4
Percentage Turn Over (UGX)
of Innovative businesses 53% (out of 1.6 bn) 48% (out of 2.8bn) 60% (out of 2.5bn)
(b) Research and Development Survey Indicators
(i) Gross Domestic Expenditure on R&D (GERD) as an Indicator of R&D
Activities-in Uganda (2007)
Table 3.7: Gross Domestic Expenditure on R&D (GERD) as an Indicator of R&D Activities-in Uganda
(2007)
Total
Business
Sector
(BERD)
Government
Sector
(GOVERD)
Higher
Education
(HERD)
Private Non-
Proft (PNPERD)
incl. donors
(GERD) by Sector of
Performance 359.8 14.8 165.5 179.5 -
Percentage Shares 100.0 4.1 46.0 49.9 -
By Source of Funding 100.0 4.2 37.1 46.0 12.8
Researchers by Sector of
Employment 100.0 5.0 50.2 45.0 -
R & D personnel by Oc-
cupation Total (HC) 1768 89 889 790 NA
(ii) GERD by Type of R&D:- Basic Research 10.2%, applied research
59.3%, Experimental research 30.5%
4.0 DISCUSSION
Survey results and analysis revealed that Uganda needs to do much more in supporting
research and technological innovations. Uganda is grossly defcient in technology and
lacks adequate indigenous capability of technological masterly. Tere has been little
attention paid to the generation of minimum level of indigenous technology necessary
to absorb technology from foreign sources and adapt them to gain comparative advan-
tage in the market. Observed also is cultural defciencies in entrepreneurship, low level
of competitiveness, concerted policy making eforts notwithstanding. Tere are other
bottlenecks that must be addressed, like inadequate infrastructure, limited access to
credit, weak industrial support institutions, etc (GOU, 2008)
78
In respect to measuring science, technology and innovation indicators, there are now
many indicators of activities such as, knowledge creation (R&D performance and
funding), knowledge transfer (invention, innovation,), knowledge use (difusion of
knowledge, technologies and practices), and knowledge infrastructure and governance
(the development of human resources for all of these) (NEPADOST, 2006).
Te common core indicators of Research and Development are: (i) Researchers (head
count); (ii) Gross Domestic Expenditure on Research and Development (GERD) ac-
tivities by source of funds, performance sectors and type of research; (iii) R&D per-
sonnel by level of qualifcation and function (iv) Researchers by gender and feld of
study; (v) Government, higher education and business enterprise expenditure on R &
D (OECD, 2002)
Te core indicators of innovation include: frm general information; product and proc-
ess innovations; organization and marketing innovations; innovation activities and ex-
penditures; sources of information and cooperation; efects of innovation and factors
hampering innovation activities; and intellectual property rights (OECD, 1997)
Comparing the innovative performance with respect to the employment size as in Ta-
ble 3.1and 3.3, as a general observation most innovative frms had fewer than 50 em-
ployees according to the survey. Tere is a global perception that businesses in develop-
ing countries like Uganda are generally dominated by Small and Medium enterprises
Some of the countries such as those in North and South America, European Union,
China, Asian tigers, and South Africa that have promoted Research and Development,
incubation and growth of innovative frms, have realized the benefts of technological
innovation, science and technology development. Tis can be observed in the World
Economic Forum reports, the Global Competitiveness Index reports, and the NEPAD
Africa’s Science and Technology Consolidated Plan of Action of 2005.
Uganda, although the results are still low, it is progressively increasing support to sci-
ence and technology development. Tis can be explained by the number of foreign
direct investments that has increased in Uganda since 2005, and also by the govern-
ment’s policy on liberalization and improvement of the conditions of doing business
in the country and the recently support from the government to research and develop-
ment as indicated in Table 3.4.
With respect to R& D indicators in Table 3.4, such as No. of R& D personnel agrees
with the data given by the Uganda National Council of Science and Technology; and
United Nations Educational, Scientifc and Cultural Organization (UNESCO), in
S&T database 2007 indicated that GERD as %age of GDP for Uganda was in range
of 0.00- 0.25; Researchers per million inhabitants was between 0 – 100. , As reported
by the World Economic Forum, Uganda has some good scientifc research institutions
geographically concentrated in and around Kampala
Also from the data, in the Ugandan situation, the product and service innovators share
of frms was found higher than the share of frms that introduced process innovation.
Tis analysis concurs well with the Global competitiveness Index 2007 where Uganda’s
79
economy was ranked fairly well in innovation (position 73,) and in market efciency
(position 85). (Wagner et al, 2008).
In respect to transferring best practices, traditionally Uganda’s universities were in-
volved in education and basic research, but have recently become engaged in sup-
porting business development activities, such as business/technology incubators. To
increase entrepreneurial talent and support outstanding ideas, they have undertaken
curriculum development for courses on entrepreneurship, coordinated business plan
competitions as well as providing entrepreneurial outreach programs. Tis is part of
triple helix in problem identifcation, solving and strategic brokering that characterize
technology transfer, collaboration and open innovation.
To guide government support measures, the most relevant policies in respect to tech-
nological innovation and industrial sustained growth that have been put in place
include; the National Industrial Policy-2008; Science, Technology and Innovation
Policy-2009; Trade Policy-2007; Energy Policy, harnessing and utilization of Informa-
tion and Communication Technology, Uganda has in addition adopted the African
Science, Technology and Innovation Indicators Initiative under African Union coordi-
nated by the New Economic Partnership for African Development (NEPAD).
Based on the defnition of Open Innovation “that valuable ideas can come from inside
or outside the frm and can go to market from inside or outside the frm as well as they look
to advance their technology” (Chesbrough, 2003), to foster innovation and promote en-
trepreneurship development in business incubators for open innovation, the potential
benefts are from: interactive and dynamic capabilities through knowledge, technology
and market exchanges unbounded and at low cost from users, employees, suppliers,
customers, researchers, etc. New knowledge, skills and services will be incorporated
and difused in a more signifcant way. Diferent frms during the survey had difering
capabilities for interaction and this resulted into minimizing the risks, maximizing in-
novation outcomes, skills enhancement, and collaboration
Business incubators relate to internal and external logistics, commercialization systems
and support services which respond to requirements of job creation, improved produc-
tivity, rapid product introduction, entrepreneurial development, industrialization and
economic development.
Te study shows that the best practices in incubation process includes but not limited
to; selecting good location and planning functional buildings; building a dedicated,
trained management team; selecting potential entrepreneur tenants; identifying strong
sponsors; mobilizing investments for incubators and tenants; Adding value through
quality services for tenant companies; creating strong linkages to professional and busi-
ness communities; monitoring performance and assessing impact; and a clear mission
and strategic planning for the future.
80
5. CONCLUSIONS
From the research fndings and analysis, it can be concluded that this aim of develop-
ing indicators has been achieved and can be improved upon by a series of other sur-
veys. Te information compiled can be used to improve the existing policies and STI
strategies. For Uganda to build incremental domestic technology capacity and local
innovators,
• it will rely on the development of a robust public-private partnership domain for suf-
fcient funding.
• Adopt best practices in technology transfer, such as the use of indicators, and the reports
to cover indigenous innovation status as well
• To improve on the awareness and the quality of the data for international comparisons,
publish and disseminate the results
• Tere is need for adequate fnancial resources for technical, statistical and analytical
capacity and tools to aid planning, management and monitoring of the sector based on
sound evidence. It will also be possible to jointly monitor and analyze the relationship
between R&D, innovation, productivity and other dimensions of frm performances.
6. REFERENCES
Chesbrough, H. (2003), Open Innovation: Te New imperative for Creating and Profting from Tech-
nology,. Boston: Harvard Business School Press, 2003, ISBN: 1-57851-837-7.
Gault, F. (2008), Science, Technology and Innovation Indicators: Opportunities for Africa, African
Statistical Journal, Vol. 6, 141-162.
Government of Uganda, (2008), National Industrial Policy: A framework for Uganda’s transforma-
tion, competitiveness and prosperity, Ministry of Tourism, Trade and Industry
Chesbrough, H., Vanhaverbeke. W. and West. J, eds. (2006), Open Innovation: Researching a New
Paradigm. Oxford: Oxford University Press,. ISBN: 0-19-929072-5.
NEPADOST, (2006), African Science, Technology and Innovation Indicators (ASTII) Towards African
Indicator Manuals: A Discussion Document Summary
Organization for Economic Cooperation and Development, (2002), Frascati Manual: Proposed
Standard Practice for Surveys on Research and Development, Paris: ISBN: 92-64-19903-9.
Organization for Economic Cooperation and Development/Eurostat, (1997), Oslow Manual:
Proposed Guidelines for Collecting and Interpreting Technological Innovation Data. Paris and
Luxembourg:
Te World Economic Forum: Te Global Competitiveness Report 2010
Te Republic of Uganda, (2010): National Development Plan, 2010-2014: Ministry of Finance,
Planning and Economic Development-
Wagner, C. S., Farley, S.E., (2008), Science & Technology for Growth and Development: From
Case Studies to Policy for African Countries, SRI International Technical Project Final Report
(P18045)
81
4.4 Paper IV Research on the State of Business Incubation
Systems in Different Countries: Lessons for Uganda
Joshua Mutambi, Joseph K. Byaruhanga, Lena Trojer, and Kariko B. Buhwezi
Abstract
Small and Medium sized enterprises have proven to be capable of catalyzing national
economies owing to their high growth potential, their role in promoting innovations,
employment creation and economic development. However, in the early days of their
growth period, these frms face difculties that may lead to their failure. Business incu-
bation has been identifed as an efective growth mechanism for such entrepreneurial
frms. Tis paper mainly looked at the concept and description of business incubation,
development process and contribution of incubators to start-up frms. It examined the
impact to regional entrepreneurship and economic development globally. Te paper
concluded by highlighting the existing incubators in Uganda and identifed recom-
mendations for strengthening the business incubation in Uganda.
Keywords: Business Incubation Systems; SMEs, Entrepreneurship; Industrial Develop-
ment, Least Developed Countries, LDCs, Sub-Saharan Africa
JEL Classifcation: O55, O14, M13
1. Introduction
Small and Medium Enterprises (SMEs) have more signifcant role in improving eco-
nomic growth and industrial development of nations by contributing to the creation
of employment, income generation opportunities and wealth, promotion of entrepre-
neurship and enhancing of exports. Tey constitute an important dimension in the
innovation process (Beal, 2003; Hammer et al., 1997; Byaruhanga, 2005; Tirthankar,
2007). Te paper’s discussion is informed by reviews of relevant publications, work-
shop reports, survey reports and stakeholder discussions in respect to the contribution
of SMEs, and how they could be enhanced to sustainable growth through business
incubators that have received considerable attention in the world.
Te SMEs in the Least Developed Countries (LDCs), where most of the Sub-Saharan
African countries fall, producing products and services with moderate quality, ap-
plying low level technologies and faced with other obstacles have been facing tough
competition with the imported products. However, globalization has opened up new
businesses and market opportunities. In case of African and particularly the Sub-Saha-
ran countries, the regional integration process through various groupings such as the
Common Markets for East and Southern Africa (COMESA), Southern Africa Devel-
opment Community (SADC) and the East African Community (EAC) have expanded
and strengthened the linkages with the global economic structures and processes (UN
OSAA, 2009)
82
Within rural and semi-urban areas, there often exist signifcant pressures to start new
businesses, adopt new technologies, and produce products that conform to standards
required by the markets and to those established by the regulatory authorities. How-
ever, small and new businesses have several disadvantages that hinder their success.
Tey have difculties in securing the resources they need for survival (Ferguson and
Olofsson, 2004). Because of this, over 80-90% of the new businesses started each year
fail worldwide within the frst fve years of operation (Aerts et al., 2007).
Incubators have been considered as a remedy for the disadvantages that small and
new frms encounter by providing numerous business support services, and they are
useful in fostering technological innovation, entrepreneurship, commercialization and
industrial renewal. For these reasons, most countries have increasingly been engaged in
establishing incubators (Akcomak, 2009).
Tis research paper addresses the following questions:
(1) Discuss the conceptualization and theory of business incubation
(2) What are the experiences and performance impacts of business incubators in diferent
countries?
(3) What lessons can be learnt from the developed countries by the Least Developed coun-
tries, particularly for Uganda
Te paper emphasizes Uganda which is situated in a region that includes some of
Africa’s most economically important countries but also a member of the Least De-
veloped Countries in the Sub-Saharan Africa as a case study. Uganda is a member
of EAC common market, COMESA, WTO and other international bodies. Uganda
today has a great potential to become the key investment and business hub in the East
African region. As new challenges and demands are derived from global economic
competitiveness, an understanding of business incubators and opportunities is critical
to provide future direction for the incubation process, required services and desires of
entrepreneurs in Uganda.
Due to the key structural constraints to Industrialization in Uganda, the role of the
State in these circumstances is still very vital as lessons learned from the developed
countries (UNCTAD, 2009). Industrialization ofers prospects for the expansion of
employment and income. At the same time, it helps to create the idea on the innova-
tion and better technology changes that brings production improvement thereby ac-
celerating the growth of productivity and quality. A new industrial policy for Uganda
was therefore enacted in 2008 which is attuned to the needs of domestic enterprises,
more cognizant of the need to build linkages with Trans National Corporations and to
leverage untapped commercial opportunities produced by university research.
Te paper therefore is organized as follows: a section on entrepreneurship and indus-
trialization, literature review on business incubator’s historical development and objec-
tives; status of the business incubators and their impact in the World; the overview of
the attempt to establish incubators in Uganda and summary of the recommendations
and conclusions.
83
Methodology
Tis paper is a product of a study carried out on the literature concerning the devel-
opment of business incubators in the world from the published materials, text books,
conference presentations and the authors experience in Industrial policy formulation,
innovation systems and cluster development facilitating activities, and interactions
among the triple helix actors.
Entrepreneurship and Industrialization
Industrialization is both the process of building up a country’s capacity to convert raw
materials into new products and the system that enables production to take place.
Te issue of entrepreneurship and its relationship to the industrialization process has
long occupied the attention of development planners. In particular, the key role of
manufacturing industry for growth based mainly on technology driven increase of
productivity and some essential co-factors, like human skills, capital or appropriate
institutions is globally undisputed.
A recent international literature suggested that operating in clusters may help small en-
terprises to overcome their growth constraints (McCormick, 1999). Creating favorable
conditions for entrepreneurship does indeed help the process of industrialization, and
business incubation focusing on national/regional strengths through clustering and
networking is believed to help small enterprises grow and contribute to industrializa-
tion. Terefore small enterprise development has been linked to the industrialization
process (McCormick, 1999).
What is needed thus is to create favorable conditions to achieve the above objectives,
and facilitating entrepreneurs will contribute to industrial development which is a
key role of the developmental state. Te emergence of the cluster based development
strategy termed as “new innovation system” based on the cooperation among uni-
versities (research institutions), industry and government has been reported to have
brought a wide range of support services worldwide for development of knowledge
based businesses, with linkages to universities, research institutes, venture capital and
international joint ventures. Clusters afect competitiveness within countries as well as
across national borders (Porter, 1998).
Primarily, the capacity to access, adapt, disseminate and generate new technologies
that are crucial for start-ups and SMEs has to be based not only on industrial policy
but also other related and sound policies such as Science and Technology policies with
dynamic systems of national innovation in place.
Te tie between basic research, science and development can also be strengthened by
establishing University Incubators. Particularly the University Incubators can support
the potential entrepreneurs by providing a mentor, seed fnancing, networks and busi-
ness training. Te Universities can provide access to laboratories, high tech equipment
and highly educated specialists in order to commercialize academic research by devel-
oping products or licensing the technology (Becker and Gassmann, 2006).
84
2. Literature Review
Teoretical Conceptualization and Objectives of Business Incubation Process
Te term ‘incubator’ was derived from the fundamental meaning of the term: Te
artifcial nurturing of the chicken egg in order to hatch them faster in a sheltered
environment. Te same hatching concept is applied to the incubating of companies;
it speeds up new ventures’ establishments and increases their chances of success. An
incubator thus hatches new ideas by providing new ventures with physical and intangi-
ble resources (Becker and Gassmann, 2006). Tey have been operated by community
development eforts or municipal organizations to fuel economic growth and job crea-
tion through government funding since the 1960s.
Business incubation concept rests on the argument that if weak but promising new
businesses with a potential of growing into successful ventures can be identifed at an
early stage and helped, failures, loss of resources can be reduced and more ideas can be
developed (Hamdani, 2006).
During the past 3 decades, States, regions and cities have initiated economic develop-
ment programs aimed at: (1) maintaining industries and frms, (2) recruiting estab-
lished frms from other areas, and (3) creating new industries and enterprises. With
respect to the third objective, there has been a proliferation of business and technical
assistance programs aimed at increasing the formation, survival, and success rates of
small and medium sized enterprises. Tese include Small Business Development Cent-
ers, Small Business Institutes, Enterprise Forums, University-based entrepreneurship
centers, special programs ofered through Chambers of Commerce, Business incuba-
tors and so forth (Rice, 2002).
By comparison, business incubators ofer the opportunity to deploy multiple modes
of assistance, including continual interaction, because companies and the incubator
staf are co-located in the same facility. Te spectrum of services ofered by an incuba-
tor is extremely varied, including strategic business planning, administrative services,
technical assistance and guidance on issues of intellectual property, (particularly in the
case of technology incubators), to connect with fnancing and networking activities,
to infrastructural facilities, etc. (Nolan, 2002; Lalkaka, 1997; EC-CSES, 2002; Sun et
al., 2007).
Business incubation is a globally well-tested over 50 years systematic approach with
diverse objectives primarily aimed at growth-oriented start-up enterprises to help them
grow with the efcient use of business resources, to become sustainable and com-
petitive companies. For example, according to (Nolan, 2002; EC-CSES, 2002; GBIN,
2009) these very diverse objectives include:
1. Generating employment;
2. Commercializing ideas and university research with spin-of companies;
3. Development of entrepreneurial culture and supporting innovations in communities;
85
4. Upgrading the technological standing of frms in a given locality;
5. Encouraging young graduates to create their own businesses;
6. Improving survival rates for new start-up businesses;
7. Development of new industry sectors and economic diversifcation;
8. Expanding the supply of infrastructure;
9. Empowering the socially disadvantaged groups;
10. Creating export revenues, and;
11. Increasing competitiveness of an existing sector.
Conceptually “Incubation” is a more diligent and planned process to strengthen clus-
tering or co-location of frms and therefore needs a careful attention to the problems of
the prospective occupants, extending well beyond providing infrastructure and ofce
services. Business incubation is a process enacted by business incubators, angels and
venture capital organizations in order to facilitate the entrepreneurial process (Hackett
and Dilts, 2004).
In 2009, of the total 7,000 worldwide, the numbers in industrializing countries are
more than half the total, especially in China, Korea, Taiwan, Brazil and Mexico. In
Europe, the majority are in Germany, France and U.K. While incubators in industrial
countries serve a variety of objectives, those in the industrializing countries are pre-
dominantly focused on technology (Lalkaka, 2009). Majority of the Least Developed
Countries’ incubators aim at fostering entrepreneurship, innovations and value addi-
tion (manufacturing) in promoting industrialization (UNCTAD, 2009).
Historical background of Business Incubators in the World
Over the last 50 years, business incubators have evolved in diferent ways .Te frst
incubator was established in 1959 in Batavia, New York in the United States, but until
the 1970s’ this concept was unique (Wiggins and Gibson, 2003; Hackett and Dilts,
2004). Since the frst incubators were founded in the late 1970s and early 1980s (the
so called “First generation” or “traditional incubators” (EC-CSES, 2002) was charac-
terized by a strong “real estate” component), the main objective has been and still is to
nurture entrepreneurial start-ups that will grow rapidly, create wealth and employment
and contribute to local and regional economic development.
86
Figure 4: Te Evolution of Business Incubator Model
Source: EC-CSES (2002)
Te earlier incubators focused their eforts on new technologies, light manufacturing
and services. Later, the “Second Generation” of incubators in the 1990s added on
counseling, skills enhancement, networking services, management, access to profes-
sional support and seed capital. However, as the industry has matured, the types of
businesses incubated have signifcantly broadened (Wiggins and Gibson, 2003). Te
coming of the knowledge-based business incubators in the late 1990s and increasing
importance of universities in incubation, resulted into strong development of what
analysts have termed as the “Tird Generation” of business incubators heavily technol-
ogy oriented. From these humble beginnings, the incubator industry has matured into
an international economic- development tool. Figure 1 shows the evolution of busi-
ness incubation.
Tere are several defnitions and approaches to business incubators available in aca-
demic literature and many have been adopted by Industry Associations and Policy
makers in diferent countries refecting local cultures and national policies. Most of
them are characterized by a specifc physical location and co-operation between pub-
lic and private sector institutions in the form of actions essentially aimed at building
bridges between academia and industry, promoting innovation in small and medium
enterprises (SMEs) and encouraging investment in technology –based start-up frms.
A description of activities the incubators perform according to (UN-CE, 2001; EU-
CSES, 2002; Scaramuzzi, 2002; Hamdani, 2006; Rumen 2009; Akcomak, 2009;
Chandra, 2007; Lalkaka, 1997; Zedtwitz and Li, 2004; Hackett and Dilts, 2004)
defne that incubators:
1970s
Early 1980s
Mid 1990s
Late 1990s
Managed
workshops
Enterprise
Agencies
Industrial estates
Business
Centers
Business Incubator
Concept
Science
Parks
Multi Purpose incubators
Specialized Incubators
Technology
Incubators
Incubators without
Walls
Sector
specific
incubators
New Economy
Incubators
Virtual
Incubators
87
• Provide secure, afordable, fexible, well equipped physical space including communica-
tion infrastructure ;
• Provide professional, business, management, and technical consulting (in areas where
they don’t have the relevant knowledge and expertise) services together with access to
seed and working capital, public grants, loan fnancing, venture capital, and R&D part-
nership funding, and state equity fnancing;
• Are often associated or connected with institutions such as universities, research
institutes, communities, consortiums, government administration councils, and Non-
government organizations;
• Create an interactive community of entrepreneurs, academic and business interests that
stimulate and encourage the sometimes fragile incubation process, including the disad-
vantaged population, and fnally;
• Te most important element that identifes, incubators from the rest of similar establish-
ments is that it provides high level business support/management services under one
roof for entrepreneurs and new ventures that have medium and high level technological
focus to create synergy (Akcomak, 2009). Te environment within the incubator created
through the interaction between the incubator managers and incubatees, and among the
incubatees themselves is seen by majority writers as a very important facet of incubation.
Chien, (2007) described a business incubator as an innovative development tool of
human resource development (HRD) used to foster growth and diversify the venture
base. Human resource development; networking and knowledge acquisition, adapta-
tion and dissemination that take place within enterprises, universities and research in-
stitutions supplemented with appropriate policies will lead to the business incubators’
importance in attainment of their objectives.
Te general defnition of business incubator by the National Business Incubation As-
sociation is
1
:
Business incubators nurture the development of entrepreneurial companies, helping them survive
and grow during the start-up period, when they are most vulnerable. A business incubator’s main
goal is to produce successful frms that will leave the program fnancially viable and freestanding.
Te most common goals of incubation programs are creating jobs in a community, enhancing a
community’s entrepreneurial climate, retaining businesses in a community, building or accelerating
growth in a local industry, and diversifying local economies.
Development and efective management process of business incubators
In the 1980s, many industrialized countries and industrializing countries created busi-
ness incubators in hopes of stimulating jobs, technology transfer and economic de-
velopment in their communities; some have been successful while others the success
has been slow or not there at all. Tis has been due to a variety of factors; such as dif-
ferences in regional characteristics, the policy and regulatory environment, economic
factors in play, diferent stakeholders involved, culture and attributes of the incubator
frms, the vision of the incubator and the mode of management.
Chien (2007) study concluded that there is a relationship with the role of HRD in
the incubator management and the efectiveness of incubator development to fulfll
88
its goals. Confronted with lack of trained personnel and expertise in managing various
stages of the change more research to study the success rates and to analyze the failures
has been done. In countries with efective institutional environment, good policies and
organizational mechanisms, a lot more successes of incubation systems has been real-
ized as will be discussed in later sections.
Like any other business, the success of business incubators depends on the incubator
development, fnancing, efective management and performance process, and among
the important factors in successful management of incubators is the cooperation
among variety of stakeholders (incubation network system). However, the role of man-
agement is far more than provision of workspace in the facility; it involves all types of
support that would help the frms to fourish including facilitating employees training
in specialized techniques and linkages with support institutions such as university ties.
Terefore, the mission and vision of the incubator and how it will be implemented by
incubator management is very important. Te driving force in incubator programs is
the supply of expertise, capital, and support that comes from assistance activities di-
rected towards flling the voids in entrepreneurs’ abilities. Tus, the development and
performance of incubators is important to entrepreneurs. Management of incubators
can afect the frms’ survival and growth.
In general, there are two groups of incubators: proft (these incubators help the start-
ups by ofering rental space, capital, fnancing solutions, and business mentoring etc.
at subsidized rates) and Not for - proft (these incubators are set up by public and
non public-organizations that wish to promote businesses in an area, a specifc indus-
try, economically empower the disadvantaged or to promote the entrepreneurial spirit
(spin-ofs) at a university or research institute.).
Business incubation is a cross-cutting process embracing a range of components in-
cluding business and entrepreneurial support and fnance. Te model is as shown be-
low:
In developing countries and especially in Sub-Saharan Africa, business incubators can
provide the following opportunities;
• Provide entry into business and fnancial networks (connections)
• Create a regional “critical mass” for rural development
• Build upon existing entrepreneurial resources
• Build upon existing programs for small businesses
• One stop-shop for technical management, fnancial assistance and improved worksite
89
Figure 5: Business Incubator Model
Source: EU-CSES (2002)
Research on incubators defnes the incubation process as comprised of three stages Pre-
incubation, the incubation stage and the post – incubation. Since the aims of incuba-
tors are to foster innovative enterprise development, and can be successfully focused on
creating competitive enterprises with high job creation potential, regardless of whether
or not the business concept is innovative, they can serve as important levers to forge
positive change that creates a more enabling environment for innovative entrepreneurs
across the economy.
However, the best way of achieving the intended objectives, is to have more communi-
cation within the incubator management and tenant entrepreneurial frms. It requires
active linkages between fnanciers, academia, policy makers and the business commu-
nity (Incubation system). More focus also should be on the entrepreneurial incubation
process and the outcome. Tis has thus resulted in the need to consider HRD
2
as an
important part of the incubator management and development process, and in the
process of technological innovation human resource development plays a signifcant
role in improving the efectiveness of management technology and in achieving or-
ganizational objectives (Chien, 2007; Wang and Zang, 2005).
Graduation
Regional Dimension
Effectiveness
Inputs Process
Output
s
Incubation
Stakeholder
objectives
Management
skills
Finance
Projects
Sustainability
Efficiency
Relevance
Impacts
Target
market
Admission
criteria
Exit
criteria
Utility
Training
Busines
s advice
Financial
support
Technology
support
After care
Physical space Networking
Additionality
Displacement
Indirect
effects
Net
Impacts
Operational Dimension
Impacts
s
90
Signifcance of Business incubators
Looking at the role of incubators in the entrepreneurial process, Wiggins and Gib-
son (2003) argued that incubators must do fve things well in order to succeed. (1)
Establish clear metrics for success, (2) provide entrepreneurial leadership (3) develop
and deliver value-added services to member companies (4) develop a rational new
company selection process (5) ensure the member companies gain access to necessary
human and fnancial resources.
While innovation is considered by many as the foundation of growth, the innovation
process in the Least Developed Countries follows a diferent pattern. It is not a per-
fected or a common occurrence. Learning and innovation may arise from a variety of
sources, such as research and development (R&D-which is codifed knowledge), tacit
learning –by-doing, investments in new machinery and equipment, technology sup-
pliers, mobility of labour etc. For many low –income economies, especially the Sub-
Saharan Africa, however the opportunities for industrial learning have been limited
compared to the developed market economies where frms are heavily supported by a
dense array of institutional support institutions that buttress institutional learning on
a continuous basis (UNCTAD, 2009).
By establishing business/ technology incubators and linking them to cluster initiatives,
it will stimulate networking among frms, especially with frms located close to each
other. It will also enhance university –industry collaboration via university incubators.
In establishing linkages and collaboration with other frms or institutions, frms can
outsource knowledge and technology.
Terefore, promotion of incubation as the essential tool in cluster development makes
sense, as cluster development strategies can consider the adequacy of available facilities
for the development of identifed clusters. Te availability of work premises and busi-
ness support services for potential entrepreneurs and expansion of existing businesses
is an important component of maintaining the long-term success of a cluster.
3. Status of Business Incubators and their Impacts in the World
Te long term evolution of incubators has revealed that the concept evolved from a
simple tool for economic development into a high-tech, sector specifc and increasingly
proft-oriented tool to promote entrepreneurship. It is now an accepted practice across
the world both for established economies and emerging economies. Te European
Union countries, Asia and pacifc countries, Middle East countries, North and South
America, including African countries are implementing business and technology incu-
bation programmes. Te business incubator impacts are the longer term consequences
of activities, linkages and outcomes. Tese can be grouped into fve broad areas; (1)
launching sustainable businesses, (2) job creation, (3) taxes, (4) social impact.
3
91
North America
Te National Business Incubation Association estimates that North American incuba-
tor clients and graduates have created about 500,000 jobs since 1980. Even better,
for every 50 jobs created by an incubator graduate, about another 25 jobs are cre-
ated in the community. Incubator graduates create jobs, revitalize neighborhoods and
commercialize new technologies, which strengthens local, regional and even national
economies.
Te 1990s, witnessed further development of incubators throughout the United States
of America, for instance, in 1981, there were 8 incubators and by 2000, there were 900
incubators in the US (Peters et al., 2004).
Regarding start-up businesses, in 2001 alone, North American incubators helped more
than 35,000 start-up companies that employed nearly 82,000 workers and generated
annual earnings of more than $7 billion with 900 incubators (Sally Linder/NBIA,
2003) while In 2005, assisted more than 27,000 businesses that provided employment
of over 100,000 workers with over 1000 incubators in operation. Tere are 120 in
Canada, with 2,958 client businesses generated revenues at the end of the year 2005,
created full and part-time employment of over 13,000 people; the average survival rate
of companies in Canada that go through business incubation has been shown to be
higher than 80% after fve years (CABI, 2005).
Business incubation experience in other Regions
Incubators difered from the existing industrial parks and estates as the focus shifted
away from real estate development and subsidized rents to value added business serv-
ices.
European Union Region
Te EU started supporting the development of incubators in mid1980s as part of
its regional policy. Whilst initially EU focused on establishing incubators in ‘lagging’
regions, in recent years it works more on incubators as support for high knowledge-
intensive start-ups as part of the ‘Lisbon Agenda’ (European Union- Regional Policy,
2010). EU programs providing assistance to incubators include: the European Region-
al Development Fund (ERDF); European Social Fund (ESF); Leonardo Programme
mainly for training; Sixth R&D Framework Programme, and others.
Te existence of EU-wide support networks such as, EBN (European Business & In-
novation Centre Network), ‘Gates to Growth’, and ‘Science Alliance’ and the strong
National associations such as in, France, Germany, UK, Finland and Sweden efec-
tively promote the growth of business incubators.
Promoting incubation and growth of innovative frms is also singled out in EU2020
strategy, proposed by President Barroso, as one of the ways of creating value basing
growth on knowledge. Te Deputy Director General, Enterprise and Industry, Euro-
92
pean Union- Regional Policy, (2010) said “Business incubators have a long history in
supporting research and development based start -ups from academic and research
institutes.
Overall, Western, Central and Eastern Europe have a wide range of incubator models
with countries at very varying stages in the process of business incubation (EC-CSES,
2002) with a total of around 1,200 incubators generating over 40,000 gross new jobs/
per year. Te survival rate is relatively high, on average 85%, and 77% of all incubators
are not-for proft.
Tere are approximately 300 business incubators in UK that support a range of high-
growth technology businesses in sectors such as biomedical, IT, and the creative indus-
tries. In Sweden, there are a total of 55 business incubators (www.sisp.se). Many incu-
bators also ofer a “virtual” incubation service where advice and support is provided to
start-up businesses located outside of the incubator.
Latin America and Caribbean
Brazil is the leading country in the incubation business in Latin America as in terms of
number of incubators in operation and annual growth rate. Brazil is the fourth ranking
business incubation market in the world. Incubators in Brazil have witnessed meteoric
growth from just two in 1988 growing to nearly 400 in 2007 (Chandra, 2007). Other
countries like Mexico, Chile and Colombia followed the same. Table 4 shows the
growth of business incubators in Brazil.
Figure 6: Growth of Business Incubators in Brazil
Source: Chandra (2007)
Funding: Business incubators in Brazil are funded by the coalition of partners, govern-
ment, federal agencies and non-government sources. Te incubator initiative in Brazil
was started by the key individuals from the academia, industry and government. It is
93
today viewed as a hybrid organization that facilitates interaction between the triple
helix of university, industry and government spheres (Chandra, 2007).
Networking: Te existence of National Association of incubators and science parks
prays a key role in strengthening synergies in diferent kinds of incubators and by
encouraging participation from universities and research institutes while persuading
diferent entities to support incubators. Business incubators in Brazil provide the usual
raft of services, tangible and intangible with an emphasis on networking.
Te Asian and Pacifc Region
Te main goal of incubation systems in Asia was to promote continuous regional
and national industrial, economic growth through increasing employment, general
business development and to stimulate specifc economic objectives such as industrial
restructuring as well as wealth generation and utilization of national resources. China,
Japan, India, Korea, Malaysia, Indonesia and other members of the Asia and Pacifc
region embraced business incubation. Asia leads in establishment of Business incuba-
tors. Tere are over 1,500 incubators in operation in Asia alone. China alone has over
600 incubators compared to just over 50 incubators in India (15 of which are technol-
ogy Business incubators) and 100 incubators in the planning stage by the government
of India, Japan (200 incubators), Taiwan (70 incubators), Malaysia (20 incubators),
about 300 in South Korea and Australia (20 incubators) (Cho and Eunsuk, 2009).
Table 8: Growth of incubators in China
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
No. of
incubators in
China 80 77 110 131 280 436 466 489 534 548
No. of
tenant com-
panies 2670 4138 5293 7693 12821 23373 31385 33048 39,491 41,434
Total
employees
in tenant
companies 45600 68975 91600 128776 263596 414995 - - 720,000 792,590
Accumulated
number of
graduated
companies 825 1316 1934 2770 3994 6927 9,565 11671 15,815 19,896
Source: Zedtwitz and Li. (2004) and Min (2007).
94
Figure 7: Growth of Incubators in China
Te experiences and characteristics of incubation industry in China shows that; much
attention and great support from central government, pour strong drive to incubation
industry; Incubator has become an important carrier to build an innovation-orient-
ed country and the cradle to cultivate technology enterprises and entrepreneurs. Te
trend is that more companies are getting incubated as more incubators are established,
and the total number of employees increasing (Min, 2007). China further enhanced
capacity and fast development of national incubator facilities to over 600 incubators.
In Korea, another leading successful country in business incubation in Asia, the con-
cept has been a success because of the good policies on small and medium businesses
by the government, especially during the 1990s, when they needed to create jobs, re-
vitalize the local economy and develop national innovation systems (Cho and Eunsuk,
2009). 95% of the Korean Incubators are located on universities or research centers
and most of the start-up businesses, 71.1% are mainly in engineering or sciences felds.
Te total number of employees of incubators’ clients in South Korea was 22,538 in
2006 and increased to 22,982 by 2009 from 269 incubators with 4,532 business cli-
ents showing job creation efects. While, the total sales volume of the incubators’ busi-
ness clients were $2 billion in 2006, which increased to $2.3 billion in 2009, showing
the results of start-up policies.
Australia
Australia has a stock of about 100 business incubators in the public hands since they
were instituted in the 1980s.Tey represent a signifcant infrastructure and human
capital asset, backed by their local communities (BIIA, 2008). Te achievements of
business incubation in Australia since they started the industry include:
• 103 business incubators
• 3,500 graduated businesses
• A minimum of more than 10,500 full time equivalent (FTE) jobs have been created
95
In New Zealand, the growth in tenant frms exists since 2005/6 to 2009, was from
100 to 170 respectively, and the employment generated also increased considerably in
2008/9 reaching 1000 full-time equivalent (FTE) employees.
Africa
Compared to other regions of the world, business incubation is in its infancy in Af-
rica especially in the Sub-Saharan Africa and the opportunities for innovation and
entrepreneurial networking are not as developed as in regions with a longer history of
incubation, for instance America North, Eastern Europe, Asia and Pacifc, and Latin
America.
In Africa, according to the study carried by Irwin et al., (2009), 21 countries well
spread from around the continent have attempted to establish business incubators
of which many are providing business development services, sometimes described
as virtual incubation, rather than providing physical space. Te countries with their
percentages include; Angola (3%), Botswana (2%), Djibouti (2%), Ethiopia (6%),
Ghana (5%), Kenya (6%), Madagascar (2%), Mauritius (2%), Morocco (2%), Mo-
zambique (3%), Namibia (2%), Nigeria (13%), Rwanda (3%), Senegal (2%), South
Africa (27%), Sudan (5%), Swaziland (2%), Tanzania (5%), Tunisia (2%), Zambia
(2%) and Uganda (6%).
Te status of the managing incubators is mixed, which include the universities or
academic institutions, the government, the Non-government organizations and the
private sector. Te targeted business sectors include; Technology and manufacturing,
Agriculture and agro-processing, Sciences, and ICT. Te Cape Town-based Bandwidth
Barn has been in operation since 2000 and is today regarded as one of the leading ICT
business incubators in the world. Te Bandwidth Barn is a fully-owned subsidiary of
the Cape IT Initiative (CITI), a development and promotions agency for the ICT sec-
tor in the Western Cape.
Also according to the study done by the Economic Commission for Africa (Kamoun et
al., 2009) in selected 17 countries of North Africa and Southern Africa, a total of 18
incubators and 40 business incubators have been created. Te majority was located in
Tunisia, Morocco and Egypt where networks of incubators have been created.
Te Uganda experience
Te Ugandan manufacturing sector is not yet technology-intensive or innovation –led.
It is dominated by production activities that are standardized and require low technol-
ogy by global standards. However, Uganda’s economic framework strongly emphasizes
on public-private partnerships. New policies on science, technology and innovations,
national industrialization, and the overall national development plan refect the in-
volvement of the private sector and the push for the “triple helix” of government-
academia – industry collaboration.
96
In Uganda, attempts have been made to set up incubation centers since the post in-
dependence days, (1960’s) to provide support to SMEs, research and development,
innovation and learning activities, and nurturing start-up businesses. Universities and
Research institutions have also started to establish small business incubators as a way
to help spin-ofs business start-ups while providing laboratories for students and entre-
preneurs in which to experience the real world of business.
Te following are the traditional and the new establishments that are ofering incuba-
tion services:
(a) Te Uganda Management Training and Advisory Center (MTAC)
(b) Uganda Gatsby Trust (UGT)
(c) Uganda Industrial Research Institute (UIRI)
(d) Te Textile Development Agency (TEXDA)
(e) Te Presidential Initiative on Banana Industrial Development (PIBID)
(f ) Makerere University: (i) Faculty of Computing and Information Technology: Na-
tional Software Incubation Centre (NSIC); and (ii) Department of Food Science and
Technology: Te Food Technology and Business Incubator.
In all the above Ugandan incubation system, there are still main weaknesses such as;
insufcient business support services, inadequate physical and operational infrastruc-
ture, inadequate capabilities to exploit the opportunities in the emerging sectors such
as ICT, biotechnology and new materials, low level of private sector participation in
R&D activities and insufcient risk capital funding.
4. Conclusions and Recommendations
Te development of business incubator involves numerous stakeholders that have an
interest in the success of the initiative. Tenants occupy the incubators only temporarily
during the critical frst few years when high overheads, lack of business experience and
resources are faced in many new and small businesses. Human capital is core in pro-
moting incubators as it provides the capacity to create, innovate, and exploit new ideas.
• In keeping with global trends, to strengthen the small business environment by imple-
menting and promoting more explicit links between business incubation and a broader
portfolio of business growth and investment strategies will realize more benefcial efects.
• Te principal factor that contributed to European successful implementation of the
business incubation systems has been the development of national innovative capacity
and adoption of the regional innovation system model by states which assume that the
most fundamental resource is knowledge and most important process is learning and
that learning is predominantly an interactive social process. Hence, the need for Business
incubators to promote transfer of knowledge, creation of synergies and promotion of
entrepreneurship development and ultimately industrial growth
97
• Other strong factors that have helped advanced countries ( North American, European
and Asian) which other developing countries especially in Africa can learn from are; the
strong technological entrepreneurship infrastructure and the unique cultural and social
characteristics of the people, (i.e. entrepreneurship and the developmental state). In
other words, government support is indispensable.
• Te business incubation environments should be able to meet the needs of both female
and male business owners and entrepreneurs (gender perspective). Te right choice of
the location will speed up their further progress, they should be close to knowledge-
intensive areas surrounded by universities and research institutes or in science and
technology industrial parks.
• Tere is need to strengthen the public-private partnerships
artnerships can also help
to promote new forms of fnancing and improve capacity building measures thereby
contributing to the sustainability of the incubatees.
• Tere is need for strong policy and strategic making that will lay very strong founda-
tion for incubation development in developing countries at national and regional levels.
A policy referring to a policy defned, understood, articulated and implemented at all
levels.
It is concluded that incubation success, especially in developing countries is the pivotal
wheel of industrialization and national competitiveness, which is the reason many
governments should pay attention with strong support. However, emphasis should be
put on management and operation of the incubators even with good infrastructure
and technical capabilities.
It can be further concluded that successful entrepreneurs and viable business ideas
come from all sources, from universities, corporations and the grassroots. Hence,
business incubators can contribute to stimulating more entrepreneurs to pursue their
dreams of creating their own company.
Notes
1
See their website: www.nbia.org
2
HRD is the integrated use of training and development, organization development, and
career development to improve individual, group and organizational efectiveness (Chien,
2007).
3
See: www.infodev.org.
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PART III
102
103
Chapter 5 - DISCUSSION AND CONCLUSIONS
5.1 Brief Summary of the Papers
Paper I: Introduces the general business environment and the state of manufacturing
sector in Africa and Uganda in particular in the broader perspective of industrial sec-
tor. Given the importance of manufacturing to the national Gross Domestic Product
contributions, the problems, constraints as well as challenges and opportunities for
investments and manufacturing sector development were presented. Te bottlenecks
to Africa’s industrialization in particular competitiveness and key drivers for invest-
ments were discussed.
Te recommendations were outlined in the conclusions including adapting of new
approaches and initiatives for industrial development as they have accelerated develop-
ments in Asia and European countries.
Paper II: Discussed a number of support institutions and support mechanisms for
accelerating and upgrading the SMEs and in particular support to new initiative of
innovative cluster based development approach. Although the existing SI may not be
functioning to the required levels due to various reasons including limited coordina-
tion, the policy and regulatory framework however has been improving.
Te focus on the triple-helix and clustering concept was highly recommended since it
strengthens collaboration and networking; training and innovation; and competitive-
ness and productivity improvement.
104
Paper III: Te focus was on developing and establishing relevant science, technology
and innovation indicators for Uganda. Te paper addressed the core indicators of
research and development, and innovation. Tere was an understanding of innova-
tion, innovation activities, R and D activities, inputs and outputs. Te Oslo Manual
(OECD, 2005) distinguishes four types of innovations: product innovations (new
goods or services or signifcant improvements in existing ones), process innovations
(changes in production or delivery methods), organizational innovations (changes in
business practices, in workplace organizations or in the frm’s external relations) and
marketing innovations (changes in product design, packaging, placement, promotion
or pricing). An innovative frm can be defned as one that has successfully introduced
one of these types of innovations in the period under consideration, but it could also
be enlarged to frms that have not yet introduced the innovation, but have unsuccess-
fully tried or are still in the process of implementing the innovation. Product innova-
tions have moreover been distinguished by their degree of novelty (new to the frm,
region-frst, country-frst, or world-frst). As an alternative, being innovative could be
measured on the input side by the fact of having pursued innovation activities, such as
R&D, acquisition of external knowledge, training for new products and processes and
their market introduction.
Te paper confrmed the importance of important variables like size, market, technol-
ogy, human skill resources, collaborations and government support. It introduced the
importance of open innovation and business incubators in respect to enterprise devel-
opment, technology transfer and innovations.
Te paper highlighted the factors that due attention should be given to achieve techno-
logical innovation. It further gives the percentages of the gross domestic expenditures
on Research and Development; the numbers of innovative enterprises by employment
sizes.
It concludes by stressing that creation of awareness on the key concepts of STI in the
country, prioritizing STI policies and strategies will create more opportunities and
build capabilities for technological innovation. To foster innovation and promote en-
trepreneurship development adopting business incubators for open innovation will
yield more potential benefts.
Paper IV: Te business incubator industry is a powerful tool for the creation of SMEs,
for supporting them in start-up and for increasing their growth rate. Te paper pro-
vided the state of business incubation in diferent countries, how they have grown and
the lessons for Uganda. Improving and promoting entrepreneurship, new enterprises
and indeed the operating potential for SMEs in general is essential for all national
economies.
It introduces the business incubation system and how in order to boost entrepreneur-
ship, promote value addition and innovation, foster skills development and competi-
tiveness all largely coincide with the national aspirations of a modern, middle-income
and industrialized country. Te conclusions made will assist the author in the analysis
and deciding on the correct and most suitable model for Uganda.
105
5.2 Concluding Discussions
Tis thesis has discussed a wide range of issues that are related to the desired struc-
tural transformation of the Ugandan economy towards industrialization process.
Te strengths, challenges and opportunities were presented in diferent papers. To-
day, industrialization is not driven by resource endowments alone, but by technology,
knowledge, skills, information, innovation, research and development, and network-
ing (UNIDO, 2005). Important in this process are functioning , efcient, responsive
and interactive Support institutions which help frms to develop and upgrade local
capabilities, and support them in their efort to link, leverage and learn from foreign
or advanced sources of information, knowledge, technology and skills.
Government’s Long Term Strategy
Uganda still an agricultural based economy with substantial natural resources and a
relatively economic growth rate would like to transform its economy into an industrial
and prosperous modern society (NDP, 2010). Uganda has the opportunity of being
the central hub of the great lakes region although it is land locked. With her rising
population growth and rural-urban migration which is accelerating urbanization, for-
mal job creation has continued to lag behind expectations in spite of strong economic
growth and a relative degree of poverty reduction. Te objective of small enterprises
growth and poverty reduction strategies implies eforts to focus on youth, especially
university and other tertiary institutions’ graduates, rural-urban migrants, and the ur-
ban poor to earn more income and participate in a private sector- led economy.
Te government policy has tried to target such specifc groups of people or potential
entrepreneurs who are poor, unemployed or without opportunities and majority with-
out higher education. As a result these groups are least likely to create successful busi-
nesses and expand employment. Terefore, regardless of policy priorities, improved
education access, technical training and entrepreneurship education are crucial and
government intervention is very important
Importantly to note, there has been an improvement in the policy frameworks and
the drive towards entrepreneurship and private sector development. Te government
is now promoting universities in fostering entrepreneurial activities towards develop-
ment of entrepreneurship. With a number of capacity building support programs and
initiatives in the country, many people and households are diversifying their income-
generating activities into non-farm activities, though often only on a small-scale base,
with a focus on local markets and employing very few people per business. Te house-
hold diversifcation into non-farm activities i.e. informal businesses, trade and manu-
facturing mainly fabrications and agro-processing is probably helping in raising their
household incomes (Bakeine, 2009).
However, this has brought many new comers in the services and industrial sector as
entrepreneurs or employees with little or no training in their current economic occu-
106
pation. During the surveys (STI and ISCP assessment surveys) it was revealed among
SMEs that quite low levels of business, managerial and technological skills have had
adverse efects on their enterprise upgrading and growth. Yet, it has been recognized
that the competitiveness of small companies is increasingly perceived in terms of their
internal capabilities to choose, use, adapt and develop technology.
Furthermore, on ground even the more qualifed graduates and entrepreneurs fnd
it difcult (or not attractive) to enter industrial or other processing activities that are
related to relatively high levels of technology investment, networking, institutional
support, or skills formation; they rather seem to operate in sectors with lower require-
ments, such as the local service sector (fnance/microfnance, transport, consultancy
and trading). Tese aspects limit the positive impact of entrepreneurial dynamics in
the country on innovation, industry, job and growth creation as well as overall eco-
nomic diversifcation and development. Te involvement of academia in industry
business relationships can contribute greatly, especially in terms of technology transfer.
One of the suitable ways is formation of business incubators linked to universities.
Science, Technology and Innovation Indicators
Te STI Indicator approach is useful for identifying the linkages and outcomes of
STI activities which can then be used analytically to shed light on the impacts. Te
frst results for the STI indicators in Uganda were rather on the lower side being the
frst time to conduct STI survey (2009/10). Tere was low proportion of business
enterprise expenditure on R&D with few researchers in gross expenditure on R&D.
From other statistics, we can deduce that there is little linkage between industry and
other public research sectors i.e. government agencies and higher institutions. Tere is
coordination failure between and within institutions, and hence, absence of efective
linkages between various elements of science, technology and innovation system in
Uganda. Terefore linking knowledge and productive activities must predominantly
involve the government, academia and industry.
Furthermore, the capability to generate innovation in the production of goods and ser-
vices is very limited not only in small and micro-enterprises, but also in medium sized
ones. Te scarce resources in government and private sector are spread too thin over
too many activities to facilitate emergency of sectoral innovations. It was also observed
that there is insufcient specialization and diferentiation in the functions among the
organizations that perform R&D and other innovation – supporting activities. When
attention is focused on specialization and coordination, fnancial support, technical
and non-technical assistance, human resource capacity, addressing market linkages and
strengthen partnerships, there will be a diference in the future STI indicator trends.
With respect to innovative enterprises, from the fndings, there are many innovative
frms in the category of small frms that employ less than 10 employees, fewer in me-
dium sized and again more in the large category. Tis is expected since for small frms
and especially start ups, most products and processes will be new to them and probably
107
to their markets. Tis clearly indicates the need to support incubator projects (incuba-
tors that suit and adapt to local conditions and opportunism). Tis can be explained
from the signifcance of business incubators from the literature as; (a) mechanisms for
technology transfer and innovations, (b) self-sufciency and survival, (c) economic
and industrial development. In particular, from the above discussion, there are three
key components that need special attention, the size of the enterprise, the conditions
or environment and the linkages. Tese are also referred to in the Oslo manual, 2005
as “Actors, the framework conditions and transfer factors/ linkages and networks”.
Tis thesis stresses the regular development of STI indicators, especially indicators of
impacts and strongly calls for a framework to guide statistical work and provide better
understanding of how diferent indicators are connected. Governments should adopt
a mix of policies to remove or reduce obstacles that hamper science, technology and
innovation: For instance, easing access to fnance, making more skilled labor available,
or facilitating more collaboration to cooperate with other frms, technological institu-
tions and government. Further action is necessary such as the improvement of indica-
tors measuring knowledge fows, quality of STI statistics and linkages.
Collaboration and Partnerships
Collaborations and Partnerships can signifcantly facilitate the transfer of scientifc
knowledge in the development of tangible products and processes. Over the past
decade, consensus has been growing regarding public-private partnerships (PPP) in
Uganda and a PPP Bill is yet to be approved by parliament (MFPED, 2010). From
literature, it is suggested that technological learning, organizational and institutional
capacity building will help to develop producers and that learning will be most efec-
tive when producers can interact with each other and with other groups, especially
customers.
Tis confrms the argument by the author that open innovation business incubator
practices linked up in cluster based business approach can stimulate such achieve-
ments to occur. Laursen and Salter, 2005 also confrmed that frms who have open
search strategies—those who search widely and deeply—tend to be more innovative.
Evidence has shown that controlled collaboration of government, academia and indus-
try facilitates innovation and creative development while providing balance between
knowledge, social beneft and proft motivations (Leydesdorf, 2005). It is also said
that the better the markets, resources and information that the enterprises can access,
the easier it will be for them to overcome their internal constraints, raise productivity
and become more competitive. Jin Cho, (2009) had the same argument that incuba-
tion success, especially in developing countries is the pivotal wheels of industrialization
and national competitiveness.
Tere is no doubt that many existing and future businesses will require technology,
business processes, human resource, and capabilities to be at or close to regional/in-
ternational (best practice) level. Tis argument is supported by Romijn, (2001) who
108
asserts that technological competence is an important determinant of small manufac-
turers’ ability to hold their own in a context of liberalization and globalization. Also
from literature (Chien, 2007; Wang &Zang, 2005) argue that there is need to consider
seriously human resource development as an important part of the incubator manage-
ment and development process. Te path Uganda has taken in liberalizing education
and other tertiary institutions is right, in that human resource development (improv-
ing education and skill levels) is considered an important strategy for business growth
and national competitiveness (Sun et al, 2007). Terefore there is need to collaborate
and develop facilitators that will help the SMEs’ members with relevant services and
activities that will help them to execute their objectives with maximal professionalism
and efciency (the triple-helix model of collaboration).
Terefore, tackling these issues can result in improvements on various fronts of eco-
nomic and social development. Te adjustment requirements at the level of public and
private support institutions as well as commitment to expenditure priorities, policy
and project implementation are also substantial. For instance, in OECD countries,
the SMEs support function is undertaken by organizations/institutions with special-
ist resources and skills relevant to this function (OECD, 2007). Improvements in the
dimensions and challenges mentioned in this summary discussion are crucial, given
the aspirations of the country as an export-oriented, middle-income, industrialized
economy within the next 20 years. It will need strong collaboration and partnership
between the public and private i.e. the government, academia and the industry.
Te overall analysis of this thesis, the fndings, views and recommendations presented
can be seen as a range of background inputs for this study about industrialization,
business incubation and entrepreneurship and the linkages between them.
5.3 Scientifc Contributions and Originality
Te development of primary STI indicators in Uganda was done during this research,
which gave the initial baseline data and indicators that can be updated regularly when
funds are available. Tis is a main contribution from this research.
Te author under this research also initiated “One Village One Product” Program
in Uganda using the virtual business incubator model that is under observation. It is
providing a demonstration of using business incubation process. Although innovation
plays a key role in our considerations, business incubators are not exclusively devoted
to high-tech and innovative enterprises.
Te research explored how incubators and start-ups have grown across the world whilst
at the same time showing Africa lagging behind. Te need for research for both the rest
of Africa and other developing countries like Uganda cannot be understated.
109
5.4 Way Forward
For the subsequent stages of this research, and to handle the rest of the objectives,
another survey is in progress. Te survey areas were selected from the regional urban
centers based upon the emerging of manufacturing and services activities. Areas where
market is not a major problem, but local SMEs and the youth are faced with many
difculties and challenges such as poor infrastructure, lack of serviced work premises,
inadequate technologies, access to fnancing, business management skills, global com-
petition from cheap imported products, and low access to information and knowledge
for production and markets. Four urban regions were selected in Uganda, i.e. Central-
Kampala and Masindi, Northern –Lira and Gulu; Eastern part-Jinja and Mbale; and
Western part-Masaka and Mbarara. In addition, it also includes the relevant ministries
and institutions/agencies that are involved in business development services. Other
countries that have been included in the study areas are Sweden and Tanzania
Te questions are based on the business incubation theory; on the major activities of-
fered by business incubators, their functions and management process, factors for their
successes or failures, their rate of attracting demand, the benefts and to understand
what the efects of these are on industrialization process. As indicated in the literature
review, participation of stakeholders is very important. Terefore, the survey will be
through administering questionnaires and interviews by structured questions, group
discussions as participatory method to assess the performance indicators for business
incubation process in business incubators and their demand from the potential ten-
ants.
Finally, the most appropriate model will be decided upon to guide the government or
decision makers in the roll-out of business incubation scheme in order to increase the
success of implementation. Te model will include assessment framework with indica-
tors which can be used to plan, monitor and evaluate their performance. Tis will fur-
ther raise awareness on the role of business incubators to policy makers, academicians
and practitioners. Hence it increases interdisciplinary partnerships and collaborations.
110
111
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doc_339211862.pdf
Stimulating Industrial Development In Uganda Through Open Innovation Business Incubators
2
3
Stimulating Industrial Development in Uganda
through Open Innovation Business Incubators
Joshua Mutambi
4
5
Blekinge Insitute of Technology Licentiate Dissertation Series
No 2011:10
ISSN 1650-2140
ISBN 978-91-7295-213-3
School of Planning and Media Design
Department of Technology and Aestetics
Blekinge Institute of Technology
Sweden
Stimulating Industrial Development in Uganda
through Open Innovation Business Incubators
Joshua Mutambi
6
Blekinge Institute of Technology
Blekinge Institute of Technology, situated on the southeast coast of Sweden,
started in 1989 and in 1999 gained the right to run Ph.D programmes in technology.
Research programmes have been started in the following areas:
Applied Signal Processing
Computer Science
Computer Systems Technology
Development of Digital Games
Human Work Science with a special Focus on IT
Interaction Design
Mechanical Engineering
Software Engineering
Spatial Planning
Technosicence Studies
Telecommunication Systems
Research studies are carried out in faculties
and about a third of the annual budget is dedicated to research.
Blekinge Institue of Technology
S-371 79 Karlskrona, Sweden
www.bth.se
© Joshua Mutambi 2011
School of Planning and Media Design
Department of Technology and Aestetics
Graphic Design and Typesettning: Mixiprint, Olofstrom
Publisher: Blekinge Institute of Technology
Printed by Printfabriken, Karlskrona, Sweden 2011
ISBN 978-91-7295-213-3
um:nbn:se:bth-00501
7
Table of Contents
List of Figures
List of Tables
List of Abbrevations and Acronyms
Abstract
Acknowledgements
PART 1
Chapter 1 - INTRODUCTION
1.1 Background
1.2 Research Problem
1.3 Objectives
1.4 Signifcance
1.5 Research Questions
1.6 Expected Outputs
1.7 Research Scope
Chapter 2 - CONCEPTS DISCUSSIONS AND THEORETICAL
FRAMEWORK
2.1 Conceptual Framework
2.2 Various Concepts Discussions
2.2.1 Industrialization
2.2.2 Entrepreneurship
2.2.3 Entrepreneurship and Industrialization
2.2.4 Science, Technology and Innovation
2.2.5 Open Innovation
2.2.6 Triple Helix and Clusters
2.2.7 Business Incubators
2.3 Industrialization in Uganda
2.3.1 An Overview of Micro, Small and Medium Enterprises
in Uganda
2.3.2 Building Entrepreneurial Communities in Uganda
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Chapter 3 - METHODOLOGICAL CONSIDERATIONS
3.1 Introduction
3.2 Participatory Action Research
3.3 Data Sources
3.3.1 Secondary Data Review
3.3.2 Primary Data Collection
3.3.3 Analysis
PART II
Chapter 4 - INTRODUCTION TO THE PAPERS
4.1 Paper I
4.2 Paper II
4.3 Paper III
4.4 Paper IV
PART III
Chaper 5 - DISCUSSIONS AND CONCLUSIONS
5.1 Brief Summary of the Papers
5.2 Concluding Discussions
5.3 Scientifc Contributions and Originality
5.4 Way Forward
References
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List of Figures and Tables
Figures
Figure 1-1: A Conceptual Framework for the Study on the Role of Open
Innovation Business Incubators
Figure 2-2: Pillars of Growth
Figure 3-2: Sectorial Contribution to GDP
Figure 4: Te Evolution of Business Incubator Model
Figure 5: Business Incubator Model
Figure 6: Growth of Business Incubators in Brazil
Figure 7: Growth of Incubators in China
Tables
Table 2-1: Primary and Secondary Enrollment
Table 2-2: Higher Institutions Enrollment 2006-2007
Table 2-3: Defnition and Classfcation of MSMEs
Table 3-4: Number of Innovative Firms by Employee Size
Table 3-5: Percentage Share of Firms that Introduced Innovation and per
formed R&D among Innovators
Table 3-6: Percentage Share of Firms that Introduced Totally New to the
Ugandan Market and their Turnover by Year
Table 3-7: Gross Domestic Expendure on R&D (GERD) as an Indicator
of R&D Activities in Uganda
Table 8: Growth of Incubators in China
27
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36
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89
92
94
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38
40
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List of Abbrevations and Acronyms
AGOA African Growth and Opportunity Act
BDS Business Development Services
BTTB Background to the budget
BTVET Business, Technical and Vocational Education Training
CICS Te Competitiveness and Investment Climate Strategy
COMESA Common Market for Eastern and Southern Africa
EAC East African Community
EU European Union
EUG Enterprise Uganda
FDI Foreign Direct Investment
GDP Gross Domestic Product
GoU Government of Uganda
ICT Information, Communication Technology
ISCP Innovation Systems and Clusters Program
LDCs Least Developed Countries
MAAIF Ministry of Agriculture, Animal Industry and Fisheries
MDG Millennium Development Goals
MES Ministry of Education and Sports
MFI Micro Finance Institutions
MFPED Ministry of Finance, Planning & Economic Development
MGLSD Ministry of Gender, Labour and Social Development
MSMEs Micro, Small & Medium Enterprises
MTAC Management Training and Advisory Centre
MTCS Medium Term Competitiveness Strategy
MTTI Ministry of Tourism, Trade & Industry
MUBS Makerere University Business School
NAADS National Agricultural Advisory Services
NCHE National Council for Higher Education
NDP National Development Plan
NGOs Non-governmental Organizations
NPA National Planning Authority
OECD Organization for Economic Co-operation and Development
PAR Participatory Action Research
PEAP Poverty Eradication Action Plan
PFA Prosperity for All
PPP Public Private Partnership
PSFU Private Sector Foundation of Uganda
R & D Research and Development
SBIR Small Business Innovation Research
S&T Science and Technology
11
SME Small & Medium Enterprise
STI Science, Technology and Innovation
UBOS Uganda Bureau of Statistics
UEPB Uganda Export Promotion Board
UGT Uganda Gatsby Trust
UIA Uganda Investment Authority
UIRI Uganda Industrial Research Institute
UMA Uganda Manufacturers Association
UN United Nations
UNBS Uganda National Bureau of Standards
UNCCI Uganda National Chamber of Commerce and Industry
UNCST Uganda National Council for Science & Technology
UNECA United Nations Economic Commission for Africa
UNIDO United Nations Industrial Development Organization
UPE Universal Primary Education
UPPET Universal Post Primary Education Training
URT United Republic of Tanzania
USA United States of America
USE Universal Secondary Education
USSIA Uganda Small Scale Industries Association
WTO World Trade Organization
12
13
Tis work is dedicated to the memory of my late father Rev. Canon Boaz Muntu who passed
away immediately after submission of the concept proposal for this research to University
14
Abstract
Uganda is an agro-based land locked country with a population of about 30 million
people. It is well endowed with natural resources and salubrious climate. Her indus-
trial profle is still dominated by agro-industry and not innovation led, predominantly
micro, small and medium scale enterprises (MSMEs). Facing the challenges of poverty
alleviation, a high population growth rate (3.5% p.a), climatic change and environ-
mental impacts among others, Uganda identifed exploitation of natural resources,
value addition as well as industrialization to transform the country and reduce poverty
in her National Development Plan 2010/11-2014/15 (NDP).
In this respect, there are many existing programs and initiatives in the country sup-
porting small businesses, but tend to sufer from a number of weaknesses. In particular
typically small businesses fnd it difcult to do research and development; commer-
cialize their results in markets (innovation) as fast as they should. For micro, small &
medium enterprises to be dully competitive in a competitive economic environment
requires that they develop internal capabilities to efectively assimilate, use and adapt
product and process technologies for their businesses to survive on an ongoing basis.
To overcome this drawback, the concept of Business Incubation has been proposed.
Tis concept has gained large interest in the research community. Te key idea is to
create and nurture new businesses for growth by providing services and infrastructure
required by utilizing the external knowledge sources (open innovation) and triple-helix
model which assist formation of business and industrial clusters. A business incubator
is an organization that supports the creation and growth of new businesses by provid-
ing services and infrastructure that is required by the targeted clients.
Given that most frms in developing countries start too small to compete especially
in international markets, a pre-requisite to industrial development, governments and
policy makers should give particular attention to the constraints and needs of MSMEs.
Tis can be done by adopting a mix of policies and framework conditions to reduce
on the obstacles that hamper technological innovation, collaboration and business
growth. In particular is access to fnance and enhancing technology and business ca-
pacity development through training, linkages and networks.
Tis Licentiate thesis discusses and reviews the initiatives and programs aimed at sup-
porting the development of MSMEs with a view to stimulate industrial development
in Uganda. Te main aim of this research is to examine the process of business incu-
bation and explain the contribution of open innovation business incubators to entre-
preneurs/ start-up frms within the broader context of developing entrepreneurship,
promoting science, technology and innovation and creating employment.
Tis research focuses on the roles and relationships of government, university and
research institutions and the private sector as sources of knowledge for technological
innovations. Literature review, theory understanding, and participatory methods in-
cluding group discussions with questionnaires, meetings and interviews, were used to
achieve the objectives.
15
From the fndings, it was revealed among MSMEs that due to their sizes, limited man-
agerial and technological skills, and inadequate functional business support services
have had adverse efects on their upgrading and growth. Tere was little linkage and
follow up between industry and other public research sectors i.e. government agencies
and higher institutions although there are quite a number of support institutions with
poor coordination. Te research analyzed a wide range of issues that are related to the
desired structural transformation of the Ugandan economy towards industrialization
process. Finally it will propose strategies for the most appropriate model for Uganda.
Keywords: Business Incubation, Industrialization, Open-Innovation, Triple-Helix,
Uganda
16
Acknowledgements
First of all, I would like to thank the Almighty God for enabling me throughout
this licentiate degree period since I started. A special acknowledgement goes to my
late father, Rev. Canon Boaz Muntu who encouraged me to start this PhD program
even when there was no sponsor yet. I further give my appreciation to Prof. Barnabas
Nawangwe and Prof. Lena Trojer for their support during the Innovation Systems and
Clusters Program activities and towards securing this sponsorship of which I have been
able to carry on with my research.
I would like to express my gratitude to my two main supervisors Prof. Lena Trojer,
Assoc. Prof. Joseph K. Byaruhanga and my other co-supervisor Dr. B. Kariko Buhwezi
for their professional guidance and support through this process. Special thanks go to
the Ministry of Tourism, Trade and Industry for their support and allowing me time
of ofce schedule to attend to my research work.
I am thankful to Dr. Mackay Okure, Dr. Yasin Naku Ziraba, Dr. Peter Okidi-Lating,
Dr. J. B. Kirabira, Dr. Samuel B. Kucel and my other colleagues and friends at Maker-
ere University and BTH Mr. Julius Ecuru, Ms. Fatuma Simba, Ms. Lydia Mazzi Kay-
ondo Ndandiko, Gideon Mbiydzenyuy and Mr. George Kisakye to mention a few for
many helpful ideas and discussions. I want also in particular to thank Ms. Imelda Atai
Musana of Uganda Bureau of Statistics and Mr. Richard Lutalo of National Council
for Science and Technology who assisted me in conducting the STII surveys.
I want also to thank my family, my mother, sisters, brother, in-laws, relatives, friends
for their support and most especially my wife Barbra Babweteera Mutambi and our
lovely two children Samuel and Esther for their love, patience and understanding dur-
ing the period of this work and while am away from home.
Lastly but not least, am very grateful to the support from Sida, Makerere University,
the College of Engineering, Design, Art and Technology, Blekinge Institute of Tech-
nology Karlshamn and all staf inside and outside of these institutions for their con-
tributions. I thank you.
17
PART I
18
19
Chapter 1 - INTRODUCTION
1.1 Background
Uganda is an agro-based land locked country with a population of about 30 mil-
lion people. It is well endowed with natural resources and salubrious climate, but the
industrial profle is still dominated by agro-industry and not innovation led. Facing
the challenges of poverty alleviation, a high population growth rate, climatic change
and environmental impacts among others, Uganda identifed exploitation of natural
resources and value addition as one of its main strategies to transform the country and
reduce poverty (MTTI, 2008).
With her vision of transforming the society from a peasant to a modern and prosperous
country within 30 years, (GoU- NDP, 2010), the main focus is private sector driven
economy. Te government of Uganda also signed up to the Millennium Development
Goals (MDGs) under the UN Millennium Declaration15. Te MDGs include: 1)
eradication of poverty; 2) achieving universal primary education; 3) promoting gender
equality and empowering women; 4) reducing child mortality; 5) improving maternal
health; 6) combating malaria, HIV/AIDS and other diseases; 7) ensuring environmen-
tal sustainability; and 8)developing a global partnership for development (MFPED,
2004). Te government is therefore aggressively promoting private sector develop-
ment, value addition, employment creation, country’s competitiveness improvement
and industrialization to levels associated with middle income countries.
20
Uganda is a member of East African Community (EAC) with a market of over 120
million people with access to the sea. Even more attractive is being a member of the
Common Market for Eastern and Southern Africa (COMESA) with over 400 million
people (Ngwenya et al., 2010). Furthermore, it’s well advanced trading partners and
international markets that include mainly World Trade Organization (WTO) mem-
ber states, European Union (EU) countries, Asian countries and USA/AGOA. Te
country therefore highly desires value added agriculture, value addition industries and
investors/entrepreneurs to take advantage of such opportunities.
Industrial development is fundamental for economic growth. Both theoretical and
empirical literature shows that a high degree of efciency in the industrial sector can
contribute to increased production, product innovation, high value manufactured ex-
ports and high foreign earnings. It is through industrialization and innovation that
wealth can be created and higher incomes realized from natural resources and raw
materials transformation. Business incubators can promote innovation and accelerate
industrialization through encouraging business start-ups, information and technology
transfer, commercialization of research results, and implementation of science, tech-
nology, innovation and industrial development policies.
Business incubation is referred to as complex services and special environment pro-
vided temporarily for start-up enterprises with the aim of improving their chance of
survival in the early phase of the life span and establishing their later intensive growth.
Tere are numerous approaches in the literature and in industrial –economic develop-
ment practice to defne business incubation (Lalkaka, 1997; EC-CSES, 2002; Sun et
al., 2007).
Uganda, due to the unstable political situation and economic mismanagement in the
1970s and 1980s, experienced varying growth rates, policies and regulatory instru-
ments. All these resulted into a signifcant decline in industrial and commercial sectors
and negatively impacted on the gains made during the previous years from independ-
ence to 1970 (UNIDO, 2007).
During the past two decades Ugandan economy has established a strong record of pru-
dent macro-economic management and continues to undertake private sector oriented
structural reforms. It experienced sustained economic growth averaging seven percent
per annum generated by diferent economic sectors. Te government in collabora-
tion with other development partners has been trying to support small and medium
enterprises (SMEs) by various means, including technical assistance, capacity building
programs, and incentive schemes. However, unfortunately, industrial development in
Uganda until now has not been successful in following the pattern of industrial devel-
opment in the region.
In spite of the economic structural transformation over the past two decades, the econ-
omy still faces challenges (MFPED, 2010). Tese challenges include : persistently high
unemployment particularly of the youth; inadequate skills development which limits
entrepreneurship and innovation; inadequate infrastructural networks such as roads,
railway, energy, waterways, and internet usage which raises the cost of doing business
21
and undermine private sector competitiveness; and a low manufacturing base. Tese
constraints have undermined achievement of faster socioeconomic transformation and
sustainable development.
Indeed for industrialization process to be sustainable, it requires a set of core compe-
tences such as skilled human resource, technological innovation and enhanced knowl-
edge capacity, access to afordable fnance and infrastructure, comprehensive and co-
herent policy processes and a culture of entrepreneurship and competitiveness. Te
creation and subsequent growth of enterprises with a substantial growth potential is
vital to the economic prosperity of industrialized countries (NAEC, 2004) Similar
to other developing countries in this respect, Uganda recognizes the ability of micro,
small and medium scale enterprises (MSMEs) to generate socio-economic benefts,
value addition to local raw materials, employment creation, income generation oppor-
tunities and wealth, promotion of entrepreneurship and enhancing of exports. Tey
constitute an important dimension in the innovation process (Beal, 2003; Hammer et
al., 1997; Byaruhanga, 2005; Tirthankar, 2007).
Te International “Doing Business Survey 2010” report ranks Uganda 129th out of
183 countries on a wide range of business indicators. Problems are identifed in par-
ticular registering property, trading across borders, protecting investors, starting a busi-
ness, enforcing contracts, and getting credit. Tese impediments, among others, are
afecting the competitiveness of the economy, with the main issues being access to
fnance, infrastructure, tax administration, work ethics, and government bureaucracy
(World Bank, 2011).
In Uganda, the industrial sector predominantly consists of MSMEs which accounts for
95% of the entire sector and employs more than 2.5 million people. Tese MSMEs
constitute 90 percent of the private sector, contributes 20% of GDP and are very dy-
namic with 80 percent being located in urban and peri-urban areas country wide and,
are largely involved in trade, agro-processing, and small scale manufacturing (GoU,
2010). With the majority focusing on low-value services, its unlikely therefore that
if left alone will be a platform for signifcantly transforming the economy as the case
in the rest of the world. Tese small businesses have several disadvantages that hinder
their success. Tey have difculties in securing the resources they need for survival
(Ferguson and Olofsson, 2004). Because of this, over 80-90% of the new businesses
started each year fail worldwide within the frst fve years of operation (Aerts et al.,
2007).
Although the private sector has grown rapidly between 2001 and 2007, growth in the
number of frms has been concentrated in small frms with low value addition. Te
number of registered businesses in Uganda in 2007 was 25,000 from 800,000 in 2001
with majority located in central region of the country (GoU, 2010; Kasekende et al.,
2003). Te service sector is the fastest growing in Uganda predominantly in telecom-
munications, hospitality and trade sub-sectors (MFPED, 2010). Due to globalization,
internal challenges and international competition, MSMEs have faced global chal-
lenges and like the rest of the world, less than 30% of the start-ups are not able to see
their frst birth day in Uganda (Hatega, 2006).
22
Yet the rest of the world that has tried business incubation have claimed success rate
of over 85%. Incubators have been considered as a remedy for the disadvantages that
small and new frms encounter by providing numerous business support services. Tey
are useful in fostering technological innovation, entrepreneurship, commercialization
and industrial renewal. For this reason many countries have increasingly been engaged
in establishing business incubators (Akcomak, 2009; Lalkaka, 1997). It is also widely
acknowledged that incubators are a technology transfer mechanism, means of promot-
ing entrepreneurship and the commercialization of new knowledge and innovations
(Phillips, 2002).
Uganda Government’s past Poverty Eradication Action Plans (PEAP I &II) (MFPED,
2004), and in the recently launched National Development Plan 2010/11 -2014/15
(NDP, 2010), its strategy for poverty eradication is based on the transformation of the
economy through private sector investment, industrialization and export led growth
(i.e. emphasis focused on economic transformation and wealth creation). Tis calls
for commitment to continue harnessing synergies and inter/intra sectoral linkages;
encouraging foreign investments and exports with high-value addition and enabling
the innovative entrepreneurship by working closely with the private sector, civil society
and the academia in order to achieve the NDP objectives, the Country’s vision and
the MDGs.
Recently EAC & COMESA launched Customs Union and Common Market pro-
tocols (Mugisha, et al., 2009; Lunegelo et al., 2009), that abolish any kind of trade
protectionism and streamlines the fow of goods and services within the region. Te
economy will however be faced with other kinds of non-tarif barriers such as stand-
ards and regulations, and physical barriers at borders. Tere is a fear that stronger and
well equipped regional enterprises will out-compete struggling SMEs. What remains
to be done therefore is to focus on business development services, implement policy
measures and institution building mechanisms geared to facilitate and promote do-
mestic frms in their quest for competitiveness. Also strengthening public institutions
and policy makers in dissemination of a set of regularly produced and standardized
indicators including Science, Technology and Innovation indicators.
With the regional integration and an increasingly competitive environment, there is
strong need for industrial restructuring and strengthening of technological capabilities
in Uganda for innovations, diversifed production and value addition to take place.
However, the Ugandan experience in the incubation process is still at an early stage and
this research aims at better understanding and innovative ways of business incubation
in respect to the impact, coordination, design, development and management proc-
esses as well as the entire science, technology and innovation system.
Te Author has been involved in facilitating cluster initiatives under the Innovative
Systems and Clusters Program of Makerere University, industrial development policy
formulation, and technology transfer programs in the country. During this period, it
was observed that lack of infrastructural facilities, adaptation of science, technology
and innovation; and poor business support services are the major complaints hin-
23
dering industrial transformation and entrepreneurship development. Tis is the main
objective of this research and it is in line with the vision and objectives of the National
Development Plan and the objectives of the Millennium Development Goals.
Tis research is motivated by the emerging importance of innovative clusters and the
realization that Science, Technology and Innovation are fundamental to understand-
ing the feld of business incubation. One of the strategies that this research proposes
government should adopt in enabling innovative entrepreneurship; promoting sci-
ence, technology and innovations; value-addition, changing peoples’ mindset and cul-
ture; business services and global industrial network for the industrialization process
is through innovative institutions and services such as Business incubation systems.
Tis thesis summarizes research within the feld of entrepreneurship and industrial de-
velopment. It is organized in three parts with the frst part presenting the introduction-
background information, problem statement, objectives, signifcance for the research
and research questions. A review of the key concepts from the industrial development
and business incubation literature as it pertains to this research; and, a description of
the methodological considerations, data collection methods used and analysis. Te sec-
ond part presents the papers on which the research is based that have been published or
presented in refereed journal and conference proceedings respectively. Finally, the third
part contains the summary discussions, conclusions, the way forward and references.
1.2 Research problem
Te micro, small and medium sized enterprises and start-up businesses in particular,
especially in the manufacturing sector in Uganda are faced with major challenges for
survival and success. Tere are many artisans with potential to start-up enterprises or
better improve on their products production processes and prototypes if technically
supported.
Uganda has a latent mass of trainable workforce, a large base of educated workers, sci-
entists, potential innovators who would contribute towards private sector job creation
through research and development; and starting commercial enterprises, yet it is not
happening. Many Ugandan training institutions and agencies have ofered business
management and technical courses, business plan competitions for graduate students
and entrepreneurs, but little further support to implement the skills and knowledge
acquired during training into commercial opportunities.
Attempts were made to introduce the concept of business incubation in Uganda in
1960s, and from the late 1990s up to to-date, other institutions and organizations
have been established to implement the concept. However, the world of incubation
is not-well known in Uganda. Tere is little information (no academic comprehen-
sive study) on the process of creating an efective incubator, i.e. coordination, design,
development and management processes as well as the entire science, technology and
innovation system in Uganda. Tis situation has necessitated a research to investigate
how to overcome these mentioned gaps, re-examine the current approaches to de-
24
veloping enterprises, the potential role of business incubation strategy in stimulating
entrepreneurship and fostering industrial development in Uganda.
1.3 Objectives
Te main objective of the research is to come up with a model of small business incu-
bation for open innovation that can stimulate industrialization in Uganda.
To achieve the main objective, the research has the following specifc objectives;
(i) To study experiences in other countries worldwide in respect to business incubation,
industrial development and government support
(ii) To identify factors that afect performance of business incubators and growth of incubated
businesses in Uganda
(iii) To link open innovation approaches to an appropriate Ugandan business incubator
model
Tis Licentiate is covering the work done in order to achieve objective one and partly
objective two. Te other specifc objectives will be covered in the Doctoral thesis.
1.4 Signifcance
Start-up frms or small businesses that start in business incubators stand a higher rate of
survival and success by benefting from the business support services provided. Rising
factor costs and intensifying competition has promoted cost and risk sharing schemes
among frms leading to networks of frms and R & D alliances. Tese networks and
alliances, in turn stimulate the growth of institutions/enterprises designed to identify
problems and provide solutions involving specialized knowledge. Business incubators
as a high value-added services environment if successfully implemented, together with
the clustering program, can play a key role in addressing the mentioned challenges in
the process of industrialization. Te incubators can also strengthen the efective part-
nership between the government, researchers (academia) and the business community
(triple helix).
Te research objectives are in line with the objectives of the Uganda national devel-
opment plan and its specifc development indicators; i.e. employment creation and
value addition, increasing the level of industrial sector development, promoting sci-
ence, technology, innovation and ICT to enhance competitiveness, and improving the
country’s competitiveness position.
Te research is seeking to develop a set of appropriate strategies of how to address the
key issues from assessing the inexperienced or potential entrepreneurs’ ideas until their
visions are realized. It will focus mainly on the business incubation process and appli-
cation of methodologies and tools.
Te research fndings will therefore;
25
(a) Provide credible information for entrepreneurship development, promotion of science,
technology and innovation system in Uganda
(b) A business incubator model that will provide a basis for Uganda government to realize
her vision in promoting science, technology and innovations (commercialization of tech-
nologies including new products developed from universities (spin-ofs)); public private
partnerships in industrialization process,
(c) Contribute to the literature and thorough understanding of the incubation concept and
processes especially best suited to the Ugandan situation. In addition, fully academic re-
searched knowledge on the entire incubation system will lead to addressing the implemen-
tation gaps not only in Uganda, but also regionally.
1.6 Research Questions
During the research study, the research seeks to answer the following questions:
1) What factors afect industrialization process, the performance of business incubators and
growth of small and medium industrial businesses in Uganda?
2) What are the general emerging trends in incubation industry in terms of supply and
demand services and practices?
3) To what extent has the triple helix (academia, government and Industry) helped in facilitat-
ing the start-ups, open innovations and growth of SMEs?
4) What lessons can be applied to the Ugandan situation for the business incubators to be
developed further?
Tis licentiate thesis is ofering answers to questions 1, 2 and partly 3 and 4
1.7 Expected Outputs
(i.) Te research will provide some useful insights; defne policy recommendations for the
government, Universities/ Research Institutes and private sector frms, business incubator
managers, and the synergies between the triple helix actors
(ii.) Te research will contribute to the literature of business support services, innovation
and entrepreneurship development and will enhance the knowledge and skills within the
incubation industry
(iii.) Te research output will be used to create awareness to the policy makers and fnanciers,
researchers and the business community in Uganda. As business incubators for open in-
novation pick up in Uganda and become efective, the manufacturing base will broaden
which inevitably builds industrial competence and frms will be competitive.
(iv) Tere will be both Licentiate and Doctoral thesis, publications in peer reviewed journals
and conference proceedings.
(v) A business incubation model for industrial development of Uganda
26
1.8 Research Scope
Te research will focus on the Ugandan small and medium sized industrial manu-
facturing frms. Te sample will include metal and non-metal manufacturers, Agro-
processing and ICT services, i.e. fabricated metal and non-metallic products, wood
and wood related products, electrical and electronic products; foods and beverages,
textile fashion and clothing. To enhance the research results, the researcher will take
into consideration of the development of the incubation systems in Sweden, as an ex-
ample of developed countries, Tanzania and Uganda, serving as developing countries
in East African Region.
27
Chapter 2 - CONCEPTS DISCUSSIONS AND THEORETICAL
FRAMEWORK
2.1 Conceptual Framework
Te World in which research, development and innovation take place has changed
fundamentally. Today, open science and open innovation co-exist, creating new op-
portunities and interdependences. New management practices are required to handle
the situation (Verheugen, G. and Potocnik, J. (2005). Tis research focuses on the role
of open innovation business incubators in the commercialization and industrialization
of scientifc fndings. Figure 2-1 shows the input variables into the incubation process.
Te research will investigate how the incubation process should be done to enable the
creation of successful start-ups.
Sources of Knowledge
& Ideas, and
Resources
Business
incubation model
for Ugandan
industrial
development,
Educated and
trained
professionals in
high-tech
businesses
Open Innovation
Business
Incubators –
Processes and
Management
issues
-[Transferring
knowledge; -creating
synergies; and
promoting
entrepreneurship].
Public and private
partners;
Institutions and
communities;
Books; Authors own
academic and
practical
experiences
Inputs Process
Expected Outputs
professionals
in high-tech business
Figure 1-1: A Conceptual Framework for the Study on the Role of Open Innovation Business Incubators
Source: Author (2011)
practical experiences
28
In this conceptual framework, a business incubator is a means to an end, and not an
end in itself. Open innovation business incubator is proposed as an organization pro-
viding infrastructure to support innovative companies overcome the barriers linked to
the complexity of the innovation process and creation of new ventures. Attention is
on the fundamental incubation process and the incubation outcomes.
It’s assumed that for the incubators to create an impact, it needs a holistic approach of
all resources, i.e. the inputs, the processes within in order for the outputs to realize (in
other words, taking ideas from inception to impacts).
Te supply of knowledge, ideas and resources (knowledge, skills, capital) and transfer
of all these within the incubator environment is essential in the process of supporting
entrepreneurs and new venture businesses. In this research, we are concerned with
the ideas or theories employed collectively in order to enable open innovation busi-
ness incubators produce the desired outcomes, in particular, the relationship between
knowledge, individuals and organizations.
2.2 Various Concepts Discussions
When we talk about industrial development, a number of concepts play a pivotal role
in the analysis. In this section, some main concepts related to industrial development
and used in this study are as mentioned below.
2.2.1 Industrialization
Industrialization has been described as closely associated with technological progress, a
series of profound socio-economic change in the organization of production and work,
and has been instrumental in giving shape to the modern political landscape (Bairoch
et al., 1996; UN/ECA, 2000). Tat is, in most advanced countries, industrialization
has been a process of transformation from a traditional to a modern society based on
industrial outputs and manufactured exports indicators (UNIDO, 2005). Industrial
development is the process of building technological capabilities through learning and
translating them into product and process innovations in the course of continuous
technological change.
Technological capability refers to the ability to make efective use of technological
knowledge in production, engineering, and innovation in order to sustain competi-
tiveness in price and quality. Such capability enables a frm to create new technologies
and to develop new products and processes in response to the changing economic
environment (Linsu, 2000; Page, 2010- Wiegratz, 2009).
True success, accordingly is created through establishing dynamic economies, the con-
cretization of economies of scale, establishing of more export processing/ special eco-
nomic zones/ industrial parks, the encouragement of diversifcation and improvement
in access to markets ( Page, 2009). John Page (2009) further acknowledged that the
29
success of the manufacturing industry is pivot in the achievement of Africa’s develop-
ment initiative.
Furthermore, importantly for industrial development is capability. Te ability to make
capacity operate competitively requires something more: the tacit knowledge, skills
and experience related to specifc technologies that is collected by enterprises and can-
not be imported or bought in. Te process involves creating new skills, partly by for-
mal education but, usually more importantly, by training and the experience of new
technologies. It requires obtaining technical information, assimilating it and improv-
ing upon it. It entails building institutional rather than individual capacity, with new
managerial and organizational methods, new ways of storing and disseminating infor-
mation and of managing internal hierarchies. It also needs intense interaction between
enterprises and support institutions. Finally, it requires the factor markets that provide
skills, technology, fnance, export marketing and infrastructure to respond to the new
needs of enterprises.
2.2.2 Entrepreneurship
Te word “entrepreneur” is derived from a French word that describes people who
provide a service (Todorovic, 2006). Many researchers recognize entrepreneurship
as being of fundamental importance for economic development (Wiklund, 1999).
Te defnition of entrepreneurship has evolved over time as the world’s economy has
changed as well. Tere are many defnitions of entrepreneurship that can be found in
the literature describing business processes. Entrepreneurship is the act of being an
entrepreneur, which can be defned as one who undertakes innovations, fnance and
business acumen in an efort to transform innovations into economic goods.
Some scholars have defned entrepreneurships as: the process of initiating a business
venture, organizing the necessary resources, and assuming the risks and rewards. While
in 1934 Schumpeter who popularized the concept defned it in terms of a person’s
ability to be innovative, in terms of goods and services produced, methods of pro-
duction, markets, sources of supply and industrial organization. Te underlying en-
trepreneurial attitudes and behaviors are three key dimensions: Innovativeness, risk
taking and proactiveness (Morris et al., 1999). Innovativeness refers to the seeking of
creative, unusual or novel solutions to problems and needs. Tese solutions take the
forms of new technologies and processes, as well new products and services. Risk tak-
ing involves the willingness to commit sufcient resources to opportunities having a
reasonable chance of costly failure. Proactive is concerned with implementation with
doing what is necessary to bring an entrepreneurial concept to fruition.
Entrepreneurship is considered as an approach to management, defned therefore as
a process by which individuals – either on their own or inside organizations – pursue
opportunities without regard to the resources they currently control in an innovative,
risk-taking and proactive manner (Todorovic, 2006; Brown et al. 2001; Morris et al.,
1999)
30
From the above defnitions, entrepreneurship covers an individual’s motivation and
capacity independently or within an organization to identify an opportunity and to
pursue it in order to produce new value or economic success. Entrepreneurs pursue
opportunities to grow a business by changing, revolutionizing, transforming or intro-
ducing new products or services. (Davidsson et al., 2009). Te three important themes
in this defnition are (1) the pursuit of opportunities, (2) innovation, and (3) growth
link entrepreneurship to industrialization process. For both start-up companies and
existing frms, entrepreneurship spurs business expansion, technological progress and
wealth creation (Lumpkin & Dress, 1996).
2.2.3 Entrepreneurship and Industrialization
Industrialization is both the process of building up a country’s capacity to convert raw
materials into new products and the system that enables production to take place.
Te issue of entrepreneurship and its relationship to the industrialization process has
long occupied the attention of development planners. In particular, the key role of
manufacturing industry for growth based mainly on technology driven increase of
productivity and some essential co-factors, like human skills, capital or appropriate
institutions is globally undisputed.
International literature suggested that operating in clusters may help small enterprises
to overcome their growth constraints (McCormick, 1999; Andersson et al., 2004;
Solvell, 2009). Creating favorable conditions for entrepreneurship does indeed help
the process of industrialization, and business incubation focusing on national/regional
strengths through clustering and networking is believed to help small enterprises grow
and contribute to industrialization. Terefore small enterprise development has been
linked to the industrialization process (McCormick, 1999; Romijn, 2001).
What is needed thus is to create favorable conditions to achieve the above objectives.
Facilitating entrepreneurs will contribute to industrial development which is a key role
of the developmental state. Te emergence of the cluster based development strat-
egy termed as “new innovation system” based on the cooperation among universities
(research institutions), industry and government has been reported to have brought
a wide range of support services worldwide for development of knowledge based busi-
nesses, with linkages to universities, research institutes, venture capital and interna-
tional joint ventures. Clusters afect competitiveness within countries as well as across
national borders (Porter, 1998).
Te major problems in Africa such as; inadequacy of infrastructure and skilled indus-
trial human resource, lack of technological capacities (industrial, technological infor-
mation and innovation, low investment or the inability to exploit and process immense
natural resources), and technological knowledge all contributed towards the down
turn of industrial production throughout the 1980s, 1990s and 2000s. Te industrial-
ized countries success is explained from history to have lied mainly in their ability to
learn how to improve performance in a variety of felds, including, macro-economic
31
environment, institutional development, technological adaptation, competitive and
productive infrastructure development, use of natural resources, organization, mar-
kets, and their strong focus on improving their skills as a way to solve problems and
competitiveness. Figure 2-2 shows the pillars of growth as explained above.
Figure 2-2: Pillars of Growth
2.2.4 Science, Technology and Innovation
Science and technology are essential tools in meeting development goals, especially
those contained in the United Nations Millennium Declaration (UNSC, 2009). Sci-
ence, Technology and Innovation (STI) activities have been one of the driving forces
of economic and social change for centuries. Similarly, STI activities have accelerated
growth and brought about social change through the movement of people, goods and
services and an increased capacity to generate, transmit and use STI knowledge (Ertl
et al., 2007; OECD, 2006)
Science, technology and innovation are important and necessary to increase competi-
tiveness, prosperity and quality of life. STI is used to mean the generation, use and
difusion of all forms of useful knowledge as well as the evolution of associated insti-
tutional arrangements (UN, 2003; Gault, 2008; OECD, (2007)). Technology change
is at the heart of development worldwide. Technology is hereby defned as knowledge
that contributes to the creation, production and improvement of economically and
socially useful products and services. Such knowledge thus relates not only to physical
artifacts but also to forms of organization for their production, distribution and use.
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Technological knowledge relies heavily on the mode of learning, on adapting to new
technologies, on educational systems, the STI as well as the industrial policies, the na-
ture and composition of the private sector and the capabilities already inherent in the
public sphere. Science, technology and innovation are often considered as important
drivers for economic development and growth. Particularly indigenous capabilities in
STI are essential for the achievement of both short- and long-term development goals.
Innovation is seen as one of the most important ingredients in the success of organiza-
tions, the producer of solutions to problems that are not entirely understood or widely
perceived and the generator of opportunities that may not have existed before or were
not exploited. In other words, it is the process of doing or introducing something new
either an idea or an invention translated into a good or service for economic gains ir-
respective of whether they are new to their competitors, countries, or the world. Inno-
vation could be subdivided into many types, for example process innovation, market
innovation, product innovation, factor innovation, and even organizational innova-
tion (OECD, 2005; Pittaway et al., 2004; Hippel, 1988; Hanel 2007; Mairesse and
Mohnen, 2007).
It often involves new technologies or technology applications. It increases the produc-
tivity and choice of goods and services available to the consumer. It cannot directly
be measured but instead be inferred using indicators for example, number of patents
flled, number of new products introduced, or expenditure on R & D. Te body of
policies, regulations, institutional and infrastructural arrangements and activities con-
cerned with the creation, acquisition, dissemination and utilization of scientifc and
technological knowledge, is generally referred to as the national science, technology
and innovation (STI) system.
Tracking the emergence of new technologies, products or processes can provide valu-
able feedback and information on the rate and nature of technological innovation.
Terefore, STI indicators are also key elements in industrialization process. Te devel-
opment and difusion of new technologies plays a central role in improved productiv-
ity and competitiveness. While the global economy is being reshaped by new ICTs and
by radical technological changes in a number of other S&T disciplines, understanding
the process that leads to innovations and to their dissemination, their indicators both
within and across sectors, is still defcient in Uganda’s situation.
Uganda, like many other African countries has not been developing primary science,
technology and innovation indicators and to make them accessible to public and pri-
vate sector decision makers for social economical development and investment pur-
poses. Uganda sufers many limitations and inadequacies in relation to institutional
arrangements, infrastructure and policies seriously hindering her ability to innovate in
many directions. Terefore, national plans aimed at the creation of STI capabilities will
need to allocate a great deal of attention to the evaluation of innovation at the level of
business enterprises, the level of individual segments and sectors. Activities related to
enterprise creation, incubation and promotion undertaken in universities and research
centers of a country like Uganda, must receive adequate attention in initiative design,
to improve national STI monitoring capabilities and develop innovation culture.
33
2.2.5 Open Innovation
Open innovation can be defned as ‘the use of purposive infows and outfows of
knowledge to accelerate internal innovation, and expand the markets for external use
of innovation, respectively’ (Chesbrough et al., 2006, 2003). Depending on its busi-
ness model, a frm decides whether or not external and internal knowledge is valuable
to be further developed and commercialized into a new business. Open Innovation
means that valuable ideas can come from inside or outside the company and can go
to market from inside or outside the company as well. Tis approach places external
ideas and external paths to market on the same level of importance as that reserved for
internal ideas and paths to market in the earlier era.
According to Penin (2009), open innovation must encompass three constitutive ele-
ments: (i) Voluntary knowledge disclosure from “participants”; (ii) knowledge being
open (which is equivalent to say that “spillovers are not controllable”, and (iii) con-
tinuous and dynamic interactions among “participants” (open innovation means that
anybody can participate and is therefore potentially a participant). Tere are several
advantages that frms can beneft working in an open innovation style and practices
according to Vanhaverbecke et al., (2008); Keupp and Gassmann, 2009; Laursen and
Salter, 2005);-
• Innovating frms beneft from early involvement in new technologies or business op-
portunities. Open innovation allows innovating companies to sense developments in a
wide range of externally developed inventions by buying minority stakes in (high-tech)
start-ups, participating in venture capital funds, or by providing educational investments
in promising projects at universities or research labs
• Innovating frms also beneft from delayed entry or delayed fnancial commitment.
Open innovation practices ofer frms more fexibility about when to start the internal
portion of the innovation process: a company can start exploring the commercial pos-
sibilities of a technology outside initially, via relationships with universities, SMEs and
other innovation sources
• Open innovation ofers frms the advantage of an early exit, and the ability to realize
some value from projects that do not go forward internally. Open innovation is charac-
terized by the possibility that innovating frms can always license or sell technologies or
spin-of ventures that are not promising enough and/or that do not ft with their busi-
ness model or core competencies.
• Open innovation allows frms to beneft from delaying an exit. If the frm chooses
to syndicate its investment in the venture and invite other investors in, the frm also
benefts from ‘other people’s money’ supporting the development of the venture. Tis is
capital efcient for the frm, though it does relinquish a substantial degree of strategic
control to the outside investors. In this way, the open innovation paradigm allows frms
to maintain fexibility while keeping their diferent venture options open.
Terefore, for the developing countries such as Uganda that are disadvantaged in terms
of science, technology and innovation activities (low level and low value-added indus-
try position) adopting open innovation or collaborative innovation practices would
enhance intentions for industrial transformation.
34
2.2.6 Triple Helix and Clusters
Te ‘Triple Helix’ is a spiral model of innovation that captures multiple reciprocal re-
lationships at diferent points between industry, academia and the public sector in the
process of knowledge capitalization and social development (Etzkowitz, 2002; Jerome
et al., 2010; Gunasekara, 2006; Simba, 2010). Te triple helix denotes the university-
industry-government relationship as one of the relatively equal, yet interdependent,
institutional spheres which overlap and take the role of the other. Emerging literature
that examines university-industry-government networked infrastructures supports
these triple-helix collaborations as the key to improving the conditions for innovation,
productivity, and wealth in a knowledge-based society (Campbell, 2005; Leydesdorf,
2001).
Te university is a frm founder through incubator facilities; industry is an educator
through company universities and government is a venture capitalist through small
business innovation research (SBIR) and other programs. Innovation clusters are the
linkages, interactions, relationships and development of diferent but inter-dependent
entities (i.e. education, research, and development, industries, fnancial institutions)
to form a virtuous circle of innovation and entrepreneurship. A cluster is a geographic
concentration of competing and cooperating companies, suppliers, service providers,
and associated institutions (Porter, 1998; Solvell, 2009; Ketels, 2009).
Clusters constitute important knowledge spillovers for businesses. Clustering is gener-
ally defned as a process of frms and other actors co-locating within a concentrated
geographical area, cooperating around a certain functional niche, and establishing
close linkages and working alliances to improve their collective competitiveness. Te
physical proximity of the factors outlined above furthers the creation of formal and
informal linkages and networks among frms, higher education and research institu-
tions, fnancial establishments, public agents and other local organizations, where in-
formation can easily fow and propagate. Clustering is seen as a key means of driving
regional development by building private and public sector partnerships to mutual
beneft through government and regional investment in innovation incubators, science
parks and cities, and technology transfer ofces (Slovell et al., 2003).
2.2.7 Business Incubation
Business Incubation is a unique and highly fexible combination of business develop-
ment processes, infrastructure and people, designed to support entrepreneurs and nur-
ture and grow new and small businesses, products and innovations through the early
stages of development and/or change (Rice, 2002; Philips, 2002). Tere are several
defnitions and approaches to business incubators available in academic literature and
many have been adopted by industry associations and policy makers in diferent coun-
tries refecting local cultures and national policies. However, the general defnition of
business incubator by the National Business Incubation Association as mentioned on
their website (www.nbia.org) is:
35
Business incubators nurture the development of entrepreneurial companies, helping them
survive and grow during the start-up period, when they are most vulnerable. A business
incubator’s main goal is to produce successful frms that will leave the program fnancially
viable and freestanding. Te most common goals of incubation programs are creating jobs
in a community, enhancing a community’s entrepreneurial climate, retaining businesses in
a community, building or accelerating growth in a local industry, and diversifying local
economies.
Despite the eforts to develop a general defnition for business incubation, there are
still a variety of models of business incubators. In business incubation, there is some
degree of Government, Academia and industry involvement (Chandra, 2007). Te
most common classifcation of business incubators is based on funding. Tere are
those that are: (i) public funded such as those set up by government agencies in sci-
ence/technology/business parks, research institutions and universities (ii) privately
funded such as those in privately run organizations and enterprises. Recent studies
introduced the mixed-models of business incubators such as public-private partner-
ships incubators (Lalkaka, 2000).
Te term ‘incubator’ was derived from the fundamental meaning of the term: Te
artifcial nurturing of the chicken egg in order to hatch them faster in a sheltered en-
vironment. Te same hatching concept is applied to the incubating of companies; it
speeds up new ventures’ establishments and increases their chances of success. An in-
cubator thus hatches new ideas by providing new ventures with physical and intangible
resources (Becker and Gassmann, 2006).
Business incubation concept rests on the argument that if weak but promising new
businesses with a potential of growing into successful ventures can be identifed at an
early stage and helped, failures, loss of resources can be reduced and more ideas can
be developed (Hamdani, 2006). Business incubation originated in the U.S in the late
1950s in an efort to re-use abandoned or underutilized buildings, create wealth and
employment and contribute to local and regional economic development (Wiggins
and Gibson, 2003; Hackett and Dilts, 2004). However, the concept has evolved over
time contrary to what was originally claimed.
Incubators are of basic importance in the process of establishing links between research
and business. Tey provide support services to start-up frms, “temporarily’; enabling
young entrepreneurs with a scientifc background to build up their business manage-
ment know-how and develop their innovative businesses. Incubation takes place in
both physical and virtual incubators. Te later use the internet to provide support
services to the enterprises, which could not be located in the limited physical space
available for start-ups. Across the incubator movement, the management problems of
incubator clients are met with the delivery of a variety of value-added management
services. Te driving force (in incubator programs) is the supply of expertise, capital
and support that comes from assistance activities directed towards flling the voids in
entrepreneurs’ abilities (Duf, 1994).
36
2.3 Industrialization in Uganda
Te country is well endowed with natural resources and a healthy climate. Although,
there is abundance of raw materials, they are not exploited and efectively utilized.
Te industrial sector occupies a central position in the Government’s vision and the
policy actions are geared towards economic and social transformation. Te industrial
sector is contributing 24% of the country’s GDP, while agriculture, services and others
contribute 22%, 48%, and 6% respectively (UBOS, 2010). Te relative small share
of industry’s contribution and the larger share of services are uncharacteristic of a low-
income country in terms of value added and employment.
Industrial Development in Uganda is an integral part of the Government’s overall
National Development Plan, 2010/11 -2014/15 that is to be achieved by transforming
Uganda into a modern and prosperous/industrial country. Te economy is predomi-
nantly agricultural and heavily reliant on the export of primary raw commodities with
a relatively small industrial sector whose share of GDP has increased steadily over the
past decade through expansion, diversifcation and establishment of new industries.
Apparently, the manufacturing sector in Uganda has difculties realizing the potential
for innovation, productivity improvement and sectoral growth (product diversifca-
tion, and market penetration). Tese inadequacies undermine the country’s ambition
to industrialize and the competitiveness of industrial and related sectors in Uganda.
Te basis for Uganda’s future prosperity and its ability to invest in the improvements
desired will depend on the competitiveness of its existing and future industries as
well as strong policy implementation capacity. Tis can only be done by advancing
knowledge, value addition, promote high performance and governing practices, sci-
ence, technology and innovation, as well as building the skills of the manufacturing
workforce.
Figure 3-2: Sectoral Contribution to GDP
Source: Uganda Bureau of Statistics Database, 2010
37
In Uganda, the industrial sector is dominated by MSMEs which accounts for 95% of
the entire sector and employs more than 2.5 million people. Te MSMEs constitute
90 percent of the private sector, and are very dynamic with 80 percent being located
in urban and peri-urban areas country wide. Tey are largely involved in trade, agro-
processing, and small scale manufacturing. MSMEs represent one of the most viable
vehicles for sustainable grass-roots economic growth in the country (GoU, 2010).
Te New Policy Framework and investment priorities outlined in the recently pub-
lished National Development Plan (NDP) are expected to increase the pace of struc-
tural transformation of the economy. Te current national industrial policy also spells
out aspects of national development and proposes several interventions targeted at
improving the performance and contribution of the industrial sector. Te policy focus
includes:
1. Extracting and developing natural domestic resource – based industries such as petro-
leum , cement, and fertilizer industries; and promoting competitive industries that use
local raw materials
2. Agro-processing; focusing on food processing , leather and leather products, textiles and
garments, sugar, dairy products, and value addition in niche exports
3. Knowledge –based industries such as ICT, call centers, and pharmaceuticals that exploit
knowledge in science, technology and innovation
4. Engineering for capital goods, agricultural implements, construction materials, and
fabrication/ Jua Kali operations (MSMEs)
Under the economic priorities in the recently launched NDP was enhancing economic
development opportunities and not only in major urban centers but throughout the
country. Towards this goal, the government is developing an industrial park in every
regional center to support investors with work spaces, serviced with the necessary fa-
cilities such as electricity, road networks and water. So far, development of 25 parks is
in progress, with the three Kampala industrial and business parks located in Namanve,
Luzira and Bweyogerere.
Generally countrywide, the government is working to improve the road network, en-
ergy supply, ICT and much improvement in water supply. Uganda has in addition
shown a comparative advantage in providing education services in the region. For
instance, Uganda has one of the top ranked universities in Sub-Saharan Africa ex-
cluding South Africa, Makerere University. Tere is an advantage of highly educated
and trained labor force, with availability of land for both industrial and agricultural
development.
However, with the comparative advantages mentioned above, Uganda is still con-
strained from manufacturing of capital goods and services due to weaker business
environment, high costs of infrastructure and high trade costs. To this efect, attention
should be given to human resource development; skills and technology development
for components of value chains; innovative institutions and services; provision of ef-
fcient infrastructure services, fostering regional integration and coordination, rein-
forced fnancing and risk mitigation mechanisms; and enabling policies.
38
It is worth noting that Ugandan population growth rate is rapidly expanding and ac-
cessibility to education continues to improve, employable citizens being churned out
of the education institutions overfowing the job market, hence the rise in unemploy-
ment. Universal Primary Education (UPE) was formally launched in Uganda in 1997
and has to date resulted in the enrollment of over 8 million pupils from Primary One
to Primary Seven (UBOS, 2010). In addition, the government also commenced the
Universal Secondary Education/Universal Post Primary Education Training [USE/UP-
PET] Programme in 2006 and the rate of transition from primary to post primary has
increased by 30%. Te secondary school enrollment is over One million from Senior
One to Senior Six.
Te government policy to liberalize the education system has led to an increase in the
number of private higher learning institutions. Uganda has a total of 27 universities,
out which 5 are publically owned and 22 are privately owned while the total number of
institutions is 139 including universities, colleges and other tertiary (Non-University)
institutions.
Table 2- 1: Primary and Secondary Enrollment
Category of
School Enroll-
ment
2005 2006 2007 2008 2009
Primary 1-7:
Grand totals 7,223,879 7,362,938 7,537,971 7,963,979 8,297,780
Secondary S1-S6 728,393 814,087 954, 328 1,088, 744 1,194,454
Source: UBOS Abstract 2010
Table 2-2: Higher Institutions Enrollment 2006-2007
2006 2007
Institutions No. Male Female Total Male Female Total
Universities 26 46,475 34,712 81,187 55,169 41,880 97,049
University colleges 12 46,475 34,749 81,224 11,094 8,939 20,033
Technical Colleges 6 1,848 132 1,980 1,844 116 1,960
Commercial Colleges 48 9,786 9,053 18,839 8,512 8,671 17,183
Management 8 2,000 2,156 4,156 1,789 2,046 3,835
Health/Medical 15 2,108 1,024 3,132 2,167 1,116 3,283
Agricultural & Forestry 6 1,370 281 1,651 1,305 407 1,712
Teological Colleges 2 850 248 1,098 1,024 64 1,088
Law Devt Centre 1 500 300 800 500 300 800
Grand Total 124 111,412 82,655 194,067 83,404 63,539 146,943
Source: Uganda Bureau of Statistics Abstract 2010
39
Due to the increase in the number of higher education and tertiary institutions, more
graduates are getting out of these institutions. With the government’s policy of fo-
cusing on disciplines key to national development, the enrollments in science and
technology has continued to rise, for instance there was a 5 percent increase rate from
2005 to 2006 (NCHE, 2007). Tere is need for a serious efort to have internships
with the labour market and practical training in the world of work. It is therefore
imperative for higher education institutions and the economy to develop mechanisms
for continuous and sustainable interface between institutions, R&D, and the market.
In spite of the commendable economic performance, the country continues to face
some challenges which have undermined achieving much faster economic growth and
socio-economic transformation. In particular, although the industry sector now ac-
counts for 24 percent of GDP, industrial development in Uganda is still faced with
inter alia, the following constraints
• Inadequate technologies for the processing of agricultural and mineral products
• Inadequate industrial institutional support services for the development of a competitive
industrial sector
• Lack of entrepreneurship development and MSMEs support institutions
• Limited scope and linkages for forward and backward integration of industries
• Lack of engineering industries, especially industries producing capital goods, interme-
diate goods, spare parts and components, all of which have restricted Uganda’s choice
of technologies for industrialization, in particular for product design, production and
maintenance know how
• Inadequate skilled industrial human resources including managerial and critical skills
such as entrepreneurial capabilities, engineers, technologists, and technicians
• Inadequate infrastructure conducive for industrial development and utility services,
especially insufcient energy supply, poor road networks, lack of railway networks, little
piped water for production, etc.
• High cost of accessing capital and low technology development; all of which contribute
to the high cost of production for domestic industries and are barriers to industrializa-
tion
Te industrial sector is for instance contributing 24% of the country’s GDP, while
Agriculture, services and others contribute 22%, 48%, and 6% respectively (UBOS,
2010) compared to Tanzania with 24.2% industry sector contribution to GDP, (URT,
2010). Te low contribution of the industrial sector to the annual GDP is attributed
to slow growth in the manufacturing sector.
With the need to change the mindset of Africans and Ugandans in particular with
respect to doing business and work attitudes, business and technology incubators will
contribute to addressing the above constraints.
40
2.3.1 An Overview of Micro, Small and Medium Enterprises in Uganda
Tere is great diversity in the defnition and classifcation of micro, small and me-
dium sized enterprises (MSMEs) among countries. Several criteria are used to defne
small businesses. Te most widely used key criteria in categorizing enterprises include
number of employees, annual sales turnover, and capital/total assets. Te Ministry
of Finance, Planning and Economic Development (GoU, 2007) gave the following
defnitions:
Table 2-3: Defnition and Classifcation of MSMEs
CRITERIA
MICRO
ENTERPRISE
SMALL
ENTERPRISE
MEDIUM
ENTERPRISE
Number of employees < = 4 employees < = 50 employees > = 50 employees
Sales Turnover < = 12 million UGX < = 360 million UGX > = 360 million UGX
Total Assets/Capital < = 12 million UGX < = 360 million UGX > = 360 million UGX
By these defnitions, MSMEs contribute approximately 75 percent of Uganda’s gross
domestic product (GDP) and employ approximately 2.5 million people, signifying
their importance in the economic development of Uganda. But, at the same time,
MSMEs have operational and structural challenges. Studies have shown that 70% of
the new frms in Uganda don’t survive frst year (Hatega, 2006), while in Europe they
don’t survive the third year and that the number considerably falls to 15-20% among
those that are incubated (Akcomak, 2009).
Te obstacles that afect MSMEs’ ability to compete favorably include: limited infor-
mation on fnancing products; poor managerial practices; lack of technical training
and advice in small businesses; problems in accessing resources and inputs, technol-
ogy, skills; inability to access product/process standard and certifcation services; con-
straints of packaging, labeling, branding and marketing; and other infrastructural
support (lack of work place and storage facilities, etc.) required for efective operations
as business enterprises. Many of which operate in the informal sector with little col-
laborative relationships (MFPED, 2007; MTTI, 2008).
Micro, small and medium enterprise development is the responsibility of a wide range
of government ministries and institutions, private sector associations and agencies. A
large number of non-governmental organizations are also included in MSME develop-
ment. A well coordinated policy framework and institutional mechanism to support
MSME development is still lacking. However, the promotion and development of
micro, small and medium enterprises is the responsibility of the Ministry of Tourism,
Trade and Industry with the support of the Ministry of Finance, Planning and Eco-
nomic Development, but the role clarity is somewhat lacking.
Terefore the ultimate responsibility for the development and promotion of MSMEs
sector in Uganda cannot be pointed out in perhaps a clear manner. Despite the ex-
istence of business, vocational, management skills institutions, member business as-
sociations, chambers of commerce up to the grass-root levels and other donor support
41
programmes for MSME development in the country, there is sometimes duplication
of work/programs across agencies, government departments and ministries - which
certainly derails eforts to develop the MSME sector.
It is stressed that technological innovation and the associated institutional adjustments
underpin long-term growth and must be at the center of any strategy to strengthen
the private sector (UN, 2005). Te emergence of the cluster based development strat-
egy termed as “new innovation system” based on the cooperation among universities
(research institutions), industry and government has been reported greatly to have
brought a wide range of support services worldwide for development of knowledge
based businesses, with linkages to universities , research institutes, venture capital and
international joint ventures. Clusters afect competitiveness within countries as well as
across national borders (McCormick, 1999; Porter, 1998)
Additionally, business incubation focusing on national/regional strengths through
clustering and networking is believed to help small enterprises grow and contribute
to industrialization (McCormick, 1999). Business Incubators often provide young
frms with a shared space business and professional services, and access to sources of
funding that are difcult for young frms to acquire on their own. A great majority of
incubators are connected to institutions such as universities, communities, research
institutes, consortiums, government administration councils, and Non-government
organizations.
2.3.2 Building Entrepreneurial Communities in Uganda
Enterprise Development is growing in popularity as an approach to community eco-
nomic development. Its goals are to create wealth for owners and employees by helping
entrepreneurs start and grow their businesses. Conceptually, entrepreneurial functions
and activities may be performed by individuals or by corporations. Tey may involve
relatively small amount of resources as in the case of family small scale enterprises or
they may be large scale venture capital operations. Tey may be conducted by a new
business enterprise established for the entrepreneurial tasks or carried out within an
established frm as a new line of activity, hence intra-preneurship.
Entrepreneurship and entrepreneurs are usually associated with the initiation of busi-
ness ventures that promise to be proftable, the responsibility of making basic business
policy decisions that determine the course of the enterprises and the innovations con-
cerning new products or new production methods or forms of business operations. An
entrepreneur is invariably the one who commits the capital and bears the risk (Sieh,
1989; Lichtenstein et Al., 2004)
Tis defnition highlights two important attributes of the entrepreneurial process: op-
portunity and innovation. Micro, small and medium enterprises have been recognized
in the national economies for their contributions, employment creation, skills devel-
opment, regional economic growth. Uganda’s entrepreneurship sector is among the
most vibrant in the world according to the recent global entrepreneurship surveys, but
faces a challenge of keeping businesses afoat.
42
Uganda has also taken strong considerable eforts in restructuring the existing higher
institutions of learning and supported establishment of new ones with particular em-
phasis on building entrepreneurial skills, started promoting students capacity to trans-
form ideas into business proposals, application of information and communication
technologies, as well as actual products and services for local and regional markets.
However, with the students/ graduates developing practical skills in enterprise creation
and tested innovative ideas, they will need support institutions and infrastructural fa-
cilities, such as fnancial institutions, venture capitalists, business and technology incu-
bators to nurture new enterprises through providing critical services in the early stages
of enterprise development. Importantly, entrepreneurs would be better equipped to
succeed in their investment plans if they have available the required skills and capa-
bilities at the level of frms and support institutions. With this approach, the benefts
of BIs can be attained in a distributed manner and can efciently stimulate industrial
development.
Uganda has got a number of business support organizations ofering services intended
to help SMEs/frms grow and break even. Tese organizations include those set up by
private sector operators and those that are afliated to the government. Te key among
government ministries and agencies include: Ministry of Tourism, Trade and Industry,
Ministry of Agriculture, Animal Husbandry and Fisheries, Ministry of Finance, Plan-
ning and Economic Development, Uganda Investment Authority, Uganda Revenue
Authority, Uganda National Bureau of Standards, Uganda Export Promotion Board,
Uganda Industrial Research Institute, Management Training and Advisory Center, etc.
while the private organizations include: Private Sector Foundation of Uganda, En-
terprise Uganda, Uganda Manufacturers Association, Uganda National Chamber of
Commerce and Industries, Microfnance institutions, Uganda Small Scale Industries
Association, and Non-Government Organizations.
Te services that they ofer vary and they include:
• Entrepreneurship training programs that range from marketing and selling strategies to
fnancial and business management;
• Tey also facilitate and structure business linkages especially linking small and medium
enterprises to larger and older organizations;
• Tey also help frms install and implement quality control systems to improve the prod-
ucts and services.
• Tey also ofer business start up training to youth planning to set up businesses and help
SMEs to participate in international trade fairs where they market and create awareness
for their products.
• Te government has also promoted the policy of microfnance as a tool for powering
micro, small and medium enterprises in ofering credit facilities.
• Some ofer grants as seed money for acquiring machinery, rent ofces, training, etc.
Tere have been some good results from these programs, but there are also a large
number of problems. Tus, with all the above interventions, the statistics on SMEs
43
failing are appalling. In order to propel businesses forward and support their opera-
tions to higher and acceptable standards which will lead to productivity, sustainable
growth and industrialization, investing in infrastructure especially in the institutional
and support infrastructure/ facilities is more appropriate and only then will the above
measures attain the sustainable impact. One of the proposed institutional support in-
frastructures is through business incubation centers.
44
Chapter 3 - METHODOLOGICAL CONSIDERATIONS
3.1 Introduction
Tis chapter introduces the research strategy and the methodological techniques ap-
plied. Te limitations have been also defned. Te research strategy adopted was in-
spired by Participatory Action research. It also involves interviews and surveys from
diferent stakeholders within Uganda, Tanzania and Sweden. Te work presented so
far is what has been done within the Ugandan situation and in literature review. Such a
focus led to involve many stakeholders including representatives of several government
ministries and agencies, community based and business development organizations or
associations, environmental organizations, academia, private businesses and coopera-
tive societies. It is both practice- and theory-driven research for potential benefts. An
action research approach was seen to be appropriate.
3.2 Participatory Action Research
Action research is known by many other names, including participatory research,
collaborative inquiry, emancipatory research, action learning, and contextual action
research/ action learning, but all are variations on a theme. “Action research...aims
to contribute both to the practical concerns of people in an immediate problematic
situation and to further the goals of social science simultaneously. Tus, there is a
dual commitment in action research to study a system and concurrently to collaborate
45
with members of the system in changing it in what is together regarded as a desirable
direction (Dick, 2000) Accomplishing this twin goal requires the active collaboration
of researcher and client, and thus it stresses the importance of co-learning as a primary
aspect of the research process” (O’Brien, 2001; Dan MacIsaac, 1996).
Participatory Action Research provides means to measure results against initial goals
and identify critical elements within a project to advance the desired outcome (Ryd-
hagen, 2002; Simba, 2010; Otine, 2011; Lating 2009). Te methodological approach
was inspired by the Participatory Action Research (PAR), as a collaborative approach
which involves all partners in the process and recognizes their strengths. It is moti-
vated by the triple helix concept and trans-disciplinary knowledge production (Mode
2) (Gibbons et al., 1994). Te research has adopted both quantitative and qualitative
methods (Yin, R. K., 2009; Creswell, J.W. 2008; Driscoll et al., 2007).
To address and achieve objective one, and partly two of the research, in addition to
updating the earlier information gathered during the previous studies, the following
studies and surveys were done;
(i) Formulation of the National Industrial Policy
(ii) Needs Assessment survey for the artisans, handicraft and small agro-processors under the
innovation systems and clusters program
(iii) Te Science, Technology and Innovation Indicators status in Uganda
(iv) Introduction of the Value addition and utilization of locally available resources program
named ‘One Village One Product Program’ in Uganda
3.3 Data Sources
Multiple data collection methods were employed for data collection from the primary
data and secondary data sources. We administered questionnaires and conducted in-
terviews with stakeholders, held group discussions and analysis. Te purpose and focus
of the data and information collection was to identify the relevant literature and back-
ground information concerning the subject; the approved policies, proposed initiatives
and the implementing agencies/ service providers and how they can deliver efectively
to meet the needs of their clients.
Te main objectives were to add to the existing knowledge of the needs of the MSMEs
and start-ups, identify awareness, requirements and barriers particularly when starting
or growing a business in order to fnd most appropriate ways to enhance service de-
livery, promote science, technology and innovation and how best to engage the triple-
helix for efective business support services.
Ultimately, the research is investigating the elements, strengths, and weaknesses of the
existing BIs locally, regionally and internationally. It is also focusing on the actors, the
linkages and the factors that afect the successes or failures. Te research has limita-
tions particularly in obtaining data during the interviews and surveys. Access to some
private companies and some sensitive institutions like banks, security organizations,
46
and health centers for their organizational and internal issues was not possible. Where
they did agree, it was sure that data was not genuine and this could undermine the
accuracy of the information.
3.3.1 Secondary Data Review
An extensive literature review from a wide range of selected articles from journals,
government policies and publications, technical documents, reports and books was
carried out to inform both the approach used, the focus of the work and analysis of
the content. Tis involved conceptual and literature review on industrialization, en-
trepreneurship and business incubation and triple-helix; and their impact on business
development and industrialization process. Tis led to an in-depth understanding of
the incubation process, the actors and the environment. It helped in identifcation of
the problem and the mitigating factors to improve the situation in Uganda. Te analy-
sis also informed the design and conduct of interviews and surveys.
3.3.2 Primary Data Collection
Primary data collection covered informal group discussions in diferent workshops and
meetings attended to introduce the research topic and the scope in order to buy their
support when it comes to data collection.
Semi-structured Questionnaires for the interviews and Surveys were developed, pre-
tested and used to collect data face –to – face from the stakeholders in Uganda to en-
able the collection of in-depth qualitative information i.e. views and experiences from
business owners and stakeholder organizations/ support service providers. Informal
sessions with stakeholders were organized whereby stakeholders were randomly se-
lected based on the sub-sectors selected and interviewed according to the set question-
naires. Te semi-structured interview format was selected and used since it allowed
those interviewed to add comments and issues to those already identifed in prepared
sub-sections and questions.
Tis research coincided with the earlier plan for conducting the Research and Devel-
opment, and innovation survey, which were very relevant to this research. So these
surveys were conducted to give background information. Te innovation survey as-
sembled data on innovators and non-innovators, depending on the structure of the
questionnaire and the nature of the data. “Innovators” were defned as enterprises or
institutions or organizations that have over the last three years introduced a new prod-
uct or a new process, have tried, or are still in the process of doing so, where “new”
was defned as signifcantly improved and completely new, and where a distinction is
made between products new to the frm (but not necessarily new to the market) and
products new to the frm and to the market. A sample of stakeholders in this case for
R & D and Innovation surveys, included; government, businesses, education institu-
tions, business support service providers and associations.
47
3.3.3 Analysis
Although, data collected was mixed, some with incomplete quantitative data, informa-
tion about funds and expenditure and thus important data to assess genuine situation
was jealously guarded. Te analysis of data was done based on the data collected, the
qualitative and quantitative and conclusions were drawn. Analysis of the data col-
lected helped the authors to develop strong evidence from the investigations and in
generation of the papers that were published and presented in the conferences and
workshops. Tis contributed in the dissemination of the results and obtaining further
comments for future improvements.
All the ethical rules and regulations have been followed bearing in mind the confden-
tiality issues. Te Analysis methodology mentioned above was inspired by distributed
knowledge processes (Nowotny et al., 2011). It is focusing primarily on the issues of
long term strategies, innovation indicators as well as collaboration and partnerships.
Te references for this Part I are found at the end of Part III (page 87)
48
49
PART II
50
51
Chapter 4 - INTRODUCTION TO THE PAPERS
Tis licentiate thesis is a compilation of four papers as outlined below.
Paper I: Mutambi, J. (2008). Advancing Value Addition and Competitiveness through
Standardization to Promote Manufacturing.
Proceedings of the 2008 Annual International Standards Conference (AISC) June
09th – 12th, 2008, Kampala Uganda
Given today’s increasingly competitive business environment, this paper introduces
the importance of manufacturing sector as the main engine of structural transforma-
tion and critical to changing and modernizing Africa’s economic structure. Manufac-
turing and processing of value added products for domestic consumption and export
is important for Uganda’s economy and Africa in general to realize Millennium De-
velopment Goals.
Te paper gives the overview of manufacturing and how it can be the driver of growth
and productivity in other activities: agriculture, information-based services, fnance,
construction, logistics and so on. It further explains Africa’s relatively weak position
and performance with reference to determinants of industrial development, in particu-
lar human resource development, infrastructure, technological efort and government
policy frameworks.
Although Uganda has taken major initiatives to improve the enabling environment
for private sector led industrialization, it is still faced with major obstacles for sus-
52
tainable industrial development and investments in the country. Te key drivers for
investment, productivity improvement, and competitiveness all in the perspective of
advancing manufacturing and value addition and their linkage to globalization were
discussed.
It concludes by providing recommendations to the constraints which include: Govern-
ment to recognize the catalytic role of manufacturing; consider factors for advancing
value addition, productivity and standardization; Formulation of strategic policies and
adaptation of modern technologies; and promotion of cluster based approaches.
Paper II: Mutambi, J. (2009). Institutional and Support Environment to Cluster Based
Development Approach in Uganda.
Proceedings of the 12th TCI Learning Clusters Annual Global Conference, 13th Oc-
tober 2009, Jyvaskyla, Finland
Due to globalization and liberalization, the business environment has become so com-
petitive and demanding in terms of quality, speed of response, price and volume. Most
of the SMEs in Africa and in Uganda in particular have not been able to respond
to this challenge. Uganda government while recognizing the contributions made by
SMEs, like any other developing country has no choice but to provide policy and
institutional support towards development of SMEs. Tis paper presents the related
support initiatives and institutions and the kinds of support to cluster based develop-
ment approach in Uganda.
It further discusses the specifc areas that need to be addressed in order for the small
and medium frms to become competitive and improve their productivity especially
those involved in manufacturing activities and services sector through clustering con-
cept. It concludes by recommendations, among them strengthening networking and
collaboration between the frms and among the cluster key actors.
Paper III: Mutambi, J., Byaruhanga, J. K., Buhwezi, B. K., Trojer , L. and Lating, P.
O. (2011). Transferring Best Practices for Uganda Technological Innovation and Sustain-
able Growth
Proceedings of the 2nd International Advances in Engineering and Technology Con-
ference of Makerere University, 31st Jan-2nd Feb, 2011, Entebbe- Uganda. ISBN:
978-9970-214-00-7
Uganda is not alone in the drive to promote Science, Technology and Innovation
(STI) as a means to social economic development. Promotion of STI is high on the
Agenda of African Union countries. Indicators are useful not only for monitoring glo-
bal scientifc and technological development trends but also for formulating, adjusting
and implementing STI policies. Scientifc and industrial development evaluations and
policy-relevant assessments are based on relatively sophisticated combinations of statis-
tics on science, technology and innovation, such as various inputs, outputs, and proc-
53
ess indicators. Tis paper indicates how Uganda has not been producing primary STI
indicators like many of other African countries. Te STI indicators paper is aimed at
providing primary indicators using a survey and questionnaires methodology to evalu-
ate the performances of businesses, institutions and government agencies in respect to
technological innovations, human resource development and training, expenditure on
Research and Development, etc.
Te paper discussed the core indicators of Research and Development (R&D), and
Innovation. Te paper further explored the potential benefts of business incubation.
It concludes by indicating that most innovations take place in small and medium
enterprises, and that more support is needed for Research and Development and in-
novation activities.
Paper IV: Mutambi,J., Byaruhanga, J. K., Buhwezi, B. K. and Trojer , L. (2010).
Research on the State of Business Incubation Systems in Diferent Countries: Lessons for
Uganda.
African Journal of Science, Technology, Innovation and Development, Vol.2, No.2,
2010, pp. 190 – 214.
Uganda, like any other country in the world recognizes and promotes micro, small
and medium size enterprises for their role in economic and social development. A lot
of support programs such as technical assistance, capacity building-training programs
and other incentive schemes have been provided, but this has not created an impact on
business growth and industrial development. One strategy proposed to nurture new
venture small frms and foster their survival and growth which can lead to industrial
growth is through business incubation.
In this paper, an overview of the status of business incubators in diferent countries,
developed and developing was presented. Te role played by business incubators was
discussed and the main lessons learned for Ugandan situation were presented in the
fnal part of this paper.
54
4.1 Paper 1
Advancing Value Addition and Competitiveness through
Standardization to Promote Manufacturing
Joshua Mutambi
Abstract
Te Manufacturing Sector is one of the main sectors in the Uganda economy and it is
divided into formal and informal manufacturing. Te total contribution of the manu-
facturing sector to GDP was 8.4 percent in 2006. (Business Register Report 2006/07-
UBOS). Overall there was an increase of 32% of the manufacturing businesses in
2006/07 compared to 2001/02 in Uganda. Manufacturing is the process of taking
resources and through packaging, processing, fabrication and/or assembly transform-
ing the resources to a physical product demanded in the market place.
Te businesses in this sector include those engaged in the following activities: Process-
ing of meat, fsh and dairy products; cofee processing; grain milling; tea processing;
bakery and manufacture of other food products; manufacture of beverages & tobac-
co; manufacture of textiles and leather products; sawmilling, printing & publishing;
chemicals and chemical products; manufacture of plastics; manufacture of metal prod-
ucts; and manufacture of furniture.
A thriving manufacturing sector is vital to the developing economies and their citizens
as manufacturing businesses generate jobs, hence incomes to support service indus-
tries and public services. However, the sector is faced with changing challenges, and
advancing value addition and competitiveness through standardization will respond to
the sector’s value and opportunities, which will promote high performance practices,
Science, Technology and Innovation, as well as building the skills of the manufactur-
ing workforce.
Manufacturers in Uganda like their counterparts in the region face stif global compe-
tition and must continually improve their products and processes to stay competitive.
Teir success will depend on continuously integrating new technologies and innova-
tions, adding increasing value to products, reducing waste to processes and having
access to resources such as capital, raw materials and most importantly a high skilled,
fexible and involved workforce. (Supply chain).
To maintain the growth of the manufacturing sector, both the public and private sec-
tors need to respond by creating new high performance work environments (infra-
structure development) and providing fexible, responsive education and job training
programs that are competency-based, responsive to the demands in a rapidly changing
labour market and are tied to new technologies, customer needs, and evolving produc-
tion processes.
55
From the commonly available indicators and factors of competitiveness in compara-
tive framework, it is evident that most African business environments still have serious
short comings compared with their international competitors. Tis paper will discuss
factors needed to improve productivity, value addition and competitiveness for the Af-
rican and the global markets. To achieve manufacturing that meets customer specifca-
tions and delivery dates (value addition and competitiveness), the paper suggests broad
benchmarks and initiatives that are linked with the solution of problems.
Keywords: Clustering; Competitiveness; Innovation; Manufacturing, Value addition
1. Introduction
Since the industrial revolution, manufacturing has helped defne economic devel-
opment. Manufacturing is the process of taking resources and through packaging,
processing, fabrication and/or assembly transforming the resources to a physical prod-
uct demanded in the marketplace. In developing nations, manufacturing has consisted
primarily of processing raw resources into semi-processed goods. Tese goods are then
further processed into products. Te additional processing usually takes place in areas
close to the marketplace resulting in a clustering of the required technology, capital,
services, management and workforce. Over time this centralization of value added pro-
duction made regions and cities with large urban populations strong in manufactur-
ing development while developing nations remained dependent on primary resource
production.
Manufacturing has been, and remains, the main engine of structural transformation.
While its contribution to GDP in most countries reaches a peak at 30-40 percent and
then declines as modern services grow, its contribution to development is much more
signifcant. It is this contribution that Africa has failed to tap. Manufacturing is criti-
cal to changing and modernizing Africa’s economic structure. It is the main avenue
for applying new technologies to production and for raising technical and managerial
capabilities. It is crucial to raising and diversifying exports, moving the region from
its continued dependence on low value-added and unstable primary products. It is
necessary to create new skills, work attitudes and institutions. And it can be the driver
of growth and productivity in other activities: agriculture, information-based services,
fnance, construction, logistics and so on.
Te manufacturing sector in Uganda is still very young, small and dependent on im-
ported goods. It is characterized mainly by processing of agricultural raw material and
production of basic consumer goods. Around 40 percent of all manufacturing frms
are engaged in agro-industries, only very few are operating in capital goods industries
often with rather low value added, the rest are in industries such as plastics, steel and
construction products (Mugisa 2004, 24-5). Te sector is preliminary concentrated
on small manufacturing, production for the domestic market and by little standardiza-
tion of products, thus being afected by specifc market characteristics such as small
market size, high level of smuggling, and insecurity in the North. A few have success-
56
fully penetrated regional (Rwanda, Burundi, eastern Congo) markets, or global (EU,
USA) markets. Tose engaged in for instance neighboring markets are generally well
aware of regional competitive factors and gradually seek to enhance their competitive
position. Te recent opening of business opportunities in southern Sudan has resulted
in a fairly active and strategic response.
Manufacturing has undergone signifcant change in an era of global competition, new
information and production technologies and corporate re-structuring for economic
use of resources. For governments, industry associations and community development
organizations seeking to foster manufacturing sector development, a key lesson is the
ability to take a coordinated and sustained approach to necessary conditions which will
greatly increase the chances of success in expanding the sector in order to stay competi-
tive or improve competitiveness in the global markets.(Dr. Aleef Suleman-2005)
Competitiveness in this case means the ability of enterprises to take advantage of the
opportunities ofered by globalization trends. Society has changed from a closed mar-
ket and a closed manufacturing place to an open one. It is no longer necessary to have
centralized manufacturing facilities. Functions could be distributed. Designs could
be done in France, manufacturing done in Mexico, Malaysia or some other country
where the costs possibly could be kept low; production planning could be done in
USA, marketing strategies evolved in Hong Kong and service parts produced in China
or South Africa. Such a globalization leads to a cross cultural dialogue between re-
gional blocks, governments, corporations, societies and most importantly individuals.
Manufacturing researchers have concentrated on manufacturing processes, materials
and methods. Tough these are still extremely important, it is becoming increasingly
apparent that we also need to focus on the additional dynamics which is a result of
globalization and information explosion.
We need to be aware of the procurement, production and distribution along with the
feedback as the main components of manufacturing lifecycle in this globalization proc-
ess and in order to accomplish this, it is necessary to be aware of the current technolo-
gies which includes required standards. (Standardization is the process of developing
and agreeing upon technical standards. A standard is a document that establishes uni-
form engineering or technical specifcations, criteria, methods, processes, or practices)
Globalization has shifted the paradigm for manufacturing. Te customer is involved
with the manufacturing of the product. Te most important characteristics of manu-
facturing due to globalization are:
• Customers involved with the production of the part from cradle to grave (from design to
usage: life cycle)
• Customers have access to data instantly
• Customers have access to diferent manufacturers
• Experts need to cooperate and collaborate with the customers
• Customers will get what they have requested.
57
Te basis for Uganda’s future prosperity and its ability to invest in the improvements
desired will depend on the competitiveness of its existing and future industries. Com-
petitiveness is not defned as the ability of the country to compete on the basis of its
raw materials, cost of labor or other domestic resource costs. Rather, it is based on the
ability to strategically position the industries in attractive markets and with attrac-
tive products; and this can only be done by advancing value addition, promote high
performance and governing practices, Science, Technology and Innovation, as well
as building the skills of the manufacturing workforce. An example is Mozal Project
Scheme in Maputo –Mozambique (Masaki Miyaji, 2007)
Key Drivers for Investment:
Te private sector will have to adopt a more competitive approach, focusing on higher
value products and services, where value is added because of better market linkages,
as the main outputs. Te classic industrial engineering defnition of Value Added is,
“actions or activities that change the form, the ft, the function of the product being
manufactured and, this is important, the changes are something the customer is will-
ing to pay to have happen.”
In addition, Productivity, which is simply defned as the value per unit of input, the
better use of human, capital, and natural resources will all be increasingly the deter-
mining factors for Uganda’s success and the region as well. Individual frms cannot
become competitive and stay competitive in the global market on their own; building
competitiveness involves sustained change throughout the value chain: Tis close in-
terplay between frms, their suppliers and the business environment is why competi-
tiveness theorists and practitioners focus on “clusters” as the locus of action.
April 2003 June 2000
Operation start
?
June 2001 May 1998
Construction start
?
280,000 tons
Maputo/Mozambique
Location
?
Production Capacity
Business
Mozal Phase 2 Mozal Phase 1 Mozal S.A.R.L
Aluminium Ingot Smelter ?
US$710 Mil US$1,200 Mil
Total Cost
?
Mozambican Govt
IDC
BHP Billiton
Mitsubishi Corp
?
?
?
?
?
?
25 ?
Shareholders & Equity
47 ?
24?
4?
Supplied from South Africa
Electricity Supply
AP35? Pechiney Technology? ---Upgraded in 2006 from AP30
Reduction Technology
1,135 ? as of Aug 2006?
Employee
Supplied from Australia
Alumina Supply
Pro-rata basis
Aluminium Ingot Offtake
280,000 tons ?
April 2003 June 2000
Operation start
?
June 2001 May 1998
Construction start
?
280,000 tons
Maputo/Mozambique
Location
?
Production Capacity
Business
Mozal Phase 2 Mozal Phase 1 Mozal S.A.R.L
Aluminium Ingot Smelter ?
US$710 Mil US$1,200 Mil
Total Cost
?
Mozambican Govt
IDC
BHP Billiton
Mitsubishi Corp
?
?
?
?
?
?
25 ?
Shareholders & Equity
47 ?
24?
4?
Supplied from South Africa
Electricity Supply
AP35? Pechiney Technology? ---Upgraded in 2006 from AP30
Reduction Technology
1,135 ? as of Aug 2006?
Employee
Supplied from Australia
Alumina Supply
Pro-rata basis
Aluminium Ingot Offtake
280,000 tons ?
58
Clusters are “geographical concentrations of interconnected companies, specialized
suppliers, service providers, and associated institutions in a particular feld” (Porter,
1998) .Associated institutions might include: educational and training institutions
that build the workforce; research institutions that generate scientifc knowledge for
technological change; banking and fnancial institutions; government institutions,
whose policies and practices have an impact on the industry including standards de-
velopers and regulators (National Bureaus of Standards or Commissions of Standards);
and providers of infrastructure, both public and private.
Te ability of African countries to develop competitive manufacturing sectors will
therefore depend on the quality of African business environments, and labor forces
relative to those of the export powerhouses of the developing world. Tus, to advance
manufacturing competitiveness, numerous major bottlenecks need to be addressed
that will focus on manufacturing modernization, including policy uncertainty, poor
access to fnance, insufcient energy supply, slow technology transfer, focused training
and general business support with governance as a cross-cutting theme.
2. Status of Manufacturing Sector in Africa
Manufacturing sectors in most African countries remain small compared to other de-
veloping countries and have remained inward looking with the exception of Mauritius
and recently Madagascar. For the sample of African countries, growth in manufactur-
ing over the period 2000 – 2002, was in the range of 3-5 % range annually with the
exception of Mozambique which grew at over 9 %. In Mozambique, high growth rates
could be attributed to Mega –investments in capital intensive projects like Mozal. In
addition, few African frms export at least 20% of their sales, particularly given the
smaller size of their domestic markets.
Generally, the manufacturing sector in Africa is characterized by the smaller share con-
tribution in GDP than the average LDCs, smaller size of manufacturing export than
the average LDCs and a smaller contribution of the textile industry. Te manufactur-
ing development in Asia (East and South East Asia), for instance, started from the
textile industry and shifted to the capital intensive and technologically sophisticated
industries (i.e. Automobile and electric appliances industries). Te Asian LDCs in-
come levels are quite similar to the African countries, yet African countries have lagged
behind in industrial development. Is the diference in business environment, human
capital, or industrial policies?
After trade liberalization, massive imports have been realized in African markets in-
cluding those from South Asia. A few countries had realized increase in exports due
to FDI, but have since stagnated or reduced at all in others. Terefore, free trade has
not facilitated growth in local frms in Africa unlike in Asia. In a liberalizing world,
export success is a good indicator of industrial competitiveness. Te table below shows
selected economic indicators from the World development indicators which gives the
fgures and clearly can be seen how low levels of percentages of GDP are for manufac-
turing growth and exports of African countries.
59
Slow growth and low export levels in manufacturing imply that African frms are char-
acterized by low (though varying) levels of competitiveness. Tis is borne out in the
data on specifc obstacles to frm development and is also illustrated by a number of
broader benchmarks.
Value added per worker (Y:L), the traditional measure of labor productivity Y:L is not
a measure of the intrinsic productivity of workers or a direct benchmark of success or
efciency, in part it refects the level of capital intensity.
Capital intensity measures the success of African countries in fostering labour intensive
manufacturing along the lines of their potential competitive advantage in low cost
labour. It’s noted that capital intensive countries have smaller labor costs as a share of
total costs.
In addition, African frms use their large quantities inefciently; labour costs are one
candidate for the source of African frms’ lack of competitiveness, high capital inten-
sity and low efciency. Unit Labor costs measures the average cost of labor per unit of
output defned in U.S dollars, as (wL/Q)*1/e; where w is the manufacturing wage; L
is the amount of labour employed; Q is the physical measure of output; and e is the
exchange rate (domestic currency per US dollar).
By defnition, Unit labor costs are high in countries that have high wages and low
value added per worker. For a country to have low (competitive) ULC it has to do a
combination of three things.
(i) Keep nominal wages low,
(ii) Keep its exchange rate competitive, or
(iii) Increase its labor productivity.
60
From the above discussions, the following facts can be concluded;
• African frms face relatively high labor costs relative to productivity
• Aggregate costs across African economies are very high, pushing up frms’ costs and
pushing down workers’ real wage incomes.
• African workers’ real wage incomes are in fact very low
• Labor costs account for a relatively small share of the total costs of African frms.
Terefore, Competitiveness must come from increased productivity and largely from
lower non-labor costs and greater development of worker skills. Emphasis on improv-
ing productivity must include the business environment factors that drive up non-
labor costs and drive down productivity in Africa. Such factors are associated with
weak fnancial systems, macroeconomic instability, concentrated market structure,
infrastructure and service defciencies, over regulations, corruption, and poor security
in some areas.
3. Enabling Environment: Necessary Conditions for Invest-
ments and Exports in Africa
Te Policies, institutions, and infrastructure maintained by African governments and
the efects they have on transaction costs are crucial in encouraging or discouraging,
frm specifc learning and the development of competitive advantage and exports
industries. Tis section discusses the diferent aspects of the enabling environment,
including fnance and macro-economic stability; market structure, infrastructure; hu-
man capital; and Good governance and policies.
PILLARS OF GROWTH
POLICY CO-ORDINATION
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Skills development
61
3.1 Access to and cost of Finance
One of the most important bottlenecks facing industrial frms in Africa is access to reli-
able, inexpensive fnancing. By and large, compared with other developing nations say,
East Asia, China and India, most African frms have less access to loans and overdrafts,
use more internal funds, and retained earning to fund investments and operating costs,
pay much higher interest rates, and are required to register many more assets as col-
lateral. Market failures are rampant, small frms are less likely to get loans, cash fow
problems are enormous, as funds are tied up in raw materials, fnished goods invento-
ries, overdue payments, and refunds owed by the governments. Weakness in banking
sector, supplier-credit facilities, poor information, communication and weak contract
enforcement have led to a heavily cash based environment. Ugandan frms still report
serous difculties with fnance. Interest rates and collateral requirements are still very
high compared to other developing nations. However, some African governments and
the government of Uganda in particular are progressively trying to address some of
these concerns.
3.2 Macro-economic certainty
Although most African countries have made the most progress in basic macro eco-
nomic stabilization, there are many more that have along way to go in building macro-
economic environments conducive for private sector development. Te uncertainty
generated by rapid and variable infation and exchange rate volatility increases transac-
tion costs and hampers the abilities of frms to plan for the future in Africa compared
to other developing countries where infation and exchange rate volatility are low and
external balances are stable. Tis afects productivity and competitiveness of African
frms.
To fx the macroeconomic uncertainty, good monetary policies should be in place:
(exchange rate policy, interest rate policy, and government borrowing policy), Fiscal
policy-by limiting trade price distortions and have tax policies, strengthen banking
sector, strengthen commercial courts and contract enforceability, and creation of in-
dustrial fnance institutions.
3.3 Market access and adjustment Support
Te Manufacturing industry in African countries has faced both market access and
adjustment constraints; such as lack of inputs and costs, high local focus, low pro-
ductivity, limited exports, and high competition. Market access and competition is
key in producing efcient outcomes and incentives for value addition and innovation.
African markets have remained highly concentrated, due to demand constraints, i.e.
low incomes, high interest rates, un-sophisticated consumers, and lack of marketing.
However, some African governments have made some progress in advocating for in-
creased market size and access; and establishment of industrial parks, Export Process-
62
ing Zones, and recently promotion of industrial clusters to address production of suf-
cient and high quality volumes for the increasing markets, which in turn require larger
amounts of raw materials. Tere are now some market access opportunities, such as
AGOA, EU-EBA, and regional markets, (EAC, COMESA, SADC).
3.4 Infrastructure Constraints
Tere is a dire need of competitive and productive infrastructure in Africa. Economic
sparseness is a considerable obstacle to the quality of infrastructure services on the
continent, but it is clear the quality of management of infrastructure systems makes
a big diference as well. Te sector has sufered greatly due to poor service providers
such as electricity, and railway transport. Te most recent progress has been made
in telecom industry where the successful incorporation of private providers of cellu-
lar infrastructure in Uganda, Mozambique, Kenya, Zambia and other countries, has
extended coverage and improved service quality signifcantly. Te least progress has
been made in electricity generation and supply with severe consequences for industrial
frms. Defcient electricity service severely hurts competitiveness.
Many frms have their own generators, but the cost of privately supplied power is two
or three times as high as that of public grids. In some types of production, especially of
continuous process items like plastics and soap, the unexpected cessation of power can
lead to weeks of lost production while machines are being cleaned.
Little progress has been made so far. Uganda has moved forward with restructuring
and has redesigned policies to allow some private participation in energy development
but the efects are yet to be seen. Furthermore, domestic transport costs are very high
in Africa, and hurt exporters’ competitiveness. It is more severe for land locked coun-
tries like Uganda, Zambia and Burundi.
3.5 Labor force skills and human capital development
Te Quality of labor force and the accumulation of human capital are just as relevant
for competitiveness as is physical infrastructure. Many African countries have difcul-
ties in retaining highly educated workers or attracting skilled expatriates. Its observable
that increasing efciency is a key to frms being able to enter export markets, such
efciency will be linked to observable skills frms posses, amount of education and
tenure of the workforce.
4 Concluding Discussion and Lessons for Uganda
(i). To be competitive in domestic and international markets (export markets), frms/
countries need to advance value addition, standardization and productivity by;
• Absorbing technology from the developed countries, either by attracting FDIs or im-
provement of the business environment
63
• Upgrading of the production systems, introduce new high-tech equipment and cleaner
technologies, employing skilled and experienced human resource personnel, invest in
skills development, R&D for new products, and improve on quality of products.
• Encourage sub-contracting terms from large companies to small and medium frms.
Labour intensive industries, including service industries must also be encouraged as it
improves the conditions for transfers of technology and know-how.
• Invest in marketing research and market information systems
• Policy support and harmonization of technical standards and regulations, because
standards have increasingly become crucial elements in facilitating transactions and trade
within and between countries.
• Establish a national fnancing fund and support institutions to facilitate the commer-
cialization of R & D.
(ii). Te catalytic role of manufacturing industry needs to be acknowledged. It is vital
or center for the following;
• Application of technological progress to production,
• Innovation,
• new skills and attitudes,
• modern institutions and legal structures,
• benefcial externalities from innovation and skill creation for other activities,
• direct demand stimulus,
• internalization of the economy, and
• modernization of national industrial enterprises
(iii). Modernization of equipments and strategic policies: In the advanced countries,
where all the above mentioned constraints have been addressed, a new technology or
a new approach to manufacturing and way of doing business has been adapted. Tis
is the computer integrated manufacturing developed in 1974 by Joseph Harrington,
(Advanced Manufacturing Technology, 2002). It encompasses all of the activities and
processes necessary to convert raw materials into fnished products, deliver them to the
market, and support them in the feld. Tese activities include the following:
• Identifying a need for a product
• Designing a product to meet the needs
• Obtaining the raw materials needed to produce the product
• Applying appropriate processes to transform the raw materials into fnished products
• Transporting products to the market
• Maintaining the product to ensure proper performance in the feld
Technology, measurements or standards are basic industrial needs. Cooperation and
collaboration remain key to developing the required tools and capabilities. In modern
manufacturing, integration is accomplished by computers and the benefts are as fol-
64
lows: Product quality increases; Lead times are reduced, direct labor costs are reduced,
product development times are reduced, inventories are reduced, design quality in-
creases, and overall productivity increases.
(iv). Promotion of cluster based industrial development: A new approach to doing
business and economic development planning to continually be able to compete glo-
bally has been introduced. Tis is the Industry Cluster concept. Te cluster model
emphasizes internal linkages, whereby cluster gains are furthered by local frm coop-
eration, local institutions, and local social capital. External linkages also matter, global
buyers can help local clusters access distant markets, acquire new forms of knowledge
and upgrade.
Porter argues that it is the competition between rival frms in the cluster that drives
growth because it forces frms to be innovative and to improve and create new tech-
nology. Tis, in turn, leads to new business spin-ofs, stimulates R&D, and forces the
introduction of new skills and services.
Local proximity to frms in all aspects of the production process, such as the suppliers,
machine builders, assemblers, distributors, and fnal customers allows the cooperating
frms to adopt new technology and innovations rapidly, therefore increasing the overall
efciency of the production process. Tis approach not only emphasizes growth of
manufacturing sector but also more importantly concomitant growth of the support-
ing industries which incorporate the services sector
In short, cluster development is attributable to several key factors, including technol-
ogy transfer, knowledge transfer, development of a skilled labor force in related indus-
tries, the benefts of agglomeration economies, and social infrastructure. Terefore,
governments should build multilayered regional systems, to encourage cluster forma-
tions and the creation of high value chains.
In conclusion, to advance manufacturing competitiveness, numerous major bottle-
necks need to be addressed; manufacturing modernization, policy uncertainty, poor
access to fnance, inadequate infrastructure, focused training and general support to
National bureaus of Standards and other related standards service providers to achieve
international standards equivalency (Accredited labs, skilled standards ofcials, and
harmonized regulations and conformity standards).
References:
1. Benn Eifert & Vijaya Ramachandran. 2004: Competitiveness and private sector development
in Africa
2. Chang, Y. (2002). Advanced Manufacturing Technologies and Changes in Work Organiza-
tion. Science, Technology and Policy Institute
3. Hitoshi Shoji. 2007: Comparative Analysis on Infrastructure Development South East Asia
and Sub-Sahara Africa
4. Mugisa, E. 2004: Uganda’s Competitiveness in the EAC and COMESA Region, Report for
the PSFU and UPTOP
65
5. Masaki Miyaji. 2007: Experiences and Instructions of FDI (Foreign Direct Investment in
Mozal Project, Mozambique
6. Report on the Uganda Business Register 2006/07
7. Suleman, Aleef. 2005: Generic problems experienced on African continent.
66
4.2 Paper II
Institutional and Support Environment to Cluster Based Devel-
opment Approach in Uganda
Joshua Mutambi
Abstract
Similar to other developing countries, Uganda recognizes the ability of Micro, Small
and Medium scale enterprises to generate socio-economic benefts, value addition to
local raw materials, and employment generation. To enhance competitiveness, innova-
tion and networking within producer frms, clustering concept needs to be promoted
and strengthened. Clusters drive productivity and innovation. Clusters are geographi-
cal concentrations of frms, suppliers, support services providers, infrastructure, pro-
ducers of related products, and specialized institutions that arise in particular felds in
particular locations.
Clusters can be initiated or emerge spontaneously based on market forces and the
process of cluster formation will occur naturally as new frms form, suppliers develop,
infrastructure investments respond to local needs, and specialized institutions and
frms locate their operations in the growing cluster area and grow. Tis therefore calls
for policy and public attention.
Te key actors in the cluster development are referred to as “triple helix”: Government
for policies and support institutions; Private sector –business enterprises, large and
SMEs, NGOs’ and Foundations; and Academia – Universities, and R& D institutions
Tis paper highlights a number of measures that government has done aimed at stimu-
lating economic growth with a demonstration of facilitating the cluster based develop-
ment concept in Uganda
Keywords: Clusters; Institutional Support; Small-Medium Enterprises; Triple-Helix;
Uganda
1. Introduction
Clusters commonly known as geographical concentrations of interconnected enter-
prises and associated support institutions are fertile environments for the development
of inter-frm linkages, as spatial proximity and shared business interest facilitate col-
laboration.
Te Government of Uganda (GOU) emphasizes on enhancing the performance of the
local business community while also promoting the transfer of skills and knowhow
to the entire value-chain actors through the Public-Private Partnership. In its pursuit
to achieve high and sustainable economic growth and prosperity for All Ugandans,
67
the GOU has the responsibility to create conducive environment for investment and
growth (PEAP)
In recognition of the importance of small scale frms that require initial support to
enter far- reaching business networks, the government has initiated various appropri-
ate policies and programs. As a member of the EAC, it’s stipulated in the EAC Treaty
as well. Article 80(1)(c) of the Treaty for the Establishment of the East African Com-
munity provides that one of the strategy and priority areas for regional cooperation in
investment and industrial development in the EAC region shall be facilitating the de-
velopment of small and medium scale industries including sub-contracting and other
relations between larger and smaller frms. To me that is the cluster based concept,
which should be taken advantage of.
Tere is a political will to promote clusters; the government highly supports research-
ers and scientists in areas that are relevant to transforming the economy. GOU recog-
nizes that Science and technology are key in the improvement of health, agriculture,
industrial development, economic competitiveness and environmental sustainability.”
For instance, every year a national science week is held to raise awareness on the es-
sential role of science and technology in Uganda’s socio-economic development and
to award prizes to the best innovative role models including medical doctors, teachers,
technologists, researchers, engineers, nutritionists and science and technology-related
entrepreneurs.
2. Related Support Initiatives to Cluster-Based Development
Approach
Based on the above policy strategies, the government wishes to strengthen the SMEs
or frms with the capacity to a collective vision of the opportunities available to them,
and seize these opportunities through coordinated collective initiatives. Te following
programs and institutions are in place explicitly intended to promote capacity build-
ing in formal or informal income-generating activities at the national as well as at the
local levels of government. Te areas of support include; access to fnance, access to
knowledge and skills, and others like marketing access.
Te identifed existing programs and institutions supporting the operations of cluster
- based frms and individual frms including associations to improve their efectiveness
among others are;
a) Te Competitiveness and Investment Climate Strategy (CICS)
Te Competitiveness and Investment Climate Strategy (CICS), 2006-2010 Under
Ministry of Finance, Planning and Economic Development. Te CICS whose theme
is ‘Enhancing competitiveness through Public-Private Partnership’ seeks to position
Uganda to deal with the next generation of competitiveness challenges, by building
on earlier eforts to improve the business environment, boost domestic activity and
increase participation in the global marketplace. It also emphasizes the development
68
and facilitation of clusters as a strategy. CICS has organized the cluster forum group
meetings, the fourth one was held recently in august to discuss the popularizing of
clusters development concept.
b. Presidential Science awards (2004)
In 2004, H.E the President of Uganda Yoweri Museveni introduced the Presidential
science awards to promote the development and application of science and technology
for economic transformation. Te frst Presidential Science and Technology Excellence
Awards were presented to winning scientists in 2006. Te second set of awards was an-
nounced in 2007 and presented to the winners at the closing ceremony of the National
Science Week in 2008.
Achievements in scientifc and technological innovation and application in the felds
of agricultural sciences, veterinary sciences, military sciences, natural sciences, engi-
neering, biotechnology, earth sciences, medical sciences, space sciences and informa-
tion and communication sciences are also recognized. Tere is a potential of having
these researchers attached or assisting clusters in all these felds.
c. Prosperity for All Programme
In order to improvise fnances and capacity building for a number of people in rural
areas the President of Uganda initiated the Prosperity for All Programme being his vision
to try and put in place varied but integrated socio-economic programmes that mainly
target the rural poor in order to transform them into productive and prosperous com-
munities. It is prosperity for all through production, value addition, agro-processing,
improved marketing, savings and accessibility to afordable credit.
Tis programme today has enabled the creation and development of a number of
SMEs in both the Urban and Rural areas as it has enhanced resource accessibility both
fnancially and socially.
d. Microfnance Outreach Plan- Ministry of Finance, Planning and Economic Devel-
opment
Microfnance Outreach Plan is a major initiative of Government of Uganda and Stake-
holders in microfnance industry. Te Matching Grant Facility Capacity (MCAP), an
important component, is intended to facilitate accelerated growth of a sustainable and
working microfnance capacity building market with well-informed consumers and
better equipped suppliers of the services.
Tis component is intended to expand the outreach of fnancial services to rural areas.
Te interventions would involve the penetration of rural areas to increase the presence
and accessibility, of MFIs and fnancial services, as well as developing, testing and
promotion of new products to meet the needs of small holders and rural communities.
e. One Village One Product (OVOP) program - Ministry of Tourism, Trade and
Industry (MTTI)
Ministry of Tourism, Trade and Industry (MTTI), through its Department of Industry
and Technology, mandated to promote, expand and diversify an environmentally sus-
69
tainable industrial base in collaboration with its statutory institutions, such as UNBS,
UIRI, MTAC, has launched and established an institutional mechanism to promote
and coordinate One Village One Product (OVOP) program this year which will in-
clude the cluster –based approach activities. Cluster -based development approach to
promote SMEs was approved in the National Industrial Policy (2008). Te modalities
of coordination will soon be fnalized between Makerere and Ministry.
Te (OVOP) programme (2009) is being implemented through improving the pro-
duction, value addition and marketing of Value added products that can compete
locally, regionally and internationally by utilizing primary agro-products and natu-
ral resources in which communities have comparative advantages. Tis program will
strengthen the development of clusters in the country.
It is built on three principles, namely (i) self-reliance and creativity (ii) human re-
sources development, and (iii) thinking locally but acting globally. Local people take
the lead, independent of external prompting and largely on their own creativity and
self-reliance, to make unique products from local resources for their own good and
to capture markets external to their locality. In the process they develop their exper-
tise through production of competitive products, their livelihoods improve due to
enhanced incomes, and their communities develop closer bonds at the same time.
With reference to value addition and job creation the Government has promised to
support where possible all small and medium industries/enterprises in terms of tech-
nology acquisition, skills development and market linkages. Te clusters will again
beneft out of this initiative.
Additionally, as a sign to improve agricultural productivity and agro-processing, Gov-
ernment has allocated Ush60b to agricultural enterprises through the commercial
banks.
f. Private Sector Foundation of Uganda (PSFU)
PSFU is Uganda’s apex body for the private sector. Right from its inception, PSFU
has been Government’s implementation partner for several projects and programmes
aimed at strengthening the private sector as an engine of economic growth.
PSFU runs various programmes that beneft SMEs including clusters such as; the im-
plementation of the Business Uganda Development Scheme (BUDS), Enterprise Skills
linkage program, etc.
g. Enterprise Uganda
Enterprise Uganda ofers a comprehensive range of integrated and tailor-made busi-
ness support services which begin with diagnostic Studies on the businesses promoted
by the participants including rural outreach. Te ‘Business Health Check’ is a comple-
mentary service to the participants to establish constraints that may be holding back
the realisation of their business potential. Te post-entrepreneurship services include
general management training; export market development and sourcing of credit and
other business advisory services.
70
h. Uganda Export Promotion Board (UEPB)
Uganda Export Promotion Board coordinates all activities that lead to export growth
on a sustainable basis. To accomplish this, the Board carries out market studies, de-
velop products to suit market place requirements, undertake promotional programs
in target export markets, conducts exporter training for international trade, engages
in various export policy formulation and development activities and generates critical
market information for the country’s business community.
Te Board facilitates SMEs and other Ugandan companies’ participation in trade fairs,
arranges trade support missions, and conducts market studies and training for export-
ers amongst various activities to promote exports. It manages an Information Centre
for generation and dissemination of market information to SMEs. UEPB has mostly
been helping SMEs and the clusters in the handicraft and honey sectors.
i. Uganda National Chamber of Commerce and Industry (UNCCI)
Uganda National Chamber of Commerce and Industry (UNCCI) is the umbrella or-
ganization of the business private sector in Uganda. It draws its members from sev-
eral economic and social sectors including Industry, Trade, Agriculture, Tourism and
Services and Agricultural Processing. Tey have hosted international forums to create
market linkages, give business development grants, and capacity building support to
business community.
j. National Agriculture Advisory Service (NAADS)
Realizing the importance of agriculture to the economy and to place greater emphasis
on extension delivery, NAADS was established. NAADS mission is to increase farmer’s
access to information, knowledge and technology for proftable agricultural produc-
tion. Te NAADS programme operations are guided by Commercialization, Farmers
Empowerment, Fostering Farmers Participation, Increasing Institutional Efciency, as
well as Gender Mainstreaming. Trough Commercialization, the farmers are expected
to shift from subsistence through market-oriented production in the medium term
and ultimately to commercial production in the long term.
Farmer participation involves all categories of farmers identifying agricultural advisory
needs, setting priorities, formulating plans, and monitoring and evaluating outputs
and outcomes.
k. Uganda Investment Authority
UIA is a One-Stop facilitator for investors of various levels of investment foreign and do-
mestic, mandated by an Act of Parliament (1991) to attract, promote and facilitate invest-
ment. UIA assists investors at various levels to expediently implement their business plans.
As such, UIA markets Uganda’s investment opportunities to targeted investors all over
the world, coordinates the national investment marketing program, monitors inter-
national investment trends and serves as the frst and most comprehensive point of
contact for investors in Uganda.
Among the services rendered to SMEs by UIA include but not limited to,
71
i. Helping SMEs to implement their project ideas through professional training and advice
and assistance in locating relevant project support services;
ii. Assisting SMEs in seeking joint venture partners and funding;
iii. Ensuring protection for intellectual property and trade secrets where technology transfer is
involved;
Te following clusters have benefted in one way or another from the above initiatives;
Katwe metal Fabricators, Jinja maize-millers, Luwero Basketry and handicrafts, Textile
and garments, Lira bee keepers, etc.
3. Discussion and specifc areas of focus
(i) Tere is need to create strong institutional linkages at various levels. Networking is
one of the most important infrastructures in cluster development. Te academic insti-
tutions should seriously support the benefciaries of the above programs in technology
evaluation, management support and consulting services.
(ii) Marketing assistance for exportable products are being extended by the Ministry
through holding trade fairs and exhibitions or supporting potential frms to attend the
major exhibitions locally and internationally.
(iii). Te Ministry is developing the Standards and Quality Policy that will give stra-
tegic guidance in product standardization and certifcation. However, the UNBS and
UEPB are there to facilitate and do the necessary measures in respect to Standards and
quality control, and marketing of the products internationally respectively.
(iv) Need to support for infrastructure development, (i.e. energy, transport, water, etc)
and the Public Private Partnership policy
(v) Strengthening of the Standards and testing laboratories infrastructure for industrial
competitiveness
4. Conclusions
• A Cluster initiative is an organizing mechanism, focusing on collaborative activities to
upgrade the cluster’s competitiveness
• Cluster initiatives are complementary to industry associations, and not competitors
• For transformation, all problems are well known what is required is to focus and address
them
• Emphasis should shift from strategic planning to strategic doing
• As the government and other support organizations are implementing the cluster devel-
opment in diferent programs and approaches, the role of the academia in development
of the cluster concept needs to be scaled up more to support research and innovation.
72
6. References
1. Government of Uganda (GOU)-“Budget Speech Financial year 2009/10” by the Ministry of
Finance, Planning and Economic Development.
2. GOU-“National Industrial Policy 2008” by Ministry of Tourism, Trade and Industry
3. GOU-“Ministerial Policy Statement 2009/10” by the Ministry of Tourism, Trade and Indus-
try
4. Ministry of Finance, Planning and Economic Development, Competitiveness and Investment
Climate Strategy (CICS), 2006-2010, December 2006
5. Ministry of Finance, Planning and Economic Development, Poverty Eradication Action Plan
(PEAP), 2004/5 – 2007/8, December 2004
6. UNIDO, Uganda Integrated Industrial Policy for Sustainable Industrial Development and
Competitiveness, 2006
73
4.3 Paper III
Transferring Best Practices for Uganda Technological Innova-
tion and Sustainable Growth
Joshua Mutambi, Joseph. K. Byaruhanga, Bernard K. Buhwezi, Lena Trojer, Peter Okidi-Lating.
Abstract
Uganda, like many other African countries has not been developing primary science,
technology and innovation Indicators and to make them accessible to public and pri-
vate sector decision makers for social economic development and investment purposes.
Indicators have not been given serious attention as engines of long-term development.
Tis paper reports the results of a research undertaken to develop a set of relevant sci-
ence, technology and innovation Indicators for Uganda. From a population of 7,336
frms, 300 frms were sampled for innovation surveys and 200 institutions for the Re-
search and Development survey. Te data collected were represented in tables and was
grossed up. Data entry was taken in CSPRO and the analysis was done using STATA
statistical software
Tere is a global perception that businesses in developing countries like Uganda are
generally dominated by Small and Medium enterprises; and that is where most in-
novations were happening. Tis paper will discuss the core indicators of Research and
Development (R&D) and Innovation; the empirical data of the state of Uganda’s Sci-
ence, Technology and Innovation Indicators. Te paper further explores the potential
benefts and the best practices in incubation process.
Te major conclusions are; prioritizing science and technology policy will create more
opportunities and build capabilities for innovations and technology. Te monitoring
of industry, government and university R&D programs is crucial to successful policy
making and analysis.
Keywords: Business Incubation, Innovation Indicators, Research and Development In-
dicators, Triple Helix, Uganda
1 INTRODUCTION
1.1 Background
Uganda is an agro-based land locked small open economy country with a population
of about 30 million people. With its endowment of natural resources and salubrious
climate, Uganda’s industrial profle is still dominated by agro-industry and not innova-
tion led. However, the government is aggressively promoting value addition, competi-
tiveness and industrialization as whole. Both theoretical and empirical literature shows
that a high degree of efciency in the industrial sector can contribute to increased
74
production, product innovation, high value manufactured exports and high foreign
earnings. It is through industrialization that wealth can be created and higher incomes
realized from natural resources and raw materials transformation. Tis requires a set
of core competences such as skilled human resource, technology, access to fnance and
infrastructure which enable competitive transformation of inputs into outputs (prod-
ucts or services) which can be traded in markets. Technology ofers the possibility for
increased quality, productivity, speed to market and the potential for satisfying unmet
human needs.
1.2 Measuring Science, Technology and Innovation Indicators
Innovation is not a one way sequence unleashed by scientifc development only, but
rather an interactive process that largely exceeds the boundaries of formal R&D activi-
ties. Innovation requires talent and talent is mobile which can be attracted anywhere
in the world. Te development of new information and communication technologies
(ICTs) opens up unprecedented opportunities to ensure universal and access to scien-
tifc data and information to enhance the global knowledge pool. Tis new perspective
of innovation process is well captured in the so called “Open Innovation” according to
Chesbrough (2003).
Evaluations and policy-relevant assessments are based on relatively sophisticated com-
binations of statistics on R&D and innovation, such as various input, output, and
process indicators. With the recently developed National Development Plan (NDP),
2010 for Uganda and her Vision of ”A transformed Ugandan society from a peasant to
a modern and prosperous country within 30 years”, Uganda’s industrial development can
be best assessed when put in the context of global trends. Achieving the NDP strate-
gies, the New Economic Partnership for African Development (NEPAD) Consoli-
dated Plan of Action, etc. involves focusing on performance of outputs, outcomes and
impact. Te comparison can be disconcerting but without a reality check it is hard to
appreciate what is at hand and the remedial strategies required.
1.3 Problem Statement
Science, Technology and Innovation Indicators are crucial for monitoring global sci-
entifc and technological development trends. Indicators are useful for formulating,
adjusting and implementing STI policies. Uganda like many other African countries
has not been developing primary science, technology and innovation indicators and to
make them accessible to public and private sector decision makers for social economic
development and investment purposes. Without indicators, little will be known about
R&D activities, status of innovation, performance and position of the state within lo-
cal and global markets will be missing
75
1.4 Main Objective
Te purpose of this research was to develop and establish a set of relevant science, tech-
nology and innovation indicators for Uganda. It will make important contributions
to both intellectual understanding and broader practical developments for STI policy.
2. METHODOLOGY
2.1 Study Approach
Te survey followed the Frascati Manual Guidelines and Oslo Manual developed by
the Organization for Economic Co-operation and Development (OECD). Te survey
was carried out through interviews in the form of questionnaires for both qualitative
and quantitative questions. Te qualitative questions covered information about prod-
uct and process Innovation as well as organizational and marketing innovation, source
of information and partners in R&D and innovation activities. Te quantitative ques-
tions covered the basic economic information of the institution or business, the expen-
ditures, number of personnel, the outputs and sales, among others. Tough the survey
was both qualitative and quantitative, the paper has focused on the quantitative results.
A population of 7,336 frms for the survey, covered years 2006, 2007 and 2008.
2.2 Sampling Method
Te sampling frame was the VAT register, formal sector. Te average annual turnover
was the stratifcation variable for size. Te sample for R & D had a sectoral coverage of
9 sectors: Agriculture and Fishing; Mining and Quarrying; Manufacturing; Electric-
ity, gas and water; Trade; Transport; Finance and Insurance; Real estate and business
services; Community, social and personal services.
A total of 300 businesses were sampled for Innovation surveys while a total of 200 in-
stitutions including, Government, NGOS, Higher education & Research Institutions,
and business sector/Private companies were sampled for the R & D survey.
For Government both budgetary and non-budgetary institutions were sampled.
2.3 Data Collection
Tree diferent questionnaires were designed to cover the following;
Business, Government, NGOs and Public Institutions, Universities and Research In-
stitutions for Research and Development survey. For Higher institutions of learning
questionnaires were administered to specifc selected faculties in both public and pri-
vate universities; and research Institutions.
Te approach to measuring innovation and Research and Development indicators was
based on empirical survey results from public and private sectors and academia with
76
structured questions including size of the frms, technological innovation, expenditure
on R&D, source of funding, researchers by sector and factors constraining innova-
tions. Stakeholder workshops were also conducted in 2009/10.
2.4 Data Analysis
Questionnaires were checked for completeness and consistence and information was
requested from respondents where further clarity was required.
Data entry was taken in CSPRO and the analysis was done using STATA statistical
software.
Te data collected were represented in tables and was grossed up. Once data was ana-
lyzed, it was matched with the available data from other administrative data sources
and this was the frst major innovation and R&D survey in the country.
3. RESULTS
Te following paragraphs summarize the results of the investigation through surveys.
(a) Innovation Survey Indicators
(i)Number of Innovative frms by employment size
Table 3.4: Number of Innovative frms by employee size
Employment Size Innovative Firms Non-innovative frms
2006 2007 2008 2006 2007 2008
Between 1-9 904 996 936 674 396 316
10 - 49 928 952 1,103 1,375 1,447 1,813
50 - 249 382 489 526 1,614 1,713 505
>250 108 110 110 0 52 182
(ii) Percentage share of frms that introduced innovations and performed
R&D among innovators
Table 3. 5: Percentage share of frms that introduced innovations and performed R&D among innovators
Product In-
novation
Process
innovation
Service In-
novation
Performed
R&D
Percent share of frms that introduced 28.2 7.5 11.8 9.5
(iii) Totally new to the Ugandan market (product, service and process) by
year
77
Table 3. 6: Percentage share of frms that introduced totally new to the Ugandan market and their
turnover by year
Year 2006 2007 2008
Share in percentages 45.3 50.2 68.4
Percentage Turn Over (UGX)
of Innovative businesses 53% (out of 1.6 bn) 48% (out of 2.8bn) 60% (out of 2.5bn)
(b) Research and Development Survey Indicators
(i) Gross Domestic Expenditure on R&D (GERD) as an Indicator of R&D
Activities-in Uganda (2007)
Table 3.7: Gross Domestic Expenditure on R&D (GERD) as an Indicator of R&D Activities-in Uganda
(2007)
Total
Business
Sector
(BERD)
Government
Sector
(GOVERD)
Higher
Education
(HERD)
Private Non-
Proft (PNPERD)
incl. donors
(GERD) by Sector of
Performance 359.8 14.8 165.5 179.5 -
Percentage Shares 100.0 4.1 46.0 49.9 -
By Source of Funding 100.0 4.2 37.1 46.0 12.8
Researchers by Sector of
Employment 100.0 5.0 50.2 45.0 -
R & D personnel by Oc-
cupation Total (HC) 1768 89 889 790 NA
(ii) GERD by Type of R&D:- Basic Research 10.2%, applied research
59.3%, Experimental research 30.5%
4.0 DISCUSSION
Survey results and analysis revealed that Uganda needs to do much more in supporting
research and technological innovations. Uganda is grossly defcient in technology and
lacks adequate indigenous capability of technological masterly. Tere has been little
attention paid to the generation of minimum level of indigenous technology necessary
to absorb technology from foreign sources and adapt them to gain comparative advan-
tage in the market. Observed also is cultural defciencies in entrepreneurship, low level
of competitiveness, concerted policy making eforts notwithstanding. Tere are other
bottlenecks that must be addressed, like inadequate infrastructure, limited access to
credit, weak industrial support institutions, etc (GOU, 2008)
78
In respect to measuring science, technology and innovation indicators, there are now
many indicators of activities such as, knowledge creation (R&D performance and
funding), knowledge transfer (invention, innovation,), knowledge use (difusion of
knowledge, technologies and practices), and knowledge infrastructure and governance
(the development of human resources for all of these) (NEPADOST, 2006).
Te common core indicators of Research and Development are: (i) Researchers (head
count); (ii) Gross Domestic Expenditure on Research and Development (GERD) ac-
tivities by source of funds, performance sectors and type of research; (iii) R&D per-
sonnel by level of qualifcation and function (iv) Researchers by gender and feld of
study; (v) Government, higher education and business enterprise expenditure on R &
D (OECD, 2002)
Te core indicators of innovation include: frm general information; product and proc-
ess innovations; organization and marketing innovations; innovation activities and ex-
penditures; sources of information and cooperation; efects of innovation and factors
hampering innovation activities; and intellectual property rights (OECD, 1997)
Comparing the innovative performance with respect to the employment size as in Ta-
ble 3.1and 3.3, as a general observation most innovative frms had fewer than 50 em-
ployees according to the survey. Tere is a global perception that businesses in develop-
ing countries like Uganda are generally dominated by Small and Medium enterprises
Some of the countries such as those in North and South America, European Union,
China, Asian tigers, and South Africa that have promoted Research and Development,
incubation and growth of innovative frms, have realized the benefts of technological
innovation, science and technology development. Tis can be observed in the World
Economic Forum reports, the Global Competitiveness Index reports, and the NEPAD
Africa’s Science and Technology Consolidated Plan of Action of 2005.
Uganda, although the results are still low, it is progressively increasing support to sci-
ence and technology development. Tis can be explained by the number of foreign
direct investments that has increased in Uganda since 2005, and also by the govern-
ment’s policy on liberalization and improvement of the conditions of doing business
in the country and the recently support from the government to research and develop-
ment as indicated in Table 3.4.
With respect to R& D indicators in Table 3.4, such as No. of R& D personnel agrees
with the data given by the Uganda National Council of Science and Technology; and
United Nations Educational, Scientifc and Cultural Organization (UNESCO), in
S&T database 2007 indicated that GERD as %age of GDP for Uganda was in range
of 0.00- 0.25; Researchers per million inhabitants was between 0 – 100. , As reported
by the World Economic Forum, Uganda has some good scientifc research institutions
geographically concentrated in and around Kampala
Also from the data, in the Ugandan situation, the product and service innovators share
of frms was found higher than the share of frms that introduced process innovation.
Tis analysis concurs well with the Global competitiveness Index 2007 where Uganda’s
79
economy was ranked fairly well in innovation (position 73,) and in market efciency
(position 85). (Wagner et al, 2008).
In respect to transferring best practices, traditionally Uganda’s universities were in-
volved in education and basic research, but have recently become engaged in sup-
porting business development activities, such as business/technology incubators. To
increase entrepreneurial talent and support outstanding ideas, they have undertaken
curriculum development for courses on entrepreneurship, coordinated business plan
competitions as well as providing entrepreneurial outreach programs. Tis is part of
triple helix in problem identifcation, solving and strategic brokering that characterize
technology transfer, collaboration and open innovation.
To guide government support measures, the most relevant policies in respect to tech-
nological innovation and industrial sustained growth that have been put in place
include; the National Industrial Policy-2008; Science, Technology and Innovation
Policy-2009; Trade Policy-2007; Energy Policy, harnessing and utilization of Informa-
tion and Communication Technology, Uganda has in addition adopted the African
Science, Technology and Innovation Indicators Initiative under African Union coordi-
nated by the New Economic Partnership for African Development (NEPAD).
Based on the defnition of Open Innovation “that valuable ideas can come from inside
or outside the frm and can go to market from inside or outside the frm as well as they look
to advance their technology” (Chesbrough, 2003), to foster innovation and promote en-
trepreneurship development in business incubators for open innovation, the potential
benefts are from: interactive and dynamic capabilities through knowledge, technology
and market exchanges unbounded and at low cost from users, employees, suppliers,
customers, researchers, etc. New knowledge, skills and services will be incorporated
and difused in a more signifcant way. Diferent frms during the survey had difering
capabilities for interaction and this resulted into minimizing the risks, maximizing in-
novation outcomes, skills enhancement, and collaboration
Business incubators relate to internal and external logistics, commercialization systems
and support services which respond to requirements of job creation, improved produc-
tivity, rapid product introduction, entrepreneurial development, industrialization and
economic development.
Te study shows that the best practices in incubation process includes but not limited
to; selecting good location and planning functional buildings; building a dedicated,
trained management team; selecting potential entrepreneur tenants; identifying strong
sponsors; mobilizing investments for incubators and tenants; Adding value through
quality services for tenant companies; creating strong linkages to professional and busi-
ness communities; monitoring performance and assessing impact; and a clear mission
and strategic planning for the future.
80
5. CONCLUSIONS
From the research fndings and analysis, it can be concluded that this aim of develop-
ing indicators has been achieved and can be improved upon by a series of other sur-
veys. Te information compiled can be used to improve the existing policies and STI
strategies. For Uganda to build incremental domestic technology capacity and local
innovators,
• it will rely on the development of a robust public-private partnership domain for suf-
fcient funding.
• Adopt best practices in technology transfer, such as the use of indicators, and the reports
to cover indigenous innovation status as well
• To improve on the awareness and the quality of the data for international comparisons,
publish and disseminate the results
• Tere is need for adequate fnancial resources for technical, statistical and analytical
capacity and tools to aid planning, management and monitoring of the sector based on
sound evidence. It will also be possible to jointly monitor and analyze the relationship
between R&D, innovation, productivity and other dimensions of frm performances.
6. REFERENCES
Chesbrough, H. (2003), Open Innovation: Te New imperative for Creating and Profting from Tech-
nology,. Boston: Harvard Business School Press, 2003, ISBN: 1-57851-837-7.
Gault, F. (2008), Science, Technology and Innovation Indicators: Opportunities for Africa, African
Statistical Journal, Vol. 6, 141-162.
Government of Uganda, (2008), National Industrial Policy: A framework for Uganda’s transforma-
tion, competitiveness and prosperity, Ministry of Tourism, Trade and Industry
Chesbrough, H., Vanhaverbeke. W. and West. J, eds. (2006), Open Innovation: Researching a New
Paradigm. Oxford: Oxford University Press,. ISBN: 0-19-929072-5.
NEPADOST, (2006), African Science, Technology and Innovation Indicators (ASTII) Towards African
Indicator Manuals: A Discussion Document Summary
Organization for Economic Cooperation and Development, (2002), Frascati Manual: Proposed
Standard Practice for Surveys on Research and Development, Paris: ISBN: 92-64-19903-9.
Organization for Economic Cooperation and Development/Eurostat, (1997), Oslow Manual:
Proposed Guidelines for Collecting and Interpreting Technological Innovation Data. Paris and
Luxembourg:
Te World Economic Forum: Te Global Competitiveness Report 2010
Te Republic of Uganda, (2010): National Development Plan, 2010-2014: Ministry of Finance,
Planning and Economic Development-
Wagner, C. S., Farley, S.E., (2008), Science & Technology for Growth and Development: From
Case Studies to Policy for African Countries, SRI International Technical Project Final Report
(P18045)
81
4.4 Paper IV Research on the State of Business Incubation
Systems in Different Countries: Lessons for Uganda
Joshua Mutambi, Joseph K. Byaruhanga, Lena Trojer, and Kariko B. Buhwezi
Abstract
Small and Medium sized enterprises have proven to be capable of catalyzing national
economies owing to their high growth potential, their role in promoting innovations,
employment creation and economic development. However, in the early days of their
growth period, these frms face difculties that may lead to their failure. Business incu-
bation has been identifed as an efective growth mechanism for such entrepreneurial
frms. Tis paper mainly looked at the concept and description of business incubation,
development process and contribution of incubators to start-up frms. It examined the
impact to regional entrepreneurship and economic development globally. Te paper
concluded by highlighting the existing incubators in Uganda and identifed recom-
mendations for strengthening the business incubation in Uganda.
Keywords: Business Incubation Systems; SMEs, Entrepreneurship; Industrial Develop-
ment, Least Developed Countries, LDCs, Sub-Saharan Africa
JEL Classifcation: O55, O14, M13
1. Introduction
Small and Medium Enterprises (SMEs) have more signifcant role in improving eco-
nomic growth and industrial development of nations by contributing to the creation
of employment, income generation opportunities and wealth, promotion of entrepre-
neurship and enhancing of exports. Tey constitute an important dimension in the
innovation process (Beal, 2003; Hammer et al., 1997; Byaruhanga, 2005; Tirthankar,
2007). Te paper’s discussion is informed by reviews of relevant publications, work-
shop reports, survey reports and stakeholder discussions in respect to the contribution
of SMEs, and how they could be enhanced to sustainable growth through business
incubators that have received considerable attention in the world.
Te SMEs in the Least Developed Countries (LDCs), where most of the Sub-Saharan
African countries fall, producing products and services with moderate quality, ap-
plying low level technologies and faced with other obstacles have been facing tough
competition with the imported products. However, globalization has opened up new
businesses and market opportunities. In case of African and particularly the Sub-Saha-
ran countries, the regional integration process through various groupings such as the
Common Markets for East and Southern Africa (COMESA), Southern Africa Devel-
opment Community (SADC) and the East African Community (EAC) have expanded
and strengthened the linkages with the global economic structures and processes (UN
OSAA, 2009)
82
Within rural and semi-urban areas, there often exist signifcant pressures to start new
businesses, adopt new technologies, and produce products that conform to standards
required by the markets and to those established by the regulatory authorities. How-
ever, small and new businesses have several disadvantages that hinder their success.
Tey have difculties in securing the resources they need for survival (Ferguson and
Olofsson, 2004). Because of this, over 80-90% of the new businesses started each year
fail worldwide within the frst fve years of operation (Aerts et al., 2007).
Incubators have been considered as a remedy for the disadvantages that small and
new frms encounter by providing numerous business support services, and they are
useful in fostering technological innovation, entrepreneurship, commercialization and
industrial renewal. For these reasons, most countries have increasingly been engaged in
establishing incubators (Akcomak, 2009).
Tis research paper addresses the following questions:
(1) Discuss the conceptualization and theory of business incubation
(2) What are the experiences and performance impacts of business incubators in diferent
countries?
(3) What lessons can be learnt from the developed countries by the Least Developed coun-
tries, particularly for Uganda
Te paper emphasizes Uganda which is situated in a region that includes some of
Africa’s most economically important countries but also a member of the Least De-
veloped Countries in the Sub-Saharan Africa as a case study. Uganda is a member
of EAC common market, COMESA, WTO and other international bodies. Uganda
today has a great potential to become the key investment and business hub in the East
African region. As new challenges and demands are derived from global economic
competitiveness, an understanding of business incubators and opportunities is critical
to provide future direction for the incubation process, required services and desires of
entrepreneurs in Uganda.
Due to the key structural constraints to Industrialization in Uganda, the role of the
State in these circumstances is still very vital as lessons learned from the developed
countries (UNCTAD, 2009). Industrialization ofers prospects for the expansion of
employment and income. At the same time, it helps to create the idea on the innova-
tion and better technology changes that brings production improvement thereby ac-
celerating the growth of productivity and quality. A new industrial policy for Uganda
was therefore enacted in 2008 which is attuned to the needs of domestic enterprises,
more cognizant of the need to build linkages with Trans National Corporations and to
leverage untapped commercial opportunities produced by university research.
Te paper therefore is organized as follows: a section on entrepreneurship and indus-
trialization, literature review on business incubator’s historical development and objec-
tives; status of the business incubators and their impact in the World; the overview of
the attempt to establish incubators in Uganda and summary of the recommendations
and conclusions.
83
Methodology
Tis paper is a product of a study carried out on the literature concerning the devel-
opment of business incubators in the world from the published materials, text books,
conference presentations and the authors experience in Industrial policy formulation,
innovation systems and cluster development facilitating activities, and interactions
among the triple helix actors.
Entrepreneurship and Industrialization
Industrialization is both the process of building up a country’s capacity to convert raw
materials into new products and the system that enables production to take place.
Te issue of entrepreneurship and its relationship to the industrialization process has
long occupied the attention of development planners. In particular, the key role of
manufacturing industry for growth based mainly on technology driven increase of
productivity and some essential co-factors, like human skills, capital or appropriate
institutions is globally undisputed.
A recent international literature suggested that operating in clusters may help small en-
terprises to overcome their growth constraints (McCormick, 1999). Creating favorable
conditions for entrepreneurship does indeed help the process of industrialization, and
business incubation focusing on national/regional strengths through clustering and
networking is believed to help small enterprises grow and contribute to industrializa-
tion. Terefore small enterprise development has been linked to the industrialization
process (McCormick, 1999).
What is needed thus is to create favorable conditions to achieve the above objectives,
and facilitating entrepreneurs will contribute to industrial development which is a
key role of the developmental state. Te emergence of the cluster based development
strategy termed as “new innovation system” based on the cooperation among uni-
versities (research institutions), industry and government has been reported to have
brought a wide range of support services worldwide for development of knowledge
based businesses, with linkages to universities, research institutes, venture capital and
international joint ventures. Clusters afect competitiveness within countries as well as
across national borders (Porter, 1998).
Primarily, the capacity to access, adapt, disseminate and generate new technologies
that are crucial for start-ups and SMEs has to be based not only on industrial policy
but also other related and sound policies such as Science and Technology policies with
dynamic systems of national innovation in place.
Te tie between basic research, science and development can also be strengthened by
establishing University Incubators. Particularly the University Incubators can support
the potential entrepreneurs by providing a mentor, seed fnancing, networks and busi-
ness training. Te Universities can provide access to laboratories, high tech equipment
and highly educated specialists in order to commercialize academic research by devel-
oping products or licensing the technology (Becker and Gassmann, 2006).
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2. Literature Review
Teoretical Conceptualization and Objectives of Business Incubation Process
Te term ‘incubator’ was derived from the fundamental meaning of the term: Te
artifcial nurturing of the chicken egg in order to hatch them faster in a sheltered
environment. Te same hatching concept is applied to the incubating of companies;
it speeds up new ventures’ establishments and increases their chances of success. An
incubator thus hatches new ideas by providing new ventures with physical and intangi-
ble resources (Becker and Gassmann, 2006). Tey have been operated by community
development eforts or municipal organizations to fuel economic growth and job crea-
tion through government funding since the 1960s.
Business incubation concept rests on the argument that if weak but promising new
businesses with a potential of growing into successful ventures can be identifed at an
early stage and helped, failures, loss of resources can be reduced and more ideas can be
developed (Hamdani, 2006).
During the past 3 decades, States, regions and cities have initiated economic develop-
ment programs aimed at: (1) maintaining industries and frms, (2) recruiting estab-
lished frms from other areas, and (3) creating new industries and enterprises. With
respect to the third objective, there has been a proliferation of business and technical
assistance programs aimed at increasing the formation, survival, and success rates of
small and medium sized enterprises. Tese include Small Business Development Cent-
ers, Small Business Institutes, Enterprise Forums, University-based entrepreneurship
centers, special programs ofered through Chambers of Commerce, Business incuba-
tors and so forth (Rice, 2002).
By comparison, business incubators ofer the opportunity to deploy multiple modes
of assistance, including continual interaction, because companies and the incubator
staf are co-located in the same facility. Te spectrum of services ofered by an incuba-
tor is extremely varied, including strategic business planning, administrative services,
technical assistance and guidance on issues of intellectual property, (particularly in the
case of technology incubators), to connect with fnancing and networking activities,
to infrastructural facilities, etc. (Nolan, 2002; Lalkaka, 1997; EC-CSES, 2002; Sun et
al., 2007).
Business incubation is a globally well-tested over 50 years systematic approach with
diverse objectives primarily aimed at growth-oriented start-up enterprises to help them
grow with the efcient use of business resources, to become sustainable and com-
petitive companies. For example, according to (Nolan, 2002; EC-CSES, 2002; GBIN,
2009) these very diverse objectives include:
1. Generating employment;
2. Commercializing ideas and university research with spin-of companies;
3. Development of entrepreneurial culture and supporting innovations in communities;
85
4. Upgrading the technological standing of frms in a given locality;
5. Encouraging young graduates to create their own businesses;
6. Improving survival rates for new start-up businesses;
7. Development of new industry sectors and economic diversifcation;
8. Expanding the supply of infrastructure;
9. Empowering the socially disadvantaged groups;
10. Creating export revenues, and;
11. Increasing competitiveness of an existing sector.
Conceptually “Incubation” is a more diligent and planned process to strengthen clus-
tering or co-location of frms and therefore needs a careful attention to the problems of
the prospective occupants, extending well beyond providing infrastructure and ofce
services. Business incubation is a process enacted by business incubators, angels and
venture capital organizations in order to facilitate the entrepreneurial process (Hackett
and Dilts, 2004).
In 2009, of the total 7,000 worldwide, the numbers in industrializing countries are
more than half the total, especially in China, Korea, Taiwan, Brazil and Mexico. In
Europe, the majority are in Germany, France and U.K. While incubators in industrial
countries serve a variety of objectives, those in the industrializing countries are pre-
dominantly focused on technology (Lalkaka, 2009). Majority of the Least Developed
Countries’ incubators aim at fostering entrepreneurship, innovations and value addi-
tion (manufacturing) in promoting industrialization (UNCTAD, 2009).
Historical background of Business Incubators in the World
Over the last 50 years, business incubators have evolved in diferent ways .Te frst
incubator was established in 1959 in Batavia, New York in the United States, but until
the 1970s’ this concept was unique (Wiggins and Gibson, 2003; Hackett and Dilts,
2004). Since the frst incubators were founded in the late 1970s and early 1980s (the
so called “First generation” or “traditional incubators” (EC-CSES, 2002) was charac-
terized by a strong “real estate” component), the main objective has been and still is to
nurture entrepreneurial start-ups that will grow rapidly, create wealth and employment
and contribute to local and regional economic development.
86
Figure 4: Te Evolution of Business Incubator Model
Source: EC-CSES (2002)
Te earlier incubators focused their eforts on new technologies, light manufacturing
and services. Later, the “Second Generation” of incubators in the 1990s added on
counseling, skills enhancement, networking services, management, access to profes-
sional support and seed capital. However, as the industry has matured, the types of
businesses incubated have signifcantly broadened (Wiggins and Gibson, 2003). Te
coming of the knowledge-based business incubators in the late 1990s and increasing
importance of universities in incubation, resulted into strong development of what
analysts have termed as the “Tird Generation” of business incubators heavily technol-
ogy oriented. From these humble beginnings, the incubator industry has matured into
an international economic- development tool. Figure 1 shows the evolution of busi-
ness incubation.
Tere are several defnitions and approaches to business incubators available in aca-
demic literature and many have been adopted by Industry Associations and Policy
makers in diferent countries refecting local cultures and national policies. Most of
them are characterized by a specifc physical location and co-operation between pub-
lic and private sector institutions in the form of actions essentially aimed at building
bridges between academia and industry, promoting innovation in small and medium
enterprises (SMEs) and encouraging investment in technology –based start-up frms.
A description of activities the incubators perform according to (UN-CE, 2001; EU-
CSES, 2002; Scaramuzzi, 2002; Hamdani, 2006; Rumen 2009; Akcomak, 2009;
Chandra, 2007; Lalkaka, 1997; Zedtwitz and Li, 2004; Hackett and Dilts, 2004)
defne that incubators:
1970s
Early 1980s
Mid 1990s
Late 1990s
Managed
workshops
Enterprise
Agencies
Industrial estates
Business
Centers
Business Incubator
Concept
Science
Parks
Multi Purpose incubators
Specialized Incubators
Technology
Incubators
Incubators without
Walls
Sector
specific
incubators
New Economy
Incubators
Virtual
Incubators
87
• Provide secure, afordable, fexible, well equipped physical space including communica-
tion infrastructure ;
• Provide professional, business, management, and technical consulting (in areas where
they don’t have the relevant knowledge and expertise) services together with access to
seed and working capital, public grants, loan fnancing, venture capital, and R&D part-
nership funding, and state equity fnancing;
• Are often associated or connected with institutions such as universities, research
institutes, communities, consortiums, government administration councils, and Non-
government organizations;
• Create an interactive community of entrepreneurs, academic and business interests that
stimulate and encourage the sometimes fragile incubation process, including the disad-
vantaged population, and fnally;
• Te most important element that identifes, incubators from the rest of similar establish-
ments is that it provides high level business support/management services under one
roof for entrepreneurs and new ventures that have medium and high level technological
focus to create synergy (Akcomak, 2009). Te environment within the incubator created
through the interaction between the incubator managers and incubatees, and among the
incubatees themselves is seen by majority writers as a very important facet of incubation.
Chien, (2007) described a business incubator as an innovative development tool of
human resource development (HRD) used to foster growth and diversify the venture
base. Human resource development; networking and knowledge acquisition, adapta-
tion and dissemination that take place within enterprises, universities and research in-
stitutions supplemented with appropriate policies will lead to the business incubators’
importance in attainment of their objectives.
Te general defnition of business incubator by the National Business Incubation As-
sociation is
1
:
Business incubators nurture the development of entrepreneurial companies, helping them survive
and grow during the start-up period, when they are most vulnerable. A business incubator’s main
goal is to produce successful frms that will leave the program fnancially viable and freestanding.
Te most common goals of incubation programs are creating jobs in a community, enhancing a
community’s entrepreneurial climate, retaining businesses in a community, building or accelerating
growth in a local industry, and diversifying local economies.
Development and efective management process of business incubators
In the 1980s, many industrialized countries and industrializing countries created busi-
ness incubators in hopes of stimulating jobs, technology transfer and economic de-
velopment in their communities; some have been successful while others the success
has been slow or not there at all. Tis has been due to a variety of factors; such as dif-
ferences in regional characteristics, the policy and regulatory environment, economic
factors in play, diferent stakeholders involved, culture and attributes of the incubator
frms, the vision of the incubator and the mode of management.
Chien (2007) study concluded that there is a relationship with the role of HRD in
the incubator management and the efectiveness of incubator development to fulfll
88
its goals. Confronted with lack of trained personnel and expertise in managing various
stages of the change more research to study the success rates and to analyze the failures
has been done. In countries with efective institutional environment, good policies and
organizational mechanisms, a lot more successes of incubation systems has been real-
ized as will be discussed in later sections.
Like any other business, the success of business incubators depends on the incubator
development, fnancing, efective management and performance process, and among
the important factors in successful management of incubators is the cooperation
among variety of stakeholders (incubation network system). However, the role of man-
agement is far more than provision of workspace in the facility; it involves all types of
support that would help the frms to fourish including facilitating employees training
in specialized techniques and linkages with support institutions such as university ties.
Terefore, the mission and vision of the incubator and how it will be implemented by
incubator management is very important. Te driving force in incubator programs is
the supply of expertise, capital, and support that comes from assistance activities di-
rected towards flling the voids in entrepreneurs’ abilities. Tus, the development and
performance of incubators is important to entrepreneurs. Management of incubators
can afect the frms’ survival and growth.
In general, there are two groups of incubators: proft (these incubators help the start-
ups by ofering rental space, capital, fnancing solutions, and business mentoring etc.
at subsidized rates) and Not for - proft (these incubators are set up by public and
non public-organizations that wish to promote businesses in an area, a specifc indus-
try, economically empower the disadvantaged or to promote the entrepreneurial spirit
(spin-ofs) at a university or research institute.).
Business incubation is a cross-cutting process embracing a range of components in-
cluding business and entrepreneurial support and fnance. Te model is as shown be-
low:
In developing countries and especially in Sub-Saharan Africa, business incubators can
provide the following opportunities;
• Provide entry into business and fnancial networks (connections)
• Create a regional “critical mass” for rural development
• Build upon existing entrepreneurial resources
• Build upon existing programs for small businesses
• One stop-shop for technical management, fnancial assistance and improved worksite
89
Figure 5: Business Incubator Model
Source: EU-CSES (2002)
Research on incubators defnes the incubation process as comprised of three stages Pre-
incubation, the incubation stage and the post – incubation. Since the aims of incuba-
tors are to foster innovative enterprise development, and can be successfully focused on
creating competitive enterprises with high job creation potential, regardless of whether
or not the business concept is innovative, they can serve as important levers to forge
positive change that creates a more enabling environment for innovative entrepreneurs
across the economy.
However, the best way of achieving the intended objectives, is to have more communi-
cation within the incubator management and tenant entrepreneurial frms. It requires
active linkages between fnanciers, academia, policy makers and the business commu-
nity (Incubation system). More focus also should be on the entrepreneurial incubation
process and the outcome. Tis has thus resulted in the need to consider HRD
2
as an
important part of the incubator management and development process, and in the
process of technological innovation human resource development plays a signifcant
role in improving the efectiveness of management technology and in achieving or-
ganizational objectives (Chien, 2007; Wang and Zang, 2005).
Graduation
Regional Dimension
Effectiveness
Inputs Process
Output
s
Incubation
Stakeholder
objectives
Management
skills
Finance
Projects
Sustainability
Efficiency
Relevance
Impacts
Target
market
Admission
criteria
Exit
criteria
Utility
Training
Busines
s advice
Financial
support
Technology
support
After care
Physical space Networking
Additionality
Displacement
Indirect
effects
Net
Impacts
Operational Dimension
Impacts
s
90
Signifcance of Business incubators
Looking at the role of incubators in the entrepreneurial process, Wiggins and Gib-
son (2003) argued that incubators must do fve things well in order to succeed. (1)
Establish clear metrics for success, (2) provide entrepreneurial leadership (3) develop
and deliver value-added services to member companies (4) develop a rational new
company selection process (5) ensure the member companies gain access to necessary
human and fnancial resources.
While innovation is considered by many as the foundation of growth, the innovation
process in the Least Developed Countries follows a diferent pattern. It is not a per-
fected or a common occurrence. Learning and innovation may arise from a variety of
sources, such as research and development (R&D-which is codifed knowledge), tacit
learning –by-doing, investments in new machinery and equipment, technology sup-
pliers, mobility of labour etc. For many low –income economies, especially the Sub-
Saharan Africa, however the opportunities for industrial learning have been limited
compared to the developed market economies where frms are heavily supported by a
dense array of institutional support institutions that buttress institutional learning on
a continuous basis (UNCTAD, 2009).
By establishing business/ technology incubators and linking them to cluster initiatives,
it will stimulate networking among frms, especially with frms located close to each
other. It will also enhance university –industry collaboration via university incubators.
In establishing linkages and collaboration with other frms or institutions, frms can
outsource knowledge and technology.
Terefore, promotion of incubation as the essential tool in cluster development makes
sense, as cluster development strategies can consider the adequacy of available facilities
for the development of identifed clusters. Te availability of work premises and busi-
ness support services for potential entrepreneurs and expansion of existing businesses
is an important component of maintaining the long-term success of a cluster.
3. Status of Business Incubators and their Impacts in the World
Te long term evolution of incubators has revealed that the concept evolved from a
simple tool for economic development into a high-tech, sector specifc and increasingly
proft-oriented tool to promote entrepreneurship. It is now an accepted practice across
the world both for established economies and emerging economies. Te European
Union countries, Asia and pacifc countries, Middle East countries, North and South
America, including African countries are implementing business and technology incu-
bation programmes. Te business incubator impacts are the longer term consequences
of activities, linkages and outcomes. Tese can be grouped into fve broad areas; (1)
launching sustainable businesses, (2) job creation, (3) taxes, (4) social impact.
3
91
North America
Te National Business Incubation Association estimates that North American incuba-
tor clients and graduates have created about 500,000 jobs since 1980. Even better,
for every 50 jobs created by an incubator graduate, about another 25 jobs are cre-
ated in the community. Incubator graduates create jobs, revitalize neighborhoods and
commercialize new technologies, which strengthens local, regional and even national
economies.
Te 1990s, witnessed further development of incubators throughout the United States
of America, for instance, in 1981, there were 8 incubators and by 2000, there were 900
incubators in the US (Peters et al., 2004).
Regarding start-up businesses, in 2001 alone, North American incubators helped more
than 35,000 start-up companies that employed nearly 82,000 workers and generated
annual earnings of more than $7 billion with 900 incubators (Sally Linder/NBIA,
2003) while In 2005, assisted more than 27,000 businesses that provided employment
of over 100,000 workers with over 1000 incubators in operation. Tere are 120 in
Canada, with 2,958 client businesses generated revenues at the end of the year 2005,
created full and part-time employment of over 13,000 people; the average survival rate
of companies in Canada that go through business incubation has been shown to be
higher than 80% after fve years (CABI, 2005).
Business incubation experience in other Regions
Incubators difered from the existing industrial parks and estates as the focus shifted
away from real estate development and subsidized rents to value added business serv-
ices.
European Union Region
Te EU started supporting the development of incubators in mid1980s as part of
its regional policy. Whilst initially EU focused on establishing incubators in ‘lagging’
regions, in recent years it works more on incubators as support for high knowledge-
intensive start-ups as part of the ‘Lisbon Agenda’ (European Union- Regional Policy,
2010). EU programs providing assistance to incubators include: the European Region-
al Development Fund (ERDF); European Social Fund (ESF); Leonardo Programme
mainly for training; Sixth R&D Framework Programme, and others.
Te existence of EU-wide support networks such as, EBN (European Business & In-
novation Centre Network), ‘Gates to Growth’, and ‘Science Alliance’ and the strong
National associations such as in, France, Germany, UK, Finland and Sweden efec-
tively promote the growth of business incubators.
Promoting incubation and growth of innovative frms is also singled out in EU2020
strategy, proposed by President Barroso, as one of the ways of creating value basing
growth on knowledge. Te Deputy Director General, Enterprise and Industry, Euro-
92
pean Union- Regional Policy, (2010) said “Business incubators have a long history in
supporting research and development based start -ups from academic and research
institutes.
Overall, Western, Central and Eastern Europe have a wide range of incubator models
with countries at very varying stages in the process of business incubation (EC-CSES,
2002) with a total of around 1,200 incubators generating over 40,000 gross new jobs/
per year. Te survival rate is relatively high, on average 85%, and 77% of all incubators
are not-for proft.
Tere are approximately 300 business incubators in UK that support a range of high-
growth technology businesses in sectors such as biomedical, IT, and the creative indus-
tries. In Sweden, there are a total of 55 business incubators (www.sisp.se). Many incu-
bators also ofer a “virtual” incubation service where advice and support is provided to
start-up businesses located outside of the incubator.
Latin America and Caribbean
Brazil is the leading country in the incubation business in Latin America as in terms of
number of incubators in operation and annual growth rate. Brazil is the fourth ranking
business incubation market in the world. Incubators in Brazil have witnessed meteoric
growth from just two in 1988 growing to nearly 400 in 2007 (Chandra, 2007). Other
countries like Mexico, Chile and Colombia followed the same. Table 4 shows the
growth of business incubators in Brazil.
Figure 6: Growth of Business Incubators in Brazil
Source: Chandra (2007)
Funding: Business incubators in Brazil are funded by the coalition of partners, govern-
ment, federal agencies and non-government sources. Te incubator initiative in Brazil
was started by the key individuals from the academia, industry and government. It is
93
today viewed as a hybrid organization that facilitates interaction between the triple
helix of university, industry and government spheres (Chandra, 2007).
Networking: Te existence of National Association of incubators and science parks
prays a key role in strengthening synergies in diferent kinds of incubators and by
encouraging participation from universities and research institutes while persuading
diferent entities to support incubators. Business incubators in Brazil provide the usual
raft of services, tangible and intangible with an emphasis on networking.
Te Asian and Pacifc Region
Te main goal of incubation systems in Asia was to promote continuous regional
and national industrial, economic growth through increasing employment, general
business development and to stimulate specifc economic objectives such as industrial
restructuring as well as wealth generation and utilization of national resources. China,
Japan, India, Korea, Malaysia, Indonesia and other members of the Asia and Pacifc
region embraced business incubation. Asia leads in establishment of Business incuba-
tors. Tere are over 1,500 incubators in operation in Asia alone. China alone has over
600 incubators compared to just over 50 incubators in India (15 of which are technol-
ogy Business incubators) and 100 incubators in the planning stage by the government
of India, Japan (200 incubators), Taiwan (70 incubators), Malaysia (20 incubators),
about 300 in South Korea and Australia (20 incubators) (Cho and Eunsuk, 2009).
Table 8: Growth of incubators in China
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
No. of
incubators in
China 80 77 110 131 280 436 466 489 534 548
No. of
tenant com-
panies 2670 4138 5293 7693 12821 23373 31385 33048 39,491 41,434
Total
employees
in tenant
companies 45600 68975 91600 128776 263596 414995 - - 720,000 792,590
Accumulated
number of
graduated
companies 825 1316 1934 2770 3994 6927 9,565 11671 15,815 19,896
Source: Zedtwitz and Li. (2004) and Min (2007).
94
Figure 7: Growth of Incubators in China
Te experiences and characteristics of incubation industry in China shows that; much
attention and great support from central government, pour strong drive to incubation
industry; Incubator has become an important carrier to build an innovation-orient-
ed country and the cradle to cultivate technology enterprises and entrepreneurs. Te
trend is that more companies are getting incubated as more incubators are established,
and the total number of employees increasing (Min, 2007). China further enhanced
capacity and fast development of national incubator facilities to over 600 incubators.
In Korea, another leading successful country in business incubation in Asia, the con-
cept has been a success because of the good policies on small and medium businesses
by the government, especially during the 1990s, when they needed to create jobs, re-
vitalize the local economy and develop national innovation systems (Cho and Eunsuk,
2009). 95% of the Korean Incubators are located on universities or research centers
and most of the start-up businesses, 71.1% are mainly in engineering or sciences felds.
Te total number of employees of incubators’ clients in South Korea was 22,538 in
2006 and increased to 22,982 by 2009 from 269 incubators with 4,532 business cli-
ents showing job creation efects. While, the total sales volume of the incubators’ busi-
ness clients were $2 billion in 2006, which increased to $2.3 billion in 2009, showing
the results of start-up policies.
Australia
Australia has a stock of about 100 business incubators in the public hands since they
were instituted in the 1980s.Tey represent a signifcant infrastructure and human
capital asset, backed by their local communities (BIIA, 2008). Te achievements of
business incubation in Australia since they started the industry include:
• 103 business incubators
• 3,500 graduated businesses
• A minimum of more than 10,500 full time equivalent (FTE) jobs have been created
95
In New Zealand, the growth in tenant frms exists since 2005/6 to 2009, was from
100 to 170 respectively, and the employment generated also increased considerably in
2008/9 reaching 1000 full-time equivalent (FTE) employees.
Africa
Compared to other regions of the world, business incubation is in its infancy in Af-
rica especially in the Sub-Saharan Africa and the opportunities for innovation and
entrepreneurial networking are not as developed as in regions with a longer history of
incubation, for instance America North, Eastern Europe, Asia and Pacifc, and Latin
America.
In Africa, according to the study carried by Irwin et al., (2009), 21 countries well
spread from around the continent have attempted to establish business incubators
of which many are providing business development services, sometimes described
as virtual incubation, rather than providing physical space. Te countries with their
percentages include; Angola (3%), Botswana (2%), Djibouti (2%), Ethiopia (6%),
Ghana (5%), Kenya (6%), Madagascar (2%), Mauritius (2%), Morocco (2%), Mo-
zambique (3%), Namibia (2%), Nigeria (13%), Rwanda (3%), Senegal (2%), South
Africa (27%), Sudan (5%), Swaziland (2%), Tanzania (5%), Tunisia (2%), Zambia
(2%) and Uganda (6%).
Te status of the managing incubators is mixed, which include the universities or
academic institutions, the government, the Non-government organizations and the
private sector. Te targeted business sectors include; Technology and manufacturing,
Agriculture and agro-processing, Sciences, and ICT. Te Cape Town-based Bandwidth
Barn has been in operation since 2000 and is today regarded as one of the leading ICT
business incubators in the world. Te Bandwidth Barn is a fully-owned subsidiary of
the Cape IT Initiative (CITI), a development and promotions agency for the ICT sec-
tor in the Western Cape.
Also according to the study done by the Economic Commission for Africa (Kamoun et
al., 2009) in selected 17 countries of North Africa and Southern Africa, a total of 18
incubators and 40 business incubators have been created. Te majority was located in
Tunisia, Morocco and Egypt where networks of incubators have been created.
Te Uganda experience
Te Ugandan manufacturing sector is not yet technology-intensive or innovation –led.
It is dominated by production activities that are standardized and require low technol-
ogy by global standards. However, Uganda’s economic framework strongly emphasizes
on public-private partnerships. New policies on science, technology and innovations,
national industrialization, and the overall national development plan refect the in-
volvement of the private sector and the push for the “triple helix” of government-
academia – industry collaboration.
96
In Uganda, attempts have been made to set up incubation centers since the post in-
dependence days, (1960’s) to provide support to SMEs, research and development,
innovation and learning activities, and nurturing start-up businesses. Universities and
Research institutions have also started to establish small business incubators as a way
to help spin-ofs business start-ups while providing laboratories for students and entre-
preneurs in which to experience the real world of business.
Te following are the traditional and the new establishments that are ofering incuba-
tion services:
(a) Te Uganda Management Training and Advisory Center (MTAC)
(b) Uganda Gatsby Trust (UGT)
(c) Uganda Industrial Research Institute (UIRI)
(d) Te Textile Development Agency (TEXDA)
(e) Te Presidential Initiative on Banana Industrial Development (PIBID)
(f ) Makerere University: (i) Faculty of Computing and Information Technology: Na-
tional Software Incubation Centre (NSIC); and (ii) Department of Food Science and
Technology: Te Food Technology and Business Incubator.
In all the above Ugandan incubation system, there are still main weaknesses such as;
insufcient business support services, inadequate physical and operational infrastruc-
ture, inadequate capabilities to exploit the opportunities in the emerging sectors such
as ICT, biotechnology and new materials, low level of private sector participation in
R&D activities and insufcient risk capital funding.
4. Conclusions and Recommendations
Te development of business incubator involves numerous stakeholders that have an
interest in the success of the initiative. Tenants occupy the incubators only temporarily
during the critical frst few years when high overheads, lack of business experience and
resources are faced in many new and small businesses. Human capital is core in pro-
moting incubators as it provides the capacity to create, innovate, and exploit new ideas.
• In keeping with global trends, to strengthen the small business environment by imple-
menting and promoting more explicit links between business incubation and a broader
portfolio of business growth and investment strategies will realize more benefcial efects.
• Te principal factor that contributed to European successful implementation of the
business incubation systems has been the development of national innovative capacity
and adoption of the regional innovation system model by states which assume that the
most fundamental resource is knowledge and most important process is learning and
that learning is predominantly an interactive social process. Hence, the need for Business
incubators to promote transfer of knowledge, creation of synergies and promotion of
entrepreneurship development and ultimately industrial growth
97
• Other strong factors that have helped advanced countries ( North American, European
and Asian) which other developing countries especially in Africa can learn from are; the
strong technological entrepreneurship infrastructure and the unique cultural and social
characteristics of the people, (i.e. entrepreneurship and the developmental state). In
other words, government support is indispensable.
• Te business incubation environments should be able to meet the needs of both female
and male business owners and entrepreneurs (gender perspective). Te right choice of
the location will speed up their further progress, they should be close to knowledge-
intensive areas surrounded by universities and research institutes or in science and
technology industrial parks.
• Tere is need to strengthen the public-private partnerships
artnerships can also help to promote new forms of fnancing and improve capacity building measures thereby
contributing to the sustainability of the incubatees.
• Tere is need for strong policy and strategic making that will lay very strong founda-
tion for incubation development in developing countries at national and regional levels.
A policy referring to a policy defned, understood, articulated and implemented at all
levels.
It is concluded that incubation success, especially in developing countries is the pivotal
wheel of industrialization and national competitiveness, which is the reason many
governments should pay attention with strong support. However, emphasis should be
put on management and operation of the incubators even with good infrastructure
and technical capabilities.
It can be further concluded that successful entrepreneurs and viable business ideas
come from all sources, from universities, corporations and the grassroots. Hence,
business incubators can contribute to stimulating more entrepreneurs to pursue their
dreams of creating their own company.
Notes
1
See their website: www.nbia.org
2
HRD is the integrated use of training and development, organization development, and
career development to improve individual, group and organizational efectiveness (Chien,
2007).
3
See: www.infodev.org.
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PART III
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103
Chapter 5 - DISCUSSION AND CONCLUSIONS
5.1 Brief Summary of the Papers
Paper I: Introduces the general business environment and the state of manufacturing
sector in Africa and Uganda in particular in the broader perspective of industrial sec-
tor. Given the importance of manufacturing to the national Gross Domestic Product
contributions, the problems, constraints as well as challenges and opportunities for
investments and manufacturing sector development were presented. Te bottlenecks
to Africa’s industrialization in particular competitiveness and key drivers for invest-
ments were discussed.
Te recommendations were outlined in the conclusions including adapting of new
approaches and initiatives for industrial development as they have accelerated develop-
ments in Asia and European countries.
Paper II: Discussed a number of support institutions and support mechanisms for
accelerating and upgrading the SMEs and in particular support to new initiative of
innovative cluster based development approach. Although the existing SI may not be
functioning to the required levels due to various reasons including limited coordina-
tion, the policy and regulatory framework however has been improving.
Te focus on the triple-helix and clustering concept was highly recommended since it
strengthens collaboration and networking; training and innovation; and competitive-
ness and productivity improvement.
104
Paper III: Te focus was on developing and establishing relevant science, technology
and innovation indicators for Uganda. Te paper addressed the core indicators of
research and development, and innovation. Tere was an understanding of innova-
tion, innovation activities, R and D activities, inputs and outputs. Te Oslo Manual
(OECD, 2005) distinguishes four types of innovations: product innovations (new
goods or services or signifcant improvements in existing ones), process innovations
(changes in production or delivery methods), organizational innovations (changes in
business practices, in workplace organizations or in the frm’s external relations) and
marketing innovations (changes in product design, packaging, placement, promotion
or pricing). An innovative frm can be defned as one that has successfully introduced
one of these types of innovations in the period under consideration, but it could also
be enlarged to frms that have not yet introduced the innovation, but have unsuccess-
fully tried or are still in the process of implementing the innovation. Product innova-
tions have moreover been distinguished by their degree of novelty (new to the frm,
region-frst, country-frst, or world-frst). As an alternative, being innovative could be
measured on the input side by the fact of having pursued innovation activities, such as
R&D, acquisition of external knowledge, training for new products and processes and
their market introduction.
Te paper confrmed the importance of important variables like size, market, technol-
ogy, human skill resources, collaborations and government support. It introduced the
importance of open innovation and business incubators in respect to enterprise devel-
opment, technology transfer and innovations.
Te paper highlighted the factors that due attention should be given to achieve techno-
logical innovation. It further gives the percentages of the gross domestic expenditures
on Research and Development; the numbers of innovative enterprises by employment
sizes.
It concludes by stressing that creation of awareness on the key concepts of STI in the
country, prioritizing STI policies and strategies will create more opportunities and
build capabilities for technological innovation. To foster innovation and promote en-
trepreneurship development adopting business incubators for open innovation will
yield more potential benefts.
Paper IV: Te business incubator industry is a powerful tool for the creation of SMEs,
for supporting them in start-up and for increasing their growth rate. Te paper pro-
vided the state of business incubation in diferent countries, how they have grown and
the lessons for Uganda. Improving and promoting entrepreneurship, new enterprises
and indeed the operating potential for SMEs in general is essential for all national
economies.
It introduces the business incubation system and how in order to boost entrepreneur-
ship, promote value addition and innovation, foster skills development and competi-
tiveness all largely coincide with the national aspirations of a modern, middle-income
and industrialized country. Te conclusions made will assist the author in the analysis
and deciding on the correct and most suitable model for Uganda.
105
5.2 Concluding Discussions
Tis thesis has discussed a wide range of issues that are related to the desired struc-
tural transformation of the Ugandan economy towards industrialization process.
Te strengths, challenges and opportunities were presented in diferent papers. To-
day, industrialization is not driven by resource endowments alone, but by technology,
knowledge, skills, information, innovation, research and development, and network-
ing (UNIDO, 2005). Important in this process are functioning , efcient, responsive
and interactive Support institutions which help frms to develop and upgrade local
capabilities, and support them in their efort to link, leverage and learn from foreign
or advanced sources of information, knowledge, technology and skills.
Government’s Long Term Strategy
Uganda still an agricultural based economy with substantial natural resources and a
relatively economic growth rate would like to transform its economy into an industrial
and prosperous modern society (NDP, 2010). Uganda has the opportunity of being
the central hub of the great lakes region although it is land locked. With her rising
population growth and rural-urban migration which is accelerating urbanization, for-
mal job creation has continued to lag behind expectations in spite of strong economic
growth and a relative degree of poverty reduction. Te objective of small enterprises
growth and poverty reduction strategies implies eforts to focus on youth, especially
university and other tertiary institutions’ graduates, rural-urban migrants, and the ur-
ban poor to earn more income and participate in a private sector- led economy.
Te government policy has tried to target such specifc groups of people or potential
entrepreneurs who are poor, unemployed or without opportunities and majority with-
out higher education. As a result these groups are least likely to create successful busi-
nesses and expand employment. Terefore, regardless of policy priorities, improved
education access, technical training and entrepreneurship education are crucial and
government intervention is very important
Importantly to note, there has been an improvement in the policy frameworks and
the drive towards entrepreneurship and private sector development. Te government
is now promoting universities in fostering entrepreneurial activities towards develop-
ment of entrepreneurship. With a number of capacity building support programs and
initiatives in the country, many people and households are diversifying their income-
generating activities into non-farm activities, though often only on a small-scale base,
with a focus on local markets and employing very few people per business. Te house-
hold diversifcation into non-farm activities i.e. informal businesses, trade and manu-
facturing mainly fabrications and agro-processing is probably helping in raising their
household incomes (Bakeine, 2009).
However, this has brought many new comers in the services and industrial sector as
entrepreneurs or employees with little or no training in their current economic occu-
106
pation. During the surveys (STI and ISCP assessment surveys) it was revealed among
SMEs that quite low levels of business, managerial and technological skills have had
adverse efects on their enterprise upgrading and growth. Yet, it has been recognized
that the competitiveness of small companies is increasingly perceived in terms of their
internal capabilities to choose, use, adapt and develop technology.
Furthermore, on ground even the more qualifed graduates and entrepreneurs fnd
it difcult (or not attractive) to enter industrial or other processing activities that are
related to relatively high levels of technology investment, networking, institutional
support, or skills formation; they rather seem to operate in sectors with lower require-
ments, such as the local service sector (fnance/microfnance, transport, consultancy
and trading). Tese aspects limit the positive impact of entrepreneurial dynamics in
the country on innovation, industry, job and growth creation as well as overall eco-
nomic diversifcation and development. Te involvement of academia in industry
business relationships can contribute greatly, especially in terms of technology transfer.
One of the suitable ways is formation of business incubators linked to universities.
Science, Technology and Innovation Indicators
Te STI Indicator approach is useful for identifying the linkages and outcomes of
STI activities which can then be used analytically to shed light on the impacts. Te
frst results for the STI indicators in Uganda were rather on the lower side being the
frst time to conduct STI survey (2009/10). Tere was low proportion of business
enterprise expenditure on R&D with few researchers in gross expenditure on R&D.
From other statistics, we can deduce that there is little linkage between industry and
other public research sectors i.e. government agencies and higher institutions. Tere is
coordination failure between and within institutions, and hence, absence of efective
linkages between various elements of science, technology and innovation system in
Uganda. Terefore linking knowledge and productive activities must predominantly
involve the government, academia and industry.
Furthermore, the capability to generate innovation in the production of goods and ser-
vices is very limited not only in small and micro-enterprises, but also in medium sized
ones. Te scarce resources in government and private sector are spread too thin over
too many activities to facilitate emergency of sectoral innovations. It was also observed
that there is insufcient specialization and diferentiation in the functions among the
organizations that perform R&D and other innovation – supporting activities. When
attention is focused on specialization and coordination, fnancial support, technical
and non-technical assistance, human resource capacity, addressing market linkages and
strengthen partnerships, there will be a diference in the future STI indicator trends.
With respect to innovative enterprises, from the fndings, there are many innovative
frms in the category of small frms that employ less than 10 employees, fewer in me-
dium sized and again more in the large category. Tis is expected since for small frms
and especially start ups, most products and processes will be new to them and probably
107
to their markets. Tis clearly indicates the need to support incubator projects (incuba-
tors that suit and adapt to local conditions and opportunism). Tis can be explained
from the signifcance of business incubators from the literature as; (a) mechanisms for
technology transfer and innovations, (b) self-sufciency and survival, (c) economic
and industrial development. In particular, from the above discussion, there are three
key components that need special attention, the size of the enterprise, the conditions
or environment and the linkages. Tese are also referred to in the Oslo manual, 2005
as “Actors, the framework conditions and transfer factors/ linkages and networks”.
Tis thesis stresses the regular development of STI indicators, especially indicators of
impacts and strongly calls for a framework to guide statistical work and provide better
understanding of how diferent indicators are connected. Governments should adopt
a mix of policies to remove or reduce obstacles that hamper science, technology and
innovation: For instance, easing access to fnance, making more skilled labor available,
or facilitating more collaboration to cooperate with other frms, technological institu-
tions and government. Further action is necessary such as the improvement of indica-
tors measuring knowledge fows, quality of STI statistics and linkages.
Collaboration and Partnerships
Collaborations and Partnerships can signifcantly facilitate the transfer of scientifc
knowledge in the development of tangible products and processes. Over the past
decade, consensus has been growing regarding public-private partnerships (PPP) in
Uganda and a PPP Bill is yet to be approved by parliament (MFPED, 2010). From
literature, it is suggested that technological learning, organizational and institutional
capacity building will help to develop producers and that learning will be most efec-
tive when producers can interact with each other and with other groups, especially
customers.
Tis confrms the argument by the author that open innovation business incubator
practices linked up in cluster based business approach can stimulate such achieve-
ments to occur. Laursen and Salter, 2005 also confrmed that frms who have open
search strategies—those who search widely and deeply—tend to be more innovative.
Evidence has shown that controlled collaboration of government, academia and indus-
try facilitates innovation and creative development while providing balance between
knowledge, social beneft and proft motivations (Leydesdorf, 2005). It is also said
that the better the markets, resources and information that the enterprises can access,
the easier it will be for them to overcome their internal constraints, raise productivity
and become more competitive. Jin Cho, (2009) had the same argument that incuba-
tion success, especially in developing countries is the pivotal wheels of industrialization
and national competitiveness.
Tere is no doubt that many existing and future businesses will require technology,
business processes, human resource, and capabilities to be at or close to regional/in-
ternational (best practice) level. Tis argument is supported by Romijn, (2001) who
108
asserts that technological competence is an important determinant of small manufac-
turers’ ability to hold their own in a context of liberalization and globalization. Also
from literature (Chien, 2007; Wang &Zang, 2005) argue that there is need to consider
seriously human resource development as an important part of the incubator manage-
ment and development process. Te path Uganda has taken in liberalizing education
and other tertiary institutions is right, in that human resource development (improv-
ing education and skill levels) is considered an important strategy for business growth
and national competitiveness (Sun et al, 2007). Terefore there is need to collaborate
and develop facilitators that will help the SMEs’ members with relevant services and
activities that will help them to execute their objectives with maximal professionalism
and efciency (the triple-helix model of collaboration).
Terefore, tackling these issues can result in improvements on various fronts of eco-
nomic and social development. Te adjustment requirements at the level of public and
private support institutions as well as commitment to expenditure priorities, policy
and project implementation are also substantial. For instance, in OECD countries,
the SMEs support function is undertaken by organizations/institutions with special-
ist resources and skills relevant to this function (OECD, 2007). Improvements in the
dimensions and challenges mentioned in this summary discussion are crucial, given
the aspirations of the country as an export-oriented, middle-income, industrialized
economy within the next 20 years. It will need strong collaboration and partnership
between the public and private i.e. the government, academia and the industry.
Te overall analysis of this thesis, the fndings, views and recommendations presented
can be seen as a range of background inputs for this study about industrialization,
business incubation and entrepreneurship and the linkages between them.
5.3 Scientifc Contributions and Originality
Te development of primary STI indicators in Uganda was done during this research,
which gave the initial baseline data and indicators that can be updated regularly when
funds are available. Tis is a main contribution from this research.
Te author under this research also initiated “One Village One Product” Program
in Uganda using the virtual business incubator model that is under observation. It is
providing a demonstration of using business incubation process. Although innovation
plays a key role in our considerations, business incubators are not exclusively devoted
to high-tech and innovative enterprises.
Te research explored how incubators and start-ups have grown across the world whilst
at the same time showing Africa lagging behind. Te need for research for both the rest
of Africa and other developing countries like Uganda cannot be understated.
109
5.4 Way Forward
For the subsequent stages of this research, and to handle the rest of the objectives,
another survey is in progress. Te survey areas were selected from the regional urban
centers based upon the emerging of manufacturing and services activities. Areas where
market is not a major problem, but local SMEs and the youth are faced with many
difculties and challenges such as poor infrastructure, lack of serviced work premises,
inadequate technologies, access to fnancing, business management skills, global com-
petition from cheap imported products, and low access to information and knowledge
for production and markets. Four urban regions were selected in Uganda, i.e. Central-
Kampala and Masindi, Northern –Lira and Gulu; Eastern part-Jinja and Mbale; and
Western part-Masaka and Mbarara. In addition, it also includes the relevant ministries
and institutions/agencies that are involved in business development services. Other
countries that have been included in the study areas are Sweden and Tanzania
Te questions are based on the business incubation theory; on the major activities of-
fered by business incubators, their functions and management process, factors for their
successes or failures, their rate of attracting demand, the benefts and to understand
what the efects of these are on industrialization process. As indicated in the literature
review, participation of stakeholders is very important. Terefore, the survey will be
through administering questionnaires and interviews by structured questions, group
discussions as participatory method to assess the performance indicators for business
incubation process in business incubators and their demand from the potential ten-
ants.
Finally, the most appropriate model will be decided upon to guide the government or
decision makers in the roll-out of business incubation scheme in order to increase the
success of implementation. Te model will include assessment framework with indica-
tors which can be used to plan, monitor and evaluate their performance. Tis will fur-
ther raise awareness on the role of business incubators to policy makers, academicians
and practitioners. Hence it increases interdisciplinary partnerships and collaborations.
110
111
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