Experiences of Knowledge Based Entrepreneurship Biotech and IT

Experiences of Knowledge Based Entrepreneurship: Biotech and IT sectors in the Czech Republic and Hungary Kate Bishop, KEINS Project, University College London

OUTLINE l l l l 4 CASES: 2 BIOTECH, 2 IT FROM CZECH REPUBLIC AND HUNGARY RESEARCH QUESTIONS METHODOLOGY CONCEPTUAL FRAMEWORK BACKGROUND TO FIRMS RESULTS POLICY IMPLICATIONS

RESEARCH QUESTIONS 1. WHAT IS THE ROLE OF INTERNAL, EXTERNAL, AND NETWORK FACTORS IN THE GROWTH PROCESS OF THE FIRM? HOW DO THEY CHANGE OVER TIME? 2. WHAT TYPE OF BARRIERS TO GROWTH ARE EXPERIENCED BY KB ENTREPRENEURS?

METHODOLOGY l l l I use Case study research to understand complex nature of entrepreneurship. Quantitative research not always suitable (Bygrave, 1993). Try to introduce a temporal element, RBV and network theory to research questions, as recommended by Ireland et al. (2005). Balance between individual and external environment (Shane, 2003). Cases selected on basis of size, sector and innovation record. All Knowledge based firms- knowledge most important strategic resource (Grant, 1996). Impact- market leaders. Feb-April 2006 semi structured interviews carried out with founders, TMT, and core employees at firms. Interviews mixture of open ended questions and some Likert scale questions on relationships, strategy, external environment and firm growth.

METHODOLOGY 2 l l Likert Scale questions were asked for time of start up and for early 2006 to evaluate how role of factors changed over time. E. g. scores were based on an average ranking of responses to the following questions: How would you assess the role of the internal/network/external environment in the growth and development of the business? Interviews were also carried out at Industry Organisations.

INTERNAL Resource Based Model View Capital, human capital, patents Finance, management (Hitt et al. 1999, Strand, 2006) Time Strength of factors is changing during the various stages of development of the firm Founder Previous experience, education (Westhead, 2001/ Audretsch & Keilbach, 2004) Entrepreneurial Strategies Diversification (Hitt et al. 1999) Internationalization (Zahra and George, 2002) Growth and Development RELATIONSHIPS Linkages with academics/clients/rivals (Elfring and Hulsink, 2001) EXTERNAL Political/legal regulatory envt (Peng and Heath, 1996, Begley et al. 2005) Access to finance: govt/VC/business angels /Entrepreneurial infrastructure: incubators/science parks (Van de Ven, 1994)

DEKONTA (BIOTECH) Czech Rep. Established in 1992 3 founders: exploitation of bioremediation tech in the CR Services: hazardous waste treatment and removal, remediation of contaminated sites, lab services, environmental emergency response service. Employs 125 staff: specialists in chemistry, biology, geology, engineering. Offices in SK, PL, Serbia and Montenegro and Russia. Turkey in the future. Innovations: specialised drill for taking samples of air/contaminated water, Phytomediation – plants stabilize contamination.

ETNETERA (IT/E-COMMERCE) Czech Rep. l l l Established in 1997 by 2 university students via private savings and parental financial assistance. Vision to take part in development of Info society in EU Etnetera is leading supplier of e-business solutions/technologies. Designs and implements intranets/extranets/websites/portals/payment systems Special Prizes. Employs 60 staff So far, domestic market focus

SOLVO (BIOTECH) Hungary. l l l Solvo is a biopharmaceutical firm founded in 1999. 3 Founders: a biochemist, successful VC and a lawyer Active in ABC transporters and drug resistance and discovery. Market leader in ADME screening and in pharmacogenomics (personalised drug therapy) Staff currently at 60, set to grow Impressive growth. 2000 -2/winner of Grand Innovation Prize. Born Global- 99% sales go abroad-US/Japan top pharma companies

KURT (IT) Hungary l Kurt was founded in 1989 by 2 brothers Janos and Sandor Kurti- both had academic/ind experience but new to entrepreneurship. l Grew from 2 brothers renting a launderette fixing defective hard disk drives to a European market leader in data recovery/security, current head count 52. Responsible for putting Hungarian high tech on the map (Business Week). Performance has been impressive revenue and profit growth over 40% a year, able to create collaborative network- Global R&D Institute. l l

RESULTS 1. INTERNAL ENVIRONMENT For all firms internal resources were crucial at start up for growth e. g. employee skills, entrepreneurial vision and innovation. “Good staff, young smart people and flexibility are crucial to our success” (Project Manager, Dekonta). Over time organisational design increases in importance with ¾ firms undergoing some kind of organisation restructuring.

RESULTS 2. STRATEGY At Dekonta and Kurt strategic choice to internationalise gradually. Dekonta is looking to Asian markets and Kurt is going for a global strategy. Solvo is a “born global” “pushed into the international market by lack of domestic clients”. (COO, Solvo) Etnetera is not interested in internationalisation.

RESULTS 3. STRATEGY 2. Dekonta, Kurt and Solvo have all pursued diversification strategy. Etnetera kept to same product portfolio. At Dekonta the motivation is to survive. The have moved from bioremediation to many technologies/ ERS/incinerator. Solvo moved from drug diagnostics to transporter technologies- pushed by clients needs. Kurt moved from repair services to prevention- with new products Data Defender and Data Insurance -pushed by external events Y 2000 and 9/11

RESULTS 4. EXTERNAL ENVIRONMENT At Kurt changes in external envt (COCOM regulations ended)-> market opportunity. Role of external envt increased at Kurt: 9/11 -> loss of partners-> decision to establish wholly owned companies. At Dekonta government is an important client, source of grants for R&D, and irritation- slow to approve new technologies. “State is a key player”, (Managing Director) Etnetera: role of domestic demand crucial at start up. IT bubble-> organisational change- new TMT. Solvo: role of foreign demand crucial – “Born Global”.

RESULTS 5. RELATIONSHIPS r At Dekonta and Kurt role of relationships increased over time. Dekonta: collaborate with competitors on projects, they try to learn from other firms mistakes/success. Use partners to internationalise. Kurt: have a large no. of relationships- Inter. Guard Security Alliance US. Founder VP of Hungarian Association of IT and member of ENISA. Also has special academic links with Uni of Vesprem “access to fresh brains” runs student programmes to attract potential recruits. Quality issue at Kurt. Etnetera: info exchange with competitors at Industry Association meetings, generally not developed relationships. Solvo: relationships with academics crucial- Uni of Szeged for projects and Hungarian Medical Centre- Prof. Sarkhadi is President of Solvo Scientific Board. Also build long term relationships with clients- incorporate their needs into R&D process.

RESULTS 6. BARRIERS TO GROWTH l l For Etnetera and Solvo access to finance most serious problem- not easy to find sources and general mistrust. Etnetera, Dekonta, and Kurt have all had to overcome declining domestic demand difficulties in dealing with competition. Skills gaps and brain drain an issue at Solvo and Etnetera. Barriers in CR and Hu similar to Western Europe and US?

WHAT CAN WE CONCLUDE ABOUT KBE IN CZECH REPUBLIC AND HUNGARY? l l l Results suggest that in dynamic KB sectors there is a life cycle of factors in the growth and development process- the role of internal, external and network factors does change over time. Some unique opportunities: Privatisation-> created demand for Dekonta’s service, end of COCOM-> created market opportunity for Kurt. ¾ cases using “Open Innovation” model (Chesbrough et al. , 2006)

POLICY IMPLICATIONS l l Need for greater focus on availability of financeneed a range of packages for kb entrepreneurs e. g. START in Czech Republic. Dealing with skills gaps- promotion of life long learning/financial assistance for kbes to recruit and retain home grown talent Need for specialist internationalisation training for founders to help with entering international markets. “One stop shop” for knowledge based entrepreneurs?