Entrepreneurship and high impact growth: comparing indigenous and foreign firms

Abubakar, Yazid Abdullahi and Mitra, Jay (2010) Entrepreneurship and high impact growth: comparing indigenous and foreign firms. In: 33rd Institute for Small Business and Entrepreneurship (ISBE) Conference: Looking to the future: economic and social regeneration through entrepreneurial activity; 2-4 Nov 2010, London, U.K.. ISBN 9781900862219


Objectives: As the global economy recovers from the recession, it becomes ever more important to understand how, where and why entrepreneurial firms are able to turn the tide by creating prospects of growth, thereby reversing the negative effect of increasing levels of unemployment and falling aggregate demand. This paper is concerned with entrepreneurial ‘high-impact firms’ which are firms that generate ‘both’ disproportionate levels of employment and sales growth, and have high levels of innovative activity (Acs et al., 2008). It investigates differences in factors influencing high-impact growth between indigenous and foreign firms. Prior Work: The literature on firm growth argues that most job creation by small-firm occurs within a relatively small number of firms – called Gazelles (Birch and Medoff, 1994; Acs et al., 2008). However, a critical review reveals that there is hardly any systematic study investigating a combination of region, sector or firm specific factors influencing high impact growth between indigenous and foreign firms. Such information about these factors could help with the formation of empirically informed policies for promoting high impact growth of firms that take into account the distinguishing features of indigenous and foreign firms. Approach: The study is based on an analysis of data drawn from United Kingdom (UK) Innovation Scoreboard on 753 firms in 12 UK regions. Based on 1992 Standard Industrial Codes (SIC), identified by CCC (2004), the firms were further classified into those belonging to high-tech industries and low-tech industries. These thus provide a unique data set that allows for critical analysis of firms generating both employment and sales growth. The data was for the most part analysed using multiple regressions, bivariate correlations and t-tests. Results and Value: We make several original contributions by identifying differences in factors affecting high impact growth between indigenous and foreign firms. Specifically, the findings are: 1) First, regional knowledge resources – particularly local human capital and business R&D; lie at the heart of high impact growth for indigenous firms but to a lesser degree, foreign firms; 2) Secondly, however, because low-tech industries have less need for knowledge resources, we find that indigenous firms have less growth advantages over foreign firms in low-tech industries compared to high-tech industries; 3) Thirdly, because foreign firms to have less access to regional resources, their growth appears to be relatively more dependent on large size and internationalisation. On the other hand, for indigenous firms, small firms had significantly higher growth rates than large firms and were more reliant on. Thus, the hypothesis that small firms grow faster than large firms was only supported for indigenous firms; 4) Due to greater familiarity with local environment, growth rates of indigenous forms was not found to rely much on international markets but home markets, while that of foreign firms appears to be significantly associated with international markets Implications: These insights have potential implications for local and national policies on job creation, firm growth and the concentration of firms in specific spaces, especially under circumstances where many firms are shedding their work force as they struggle for survival in recessionary times

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