Fulbright Scholar award helps professor study business incubators overseas

June 13 2008

Ever hear of the BRIC economies?

There’s no missing letter and the acronym has nothing to do with a popular construction material.

Coined by Goldman Sachs in 2003, BRIC refers to “Brazil, Russia, India and China” - four nations the investment bank’s analysts have labeled as the top emerging economic markets of the 21st century.

Aruna Chandra, a faculty member in the Indiana State University College of Business, has been studying new business creation in the BRIC economies since about the time the term was coined. Her research took her to China in 2004, thanks to a grant from Lilly Endowment. In 2006, she traveled to Brazil and several other South American countries.

Now, that research is getting a boost in the form of a Fulbright Scholar Science and Technology grant from the U.S. State Department and the Brazilian government that will allow her to return to Brazil in 2009 to gather additional data focusing on business incubators.

Often affiliated with universities and frequently funded by government grants, incubators help businesses when they need it most - at the early startup stage. Incubators provide low-cost office space, technical help and, most importantly, according to Chandra, a network of contacts.

Helping new businesses succeed is important because small businesses account for the vast majority of new jobs, regardless of where those businesses are located, Chandra said.

While business incubators have been common in the United States since the 1960s, and Chandra has lots of data on American methods, incubators in other countries, including Brazil and China, developed later in the 20th century and so far there has been little research on the topic.

“Not much information exists about incubators in a global context, so I feel like I’m breaking new ground,” Chandra says.

As a Fulbright Scholar, Chandra will be based at the University of Sao Paulo, which houses the largest incubator in Latin America, with more than 100 businesses. That’s much larger than the typical South American incubator, which is home to only about 15 to 20 businesses.

But even the Sao Paulo incubator looks small in comparison with those in China where, despite the move to a market-based economy, the influence of the Communist government is still very much evident, as it has been in most aspects of Chinese life for nearly 60 years.

“In China, incubators house as many as 100-200 businesses. That’s because many of them are government funded. Incubator buildings are very imposing glass and steel structures. You can see they have government money being pumped into them. That’s what’s allowed them to become so large,” Chandra says.

There are other differences in how incubators operate and in the availability of data, which makes it difficult for researchers to make comparisons between the different approaches nations take in helping businesses.

“In China, it is not easy to get performance indicator information, where incubators are still primarily accountable to the state and not the market. In Brazil, it was relatively easy to get information on indicators, such as the number of clients, the success rate of clients, tax contributions and the number of people they employ,” Chandra said.

“You have to remember that in China, incubators are driven more by a social mission. They’re almost an extension of the welfare state, but not so in Brazil. In Brazil, they are non-profit, but many of them operate more along the lines of the market,” she said.

Chandra has also observed a sharp contrast between the two nations when it comes to management of incubators, with China reflecting that nation\\\'s long history of government-run businesses.

“Brazilian incubator managers are highly qualified, entrepreneurial and they have business experience. In China, many of the managers, though managerially qualified, were from a state-owned enterprise background,” she said.

While the economies of China and Brazil may be regarded as “emerging,” the two nations still have a long way to go before they can offer the same level of support for new businesses as in the U.S., especially when it comes to finding growth capital, Chandra said.

“The United States, comparatively speaking, has a very good infrastructure for small businesses and for micro-businesses. In many other countries, including Brazil, the infrastructure is not as well developed,” she said. “Even in the U.S. it is very difficult to get financing at the early stage, but in some other countries that can be an insurmountable barrier.”

While Latin American banks have begun to set up micro-loan programs, “finding growth capital is not easy for an early stage firm,” Chandra said.

U.S., Chinese and Brazilian experiments with using business incubators to stimulate economic growth in targeted areas of the economy, such as high-technology, biotechnology or the environment, have global implications, Chandra said.

Much can also be learned from the emergence of social incubators in Brazil - which use workshops and individualized assistance to help create an entrepreneurial environment - and returned scholar incubators in China that utilize persons trained at business schools abroad, often in the U.S. Many of the models developed in these markets have transfer potential to other developing economies like Morocco or Thailand that are interested in using the incubator mechanism for fostering new businesses, she said.

With Indiana State expanding its involvement in international education and the global economy, an examination of the various job creation models used in different countries offers potential for the university and its College of Business to be recognized as key players on the world stage, Chandra said.

Photo: Aruna Chandra

Contact: Aruna Chandra, associate professor of management, College of Business, Indiana State University, 812-237-2105 or achandrasek@isugw.indstate.edu

Writer: Dave Taylor, media relations director, Office of Communications and Marketing, Indiana State University, 812-237-3743 or dave.taylor@indstate.edu

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Story Highlights

Aruna Chandra researches the BRIC economies of Brazil, Russia, India and China. A Fulbright Scholar Science and Technology gant will enable her to research business incubators first-hand in Brazil.

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