Showing papers in "Small Business Economics in 2003"

Networks in entrepreneurship: The case of high-technology firms

Abstract: The value of networks as an integral part of the explanation of entrepreneurial success is widely acknowledged. However, the network perspective does not specify the role of networks in the emergence and early growth of a venture. We have distinguished three entrepreneurial processes in new venture development, i.e. discovery of opportunities, securing resources, and obtaining legitimacy, which are of importance for survival and performance. This paper examines how these processes are influenced by strong and/or weak ties and whether the degree of innovation (incremental versus radical) acts as a contingency factor in the way network ties support entrepreneurial processes. In this explorative study three cases on high technology firms in The Netherlands provide empirical material enabling us to develop a number of propositions on the network effect, in particular the mix of strong and weak ties, on the three entrepreneurial processes.

Redefining Business Success: Distinguishing Between Closure and Failure

Abstract: New firms are believed to have high closure rates and these closures are believed to be failures, but two U.S. Census Bureau data sources illustrate that these assumptions may not be justified. The Business Information Tracking Series (BITS) showed that about half of new employer firms survive beyond four years and the Characteristics of Business Owners (CBO) showed that about a third of closed businesses were successful at closure. The CBO also made it possible to compare results of models of business survival and business success, but because of non-response bias logit models were used. Similar to previous studies, firms having more resources – that were larger, with better financing and having employees – were found to have better chances of survival. Factors that were characteristic of closure – such as having no start-up capital and having a relatively young owner – were also common in businesses considered successful at closure. Hence, few defining factors can be isolated leading to true failures. The significant proportion of businesses that closed while successful calls into question the use of "business closure" as a meaningful measure of business outcome. It appears that many owners may have executed a planned exit strategy, closed a business without excess debt, sold a viable business, or retired from the work force. It is also worth noting that such inborn factors as race and gender played negligible roles in determining survivability and success at closure.

Local Social Capital and Entrepreneurship

Abstract: We aim to contribute to the analysis of the role that spacebound social capital plays in local/regional entrepreneurship. We compare social capital with other forms of capital. The conclusion is that in the main, social capital can be analyzed in the same way as other capital but it has some important special attributes. With these attributes as starting point we sketch an outline model of how the spatially-defined producer surplus and consumer surplus form a place surplus, and of the role played by social capital in the creation of the producer surplus. A "rereading" of Schumpeter shows that he was aware of several aspects of what we denominate entrepreneurship-inhibiting and facilitating aspects of social capital. Finally, we discuss some formal economic modeling approaches to the theoretical relationship between social capital and entrepreneurship.

Technology Transfer and Universities' Spin-Out Strategies

Abstract: Universities may seek to transfer technology from the public to the private sector, and therefore capture the benefits of commercialization, through a number of different mechanisms. This paper examines the option of using technology-based spin-out companies. Based on a survey of technology transfer/business development officers at 57 U.K. universities, we examine their strategies to promote the creation of spin-out companies and how they then manage the development of these companies. Our analysis focuses on the difference between those universities that have been most active in the area and those that have been least active. The results indicate that the more successful universities have clearer strategies towards the spinning out of companies and the use of surrogate entrepreneurs in this process. In addition, the more successful universities were found to possess a greater expertise and networks that may be important in fostering spin-out companies. However, the role of the academic inventor was not found to differ between the more and less successful universities. Finally, equity ownership was found to be more widely distributed among the members of the spin-out company in the case of the more successful universities.

Toward a Typology of University Spin-offs

Abstract: This paper discusses existing definitions of USOs in order to reconcile them and to provide criteria for classifying and understanding the different facets of this multi-headed concept. Drawing the boundaries of this concept and elucidating its variety through a typology are therefore the two main objectives of this paper. USOs are defined as new firms created to exploit commercially some knowledge, technology or research results developed within a university. The proposed typology is based on two key discriminatory factors, namely (1) the status of individuals involved in the new business venturing process (researchers or students) and (2) the nature of knowledge transferred from university to the new venture (codified or tacit), inducing the nature of the USO activities (product or service-oriented).

A Theory of Discouraged Borrowers

Abstract: This paper examines the implications for the SME financing market of Application costs that vary between firms, and of imperfect screening of applicants by Banks. Under these conditions 'Discouraged Borrowers' can exist. These are good borrowers who do not apply for a bank loan because they feel they will be rejected. The paper shows that, under a range of assumptions, the scale of discouragement in an economy depends upon the screening error of the banks, the scale of Application costs and the extent to which the bank interest rate differs from that charged by the moneylender. Discouragement is shown to be at a maximum where there is some, but not perfect, information.

Business Survival and Success of Young Small Business Owners

Abstract: Little empirical evidence provides insight in person-oriented drivers of business survival and success of small business owners. In this paper I perform a duration analysis of business survival amongst young white (self-employed) small business owners in the U.S. Compulsory exits are distinguished from voluntary exits. This enables an alternative definition of business success: the longer one can survive and prevent inLvoluntary exit, the more successful one is. Potential drivers of survival are derived from recent empirical evidence in related studies. The potential drivers of success are also derived from historical economic thinkers such as Marshall and Schumpeter. The estimated hazard rates are affected by characteristics of the small business owner and business conditions.

Born-International SMEs: BI-Level Impacts of Resources and Intentions

Abstract: The Katz and Gartner (1988) model describes four central properties of emerging organizations: resources, intention, exchange, and boundary. While designed as a general model for organizations, the approach has the potential to explain the early lives of "born-international" firms. In this study, boundary is used to define the central sampling frame. Two other properties, resources and intention, are evaluated in terms of their impact on the fourth property: exchange, measured as a firm's export growth and intensity. Given the inherent presence of two levels of analysis in emerging organizations, intention and resources are evaluated at both the individual and the organizational level. A sample (N = 47) of young "born-international" firms in the Indian software industry was studied, using a questionnaire. Results of the analysis are mixed for resources at both the individual and firm level variables. Intention is significant at the individual level but not the firm level. Contrary to other studies, these findings suggest that during the early stages of firm development, owner, not firm, characteristics play a pivotal role in performance, especially exports. The speculation is that this occurs because, in early stages, firms are relatively disorganized relative to the owner.

Science Parks and the Performance of New Technology-Based Firms: A Review of Recent U.K. Evidence and an Agenda for Future Research

Abstract: Science parks were established to stimulate the formation and development of new technology-based firms (NTBFs). Despite the potential importance of these institutions as a mechanism for generating technological spillovers and employment growth, there has been little systematic analysis of their impact on NTBFs. In this paper, we review some recent evidence comparing the performance of firms located on and off U.K. science parks. This preliminary evidence suggests that the "returns" to being located on a science park are negligible. We conjecture that these results may be due to imprecise estimates of these returns and may also be masking important differences in the returns to different types of science parks. In addition, we outline an agenda for additional research on the effects of these institutions on NTBF performance.

Issues Which Impact Upon Marketing in the Small Firm

Abstract: Defining the small firm is somewhat arbitrary as criteria used to classify entities as such include size, number of employees, sales volume, asset size, type of customer, capital requirements and market share. There is, however, general agreement that smallness and newness create specific difficulties for business. Furthermore, there is widespread acceptance of the notion that small firms typically possess certain characteristics, which serve to differentiate them from larger organisations. These characteristics include inherent weaknesses with respect to capitalisation and marketing awareness and practice. Small firms are perceived as vulnerable yet valuable entities, important both economically and socially. High failure rates of small firms are largely attributed to weaknesses in financial management and marketing. Many classical management concepts are unsuitable for application in a small firm context, with research suggesting non-implementation of theoretically based marketing practice is the rule rather than the exception in the small firm. This paper reviews issues pertaining to marketing practice in the small firm. It examines the absence of agreed definitions of "the small firm" and "success" or "failure" of such entities, offers definitions for these terms, acknowledges the importance of small firms to the economy, reviews small firm characteristics, acknowledges inherent weaknesses with regard to finance and marketing in small firms, reviews marketing practice in the context of small firm characteristics, and considers the roles of marketing educators and owner/managers in improving small firm's marketing practice.

Determinants of Technical Efficiency in Small Firms

Abstract: There is evidence that small firms are less productive than larger ones. This phenomenon could be explained by several factors. In this paper, using plant survey data and non-parametric deterministic frontier methodology, we explore what factors can explain the observed differences in technical efficiency. In the case of Chilean manufacturing firms, we found that efficiency is positively associated with the experience of workers, modernization of physical capital and innovation in products. In contrast, other variables such as outward orientation, owner education and participation in some public programs do not affect the efficiency of the firms.

Toward a contingency framework of export entrepreneurship: Conceptualisations and empirical evidence

Abstract: This paper reports the findings of a study, which employed a contingency, export-entrepreneurial approach to investigate the critical influences on export venture creation among a sample of Nigerian small firms. Responding to the repeated calls in the literature for multi-disciplinary research frameworks, the paper draws on perspectives from entrepreneurship, exporting, and contingency literatures to examine the antecedent and moderating influences on the export behavior of small firms. It explores, in particular, the effect of entrepreneurial orientation and external environmental moderators in the export venture creation process of small firms. The findings suggest that an entrepreneurial orientation is associated with better export venturing, and is the appropriate strategic posture for small firms operating in hostile environments. It would appear, also, that this orientation is associated with certain decision-maker characteristics (including international orientation and contacts and previous business experience) and firm-level competencies. By thus highlighting the entrepreneurial dimensions of export venturing, this paper makes the case for greater policy focus on strengthening the entrepreneurial foundations/capacities of small firms.

The evolution and nature of young firm networks: a longitundial perspective

Abstract: This paper describes the evolution of networks during the first three years after start-up and puts forward explanations of the nature of networks of young firms after three years. We extend current research on networks by explicitly including both temporal change and spatial variation in our analyses of the longitudinal dataset. In this paper we define networks as: the main business relationships with respect to sales, supply, outsourcing and cooperation. The nature of these business relationships is specified by four main characteristics: type, number, source, and location. The longitudinal network analysis is therefore at the micro-level: the individual young firm and the characteristics of its most important business contacts are central. In contrast to the literature our analyses show that sales relationships become increasingly social in source during the first three years after start-up. We also find a persistent geographical concentration strategy in the main business relationships. It seems that extra-regional relationships are losing ground to intra-regional relationships over time: firms are narrowing their spatial scope in their first three years. In addition, we trace important effects of gender, education, innovative firm behaviour, region and sector on the nature of young firm networks three years after start-up.

The High Growth in New Metal-Based Manufacturing and Business Service Firms in Finland

Abstract: This study examined the effects of the factors involved in the start-up situation and the first seven years' development on the subsequent high growth of firms. The criterion of success used in this study was high growth in business during the first seven years. The subjects were Finnish metal products manufacturing firms and business service firms established in 1990. The results indicated, firstly, that it is the internal networks of firms that bring about competitive advantage, innovations and efficiency. In these entrepreneurial team-driven firms a group of people participate in the strategic management of the firm. It was also found that co-operation between firms and changes in external personal networks contributed to a high rate of growth. The empirical results showed that new firms had equal chances for growth irrespective of their locality. On the other hand, growth was affected by changes in a new firm's competitive situation and by changes in strategic factors. The results also clearly indicated that high growth firms were characterised by rising productivity of labour at the same time as they were generating new jobs.

Reassesing portfolio entrepreneurship

Abstract: Portfolio entrepreneurship, that is the simultaneous ownership of several businesses, is becoming an important theme in the small business research literature. To date, however, there have been few dedicated empirical investigations of the phenomenon. This article analyses research on portfolio entrepreneurship that has been derived from a wide range of subject literatures, including economic sociology, cultural anthropology and agricultural economics. The aim is to provide a deeper understanding of the motivations for portfolio entrepreneurship approaches and the processes associated with it.

Exploring the Networking Characteristics of New Venture Founding Teams: A Stdy of Italian Academic Spin-off

Abstract: This paper deals with newly established ventures and their relations with external agents. The founding teams' intention to set up relations with external agents and their frequency of interaction with external agents are addressed as two features that are likely to lead to the success of academic spin-off companies. Empirical analysis is based on a data set of 40 Italian academic spin-offs. The external agents who are most likely to have interactions with academic spin-off companies are first identified. Two research hypotheses are then put forward: (a) that the intention of the founding teams to set up relations with external agents is influenced by the degree of articulation of roles and the completeness of the founding teams; (b) that the founding teams' frequency of interaction with external agents is influenced by the frequency of interaction with external agents of the research groups of origin and by their scientific and technological excellence. Some remarks are then made on the role that universities play in helping new ventures to set up relations with external agents.

Science Park Location and New Technology-Based Firms in Sweden – Implications for Strategy and Performance

Abstract: One logical way to assess the performance of Science Parks is to compare the performance of their firms to similar firms not located there. A total of 273 new technology-based firms (NTBFs) were surveyed, of which 134 were on a Science Park and 139 were not on a park. There were significant differences in the means of strategy dimensions between the on-Park and off-Park firms. It can be seen that the NTBFs who located in Science Parks showed significantly greater emphasis on firm characteristics as innovation ability, competitor- and market-orientation, sales and employment growth, high profits etc. The differences indicates a slight advantage for the Science Park firms. The off-Park sample reported proximity to other firms to be of higher importance than the on-Park sample in their choice of location. However, these differences do not show any clear pattern, making it difficult to understand if NTBFs who locate on Science Parks are systematically looking for something different in their location.

Is the Small Firms Loan Guarantee Scheme Hazardous for Banks or Helpful to Small Business

Abstract: Loan guarantee schemes are an integral part of SME policy in both developed and developing countries Yet little has been done to evaluate such programmes, particularly in terms of their ability to correct for capital market imperfections This paper uses individual loan data from some 42,000 UK SFLGS backed debt contracts to empirically test the default specification outlined in the seminal credit rationing paper of Stiglitz and Weiss (1981) The results show that default (failure) does increase with the banks cost of capital, but not with the government premium In addition, default appears to be determined by a whole host of other factors not typically considered in the credit rationing literature

The Growth of Research Triangle Park

Abstract: In light of the history of Research Triangle Park, we develop an analytical model to characterize the Park's growth. The model is based on the hypothesis that the Park's growth can be thought of as the adoption of an innovation, where the innovation is the new innovative environment created by the Park and its infrastructure.

Standing on the Shoulders of Midgets: The U.S. Small Business Innovation Research Program (SBIR)

Abstract: The Small Business Innovation Research (SBIR) program in the United States is one of the most important public policy programs,with a goal of generating innovative hi-technology firms and promoting competitiveness and growth The purpose of this paper is to describe the SBIR, explain why it has emerged as an important policy instrument, and provide an evaluation of the impact of the SBIR The findings of this paper suggest that the SBIR has generally accomplished its mission by contributing to the creation of high-technology small firms and enhancing US competitiveness

Entrepreneurship and Start-Ups in the Boston Region: Factors Differentiating High-Growth Ventures from Micro-Ventures

Abstract: The use of entrepreneurship to stimulate economic growth in lagging regions of the world has grown over the last decade. The type of business needed for job creation is a new venture rather than a micro-business. The experience of a major program in the U.S., empowerment zones, has failed to produce many jobs, mostly because the program has stimulated micro-businesses rather than growth ventures. This paper analyzed the factors differentiating between the formation of high-growth ventures and micro businesses, and discussed how these factors may best influence the activities of organizations that either nurture ventures or create government policies for regional development. The data consisted of ninety business plans submitted to a business plan competition in Boston. The results showed that founders of high-growth ventures have work experience or advanced training in their technologies, and teams rather than individuals created the plans. The results suggest that a combination of exogenous and endogenous approaches may be needed to stimulate a lagging region's economic growth.

The Knowledge Network of International Entrepreneurship: Theory and Evidence

Abstract: The knowledge network associated with the young and emerging field of International Entrepreneurship is defined through a Bolean search progression of key words on the SSCI data bases from 1992 to 2000. The knowledge network of an applied field portrays, and usually follows, the actual developmental path of its corresponding field. Some 287 articles document the early emergence of International Entrepreneureship as a field of scholarly inquiry. When a field is young and in need of theoretical foundations, the knowledge networks of other fields may provide for those early needs. This is the case of International Entrepreneurship. The rich theoretical foundations of the two fields of International Business and Entrepreneureship, among others, have nourished and accelerated the internationalization process of entrepreneurship. A detailed analysis of 7,651 citations contained in the contributions of the 287 documents reported here traces International Entrepreneurship's rich, yet young, developmental path. This analysis reveals a wealth of information, for example the lists of highly-cited books, articles, authors and their affiliated institutions presented here.

Evaluating export promotion programmes: UK overseas trade missions and export performance.

Abstract: This paper examines the extent to which firms' knowledge and structural characteristics as well as firms' behaviour in foreign markets following trade mission participation impacts upon trade mission success and export performance. The findings suggest that: 1) A diversification strategy in terms of export markets benefits future expansion into new foreign markets; 2) Specific knowledge about the targeted markets should be acquired prior to participating in the trade missions; 3) Communication with potential business partners should be established prior to participating in the trade missions; and 4) The business relationships established before and during the trade missions should be cultivated through regular contacts using not only communication technology, but also regular visits. In summary, overseas trade missions contribute to the generation of incremental sales in foreign markets by enhancing the relationship-building process between business partners.

Technological and Organizational Tools for Knowledge Management: in Search for Configurations

Abstract: Knowledge Management (KM) is becoming a growing concern in management research and practice because of its role in determining firm innovation capability and in enhancing working life quality of knowledge workers. This requires, even for Small and Medium Enterprises (SMEs) the creation of a sustainable work organization in terms of configuration of organizational and Information and Communication Technology (ICT) tools. With a particular emphasis in the area of Product Innovation (PI) and on the basis of a survey on 127 Italian SMEs, this paper aims at analysing the emergent technological and organizational approaches to managing knowledge in the PI process. Three different KM Configurations emerge: the `technical', the `relational' and the `advanced' approach.

The Diffusion of E-commerce among SMEs: Theoretical Implications and Empirical Evidence

Abstract: As a specific institution of distributive trades, e-commerce displays similarities with retail stores and mail order companies. As well as providing theoretical support for the assumption that e-commerce is a way to sell certain goods and services at prices potentially lower than those of traditional distributive channels, this paper analyses its inter-firm diffusion among a sample of firms (mostly SMEs) in Italy. The paper has three main purposes. Firstly, it challenges the view of e-commerce as a "technological revolution", by pointing out its nature as a cost-minimizing marketing channel. In particular, it shows how, under certain conditions, e-commerce is a source of transaction cost advantages analogous to those yielded by mail order business. Secondly, the paper identifies from a theoretical viewpoint the circumstances under which e-commerce sales might achieve a significant level of penetration among those SMEs that would otherwise incur high costs in organizing a proprietary distributive channel. Thirdly, it employs a unique data set of Italian manufacturing, service, and hospitality firms (nearly 90% of them with fewer than 100 employees) to estimate a diffusion model based on the logistic curve. According to the estimates, by the fourth quarter of 2003 nearly 50% of the population of firms in the geographical area surveyed will have introduced e-commerce among their marketing channels.

Targeting Export Support to SMEs: Owners' International Experience as a Segmentation Basis

Abstract: This paper addresses the issue of how export support programs can be effectively targeted to SMEs. This paper argues that the normally low awareness and usage of export support programs among SME owners can be countered by segmentation based on their level of export experience. The paper develops a theoretical rationale for this segmentation basis and develops hypotheses related to it. The hypotheses are tested, and largely supported, using data from Canadian SME exporters and pre-exporters. Results indicate that segmentation based on owners' level of export experience can be an effective supplement to current segmentation bases. Implications of the results for providers of export support services are discussed in the concluding section.

Joint Ventures as an Internationalisation Strategy for SMEs

Abstract: For some time believed to be inferior to Wholly Foreign-Owned Enterprises, Joint Ventures have become a popular vehicle for foreign market servicing. Although there are various proponents of the joint venture strategy as a means of enabling SMEs with limited productive resources and/or market knowledge to enter international markets, relatively few have focused on the actual joint venturing activities of SMEs. This article examines the activities of 9 U.K. and 12 German SMEs that have joint ventures in China. Based on a questionnaire survey and in-depth case interviews, it reveals that the initiatives appear to have been successful but that they are not without their problems and in many ways the experiences of the firms involved seem similar to those of the large multi-national enterprises. It argues that the key to success appears to be the choice of the joint venture partner and concludes that, given the limited resources of small firms, assistance is required to help them locate and select appropriate partners.

Internationalization of SMEs: Toward a New Paradigm

Abstract: venturing abroad. Recently, scholars in the field of Entrepreneurship have questioned the universality of the stage-theory explanation of firm internationalization. They point to the inconsistency between the stage theory and the empirical reality of a growing number of entrepreneurially oriented firms, which tend to adopt a global focus from their conception. Not only do these new ventures lack a period of gradual internationalization, but they also tend to be small firms facing volatile markets with scant experience and resources. International Entrepreneurship, as a new field of inquiry, appears to have drawn both from International Business (traditionally focused on larger firms) and from Entrepreneurship, which primarily studies the entrepreneurial owner/ manager of small firms. Logically there is no conceptual barrier to the fusion of these two fields: larger firms can, in theory, act as entrepreneurs; and smaller entrepreneurial firms can take advantage of the vast opportunities of international markets previously exploited almost exclusively by larger firms. To explore and develop this emerging area of research, a pioneering, three-day conference was held in September 2000 at McGill University, in Montreal, Canada, under the joint auspices of McGill's Business and Management Research Centre, and the Dobson Centre for Entrepreneurial Studies. The conference brought together leading scholars from international business, and from small business/entrepreneurship, to stimulate integration of research in what had previously been widely divergent fields. Selected papers were subjected to a rigorous process of peer review and comments. Each was revised extensively to incorporate and to reflect the perspectives of other disciplines. The final product is a series of leading-edge research papers which are presented in this volume, as well as in two other publications.1 This collection opens with a study that tests empirically the degree to which International Entrepreneurship, as an emerging field of inquiry, draws on selective theory essentials from International Business and from Entrepreneurship. Hamid Etemad and Yender Lee searched for the evidence of fusion and cross-fertilization of each field's knowledge network. They report an accelerated emergence of International Entrepreneurship as a field of research through the late 1980s and 1990s, in terms of the number of scholarly publications. They also point to an increasing number of citations to works from both International Business and Entrepreneurship, as well as other fields. Their article sets the stage for examination of more detailed issues rooted in both International Business and Entrepreneurship. Final version accepted on October 2, 2001

Purpose and Performance of the Small Business Innovation Research (SBIR) Program

Abstract: The Small Business Innovation Research (SBIR) Program is one of the most successful public programs designed to support small firm innovation. The purpose and structure of the program, however, are often misunderstood. This paper clarifies the goals and rationale for the SBIR program and reviews recent findings regarding the program's impact. The paper identifies five dimensions of the innovation capital gap and outlines a possible extension of the program to better address this finance gap.

Leveraging Research and Development: Assessing the Impact of the U.S. Advanced Technology Program

Abstract: This paper examines the factors that affect a firm's chances of winning an award from the Advanced Technology Program (ATP) and the subsequent impact of the award on a firm's success in raising additional funds for its research and development (RD the halo effect from the award increases the success of these firms in attracting additional funding from other sources Our conclusion is that the ATP is leveraging activities that have a strong potential for broad-based economic benefit