ESA Business Incubation Centres drive growth of SMEs

A recent case study has revealed that ESA Business Incubation Centres (ESA BICs) are subverting a general downward trend in the number of small and medium-sized enterprises (SMEs). Over the years an impressive twenty ESA BICs have been deployed across Europe allowing local economies to benefit from space data and technologies. In doing so, the ESA BICs have contributed to the growth of SMEs with a direct impact in relation to Sustainable Development Goal 9: Inclusive and sustainable industrialisation. 

The Sustainable Development Goals (SDGs) constitute a comprehensive framework developed by the United Nations, who adopted a set of goals to end poverty, protect the planet and ensure prosperity. 

The path to sustainable prosperity also involves the creation of start-up and small/medium-sized enterprises that help to create employment – making a virtuous link between the ESA BICs and the SDGs. 

ESA BICs work to inspire entrepreneurs to turn space-connected business ideas into commercial companies. They provide funding, marketing, technical expertise and business-development support.  

“Helping start-ups to set up, to grow and to become successful is a very challenging and timely business; but it is the most sustainable and economical way of creating the jobs of the future. If you want to have a big tree you have to start to plant some,” says Frank Salzgeber, Head of Innovation and Venture at ESA.  

SMEs are a boon in European and other economies, delivering more employment and investments when compared to larger companies. But unfortunately over the years there has been a perceptible decline generally in the number of SMEs.  

Now it’s being observed that the support to SMEs from ESA’s BICs might in fact be countering this downward trend.  

In order to statistically verify the impact of the ESA BICs, Celine Dubron and Elia Montanari from ESA Space Solutions set out to quantify the effect of the ESA BICs on the growth of SMEs by country using an ‘Instrumental Variable (IV)’ tool.  

This is a statistical technique that mimics – at least partially – a Randomised Controlled Trial.  By applying the IV, it is possible to measure impact by comparing the effect of the ‘treatment’ (ESA BIC support) on countries that implemented an ESA BIC against the ‘counterfactual’ (the control group –  i.e. countries that did not implement ESA BICs). 

“Impact assessment, be it for SDGs or for other empirical indicators, has recently been popularised by Economics Nobel Prize neo-laureates Esther Duflo, Abhijit Banarejee and Michael Kremer - for  experimental work done in developing countries,” says Elia Montanari, Head of Management & Control at ESA Space Solutions.  

“Implementing randomised control trials is the gold standard. In the absence of such an opportunity, we went for second best by measuring the impact of the selected SDG using the IV instrument. The ESA BIC case study is a particularly important case for the Agency because it allows to link the implementation of ESA BICs to the growth of SMEs as a % of total value-added industry,” Elia Montanari, ESA.  

For the case study, the  SDG Indicator 9.3.1 or ‘proportion of small-scale industries in total industry value added (%)’ was studied as the outcome variable. This relates to SDG 9 of the UN framework.

The results of the case study showed a statistically significant positive result. It was observed that while the percentage of SMEs have generally decreased over the years across the treatment group, in the counterfactual – or control group – the percentage of SMEs had deteriorated further.

“This means that the ESA BIC network has an impact on the amount of SMEs that is greater than zero and that this holds true for 95% of the cases,” says Montanari.

“In other words: When a country became part of the ESA BIC network, the amount of SMEs increased relatively to the downward trend that would otherwise have been observed.”

The results of the case study are robust enough to potentially influence future policy decisions on the establishment of ESA BICs and, where possible, further studies are envisaged to dig into more granular geographies and assess the impact of ESA BIC implementation – at a regional level, for example.