Hard work for companies in research parks

– On average, the earnings potential for companies in research parks is much lower than for those outside, unfortunately the loans they have to service are the same, says Thomas Halvorsen at the Department of Sociology and Political Science at NTNU. Photo: Rune Petter Ness

A new study finds that there is a greater danger of bankruptcy in -research-park enterprises than -there is for independent businesses.

By Nina E. Tveter

Companies in Norwegian research parks do not do better than businesses outside such parks. Their turnover is lower, they do not show better results before tax, and they do not have lower debts than independent businesses.
These are the conclusions of Thomas Halvorsen’s graduate thesis in political science. He studied the viability of companies during the period from 1992 to 1998 within the following eight research parks in Norway: Leiv Eiriksson Nyfotek, Teknostallen, The Research Park (Oslo), The Research Park in Tromsø, Centre of Advanced Technology in Bergen, Rogaland Knowledge Park, Campus Kjeller, and The Research Park in Ås. 180 research-park businesses took part in this investigation. He has compared these with 13 000 independent enterprises within the same industries as those from the research parks. Most of them are IT/technological enterprises.

Higher risk of bankruptcy
Halvorsen has chosen four criteria for evaluating the enterprises: yield of total capital (turnover), results before tax (income minus expenses), liquidity (the ability to service short-term loans) and level of debt (debts seen in relation to the total value of the company). Businesses in research parks only do better in their ability to service short-term loans. Their worst results were found in turnover.
He adjusted for any bias which might result from the fact that firms that enter research-park cooperation might have a different starting point from the average for independent firms. Thus about 20 per cent of the businesses were in research parks during their establishment phase. Only about 12 per cent of the businesses outside the parks were in the same situation during the time that he was carrying out his research. Halvorsen has corrected for such bias.

Is the research park a good model?
Halvorsen asks himself whether the concept of a research park really is such a good model.
– One general criterion for enterprise success is that turnover should be proportional to the level of debt. My research data show that the average turnover is lower for enterprises within research parks than it is for those outside, while the level of debt is not proportionately lower. This suggests that the danger of bankruptcy or of becoming insolvent is higher for research-park firms than for firms operating outside research parks.
– One explanation might be that part of the activity in research parks involves developing business ideas based on new technology, something that often involves high risks. But this does not require that high-risk firms do less well than low-risk firms. High-risk operations open up for high turnover as well as for loss. The effect that high-risk operations have is largely dependent on the ability of each research park to pick out and back ‘the winners’.

No synergic effect
Halvorsen’s research kills the myth that Norwegian research parks create a synergic effect – at least in terms of financial benefit. He believes that Norwegian research parks are too small and that there is too much variation in the type of enterprise contained in each park. This might be the reason why it is difficult to see what benefits accrue from being located in a research park.
– IT Fornebu, however, will be a significantly larger research park. It might succeed in achieving a bigger turnover if it is successful in getting the right mix of companies.
Halvorsen has obtained accounts statistics from the commercial inquiry agency Dun & Bradstreet.

Not surprised
Svenning Torp, managing director of The Research Park, the largest such park in Norway, finds it difficult to comment on the study before he has had a closer look at it. He is, however, not surprised by what he has seen of the results so far.
– Research-park enterprises are often embryonic businesses. They are a particular kind of business, one which has been created in order to exploit technology commercially. As a result they have a long way to go, and this means higher risks. This can be one explanation of the results of the research, he explains.
– Another factor is that when the enterprises have grown larger, with more than 10 to 15 employees, they often move out of the park because of a lack of space. This means that they only stay in the research parks during their initial and most vulnerable phase. Torp believes that the results support the research parks’ claim that the conditions for embryonic businesses in Norway are far from adequate.

Contact at NTNU: Thomas Halvorsen
Email: thomahal@stud.ntnu.no