Int Entrep Manag J (2018) 14:457–478

DOI 10.1007/s11365-017-0468-1

Is the impact of incubator’s ability on incubation

performance contingent on technologies and life cycle
stages of startups?: evidence from Japan

Nobuya Fukugawa 1

Published online: 7 August 2017

# Springer Science+Business Media, LLC 2017

Abstract Supporting entrepreneurship has become an important policy target in Japan

since 1990s and many incubators have been established as a part of regional innovation
policy. Incubation strategy conducive to the improvement in incubation performance
can be contingent on external factors, which makes it necessary to incorporate moder-
ators, such as technology and growth phase, into the evaluation of incubators. This
study examines how incubator’s ability affects incubation performance under different
environments. Estimation results of a technology transfer function reveal that human
resources (diversity of incubation managers’ professional experiences), physical re-
sources (geographical proximity to universities), and organizational resources (alliance
with universities) have different impacts on the creation and growth of startups
according to technological fields (e.g., electronics and biotechnology) and life cycle
stages (i.e., the nascent and early growth stage) of startups. Furthermore, the impact of
selection strategy on incubation performance also varies according to technological
fields and life cycle stages of startups. Policy implications of the key findings are
discussed.

Keywords Japan . Business incubators . Entrepreneurship . Incubation strategy .

Incubation managers . Innovation intermediaries . Regional innovation policy .
Knowledge-based economies . Sectoral innovation systems . Firm growth . New firm
creation

JEL classifications D83 . L26 . M13 . O31 . O32 . O33

* Nobuya Fukugawa
fukugawa@tohoku.ac.jp

1
Graduate School of Engineering, Tohoku University, 6-6-11-804 Aramaki Aoba-ku,
Sendai 980-8579, Japan
458 Int Entrep Manag J (2018) 14:457–478

Introduction

Entrepreneurship is an important factor in industrial metabolism that keeps the economy

vibrant and open to new entrants. As shown in Fig. 1, Japan used to demonstrate very
active entrepreneurship in the 1950s, accompanied by a very high exit rate. The entry rate
gradually decreased throughout the high growth era of the 1960s, still maintaining more
than 10 %. It sharply declined after the oil crisis in the 1970s and surged in the bubble era
of the late 1980s. The exit rate decreased overtime as well, with a greater fluctuation than
the entry rate during these periods. Such a synchronized change between the two ended
when the bubble economy collapsed in 1990. Since the 1990s the exit rate continued to
increase while the entry rate stagnated, resulting in frequent reversal of the entry rate
relative to the exit rate. Inactive entrepreneurship is more apparent from international
comparison. Figure 2 shows that percentage of 18–64 population who are either a nascent
entrepreneur (an adult who plans to establish a new company) or owner-manager of a new
business (a company established within the last 42 months) has been particularly low in
Japan compared to Western developed countries and Asian emerging economies.
From a theoretical perspective, inactive entrepreneurship has a long-term negative
impact on social welfare or the living standards. Since the 1990s the living standards,
measured by real GDP per capita, have been stagnating in Japan. In knowledge-based
economies like Japan, the improvement in the living standard is achieved through
growth of total factor productivity (TFP) rather than an increase in capital intensity
(capital deepening). Furthermore, TFP growth is determined through productivity

20 %

18 entry rate
exit rate
16

14

12

10

0
1955
1957
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013

Sources: The Naonal Tax Agency (NTA) “NTA Annual Stascs”,

the Ministry of Jusce (MOJ) “Annual Stascs of Civil Lawsuits and Human Rights”.
Notes: 1. The entry rate = the number of firms newly registered to MOJ/the number of firms in the
previous year, 2. The exit rate = decrease in the number of firms registered to MOJ/the number of
firms in the previous year
Fig. 1 The entry and exit rate in Japan
Int Entrep Manag J (2018) 14:457–478 459

Source: Global Entrepreneurship Monitor, Adult Populaon Survey.

Note: TEA = percentage of 18–64 populaon who are either a nascent entrepreneur
(an adult who plans to start a new business) or owner-manager of a new business
(a company established within the last 42 months)

Fig. 2 Time series and international variations in total early-stage entrepreneurial activity (TEA)

growth of incumbents (innovation), entry of efficient firms (entrepreneurship), exit of

inefficient firms, and resource reallocation through market competition (Foster et al.
2001). Therefore, a decline of entrepreneurial spirit in Japan since the 1990s is
considered to have brought about, at least partially, a slowdown in TFP (Fukao and
Kwon 2006), which would have a negative impact on social welfare. In light of serious
concerns about sluggish entrepreneurial activities, revitalizing entrepreneurship and
increasing the entry rate have been an important policy issue up to the present time
(Cabinet Secretariat 2016). As a result, a number of business incubators have been
established mainly by local authorities as a part of regional innovation policy since the
1990s. This made it important to quantitatively examine characteristics shared among
incubators successful in the creation and growth of startups so that the best practice
could be diffused efficiently.
Dissemination of the best practice is not a straightforward task when different
attributes have different impacts on incubation performance under different environ-
ments (e.g., technology and local contexts), as previous literature highlights (Mas-
Verdú et al. 2015; Xiao and North 2016). However, little has been known about the
contingent effect of incubation strategy on incubation performance in Japan due to lack
of incubator-level evidence. This study aims to derive effective guidelines for incuba-
tors to promote the creation and growth of startups by addressing the following research
questions. First, this study examines whether the impact of human resources on
incubation performance is contingent on the growth phase of entrepreneurial firms to
which the incubator aims to give support. Foreshadowing the results, there are distinc-
tive patterns across growth phases in that human resource is particularly important
when incubators focus on nascent entrepreneurs, implying that life cycle stages of
startups need to be considered in developing incubation strategy regarding human
460 Int Entrep Manag J (2018) 14:457–478

resources. Second, this study incorporates sectoral innovation systems into analytical
framework and examines whether the impact of physical and organizational resources
on incubation performance is contingent on technological fields. Foreshadowing the
results, determinants of the creation and growth of startups significantly differ even
within high-tech sectors, which implies that sectoral patterns of innovation need to be
considered in designing incubation strategy regarding physical and organizational
resources.
The remainder of this paper is organized as follows. Hypotheses section reviews
previous literature on technology transfer and business incubation, thereby developing
hypotheses describing which attributes have impacts on incubation performance under
which environment. Method section describes the regression model, variables, and data
used for empirical analysis. Results section shows estimation results and implications
of the key findings are discussed in Discussion section. Conclusion section concludes
the paper by summarizing contributions of this study and referring to directions for
further research.

Hypotheses

Business incubators can be understood as technology transfer organizations in that they

aim to commercialize undeveloped inventions, mainly held by research universities and
large R&D-intensive firms, through the promotion of spinoffs and startups. Previous
literature examined determinants of the productivity of technology transfer organiza-
tions (Chapple et al. 2005; Chukumba and Jensen 2005; Markman et al. 2005;
Anderson et al. 2007; Siegel et al. 2008; Fukugawa 2009; Amico Roxas et al. 2011;
Hsu et al. 2015). They typically model the technology transfer process as a production
function where inputs are measured by resources held by providers and mediators of
technology transfer (e.g., research expenditure, the quantity and quality of faculty staff,
experience of technology transfer organizations’ staff, and the tendency to disclose
inventions) and outputs are measured by the number of joint research agreements, joint
patents, licensing agreements, spin-offs, and royalties. One of their important findings
is that the technology transfer productivity is affected not only by physical factors, such
as size of technology transfer organizations, but also by organizational factors, such as
incentive mechanisms designed for staff of technology transfer organizations (Lach and
Schankerman 2008). In fact, business incubators provide startups not only with phys-
ical resources, such as laboratories, offices, internet connection, reception, and geo-
graphical proximity to other research institutes, but also with non-physical resources to
solve problems entrepreneurs face. What is central to such resources is incubation
managers 1 who have broad professional experiences and help entrepreneurs acquire
various skills necessary to start business. This study focuses on professional experi-
ences of incubation managers as a key factor in incubation performance for two
reasons.

1
According to job description by the Japan Business Incubation Association (http://jbia.jp/biim.html accessed
12 February 2017), incubation managers nurture nascent entrepreneurs from a long-term perspective so that
they can successfully create business, which is achieved through incubation managers’ tactics for business
growth and strategy for new industry creation in the region.
Int Entrep Manag J (2018) 14:457–478 461

First, the entrepreneurial process requires various types of skills. They include
searching information of new opportunities, translating the information into new
markets, technologies, and goods, financing resources necessary for the enterprise,
taking risks, designing incentive systems within the firm, and providing leadership for
the work group (Leibenstein 1968). Many of such diversified skills are inherently
unmarketable or difficult to market, which encourages entrepreneurs to create a new
firm rather than leasing them in the market (Leibenstein 1968, p74–75.). Therefore,
successful entrepreneurs are likely to be a Bjack of all trades^ even though they need
not to be a master of all (Lazear 2005). Some of these diversified skills and some
portion of each skill pertain to general human capital (e.g., intelligence) that can be
formed thorough formal education. However, the acquisition of more specific skills
builds on professional experiences which vary according to characteristics of industry
which entrepreneurs enter. The acquisition of diversified types of skills is particularly
important for novice entrepreneurs whose current business is their first business. This is
because some types of entrepreneurial abilities can be learned only through having
engaged in entrepreneurship, which novice entrepreneurs do no retain by definition
(Jovanovic 1982). Considering the purpose of business incubators, entrepreneurs who
enter to business incubators are considered to be novice entrepreneurs. Therefore,
successful incubators should have helped novice entrepreneurs acquire diversified
types of skills. In this regard, incubation managers who have worked in various
functional areas would be better able to help entrepreneurs acquire diversified skills
and knowledge so that startups grow faster and leave the incubator successfully.
Furthermore, such an impact appears to be greater at incubators which aim to give
support to nascent entrepreneurs. This is because it is nascent entrepreneurs who are
least likely to have opportunities to acquire various skills required for successful
entrepreneurial process.
Second, business incubators are supposed to help entrepreneurs enhance not
only general and specific human capital, but also social capital2 enabling entrepre-
neurs to extract benefits from social networks and relationships (e.g., connection
with customers, suppliers, foreign organizations, universities, and the public sector).
In other words, business incubators can act as an Binterface^ between entrepreneurs
and external sources of knowledge. Previous literature on sociology and organiza-
tion theory refers to such a function using different terms.3 What has been central
to the discussion is individuals in an information network who can identify
external sources of knowledge, translate the knowledge into terms that can be
shared within the community where they belong to, and eventually connect
unrelated economic agents. Previous literature highlights the significance of human
capital with various professional experiences who could bridge different types of
individuals and organizations (Molina-Morales and Martinez-Fernandez 2010).4 In

2
Social capital is defined as the ability of economic agents to extract benefits from their social structures,
networks, and relationships (Davidsson and Honig 2003: 307).
3
See Lewin (1947) and Allen and Cohen (1969) for knowledge gatekeepers, Burt (2003) for network
entrepreneurs, Harada (2003) for knowledge transformers, and Aldrich and Herker (1977), Adams (1980),
and Tushman and Scanlan (1981) for boundary spanners.
4
Cohen and Levinthal (1990) describe this type of human capital as a gatekeeper who possesses the
Bknowledge of who knows what, who can help with what problem, or who can exploit new information^
Cohen and Levinthal 1990: 133).
462 Int Entrep Manag J (2018) 14:457–478

the context of technology transfer studies, such human capital is deemed as

innovation intermediaries (Stankiewicz 1995; Howells 2006). Innovation intermedi-
aries connect constituencies of national, sectoral, and regional innovation systems,
which otherwise would have been fragmented, thereby augmenting knowledge
spillovers, and thus promoting innovation. In this regard, incubation managers
who have worked in various functional areas would be better able to act as an
innovation intermediary because they are supposed to have established diversi-
fied industrial networks, enabling them to help entrepreneurs to build social
networks. Establishing social capital leveraging incubation managers’ networks
would enable startups to reduce transaction costs among constituencies of
innovation systems. Such an Binterface^ function would be more valuable for
startups which seek to form ties with organizations in a different realm.
Furthermore, the impact of incubation managers on social capital formation
appears to be greater at incubators which aim to give support to nascent
entrepreneurs because it is nascent entrepreneurs who tend to retain less social
capital (Ebbers 2014) and face greater difficulty in identifying and exploiting
external sources of knowledge. Therefore, it is hypothesized that:

H1: The impact of the breadth of incubation managers’ professional experiences on

incubation performance is greater at incubators assisting startups in the nascent
stage.

Previous literature on sectoral innovation systems stresses that industrial

innovations exhibit distinct sectoral patterns in terms of technological opportu-
nities, appropriability conditions, and spillover channels (Nelson and Winter
1982; Malerba 2002). Regarding technological opportunities, the concept of
sectoral innovation systems highlights that innovative activities of different
industries rely on different external sources of knowledge. Firms innovate not
only by exploiting internal resources, but also by tapping into external sources
of knowledge, such as feedback from customers, better inputs from suppliers,
reverse engineering of competitors’ products, and academic research by univer-
sities and public research institutes. Specifically, impacts of academic research
on industrial innovations are particularly high in biotechnology. A typical
industry is the pharmaceuticals where advancement in life sciences directly
boosts drug discovery (Huang and Murray 2009; Furman and Stern 2011).
Biotechnology exhibits distinct sectoral patterns of knowledge creation and
dissemination in other aspects as well. Innovations in biotechnology tend to
build on analytical knowledge, which is knowledge generated through attempts
to explore and explain the universal principle of nature (Asheim et al. 2007;
Martin and Moodysson 2011). The production of analytical knowledge refers to
encapsulating natural sciences and mathematics where key inputs are the review
of scientific articles and the application of scientific principles. Knowledge
outputs can be communicated in a universal language like mathematical or
chemical equations, which are the least tacit and the most likely to be embod-
ied in codified channels, such as scientific articles and patents. Therefore,
knowledge outputs in biotechnology tend to be disseminated through channels
with less geographical constraints like licensing. Due to such characteristics of
Int Entrep Manag J (2018) 14:457–478 463

industrial knowledge base, innovations tend to be standalone in biotechnology,5

which makes patents very effective as a means of appropriation. Effectiveness
of patents as a means of appropriation promotes employees to leave large
R&D-intensive firms and start their own business to commercialize the tech-
nology undeveloped by the parent organization. This makes entrepreneurship
one of the important routes of technology diffusion in biotechnology (Hellmann
2007; Acs et al. 2013).
In sum, the concept of sectoral innovation systems suggests that in industries
where critical knowledge for innovations tends to come from academic re-
search, entrepreneurship is an important channel of the diffusion of technology
which is not developed and commercialized by the parent organization, and
patents are very effective as a means of appropriation of innovative returns,
entrepreneurial firms would be able to benefit more effectively from tapping
into academic knowledge by establishing collaborative relationships with uni-
versities. In this regard, physical and organizational resources of incubators that
promote university linkages would have positive effects on the creation and
growth of startups particularly when the incubator assists startups in science-
based sectors like biotechnology. On the one hand, geographical proximity to
universities would help startups establish close communication with university
scientists, which is required to identify the practical applications of academic
inventions which are normally embryonic.6 Close communication is critical all
the more because behavioral patterns of university scientists are quite different
from those of business as university scientists are in the realm of open science,
as opposed to proprietary technology to which private companies are familiar.
On the other hand, organizational arrangement would make it easier for entre-
preneurs to tap into university knowledge. Potential benefits from physical and
organizational factors in university-industry collaborations would be the greatest
at incubators assisting startups in science-based sectors, reflecting sectoral
patterns of innovation discussed above. Therefore, it is hypothesized that:

H2: The impact of geographical proximity to and alliance with universities on

incubation performance is greater at incubators assisting startups in science-
based sectors.

5
Innovations in biotechnology tend to be standalone as opposed to systemic in that a final product can be
clearly defined by specific information in patent documents (e.g., chemical equations), which makes it very
difficult for followers to invent around, and makes patents particularly effective as appropriation mechanisms
for innovators. In other technological fields, lead time and the first mover advantage are more important than
legal protection. In fact, the quality of patents has a positive effect on growth of biotechnology startups
(Fukugawa 2012).
6
Previous literature shows that the flow of scientific knowledge is localized (Fukugawa 2013; Ghio et al.
2016), implying the significance of spillover channels other than publications. One of the reasons for localized
flows of university knowledge lies in the characteristics of knowledge to be transferred from universities to
firms. Academic inventions that are potentially valuable for industrial innovations tend to be embryonic and
contain tacit knowledge of academic inventors (Agrawal 2006). Therefore, entrepreneurial firms attempting to
industrialize academic inventions need to interact closely with university scientists in order to identify practical
applications of the invention.
464 Int Entrep Manag J (2018) 14:457–478

Method

Model

This study models the incubation process as a production function where technology
transfer inputs are incubator’s ability regarding the selection of incubatees, monitoring
and assistance, and the infusion of internal and external resources (Hackett and Dilts
2004) and technology transfer outputs are the creation and growth of startups through
incubation. A two way error component regression model can be described as

Y it ¼ α þ β 1 X it þ β2 Z it þ μi þ λt þ εit ð1Þ

where Yit denotes the cumulative number of incubatees that graduated from an incuba-
tor i in the year of t, Xit denotes independent variables representing incubator’s ability,
Zit denotes control variables, μi denotes the unobservable individual effect, λt denotes
the unobservable time effect, and εit denotes the remainder stochastic disturbance term.
Specifically, X consists of human resource variables (the number of full-time incubation
managers full-time, breadth of incubation managers’ professional experiences breadth,
incubation managers’ managerial skills F1, and technological skills F2), physical and
organizational resource variables (geographical proximity to universities proximity and
alliance with universities alliance), and selection strategy variables (accepting firms
from any industry any and accepting foreign firms foreign). Z consists of the cumula-
tive number of incubatees (incubatee), years since establishment (age), the number of
rooms (room), and contract period (contract). Details of these variables are provided in
the following subsections. As 45% of the incubators report no graduates, a negative
binomial regression model is used to analyze count data with many zeros. Comparisons
between conditional means and variances reveal that over-dispersion is present,7 which
means that a negative binomial model is preferable to a Poisson model. A random-
effects negative binomial regression model is used for estimation as unbalanced panel
data for the present study include only two periods, which causes a number of groups
with only one observation and those with all zero outcomes that need to be dropped in
the estimation of a fixed-effects negative binomial model.

Dependent variable

Selecting appropriate performance measure(s) of business incubators is a controversial

issue (Vanderstraeten et al. 2012). This study employs the cumulative number of
incubatees that Bgraduated^ business incubators as a performance measure of business
incubators. The graduation of incubatees is defined in this study as the situation where
incubatees leave business incubators because they have grown sufficiently through the
incubation period and need more physical space for their future operation. This study
assumes that the more graduates business incubators spawn, the more successful they
are. Using this performance measure excludes the possibility that business incubators

7
For the number of graduates in the electronics industry, mean is 1.2 while variance is 11.1 for incubators
aiming to support nascent entrepreneurs. Mean is 2.1 and variance is 62.1 for incubators aiming to support
startups in the early growth stage.
Int Entrep Manag J (2018) 14:457–478 465

with low selection criteria have more incubatees that left the business incubator because
incubatees reneged on a contract (e.g., the absence of rent payment) or failed.
The strength of using this performance measure for business incubator study is twofold.
First, the ultimate goal of business incubators is to help novice entrepreneurs improve their
capabilities in the recognition and creation of business opportunities and the exploitation of
opportunities through new firm creation. These activities require entrepreneurs to be a Bjack
of all trades^, unlike employees who are specialists. Thus, the goal of business incubators
pertains to the formation of skills in various fields. It is, however, difficult to precisely
measure the contributions of business incubators to the improvement in human capital of
entrepreneurs. Instead, this study assumes that entrepreneurs who graduated business
incubators would have accumulated such human capital. Second, related to the first, the
accumulation of general human capital by entrepreneurs is considered to have long-term
effects on regional and macroeconomic development. General human capital obtained
through the incubation period will persist. As a habitual entrepreneur, one may be able to
exert such skills in another circumstance. Furthermore, if incubators have a greater number
of graduates, they can yield externalities by showing potential entrepreneurs in the region a
higher rate of entrepreneurial activities, which would encourage them to enter entrepreneur-
ship. This type of externalities can exert even though the startup one established at the
business incubator was not successful because potential entrepreneurs can learn from failure
of others.8

Human resource variables

In order to represent the quantity of human resources, the number of full-time

incubation managers (full-time) is incorporated into the regression model. This
variable can take value of zero as there are some incubators where staff affiliated
with another organization visit the incubator as an incubation manager at regular
intervals. The presence of full-time incubation managers is considered to enhance
time intensity of assistance, proactive monitoring, and real time feedback, which
would reduce the risk of serious business mistakes by nascent entrepreneurs. The
presence of full-time incubation managers also contributes to the generation of
mutual trust with entrepreneurs by fostering frequent communication, which would
improve the quality of assistance. Therefore, this variable is considered to represent
not only resource munificence, but also monitoring and business assistance inten-
sity (Hackett and Dilts 2004).
Regarding H1 which examines the effect of the breadth of professional experi-
ences of incubation managers, this study uses information of their skills accumu-
lated through their professional career while previous literature employs educational
backgrounds (Comacchio et al. 2012). The reason for this choice is that many of
the incubation managers enter this business after retirement from the private sector,
and it is quite rare that new graduates become incubation managers. Therefore, it
is likely that most of their social capital consists of professional experiences they
accumulated through their career rather than a diploma they obtained a long time
ago. As discussed in Hypotheses section, nascent entrepreneurs are required to be a

8
Previous entrepreneurs’ success and failure could act as regional knowledge pool from which potential
entrepreneurs in the region could learn, thereby facilitating demonstration effect (Acs and Virgill 2010).
466 Int Entrep Manag J (2018) 14:457–478

Bjack of all trades^ even though they need not to be a master of all (Lazear 2005).
This study assumes that incubation managers with broad professional experiences
would be better able to help nascent entrepreneurs acquire such a diversified set of
skills. In order to measure the breadth of professional experiences, this study uses
detailed information of professional backgrounds of incubation managers. Specifi-
cally, thirteen binary dummy variables are used to represent professional experience
in legal issues, management, finance, distribution, marketing, R&D, product tech-
nology, process technology, information communication technology, human re-
source management, university-industry collaboration, public support programs,
and public relations. Sum of the thirteen dummy variables (breadth) is considered
to capture the breadth of human capital at the incubator level. 9 For instance, if
there is one incubation manager at an incubator who has professional experiences
in management and R&D, the value will be two. If there are three incubation
managers and each of them was exclusively engaged in finance, marketing, and
finance, respectively, then the value will be two. This variable can take value of
zero as some incubators without full-time incubation managers do not report any
professional skill of incubation managers. On the other hand, there are some
incubators which do not employ full-time incubation managers but report non-
zero professional skills of non-regular incubation managers.
In addition to variables representing the breadth of professional experiences, two
variables are generated to represent incubation managers’ specific skill in the following
way. As the data provide a number of variables representing professional skills of
incubation managers, factor analysis is used to reduce the data. A factor analysis
assumes that the variables are continuous and normally distributed. However, the
variables representing professional experiences are dichotomous. Thus, a factor anal-
ysis was performed using a polychoric correlation matrix. Appendix Table 3 shows the
results of factor analysis. Based on a scree plot, two factors with eigenvalue greater than
one were extracted. Appendix Table 4 shows factor loadings after rotation of these
factors. Factor scores were termed as F1 and F2, respectively. F1 represents
Bmanagement skill^ which is highly correlated with variables representing skills in
management, finance, distribution, and marketing. F2 represents Btechnological skill^
which is highly correlated with variables representing skills in product technology,
process technology, and R&D. These factor scores are used to represent human
resources at the incubator level.

Physical and organizational resource variables

Regarding H2 which examines the effect of physical and organizational resources to

develop university linkages, this study incorporates two binary dummies into a regres-
sion model: one representing university-based incubators (proximity); another
representing the presence of alliance with universities (alliance). These variables are
supposed to capture physical (geographical) and organizational advantages of incubatees
which aim to tap into university knowledge (Somsuk and Laosirihongthong 2014).

9
It should be noted that the individual level information needed to be aggregated at the incubator level for the
purpose of regression analysis.
Int Entrep Manag J (2018) 14:457–478 467

Selection strategy variables

Regarding selection criteria, a dummy variable representing the acceptance of foreign

entrepreneurial firms (foreign) and that representing the acceptance of incubatees from
any industry (any) are added to the regression model. If incubators are open to firms
with diversified backgrounds, they would exhibit a higher rate of the creation and
growth of startups as weak ties and diversified network are conducive to gaining new
information on business opportunities (Baum et al. 2000; Shane and Cable 2002).

Control variables

It is reasonable that older and larger (in physical size) business incubators tend to have
more graduates. Therefore, the cumulative number of incubatees including current
incubatees and firms that left the incubator without graduating (incubatee), the years
since establishment (age), and the number of rooms (room) are included in the
regression model as control variables. Furthermore, it is predicated that shorter contract
period is positively associated with more graduates. Thus, contract period in years
(contract) is also added to the regression model.

Data

Information of business incubators was collected from the Basic Survey of Business
Incubators conducted in 2004 and 2006 conducted by the Ministry of Economy, Trade,
and Industry. In the survey, business incubators are defined as organizations that nurture
novice entrepreneurs to be full-fledged business owners within a specific period of time and
help them graduate the incubator. Thus, business incubators have to set a specific period of
time for incubatees to leave the incubator. They must not be like a hotel where wealthy but
inefficient incubatees can stay as long as they want simply to enjoy reputation effects by
being located in business incubators. In addition, business incubators must not be a rent
collector that pays little attention to the quality of incubatees. Thus, they must have the
rigorous selection process to choose appropriate incubatees. This questionnaire survey
obtained responses from 194 business incubators. Only 6% of them were established in
1980s while 58% of them were established in 2000s. Many of them are geographically
concentrated in metropolitan areas, such as Tokyo (13%), Osaka (7%), and Kanagawa,
Aichi, Fukuoka (6%, respectively). Nearly half of the business incubators were established
by the local authorities (i.e., prefectural and municipal governments) and 7% of the
incubators were established by universities. Thirty-one percent of business incubators are
administrated by juridical foundations while 16% of them are administrated by local
authorities. Appendix Table 5 provides descriptive statistics of the variables.

Results

Estimation results are shown by technological field (electronics, information commu-

nication technology (ICT), biotechnology, environmental technology, and services) and
life cycle stage of startups to which incubators aim to give support. Each technological
field has two columns as two regression models are estimated: one that includes breadth
468 Int Entrep Manag J (2018) 14:457–478

of professional skills of incubation managers; another that includes specialization of

their professional skills. These variables are incorporated into the regression model
alternatively as they are highly correlated. Table 1 shows the results of incubators
whose target is nascent entrepreneurs. The nascent entrepreneurship refers to a life
cycle stage of firms where entrepreneurs plan to start their businesses, indentify new
opportunities, and brash up their business plans. In this stage, they are required to brash
up their ideas, many of which come from their previous work experiences (Bhide
2000),10 into feasible activities. Table 2 shows the results of incubators which aim to
give support to startups in the early growth stage. The early growth stage refers to a life
cycle stage of firms where startups prepare for incorporation, initial investment, and
customer acquisition.
Regarding the results of incubators whose target is nascent entrepreneurs, the
breadth of incubation managers’ professional experiences is positively associated with
the number of graduates in electronics. However, for startups in biotechnology, this
variable negatively affects incubation performance, which means that incubation man-
agers specialized in some field promote entrepreneurship in biotechnology. This
variable does not exert significant effects in the early growth stage. Therefore, the
results lend partial support to H1 in that the impact varies according to technological
fields. In the nascent stage, incubation managers’ professional experience in techno-
logical development is positively associated with the creation and growth of startups in
science-based sectors like electronics and biotechnology while it is negatively associ-
ated with that in low-tech sectors like services. Such positive impacts in science-based
sectors disappear in the early growth stage. Incubation managers’ managerial skill has a
positive effect on the creation and growth of startups in electronics and services while
they have a negative effect in biotechnology. In the early growth stage, the positive
effect remains only in the service industry. Last, the number of full-time incubation
managers has negative effects on incubation performance in electronics at incubators
assisting startups in the nascent stage. These results suggest that the creation of
electronics startups is fostered not by the quantity but by the quality of human capital
at incubators.
Regarding physical and organizational advantages in tapping into university knowl-
edge, alliance with universities promotes the creation of biotechnology startups in the
nascent stage. Such a positive impact, however, disappears in the early growth stage.
Therefore, the results lend partial support to H2 in that the impact varies according to
life cycle stages of startups. University-based incubators do not spawn more science-
based startups. In fact, university-based incubators spawn less startups in the early
growth stage in ICT and services. The results imply that physical advantage like
geographical proximity does not necessarily facilitate university spillover. Organiza-
tional arrangement like research alliances could have a greater impact on the creation of
startups in the nascent stage where entrepreneurs are most required to cultivate basic
ideas leveraging university knowledge for innovation.
Regarding the results of incubators assisting startups in the early growth stage, years
since establishment of the incubator and the cumulative number of incubatees take
predicted signs. This is, however, not true of incubators assisting startups in the nascent

10
More than 80% of entrepreneurs have previous professional experience as regular employees mainly in
small- and medium-sized enterprises (JFC 2010).
Table 1 Determinants of the cumulative number of graduates at incubators assisting startups in the nascent stage

electronics ICT biotechnology environment service

Incubatee −0.004 −0.004 0.009* 0.009* 0.007 0.007 −0.001 0.002 0.010** 0.007**
0.004 0.004 0.004 0.004 0.007 0.006 0.004 0.003 0.002 0.002
Age 0.204* 0.221** 0.085 0.091† 0.270* 0.136 0.215* 0.151** −0.036 −0.020
0.085 0.072 0.053 0.052 0.124 0.112 0.091 0.058 0.058 0.063
Room 0.003 −0.002 0.001 0.000 −0.097** −0.088** −0.013 −0.009 −0.033* −0.018†
0.003 0.003 0.004 0.004 0.033 0.028 0.011 0.007 0.014 0.010
Contract −0.186 −0.367† −0.196 −0.221 −0.172 −0.801* −0.734** −0.563** −1.061** −0.523
0.172 0.195 0.148 0.151 0.137 0.314 0.257 0.209 0.237 0.480
Int Entrep Manag J (2018) 14:457–478

Any 0.113 −0.081 0.641 0.601 1.075 0.365 0.771 1.579* 2.712** 2.341**
0.073 0.320 0.607 0.623 0.883 0.586 0.689 0.733 0.661 0.643
Foreign 1.341* 1.104† −0.121 −0.114 −0.268 −0.582 −0.638 −0.498 −0.383 −0.317
0.647 0.637 0.595 0.586 0.946 0.907 0.963 0.666 0.510 0.491
Alliance 0.665 1.013 0.225 0.257 3.200** 3.372** 0.971 0.854 3.116** 3.144**
0.599 0.659 0.701 0.695 1.017 0.979 0.900 0.690 0.563 0.540
Proximity −2.171 −2.287 −1.081 −1.121 2.043 1.535 0.382 −0.391 −2.709 −3.357
2.770 3.294 1.053 1.053 1.339 1.211 1.543 1.058 6.612 5.968
Full-time −0.525* −0.530* −0.194 −0.220 0.028 −0.030 0.318 −0.059 −0.017 −0.237
0.224 0.217 0.159 0.164 0.264 0.281 0.206 0.169 0.189 0.185
Breadth 1.607* 0.049 −0.831* 0.167† 0.071
0.699 0.068 0.355 0.087 0.072
F1 1.938** 0.215 −2.003* 0.148 0.603*
0.713 0.272 0.871 0.265 0.239
F2 0.910** 0.147 1.775* 0.558† −1.037**
0.326 0.297 0.818 0.330 0.214
Constant −3.698** −3.412** −1.985** −1.909** 17.981 13.720 −1.592 14.447 −2.297** 16.668
1.029 1.025 0.671 0.667 480.102 1189.439 1.061 809.368 0.825 795.421

1. Random-effects negative binomial regression models. N = 77. Standard errors are under coefficients
2. The nascent entrepreneurship refers to a life cycle stage of firms where entrepreneurs plan to start their businesses, indentify new opportunities, and brash up their business plans
469

3. The level of statistical significance: ** p < 0.01; * p < 0.05;. † p < 0.1
Table 2 Determinants of the cumulative number of graduates at incubators assisting startups in the early growth stage
470

electronics ICT biotechnology environment service

Incubatee 0.001 0.376† 0.099** 0.558** 0.260** 0.630* 0.005 0.526* 0.011** 0.012**
0.001 0.196 0.034 0.153 0.075 0.256 0.003 0.207 0.002 0.002
Age 0.259** 0.247** 0.122** 0.178** 0.210** 0.201** 0.256** 0.256** 0.074† 0.069*
0.042 0.039 0.023 0.064 0.046 0.043 0.051 0.048 0.045 0.035
Room 0.005 0.005 0.004 0.003 −0.007 −0.005 −0.013 −0.012 0.007 0.005
0.005 0.005 0.004 0.004 0.013 0.012 0.011 0.011 0.006 0.006
Contract 0.059 0.038 −0.226** −0.221** 0.111 0.050 −0.086 −0.077 −0.455** −0.446**
0.085 0.086 0.067 0.075 0.152 0.149 0.133 0.132 0.104 0.101
Any −0.509† −0.501† −0.382* −0.420* −0.436 −0.296 −0.096 −0.064 0.741** 0.758**
0.306 0.303 0.181 0.205 0.422 0.401 0.347 0.341 0.274 0.273
Foreign −0.197 −0.190 0.012 −0.046 −0.070 0.043 −0.331 −0.366 −0.118 −0.101
0.354 0.349 0.204 0.247 0.470 0.448 0.427 0.415 0.287 0.287
Alliance −0.369 −0.378 −0.180 −0.021 −0.738 −0.353 −0.280 −0.177 −0.066 0.173
0.349 0.339 0.204 0.235 0.516 0.456 0.421 0.411 0.278 0.280
Proximity −0.369 −0.388 −0.917† −1.039† −0.610 −0.615 −1.405 −1.386 −1.234† −1.392†
0.850 0.831 0.523 0.563 1.158 1.143 1.207 1.215 0.735 0.740
Full-time 0.052 0.026 −0.009 0.004 −0.206 −0.184 −0.204† −0.156 −0.247* −0.105
0.083 0.083 0.067 0.071 0.141 0.141 0.105 0.107 0.109 0.099
Breadth 0.064 0.002 −0.001 0.085 0.047
0.051 0.001 0.002 0.057 0.033
F1 0.241 0.001 0.002 0.004 0.295*
0.197 0.002 0.002 0.003 0.148
F2 0.001 −0.273 0.481 −0.085 −0.876**
0.001 0.210 0.297 0.263 0.331
Constant 0.179 0.215 −1.069** −0.757 −1.796* −1.591* 14.456 15.598 −1.376** −1.486**
0.880 0.885 0.340 0.469 0.893 0.787 711.169 792.028 0.498 0.467

1. Random-effects negative binomial regression models. N = 263. Standard errors are under coefficients
2. The early growth stage refers to a life cycle stage of firms where startups prepare for incorporation, initial investment, and customer acquisition
Int Entrep Manag J (2018) 14:457–478

3. The level of statistical significance: ** p < 0.01; * p < 0.05;. † p < 0.1
Int Entrep Manag J (2018) 14:457–478 471

stage. The results suggest that experience of incubators in terms of years of operation
and the number of incubatees to which the incubator gave support does not constitute
the strength of incubators in assisting nascent entrepreneurs. This is presumably
because problems nascent entrepreneurs face are too diverse even for experienced
incubators to efficiently deal with, which creates greater uncertainty in problem
solving. Regarding incubators helping startups in the early growth stage, the number
of rooms has no significant impacts on performance. In fact, the smaller in size
incubators are, the better they perform when they aim to give support to startups in
the nascent stage. This strongly suggests that physical factors should not be focused in
developing incubation strategy. As predicted, a shorter contract period is associated
with greater number of graduates in some models.
Regarding selection criteria, openness to foreign entrepreneurial firms does not
affect the creation and growth of startups at incubators whose target is nascent
entrepreneurs except for electronics which exhibit positive effects. This variable
yields no significant results for incubators assisting startups in the early growth
stage. Accepting incubatees from any industry promotes the creation of startups
in the service industry regardless of the life cycle stage. It, however, negatively
affects the creation and growth of startups in electronics and ICT in the nascent
stage. The results suggest that, in the service industry, there are spillovers from
other incubatees with diversified backgrounds. However, in high-tech sectors,
this selection strategy has a negative effect as accepting startups from any
industry would make it difficult for incubators to efficiently allocate resources
as average business incubators have one or two incubation managers. Therefore,
incubators should adopt different strategies to select incubatees according to
technological fields and life cycle stages of startups to which they aim to give
support. This has great policy implication as approximately 60% of business
incubators accept all types of startups as incubatees.

Discussion

Technological skill of incubation managers has significant impacts on perfor-

mance of incubators assisting nascent entrepreneurship. Most of them, however,
lose explanatory power in the models analyzing incubators assisting startups in
the early growth stage. Only exception is the service industry where a signif-
icantly negative impact of technological skill persists in the early growth stage.
One interpretation is that when novice entrepreneurs entered the early growth
stage, they tend to have acquired a certain level of general and specific skills
through the nascent stage. This implies that incubator’s human resources are
particularly important when incubators focus on nascent entrepreneurs who
most need opportunities to acquire various skills to make entrepreneurial activ-
ities successful within a period of incubation. These results imply that it is
necessary for business incubators to take into account the dynamics of startups
when they design the process of incubating high-tech startups.
Incubators successful in the creation and growth of startups in electronics tend to
arrange diversified human capital including both technological and managerial skills.
This may stem from that electronics is a high-tech sector characterized as systemic
472 Int Entrep Manag J (2018) 14:457–478

innovations, where a final product builds on various types of technologies, and

commercialization of innovations requires various types of complementary assets. Such
industrial characteristics may make it beneficial for entrepreneurs in the electronics
industry to have incubation managers with both technological and managerial skills. In
biotechnology, however, specialization matters for the creation and growth of startups,
and what is mostly needed for incubation managers is technological skill. This may
stem from that biotechnology is characterized as standalone innovations where a small
number of technologies constitute a final product, and commercialization of innova-
tions requires less complementary assets than other sectors. This may make it necessary
for entrepreneurs in biotechnology to count on incubation managers’ technological
skill. These results imply that the process of incubating high-tech startups is strongly
influenced by sectoral patterns of innovation, as previous literature on sectoral inno-
vation systems suggests.
Social capital is particularly valuable for nascent entrepreneurs who face with
the liability of newness and need to establish social legitimacy (Stinchcombe
1965; Ebbers 2014). It is reasonable that incubation managers with experiences
in technological development in the private sector would retain social capital to
help nascent entrepreneurs develop scientific networks, such as collaborations
with universities and public research institutes, in order to set a goal of and
carry out R&D efficiently.11 This is because they are likely to be graduates of
science and engineering departments, which would make them more familiar to
behavioral patterns of university scientists. Such a cultural gap is critical when
they exhibit opposite codes of behavior, such as university scientists placing a
high value on open science and private companies pursuing proprietary tech-
nology. This may explain positive impacts of incubation managers’ technolog-
ical skill on nascent high-tech entrepreneurship in science-based sectors like
electronics and biotechnology.
The most important policy implication from the present study is that for incubators
to perform better they should adopt distinct strategies according to sectors and
life cycle stages of startups to which they aim to give support. Organizational
factors matter for technology transfer productivity of incubators, as previous
literature suggests, while physical size does not affect performance at all. It is,
however, notable that this by no means follows that one strategy fits all. In
fact, the way organizational factors matter varies according to sectoral patterns
of innovation and life cycle stages of startups. Regarding dynamics of startups,
organizational characteristics of incubators lose explanatory power when incu-
bators assisting startups in the early growth stage are considered. This implies
that, as firms grow, entrepreneurs become less dependent on incubation man-
agers both as a mediator and as a mentor. Regarding technological characteris-
tics, electronics and biotechnology exhibit a clear contrast. In electronics, a
limited number of incubation managers with diversified professional experiences
(e.g., management and technology) improve performance of incubators while
incubation managers with more focused professional experience (i.e., techno-
logical development) are conducive to the creation of biotechnology startups.

11
It should be noted that it is empirically difficult to clearly distinguish the impacts of social capital and
technological assistance resulting from the incubator's focus on technological skills of incubation managers.
Int Entrep Manag J (2018) 14:457–478 473

This suggests that sectoral patterns of innovation in terms of appropriability,

technological opportunities, and spillover channels do affect how human capital
should be developed for incubators to spawn more startups.
Another important policy implication is that university-based incubators are
not the only way to promote university spillover and entrepreneurship in
science-based sectors. Although physical advantage to establish university link-
ages exerts no effect on incubation performance, organizational arrangement to
connect entrepreneurs with universities contributes to the creation and growth of
biotechnology startups, which is consistent with previous findings on sectoral
patterns of innovation that biotechnology is a typical science-based sector
where scientific advancement directly bolsters industrial innovations. It is nota-
ble that such a contingency is applicable only to nascent entrepreneurship,
suggesting that university spillover could have a greater impact on nascent
entrepreneurship as startups in the nascent stage are most required to cultivate
basic ideas leveraging university knowledge for future innovation.

Conclusion

Supporting entrepreneurial activities has a significant implication for growth of

knowledge-based economies through innovation, competition, and spillover. A
number of business incubators have been established in Japan since 1990s to
revitalize a stagnated economy. This made it important to analyze characteristics
of successful incubators to disseminate the best practice. However, incubator-
level evidence has been scant in Japan. To fill this research gap, this study
compiled panel data of business incubators and examined how characteristics of
incubators affected incubation performance and whether their impacts varied
across technological fields and life cycle stages of startups to which incubators
aimed to give support. The key findings can be summarized as follows. First,
physical factors of incubators, such as size and location, do not affect perfor-
mance at all. Second, incubators successful in the creation of electronics
startups deploy incubation managers with diversified professional experiences.
In contrast, specialization in technological skill matters for the creation of
biotechnology startups. This tendency is confined to incubators assisting
startups in the nascent stage. Third, the coefficients of most of the variables
representing human resources are insignificant in the early growth stage. Fourth,
although geographical proximity to universities does not foster the creation and
growth of startups, organizational advantage in establishing university linkages
does promote the creation and growth of biotechnology startups. Fifth, selection
criteria matter. Openness to foreign entrepreneurial firms facilitates the creation
and growth of startups in electronics. Accepting incubatees from any industry
promotes the creation of startups in the service industry regardless of the life
cycle stage.
The results imply that incubators should design the technology transfer
process according to sectoral patterns of innovation and life cycle stages of
startups to which they aim to give support, rather than enhancing physical
factors like size. Overall, it is nascent entrepreneurs who most benefit from
474 Int Entrep Manag J (2018) 14:457–478

organizational factors of incubators. Considering many of the incubators engage

in the assistance of startups in the early growth stage, more resources should be
invested into this phase of firm growth as it is more likely that resource
reallocation at incubators could generate a greater improvement in the technol-
ogy transfer productivity. If they are to nurture high-tech entrepreneurship, they
should focus on high-tech startups rather than accepting startups in the service
industry. There is a variation in organizational factors required for the creation
and growth of startups even within the high-tech sector, with electronics and
biotechnology demonstrating a clear contrast. Formation of ties with universities
matters for startups in science-based sectors and the way it matters varies
according to life cycle stages. Therefore, to foster biotechnology entrepreneurial
clusters, it is more efficient for incubators to allocate resources to startups in
the nascent stage, deploy incubation mangers who have technological expertise,
and facilitate alliance with universities, rather than pursuing locational advan-
tage and enhancing managerial assistance. Last, findings of the present study
not only offer policymakers and incubators guideline for effective incubation
strategy, but also provide entrepreneurs with guideline for strategic use of
incubators. As previously discussed, problems nascent entrepreneurs face are
diverse. Although it is difficult for entrepreneurs to precisely understand incu-
bator’s resources before they enter, it would be highly efficient if nascent
entrepreneurs could identify an incubator that fits best into their technological
resources and growth strategy, thereby reducing uncertainty in incubator’s
assisting problem solving.
I close the paper by referring to the limitations of the present study and
directions for future research. First, more recent information on incubators
needs to be incorporated because environment surrounding business incubators
has significantly changed since the survey on which the present study builds
was conducted. Second, heterogeneity among incubatees needs to be controlled.
This study assumed that entrepreneurs who moved to incubators were novice
entrepreneurs, but it is likely that they are significantly different in terms of
general (e.g., educational background) and specific (e.g., professional back-
ground) skills required for entrepreneurship. Furthermore, absorptive capacity
of incubatees varies as well. This needs to be empirically confirmed through
data collection or creation. Third, moderators other than technological fields and
life cycle stages need to be considered in future research. It is reasonable that
success of business incubators depends on regional factors, such as the quality
of university research, agglomeration of knowledge-intensive business services,
regional innovation policy, labor market, and availability of venture capital.
These factors can mitigate or augment the impact of organizational factors on
success of incubators. Fourth, different types of performance measure, particu-
larly post-incubation performance, such as growth, initial public offering, and
successful withdrawal (low cost failure of incubatees), should be established
through data collection or creation.

Acknowledgments This research was funded by the Japan Society for the Promotion of Science
[15K03411], the Murata Science Foundation, and the Nomura Foundation.
Int Entrep Manag J (2018) 14:457–478 475

Appendix

Table 3 Factor analysis based on polychoric correlation matrix

Eigenvalue Difference Proportion Cumulative

Factor1 4.824 2.734 0.614 0.614

Factor2 2.090 1.393 0.266 0.880
Factor3 0.697 0.291 0.089 0.968
Factor4 0.405 0.083 0.052 1.020
Factor5 0.322 0.200 0.041 1.061
Factor6 0.122 0.041 0.016 1.077
Factor7 0.082 0.091 0.010 1.087
Factor8 −0.009 0.062 −0.001 1.086
Factor9 −0.071 0.026 −0.009 1.077
Factor10 −0.097 0.034 −0.012 1.065
Factor11 −0.131 0.038 −0.017 1.048
Factor12 −0.170 0.036 −0.022 1.026
Factor13 −0.206 . −0.026 1.000

Principal factor method was used.

Table 4 Rotated factor loadings

Factor1 Factor2 Uniqueness

Legal issues 0.412 −0.014 0.830

Management 0.755 0.012 0.430
Finance 0.752 0.084 0.427
Distribution 0.796 0.137 0.348
Marketing 0.731 0.221 0.417
R&D 0.049 0.918 0.154
Process technology 0.100 0.916 0.150
Product technology 0.095 0.826 0.309
ICT 0.451 0.348 0.676
Human resource management 0.674 0.126 0.530
University-industry collaborations 0.335 0.576 0.556
Public support 0.527 0.451 0.519
Public relations 0.438 0.258 0.742

Orthogonal varimax rotation was used.

476 Int Entrep Manag J (2018) 14:457–478

Table 5 Descriptive statistics

Notation Definition N Mean S.D. Min Max

Cumulative number of graduates in electronics 371 1.836 6.999 0.000 80.000

Cumulative number of graduates in ICT 371 3.768 12.487 0.000 180.000
Cumulative number of graduates in biotechnology 371 0.528 2.672 0.000 44.000
Cumulative number of graduates in environmental 371 0.633 2.624 0.000 33.000
technology
Cumulative number of graduates in services 371 2.208 10.606 0.000 156.000
Incubatee Cumulative number of incubatees 371 23.046 39.474 0.000 372.000
Age Years since establishment 370 3.965 3.894 0.000 21.000
Room Number of rooms 366 17.705 25.913 1.000 330.000
Contract Contract period 360 2.710 1.406 0.200 5.000
Any Accepting firms from any sector 371 0.580 0.494 0.000 1.000
Foreign Accepting foreign firms 371 0.270 0.444 0.000 1.000
Alliance Alliance with universities 371 0.321 0.467 0.000 1.000
Proximity University-based incubator 365 0.071 0.258 0.000 1.000
Full-time Number of full-time IMs 371 1.418 1.474 0.000 9.000
Breadth Breadth of IMs’ professional experiences 371 4.323 3.191 0.000 13.000
F1 Factor score representing IMs’ managerial skill 371 0.697 0.757 −0.481 3.809
F2 Factor score representing IMs’ technological skill 371 0.347 0.656 −0.554 3.676

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