BEST PRACTICE ANALYSIS OF INNOVATIVE

BUSINESS INCUBATORS IN CROATIA

Case study of the Technology Park Varaždin

Authors: Zlatko Mateša, Euroconsultants Hrvatska d.o.o.,

Ivana Žorž, Goran Osredečki and Ivana Nagy, PhD, BICRO d.o.o.
DEVELOPMENT OF INNOVATIVE BUSINESS PARKS TO FOSTER INNOVATION AND
ENTREPRENEURSHIP IN THE SEE AREA
FIDIBE
Work Package 3.2
Best Practice Analysis

Deliverable: Best Practice Analysis from CROATIA

Work Package: 3 Situation and Best Practice Analysis

Activity: 3.2 Best Practice Analysis

WP Responsible partner Centre for Research and Technology Hellas (CERTH)

Version: FINAL Date: 17/05/2010

Type: Report

Responsible Partner: Business Innovation Center of Croatia – BICRO Ltd.

Zlatko Mateša, EUROCONSULTANTS HRVATSKA d.o.o., Ivana Žorž, Goran

Authors:
Osredečki and Ivana Nagy, PhD, BICRO d.o.o.

2
Table of Contents

A. EXECUTIVE SUMMARY ..................................................................................................................... 6

B. INCUBATOR BEST PRACTICE IDENTIFICATION ................................................................................. 7

1. Introduction ................................................................................................................................. 7

2. Sources of data – the TEHCRO programme ................................................................................. 8

3. Defining parameters for analysis ................................................................................................. 9

C. HISTORY, ANALYSIS AND SUCCESS FACTORS OF BEST PRACTICE .................................................. 11

4. Governance ................................................................................................................................ 11

5. Infrastructure ............................................................................................................................. 18

6. Business support ........................................................................................................................ 23

7. Mediation................................................................................................................................... 28

D. REGIONAL POLICY CONSIDERATIONS AND THEIR IMPACT ON INNOVATIVE BUSINESS

INCUBATORS ...................................................................................................................................... 31

8. Development of innovation supporting infrastructure in Croatia ............................................. 31

9. Future policies............................................................................................................................ 33

10. State aid and competition policy ............................................................................................... 34

E. REFERENCES ................................................................................................................................... 40

APPENDIX 1 DISCUSSION PARTICIPANTS ........................................................................................... 41

APPENDIX 2 DEFINITIONS................................................................................................................... 43

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List of Tables

Table 1. TEHCRO Programme lines and features

Table 2. Ownership comparison

Table 3. Annual personnel cost

Table 4. Key performance indicators of VA::TP

Table 5. Investments

Table 6. Income statement

Table 7. Floor space distribution

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List of Figures

Figure 1. Varaždin Technology Park building

Figure 2. Shareholder structure of the VA::TP

Figure 3. Organisational structure of the VA::TP

Figure 4. Sustainability

Figure 5. VA::TP front office (Ms. Martina Panić) dealing with client

Figure 6. Occupancy structure

Figure 7. Expansion ground plan

Figure 8. Business model

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A. EXECUTIVE SUMMARY

In many countries innovative business parks have been established to facilitate new
business development and technological innovation by creating a nurturing
environment and leveraging synergies within the community. Given the potential
complexity of these projects, the scope of required investments and the growing
interest of governments in the South East Europe regions in designing and promoting
such projects, there is a need for a synthesis of best practices and lessons learned
both from successes and failures. To address this need, the FIDIBE partners initiated
preparation of best practice studies of innovative business parks in nine different
regions in parts of Croatia, Greece, Hungary, Italy, Slovakia, Slovenia and Romania.

Here we present the case study of the innovative business incubators in Croatia,
focusing on the Varaždin Technology Park.

An initiative to develop a place where innovative companies, especially start-ups, can

find a supportive environment and quality space and services, started by the local
public stakeholders in Varaždin in 2003. However with support from the national
umbrella programme for supporting establishment and growth of technology
infrastructure facilities and dedication of the team involved in planning and
implementing the project it has grown into a successful business support institution
and focal point of the local economy. With Croatia’s accession to the European
Union, the Varaždin Technology Park has excellent prospects and plans to expand its
infrastructure and capacities significantly.

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B. INCUBATOR BEST PRACTICE IDENTIFICATION

1. Introduction
Incubators have become a ubiquitous phenomenon in many parts of the world and
are viewed as an effective policy tool for promoting the development of innovation
and technology-based companies. Considering the big expectations and the
considerable amounts of money invested in incubators world-wide, the identification
of best practice incubator models is of importance. As part of the FIDIBE Work
package 3 (Situation and Best practice analysis), we take a look at case studies /
examples of best practice for innovative business parks establishment and operations
in nine different regions in parts of Croatia, Greece, Hungary, Italy, Slovakia, Slovenia
and Romania. In the studies goals of the innovative business parks are taken into
account and the performances of different parks are put in relation to their business
models.

Best practice can be defined as the most efficient and effective way of accomplishing
something in a given context. Best practice may be identified also as a process that is
better at delivering a particular result than any other process. Because when it is
transferred to another context its effect and success depend also on a variety of
external factors, for example the national and/or regional economy, political support
and stability, legal framework, funding availability, local culture, networks etc.,
analysis of best practice is most informative when presented within the regional and
even historical context of the projects.

The study in hands refers to the best practice - case study of an innovative business
park in Croatia.

In this study, we focus on the Technology Park Varaždin, a business incubator for ICT
dedicated / software development companies located in North West Croatia. We will
present the Technology Park Varaždin’s identity and main characteristics, endeavour
to describe how the project started, what were the initial aims, who were the main
initiators and why. Also we will take a closer look at what other regional actors were
involved and actively supported the establishment of the Park; how long it took, what
resources were used, what are the main benefits for community and why it is
considered successful.

Some information (i.e. descriptions of Governance, Infrastructure, Business support

services and Mediation) is supplemented with examples from other innovative
business parks throughout Croatia.

The aim of the study is not to present quantitative and comparative data on all
innovative business parks operating in Croatia, but rather to focus on one successful
initiative and describe the circumstances under which it became to be so.

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2. Sources of data – the TEHCRO programme
The data and case examples were gathered within the framework of implementation
of the Technology Infrastructure Development Programme (TEHCRO) at BICRO Ltd.
TEHCRO is a national umbrella programme created to boost development of efficient
and self-sustainable technology transfer facilities and business support infrastructure
to meet the needs of private entrepreneurs, as well as researchers and academia.

The programme provides 3 - 5 year financing to projects aimed at establishment,

upgrading and development of technology business centres, science & incubation
centres (including technology incubators and STPs) and commercial R&D Centres. All
projects are selected by public tenders and/or BICRO initiative, where applicants are
invited to submit project proposals in the form of a business plan. In order to be
eligible for funds, applicants must be (not-for-profit) legal persons and have their
headquarters in the Republic of Croatia. Only those projects which demonstrate
market demand for their facilities and services and target full sustainability within a
reasonable time-frame are eligible for support. TEHCRO also encourages outsourcing
of management to private entities (LLCs, NGOs or private entrepreneurs).

Within TEHCRO funding is granted to beneficiaries for a maximum of 5 years.

Although there is no upper limit on funding, the average amount of co-financing
provided by the programme is 1,420 million Euros, with the average size of project
being around 3,631 million Euros. Investments are made in form of grant, soft loan
and/or equity; the total amount of TEHCRO funding does not exceed 50% of total
eligible project costs. Projects are financed on a declining scale for the duration of
project until self-sustainability is reached. All projects must also be co-financed out of
own resources (minimum 30% of total costs) and/or through sources other than
TEHCRO. Public-private partnerships are welcomed in the Programme.

Table 1. TEHCRO programme lines and features

TECHNOLOGY BUSINESS SCIENCE & INCUBATION RESEARCH & DEVELOPMENT

CENTERS CENTERS CENTERS

– Focus on innovation and – Centres with specific – Strong focus on applied

technology in general
– No specific
technology/thematic focus
– Support to technology-
oriented SMEs
– Support to regional start-
ups
– Regional character
(suitable model for smaller
universities and
communities)
– Technology transfer and
business support services
technology focus for science, commercialization
building up core and/or contract R&D
competence in a specific – Competitive R&D projects
technology field linked to business sector
– Incubation programs for demand
spin-offs – Interdisciplinary approach
– Support of start-ups in a to R&D
specific technology field – Best practice and
– Location in urban areas commitment to creating
and participation of internationally recognized
partners with proven track centres of excellence
record in R&D and – Companies of all types
relevant technology field (start-ups, SMEs and

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 – Supporting establishment
and growth of technology-
oriented, innovative and
knowledge-based
companies in regional
/local areas
– Regional (spatial)
concentration of
technology-oriented,
innovative and
knowledge-based
companies
– Emphasis is on providing
infrastructure and
supporting framework for
entrepreneurial growth
– Aim is to keep and
increase the number of –
preferably technology
oriented - companies that
provide highly qualified
jobs in the local area
(critical mass)
– Network of technology
experts and technology-
oriented growing
companies with a strong
international orientation
– Supporting the incubation
of innovative academic
spin-offs and start-ups
(bottom up process)
– Concentration of
companies (businesses)
within one specific
technology field (IT,
biotechnology,
nanotechnology, medical
sciences, engineering
sciences, material
sciences, etc.)
– Emphasis (aim) is on
fostering the
establishment and
development of
businesses in the field of
new technologies (high-
tech), based on
implementation of R&D
results through new
products and services
industry) linked to the
thematic focus and with
strong cooperation
tendency
– Location in urban areas
and university surrounding
– Supporting and
strengthening R&D within
specific thematic topic
(top down process)
– Concentration of R&D
infrastructure resources
within one specific
thematic field (topic)
– Emphasis is on building
strong international
competence within a
specific R&D field of
expertise
– Aim is to transfer know-
how and R&D results to
businesses in order to
develop products and
services
– Fostering the cooperation
with established industry
and business partners on
common projects
(involving companies of all
types and sizes)

3. Defining parameters for analysis

Following advice from the partner responsible for the Work package 3.2, a
combination of subjective, investigative and story-telling material was used to
develop the case study.

None-the-less, suitable criteria and objective indicators for identifying outcomes and
measuring best practice must be defined and taken into account. Although many
approaches have been developed for the analysis of outcomes and impact of
business incubators / parks, starting with Allen’s and McCluskey’s first systematic
overview of incubator performance in the 1990s, for the purpose of this analysis we
have chosen to adopt criteria and areas of assessment used by the EBN – European
BIC Network1, which looks at BIC / incubator performance in eight different areas of
assessment:

1
The European Business & Innovation Centre Network was set up in 1984 as a joint initiative of the European Commission,
European industry leaders and the first pioneering Business and Innovation Centres. EBN is now one of the leading non-
governmental pan-European network bringing together 200+ Business & Innovation Centres (BICs), and similar
organisations such as incubators, innovation and entrepreneurship centres across the enlarged Europe. BICs are
organisations which promote innovation and entrepreneurship. They help enterprises to innovate; they drive the creation

9
 1. Mission and legal status,

2. Organisation development,

3. Financial assessment,

4. Services to start-ups,

5. Services to existing SMEs,

6. Signposting to partner organisations,

7. Quality, and

8. Performance and efficiency

A questionnaire developed by EBN was sent out to all TEHCRO centres within the
Programme (summary provided as supplementary information in Appendix 1) to
collect relevant data and information for comparison, as basis for analysis.

Upon receiving feedback from the centres and complying a comparative analysis, we
then combined and supplemented this information with personal recounts of
particular situations leading up to the individual indicator or area of assessment,
focusing in particular on the best practice case of the Varaždin Technology Park.

of start-ups (support to innovation, incubation and internationalisation) and they promote economic development through
job and enterprise creation and development. The network is therefore an umbrella organisation bringing together over
200 BICs from all around Europe and beyond. It provides help and support to these BICs by acting as an interface with other
organisations including the European Commission (which officially recognises EBN), by providing expertise in numerous
areas including funding and by stimulating the sharing of best practices.

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 C. HISTORY, ANALYSIS AND SUCCESS FACTORS OF BEST PRACTICE
Respecting the defined parameters mentioned in chapter B.3., we made a
comparison among the current technology centres in the TEHCRO Programme.
Although the TEHCRO centres are not in the same development phase, the best
results of the assessment were achieved by Varaždin Technology Park (VA::TP in
further) in most of the evaluated fields.

It is important mentioning that the Centres are all still in the process of development
and co-financed by the public support programmes such as TEHCRO; VA::TP is the
first project financed in the TEHCRO Programme and thus longest in the programme
– entering now a third year of development/implementation. This is probably why it
is closer to reaching full self-sustainability than the others. But the VA::TP has also
achieved better results in the two years of co-financing than was originally planned,
which shows good market demand for the kind of infrastructure and services it
provides in its region.

All the Centres have different issues and face certain obstacles in development,
mostly coming from the local environment, which some of them have solved quickly
and efficiently but some are still struggling. Arguably, the VA::TP is also the most
successful centre in this respect (which we tend to attribute to the effective
managerial skills of the Park’s director), but an interesting thing to point out is that it
had and still has extensive political and economic support, particularly on the local
community level.

4. Governance
The Technology Park Varaždin Ltd. was created as a new legal entity in March 2007,
almost four years following existence as a project under the Economic Development
Department of the City of Varaždin2. The VA::TP is a special-purpose company that
deals with:
• the establishment of an incubation centre for innovative start-up companies;

• establishment of a mechanism for improvement of existing technologically

innovative companies;

• improvement of transfer of knowledge from universities and development

centres into the economy;

• networking of companies, educational institutions, development agencies

and innovative individuals; and

• change of perception towards innovation as a foundation of a new economy.

2
Creation of a separate and independent legal entity was and eligibility requirement to access TEHCRO funds

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 Figure 1. Varaždin Technology Park building

Shareholder structure of the VA::TP

VA::TP is owned in equal shares by the local self-government body (City of Varaždin)
and two tertiary education institutions in the region (University of Applied Sciences –
Polytechnics School and the Faculty of Organization and Informatics of the University
of Zagreb)

City of Varaždin 33,3 %

University of Applied Sciences - Polytechnics School of Varaždin 33,3 %
Faculty of Organization and Informatics University of Zagreb 33,3 %

33,30%
City of Varaždin
33,30%

Polytechnic of Varaždin

Faculty of organization and

informatics

33,30%

Figure 2. Shareholder structure of the VA::TP

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The local self-government is the provider (owner) of the building and basic
infrastructure, which is under a lease contract to the VA::TP. The Polytechnics School
and the Faculty of Organization and Informatics which is a part of University of
Zagreb are the so-called technology providers and providers of the demand –
potential future tenants and clients of the VA::TP. Their role is establishing easy
access to science expert community and maintaining close contact with tenants.

Mission
The mission of the VA::TP is contribution to the development of the technologically
innovative economy.

Vision
Become a leading incubator in the region that will function as a supporting
environment for the development of innovative and competitive technologically-
based entrepreneurship.

Management team
Management has the responsibility for day-to-day operations and to operationally
run the business in accordance with the development strategy that the owners
approve.

The executive (operational) team of the Varaždin Technology Park has 5 members of
staff. Employees are gradually organized thorough areas of responsibility. Currently
they cover all necessary business areas, with a focus on ICT. The key for employing
the team was fulfilment of the core business needs through permanent staff
members. All other aspects are outsourced, including the specific once-off jobs like
consultancy in highly specialized areas in information technology that are needed for
writing business plans or evaluating them (for less than 50 day a year). VA::TP has the
best ratio between in house jobs and outsourced ones, so the efficiency, quality and
cost are on the most rational level for tenants.

The permanent members of staff in the VA::TP include:

• Mr. sc. Andrija Petrović – General Manager
• Karlo Kukec – Assistant Manager for Technology
• Emilija Žuvić – Consultant for EU funds and Finance
• Martina Panić – Consultant for EU funds and Finance
• Aleksandra Jenkač – Expert assistant in IT (Karlo’s co-worker)

The administration is divided between Emilija and Martina.

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Organizational structure
VA::TP has an assembly with 3 members that appoint the General Manager. There is
no supervisory board. Members of the Assembly are by duty: the Dean of the Faculty
of Organization and Informatics, the Dean of the Polytechnics School of Varaždin and
the Mayor of the City of Varaždin. Assembly members also represent the owners of
VA::TP and have a highest authority in VA::TP.

ASSEMBLY

General Manager
(CEO)

Assistant Manager Consultant for EU Consultant for EU

for Technology funds and Finance funds and Finance

Expert Assistant in
IT

Figure 3. Organisational structure of the VA::TP

The main goal for such a set up was to keep costs at a reasonable level throughout
the early stages of growth.

Analysis of the governance

This section is referring to the most important and interesting differences among
evaluated Centres. Table 2. shows the ownership structure of the Centres we
evaluated for this purpose:

Table 2. Ownership comparison

Local Public Private

Ownership University
government company company
Mari-BIC 100%
VA::TP 67% 33%
STeP 100%
IPNG 100%
TIC Međimurje 100%

We can see that every Centre except VA::TP has only one owner which narrows the
public interest for the Centre. In VA::TP there is three owners were each of them has
needs and interests in Centres infrastructure, so the demand and accessibility to the
scientific community and entrepreneurial sector are wide and on the high level.

Table 3. shows personnel efficiency by comparing total average annual personnel

costs among the evaluated Centres.

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 Table 3. Annual personnel cost

Name # employees Permanent personnel cost

Mari-BIC 9 143.889 €
TPV 5 102.749 €
STeP 4 141.697 €
IPNG 5 90.994 €
TIC Međimurje* 5 48.230 €

* Every staff member of Međimurje is only partially employed in the Centre.

Referring to the most efficient performance of the personnel, based on the financial
evidence provided we can conclude that VA::TP has a good ratio between in-house jobs
and outsourced ones (not shown).

Tenants’ performance
The Centre’s management and efficiency can only be correctly evaluated if we analyze
their tenants’ performance. The management has to be a crucial support to the
tenants, especially start-ups. Table 4. shows some of the parameters that the TEHCRO
programme uses to monitor the Centres’ performance on a periodical bases.

Table 4. Key performance indicators of VA::TP

Key perfomance indicators 2007 2008 2009

Occupancy rate (as % of space rented to companies) 85% 85% 95%
Self-suficiency ratio (as % of total costs) 30,15% 39,76% 75,78%
Number of companies benefiting from services provided 5 10 15
Total # of tenants… 15 22 30
Total number of tenant companies, of which 18 15 11
Incubatees 18 14 9
Companies having an academic shareholder 0 0 1
Companies having a foreign shareholder 0 1 1
Number of personnel employed by tenant companies 40 70 157
R&D personnel 30 60 50
Other personnel 10 10 107
Activity levels (direct) 9 15 46
Number of applications 3 10 31
Number of new incubatees 3 3 9
Number of graduates 1 0 1
Number of training programs delivered 2 2 5
Other effects (indirect) 0 1 4
Number of products and services developed 0 0 2
Number of prototypes developed 0 1 0
Number of patents 0 0 2

The key performance indicators are one of TEHCRO's tools for monitoring and
analyzing the Centres’ impact during the period of co-financing (maximum 5 years).
VA::TP is the first project to enter the Programme, so it is also longest in the running.

15
The first mid-term comprehensive performance evaluation will take place only after
the 3rd year of operation.

The beginning years were oriented towards adaptation of existing

infrastructure/building to fit the need of the newly established incubator. The
infrastructure had to be mostly completely renewed. This phase (the construction
phase) lasted for almost 2 years (part of 2007, 2008 and part of 2009); the
construction was carried out floor-by-floor so the park could keep operational
throughout most of the works in progress. As the floor adaptation was completed,
tenants re-entered the park, so the occupancy rate was on high levels since the
beginning.

Another indicator that we should pay attention to is the number of tenants that use
VA::TP’s business development services. This indicator advanced not only in quantity
but in shares (from 30% in 2007 to 50% in 2009.). We can conclude that half of the
tenants in VA::TP are using some sort of business development services that the park
provides – a good indicator of cohesion between the Park and tenants (more about
the Business services offered by the park can be found in the following chapters).

Financial aspects
Since VA::TP entered into the TEHCRO Programme for supporting technology
infrastructure in 2007, it began its way. Like we mentioned previously, investing in
reconstructing the building for incubator needs took nearly 2 years and it was co-
financed jointly by TEHCRO and the City of Varaždin, between the last quarter of
2007 and throughout to third quarter of 2009, as Table 5. shows:

Table 5. Investments

Investments 2007 2008 2009 TOTAL

Total value of investments 2.695 € 670.319 € 372.064 € 1.045.078 €
Co-financed by TEHCRO 274.012 € 316.187 € 590.199 €
City of Varaždin 172.866 € 95.890 € 268.756 €
TPV's own sources 2.695 € 28.356 € 31.051 €

The VA::TP entered the TEHCRO programme only in the last quarter of 2007, and
that’s when the investments started. As the building construction advanced and
expanded in 2008 and 2009, VA::TP’s capacity for accepting new tenants, income
from rent and services provided by VA::TP increased during the last few years as the
Table 6. shows:

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Table 6. Income statement

No. Description 2007 2008 2009

1 Sales income 19.844 € 56.114 € 151.615 €
2 Grants, subsidies… 47.372 € 86.016 € 49.498 €
3 Financial & other income 587 € 1.058 €
4 TOTAL (revenue) 67.216 € 142.717 € 202.170 €
5 Material costs (goods & services) 44.256 € 38.056 € 93.248 €
6 Salaries and wages 17.122 € 88.628 € 84.885 €
7 Depreciation 1.097 € 3.292 €
8 Other expenses 4.446 € 18.337 € 18.642 €
9 TOTAL (expenses) 65.813 € 141.120 € 200.067 €
10 NET income before taxes 1.399 € 1.597 € 2.103 €

Almost 20% of the total income from rent comes from incubator tenants and the rest
(80%) comes from commercial tenants who also have to fulfil some of the criteria for
entering the park (but not so strict as for the incubates benefiting from a structured
business support/incubation programme).

Rent and service costs are subsidized by BICRO for the first 5 years until the park
reaches sustainability, which is the main qualifying criteria for TEHCRO centres which
are funded through the Programme. TEHCRO projects are financed on a declining
scale until reaching sustainability.

Special attention is given to calculating the funding gap for investments in long term
assets. Centres don’t show investment grants in their income statements because it
would increase their profit and tax obligations but they couldn’t increase expenses in
the same amount because of the accounting rules (buildings and equipment are
depreciated in time and only depreciation amount goes into income statement that
increases expense).

So, subsidies in the Income statement don’t show grants for investment needs but
only for closing the operating gap. In the next few years VA::TP should be totally
independent and self-sustainable, so it won’t need any more external finance
provided by TEHCRO and other public sources, but will be able to fully sustain itself
from its operations. Figure 3 is illustrating this trend.

17
 160.000 €

140.000 €

120.000 €

100.000 € Sales income

80.000 €

60.000 € Grants,
40.000 € subsidies…
20.000 €

-€
2007 2008 2009

Figure 4. Sustainability

Other innovation parks in Croatia and even in the EU don’t show this kind of
independence from public subsidy (albeit most other support programmes don’t
require them to), so all the success should be contributed to VA::TP’s staff for
offering necessary services and for selecting prosperous tenants who have innovative
ideas from which they can finance rent and all other services provided by VA::TP.

Another good practice, on the daily basis VA::TP inquires needs of their tenants and
adjusts their support to fulfil tenant needs.

Figure 5. VA::TP front office (Ms. Martina Panić) dealing with client

5. Infrastructure
VA::TP is situated in the City of Varaždin which is in the North part of central Croatia,
one of the best international locations in Croatia. It is equal distance from Hungary,
Slovenia and Austria, and also from the capital Croatian city - Zagreb (70 km).

18
Varaždin is also well connected with international highways and the airport. It has
pleasant surroundings for developing business ideas and starting a company.

Varaždin is a small city with population of 50.000 (Varaždin county population

185.000), but is one of the most developed ones in Croatia with BDP of 11.095 EUR
per capita (2008). It is an ancient city that was historically a main trade centre (also a
capital city) because of the position mentioned above. It is known as a city of
baroque, music and flowers.

Varaždin is a fast growing city. Political liberalization of rules for starting a business
(establishing company, land purchasing, stimulus tax policy...) have a goal in
attracting big companies, as well as the small ones to Varažin. In the last few years on
this matter, 3 business zones were formed near Varaždin where entrepreneurs can
rent/buy land for developing business (factory building, renting existing facilities for
installing production machinery...).

Within Varaždin, VA::TP is situated at the city’s entrance in a newly reconstructed

building, adapted for incubator needs. VA::TP is situated, near the sports centre and
city’s stadium, just a couple of kilometres from centre of the city.

Building has a modern design, maybe a bit too advanced for the surroundings that is
mostly nature and sports fields. Total useful space of VA::TP is 3.300 square meters.
Space is divided in office space, joint spaces, incubator space, administration and
management space and conference facilities.

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Table 7. Floor space distribution
Usage Net sq. meters
Incubator 480
Commercial companies 1.050
Joint space 1.488
Management 72
Conference rooms 210
Total 3.300

VA::TP has 4 floors. Currently capacity utilization is near 90% and the demand in
Varaždin outgrows VA::TP's available space for both incubating companies (start-up
companies developing innovative products) and commercial tenants (established
technology-oriented companies operating in the IT sector). Successful companies
that finish the incubation process and stabilize in the Centre have a good surrounding
for continuing its business outside the Centre (i.e. in one of the nearby business
zones) and therefore make room for new companies until new building expansion
and extension of incubator space (planned in 2013).

2,18% 6,36%
Incubator
14,55%
Commercial companies

45,09% 31,82%
Joint space

Management

Conference rooms

Figure 6. Occupancy structure

Future aspects
In the near future VA::TP has the ambition to become the biggest IT park in Croatia.
Currently this option is on hold until Croatia’s enters the European Union and starts
to use Structural funds which can provide the necessary funding for expanding the
Park’s capacity.

There are plans for expansion amounting to around 10 - 15 million EURs in

investment needs. The idea would be to extent the available space from the current
3,300 sq. meters to 19,000 sq. meters and expand in focus on industrial needs of the

20
city (possible areas of expansion, IT services with application in construction, wood
and textile industries – as fitting the region’s industrial profile).

Infomation & comunication

technology

ICT

ICT
Figure 7. Expansion ground plan

Today there is only the middle part shown on Figure 5, which is the IT park covering
3,300 sq. meters of space for renting and incubating. Project expansion would bring
an additional 19,000 sq. meters of new space for incubating which should meet the
demand of the region for supporting technology and innovation-driven
entrepreneurship.

Interesting facts about the VA::TP derived from the evaluation questionnaire

VA::TP is a Public Equivalent Body (meaning the owner’s are public bodies, but VA::TP
is a separate legal entity) formed on a not-for-profit basis.

VA::TP has a strategic alliance with Universities and Polytechnics - structural and
formal agreement.

Catchment area of VA::TP is its region: the Varaždin County with 185.000 inhabitants,
and 2.490 registered SMEs, and neighbour regions, with a population around 390.000
inhabitants.

Key sectors in which VA::TP and its tenants are doing business in are ICT (90%), media
- publishing, advertising (3%), and other (7%).

In the last year VA::TP organized 3 events, with average attendance of 120 people in
order to promote entrepreneurship. VA::TP is also partner in the Enterprise Europe
Network (EEN) and several other international projects. The focus of these projects is
B2B interface, internationalization of clients, exchange of best practices, improving
market chances for clients and technology transfer in existing SMEs.

21
VA::TP offers specific services to the public authorities (in catchment area) in setting
up and managing of clusters, getting new enterprises launched, technical assistance
to existing SMEs, set up and co-operation in EU projects and set up and co-operation
in regional projects.

VA::TP services include

• templates for risk analysis of innovative projects
• business plan templates to the entrepreneurs
• helping the entrepreneur to define and write his business model
VA::TP organized 2 training events during last year, with attendance of 80 people.
VA::TP helps and advises tenants on matters related to Intellectual Property and
closely cooperates with the Technology transfer offices at the Universities.

VA::TP is involved in specific R&D cluster projects on a regional level.

Estimated time from the first contact with entrepreneur to the creation of a company
is 2 months. 8 start ups were established with the help of VA::TP in the last year. 35
companies were newly created since VA::TP started in 2007, with 350 new jobs. The
average failure rate within 3 years from the companies’ establishment is 10%.

VA::TP offers attractive facilities to clients

22
6. Business support
A successful business incubation programme is of great value to regional businesses
and the community. In a sense, there are two sets of customers for the incubator: the
tenant companies and the community. The relationship of the incubator to the
individual tenant companies is clear and direct. The relationship with the community
is more complex: the community can provide resources, ongoing volunteer support
and a source of clients. In return it asks for new companies and new jobs that will
expand the tax base and other benefits, such as neighbourhood revitalisation. The
community can also withhold support and without their support it is difficult for and
incubation programme to be successful.

In Varaždin, the establishment of the VA::TP went through several phases:

• Phase I: Initiation

• Phase II: Implementation

• Phase III: Expansion

In Phase I: Initiation, an incubator project manager was recruited to work with the
City’s Economic Development Department to begin to create the foundations of the
new technology park in the area. The project was initiated in 2003 by the City of
Varaždin, Varaždin County, Croatian Chamber of Commerce – Varaždin County
Chamber, the Secondary School of Electrical Engineering and the Polytechnics School
in Varaždin. At that time, two initiatives were launched in parallel, an Impulse Centre
at the Secondary School of Electrical Engineering and the Technology Park, which
was set up as a department at the Polytechnics School.

Phase II: Implementation, involved identification and leasing of incubation space,

accepting resident tenant companies, continue to establish partnerships for the
project and begin to provide business mentoring and solidify the incubator
programme and services.

The initial plan to construct the technology park at the Jalkovec location on the
outskirts of Varaždin was abandoned for a lack of financial resources and complicated
land issues; so the project had at their disposal an older building in Zagrebačka 94
(formerly) owned by a textile company, Varteks Plc. The building was however
completely unsuitable for business incubator purposes, with long corridors, limited
office space and lacking in modularity.

By contrast, the Impulse Centre moved into new premises in Hallerova aleja 5, with
plenty of office space spread out on three floors. Jointly, in the period 2003-2006, the
Technology Park and the Impulse Centre provided incubation space and services to
35 small companies, mostly operating in the field of IT (web applications, mobile

23
communications etc.). The funds for operations and growth were limited, and drawn
mostly from the City’s local budget. The Ministry of Economy provided some funding
annually (through its Entrepreneurship Support Institutions Programme) but
nowhere near enough.

Around that time, Andrija Petrović, a computer sciences engineer, Chairman of the
Board of the Regional Development Agency North DAN Ltd. and former vice-dean in
charge of institutional development of the Polytechnic School Varaždin, whom the
City of Varaždin entrusted with the implementation and put in charge of their
Technology Park project, began looking around for investors.

In parallel, the Croatian central government took the decision to enter into an
agreement with The World Bank to pilot a project entitled Croatia: Science &
Technology Project (STP) with main development objectives to: i) strengthen and
restructure selected R&D institutions to promote applied research, and ii) increase
the ability of enterprises to develop, use, adapt and commercialize technology. One
of the project's components addressed the lack of (appropriate) technology
infrastructure facilities to nurture and support establishment and growth of
technology-based companies – TEHCRO.

In 2007, the Varaždin City Council took a decision to establish an independent limited
company, Technology Park Varaždin Ltd., its shareholders the City and Polytechnic
School, and appointed Andrija as the acting director. The Technology Park Varaždin
Ltd. was to apply for competitive funding to the national umbrella programme
TEHCRO. The following activities were announced:

• Establishment of a limited liability company

• Preparation of project documentation for refurbishment of the building in
Zagrebačka 94
• Appointment of the Board of Directors
• Appointment of VA::TP General Manager
• Public call for hiring of other employees (besides the GM, 3 additional
employees were foreseen)
• Office fit-out
• Creation of detailed business strategy and business plan in line with TEHCRO
programme requirements
• Action plan for the use of building for commercial purposes until optimally
occupied by innovative, technology-oriented tenant companies / incubates

In order to build a successful TEHCRO application, the former no-income

generating and largely non-sustainable business model (based on providing fully
subsidized rents, minimal services and applying non-selective criteria to

24
 businesses) had to be changed. The Park was encouraged to streamline and focus
its business, adopt selection criteria and graduation policy to their tenant
companies, and expand its services portfolio to include a business incubation
programme and for-fee services.

The sustainable business model is based on the following principles:

• generating income by providing infrastructure (50%) and services (30%) to
the tenants
• generating income on the market (20% from individual projects)

Figure 8. Business model

Also as we discussed earlier, the core competencies are shared between the Park’s
employees, while some general business services (accounting, legal etc.) and
specialized intellectual property and specific technology-related services are
outsourced to a network of professionals / external consultants built around the
Park.

The application to TEHCRO was successful and the Park gradually entered into a
growth phase.

Today, the Park provides the following services as part of its incubation programme
to tenant companies:

25
 IDENTIFICATION OF NEW PROJECTS WITH BUSINESS POTENTIAL, COMMERCIAL AND TECHNICAL
APPRAISAL OF THE INNOVATIVE IDEA

BUILDING A BUSINESS MODEL, IDENTIFICATION OF ROUTE-TO-MARKET, OUTLINE BUSINESS

PLANNING OR TECHNOLOGY COMMERCIALISATION CONCEPT (for start-up companies),
PREPARATION OF PROJECTS FOR DOMESTIC AND INTERNATIONAL MARKETS (for mature
companies)

ASSISTANCE INTELLECTUAL PROPERTY PROTECTION AND PATENTING

IDENTIFICATION OF BUSINESS COMPONENTS WHICH ARE POSSIBLE TO APPLY FOR VARIOUS

FUNDING PROGRAMS, ASSISTANCE IN DEVELOPING EU PROJECT APPLICATIONS, PROJECT
IMPLEMENTATION ASSISTANCE

CONNECTING TENANT COMPANIES WITH OTHER COMPANIES WITH SIMILAR INTERESTS,

CREATING PARTNERSHIPS BOTH DOMESTIC AND INTERNATIONAL

ORGANIZATION OF PROFESSIONAL CONFERENCES ABOUT TOPICS IMPORTANT TO TENANT

COMPANIES AND THEIR BUSINESSES

ORGANIZATION OF CREATIVE WORKSHOPS FOR ALUMNI AND ACADEMIC STAFF OF HIGHER

EDUCATION INSTITUTIONS IN THE VARAŽDIN REGION

For-fee business services currently offered by the VA::TP include:

CREATION OF BUSINESS PLANS AND MARKET STUDIES

CREATION OF PRE-INVESTMENT AND INVESTMENT STUDIES

COST-BENEFIT ANALYSIS

BUSINESS COUNSELLING AND ADVICE

FINANCIAL CONSULTATIONS

PREPARATION OF DOCUMENTATION FOR STARTING A BUSINESS (FOR CRAFTS, COMPANIES AND

INSTITUTIONS)

ANALYSIS OF BUSINESS NEEDS FOR COMPANIES - IN TERMS OF SPACE, INFRASTRUCTURE (E.G.

INTERNET, TELECOMMUNICATIONS, LABORATORIES ETC.), HUMAN RESOURCES, FINANCIAL
REQUIREMENTS AND SOURCES OF FINANCE

Today, the Park operated under strict eligibility criteria for the potential tenants. In order to
qualify the company must be innovative and preferably have a technology-orientation
towards ICT / Software development. Qualification criteria to judge the ‘innovativeness’ of
the company include fulfilment of at least three or more of the following, the company:

• offers new products or new services in Croatia

e.g. if there are more than 20 comparative products/services already on the

market the company is not dealing in innovative products

26
 • uses new technology and know-how

• is production company that implements new processes or innovative business

concepts

• employs highly educated staff

• has an R&D department (even if it consists of one person) or implements R&D

Projects

• has a strong international focus and is internationally competitive

If the company offers primarily services, these services should be related to b2b
markets.

VA::TP provides infrastructure and support services for businesses, high-capacity

communications, real estate and office space. It has links to higher education and
research institutions providing a pipeline of both innovations personnel and advice.
This serves as the technology transfer function. Presently it offers support activities
though its incubation programme to newly established companies, but also services
to mature IT companies thereby generating synergies. The VA::TP entails a conducive
and attractive working environment for mobile IT professionals.

Tenants description

VA::TP has a focus in Information and Communication Technology (ICT). Most

of tenants are ICT companies focusing on software development and
electronics, but since this industry mostly gives support to all kinds of other
businesses, most of the tenants cooperate with every sector of the economy.

Indicative story: An interesting item is the number of persons employed by

tenant companies. The company NTH Media was established in the VA::TP in
2007 with 6 employees. Rapid growth resulted in leaving the Park because of
lack of space. During 2008 NTH Media concluded that the best conditions for
their business are back in VA::TP, so in 2009 they came back with almost a 100
employees.

VA::TP is an attractive space for growing IT companies

27
 Relationship between the VA::TP and the tenant companies

VA::TP is using adjustments in negotiating with incoming tenants. In the

beginning criteria was low so VA::TP could rent all its capacity. During the
years demand rapidly grew, so they upgraded criteria for accepting new
tenants. In general, every tenant wants to be in an incubator process because
the benefits are much larger then when you are a commercial firm. VA::TP is
renting space by evaluating potential tenants through segments of R&D that
fulfil the criteria and in that percentage gives them two statuses (dividing the
rent between R&D segment that goes like incubator and the other segment
that goes like a commercial company). VA::TP is accepting only
complementary tenants so cohesion between them would be on a high level.

Services, on the other side, have another story. VA::TP’s main services are
close cooperation with tenants by helping them to e.g. write a business plan,
evaluate market demand for innovative product and such. In addition, VA::TP
is trying to push programs for employing disabled persons because IT sector is
a rare sector where they can work and show their full capabilities. Rest of the
services are provided though local and international networking programs
(mostly targeting tenant improvement of cooperation with key market
companies).

Tenant company in the VA::TP (Delpro d.o.o.) in their lab

7. Mediation
Business services and the incubation programmes transcend the incubator. Another
important role of business incubators is to act as intermediaries between their clients
/ tenants and the outside community and other actors of the innovation system. The
best incubators typically provide a significant bridge between the incubatee and the
environment, with the purpose of leveraging other critical support and resources.
These resources typically include: knowledge and technology, financial capital,
market support and access to human capital.

28
In Croatia, there is evidence for good practice in various types of mediation activities
by innovative business incubators.

The ‘Grey Angles’ in Varaždin

SENIORAT is an association of around 30 retired business and industry professionals

dedicated to supporting young innovative companies.

VA::TP runs a mentoring programme, where each new company (technology-

oriented start-up) in the incubation process is awarded a mentor – a senior member
of SENIORAT or a retired industry professional, to advise and guide the business
development process. The role of the mentors is to provide expertise and links to
enhance the project. The members of SENIORAT donate their time and expertise to
the young entrepreneurs, for a small fee or free of charge.

The manager of the VA::TP is proud of the way the relationships between the senior
mentors and the young companies develop: “Sometimes it takes a few tries to get the
chemistry between these guys to work, but once a relationship of mutual trust and
understanding is formed it can really make a difference in the way and the pace that
the projects develop. The mentors can be very protective of their projects. You can’t
put a price on the experience these guys have in the industry. They are motivated by
enthusiasm and just to see something new develop.”

Mr. sc. Andrija Petrović, general manager of VA::TP

Another example of successful mediation activities was started in 2005 by the

Technology Development Centre in Osijek Ltd. who started implementing a project
entitled BUDI UZOR® (translation: BE THE ROLE-MODEL), an international innovation,
prototype and student business plan fair. BUDI UZOR® is a link between science and
economy, a tool for promoting new technologies, innovative entrepreneurship, and a
focal point of infrastructural, financial and advisory support for technology-based
projects and their proponents.

The goals of BUDI UZOR® include:

29
• gather and motivate high school and university students with creative potential
and interest in innovations and entrepreneurship;
• use university and economic resources in the interest of innovators, i.e.
commercialization of innovations through business activities;
• development and promotion of knowledge-based economy, innovation system,
intellectual property protection and management, as well as achieving a better
general status, evaluation and remuneration of inventive work;
• identification of innovations for systematic commercialization and presentation
at local and international fairs;
• creating links between innovators, physical and natural persons and businesses;
• technological and business support to entrepreneurs in the region, primarily
through technology transfer from the University;
• networking of entrepreneurs and supporting institutions;
• identification of products for the Naj Naj™ project

„From the start the BUDI UZOR® project has had remarkable results and it has
become one of the landmarks for innovators and innovative entrepreneurs not only
for the region of Osijek-Baranja County and Eastern Croatia, but also for Croatia and
other international innovative projects. The fair is of great importance as for many
participants it is the first evaluation of the technological, market, and economic
feasibility, and it is an important event for business networking, start-up or
development of business activities. The project will continue in the future, and there
are plans to enhance level the project activities.“
Tells the director of the Technology Development Centre in Osijek Ltd. Prof. dr. sc. Ivan Štefanić.

The BUDI UZOR® project offers participation in the following programs:

• Innovation and prototype fair;
• Competition for the best student business plan;
• The Best Elevator Pitch;
• Competition for the best high-school graduation paper in the field of agriculture,
• food processing and pharmaceutics;
• Successful commercialization of innovative products and services;
• Presentation of institutions that support entrepreneurship;
• Entrepreneurial Academy;
• Mini-sumo robot cup (since 2008).

The jury awards medals to the best exhibits in the innovation category, the best
business plan and the best high-school graduation paper. A special reward is given to
the project with a successful commercialization start. The best students in The Best
Elevator Pitch are also awarded medals and rewards. In addition to medals, the

30
following types of support are awarded to support the development of SMEs,
successful commercialization of ideas, and best innovations:
• Use of a TERA incubator work station (free of charge for 6 months);
• Use of a sponsor vehicle (up to 2 months);
• Management training course;
• Consultancy and advisory support for the following activities: IP protection,
• application to national funding schemes; registration of a company or trade,
• market research and business plan development, drafting first contracts, and
• start-up;
• Support for participation at a famous international innovation fair.

The aim of the BUDI UZOR® project is to recognize quality and single out innovations
with the greatest potential, as well as support the commercialization of such
products and start-up of such companies in order to boost the economy and put new
competitive products on the market. With this aim in mind the Centre started the
NajNaj™ project, which is the Centre’s project for promoting the award winning
commercialized products from the BUDI UZOR® fair.

“Our Centre is presented as reliable partner for commercialization of innovations and

new technologies through networking with business partners. This proved to be an
efficient means of developing innovative activities in our area, supported by university
and business resources and commercialization of valuable innovations. The first Naj
Naj™ project was organized in 2007 as Naj Naj™ (which stood for the Healthiest and
the Most innovative Najzdraviji and Najinovativniji) breakfast, which was supposed
to educate citizens on the culture of healthy life1. The importance of the project was
recognized by the Croatian National TV, which brought the story of the Naj Naj™
breakfast in their afternoon news, Hrvatska uživo (Croatia Live) and Županijska
panorama (Municipality panorama) daytime shows. The event was also covered by
the local media: Slavonian television STV, as well as regional print media and radio
stations.”
Recollects prof. dr. sc. Ivan Štefanić.

The first Naj Naj™ breakfast consisted of the following products: fresh eggs enriched
with Ω3 fatty acids, which are an innovation resulting from a research project at the
Faculty of Agriculture in Osijek. Implemented with the help of the Technology
Development Centre, this innovation is an example of technology transfer via a
licensing agreement. The product was put on the market by the company
Marijančanka Ltd.; bread made with sweet potato flour produced by the Višnjica; and
PROVIE yogurt with pro-biotic culture produced by the Osijek company MEGGLE. All
those products belong to the category of functional food and reflect the concept the
idea of a healthy lifestyle. The breakfast was served to about 500 pre-schoolers and

31
school children and their parents in the Osijek area. This is the way both children and
their parents could learn about healthy eating habits, but also about products of the
regional companies. The University supported the project by allowing the use of the
student restaurant free of charge.

In 2008 the second Naj Naj™ event took place as part of the EU WOBIZ project, when
the Naj Naj™ snack time was prepared in Bucurest to present the local producer of
cookies called šape produced by Šapica Ltd., the Centre’s client.

The third Naj Naj™ event was organized in 2009 in Belgrade during the 3rd FREJA
forum.

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 D. REGIONAL POLICY CONSIDERATIONS AND THEIR IMPACT ON
INNOVATIVE BUSINESS INCUBATORS
Public policy can be generally defined as the course of action or inaction taken by
governmental entities (the decisions of government) with regard to a particular issue
or set of issues.

Incubators form an essential component of wider business development strategies.

The support packages they offer to fledgling companies usually include training,
mentorship, hared secretarial services and IT infrastructure, access to professional
advisers and investors, links to local industry networks, and often – although not
always – accommodation.

Across Europe, there are now around 900 incubators, many specialising in emerging
technology Sectors with high growth potential. By 2010, incubators will have helped
to create around one million sustainable, high-quality jobs. They are also coming to
be recognised as major contributors to the development of Europe’s innovation
capacity. New incubators are being established, especially by universities, as ideal
vehicles for the commercial spin-off of successful research projects.3

8. Development of innovation supporting infrastructure in Croatia

When one observes development of the deferent policy aria in Croatia it is obvious
that development of the policy that have impact on the incubators follows new
understanding of the important role that incubators have in a process of creation of
the knowledge-based economy.

Between 1998 and 2006, the development of business parks and related
infrastructure in Croatia has been slow and sporadic, mostly based on local public
initiatives, but there was a common understanding that Croatia is missing a strong
policy instrument that could influence and nurture regional development, amplify
technology transfer activities and foster innovation commercialization ventures.

Incubators were supported by initiative of the Ministry of Science, Education and

Sports (MSES), between years 2001 – 2006, placed through the MSES’ Croatian
National Innovation and Technology Development (HITRA) which co-financed their
operations by ordering certain activities and services defined in a framework
contract. Program amounted to a yearly average of 76.712 Euros per centre. The

3
Benchmarking the management of incubators European Commission, Enterprise DG, Brussels, 2002

33
amount given obviously could not develop or assist in developing complex activities
necessary for support of innovation companies.

In 2005 the Government of the Republic of Croatia started the preparation of its
Science & Technology Program in order to develop national innovation system,
coupled by the other complementary systems of innovation (regional, at the levels of
industry, networks of companies, at the company level).

Governmental effort (at the operational level of S&T project) was aimed at
encompassing a broad agenda including restructuring of Research and Development
Institutions (RDIs), development of BICRO, Technology Centres (TCs), Technology
Financing Programs, Enterprise Technology Capability Upgrading, Venture Capital
Funds (VCFs), and promotion of Intellectual Property Regime (IPR), standards and
quality.

The main interests of the government in promoting development of Science and

Technology Parks, business parks, incubators and related innovation infrastructure
was to:

• Provide for necessary local activities in the implementation of national

technology programs especially: program promotion, informing clients,
assistance in applications, pre-evaluation, ongoing contacts with clients,
technical monitoring of project implementation and performance
monitoring
• Have local resources, competencies, services and activities available to
assist entrepreneurs, researchers, innovators and other target groups, in
projects and programs of technology transfer and commercialization
(university–related, international, industrial cooperation etc.)
• Support start-ups and the development and growth of local knowledge
and technology based SMEs using a number of technical and financial
programs and instruments
• Provide support to local and regional development and the economy by
supporting the development and commercialization of new technologies

Within that framework in 2007, BICRO Ltd. introduced a first comprehensive program
for systemic development of business and technology infrastructure in Croatia – the
technology infrastructure development program (TEHCRO) based on the broad
project agenda.

The programme funds currently available are sole for the purpose of funding of the
operation and activities implemented. But additional infrastructure is essential to be
build. Currently there are not sufficient funds available for this intervention. It is why

34
 the expectation from becoming the Member State and possibility of usage of
Structural Funds are great. Beside that based on the experience of the current
implemented policies new ones are created (throw National Strategic Reference
Framework - NSRF) identifying common goals of the Republic of Croatia and
European Union. It is important to draw on the experience and practical knowledge
developed by those of the “receiving end” of regulatory policies – and those actively
engaged in generating innovations (in Croatia as well EU). Entrepreneurs and
researchers have important contributions to make to policy design and assessment.

As part of the Lisbon Strategy for Growth and Jobs, most Member States have
undertaken in recent years great efforts to further improve their innovation support
mechanisms by investing in infrastructure and implementing new or better
instruments. Further major improvements are expected in the coming years,
including through the Structural Funds which are planned to be increasingly used for
innovation capacity building.

The INNO-Policy TrendChart currently identifies more than 1100 horizontal and
specific measures across Europe, including measures supporting technology transfer,
incubation, access to finance, etc.

9. Future policies

The new European strategy for smart, sustainable and inclusive growth (Europe
2020) puts emphasise on developing an economy based on knowledge and
innovation.

Business incubators should be designed to support and be part of a broader strategic

framework, territorially orientated or focus on particular policy priorities. Modalities
of its operations should reflect local, regional and national circumstances and
priorities.

Regional innovation strategies should be helped to build more on regional

distinctiveness rather than simply identifying the same set of priorities (ICT,
biotechnology, new materials). It is important to recognise the significance of
innovation and new technology for “traditional” Sectoral activities (e.g. tourism).
Opportunities for linking Sectoral strengths (for example, combining strengths in
medical care and tourism, or in energy and environment) should be examined, and
strategies to capitalise on them fostered.

In a globalising economy, regions should be the prime focus for economic policy.
Hence, regional policy and innovation policy should be mutually beneficial. It is also
an important aspect in encouraging improved links between universities and their
local region. Recently, efforts have been made to rethink tools designed for improving

35
 national innovative performance, such as foresight, to make them relevant in the
regional context.

Now there is an opportunity to rethink about “new economy” incubators. They tend
to focus mainly on high-tech and inter-related activities and unlike traditional
incubators do not have job creation as their principal aim. They have a strong virtual
presence with financial and business service at the core of the offering, and not
physical workspace as usual.

There are different set up funding models in which incubator covers their operating
costs, but the existing dependence on the public subsidies should me minimised.
They should be promoted by an inclusive partnership of public and private sector
stakeholders.

10.State aid and competition policy

State aid control, as an integral part of competition policy, helps to maintain

competitive markets. The EC Treaty prohibits any aid that distorts or threatens to
distort competition in the common market (Article 87(1)). State aid may lead to
distortion of competition by favouring certain firms or the production of certain
goods. Controlling state aid therefore guarantees a level playing field for all firms
operating within the internal market.

As intermediaries, incubators perform functions that can directly assist SMEs (the
innovators) in the innovation process. No specific framework exists that recognises
the important role of incubators as intermediaries, or which provides guidance on
assessing incubators. As such, good quality schemes may not be readily permitted
under existing rules (eg, under the R&D or SME aid frameworks), and concerns have
also been expressed over the lack of transparency (regarding a scheme that has been
put forward). Reliance on the regional aid framework, SME aid and the de minimis
provisions is not ideal.

As a result of the complexity of the innovation process, targeting such processes for
the purposes of state aid may not always be possible. In relation to the activities that
may be necessary to successfully innovate, the following are important:
• basic research
• applied research
• development
• design
• training of employees
• machinery and equipment new to the firms, embodied technology;

36
 • acquisition of third-party patented inventions, licences on patents, non-
patented
• knowledge, designs, and other services and technologies, disembodied
technology
• marketing

Aid provided to intermediaries, rather than to specific firms, may distort competition
less—in particular if the services supplied by these intermediaries are not currently
provided in the private sector to any large extent (eg, seed funding, incubation).
Moreover, the complexities of the innovation process may mean that, in certain
situations, state aid for intermediaries is more appropriate than support for specific
firms, particularly in the case of small firms, since the private sector or state-owned
intermediaries are potentially better at picking winners than central government.

If research organisations or other not-for-profit innovation intermediaries (for

example, technology centres, incubators) perform economic activities, such as renting
out infrastructures, supplying services to business undertakings or performing
contract research, this should be done on normal market conditions, and public
funding of these economic activities will generally entail State aid. However, if the
research organisation or not-for-profit innovation intermediary can prove that the
totality of the State funding that it received to provide certain services has been
passed on to the final recipient, and that there is no advantage granted to the
intermediary, the intermediary organisation may not be recipient of State aid.4

Member states are obligatory to comply with the procedural requirements of Article
88(3) of the EC Treaty by notifying the aid scheme before putting it into effect.

Example of such a communication with the EC is presented on the case of German

Aid scheme

On 3 May 2005, the Commission authorised, on the basis of Article 87(3)(c) EC, a German aid
scheme providing public support for the creation or development of incubators and
technology centres, with newly created and technology-oriented small and medium-sized
enterprises (SMEs) using the services of the centres being the indirect beneficiaries. The
annual budget of the scheme, which will run until end 2006, amounts to € 120 Mio.

Aim and design of the aid scheme

The importance of incubators and technology centres is threefold. Firstly, they favour the
setting up of new companies, secondly, they provide the appropriate business support
needed to increase the chances of their survival and, thirdly, they provide infrastructure and
services to undertakings involved in innovative activities. The aid scheme intends to support

4
Community framework for state aid for research and development and innovation

37
the SMEs by giving them the possibilities to rent rooms, to obtain consultancy services,
research accommodation and special equipment, as well as to cooperate with universities,
research institutes and enterprises in or via the centres. However, instead of directly
supporting the targeted SMEs, Germany will provide financial support to a certain group of
investors in order to encourage them to construct a building for the purpose of a technology
centre or incubator, so that these centres can let facilities and provide services to the
targeted group of SMEs. In order to better understand the design of the measure, three
different levels of operators have to be distinguished: the investors into the centres, the
centres and their management and the tenants of the centres. The investors of the centres
are defined as municipalities and counties, but can also be public or private non-profit-
making establishments. The centres are usually either non-profit-making owner-operated
municipal enterprises or separate non-profit-making legal entities. The tenants may be newly
created or technology-oriented SMEs. The tenants have to pay a tenancy for the rooms and
top-ups for the use of other facilities like laboratories or specific equipment and/or
consultancy services if applicable. The tenancy and/or the price for other acilities/services will
normally be below market price. The tenants can use the centres for normally five years
whilst the centres will be obtained for at least 15 years.

Assessment

The rather complex design of the measure made it very difficult to identify the aid
beneficiaries and to conclude the compatibility of the measure with the common market. The
measure at stake creates incentives for one set of potential economic operators, the holders,
in order to provide support to another set of operators, the tenants. In addition, the measure
implies that a third set of potential economic operators is created, the centres, which are
existing separately from the holders and the tenants. Even if the intention of the German
authorities may be only to provide benefits to the tenants, enterprises at either one or all
three levels may be beneficiaries of State aid. Accordingly, the Commission assessed the
existence of aid at three different levels: the level of the holders, the level of the centres and
their management and the level of the tenants. In its decision, the Commission considered
that the holders could actually only be regarded as a vehicle for the transfer of aid to the
tenants (through the centres) rather than being an aid beneficiary themselves. Germany
could prove that no economic advantage will remain at the level of the holders as there will
be a public tender for the construction of a centre, as the holders are obliged to obtain the
centres and to let their accommodation for, at least, a period of 15 years and as any potential
advantage remaining after this period will be re-transferred to the Sate, calculated by
applying common evaluation methods.

The centres and their management were also considered as vehicles for the transfer of aid to
the tenants as they do not receive an economic advantage under the scheme. In case a
centre is to be managed by third parties and not by the holder, the German authorities
committed themselves then to tender the management of a centre. The management of a
centre will only receive a market conform remuneration as pre-defined in the tender. The
German authorities undertook to also apply the aforementioned profit-transfer at the level of
the centres. They furthermore committed themselves to monitor the measure and to strictly
control the use of funds, thereby ensuring that the aid is completely passed through to the
tenants. However, concerning the tenants of the centres, the Commission concluded that,
through the holders and the centres, the SMEs who rent accommodations in the centres and
use their facilities benefit indirectly from State resources and receive an economic advantage
in such cases where the tenancy and/or other facilities are granted below market price. It was
further considered that the measure distorts or may distort competition as it targets certain

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undertakings, the tenants, and affects trade as the award of the advantage to SMEs engaged
in economic sectors where intra-Community trade takes place is not ruled out. As Germany,
in the course of the investigation procedure, had committed to apply Regulation (EC) N°
69/2001 concerning de minimis aid at the level of the tenants, the Commission concluded
that the measure constitutes State aid within the meaning of Article 87(1) EC insofar as it
exceeds the ‘de minimis’ threshold of € 100,000 per beneficiary over a three years period.
Concerning the application of the de minimis threshold to the different facilities offered by
the centres, the Commission noted the following: – Insofar as the renting of rooms is
concerned, it was noted that the German authorities had committed themselves to respect
the provisions of Regulation (EC) No 69/2001 at the level of the tenants. Germany undertook
to calculate the aid elements of the tenancy for the rooms rented by the tenants on the basis
of the equivalent comparative rent of similar premises. Thus, Germany could ensure the
respect of the de minimis — threshold of 100,000 € over a period of three years. Germany
will therefore inform each end-user of the centre that there may be an aid element when
using the services of a centre, which will be counted as de minimis aid and be subject to the
requirements of Regulation (EC) No 69/2001. – Insofar as the use of laboratories and other
specific equipment is concerned (in particular in technology centres), the German authorities
informed that this aid element is reflected in a top-up on the tenancy. It can therefore be
separated from the normal rent. It is noted that the German authorities also committed
themselves to respect Regulation (EC) 69/2001 with regard to these top-ups for the rent of
laboratories and specific equipment. However, as to the consultancy services, the aid
element was not limited to the de minimis threshold and had to be considered as State aid
falling within the scope of Article 87(1) EC. The aid could be approved pursuant to Article
87(3)(c) EC as Germany, in the course of the investigation procedure, undertook that the
prices for consultancy services would never be below 50% of the market prices. The aid could
thus be considered as being in accordance with Regulation (EC) 70/2001 concerning aid for
SMEs, particularly Article 5 thereof.

The presented case is remarkable for three reasons: Firstly, it concerns several levels
of operators, a legal situation that is currently solely addressed in the Commission
communication on State aid and risk capital and in point 2.4 of the Community
framework for State aid for research and development, but both times for rather
specific situations. The Commission’s scrutiny showed how difficult it often is to
identify the aid beneficiary and to achieve the compatibility of such measures.

Secondly, even if it may not be obvious from the decision text, it demonstrates the
importance of strengthening the economic approach to State aid analysis, be it to
identify the aid and the aid amount, or be it, in the context of the compatibility
assessment, as an instrument to better focus and target certain State aid towards the
objectives of the re-launched Lisbon Strategy. Lastly, although an approval could be
achieved on the basis of the currently existing State aid rules, the case indicates that
incubators and technology centres as intermediaries providing infrastructure and
services to undertakings involved in innovative activities may not be sufficiently
covered by existing State aid rules. The Commission, in particular with its consultation
documents on the State aid action plan and on Innovation and State aid, is currently
seeking to address such issues in future State aid rules.

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E. REFERENCES
„EUROPE 2020 A European Strategy for smart, sustainable and inclusive growth“ European
Commission

„The Use of European Union Structural Funds for Education, Training and Research“ A Report
for Ministry of Science, Education and Sport of the Republic of Croatia

„Innovation market failures and state aid: developing criteria“ Report prepared for DG for
Enterprise and Industry European Commission

„Community framework for state aid for research and development and innovation“ Official
Journal C 323, 30/12/2006

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APPENDIX 1 DISCUSSION PARTICIPANTS
For Best Practice Analysis information was gathered from several technology
incubation centres in Croatia. Most of them are beneficiaries of the BICRO funding
programme for technology infrastructure development – TEHCRO. The necessary
information data that was needed to compare the chosen centres was collected in
several ways. The main tool for gathering information was EBN’s questionnaire for
evaluating and sorting different centres in the network. Other tools include personal
interviews with staff members, telephone conversations that explained and improved
conclusions of the interviews, financial reports, quantitative performance indicators,
media exposure, accomplishment of owners strategy (in most cases owners were
universities that wanted centres to be a supporting factor for students and science
projects).

After initial evaluation, most of the time was dedicated to VA::TP’s business, as the
best practice centre, but also to a few other interesting initiatives (like TERA’s project
BE THE ROLE MODEL) that are also included in the Best Practice Analysis.

Discussion Participants:

Mr. sc. Andrija Petrović

General Manager
Technology park Varaždin Karlo Kukec
Assistant Manager for Technology
Technology park Varaždin
Emilija Žuvić
Consultant for EU funds and Finance
Technology park Varaždin Martina Panić
Consultant for EU funds and Finance
Technology park Varaždin
Aleksandra Jenkač
Expert Assistant in IT
Technology park Varaždin Dr. sc. Ivo Orlić
General Manager
Science and Technology Park Rijeka
Neven Taramut
Business Development Manager
Science and Technology Park Rijeka

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 Jana Blažević Marčelja
Office Manager
Science and Technology Park Rijeka
Matija Derk
General Manager
Technology-Innovation Centre Međimurje Sandra Polanec Marinović
Incubator and Training Manager
Technology-Innovation Centre Međimurje

Ivan Plačko
Manager of tech transfer and commercialization of innovation
Technology-Innovation Centre Međimurje Irena Horvat
Administrator
Technology-Innovation Centre Međimurje
Ivan Sertić
General Manager
Industrial Park Nova Gradiška Dr.sc. Ivan Štefanić
General Manager
Technology Development Centre Osijek
Ana Nikšić
Consultant for research projects, finance and economics, accounting supervisor
Technology Development Centre Osijek
Dr.sc. Jura Jug-Dujaković
General Manager
Mariculture Business Innovation Center
Beti Begunac
Accountant
Mariculture Business Innovation Center

The evaluated centres are all in different development phases which made
comparison more difficult. The main parameters of the comparison were Mission and
legal status, Organisation development, Financial assessment, Services to start-ups,
Services to existing SMEs, Signposting to partner organisations. All parameters have
numerous sub-questions that needed to be answered in order to give a complete
picture of the business. After going through the responses of the questionnaires,
personal interview were made with the most successful ones where TVA::TP showed
the best results.

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APPENDIX 2 DEFINITIONS
BUSINESS INCUBATOR (EBN)
A Business Incubator is a specialised instrument in regional economic development
and regeneration through the provision of multi-disciplinary professional support to
innovative entrepreneurship and SMEs in an international context.

BUSINESS SUPPORT SERVICES (CEC)

Business support services are "those services, originating in a public policy initiative,
that aim to assist enterprises or entrepreneurs to develop their business activity
successfully and to respond effectively to the challenges of their business, social and
physical environment".

SCIENCE PARK (IASP Official definition)

A Science Park is an organisation managed by specialised professionals, whose main
aim is to increase the wealth of its community by promoting the culture of innovation
and the competitiveness of its associated businesses and knowledge-based
institutions.
To enable these goals to be met, a Science Park stimulates and manages the flow of
knowledge and technology amongst universities, R&D institutions, companies and
markets; it facilitates the creation and growth of innovation-based companies
through incubation and spin-off processes; and provides other value-added services
together with high quality space and facilities.

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