Coworking spaces: An exploratory study to identify the challenges and different business models in Egypt

The focus of this research is in the area of co-working spaces. Such a study is important in order to enhance the understanding of the growth of co-working spaces in Egypt. Coworking spaces as startups have seen wide expansions worldwide in conjunction with the evolution of the shared economy, start-ups, and entrepreneurial projects and the labor market trends of freelancers and part-time employees. The research approach adopted in this paper is a qualitative approach. Semi structured interviews were conducted with a convenient sample of coworking space managers or founders in Cairo and Alexandria, the main two cities in Egypt which have the largest number of coworking spaces. The interviews aimed to explore their practices, choice of business model adopted among several ones to generate revenue and the challenges faced in running the coworking space. Thus, the questions focused on asking the interviewees to explain the business model adopted by the space as well as the services and networking they provide in addition to the challenges they face in running the business successfully. The findings in this paper revealed that coworking spaces in Egypt are constantly modifying their business model to adjust to market conditions in order to achieve profitability. Thereby, coworking spaces are still in their infancy stage and are subject to many changes and evolutions to meet the market trends. Furthermore, the financial viability and profitability are at stake and founders are adjusting their services and pricing accordingly. Among other results, high employee turnover was highlighted frequently by the managers during their interviews. The academic contribution relies in adding to the coworking space literature with respect to challenges faced in developing countries. The practical implications of this research offer actionable knowledge for coworking space managers and founders to provide the services and activities that would attract their target user and increase their loyalty to the space since users such as small companies have different needs from freelancers and part-time employees. The Introduction Over the last decade, the coworking space as a startup business model has witnessed exponential growth around the globe implying becoming the ‘new model of work’ in the setting of the ‘collaborative and ‘sharing’ economy (Botsman and Rogers, 2011). Thus, changes in both economic and market dynamics such as favoring outsourcing and subcontracting, associated with global computing, encouraging the growth of micro-enterprises, self-employed and freelance knowledge workers created demand for this service (Moriest,2014). This global exponential growth of coworking spaces was estimated to reach 20,000 in 2019 and 25,968 by 2022 (Coworking Resources, 2019). The core benefit for users resides in the notion that independent professions and those with workplace flexibility work better together than they do alone. Across the Middle East region, coworking space has started to infuse the market with the foundation of AstroLabs in Dubai and KSA, Emaar’s e25, Dtech, A4 Space, Youth x Hub and DIFC’s Fintech Hub. Up till now, flexible office space represents less than 1 % of the region’s office stock, while there are still opportunities in the market for mega international players (Deloitte, 2019). On a national level, in Egypt the concept started in the capital city of Cairo in 2007. A non-profit initiative titled Rasheed 22 was launched by a German lady whose main driver was to provide a place to work that indorsed The Business and Management Review, Volume 11 Number 1 August 2020 Conference proceedings of the Centre for Business & Economic Research, ICBED-2020, 20-22 August 207 sharing and collaboration. Other coworking venues followed such as District Spaces, founded in 2011 then 302Labs, Almaqarr, IceCairo, and Startup Haus Cairo (American Chamber, 2018). The total exact number of coworking spaces in Egypt is unknown, since a growing number of businesses are currently opening coworking ‘sections’ within their activities, or as a separate business model without formally registering as coworking spaces. The cities of Cairo and Alexandria have the largest number of coworking spaces in Egypt. Nonetheless, smaller cities such as Gouna, Mansoura and Assuit scored the highest in relation to the coworking spaces to population ratio. In other words, the number of coworking spaces per capita is higher in smaller cities than in large ones (Enpact, 2019). Egypt is one of the largest startup hubs in the Arab World since the Egyptian government has prioritized the promotion of entrepreneurship in the past few years. In the field of entrepreneurship, a startup ecosystem is formed by entrepreneurs, startups in their various stages, and numerous other entities such as universities, investors, accelerators, coworking spaces, legal and financial service providers, and government agencies. Despite the important role of coworking spaces in regional development and their positive externalities (Research Group Collaborative Spaces, 2016), many of these spaces are financially vulnerable and challenged by the significant financial burden they face in terms of running and maintenance costs (Moriset, 2014; Research Group Collaborative Spaces, 2016). According to Deskmag (2019) only 40% of coworking spaces are profitable. According to UNCTAD (2017) Egypt ICT policy indicated that there are grants offered to managers of the coworking spaces to extend their services by covering the core operating and managerial costs, including human resources, maintenance, rent, ICT infrastructure, communications, administration, capacity-building training, etc. The theoretical foundation for this research setting is based on the social servicescape concept in design, environmental psychology, and service-marketing literature. The concept of the social servicescape was enhanced by Rosenbaum and Massiah (2011) as cited in Balakrishnan (2017) to embrace customer and employee interaction together in a consumption setting. This research builds as well on the Social Facilitation Theory which advocates that in realizing the social characteristic of the environment, the simple presence (or absence) of audiences have consequences for human behavior (Tombs & McCollKennedy, 2010). There are abundant empirical studies with respect to the impact of social servicescape elements on restaurants, cafes, and hotels as research settings. However, comprehensive empirical studies on different settings are still required to enrich the social servicescape framework and in order to contribute to the development of the service marketing literature especially in a specific novel industry like coworking spaces. Thus, the aim of this research is to advance an understanding of the coworking spaces conditions in Egypt through a qualitative approach that attempts to answer the following research questions: What are the different business models adopted? What activities and events take place in coworking space in Egypt? What challenges do the founders face in running coworking spaces? This paper sections are structured as follows: section 2 discusses the literature on coworking spaces. Section 3 represents the research methodology. Section 4 discusses the findings. Section 5 entails the discussion and conclusion. Finally, section 6 presents the limitations and direction for future research. Literature Review The emergence of collaborative models of work thrived literature around the theme of coworking spaces, as scholars addressed it from both academics’ and practitioners’ perspectives. Co-working spaces started by 2005 in San Francisco as cited in (Moriset, 2014) it is a hosting, working and meeting place for entrepreneurs who are carriers of projects and ideas and wish to share them with others; this place is powered by a specific animation intended to create links inside and outside of the community of coworkers. Although current coworking spaces vary in terms of business model, size, specialization and amenities, most are founded to accommodate individuals or groups that are not necessarily employed by a single organization, however users share certain values and are interested in the synergies which may occur from working with like-minded people in the same space (Knoll, 2016). The coworking space literature is rich with regards to coworking spaces topology and management models in USA, Europe and Far East (Huwart, Dichter and Vanrie, 2012; Bilandzic and Foth, 2013; Ressia, 2015; Rus and Orel, 2015; Leclercq-Vandelannoitte and Isaac, 2016). In addition some scholars studied the The Business and Management Review, Volume 11 Number 1 August 2020 Conference proceedings of the Centre for Business & Economic Research, ICBED-2020, 20-22 August 208 importance of value in use, customer satisfaction and behavior and loyalty patterns (Brierley, 2012; Rai and Srivastava, 2012; Fraering and Minor, 2013). Capdevila (2014) conducted a qualitative study in Barcelona which examined the dynamics of innovation involving coworking spaces and found that managers of coworking spaces, have an influence in facilitating collaborative practices among co-workers. Gerdenitsch, Scheel, Andorfer and Korunka (2016) asserted a positive contribution of coworking spaces in Austria to the social support provided to independent professionals. Parrino (2015) observed an important role of organizational and social proximity in stimulating knowledge flows among co-workers, while controlling for geographical proximity. Other studies presented a broader framework of the role of coworking spaces in the city-level innovation ecosystem (Moriset, 2014; Mulas, Minges and Applebaum, 2015; Research Group Collaborative Spaces, 2016). In the essence of coworking spaces being a player in the start-ups ecosystem, Balakrishnan (2017) empirical findings from the qualitative phase revealed management support services provided by the coworking spac