1. STARTUPS’ NETWORKING AND OPEN INNOVATION

According to the definition by Blank (2010), a startup is a company, partnership or temporary organization designed to search for a repeatable and scalable business model. In this phase, new ideas are brought to the market and transformed into economically sustainable enterprises (Spender et al., 2017). However, the establishment of startups presupposes a lack of tangible and intangible resources (Wymer and Regan, 2005) to build new business models. Existing studies show that forming a relationship with partners is key to their success (Teece, 2010). In addition, by adopting open innovation (OI), new ventures could overcome the lack of resources derived from the liability of their smallness and newness (Bogers, 2011), allowing both the acquisition of resources and the introduction of new products in the market. In the OI literature, networks have been considered instrumental to their success (West and Gallagher, 2006).

Although startups are potent engines of open innovation (OI) processes (Colombo and Piva, 2008; Davila et al.,2003;Mustar et al., 2008) Then, Wang and Fang (2012) have found that network structure affects new firms' innovativeness. It is necessary for startups and other actors involved in the innovation processes to understand how the structure of the network affects their processes and outcomes. Neyens et al. (2010) considered the impact of the duration of alliances on startups' innovation performance. Zhang and Li (2010) have found that having relations with intermediary organizations (e.g. technology service firms, accounting firms, law and talent search firms) is positively related to new ventures’ product innovation. Pérez Pérez and Sánchez (2003) have found that startups’ networks evolve over time.

These findings are just some of the examples of how innovation processes and network structure mutually shape each other: actors in the network define the requirements for new products or services, accept or refuse them, and modify their relations in the process. This phenomenon is especially relevant when considering startups, which change the structure and processes of the network when entering the market (La Rocca and Snehota, 2014). Likewise, Spender et al. (2017) note that regardless of the context, environmental uncertainty affects the causal link between network structure and the considered measure of performance.

2. THE ACTORS BEHIND STARTUP’S NETWORKING

Opening up the innovation process implies the involvement of startups in relationships with different typologies of actors. Qualitative aspects of the relations in the network underline the importance of two factors: the actors involved and the evolution of the relations over time (Spender et al., 2017). Understanding the nature of these relations and the mechanisms used to manage them is just as important as understanding their structure. The following actors are frequently related to Startups and Open Innovation:

Incubators. An incubator is a company that promotes the development of new startups by providing technical advice, services such as management training or office spaces. According to studies, there are three types of incubators: technology-based, industrial and higher education incubators. Each of them is focused on stimulating innovation processes along the lifecycle of a startup. According to the Higher Education, Science, Technology and Innovation National Secretary (SENESCYT, 2020), 24 incubators are registered and active, 11 (45.8%) of them belong to higher education institutions, and 13 are private (54.2%).

Large corporations. Large companies play an essential role in the entrepreneurship ecosystem for startups to create new spin-offs or spinouts (Spender, J. et al., 2017) and give access to resources and information. Large corporation adopts different mechanisms to fund startups as venture capital or joint ventures collaborations. According to UNESCO (2020), in the United States, 71.5% ($340,728M) of the R&D country spending corresponds to large corporations, equivalent to 1.93% of its GDP. Meanwhile, in 2019 China and Japan large businesses invested in R&D $287,795.3M and $131,839.8M respectively, equivalent to 77.29% and 77.76% of the total R&D national expenditure (Fig.1). Unfortunately, in Ecuador, this type of mechanism is not developed; the data of UNESCO (2020) show that large companies invested in R&D only $343,061K, equivalent to 0.17% of the GDP and 42,3% of the total R&D national investment.

Higher education institutions. A relevant actor in new ventures’ network is Higher Education Institutions (HEIs); an OI ecosystem for startups is not complete without their integral role. HEIs are an important source of knowledge, upon which innovation has become dependent, making HEIs crucial for open innovation. Simões et al. (2012) analyzed the role of HEI as an intermediary, bridging the gap between producers and consumers of knowledge, since they possess staff and various research units that can help venture startups and entrepreneurs to identify opportunities, mobilize resources, and create value. As a network actor HEIs incentivize and energize the diverse elements to integrate into an innovation network (Spender, et al., 2017), that promotes knowledge sharing and supports nascent entrepreneurs at the various stages of venture creation. In high-income countries innovation processes are well supported by HEIs that each year receives and compete for public funds to fund innovation, science and technology development. In 2018 US HEIs invested $62,349.0M in R&D. Nevertheless, in the same year the total R&D investment of South America countries reached $52,546.4M, $9,802.6M less than US HEIs (UNESCO, 2020).

Other actors. According to the "Regulation for the registry, accreditation and strengthening of innovation spaces and agents in Ecuador" (SENESCYT, 2017), other innovation actors involved in the national entrepreneurship ecosystem are entrepreneurship accelerators linked with financial, market and internationalization services. Risk capital operators focus on risk capital management and investment; they have a similar structure to the Venture Capital firms (VC). Also, are the innovation managers dedicated to design research and innovation projects for knowledge transfer. Finally, are the coworking spaces dedicated to providing coworking services like events, networking and shared-based infrastructure areas for new entrepreneurs.

Figure 1: Rank of R&D investment per country. Source: UNESCO (2020, s. p.).

Then, understanding each ecosystem actor's role, relation, position, and power is critical to identify the maturity of a startup ecosystem. Strong networks allow startups to merge from low innovation to high innovation initiative in a relatively short time.

3. NETWORK ORIENTATION

Network position represents a critical resource for startups because it allows them to exchange and leverage their substantial resources and partners' activities in the network (Wang and Fang, 2012). Network centrality defined as the level of position, which the new venture occupies within its industry boundaries. The centrality will be established by the relation among actors within the startup network: HEIs, incubators, VC firms, large companies, among others. Therefore, network centrality provides a positional advantage to a new venture enabling it to obtain resources or information from others, which is needed for growth and promote its innovation. Network centrality increases the volume of innovation and knowledge acquired from a wide variety of sources.

On the other hand, a cooperative network is determined by social network acceptance. According to literature, cooperative relationships can assist a new venture's competition. The hypothesis about network centrality and innovation bet that there is a positive relationship between the degree of network centrality a startup occupies in their network and its innovative performance. Therefore, there is a negative relationship between the degrees of interaction with cooperators a startup fostered and its innovative performance.

4. ECUADORIAN ENTREPRENEURSHIP PROFILE

According to Global Entrepreneurship Research Association (2019), the ranking of the entrepreneurial framework in Ecuador evidence a strong position of the country related to physical infrastructure (6.97), cultural and social norms (5.92) and entrepreneurial education at the post-school stage (5.39) comparing with the media of the World. However, indicators like entrepreneurial finances (2.88), taxes and bureaucracy (2.66), government support and relevance (2.66), research and development transfer (3.10) and government entrepreneurship programs (3.44) are pretty far from the global average.

Ecuador ranks second in the Total early-stage (TEA) entrepreneurial activity and fourth on Establish business ownership rate (Fig. 2). A critical function of new entrepreneurship can be to introduce new products and services into markets. According to the Global Entrepreneurship Monitor GEM (2019), answers to new questions in the 2019 research revealed that in seven economies (Canada, Colombia, Guatemala, Ecuador, Panama, Chile and the United Arab Emirates), one in 20 adults are starting or running a new business with products or services that they say are at least new to the local area. This is an encouraging sign that innovation is entering the heart of entrepreneurship but stills the challenge to improve the bond between innovation and a high technological transfer that could improve the entrepreneurship success rate. Unfortunately, 69% of the Total early-stage Entrepreneurial Activity (TEA) rate in Ecuador comprises low-impact, necessity-driven businesses from the consumer services sector (Fig.3), less than 10% of the startups in Ecuador provide business services.

Also, as shown in Fig. 4, the TEA rate related to the GDP/per capita shows a concentration of entrepreneurs well-paid in the high-income countries, meanwhile in the low- and middle-income economies like Ecuador, the concentration of entrepreneurs surveyed are in the lowest decile of the GDP/per capita rank. Of the 33 economies in the high-income group, 26 have a TEA rate that is less than 15%.

In terms of the social and cultural foundations of entrepreneurship, 59% of adults (18-64) in Ecuador report knowing someone who has started a business in the past two years, 56% mention that there are good opportunities to start a new business in their area and 55% of adults surveyed believe that is easy to start a business in Ecuador (GEM, 2019). However, around 82.7% of early-stage entrepreneurs reported that they started a business because of a lack of better options, which is still the primary motivation to start a business (Fig. 5).

According to the World Bank Group's Doing Business report (2020), Ecuador is among the lowest-ranked countries regarding the cost (time and money) of starting a business. Furthermore, while there have been some recent reductions, import tariffs are still relatively high compared to neighbouring countries. It may translate into higher production costs, limiting the competitiveness of Ecuadorian products in the international market. Furthermore, foreign direct investment is much lower than in neighbouring countries and is currently trending towards a much lower figure than the official expected number for this year. Policies aimed at boosting foreign investment are not having the anticipated impact.

The discernment of the entrepreneurial profile of the country gives us a proper framework for the analysis of the entrepreneurship and innovation law –from the networking point of view- that catalyzes entrepreneurship from a necessity driven business to a sophisticated model based on high-revenue, innovative, technology-based and internationalization of enterprises.

5. LAW FOR ENTREPRENEURSHIP AND INNOVATION IN ECUADOR

After several rounds of analysis, on February 28, 2020, the National Assembly of Ecuador approved the Organic Law of Entrepreneurship and Innovation, published in the Official Registry No. 151. According to Article 1, the purpose of the law is to provide a normative framework that encourages entrepreneurship, innovation and technological development in Ecuador for all economic activities of public and private nature, in its various forms.

Art. 2 mentions the following objectives of the law:

a) Facilitate the creation, operation and elimination of enterprises;

b) Promote the efficiency and competitiveness of entrepreneurs;

c) Promote public policies and programs for technical, financial and administrative support for entrepreneurs;

d) Strengthen the articulation and synergy between higher education institutions and the actors of the productive national system; and,

e) Promote innovation in product development. (Organic Law of Entrepreneurship and Innovation, 2020)

In the regulatory context, the plenary session considers that: “a law is required to facilitate and harmonize the participation of actors in the entrepreneurial ecosystem that encourages entrepreneurship, as well as maximizes its duration, economic and social results” (Organic Law of Entrepreneurship and Innovation, 2020) Therefore, it is necessary to analyze how the new regulation affects the particular aspects of strengthening networking and innovation that have been previously mentioned.

6. ANALYSIS OF THE ENTREPRENEURSHIP AND INNOVATION LAW ON STARTUPS NETWORKING

Understanding the complexity of new ventures' networks is key to adopting innovation processes for startups' success. According to the literature, the centrality of an enterprise in its network positively influences the obtaining of information and access to resources, aspects that favour its acceleration and success. However, getting the system to embrace new initiatives is an excellent challenge for decision-makers since it implies risk and resources for the oldest members of the business, knowledge and innovation networks. Therefore, it will be appropriate to highlight the vast opportunity that the public sector has through the new Entrepreneurship and Innovation Law to promote the articulation of the institutions and actors in the entrepreneurship system to allow a subtle transition of new entrepreneurs greater centrality. Below is shown the analysis of the startup's network centrality elements and their approach to the new law.

6.1. Main actors and the nature of these relations

According to Art. 3 of the Entrepreneurship and Innovation Law (2020) To have a governing body for entrepreneurship and innovation public policy, the National Council for Entrepreneurship and Innovation (CONEIN) is created. Additionally, an Entrepreneurship Advisory Council is also created in charge to advise and support CONEIN. It will be constituted to monitor public policies integrating representatives from several industries like manufacture, tourism, commerce, finances, among others public and private institutions. The following are also recognized: the governing body of public real estate management and business accelerators or entrepreneurship support centres (Art. 13), commercial offices in Ecuador abroad (Entrepreneurship and Innovation Law, 2020, Art. 15), the Ministry of Education, SENESCYT, and the Technical Secretariat for Training and Vocational Education (Art 19). Different types of investors appear on the radar of the entrepreneurial ecosystem, such as seed capital and venture capital investors (Entrepreneurship and Innovation Law, 2020, Art. 25-26), angel investors (Entrepreneurship and Innovation Law, 2020, Art. 27) and crowdfunding managers (Entrepreneurship and Innovation Law, 2020, Art. 32) that connect promoters with investors.

The spirit of the legal framework promotes better articulation and collaboration between the public and private sectors to stimulate entrepreneurship. In addition, an institutional framework is strengthened by creating CONEIN as a governing body in charge to regulate and control a large part of the ecosystem members to reach a national strategy and the formulation of public policies, programs and projects to support entrepreneurship. However, from the point of view of startups networks and open innovation, the law without an explicit configuration of how this structure will put forward more specific instruments and programs to cover the lack of tangible and intangible resources, entrepreneurship collaboration, data generation, and management of innovation and technology-driven process still sketchy.

Without prejudice to their corporate status, the law identifies entrepreneurs as “individuals” or “subjects” of these services, losing sight of their relations in networks that could benefit the ecosystem and, therefore, in opportunities to consolidate and grow the public and private startup investment.

6.2. Institutions that hold the central position in the network

Although there is a comprehensive mapping of actors that nourishes the map of entrepreneurship networks, since the object of the law is to achieve mainstreaming of the public policy in charge of the National Council for Entrepreneurship and Innovation (CONEIN), this institution gains power and prominence compared to the rest of the actors. From the perspective of entrepreneurs, regarding the publication of the law, the CONEIN owns a central point in the network, diminishing the relationships between startups and actors (Fig. 6).

The Entrepreneurship Advisory Council's role as an organization that brings together tall type of private actors is essential, as well as its relationship with industry associations and cluster representatives strengthening their participation as entrepreneurs in the formulation of policies and programs. According to the law, new entrepreneurs are beneficiaries, even though their articulation and coordination with all actors, especially funding institutions and knowledge facilitation organizations, is key to achieving innovation success.

6.3. Partnerships and networks to support innovative processes and outcomes

According to Article 2 is a purpose of the Organic Law of Entrepreneurship and Innovation (2020): “to strengthen the interaction and synergy between the educational system and public, private, mixed, popular and solidarity-based, cooperative, association, community and artisanal actors of the productive national system". This objective is possible within an entrepreneurial framework that facilitates, includes and encourages the development of companies and projects in a specific place (Organic Law of Entrepreneurship and Innovation, 2020, Art 3). Therefore, connections between public and private actors are highlighted to formulate public policies through CONEIN (Organic Law of Entrepreneurship and Innovation, 2020, Art. 6) and the Consultative Council on Entrepreneurship and Innovation (Organic Law of Entrepreneurship and Innovation, 2020, Art. 10). Likewise, the law implements new simplified corporate modalities for the creation and liquidation of companies, favouring the optimization of time and resources for entrepreneurs.

In Fig. 7, roles and actors described in the law and their location on the entrepreneurship map are drawn where the centric positions reflect greater incidence and impact on the ecosystem's actors. As is shown, entrepreneurs acquire greater centrality than before regarding financial services, investment, access to knowledge and other support services, while their relationships with the public institutions are centralized in the CONEIN. Relations with local governments and industry representatives are maintained.

In terms of the centrality theory, the lack of tangible and intangible resources and the liability of the smallness and newness of new firms characterized in the Ecuadorian entrepreneurship profile could be mitigated if the startups occupy a central position in the network like now. The Entrepreneurship Advisory Council will again play an essential role in releasing information between their members and promoting entrepreneurship training, R&D transferring, networking, and human capital strengthen to favour open innovation processes.

Unfortunately, the law does not explicitly encourage collaboration between entrepreneurs, nor does it propose schemes for more excellent articulation between public and private to provide services other than real estate (Organic Law of Entrepreneurship and Innovation, 2020, Art. 13). The 'necessity-driven business' mentioned by GEM (2019) in the Ecuadorian profile will still lack better options if they do not join together and do not participate in decision-making processes. The application bylaw publication of the Organic Law of Entrepreneurship is pending, which is expected to understand public and private decision-making procedures better.

6.4. Financial mechanisms to support entrepreneurship and innovation

From the original considerations of the Organic Entrepreneurship Law, access to credit is considered as a mechanism to strengthen the entrepreneurial ecosystem. Among the attributions of CONEIN, in addition to formulating binding policies and guidelines for credit access (Organic Law of Entrepreneurship and Innovation, 2020, Art. 9. b) in Chapter V of the Law, it is established that all enterprises registered in the National Registry of Enterprises (Organic Law of Entrepreneurship and Innovation, 2020, Art. 12) must have immediate access to financial services (Organic Law of Entrepreneurship and Innovation, 2020, Art. 24), such as seed capital (Organic Law of Entrepreneurship and Innovation, 2020, Art. 25), venture capital (Organic Law of Entrepreneurship and Innovation, 2020, Art. 26), angel investment (Organic Law of Entrepreneurship and Innovation, 2020, Art. 27) and public credit programs (Organic Law of Entrepreneurship and Innovation, 2020, Art. 29). This access represents a significant advance in the consolidation of innovation processes that require high technological investment, but if the Government do not promote deep legal reforms and other instruments for data release, taxability, bureaucracy and labour, private investment will still scarce, causing a substantial negative impact for the innovation funding. Entrepreneurship training programs are necessary in order to promote financial education.

6.5. Education to carry out partnerships

One of the most critical advances in entrepreneurship law is understanding culture and education that requires strengthening the ecosystem to enable better conditions.

Entrepreneurial culture is understood as a set of qualities, knowledge and necessary skills that an entrepreneur possesses (Organic Law of Entrepreneurship and Innovation, 2020, Art. 3. Literal 5).

Aspects and values such as self-esteem, autonomy, sense of belonging to the community, teamwork, solidarity, associativity, encouragement of research and lifelong learning are integral to entrepreneurship formation (Organic Law of Entrepreneurship and Innovation, 2020, Art. 4. Literal 5).

Hence, Chapter IV proposes the promotion of entrepreneurial culture and education, which ratifies the law's objective of "improving capacities, abilities, and skills that allow successful entrepreneurship" (Organic Law of Entrepreneurship and Innovation, 2020, Art. 18) others. Soft skill training for the development of entrepreneurial and innovative spirit is highlighted at all education levels, including an explicit content and criteria for its evaluation (Organic Law of Entrepreneurship and Innovation, 2020, Art. 19). The coordination of strategies is delegated to the Ministry of Education for the primary and intermediate education levels and the SENESCYT for higher education.

A deepening of education is necessary to promote entrepreneurship. The Global Entrepreneurship Monitor (2019) recognizes significant advances in higher education in Ecuador, which qualifies at 5.39 / 10 points. Not so, basic level education that has an evaluation of 3.49 / 10.

CONCLUSIONS

Considering the bibliography reviewed and the Ecuadorian entrepreneurship profile, the majority of new firms established in Ecuador are 'necessity-driven businesses' started because of the lack of better options. Likewise, because of the lack of tangible and intangible resources, and individual entrepreneurship intervention and the liability of their smallness and newness, the innovation process is challenging to emerge, resulting in low-impact startups from the consumer services sector manoeuvring in a highly competitive market lack of revenues.

Higher import tariffs -compared to neighbouring countries-, non-technology driven process and few training programs derivate in higher production costs and limit the competitiveness of Ecuadorian products in the international market. Low direct investment also reduces the financial opportunities for new firms and startups internationalization. Accordingly, just a few startups in Ecuador achieve sustainability and high economic impact.

From the dynamic of a network point of view, understand that the structure of a network affects new firms' innovativeness and startups change the structure of their networks when entering the market is vital to promote a new firm's centrality.

Thus, to promote new firm's resources access, innovation, and technology-based transferring are only possible if key actors of the Ecuadorian ecosystem like incubators, higher education institutions, acceleration companies, venture capital firms, large corporations, financial institutions and the Government of Ecuador strengthen their relations, articulate actions, release information, open networking spaces and can embrace open innovation.

The law analysis shows a significant advance regarding the strengthening of the governance and the rule of law for the entrepreneurship ecosystem. Also, it articulates efforts between the institutions for entrepreneurship education and financial access as a started point for public policy. Still necessary to build mechanisms to support the innovation process in their different phases. The design of adequate articulated programs for R&D transfer, R&D funding, networking and human capital could favour open innovation. Nevertheless, deep legal reforms and other instruments are necessary for data release, taxability, bureaucracy, labour, and direct investment that allow open innovation to appear. The role of the Government is critical to ensure governance, the rule of law, accountability, and coordination efforts between the public and private sectors to guarantee stability and economic prosperity.

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Author notes

Alternative link

http://www.revistarfjpuce.edu.ec/index.php/rfj/article/view/358/186 (pdf)