International Good Practice for establishment of sustainable
IT Parks
Roopen Roy, Deloitte Consulting,India
January, 2009
Contents
Evolution of IT Parks
Critical Success Factors
Policy Enablers
Business Models
-1-
Evolution of IT Parks
Initially Science & Technology Parks have Evolution US & select European countries first to
evolved around tertiary educational institutions or 1960s
establish dedicated Science Parks
• Catered primarily to knowledge or
other research institutions.
technology intensive sectors like
engineering, chemicals & electronics
Role of such parks has been to:
• Recruit and co-locate new and established
knowledge-based companies
• Promote
innovation
technologies
based
on
1970s
‘smart’
1980s
• Provide an interface or shared research
environment for research organizations and
private industry
• Leverage local knowledge resources
enhance a region’s economic base
to
-2-
1990s
Asian countries like Japan, Korea set
up dedicated parks
• Focus was primarily on basic research
& development activities conducted by
Government research & development
institutes; Universities
Non Government sector started setting
up operations in Science Parks
• Availed benefits of government
supported R&D
Developing countries start to establish
dedicated Parks for promoting their IT/
ITeS industry
• Constrained by severe infrastructure
limitations, it was easier to provide
state of the art physical,
communication and social
infrastructure within a designated area
Contents
Evolution of IT Parks
Critical Success Factors
Policy Enablers
Business Models
-3-
Critical Success Factors for establishing successful IT Parks
CAPITAL
• Ownership
• Sources of Debt
• Private Equity/
Venture Capital
• Anchor
Occupants
• Business
Incubator
• While the ownership of IT Parks may be in either Government, Private sector or both, it
is essential that they are managed by the private sector
– Given private sector’s operational flexibilities and ease of decision making as
compared to the requirement of adhering to rules & regulations applicable to
Government entities
• The success of an IT Park in attracting IT companies to occupy space/ facilities within
the park is largely dependent on the reputation & credibility of the anchor tenant
– IT Parks like Hitec City India and Singapore Science Park have been able to market
the park to occupants based on the strength that reputed organizations like Microsoft,
Oracle Corporation and DNV were already present in the park as anchor tenants
• Angel investment, venture capital and private equity have been identified as key
enablers, specifically for development of start-ups and small & medium enterprises
– Singapore, India & China represent some countries that have benefited from such
funding
• IT Parks offering incubation services help nurture entrepreneurship and development of
the SME sector in the local economy and the IT Parks gain when these operations
scale up to become regular occupant
– ZSP in China, which offers specialized incubator services for overseas Chinese IT
professionals seeking to return to China, which has resulted in over 450 start up
entities
-4-
Critical Success Factors for establishing successful IT Parks, cont.
CAPITAL
Hitec City,
India
IT Park-Hubli, SSP,
India
Singapore
CFZ, Malaysia Taedok Valley, ZSP, China
South Korea
Ownership
PPP
Government
Originally
Government;
presently
private
PPP
Private
Private
Management
PPP
Government
Private
Government
Government
Government
Anchor
Tenants
Large Indian
Government
Private
agencies
Companies,
Global IT and
BPO companies
Government &
Private
companies
(mainly R&D)
Global IT and
Large Korean
BPO companies Private
Companies,
Large public
R&D Institutions
Global IT and
hardware
companies,
Large Chinese
companies
No dedicated
funds; Fairly
matured VC/PE
market
Vibrant VC/PE
market
Dedicated
Government
sponsored VC
funds
Dedicated VC
Fund
Dedicated VC
funds
administered
Beijing
Municipal
Government
Provided by
STPI-Hubli,
limited space
Provided- it is
Provided
one of the focus
services
Provided
Provided
through
individual
universities
Access to VC/ No dedicated
funds; Fairly
PE
matured VC/PE
market
Business
Incubation
Services
Not provided
PPP: Public Private Partnership; VC: Venture Capital; PE: Private Equity
-5-
Critical Success Factors for establishing successful IT Parks, cont.
LINKAGES
• Market
• Working relationships with academic institutions like universities, colleges, R&D
institutes are essential for IT Parks where primary focus of key occupants is on
technology innovations
• Centers of
Excellence
– KAIST & ETRI are located within Taedok Valley; Quinghua University, Beijing
University & Chinese Academi of Science are occupants of ZSP; Centre of Wireless
Communication and the Institute of Microelectronics are located within Singapore
Science Park
• Internal Services
– Such linkages are usually not critical in IT & BPO Services where focus is on service
delivery
• Value Chain
• Availability of quality manpower resources is key to success & dictates performance of
the IT Park
– Factors like existing infrastructure and amenities and employment regulations also
play a key role in attracting the right competencies from other locations
-6-
Critical Success Factors for establishing successful IT Parks, cont.
LINKAGES
Hitec City,
India
IT ParkHubli, India
SSP,
Singapore
CFZ,
Malaysia
Taedok Valley, ZSP, China
South Korea
Product &
Services
IT & BPO
services
BPO services
R&D, hi-tech
products; IT
services
BPO
services
Telecommunicat
ion
technologies,
R&D
IT goods & services,
Chinese language
software for domestic
market
Forward &
Backward
Linkages
Export
market
oriented
Mainly
domestic
market
oriented, few
companies
export
oriented
Domestic and
export market
oriented
Export
market
oriented
Domestic and
export market
oriented
Domestic and export
market oriented
Value added
Services by
Park
Management
None
None
Business
development
support,
marketing
support
None
Marketing and
Sales support,
R&D support
None
Centres of
Excellence
None
None
R&D
Institutions,
NUS, S&T
Parks outside
Singapore
Multimedia
University
R&D
Institutions,
KAIST, ETRI,
ICU, Chungnam
University
Beijing & Tsinghua
University, Chinese
Academy of Science,
Chinese Academy of
Engineering, R&D
Institutions
-7-
Critical Success Factors for establishing successful IT Parks, cont.
INFRASTRUCTURE
• Land
• Physical
Infrastructure
• Good Infrastructural facilities are essential prerequisites for a successful IT Park
• Infrastructure includes:
– Availability and relative cost of land / space
– Urban Infrastructure
– Road connectivity; remoteness from nearest urban centre
• Communication
Infrastructure
– Proximity to airports
• Social Infrastructure
– Virtual infrastructure in terms of state of the art data & voice connectivity
• Environment
– Social amenities for recreation & sports
– Political stability and law & order
Critical Success Factors for establishing successful IT Parks, cont.
INFRA Hitec City,
STRUCTURE India
IT ParkHubli, India
SSP,
Singapore
CFZ, Malaysia
Taedok Valley,
South Korea
ZSP, China
Reliable
Reliable supply,
supply,
service level
service level contract present
contract
present
Government,
dedicated supply
Government,
dedicated
supply
Competitive
Market
Competitive
Market
Competitive
Market
Electricity
Supply- IT
Park
Government,
dedicated
electricity line
backup
facilities
present
Telecommunication
Competitive
Market
Government,
dedicated
electricity line,
subsidized
price, backup
facilities
present
Competitive
Market
Internet
Service
Providers
Government
and Private
Government
and Private
Government Government and
and Private Private
Private dominated
Government &
Private
Road
Connectivity
Good
Fair
Excellent
Excellent
Excellent
Excellent
Urban &
Social
Infrastructure
Leveraging
the quality
infrastructure
of Hyderabad,
one of the
largest cities
of India
Inadequate,
given that Hubli
is nonmetropolitan
city
Leveraging
the quality
infrastructur
e of
Singapore
Good, integrated
commercial and
residential clusters
Good, integrated
township with
commercial ,
residential & other
land uses
Good, integrated
township with
commercial ,
residential &
other land uses
-9-
Competitive
Market
Critical Success Factors for establishing successful IT Parks, cont.
• Availability of qualified & skilled manpower is essential
PEOPLE
– IT Parks in developing countries like India, China and Malaysia have the capacity to
generate employment for educated population in the local economy leveraging the
low cost of skilled human resources as compared to developed countries
• Quality
• Salary
• Quality educational institutes in the vicinity of IT Parks is an essential factor for
ensuring quality manpower resources
• Throughput
Engineering
Throughput per
year
Hitec City,
India
IT Park-Hubli, SSP, Singapore
India
CFZ, Malaysia Taedok
ZSP, China
Valley, South
Korea
>20,000 from
Hyderabad
(90,000 from
AP)
1100 from
Hubli (75,000
from
Karnataka)
14,000 from
Singapore
13,000 from
CFZ
40,000 – 50,000
20,000 –
25,000
7,000
15,000
Annual Average 9,000 – 11,000 4400 - 6600
Salary (USD) for
middle
management
employees
Employment
within Park
80,000
300
- 10 -
30,000 from
Taedok Valley
100,000 from
ZSP
10,000 –
12,000
>25,000
650,000
Critical Success Factors for establishing successful IT Parks, cont.
OTHER FACTORS
• Having the right product-services mix is critical
– Successful IT Parks largely focus on products & services in which their countries
of operation have a competitive edge
• A supportive and proactive government is key
– Encouraging innovation & promoting investments through appropriate policy
enablers and regulatory framework
• A vibrant and pro-active IT park management team represents an added advantage
– Parks promoted and managed by groups/ companies with requisite expertise are
found to outperform other parks
- 11 -
Contents
Evolution of IT Parks
Critical Success Factors
Policy Enablers
Business Models
- 12 -
Policy Enablers & impact on success of IT Parks
• Adopting a holistic approach to policy development is key
• Efficient institutional and implementation mechanisms are critical
• Focused policies for IT Park development are critical for “developing” ICT economies
• Encouraging private sector participation is critical
• Flexible land-use policies providing the developers more choice
• Linking incentives/ subsidies with identified strengths/ core competencies of domestic companies
• Effective co-ordination with other ministries / departments
• Having the right policy mix is essential for maximizing spill over benefits
• Fostering efficient linkages with other economies is essential
• Additional flexibilities exist for policy formulation in a federal structure of Government
• For countries aspiring to offer offshore BPO services, formulation of a Data Protection Act is a
necessity
•
- 13 -
Policy Enablers & impact on success of IT Parks, cont.
Fiscal policy highlights for different countries
China
India
Malaysia
Singapore
South Korea
tax •100%
tax • 100% Corporate
Direct
Tax •Reduced income •Income Tax holiday on •100%
exemption
for exemption
for income tax
concessions & tax rate of 10% profit from exports
for key software •Higher
rate
of MSC
Status pioneer
status exemption for 7
waivers
enterprises
depreciation
on companies
for companies
years
identified by the computers & software
10 years
•Tax
on profit • 100% exemption
state
•IT Parks under the SEZ •100% deduction from export of
from dividend
policy enjoys 100% IT on
capital services
withholding tax,
break for 5 years, 50% expenditure
exempted
for foreign
tax exemptions for next
investment in
five years and upto 50%
technology
of the profits ploughed
back for next 5 years
Indirect
Tax •No customs duty •Duty free imports by •Duty-free import
of
multimedia
concessions & and import VAT STPI units
for
software •CST reimbursement on equipment
waivers
companies
importing capital
equipment
including
technology
Subsidies,
Grants
and
other financial
support
purchases from DTA
•Rebate in cost of land •50%
by state governments
•Subsidy for creating >
2000 jobs
- 14 -
cost
of •Equity
support
feasibility studies for
start-up
and
business enterprises
planning
to under
the
SMEs
SEEDs scheme
• Exemption
from
custom
duties,
VAT,
special
excise tax, for
companies set up
with
foreign
investment
Policy Enablers & impact on success of IT Parks, cont.
Innovation policy highlights for different countries
China
India
Malaysia
Singapore
South Korea
amount •Free space, software •Up to 70% cost of •200% deduction • Special R&D
Research and •Any
exceeding 3% of tools & patent cost R&D
projects on R&D expenses promotion funds
development
VAT
paid
on
sale
of
reimbursement
for
reimbursed
under •R&D grants under • Tax credit for
support
software products high
end
R&D IGS, MGS and
to
be
refunded companies at state DAGS
provided it is used level
•CRDF to support
for R&D
•100% IT deduction on R&D investments
capital
expenditure
with
respect
to
scientific research
Intellectual
property
rights
protection
•Patent
Providing
incubation
facilities
services
•Almost all IT Parks •Government
RISC, ICS, IDS
schemes
expenditure &
investment in R&D
facilities
• Tax exemption
from technology
transfer income
Law and •Amended
Indian •Amended
•Copyright Act in • Amendments
to
Copyright
& Copyright
Act
in Malaysian
line with TRIPS
Copyright
Act,
Trademark
Laws conformity with TRIPS
Copyright Act in
Computer
revised in line with
line with TRIPS
Program
TRIPS.
Protection Act &
Trademark act in
line with TRIPS
&
have
incubation
facilities supported
by provincial / local
Government
&
academic
institutions
country-wide
incubation
under STPI
run •National Incubator •EDB
runs
7 • Small & Medium
Network
(NIN) HOTSpots
Business
centers under the TDF incubation
Administration
program
centres,
with along with KoBIA
sponsored
by management
provides SME &
Government
support
from start-up support
NSTB
- 15 -
Policy Enablers & impact on success of IT Parks, cont.
Human Capital policy highlights for different countries
China
IT focused
educational
policies &
curriculum
• Specific laws on
Training &
capacity
building
initiatives
• R&D institutes based in
Facilitating
employment
creation and
attracting talent
• Simplified visa
India
Malaysia
• Private sector
• 2nd S&T policy focuses
popularization of and
participation
ensuring progress of
• Compulsory
science and technology
English from
• Entry of foreign players in primary level in
higher education on a
many states
case to case basis
Beijing are encouraged to
run schools/ training
institutes jointly with
colleges, universities and
scientific research
institutes qualified for
training post-graduates
regulations
• IT focused
• Employment
• Computer
on making curricula
education at
more innovation
school level
oriented, involvement of • Existence of a
private sector in setting large number
curricula
of international
/ foreign
universities
• Operations of Skills
training centres
supported by
various state
Governments
Singapore
Development Fund
augmented under 2nd
S&T policy to support
industry training
programs, leveraging
existing industrial
training facilities
• MSC K-Workers’
Development Institute
set up by Finance
Ministry
• ITF, CITREP
run by IDA and
Education
Ministry
• MDeC empowered to
• Simplified visa
approve visa / work
permit applications
regulations
• Entrepass for
foreigners
setting up
business
linked financial
incentives
• Simplified Visa
regulations
- 16 -
South Korea
• IT literacy drive
through ‘10 million
informatization
program’
• eCampus Vision
2007 for
encouraging use of
ICT in universities
• Specialized
organizations like
NCA, IITA, ETRI,
etc to promoting
R&D in high
technology
• Simplified visa
regulations
Policy Enablers & impact on success of IT Parks, cont.
Investment Climate policy highlights for different countries
China
India
Malaysia
•Ministry of Information •Department of
Simplified
Industry as the policy
Information
institutional
making &
Technology for
and
implementation administrative agency, policy making &
with supportive role
administering
framework
Facilitating
cross border
trade and
investments
from provincial
Governments
•MoU between
government and
Microsoft
benefits
•Central Government
schemes like STPI
for single window
services
•IT considered
essential services in
many states
•100% FDI allowed in
•100% FDI in IT &
Singapore
•MDeC acts as a
•IT regarded as a
one stop agency
for investors in
MSC.
•Software
development a
“Pioneer Status”
industry
“Pioneer Status”
industry.
•The 1st 5 year
NCP formulated as
early as 1980
•IDA formed in
1999
•MATRADE set
•100% FDI in IT &
IT & BPO companies, BPO companies, IT
up in 1993 under BPO companies,
IT Parks
Parks
MITI
IT Parks
•DTAAs with around 65 •DTAAs with
•Tax treaties with •FTAs with USA,
countries
developed and
Japan, South
Japan, India,
developing countries Korea, Germany, Korea, Europe and
France, UK etc
others
•100% FDI in IT & •DTAAs with more
BPO companies, than 60 countries
IT Parks
- 17 -
South
Korea
• Focused
initiatives like
‘Cyber Korea
21 initiative’
& ‘IT Korea
vision 2007’
to develop a
world leader
in ICT
• DTAA with
over 60
countries
Policy Enablers & impact on success of IT Parks, cont.
Investment Climate policy highlights for different countries, cont.
China
Enabling eCommerce
Malaysia
•Electronic Signature
•Formation of Cyber
Law passed in 2005
Appellate Tribunal
•Digital certification
under IT Act, 2000
•Recent interest from
Access to
Venture Capital global VC funds
•Government
supported existing VC
funds at provincial / IT
Park level
Enabling
Infrastructure
development
India
•Presence of
•Communications
& Multimedia Act,
Digital Signature
Act and
Computer
Crimes Act
enacted in late
90’s
•Dedicated
established global
VC funds
•No tax on income
from a VC
undertaking
Venture Capital
funds like
MSCVC and
TPMVF
Singapore
•Computer Misuse
Act and Electronic
Transaction Act
enacted in 1998
• Electronic
Signature Act
enacted in
1999,
Protection of
Information
Infrastructure
Act 2001.
•Financial hub of
• Govt. backed
Asia with global
VC funds
•No tax on income
from divestment of
share by a VC
fund
VC funds
• Tax
concessions
to VC funds
•Competitive telecom
•National Telecom
market with
dominance of state
owned players
•Public private
partnership (PPP) for
physical infrastructure
development
Policy , 1999 opened Policy passed in n market
up
1994
liberalized in 2000
telecommunication
•PPP for
•PPP for
market to private
infrastructure
infrastructure
players
development
development
•PPP for
infrastructure
development
- 18 -
South Korea
•National Telecom •Telecommunicatio
• IT839
strategy for
overall
development
Contents
Evolution of IT Parks
Critical Success Factors
Policy Enablers
Business Models
- 19 -
Comparison of Business Models adopted by various IT Parks
- 20 -
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