93039 II THE WORLD BANK Copyright The report “Enabling International Market Linkages: Lessons and Insights. Smart Lessons for Supporting Internationalization through Enablers” is available at www.infodev.org/articles/ internationalization-smart-lessons. Rights and Permissions This work is available under the Creative Commons This report has been authored by the following Attribution 3.0 Unported license (CC BY 3.0) infoDev staff and consultants: Heidi Humala, Laith http://creativecommons.org/licenses/by/3.0. Kassis, Ellen Olafsen and Julian Webb. Under the Creative Commons Attribution license, you are free to copy, distribute, transmit, and adapt Copyright this work, including for commercial purposes, © 2014 International Bank for Reconstruction and under the following conditions: Development / The World Bank Mailing Address: MSN I9-900 1818 H St. NW, Attribution—Please cite the work as follows: Washington D.C., 20433 USA infoDev. 2014. “Enabling International Market Telephone: (+1) 202- 458-4070 Linkages:LessonsandInsights.”Washington,DC:The Website: www.infoDev.org World Bank. Website: Email: info@infodev.org www.infodev.org/articles/internationalization- Twitter: @infoDev smart-lessons Facebook: /infoDevWBG License: Creative Commons Attribution CC BY 3.0 Some rights reserved. Translations—If you create a translation of this work, please add the following disclaimer along This work is a product of the staff of The World with the attribution. Bank with external contributions. Note that The World Bank does not necessarily own each This translation was not created by The World component of the content included in the work. Bank and should not be considered an official The World Bank therefore does not warrant that World Bank translation. The World Bank shall not the use of the content contained in the work will be liable for any content or error in this translation. not infringe on the rights of third parties. The risk of claims resulting from such infringement rests All queries on rights and licenses should be solely with you. addressed to infoDev, The World Bank, 1818 H Street NW, MSN 5K–508, Washington, DC The findings, interpretations, and conclusions 20433,USA; telephone: 202-458-8831; Internet: expressed in this work do not necessarily www.infodev.org; email: info@infodev.org. reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Nothing herein shall constitute or be considered to be a limitation upon or waiver of the privileges and immunities of The World Bank, all of which are specifically reserved. 2 TABLE OF CONTENTS 1. EXECUTIVE SUMMARY 4 2. INTRODUCTION 7 3. THE PURSUIT OF INTERNATIONAL MARKET ACCESS 8 4. ENTREPRENEURS NEED BETTER SUPPORT FOR INTERNATIONALIZATION 10 5. THE PILOT DESIGN 11 6. RESULTS AND LESSONS FROM PILOT ACTIVITIES 13 6.1 TOP20 CO-INCUBATION PILOT PROGRAM 13 6.2 VENTURE OUT CHALLENGE 20 6.3 INTERNATIONALIZATION SERVICE DEVELOPMENT AT ENABLERS 24 6.4 TRAINING WORKSHOPS 30 7. EVALUATION AND FOLLOW-UP 32 LIST OF FIGURES Figure 1: Is International Business Better Business 7 Figure 2: International Orientation of Early-stage Enterprises by Geographic Regions 9 Figure 3: Barriers to Internationalization 10 Figure 4: Overview of Internationalization Pilots 11 Figure 5: Services Provided to the Top20 14 Figure 6: Overview of Top20 Companies 15 Figure 7: Summary Results 19 Figure 8: Lessons Learned & Research Questions 19 Figure 9: infoDev’s Mobile Innovation Program 20 Figure 10: Overview of Venture Out Challenge finalist companies 21 Figure 11: Key Lessons and Future Research 23 Figure 12: Internationalization Portfolio 28 Figure 13: The Four Components Of Business Incubation 33 Figure 14: Issues to Consider for Internationalization Program Design 34 Figure 15: Pros & cons of the alternative approaches tested 35 3 1. EXECUTIVE SUMMARY Growth-oriented entrepreneurs, especially those in small countries and those that are highly innovative, often look to international markets to grow their business. From a development perspective, entrepreneurs’ successful expansion into international markets can mean revenue growth and job creation at the enterprise level, along with spillover effects into innovation, industry competitiveness, and foreign exchange on a broader economic level. The traditional approach to enterprise infoDev focuses on enabling the growth of early-stage internationalization was that a company began by first enterprises across the developing world. Over time, growing solidly in its home market, and then started infoDev has built up a significant global network of exploring opportunities for expansion in new markets. business enablers across the world. Business enablers A number of large multinationals have followed this are defined as organizations that provide early-stage path. However, today, a growing number of companies growth-oriented enterprises with a holistic service are venturing internationally from the start; their path offering to enable their growth. Given the apparent to internationalization is much more rapid than the shortcomings of traditional export and trade promotion traditional one. These “born globals” are thought agencies in promoting internationalization of early- to emerge from new market conditions, advances in stage enterprises, infoDev set out to test whether technology, and managerial change. While one might business enablers could potentially play a key role immediately assume that most of these “born globals” in facilitating access to international markets for would be virtual economy players or technology firms, these entrepreneurs, and whether infoDev could play research indicates that this trend is emerging in a meaningful role given its linkages with business traditional sectors as well.1 enablers across the world. While “born global” companies may be a new trend, In total, around 200 early-stage enterprises from more entering international markets can be complex and than 35 countries across Africa, Asia, Latin America, the costly. First, enterprises need to efficiently understand Caribbean, and Eastern Europe participated in these the true international market opportunities for their pilots. These were selected from a pool of more than product/service. This includes conducting market 800 enterprises. research and obtaining market validation, adapting the product/service and marketing approach for the The participating enterprises reported that they face the target market, understanding legal requirements following challenges when trying to enter international and standards required, securing capital to cover markets: these preparation activities as well as the initial entry into the foreign market, and much more. As 1. Limited access to capital combined with the high described by an entrepreneur participating in infoDev’s costs of entering a foreign market internationalization pilot program: “One of the most 2. Lack of requisite managerial knowledge about difficult parts of starting a venture is gaining credibility what internationalization entails in the market. With little experience in the market and 3. Limited knowledge of overseas market no prior deployment experience, the case for our venture opportunities, including industry expertise was not easy to make. It takes a particular investor and 4. Limited assistance available to overcome the stakeholders to gain the enough confidence to take a above risk on such a venture. “ 4 1· http://timreview.ca/article/532. From 2010 to 2013, infoDev piloted four alternative The results and lessons presented in this report focus approaches, leveraging business enablers to enable primarily on those derived from the Top20 and the international market access for small, relatively early- internationalization service pilots. infoDev will update stage, growth-oriented enterprises. These pilots were this report with new data from the VentureOutChallenge made possible due to the financial contribution of the and internationalization training workshops as soon Ministry for Foreign Affairs of Finland. With a total as they become available. Nevertheless, interesting budget of about $1.4M, the following four approaches results and lessons are already emerging. were tested: Some of the enterprises decided to do business together. • Co-incubation (Top20) -whereby 50 early-stage For example, as an outcome of the internationalization enterprises with international aspirations were workshop in India, T-Files from Indonesia started selected out of an application pool of 700 sourced from planning expansion of her marine current power business incubators. These were then convened and generator in the Philippines. provided with exposure to angel investors. The top 20 enterprises were advised by international mentors and Regarding the 32 enterprises that were either finalists in assisted by business incubators in their target markets; the Top20 or that participated in the internationalization services pilots: 16 enterprises acquired new clients; • An internationalization challenge (VentureOutChal- more than 63 business to business contracts were lenge) – where 25 early-stage mobile application enter- signed; 13 enterprises entered into strategic alliances prises were selected out of an application pool of 110 with foreign organizations, including for the purpose of sourced from business enablers. The selected enter- cooperation on technology; and 8 enterprises secured prises were advised by mentors over a six-month pe- finance, with seed, equity, and debt financing totaling riod, and the top 13 were convened for coaching and a about $36M. The value of these outcomes in terms pitching competition; of revenue growth and job creation will only become evident in the next 12 month period, but within the pilot • Internationalization training workshops where about 40 period itself, it appears that more than 550 new jobs business enablers (during infoDev’s 5th Global Forum in were created. South Africa) and 18 internationally oriented early-stage enterprises (during an SME Internationalization workshop At the level of business enablers, the primary outcome in India) were convened for peer-to-peer learning; thus far is increased knowledge as to how a viable business model for internationalization service delivery • Development of a new service line for business can be delivered. Again, the longer term impact of incubators to provide domestic early-stage enterprises this increased knowledge on new or improved service with guidance and linkages to access markets abroad. delivery, and in turn, the effect on the enterprises This approach was tested with two business incubators, served will only be evident in a few months’ time. and with an initial pool of 10 companies. Key insights include: While the scope and budget of the internationalization • In the process of carrying out these activities, pilot activities varied, they shared the same overarching it became clear that the benefits of international objective: to test if and how business enablers could be linkages for business growth extend beyond the effectively leveraged to assist growth-oriented early- narrow focus of export to or direct investment in stage enterprises with entering international markets. a foreign market. In the process of exploring the potential for expansion to foreign markets, many of The Top20 Pilot Program ended in June 2013, the the entrepreneurs found new business partners and internationalization training workshops were held in investors abroad. Business enablers should thus May and June 2013, the internationalization service think about international markets broadly, not only pilots were completed in December 2013, and the from the perspective of customers, but also looking VentureOutChallenge in February 2014. The data to provide the entrepreneur with the capital, industry for this report was thus collected only 0-6 months know-how, and technology needed to increase the upon completion of the pilots, and it is therefore still competitiveness and growth of the firm. premature to assess the full “return on investment” of these pilot activities. 5 • Significant discussion emerged from these • Drawing from the Top20 experience, it was decided pilots concerning what makes an enterprise the VentureOutChallenge would focus on one sector “internationalization ready.” As discussed above, only. This allowed for more meaningful interaction entering international markets can be complex and between the participating entrepreneurs. While the costly, and the enterprise must be in a position where Top20 enterprises did derive value from interacting with it takes calculated risks based on the knowledge entrepreneurs in other sectors, it proved more effective of the foreign market as well as the knowledge of for entrepreneurs in the same sector. the firm’s capacity. New ideas emerged on whether it may be useful to develop a self-diagnostic for • An important value derived from having been selected entrepreneurs that would ask core questions to as a Top20 enterprise was increased visibility and seriously consider before taking the international credibility. One of the participating mobile enterprises leap. While such an “internationalization readiness” directly attributed its first contract with a telecom tool may make a difference, it will by no means ensure operator to the credibility provided by the Top20 success. As indicated during the pilot, it may cause award. Another entrepreneur, who is an education some entrepreneurs to rethink their international solutions provider, reported that he was contacted by aspirations, avoid costly mistakes, and focus instead on the Ministry of Education to serve as an advisory on its strengthening weak aspects of the business. new “technology” curriculum committee, which later resulted in a government contract to supply public • In line with key findings from business enablers schools. In the words of one entrepreneur: “the award worldwide - coaching and mentoring throughout the gave us the legitimacy, confidence, and potential to internationalization process was a critical need in all target the regional and the global market.” of the pilots. Entrepreneurs do not always know what knowledge they are lacking, and help from someone • The added value of the training workshops, which who can ask the right questions is critical. The level were all premised on a peer-to-peer learning of support required exceeded expectations. Similar approach, was the opportunity for entrepreneurs to programs in the future should thus plan for appropriate explore B2B linkages amongst themselves and others. time and resources to be allocated to the coaching The following quote from a participating entrepreneur process. exemplifies this; “We were able to expand our network of connections at various levels, including with fellow • Beyond coaching and mentoring, areas where entrepreneurs, venture capitalists, and financing entrepreneurs frequently needed assistance, was organizations. We were able to share ideas, information quality management requirements/standards in target and experiences, and we discussed the challenges markets and related product/service customization, facing us and potential future cooperation with various technology acquisition, market research and expert parties.” This is where infoDev’s primary added value advice to understand market potential, as well as emerged. Enablers and businesses would not have professional marketing materials in foreign languages been acquainted without infoDev leveraging its network for target markets. to convene them. • While the pilots showed that the business enablers • Finally, infoDev derived a range of lessons with can play a key role in sourcing entrepreneurs with regard to monitoring and evaluation of these types of international potential, the Top20 pilot revealed programs. difficulties with the concept of business incubators as effective service providers for foreign early-stage The nature of the pilots, as well as the results and enterprises. If a co-incubation scheme were to be insights gained are discussed in further detail in tested again, more effort is needed to assess the the report. Short case studies are also available on readiness of the potential host incubator to provide the several of the enterprises that participated in the services needed. That being said, it is not clear whether internationalization pilots. specialized competencies in the host incubator are needed. Indeed it may be that a business enabler that effectively serves its domestic clientele would also be able to serve a foreign clientele effectively. 6 2. INTRODUCTION Growth-oriented entrepreneurs, especially those in small countries, often look to international markets to grow their business. From a development perspective, FIGURE 1: IS INTERNATIONAL entrepreneurs’ successful expansion into international BUSINESS BETTER BUSINESS? markets can mean revenue growth and job creation at the enterprise level, along with spillover effects into innovation, industry competitiveness, and foreign exchange on a broader economic level. There appears to be a strong correlation However, entrepreneurs do not always have the between the level of international activity necessary know-how and networks to expand beyond in small firms and their level of growth and their national market, nor do they have effective innovation. An assessment carried out by the resources they can draw upon to gain access to the Asia-Pacific Economic Cooperation (APEC)3 required knowledge and contacts. shows that internationally active SMEs reported 10 percent employment growth, infoDev focuses on enabling the growth of early-stage whereas SMEs that operate domestically only enterprises across the developing world. With more grew by 3 percent in the same time period. than a decade of experience in entrepreneurship Likewise, 26 percent of internationally active promotion, infoDev has built up a significant global SMEs introduced products or services that network of business enablers across the world. In 2010, were new for their sector in their country, infoDev started testing if and how this global network whereas only 8 percent of SMEs active only in could be leveraged to facilitate international market their domestic market did the same. linkages that would enable the growth of early-stage enterprises. During 2010 – 2013, infoDev piloted a few approaches to enable international market access for small, relatively early-stage, growth-oriented enterprises. In total, about 200 enterprises from more than 35 countries participated in these pilots. The results and lessons from these pilot projects summarized in this document provide insights for practitioners who are considering increasing international market access for early- stage entrepreneurs. Recommendations as to further research in this field are also provided. For the purposes of this document, the term ‘internationalization’ is defined as foreign direct investment, as well as activities that put companies into a meaningful business relationship with a foreign partner for the purpose of importing, exporting, subcontracting, or technical cooperation. 3 · APEC (2009) SME Market Access and Internationalization: Medium-term KPIs for the SMEWG Strategic Plan APEC Policy Support Unit, http://publications.apec.org/ publication-detail.php?pub_id=1050. 7 3. THE PURSUIT OF INTERNATIONAL MARKET ACCESS Growth-oriented entrepreneurs in small markets have little choice but to look abroad to fulfill their growth aspirations. Therefore, it is not surprising that small economies stand out for their high levels of international trade by early-stage entrepreneurs; according to the 2013 Global Entrepreneurship Monitor, Singapore, Luxemburg, Israel, Croatia, Ireland, and Slovenia top the charts of the most internationally active early-stage The motives behind companies wanting to enterprises. As depicted in Figure 2 below, in general internationalize are complex. A recent OECD study5 terms, in Latin America & the Caribbean, Middle East highlights the importance of the entrepreneurs’ & North Africa, Sub-Saharan Africa, and Asia Pacific & awareness of international opportunities, networks with South Asia, 35 percent of early-stage enterprises have a country’s diaspora, as well as access to knowledge customers outside their countries. These percentages resources and a desire to leverage knowledge assets are significantly higher in Europe and North America residing in external actors as key factors motivating where somewhere between 60 to 70 percent have entrepreneurs to internationalize. customers abroad.4 Is this because the entrepreneurs in the former countries are less growth-oriented or less competitive? Is it because they face more barriers to internationalization? Or perhaps they can fulfill their growth aspirations at home? 4 . Global Entrepreneurship Monitor, Global 2013 Report, http://www.gemconsortium.org/docs/download/3106 5 . OECD (2009), “Top Barriers and Drivers to SME Internationalization”, Report by the OECD Working Party on SMEs and Entrepreneurship, OECD. 8 STAGE L ORIENTATION OF EARLY- FIGURE 2: INTERNATIONA PHIC REGIONS MAPPING ENTERPRISES BY GEOGRA 100% Total Early-Stage Entrepreneurial Activity: Export: 90% 75 - 100% of customers 80% outside country 70% Total Early-Stage Entrepreneurial Activity: Export: 60% 25 - 75% of customers outside country 50% 40% Total Early-Stage Entrepreneurial Activity:Export: 30% 1 - 25% of customers outside country 20% Total Early-Stage Entrepreneurial 10% Activity: No customers 0% outside country Latin American & Caribbean Middle East & North Africa Sub-Saharan Africa Asia Pacific & South Asia Europe - EU28 Europe - Non EU28 North America * SOURCE: Global Entrepreneurship Monitor, Global 2013 Report 9 4. ENTREPRENEURS NEED BETTER SUPPORT FOR INTERNATIONALIZATION Before designing the internationalization pilots, infoDev surveyed the perceived needs of the companies selected for the first pilot. Figure 3 provides an overview of key challenges identified by the for support from the public sector. Literature6 also entrepreneurs. As illustrated by these insights, along highlights the need for government-driven efforts to with those documented by others, is that beyond the facilitate partnerships with the private sector. The desire to internationalize, entrepreneurs need access report further suggests that the private sector could to resources that help them to identify opportunities, have greater involvement in designing and providing assess the feasibility of pursuing these opportunities, SME internationalization support to address concerns and navigate the actual internationalization process. and to emulate the success of such partnerships in These expressed needs also illustrate that there is countries such as Finland. more to the internationalization process than import and export policies, which is often the focus of public The needs of early-stage enterprises are often not met policy debate. by chambers of commerce or conventional trade and export promotion agencies. Often, these organizations serve more mature markets and established FIGURE 3: BARRIERS TO companies, and they do not necessarily provide the level INTERNATIONALIZATION of assistance and coaching that early-stage enterprises in emerging markets need. Early-stage enterprises that took part in infoDev Business enablers - defined as organizations that pilots during 2011 - 2013 report that they face provide early-stage growth-oriented enterprises with the following challenges when trying to enter a holistic service offering to enable their growth - international markets: could potentially play a key role in facilitating access to international markets for early-stage enterprises. • Limited access to capital combined with the Since the creation of the first International Business high costs of entering a foreign market Incubators in the 1980s and 1990s in the USA, as well as • Lack of requisite managerial knowledge about the international business incubators in China to help internationalization international companies enter the Chinese market, • Limited knowledge of overseas market SME internationalization has been a hot topic in the opportunities, including industry expertise industry, especially in Asia, Europe, and the Americas. • Limited assistance available to overcome the For incubators and other enablers (accelerators, hubs, above. labs, etc.) the entire value chain presents new growth opportunities for the incubators and opens up a new channel for local economic development by attracting international entrepreneurs. It was against this background that infoDev designed Many countries have trade and export promotion a set of pilot activities aimed at leveraging its agencies that are intended to facilitate enterprise access international network of business enablers, such as to international markets. However, it is clear from business incubators, accelerators, and innovation hubs, literature that there is more room for improvement in to assist entrepreneurs with brokering linkages within terms of public support for internationalization, and its international network of enablers, each of whom has raising awareness among SMEs about opportunities their own networks and linkages. 6 . Global European Commission (2011), Enterprise and Industry, “Opportunities for the internationalization of European SMEs” OECD (2009), “Top Barriers and Drivers to SME Internationalization”, Report by the 10 OECD Working Party on SMEs and Entrepreneurship, OECD. 5. THE PILOT DESIGN With a total budget around $1.4M, four approaches were tested over a two-year period: • Co-incubation - whereby early-stage enterprises • Internationalization services delivered by business with international aspirations were sourced from incubators to domestic early-stage enterprises with incubators, convened, and advised by international the aim to enable their access to markets abroad. mentors, and assisted by incubators in their target markets (Top20); An overview of the reach and characteristics of each of these approaches is provided in Figure 4 below. • An internationalization challenge – whereby early- The first three approaches were all designed to stage mobile applications enterprises were sourced pro-actively leverage infoDev’s network of business from business enablers, advised by mentors over a six- enablers present across the globe both to identify week period, and convened for coaching and a pitching high potential entrepreneurs and solutions, and competition (VentureOutChallenge); to provide high potential entrepreneurs with the know-how to assess the feasibility of their • Internationalization training workshops where internationalization aspirations, derive a plan of business enablers and internationally oriented early-stage action, and implement it. The fourth approach was enterprises were convened for peer-to-peer learning; not as focused on leveraging infoDev’s international FIGURE 4: OVERVIEW OF INTERNATIONALIZA TION PILOTS PILOT REACH DESCRIPTION TOP20 CO- Over 700 applications To stimulate applications by innovative, growth-oriented INCUBATION were received from entrepreneurs from developing countries, workshops were PILOT PROGRAM 65 countries. 50 held in over 30 countries in Eastern Europe & Central companies were Asia, Middle East & North Africa, and Latin America. 700 selected to participate applications were screened against key readiness criteria, at infoDev’s 4th Global including: innovativeness of the product/service, viability of Forum (Finland 2011), product in the intended foreign market, business model, and where 20 companies team. The 50 companies selected were invited to exhibit at were selected for the infoDev’s 4th Global Forum in Helsinki, where they were also co-incubation pilot introduced to angel investors. An expert panel of 12 judges program. (comprising seasoned entrepreneurs, industry specialists and investors) selected 20 companies (the “infoDev Top 20”) to win The Top20 companies cash awards ($10,000 per company) and technical assistance represented: to assist them in their internationalization endeavor. Each Brazil, Bulgaria, Chile, entrepreneur was matched with a mentor who helped the Colombia, Egypt, entrepreneur reassess his/her internationalization plan. The Georgia, Guatemala, company was then matched with an incubator in its target India, Kenya, Palestine, country for internationalization. Syria, Tunisia, Turkey, (Budget: $700,000) Uruguay, and Vietnam. 11 PILOT REACH DESCRIPTION VENTUREOUT 113 applications were This activity focused specifically on early- CHALLENGE received from 11 countries. stage entrepreneurs in the mobile applications 24 semi-finalists were industry. To stimulate applications, infoDev selected for a virtual six- reached out to business enablers in its network week mentoring program, in Armenia, Jamaica, Kenya, Macedonia, Nigeria, from which 13 finalists Senegal, South Africa, and Trinidad, which selected to participate in final ran events to raise awareness. Entrepreneurs pitching competition for the submitted their applications online, and an selection of 3 winners. industry panel used the online platform to select 24 semi-finalists. The 24 semi-finalists The 24 semi-finalists were provided with mentors, who mentored represented: the finalists over a six-week period using Armenia, Azerbaijan, an online platform. At the end of the six- Benin, Croatia, Jamaica, week period, the entrepreneurs submitted an Kazakhstan, Kenya, Moldova, improved pitch via the online platform, which Nigeria, Romania, Senegal, the judges commented on. 13 finalists were then South Africa, Tanzania, selected to participate in a final face-to-face Trinidad & Tobago, and pitching event, where they also received further Uganda. coaching. The three winners who were selected won cash prizes of $10,000 each to put their internationalization plan into action (Nov). (Budget: $300,000) TRAINING Reaching altogether 60+ Internationalization training delivered by infoDev WORKSHOPS incubator managers and specialists over the course of one day in South companies. Africa and three days in India. (Workshops at infoDev’s 5th Global Forum in South Africa 2013 Participants represented: and Internationalization Workshop in India in Bhutan, India, Indonesia, 2013.) Kenya, Mozambique, Namibia, (Budget: $100,000) Nepal, Philippines, Senegal, South Africa, Thailand, Vietnam, and Zambia. INTERNATIONAL- Two business enablers A small grant and technical assistance were IZATION SERVICE in Belarus and Moldova provided to two existing business enablers in DEVELOPMENT respectively piloted a new Belarus and Moldova over the course of one- AT BUSINESS service offering to nine year. The grant and the technical assistance ENABLERS client companies in the ICT, were intended to support the development of a textile, and food industries. sustainable internationalization service as part of the business enablers’ service offering to its client companies. (Budget: $225,000) network, but more so on providing intensive coaching The Top20 co-incubation program was rolled out first, and some seed capital to two business enablers to help and generated a range of insights that were incorporated them derive and test an internationalization service into the design and implementation of the next pilots. offer that could become part of their ongoing service Notably, the VentureOutChallenge was sector specific, portfolio. focusing on mobile applications entrepreneurs only. 12 6. RESULTS AND LESSONS FROM PILOT ACTIVITIES While the scope and budget of the internationalization pilot activities varied, they shared the same overarching objective: to test if and how business enablers can effectively be leveraged to assist growth-oriented • 13 enterprises entered into strategic alliances with early-stage enterprises to enter international markets. foreign organizations, including for the purpose of cooperation on technology In aggregate, key results from the pilots included: • 8 enterprises secured capital, with seed, equity, and • Approx. 200 enterprises and/or enterprise enablers debt financing totaling about $36M (with the bulk of this received some form of guidance with regard to their financing attributable to the Top20 program). internationalization aspirations Below follows an analysis of the results for each pilot • 12 enterprises acquired new clients (results to date) 7 and the key lessons that can be gleaned from them. 6.1 Top20 Co-incubation As one of infoDev’s Top20 winners, we were able Pilot Program to use secure new contracts with companies in Jordan, Egypt, and UAE. - Emad Ammouri, Ibtaker for Technological Innova- “Co-incubation” and “soft-landing” programs are not tion, West Bank. new, and the results have been mixed to date. In many ways the industry is still working out the best methods for business incubators and other similar business enablers to support the internationalization of early- market access through incubator-to-incubator stage enterprises. cooperation, also known as co-incubation. The term co-incubation is commonly used to refer to From a pool of more than 700 applicants, 50 enterprises international business incubators offering services from 34 countries were selected to present at a specifically for foreign companies, typically those showcase at infoDev’s 4th Global Forum on Innovation established in their domestic market, irrespective of & Technology Entrepreneurship in Helsinki in 2011. A whether or not they originate from an incubator. The panel of experts comprising seasoned entrepreneurs strict meaning of co-incubation is when a company and investors then chose 20 companies to enter the co- is incubated by two or more incubators at the same incubation process. These companies, listed in Figure time, with one being the “base” incubator where the 6 below, received mentoring to help the entrepreneurs client company is originating from, and the other(s) reassess their internationalization readiness and being “recipient” incubator(s) in target markets. strategies, and to derive a plan of action. They also received a small cash prize of $10,000 each. The During a two-year pilot project focusing on co- intent was then to match them with a “host business incubation, infoDev sought to understand the capacity incubator” in their target market, which would assist of incubators in its network to generate international the entrepreneur in navigating that market. 7 . Results from the VentureOutChallenge will be available in Autumn 2014 following data gathering on project impact in the longer term. 13 In practice, it was more complex to implement the co- incubator managers do not proactively develop the incubation component than anticipated. As illustrated competencies needed to assess internationalization in Figure 5 below, a “host incubator” could only be readiness or to support companies in the identified for 12 of the companies. In a few cases, the internationalization process. A key lesson learned was companies identified alternative service providers, the need to perform a rigorous internationalization such as mentors or external business service providers readiness assessment of the aspiring company as (industry and/or market specialists). In practice, the well as the host incubator/enabler. The time needed “co-incubation” model per se was only tested with 12 for technical assistance and support throughout the companies. Amongst these, the experience and results internationalization program was also underestimated were varied. Internationalization is rarely the main and should be carefully considered and factored into objective of a business incubator. Consequently, most future program design. FIGURE 5: SERVICES PROVIDED TO THE TOP 20 AlKhawarizmy SolConEnergy ETHER VOICE ASSISTANCE Social Wire Addicts123 Solar Chile Acruxsoft TOTAL Chahtech Naiscorp Kabinata Ecofiltro PROVIDED Nandan Ibtaker MFarm ARVUS Access to Innovation Eco-System Mentors 9 companies Service providers 8 companies Incubators 12 companies Type of Product/ Service Development Provided Prototype/service 8 companies Product development 9 companies completed Patenting 7 companies Technologies 5 companies acquired Insight: “Internationalization” is more than import, export, and foreign direct investment. International linkages can also be used to access finance and technology expertise. Despite the challenges with implementing the Top20 co- incubation program as it was envisioned, many of the Top20 winners achieved significant internationalization As captured in Figure 7, a total of ten companies results. Out of the Top20, 15 companies completed the established strategic partnerships in target markets, full program. resulting in 34 MOUs. Of the 12 companies conducting 8 . Addicts 123: MoU with Al-Jaffal, a local Strategic partner that provided Addicts 123 with technical resources to be able to serve JEDCO Client in Jordan; Chahbani: MoU with the Ministry of Agriculture in Saudi Arabia through the agreement with Water Efficiency company located in France; EtherVoice: Working with a receiving incubator UN-EM in Spain, EtherVoice managed to get a better understanding of the Spanish market and signed 3 MoUs to sell their products Conexiona (Spain), Gigas (Spain), Vodafone (Spain); Ibtaker: Signed MOU with “Fun Science” Jordanian company to promote Ibtaker kits in Jordan and signed MOU with UNRWA in Palestine. Currently discussing to convey the success story to other UNRWA schools in the region such as Jordan, and Lebanon; mFarm: Creation of aggregator networks across Kenya; Naiscorp: Signed Strategic Partnership MoU with Funspot, NuMedia; Solar Chile: Joint Development Agreement (JDA) with First Solar, Power Purchase Agreement (PPA) with a mining client; Solcon Energy: 14 Prototype development MOU and work plan coordinated with the Fh-ISE, Germany. rigorous market research in their target markets, ten The outcomes of their participation varied widely, secured strategic clients in the target market and ranging from further exploration of international altogether 58 strategic clients were secured for the business opportunities (Alkhawarizmy, Arvus companies through the Top20 program. In terms of Technologia, Naiscorp), to securing strategic clients access to finance gained through the program, as well in their target markets (Addicts123, Acruxsoft srl, as number of jobs created, the total data becomes Ecofiltro, Ether Voice, mFarm, Naiscorp, and Solar skewed by including Nandan Cleantech from India Chile), to signing strategic MoUs (Addicts123, Chabani (which alone secured $8M in equity and $21M in debt Chachtech, Ether Voice, Ibtaker, mFarm, Naiscorp, financing, and created 350 FTE jobs) in the overall Solar Chile, Solcon Energy), to securing financing picture. Taking out Nandan Cleantech as the outlier, (Social Wire and Solar Chile) to technology collaboration more than $3M in external financing was raised by six (Nandan Biometrics and Solcon Energy). of the Top20 companies, and more than 200 FTE jobs were created by 13 companies (still with a broad range The key outcomes of their participation in the Top20 of 1-70 jobs per company). More than $3M in venture program during 2011 – 2013 are summarized in the capital was raised, mostly by Solar Chile alone. table below: FIGURE 6: OVERVIEW OF TOP20 COMPANIES TOP20 PRODUCT ORIGINATING TARGET OUTCOMES COMPANY COUNTRY COUNTRY ADDICTS 123 An affordable wireless GPRS Palestine Jordan and Strategic Customer: JDECO based supervisory control Arab Gulf Electricity Company in Jordan and monitoring system, States Strategic MoU: Al Jaffal Group (otherwise known as SCADA) that improves the operations of utility companies such as electricity, water, and gas in developing countries. ALKHAWARIZMY A search engine technology Egypt Dubai, UAE Participated in Gitex Exhibition with Arabic NLP products in Dubai to develop client inspired by the need to prospects, meet with investors provide comprehensive and and attempt to set up agents to accurate search results for represent the company in Dubai the Arabic language. The first step was to develop an Arabic morphological analyzer, which was followed by the development of the semantic word identifier. 15 TOP20 PRODUCT ORIGINATING TARGET OUTCOMES COMPANY COUNTRY COUNTRY ACRUXSOFT, Multi-purpose 3D simulator Uruguay Denmark Strategic Customer: S.R.L. tools in order to predict the and EUC Fiskeriskolen behavior of any industrial Scandinavian process, allowing the Countries user or analyst to make decisions and optimize their quality and performance. ARVUS Technologies of Precision Brazil East Europe Understanding market TECNOLOGIA, Agriculture that bring and Africa potential to position in Eastern S.A. solutions for various Europe and Africa operations in agriculture, forestry, and heavy machinery monitoring. CHAHBANI A water diffuser for Tunisia France and MoU with French Company CHAHTECH, S.A. underground irrigation as Arab Gulf and Accessing Saudi Market a new irrigation technique. States In addition to the use of a buried diffuser for regular irrigation, it can be used as a solution for anticipated irrigation and water injection in the deep soil layers – a technique for the company to save precious water resources. ECOFILTRO, S.A. Ceramic pot water filter Guatemala El Salvador Selling in El Salvador solution that provides clean water in an affordable and sustainable manner. ETHER VOICE, Voice service that allows Colombia Spain and 3 MoUs Signed in Spain and S.A. ESP any SME to super charge its Chile sales generated in Chile sales channels by allowing their website to originate voice calls-reporting an increase of 15% in SME online sales conversion. IBTAKER A Micro Control Unit (MCU) Palestine Jordan and MoUs signed in FOR TECH Lab kit, which is a simple Arab Gulf Jordan, Qatar and INNOVATION platform for innovation and States UAE creativity. It gives the user (a student) the ability to interact with the surrounding environment with a powerful, simple, and user-friendly software system that is used to control the hardware system. 16 TOP20 PRODUCT ORIGINATING TARGET OUTCOMES COMPANY COUNTRY COUNTRY KABINATA LTD. A very flexible method of Bulgaria Turkey Development of a Facebook language learning, which application and Search Engine provides customers with Optimization conducted to more live classes, teaching share virtual classrooms and material, and learning provide language training assistance than other classic models of language learning. The system can handle an unlimited number of customers and is the biggest language school in Bulgaria. MFARM LTD Software solutions Kenya Kenya Signed 8 MoUs to access for agribusiness that regional markets in Kenya. deliver vital agricultural 15 Strategic Clients information to farmers, farm input suppliers, as well as wholesalers/ retailers, enabling farmers to buy collectively and in greater volume to access large-scale marks. NAISCORP IT Partnering with local Vietnam Singapore Market research in Indonesia, SERVICES and international content and other Malaysia, Laos, Philippine, generators and providers, East Asia Cambodia operators, media countries 2 MoUs Signed and Strategic companies, etc., an all-in- Clients acquired one mobile portal, which serves millions of people per day and millions of requests. Includes news, music, pictures, clips, stories, and comics and is compatible with over 2,000+ phone models across all mobile platforms. NANDAN Nandan is a leading Bio- India Rwanda Nandan signed an MoU with BIOMATRIX energy solutions provider the Government of Rwanda for LIMITED in India. It has a very strong producing over 20,000 Mt of foothold in the field of bio-fuel and generating 35 MW Biofuel and is way ahead of of biomass based green power competitors with cutting- for rural electrification through edge technologies. The cultivation of Bio-energy crop company has a very strong over 8000 ha land in Rwanda and dedicated R&D team with several global patents for developing high-yielding Jatropha Hybrids (bio- energy crops). 17 TOP20 PRODUCT ORIGINATING TARGET OUTCOMES COMPANY COUNTRY COUNTRY SOCIALWIRE, SocialWire is a recommen- Turkey USA Brought to Silicon Valley to meet INC. dation engine that uses with potential buyers; first round data to automate the entire of investment at USD 2 million process of product ads and makes it more efficient and scalable for marketers. SOLAR CHILE One of the first solar Chile Brazil and MoU: Joint Development developers in Chile to identify USA Agreement (JDA), Power some of the most desirable Purchase Agreement (PPA) sites for solar energy projects Strategic Clients: Major mining in northern Chile, with the companies in Chile - BHP potential to generate an Billiton, Collahuasi, TECK, estimated 1.5 Gigawatts of AMSA, CODELCO, Barrick etc. solar projects in the region. A first round of USD 1 million was completed and the company is now pursuing additional 3-4 million in a second round of investments SOLCON By inventing an optical Georgia Switzerland Prototype development MOU and ENERGY concentrator combined with and Germany work plan coordinated with the high-efficiency III-V solar Fh-ISE, Germany cells for low-cost PV modules, Strategic Partners gained: Fh- aims to commercialize ISE, Germany; AWM, Switzerland concentrated photovoltaic (CPV) from solar radiation. Four out of the Top20 did not complete the full program. cost that they may not be ready, it is a critical step in Following the experience of participating in the avoiding unnecessary investment in both time and exhibition at infoDev’s Global Forum in Helsinki, and money. One company (SiamTelemed from Thailand) going through the mentorship program, two enterprises dissolved before program completion, illustrating the - ThinkCore from India and EGG-Energy from risk of early-stage enterprise development. Finally, Tanzania – respectively felt that they were not ready to one company (Istanbul Technological R&D Center from internationalize yet. Coming to that realization without Turkey) was dropped from the program by infoDev due having sunk significant time and resources pursuing an to poor communication and execution of the planned internationalization strategy is a very good outcome. activities. Internationalization is expensive, and if a process can help entrepreneurs realize more quickly and at lower Insight: Helping entrepreneurs avoid the pursuit of unviable internationalization strategies is time and money saved for the enterprises. 18 FIGURE 7: SUMMARY RESULTS AlKhawarizmy SolConEnergy ETHER VOICE Social Wire Addicts123 Solar Chile Acruxsoft TOTAL Chahtech RESULTS Naiscorp Kabinata Ecofiltro Nandan Ibtaker MFarm ARVUS Access to Markets Strategic partners 10 companies MOU’s signed 32 MOU’s Market research 12 companies Strategic clients 58 clients Access to Finance External finance > $25M Private finance $9M Venture Capital > $3M Job Creation Full-time jobs ±555 Part-time jobs ±100 LESSONS LEARNED & RESEARCH QUESTIONS • Thoroughly assess both the entrepreneur’s and the host incubator’s internationalization readiness, both in terms of expertise and staff capacity/general resources. Challenges in internationalization readiness can include competing priorities, lack of awareness of co-incubation, lack of incentives, lack of market/industry know-how, as well as lack of resources including mentors and financing. • The ability of the SME to financially invest in the internationalization process should be ensured. • Do not underestimate the time needed for close support and advice. • Internationalization as a service should ideally be mandated by the governance/management structure and within the overall business model of the business incubator. • Language, cultural differences, and business language barriers should be addressed appropriately. • Country specific legal and regulatory considerations associated with the hosting of international companies and entrepreneurs by incubators in their countries should be taken into account. 19 6.2 VentureOutChallenge Through the eyes of a mentor “I was thrilled to have the opportunity One of infoDev’s core work areas is to promote the to meet so many smart and determined startup and growth of mobile applications enterprises entrepreneurs from all over the world, (see Figure 9). building companies that can really have an impact on their societies… The VentureOutChallenge9 built on the lessons gener- the improvements the teams made ated from the Top20 program to pilot a slightly different during the VentureOutChallenge were permutation of the internationalization program; spe- remarkable as they all have been very cifically focused on mobile applications entrepreneurs. eager to learn and grow.” To stimulate applications, infoDev reached out to busi- Philipp Kandal (CEO Skobbler) ness enablers in its network in Armenia, Jamaica, Ke- nya, Senegal, South Africa, Macedonia, Nigeria, and Trinidad & Tobago, which ran awareness raising events. 113 entrepreneurs from 19 countries in Africa, Eastern Europe & Central Asia, and the Caribbean submitted their applications online. The VentureOutChallenge applications were vetted by a Considering that entrepreneurs previously provided panel of 23 judges comprising seasoned entrepreneurs, feedback stating they often do not get sufficient evalu- investors, and internationalization experts mainly from ation from investors and business partners that turn the US and Europe. Based on criteria including a busi- them down, the judges were required to submit con- ness model, internationalization plan and team compo- crete feedback to each of the 24 companies using the sition, 24 companies were selected to take part in the online platform. online group and individual mentorship from experts. During the mentoring process, which took place over On the basis of the improved pitch, 13 finalists were a six-week period, judges were able to gain a better selected to take part in infoDev’s SME Internationaliza- understanding of the startups, their business poten- tion workshop in Moldova. This workshop provided two tial, as well as their readiness and capacity to tackle days of coaching and a final pitching session for the 13 the challenges of internationalization. At the end of the finalists. Three companies were then awarded $10,000 six-week period, the entrepreneurs submitted an im- each in cash prizes to support their internationalization proved pitch via the online platform, which the judges plans. commented on. FIGURE 9: INFODEV’S MOBILE INNOVATION PROGRAM infoDev’s Mobile Innovation Program supports growth-oriented mobile app businesses in emerging and frontier markets. The program does this by: enabling entrepreneurship in the mobile industry through venture incuba- tion and acceleration; by building mobile innovation communities of entrepreneurs, investors, partners, and mentors; and by researching the app economy of local markets. www.infodev.org/mobile 20 8 . www.ventureoutchallenge.org. ALLENGE FINALIST COMPANIES FIGURE 10: OVERVIEW OF VENTUREOUTCH VentureOut PRODUCT Originating Country Challenge company GOMETRO GoMetro is the most accurate transit app for South Africa emerging markets, providing public transport information including trains, buses, rapid transit, and taxis in one app. GRIK.LY Grik.ly is a business networking application that Jamaica works to replace the unmeasurable use of the traditional business card and allows users to share contact details easily, while remembering who they’ve met and where they’ve met them. Grik.ly also allows users to stay updated when individuals change any information on their business card. IDRAM MOBILE Idram Mobile Wallet allows users to make instant Armenia WALLET payments and money transfers, replacing traditional payment methods. M.A.D.E. - MY APP M.A.D.E. creates value for its users by effectively Trinidad & Tobago FOR DISASTERS AND delivering actionable, location-specific information EMERGENCIES about natural disasters and emergencies, and connects those in need directly with first responders and disaster response coordinators, enabling them to optimally allocate resources, something greatly lacking in the Caribbean. MANIFESTO The instant newsmaker - Manifesto allows users to Moldova immediately shoot video or capture audio with one tap and make it public with a click. MARODI TV Marodi.tv lets users in Senegal and Cameroon watch Senegal their favorite TV shows anytime online or through their mobile app. It is the first app dedicated to replay TV in Africa and is free and scalable to more than 1 million unique users. NEAREST LOCATOR Nearest Locator is a location based mobile app that Nigeria helps users easily and accurately find important locations and contact information for nearby ATMs, banks, eateries, hospitals, and more. In developing countries, Nearest Locator has a more accurate database for local vendors and retailers than competitors like Google. 21 VentureOut PRODUCT Originating Country Challenge company PROWORK Prowork is a collaborative project management Nigeria solution for business. It empowers businesses and helps them lower costs by bringing project management and collaboration together on one platform, and making it mobile, real-time, ubiquitous, and business intelligent. SWEETSOA SweetSOA provides a generic mobile application Jamaica that companies can easily customize specific to their needs. Unlike other solutions, this app gives businesses the ability to create customized low-cost mobile solutions without requiring the user to do any programming. TEDDY THE GUARDIAN Teddy The Guardian is an individually designed plush Nigeria teddy bear with built-in medical sensors that track a child’s vital signs and send recorded values wirelessly to a physician’s tablet or web application. The product provides parents with a mobile app to visualize and measure their children’s vital signs in an intuitive, stress-free way. TUNING FORK Tuning Fork mobile app is the newest tool to help Azerbaijan singers sing in tune. A graphic displays the song’s correct notes and gives the user an assessment of how well they performed at the end of the song. WAABEH Waabeh is Africa’s audio marketplace for music and Kenya online radio, helping users discover new music from across the continent. X-RIFT X-Rift is one of the first augmented reality game Ukraine systems to hit the market. Augmented reality is primarily a location based technology for mobile devices that allows gamers to interact with objects and spaces in real life. 22 VENTUREOUTCHALLENGE: COMP ANY EXAMPLE Teddy the Guardian Evaluating your baby’s health through creative and innovative solutions Teddy The Guardian is a handmade, organic teddy bear with CE marked and FDA approved sensors that moni- tor a child’s health. The bear tracks a child’s body tem- perature, pulse, blood pressure, and oxygen saturation. This measurement takes place when the child touches the bear in certain parts, such as the paw, and then sends the information to a smartphone or an online ap- plication. The Teddy The Guardian product is composed of two major components: the toy bear with built-in medical sensors, and the software that can be used on a smartphone or online. children’s vital signs without causing any extra emotional stress. They observed that doctors and nurses often use An unfriendly environment such as a hospital or doc- plush toys during the medical examinations to distract tor’s office and the unpleasant appearance of measure- the child’s attention and avoid skewed measurement ment tools can easily alter a final diagnosis. According results. Therefore, they decided to place medical sen- to a recent study, 80% of children that visit hospitals sor-devices inside children’s favorite toy -teddy bears. go through this type of stress. Two young Croatian en- trepreneurs, business students from the University of To date, Teddy the Guardian has generated $650,000 in Zagreb Ana Burica and Josipa Majic, came up with a pre-orders since July 2013 and created 13 jobs. creative and effective IT solution to monitor and track D FUTURE RESEARCH FIGURE 11: KEY LESSONS AN • The value of mentoring in the internationalization process is at least as valuable as funding the companies to compete in the process. Access to mentors is limited in emerging markets (as opposed to those based in Silicon Valley for example) and such activities can provide an important and unique platform for companies. • Such activities raise awareness among mentors in developed countries about the innovativeness and investability of companies in emerging markets. Mentors become personally invested in company growth during a longer term activity and mentors often invite companies to “check in” with them even after the end of the formal activities. • In addition to a more traditional “bootcamp” model of a few days of training followed by pitching, the particular value of an activity such as the VentureOutChallenge is in the opportunity to provide longer term, targeted coaching to companies as well as to better understand their challenges during a internationalization “journey” over several months. • A global platform for linking companies and mentors could serve as a vehicle for systematically sharing knowledge and connecting companies in emerging markets to international mentors, while on the flipside providing practitioners and development organizations with a better view of the needs, statistics, and activities of those active in such a network. 23 6.3 Internationalization Service The internationalization project Development at Enablers implemented with infoDev has played a huge role in what will become one of the most important services at the Soroca Incubator. Due to the support, the level of As discussed above, internationalization is rarely the competitiveness of both tenant companies main objective of a business incubator. Consequently, and management at Soroca has increased most incubator managers do not proactively develop in comparison with the other incubators. the competencies needed to assess internationaliza- tion readiness or to support companies in the interna- Lucia Usurelu (Director, Entranse) tionalization process. Furthermore, current co-incuba- tion and soft landing clubs are still mostly dependent on rent and government subsidies. Against this background, infoDev set out to work with tionalization initiatives. The Soroca Business Incubator two business incubators to help them derive and test an is a new, publicly funded incubator located in the rural internationalization service offer based on a business north of the country where traditional industries such model that could become self-sustaining. For example, as textile and agriculture are dominant. Soroca City is exploring a fee-based or royalty-based service devel- home to about 40,000 people and the capital of the So- opment that would be built into the overall resourcing roca District in Moldova. It is located about 160 kilome- and management structure of the incubator itself. The ters north of Chisinau, the capital of Moldova. adopted approach leveraged the lessons and insights gained from the Top20 experience, notably ensuring The technical assistance focused on developing the that incubators aiming to provide internationalization capacity of incubator staff (e.g., instilling new ideas support for their client companies build this into their by sharing good practice; internationalization service overall business model, a potential revenue-generat- model development as part of an overall, sustainable ing service, and as part of their operational capacity, incubator business model; reviewing company cases rather than a one-off activity. The technical assistance and tracking progress; raising awareness among incu- that these incubators received as compared to the bator stakeholders through workshops and strategic Top20 companies was therefore broader and deeper in meetings), while the grant financing was used to cover scope. expenses associated with contracting external service providers with particular industry or market expertise, Technical assistance and grants of $225,000 were pro- carrying out market research, developing marketing vided to the Soroca Business Incubator (in Moldova) and tools for companies, as well as attending relevant in- the Mogilev Technology Park (in Belarus) to derive and ternational trade exhibitions or establishing links to test an internationalization service offering and busi- like-minded international networks. ness model. The textile and fruit companies in Moldova were matched Soroca Business Incubator, Moldova with service providers (from an independently operat- ing organization) specialized in international market With a population of 3.6 million, Moldova is a small, entry. The main target markets were in Europe (Germa- open agricultural economy located between Romania ny, Italy) and Russia and as a basis for understanding and Ukraine, and remains one of the poorest countries these foreign markets, the independent service provid- in Europe. According to the World Bank’s Doing Busi- ers conducted market research in each market and de- ness Indicators 2014, Moldova stands at 78 in the World vised a market entry strategy for the companies. Going Bank’s “Ease of Doing Business” ranking of 189 econo- forward, key internationalization services offered by the mies worldwide, below the average in Eastern Europe incubator will include: foreign market knowledge and & Central Asia (71)10. Given the very small market size analysis of international value chains; advice on qual- in Moldova, the government is keen to support interna- ity management and international quality standards; 10. http://www.doingbusiness.org/data/exploreeconomies/moldova/~/media/giawb/doing%20business/documents/profiles/country/MDA.pdf?ver=2. 24 marketing services; coaching on accessing finance and bination of subsidized and for-profit services. Mogilev financial linkages; legal services related to contract ne- Technopark already had some experience in interna- gotiation and intellectual property. tionalization through service providers but wanted to build their own in-house capacity to better serve their Given the lack of capacity at Soroca to directly support client companies. It caters mainly to ICT companies companies in internationalization, its internationaliza- (currently housing 25), so ICT is naturally the focus tion business model will be based on contracting the of its internationalization activities. Belarus also has service providers on an ongoing, as-needed basis. So- a limited domestic market size and companies at the roca has therefore already initiated strong relationships Technopark have an international orientation from the with government stakeholders and in particular the start of their business, looking mainly to the Ukraine Chamber of Commerce, to source support and exper- and Russia as well as the US markets. tise for access to international markets. The technical assistance focused on developing the ca- The cost of the services will be partially covered by pacity of the incubator staff (e.g., instilling new ideas the client company itself and partially through fund- by sharing good practices, internationalization service ing from the incubator. To this end, the Soroca Busi- model development as part of the overall incubator ness Incubator has established a small fund that can business model, reviewing company cases and tracking provide interest-free loans for up to two years to client progress, raising awareness among incubator stake- companies needing internationalization services. The holders through workshops and strategic meetings), internationalization service at Soroca is completely new while the grant financing was used to cover expenses and the incubator plans to pilot this approach until the associated with delivering basic training to client com- end of 2015. After this time, depending on the traction panies about internationalization opportunities and that the service gains, the longer term success of the company readiness, providing legal support and tax and pilot projects undertaken with infoDev, as well as the accounting administration, increasing the visibility of potentially increased in-house capabilities of staff, the Mogilev Technopark through media outreach in Belar- Soroca Business Incubator may consider a success- us, as well as study tours to potential export markets. sharing model for internationalization services going forward. The mindset of companies in Soroca is not yet The development of the internationalization service at fully geared to international markets and the “demon- Mogilev started with testing the market need for the stration effect” from pilot activities requires more time service and identifying resources to finance the service. to come to fruition. Furthermore, the incubator itself International business services are relatively new to is accustomed to receiving heavy government subsidies SMEs in Belarus, but the demand is sharply increasing. and despite the technical assistance it received from The main driver for this increase is the Customs Union infoDev, the staff does not have the mindset of private- of Belarus with the Russian Federation and Kazakh- sector driven incubation or revenue-generating service stan. According to Mogilev Technology Park’s (MTP) models. findings, internationalization services are required in two major fields: legal consulting and marketing/sales. Mogilev Technopark, Belarus Target markets of SMEs are primarily the Russian Fed- eration and Kazakhstan, but also include other former Belarus is a land-locked country bordered by Russia, Soviet Union countries such as Ukraine and Georgia. Ukraine, Poland, Latvia, and Lithuania. Over 70% of its 9.5 million population resides in urban areas and the MTP Internationalization services are provided in coop- country’s main economic activity is in service indus- eration with (external) international business experts. tries and manufacturing. Belarus stands at 63 in the The services of these experts as well as MTP inter- World Bank’s “Ease of Doing Business” ranking of 189 nationalization services are expected to be financed economies worldwide, above the average in Eastern through the following revenue streams: 1) Direct pay- Europe & Central Asia (71)11. ment by companies to MTP based on work time; 2) Roy- alties based on internationalization outcomes; and 3) In Belarus, the Mogilev Technopark is a non-profit Public co-funding from state SME support programs. organization with a nearly 20-year track record that MTP expects that the royalty-based model in combi- provides services to client companies through a com- nation with public subsidies will be the major revenue 11. http://www.doingbusiness.org/data/exploreeconomies/belarus/~/media/giawb/doing%20business/documents/profiles/country/BLR.pdf?ver=2. 25 stream. During the course of the pilot project, MTP opment of a quality management system at the incu- has also developed a training program on “Interna- bator, which on a very practical level will continue to tionalization Trends and Prospects,” which it expects serve the companies in the long term and help both to roll out as a core part of this service going forward. the incubator and its client companies understand how to develop their products to better suit international market standards. Furthermore, the pilot activity cre- Intermediate Results ated nine new FTE jobs among the three companies that it served, with seven of these for women in the textile industry in an impoverished rural community. In the testing process, altogether eight companies were selected to enter the internationalization pro- In Belarus, the development of the internationaliza- gram, all comprising existing clients of the business tion service had a stronger substantive base in terms incubators. The experience of both the enabler and of staff capacity and the likelihood of international- the client company was tracked throughout the pi- ization service sustainability likewise seemed to be lot activity. Client companies were selected for the strong. New market opportunities were opened in pilot activities by the incubator, based on the gen- Russia, Kazakhstan, Ukraine, the United States, and eral readiness of the company to internationalize, China, and in general the readiness of the compa- the viability of the product in the target market, and nies as well as the capacity of the Technopark staff the possibility of the incubator to support the com- increased throughout the process. Training content12 pany’s (or similar companies’) needs going forward. was developed to increase awareness among client companies about internationalization opportunities Figure 12 below provides a snapshot of the and related business planning, which will continue companies taking part in these pilots, the in- after the end of infoDev’s pilot activities. However, ternationalization services provided, as a key challenge – and one often overlooked – was in well as the main outcomes of the activities. language. Technical assistance work was often de- livered through Russian/English translation, which In summary, there was a clear distinction among the caused a communication challenge when aiming to types of companies served by Soroca Business Incu- engage clients in deep management consulting work. bator and Mogilev Techpark, with the former focus- ing on more traditional industries (textile, fruits) and In both cases, a key lesson is the need to develop a clear the latter focusing on technology-enabled businesses. and robust Monitoring & Evaluation framework, together The results are mixed, not as much due to the na- with the grantee, to track the activities and experiences ture of the companies, but due to the resulting busi- on a systematic basis, and in a way that is both practical ness model for the internationalization service and in and meaningful. It was challenging to instill a sense of part due to the in-house capacity of incubator staff. ownership in an M&E framework with the incubators, beyond considering the framework as a donor reporting In Moldova, developing a new and potentially revenue- instrument, rather than a tool to track and understand generating service with a heavily public funded and the sustainability of the internationalization service it- public sector driven/administered organization proved self, which could be built upon beyond the pilot project. to be very challenging. However, at the same time, Furthermore, while the nature of the activity was to be the results from serving the textile and fruit compa- a pilot program, the amount of technical assistance and nies in the small city of Soroca were promising to the close support that the incubators needed in this pro- extent that strong links to new and potential buyers cess was underestimated. The scope of the pilot activ- were secured in Russia and Italy, for example, and the ity needs to be carefully and realistically designed ac- overall understanding of the potential of internation- cording to available resources and where small grants al markets was greatly increased at the incubator. In are concerned, and should aim for a few “heavy hitting” tandem, the grant from infoDev supported the devel- 12. Four of the Mogilev client companies taking part in internationalization pilot projects received “Internationalization Trends and Prospects” training, which will continue to be used after the end of the project with infoDev. This training comprises the following subject areas: (1) What is internationalization, and why is it needed?, (2) Phases of internationalization and related operational procedures, (3) International business development strategies, (4) Cultural factors, (5) Development of international distribution channels, (6) Securing investment for international activities, (7) Global capital markets, and (8) Management of international operations. 13. The grants awarded to Soroca Business Incubator and Mogilev Technopark comprised other activities related to scaling business incubation activities in the two countries, of which internationalization formed about 50%. 26 objectives instead of a broad range of activities13. These not common in the capital of Chisinau, and can hardly findings are in line with those from the infoDev Top20 pi- be found in smaller towns outside the direct reach of lot activities, particularly as related to the need to allo- major centers, which Soroca represents. This lack of cate more technical assistance resources. The capacity capacity does not only apply to international business of incubators should be carefully assessed before tak- skills such as language skills, international market ing on such activities, and any skill gaps complemented knowledge and contacts, but also to the overall level of with more in-depth training/technical assistance, as service quality in smaller towns. A major challenge for an intrinsic part of the process and program design. incubators outside the capitals is to find and hire staff and experts with international skills. In Moldova, it was found that the demand for interna- tionalization services—mainly in light industries such as textile production—far exceeds the capacities of the Soroca incubator. International business skills are still 27 27 FIGURE 12: INTERNATIONALIZATION PORTFOLIO Company Product Services provided by Results enabler (obtained at the end of pilot completion, Dec 2013) COMPEDU Educational • Legal support for developing • Export of products and services to foreign products and contracts markets started in Russia and Kazakhstan services for ICT • Tax and accounting • The total net increase in exports during the industry administration project period amounted to $234,200 (starting • Training in at zero in March 2013) “Internationalization Trends • After completion of the pilot in Dec 2013, and Prospects” an estimated 180,000 clients (end-users) in • Participation in negotiations foreign markets (mainly Russia) had indicated with contractors and partners interest in the product and about 2-3% of them had purchased the product RECOMMERCE E-commerce • Company promotion through • The company was accepted at HappyFarm, platform for link made to public relations an accelerator in Ukraine individuals and professional • The accelerator linked the company to US small businesses • Legal assistance investors, which provided them with $70,000 in to create an • Tax and accounting seed financing to enter US market online storefront administration • In January 2014, the company launched the • Participation in negotiations new English language platform commercerun. with potential partners com for US market entry • Services in Russia and Kazakhstan were tested by allowing end-users to test the product for one month (30 tests in Kazakhstan, 100 in Russia) ACCESS TEKH “Turnkey” • Training in • Detailed planning for entry into Russian and construction “Internationalization Trends Kazakhstan markets of residential and Prospects” • Increased company management capacity areas with • An educational trip on energy measured by number of participants trained energy saving saving to Denmark and assessment of concept for international technologies and • Business model development business development as direct follow-up alternative energy • Participation in negotiations engineering with potential partners • Market information services, incl. information about market potential and market structures e.g. value chains within the European Union market LAB Online - • Training in • The company entered into a contract with E-COMMERCE commerce “Internationalization Trends a portal in China to advertise their tools, and Prospects” resulting in a net increase in sales of $60,000 after the pilot (starting from zero in May 2013) • The company reconsidered their internationalization strategy, performed additional analytical work and revised their proposal to their client, resulting in increased sales 28 Services provided Results Company Product by enabler (obtained at the end of pilot completion, Dec 2013) TEKHNOPLAST Manufacturer • Training in • Improved capacity and skills to enter of fiberglass “Internationalization Trends international markets, measured by number products and Prospects” of participants (5) and international business development plan as direct follow-up • Exports increased by 7 percent ($100,000) during the pilot period MIALEX Fresh fruit • Coaching on European quality • Participated in WorldFood Moscow collector from standards and food market exhibition, where the company entered into producers for regulations contracts valued at a total of $1M with three export, with • Quality management system new clients in Kazakhstan, Russia, and Belarus logistics system for working with producers • Created two new full-time jobs (one legal including cooling • Development of company expert/ broker and one quality monitoring and storage strategy to support growth expert) facilities. aspirations • Increased credibility to access funding from local bank via workshop organized by Soroca Incubator (held for all client companies) • Closer links to Chamber of Commerce to access additional international exhibitions CHIVAMAX Textile producer (resources were pooled for • The company signed a three-year contract specialized these two textile companies) with an Italian buyer; the quality management in work wear, • A tool for optimizing the system implemented was critical in securing subcontracting to production process developed the longer term contract EU markets in collaboration with the • The company increased production from Technical University of Moldova 1000 to 3000 units per month, and created (TUM) seven new full-time jobs for women • A database of potential • The company has plans in place to increase clients exports to European market (Germany in • Quality management training particular) starting 2015 to develop viable textiles for international market • Legal and customs support (ISO standards) for entering the European market • Increased credibility to access funding from local bank via workshop organized by Soroca Incubator (held for all client companies) • Established links to Chamber of Commerce (“Senior Expert Service”- project) to link to TIMPOV Textile producer • The company entered into a contract with German and Austrian industry SEMION specialized in a portal in China to advertise their tools, expertise protective work resulting in a net increase in sales of $60,000 • Established link to after the pilot (starting from zero in May 2013) wear for harmful technology transfer network conditions • The company reconsidered their of Moldova to link to diaspora internationalization strategy, performed abroad in same industry additional analytical work, and revised their • Marketing support tools proposal to their client, resulting in increased (website, printed materials) sales 29 6.4. Training Workshops “I learned how to find partners and en- ablers in other markets and was able to negotiate funding opportunities through the Indian Angel Network Bangalore dur- ing the internationalization workshop.” Hands-on training focusing on the realities of emerg- ing markets and developing countries has been highly Atchara Poomee (Managing Director, valued by infoDev clients and continues to be in de- PAC Regenerating Energy Thailand). mand. Workshops focused on internationalization were held in South Africa and India during this pilot period, leveraging the insights gained from Top20 and the work with the Belarus and Moldova business incuba- representatives of infoDev enablers around the world tors as discussed above. The added value from these (e.g., Armenia, Kenya, Moldova, Vietnam). This hands- workshops compared to the other approaches outlined on bootcamp was aimed at early-stage tech companies above, was gained from convening a group of busi- that were seeking to understand what is necessary to ness enablers from different countries with a common be competitive in an international market and how to interest in contributing to the internationalization of achieve this. It focused on practical tips, tricks and fac- their client enterprises. A small selection of entrepre- tors that contribute to a successful internationalization neurs interested in internationalizing also participated. strategy. Internationalization was broken down into three core stages: The internationalization workshop held at infoDev’s 5th Global Forum in South Africa convened 40 participants from countries primarily across Southern Africa (Mo- 1)Testing the waters (early feedback from industry/ zambique, Namibia, Uganda, South Africa) as well as market experts, low cost/low resource options); 30 30 2)Localizing products/services (innovative marketing regulatory issues. The participants’ most important and product/service testing); learning revolved around strategies and solutions for entering foreign markets, including selecting the right 3)Building a local presence (leveraging existing cus- market, finding partners and enablers, and the go-to- tomers and networks, building a local team, overcom- market strategy. Likewise, networking with other par- ing local cultural barriers). ticipants was rated highly. As a result, some partici- pants intend to embark on business together: T-Files It also looked in-depth at several companies who suc- from Indonesia was planning an expansion of her ma- cessfully went international within their first 12 months rine current turbine power generator to the Philippine after inception. Finally, the bootcamp gave entrepre- Islands with participants from the Philippines and one neurs the opportunity to work through their startup’s participant from India was discussing collaboration op- internationalization strategy and receive hands-on portunities with a participant from Thailand. feedback. A parallel aim of the workshop was to sen- sitize infoDev Mobile Applications Labs (mLabs) to the The longer term impact of learning from these particu- internationalization process, as a precursor to the Ven- lar workshops is not tracked formally, but immediate tureOutChallenge that was kicked off after the Global feedback has been positive and there is a demand for Forum. The workshop was facilitated by an infoDev in- more intense training in the field. One particular oppor- ternationalization expert consultant, who was also in- tunity for more formal training and tracking of learning volved in the VentureOutChallenge. impact would be to develop a new Internationaliza- tion module into infoDev’s existing Business Incubation In India, a workshop was held for about 20 participants Management Training Program. This would develop the covering topics such as market research, finding part- capacity and skills of the incubator manager and other ners and resources, conducting a self-assessment on related practitioners to better serve client companies internationalization-readiness, as well as legal and seeking to enter international markets. 31 31 7. LESSONS LEARNED & IMPLICATIONS FOR FUTURE PROGRAMS What companies know – and don’t know – that they need An important finding from these pilots is the general • Lack of target market and/or industry expertise lack of capacity of companies to assess their own among incubator staff (particularly where incubators readiness to enter an international market. It is often are government-driven) and limited resources includ- difficult to know where one’s knowledge is lacking. In ing mentors and financing each of the pilots, significant coaching was needed to explore the underlying assumptions made with regard • Lack of understanding of international markets, to internationalization potential and plans of action. i.e. which markets would suit the maturity level of the product in relation to its life cycle and export-readiness. As a first step to assisting entrepreneurs with interna- tional market entry, business enablers may therefore However, while a readiness assessment of the incu- want to carry out an assessment on the international- bator or the company is an important starting point, it ization-readiness of the companies. Such an assess- does not necessarily “guarantee” the entire interna- ment could be carried out by the entrepreneur using a tionalization process. An internationalization activity self-assessment tool, or it could be administered with will by nature mean that many weaknesses are dis- the help of experts coaching the entrepreneur through covered throughout the implementation of the inter- core questions assessing factors such as: nationalization plan. Continuous coaching throughout the internationalization process would therefore be • The availability, capacity, and commitment of the very valuable. Internationalization follows the “fail fast” management team principle in Lean Startup method15, i.e. that market validation for a product/service in a new market must • The maturity of the company’s product/service and be derived quickly and efficiently, so that unneces- fit for the international market sary resources are not spent on activities that will not yield profit and can ultimately lead the company to fail. • The financial resources available to cover the cost of investment before profitability in new markets How Enablers can Add Value to the Internationaliza- tion Process Just as important, and particularly where co-incuba- tion is pursued, companies or external experts should Companies, and in particular early-stage startups, need assess the incubator’s capability to provide co-incu- to efficiently understand the true international market bation and soft landing services and whether they have opportunities for their product/service. This includes the staff capacity to truly help with international market conducting smart in-country primary market research entry. Discussed in further detail under “How enablers and validation (i.e., meeting potential customers, dis- can add value to the internationalization process”, tributors, and partners), access to industry specialists some key challenges that incubators face in develop- in the target markets, access to mentors to help local- ing a potential internationalization program include: ize the product/service for the target market, as well as access to finance for market entry activities (including • Competing priorities, particularly where co-incuba- participation in trade fairs, networking events, scoping tion is not formally mandated by the governance struc- travel, etc.). It is likewise important for a company to be ture of the incubator able to fail quickly in a target market, thereby ensuring that unnecessary resources are not spent where a new • Lack of awareness of co-incubation as a potential market may not provide traction at that particular time. service line and revenue-generating opportunity for the incubator Developing an internationalization service that provides 32 15. http://theleanstartup.com/principles. effective assistance that enables entrepreneurs to go ties through enablers, along with their value added for through this process is complex. It goes without saying the incubator itself and for the company beneficiary. that if the enabler is not up to par in terms of enabling the growth of their domestic clients in their domestic Enablers themselves can also connect with other en- market, they will not be ready to take on internation- ablers through formal or informal networks and com- alization. munities to share good practices and join forces in in- ternationalization. Outlined in the table below are some of the factors that seem to successfully drive internationalization activi- ONENTS OF BUSINESS INCUBATION FIGURE 13: THE FOUR COMP VALUE ADD SUCCESS FACTORS @ ENABLERS FOR ENABLER FOR COMPANY • Market validation • Mentorship including personal Industry expertise: in-house brokering in new markets • Growing service for a particular sector or through database of • Links to potential buyers in • Opportunity to generate revenue international markets, together with external service providers/ support during contract negotiations mentors • Legal, tax, and administrative guidance • Trusted partner to navigate Ability to assess company • Understanding cost/benefit of service market opportunities readiness • Mapping needs for company development • Advice on product/service quality and standard in new markets • Exchanging good practices and • Seeing new markets and building understanding success and failure (e.g., via confidence through learning from Access to knowledge and training, workshops, online platforms) others networks • Practical toolkits to design services • Advice for benefiting from funding • Facilitating potential funding from public opportunities and private sector • Attracting funding to systematically • Opportunity to benefit from implement and scale service strong service line Positioning service as part of • Raising awareness among public • Credibility towards buyers and sector and stakeholders in innovation investors core mission ecosystem • More natural orientation towards • Attracting relevant personnel, international markets partners, and networks 33 Opportunities to Scale International Market Access The range of infoDev internationalization pilot projects the following points are considered in the design of any during 2011 – 2013 shared many similar lessons learned internationalization program, particularly as they re- during implementation. It is recommended that at least late to emerging markets and developing countries. FIGURE 14: ISSUES TO CONSIDER FOR INTERNATION ALIZATION PROGRAM DESIGN Issue Risk Mitigation • Conduct robust internationalization readiness assessment of the enterprise and/or the incubator Hidden costs due to capacity/ • Plan for adequate technical assistance from Human & Financial skills/capital constraints of experts to the enterprise and/or the incubator Resources incubator or company • Invest in capacity development/ training program (program cost) with long-term impact for the enterprise and/or the incubator • Ensure adequate cost structure of company as part of internationalization readiness assessment One-off donor-driven activity • Develop activities into part of core mission and as whereby new or improved related to incubator/ company business model and service is not embedded into operating structure Ownership business model for longer • Start projects small-scale and allow for organic term impact development based on demand • Design robust and practical M&E framework to understand successes and failures • Ensure incubator and/or company understanding and ownership of indicators Inadequate and inconclusive • Establish regular milestones and checkpoints Monitoring & Evaluation impact indicators and activity to track progress and consistently ensure suitable tracking approach • Invest in adequate resources and practical tools upfront to ensure ease and coherence of data collection • Accept and understand failures as part of good M&E Customs and language • Personal brokering Cultural differences barriers • Cross-culture training Lack of understanding of • Factor in adequate resources for regulatory regulatory considerations considerations and time and cost-consuming e.g. hosting a foreign company activities such as market research and customization Legal and regulatory needs 34 Pros and Cons of the Alternative Approaches Tested The following table summarizes the positive aspects, as well as the key lessons, considerations, and success factors that should be taken into account if seeking to replicate the approaches. OF THE ALTERNAT IVE APPROACHES TESTED FIGURE 15: PROS & CONS Approach Lessons and Positive Aspects Success factors considerations for replication • Enabled testing of the • Requires significant due • Knowledgeable team of co-incubation concept in diligence and support of industryandmarketspecialists emerging markets, leading to entrepreneurs and incubators participating in the process • Participating incubators a deeper understanding of the with previous experience in particular“internationalization” • The benefits of the small internationalization needs of entrepreneurs in grants were outweighed by the these markets transaction costs associated with • Strong linkages to new issuing and managing those markets, to allow for rapid • Enabled wide global Co-incubation awareness of the opportunity grants market validation services through for entrepreneurs to • Sufficient time must be • Application of readiness “Top20” activity participate, through an open, allocated to allow for the criteria and a thorough well-marketed application outcomes to be realized. It is a selection process for selection process multi-step process to arrive at of both entrepreneurs and real business outcomes from the participating incubators • Produced encouraging results for companies internationalization activities • Engaged in and raised awareness of potential financiers for early-stage investment opportunities in developing countries • Developed a network of • Sufficient time must be • Knowledgeable team of mentors with potential to allocated to allow for the industryandmarketspecialists contribute to future work outcomes to be realized. It is a • Well-functioning platform to multi-step process to arrive at enable online mentoring and Mentoring • Good online mentoring real business outcomes from the show mentoring “milestones” environment enabled startup- services through to-startup learning in addition internationalization activities and results VentureOutChallenge to mentor-to-startup coaching • Successfully engaged mobile applications labs in overall process and opened their thinking towards international markets • Early results show promising outcomes on company level 35 Approach Lessons and Positive Aspects Success factors considerations for replication • Raised business enablers’ • Workshops remain more • Experts with and entrepreneurs’ general by nature and cannot practical experience in awareness about go deep into particular internationalization Skills internationalization participant needs • Use of a practical, development opportunities • Resources for follow-up locally relevant case through training • Linked participants to support beyond the workshop study to enable maximum itself limited the participants’ participation and discussion workshops industry experts and other ability to act on what they had partners to support the learned • Matchmaking among internationalization journey experts and incubators/ companies to tackle specific internationalization questions or issues • Enabled targeted and • Longer time period needed • Incubation management deep “management to support “mindset change” expertise to successfully consulting” support for within incubator management consult incubators participating incubators, • Incubators ownership of • Well-selected incubators aiming to build service as monitoring & evaluation to receive technical part of business model framework as a “learning tool” assistance/capacity and • Engaged range of industry instead of only a reporting mindset of incubator to Technical experts and partners that instrument was lacking develop new services assistance incubators will continue to • Incubators that are managed • Shared understanding to business work with in the future by government-appointed of monitoring & evaluation incubators • Raised awareness among managers may not have indicators and purpose incubator stakeholders required business acumen to about incubator’s sustainably implement new role and potential in service internationalization • Learning from activity can be channeled into incubation management training in internationalization Additional Research The lack of longitudinal data on internationaliza- to fully understand the opportunities offered by tion activities and their potential in developing international markets for a particular sector (de- countries and emerging markets could be seen mand) while matching this with the existing or po- as an opportunity to conduct additional research tential products/services in the home country (sup- on the “state of internationalization” in these ar- ply). Just as important and potentially done in eas. This could also raise awareness about inter- parallel, would be the development of a platform to- nationalization opportunities and needs among gether with a Monitoring & Evaluation framework to practitioners and stakeholders, via shared ex- collect and communicate data, while facilitating part- periences as well as local business cultures nerships and providing guidance to entrepreneurs and practices. On a country level, it is advisable and incubators seeking to be active in this space. 36 37 38