Urbanization and Localization: Geographic Factors Impact Incubator Outcomes

Alejandro Amezcua, assistant professor of entrepreneurship at Syracuse University’s Martin J. Whitman School of Management, has published research on incubator outcomes for start-ups and what factors affect its success to help a new company flourish. Amezcua joins Tiago Ratinho of IESEG School of Management, Larry Plummer of Western University and Parvathi Jayamohan of Salem State University in attempting to understand organizational sponsorship and the economics affecting incubator firms. Amezcua and his coauthors argue that urbanization and the concentration of an industry in a particular area will have an effect on the success rate of an incubator.

Business incubation as a whole aims to put startups in a similar playing field as industry incumbents. While one may assume that organizational sponsorship, or OS, may always benefit a company, Amezcua states that it does not always help a business in an urbanized setting with a high level of industry localization. Utilizing the National Census of Business Incubators, a collection of US business incubators with the companies incubated and not incubated, Amezcua found data to prove that incubated firms generally succeed over non-incubated firms except when considering two geographical factors: urbanization and industry concentration.

These conditions are determinant of how incubation will affect startups in a given regional area and which methods of incubation are to be used. Given that urbanization and industry concentration are not static across all geographic regions, incubation has differing effects across the globe. When the magnitude of urbanization and industry-incumbent saturation are low, business incubation tends to increase startup longevity; the same goes for when the magnitude of urbanization “matches that of industry concentration.” Conversely, startup longevity is cut short when incubation occurs in areas of low urbanization and high industry concentration; and its opposite, in which the area is of high urbanization and low industry concentration. 

When designing local business incubators, policy-makers should be aware of these conditions. The employment of the most effective mechanism is key to a startup’s success given a geographic region. 

Business incubators typically employ three mechanisms to augment startup survival and longevity: buffering, bridging and curating; and each is used based on location.

  • Buffering makes it possible for startups to survive in rural areas, regardless of industry concentration. This mechanism supports the startup using funding from local, generic competition to increase firm resources. 
  • Bridging, another method of incubation, is typically employed in regions in which the industry in question is non-existent. Here, the startup is connected with specialized resources found both within and outside of the region. 
  • Curating, which finds success in extracting the abundance of resources from the populated area, helps business incubation when the startup’s industry is well established and supported by resources.

These mechanisms also hurt the survival of startups. In a rural area where a startup’s industry is prominent, bridging could hold back the startup from extracting the resource-rich industry if within an incubator. In an urban region with a less concentrated startup industry, buffering can delay the startups access to resources as well when contained within an incubator.  

Despite a direct, finite correlation between urbanization and industry concentration for business incubation, Amezcua and colleagues have concluded that these geographic features can have a great effect on the success and longevity of startup incubation.

To learn more about faculty research, visit: research.whitman.syr.edu

Karley Warden