SM’s I.T. park
by Blogie • 3 May 2007
It’s been written about in the news (and in some blogs) already that SM City Davao is planning to invest in an I.T. park project. In fact, the Davao City Sangguniang Panlungsod, through the authorship of Councilor Peter Laviña, has drafted a resolution to support this endeavor. The city dads wish to endorse the SM Davao I.T. park project to the Philippine Economic Zone Authority and other concerned government agencies.
In light of the existence of the Damosa I.T. Park, and because of my keen interest in these developments, I tried to setup an interview with Debbie Go, SM City’s mall manager. However, I was informed that SM is still in the process of applying for the project’s accreditation. In other words, no matter how much I’d grill them for information, there simply wouldn’t be any available data yet.
Rest assured, however, that as soon as SM City is prepared to make their plans known, I.T. Talks! will be there to find out more.
So far, what we know is that the 3-hectare property behind SM City in Ecoland is the target area for the second upcoming I.T. park in Davao. What facilities they’ll put up and what kind of locators they’re aiming for are some of the information I’m anticipating.
In the Mall of Asia, an SM executive has told me that their e-commerce building is already nearing completion. It is planned to house high-tech companies that are geared for commerce and trade via the Internet, as well as for call centers. I can just imagine how technologically advanced this building will be. If the planned SM I.T. park in Davao would only be even half that e-commerce building….
I hope too that what SM is planning for Davao will run along the same lines as the one for the Mall of Asia. You see, when you say “e-commerce facility,” there is a presupposition that the target businesses are high-value-added industries. There is that idea that the investments won’t only be in contact centers, but in I.T. development as well.
Contact center investments, while considerable, aren’t really contributing a whole lot to the local economy. Yes, call centers do provide thousands of jobs. But they do not add value. Simply put, they aren’t manufacturers, so their output doesn’t affect our GNP or GDP all that much.
What we should be aspiring for in the I.T. industry is an increase in software development and animation providers. These types of businesses provide employment (at higher salaries) and deliver high-value goods and services, the income of which are infused into the local economy.
Possibly related articles:
I agree with you, Blogs: Contact centers aren’t really I.T. firms in the strict sense. They don’t produce a differentiating product. Rather, they’re really mostly just a means for multinationals to cut costs.
I would like to think that we’re capable of nurturing more than just software and animation houses, however. Unfortunately, I don’t have enough information to be absolutely sure.
By the way, I’d be interested to know if these I.T. parks have any plans of hosting a business incubator within their facilities. I’ve come across one research that suggests that a business incubator is important to a science/I.T. park’s sustainability. The suggestion might still be up for debate right now, but somehow it does make sense to put up an incubator within an I.T. park. Furthermore, another study concludes that incubating new businesses is a more cost-effective move than inviting established external companies into a city.
I’ve been wondering about that myself. In fact, I used to equate the two before: I mean, I’d always assumed that there were incubator facilities in all I.T. parks….
This will be a good question to ask Damosa Land and SM. Thanks for the heads-up, Mark!
In the Philippines, IT Parks are real estate businesses, not technology ones. Even “enlightened” conglomerates like Ayala that seem to get it, their IT parks are still run as real estate businesses.
Sure they try to provide “socio-economic equity” into development by sometimes “donating” to agencies and foundations, but businesswise, they’re there for the rent.
Incubators are a totally different animal, as an incubation manager should have an eye for innovation and know how to connect/tap the right resources. In a way, they are doing business development for the incubatees. That’s a far cry from the IT park managers that we have, whose expertise is to make sure that construction projects are up-to-date, all rent is paid for, that security is tight, etc.
Incubators run as real estate entities are doomed to fail, since true innovation ventures, by their high risk nature, do not have guarantees that they’ll have enough money to even pay the rent. You’ll end up with “sure win” tenants who will just use the incubation facility to get cheaper space.
To have a well run innovation environment, it is best for these IT parks to donate their space to an independent incubation organization managed by an engineer person with business acumen, not by financial or real estate people.
Simply put, our technology ecosystem has lots more learning and maturing to do since:
incubation = facility management* innovation business management
venture capitalism = investors’ financial investment* venture capitalists’ minds and network
ICT education = core principles technical skills* technology development / engineering / design orientation
*in most cases in the Philippines, we merely equate it with these
Thanks Jason. Yup, I think we’ve pretty much established earlier that there’s a difference between the two. The point we were trying to raise was that there are some indications that an incubator within the facilities of an IT park is critical to the latter’s success. Thus our curiousity with regards to SM and Damosa establishing one within theirs.
My guess would be, by default, such plans might not be available. However, someone with considerable influence might be able to “sell” this to them with something that they value.
Yes, incubators contribute to an IT park’s sustainability, but mostly in the long term (successful ventures mature in 5 years or so - as superstars like YouTube who made in less than 2 years are pretty rare). In the short term, the type of window that local businesses might be more concerned with, incubators are going to be a cost center, and there’s no way to hide that fact without compromising its innovative value.
There is no doubt that they provide double bottom line value (social long term economic), and SM / Damosa will have to appreciate that to agree to put incubators in their premises.
I guess what I’m trying to say is that IT parks will be able to appreciate incubators if they are able to appreciate the general value of non profit organizations in a broader perspective.
Great inputs Jason. My initial assumption was that SM and Damosa have at least studied the potential contribution of incubators to their parks. But then again, judging from Damosa’s performance with the Japanese (as told by blogie), perhaps there’s a chance they didn’t.
I missed your last comment above.
“I guess what I’m trying to say is that IT parks will be able to appreciate incubators if they are able to appreciate the general value of non profit organizations in a broader perspective.”
But why do you say non-profit organisations? Business incubators can be operated as for-profit organisations as well. In fact, some studies suggest that for-profit incubators are better at producing successful tenants.
That’s true. It’s just tough in the first few years of its life. When I say “run it as a non-profit”, I didn’t mean it should be a charity organization offering free space to the homeless. What I meant is that they need to be able to appreciate the venture beyond short term financial returns, and, if possible, appreciate unquantifiable / intangible returns like contribution to the innovation ecosystem.
In the Philippines, I would guess that our lack of experience in incubator management would mean it will probably be a continuous outflow of money for several years since we don’t have any other supporting structures in place (VC’s, academic R&D, etc.). That said, IT Parks will probably have to practically treat the space as “donation” from a financial standpoint.
(I guess I’m not giving them the benefit of the doubt. Either the incubator investors have to be battle-hardened super high risk tolerant people, or just be able to appreciate non-profits. The latter sounded more plausible in the Philippine setting.)
The greatest challenge for incubators is to avoid falling to compromise, preferring tenants who do little innovation but pay the rent on time, as opposed to the risky technological companies who are under funded. The moment this happens, it almost ceases to become an incubator.
I think, Mark, a good step that these IT Parks can make is to locate an innovation oriented IT/engineering school. For one thing, it is easier on the pockets because schools are revenue earners.
Have a school that generates skilled manpower and ideas (both technology and business) in a business setting, and you have an “organic incubator” right there.
In Silicon Valley, having Stanford and the hi-tech business together within 5 minutes of each other made incubators uneccessary. “The entire district is a large incubator,” is what they say.
It would be ideal, for instance, to use the large lot around MTS as a business park, and move the IT and Business colleges of Ateneo to the Matina campus.
Since these are factors out of any one party’s control, it’s best to have the school partnered with the park directly. It might be good for SM, for instance, to open a branch of APC (which has a very good IT program, BTW) within the park.
“…Either the incubator investors have to be battle-hardened super high risk tolerant people, or just be able to appreciate non-profits. The latter sounded more plausible in the Philippine setting.”
It doesn’t have to be one or the other though. One other way to convince them is to have them see business incubation from a real-options perspective.
Your suggestion to locate an IT/Eng’g school within the premises sounds like a good idea. But I think plans to put up an incubator should be done parallel to that since the graduates of these schools will need access to a good support network once they start a business.
As for your view of patterning the physical location of our schools and IT parks against what’s happening in Silicon Valley…let’s just agree to disagree on that one for now.
There is no doubt, Mark, that there is value to incubatees. I was referring to value to the investors who have to shell out resources (as this goes beyond “sunk cost” of space, it also covers operational expenses.)
I only mentioned Silicon Valley to point out that physical proximity of engineering schools to the business community has been a cornerstone of major technoclusters globally.
Yes, incubators will work best in parallel with schools that have a good R&D program.
Bottomline, I guess, is managing investors or real estate owners’ expectations. Potential incubator investors expecting to get rich in the short or intermediate term might want to simply use their money somewhere else.
“There is no doubt, Mark, that there is value to incubatees. I was referring to value to the investors who have to shell out resources (as this goes beyond “sunk cost” of space, it also covers operational expenses.)”
Is that a reply to my real options suggestion? If so, that is what exactly real options analysis is for: it’s a tool that an investor can use to evaluate the feasibility of a project. The traditional discounted cash flow valuation method is best suited for high-certainty projects. Business incubation has too high a portion of uncertainty that DCF becomes inappropriate and has the tendency to discard potentially profitable projects/endeavours (such as business incubation).
“I only mentioned Silicon Valley to point out that physical proximity of engineering schools to the business community has been a cornerstone of major technoclusters globally.”
And all I’m saying is that I’m not entirely convinced that physical proximity should be considered part of said cornerstone. But, like I said, let’s agree to disagree for now.
Thanks, Mark. I was looking at the wrong link. Yup, that can work. As any selling task goes, it is also a matter of presentation to investors. I gave the Chamber some copies of core NBIA books with hopes that it will enlighten anyone interested in incubation.
And yes, let’s agree to disagree. We’re overloading Blog’s post already.
Hey, I sent you a message in your own blog.
I should grab hold of those NBIA books when I’m home. Those things cost a fortune! Or maybe I’m just a cheapskate. Either way, I should take a look at those. Business incubation research has caught my interest the past couple of months now.
Hey, no problem, guys! Good to see some interaction here!
And your comments are really thought-provoking.