Business incubation initiatives and innovation capabilities of micro-sized enterprises: Exploring the software ICT value chain

Promoting innovative capabilities in Small and Medium Scale Enterprises (SMEs) is crucial if African countries are to progress in terms of being active in the Global Value Chain (GVC) and achieve inclusive development. Enhancing innovative capabilities in the Information Communication Technology (ICT) sector has been identified as strategic to Nigeria tapping into the GVC and deepening industrial sustainable development. Despite increasing awareness that enhanced innovative capabilities can foster the integration of SMEs into the GVC, there still exists scanty evidence of SMEs’ innovative capabilities, especially in the ICT sector and software sub-sector in Nigeria. This paper broadly explores SMEs’ innovative capabilities in the ICT–Software Incubator sub-sector in Lagos metropolis. Specifically, the paper seeks to understand what limits SMEs’ innovative capabilities and the kinds of government support required to mitigate the effects of these factors. The study used 200 SMEs and 10 key incubator hubs operating in the sub-sector as a case study as well as in-depth interviews with the owners/managers. Our findings show that there is improvement in the software sector’s knowledge and development and its value chain in the country; most businesses copy innovative concepts from abroad, adopting about 30% local innovation content due to the high demand for foreign software innovations by clients; overall most incubation hubs are underperforming in their core services to incubating firms; and poor educational infrastructure, brain drain and poor support from the government are key challenges facing the sector. We recommend a strong peer review among the innovation hubs and a check on the brain drain in the sector.