The Determinants of and Interaction between Entry and Exit in Taiwan's Manufacturing

Based upon substantial high firm turnover rates, various policy incentives, and developed subcontracting-networks, this paper investigates structure and firm-specific factors that determine the entry and exit rate across industries. The interaction between entry and exit rates of the industry is incorporated in the study, namely the "displacement", "replacement" and "instantaneous causal" effects. The regression results indicate that entry and exit rates are determined by different measures of entry or exit barriers but the effects are not fully symmetric. It is also evident that underlying entry or exit sunk- costs introduced the instantaneous movement of entry and exit rates. In addition, the entry of new plants has a moderate effect to facilitate the displacement or market selection process to displace the inefficient producers but no significant replacement effect is found. The policy implication being that the government support encourages entry it also increases the industry failure rates.     

The determinants of new firm formation in italian manufacturing

This paper focuses on entry of small firms in the manufacturing industries. It is argued that the exit option can be viewed as an insurance against risks of failure, increasing the likelihood of entry in an uncertain environment; the result is implicit in recent stochastic models of competition and entry decision under uncertainty. A regression model of industry birth rates in the Italian manufacturing industries provides empirical evidence on the impact of factors determining the decision to enter and the supply of new entrepreneurs. In our estimates, yearly entry rates are found to decrease with entry costs and barriers and to increase with market growth, expected growth of small firms, risks of failure and an index of spatial concentration of activities.     

Do small businesses create more jobs? New evidence for Europe

In this paper, we argue why, in our view, the so-called dynamic classification method should be favored when determining the contribution of small businesses towards job creation. First, it is the only method that consistently attributes job creation or loss to the size class in which it actually occurs. In addition, dynamic classification has two other advantages: (1) it is not vulnerable to the so-called regression to the mean bias, and (2) only a small number of aggregated data are required for its application. Using the dynamic classification, we analyze job creation within the different size classes for the 27 Member States of the European Union. Our main findings are as follows. For the EU as a whole, smaller firms contribute on a larger scale towards job creation than do larger firms. Net job creation rates decrease with each firm size class. This pattern occurs in most industries, however, not in all; the manufacturing industry and trade industry show different patterns. At the level of individual countries, the net job creation rate also tends to decrease with each firm size class. However, this relationship is not perfect.     

Interdependencies in the Dynamics of Firm Entry and Exit

This paper investigates the interdependence between firm entry and exit from an industrial dynamics perspective. The paper discusses how entry and exit rates in industrial sectors are affected by previous exit and entry rates. Economic theory presents two different approaches to how entry and exit of firms are interrelated, the multiplier effect and the competition effect. This paper intends to investigate which force is the predominant one, for entry and exit patterns, respectively. The empirical analysis is based on data for 25 Swedish manufacturing industries at the 2-digit SIC level, during the period 1991–2000. In the estimation work the study applies a dynamic panel data approach as suggested by Anderson and Hsiao [Journal of the American Statistical Association, 76:598–606, 1981] and Arellano and Bond [Review of Economic Studies, 58(2):277–297, 1991]. With respect to entry, the empirical results support the multiplier effect such that entry stimulates future entry, but also a competition effect such that past exit induces additional entry. With regard to exit, on the other hand, the competition effect rules, implying that previous entry causes subsequent exit and previous exit reduces subsequent exit.      

Net Entry of Firms into Greek Manufacturing: The Effects of Business Conditions

This research explores the nature and causes of net entry into manufacturing industry in Greece. Previous work has rarely considered these issues in the context of small, but open, and not particularly industrialised economies. The exact nature of the focus of interest – net entry – is discussed first, illustrating that this is a complex variable to account for, although arguably still interesting and useful. Net entry needs to be considered as variable worthy of study in its own right as it reflects an outcome of processes of gross entry and exit. Certainly it need not be interpreted only as entry as is often the case. Next comes the question of the degree of variation, both temporally and sectorally, that net entry exhibits in the context of contemporary Greek manufacturing. Some temporal variation in net entry rates is demonstrated, and there follows a discussion of how such variation might be explained potentially in theory. The empirical testing of these hypotheses point to findings that are different to those discovered in different contexts. For Greek manufacturing, profitable business opportunities were not shown to be a sufficient condition of higher net entry, but the cost advantages of large scale operations did both encourage entry and discourage exit. The cost of capital and the overall condition of the economy were negatively related to net entry. However the role of industry growth, import penetration and export orientation tend to confirm findings in other studies.     

Learning by exporting: Lessons from high-technology SMEs

We investigate the learning by exporting hypothesis by examining the effect of exporting on the subsequent innovation performance of a sample of high-technology SMEs based in the UK. We find evidence of learning by exporting, but the pattern of this effect is complex. Exporting helps high-tech SMEs innovate subsequently, but does not make them more innovation intensive. There is evidence that consistent exposure to export markets helps firms overcome the innovation hurdle, but that there is a positive scale effect of exposure to export markets which allows innovative firms to sell more of their new-to-market products on entering export markets. Service sector firms are able to reap the benefits of exposure to export markets at an earlier (entry) stage of the internationalization process than are manufacturing firms. Innovation-intensive firms exhibit a different pattern of entry to and exit from export markets from low-intensity innovators, and this is reflected in different effects of exporting.     

On the Growth of Micro and Small Firms: Evidence from Sweden

The relationship between the size, age and growth rate of firms is examined for a large sample of micro and small firms in Sweden. These firms have between 1–100 employees and operate in a geographically concentrated area. Micro and small firms are dominant in the industrial structure and thus their growth patterns are crucial to the economic growth of the region. The period of study is of particular interest because it allows us to evaluate the effects of various regional development policy programs on the growth and formation of firms. The data is an unbalanced panel covering the period 1993–1998. We allow for the exit and entry of firms. The growth rate is defined in terms of the number of employees, sales and assets. In the estimation of the growth rate we control for various factors characterizing the sample firms, their capital structure, performance, human capital, and local labor market conditions. Our results show that the relationship between the growth, size and age of firms is very sensitive with respect to the method of estimation, functional form and definition of growth and size.     

Technological Regimes and Firm Survival: Evidence Across Sectors and Over Time

In addition to the usual variables representing firm- and industry-specific features that impact the firm’s survival, this paper uses three R&D related variables to reflect two Schumpeterian technological regimes: creative destruction (the entrepreneurial regime) and creative accumulation (the routinized regime). After controlling for age, size, entry barriers, capital intensity, the profit margin, the concentration ratio, the profit-cost ratio and entry rates, the empirical results confirm the theoretical relationship between technological regimes and the survival rate of new firms: new firms are more likely to survive under the entrepreneurial regime. Moreover, this effect is larger within the younger cohorts of firms than within the older ones.      

Firm size and job creation in Germany

This paper reports new results on the role of firms from various size classes in the job generation process in Germany. It is based on a unique longitudinal data set covering all manufacturing establishments that existed in at least one year between 1978 and 1993 in the German federal state Lower Saxony. We find that gross job creation and destruction rates tend to decline with firm size, while net job creation rates and firm size are not systematically related when firms are classified according to their average number of employees in the base and end year. Small firms create (destroy) quite a large share of all new (lost) jobs.     

Diversification patterns and survival as firms mature

We focus on the relationship between age and diversification patterns of German machine tool manufacturers in the post-war era. We distinguish between ‘minor diversification’ (adding a new product variation within a familiar submarket) and ‘major diversification’ (expanding the product portfolio into new submarkets). Our analysis reveals four main insights. First, we observe that firms have lower diversification rates as they grow older, and that eventually diversification rates even turn negative for old firms on average (where negative diversification corresponds to exit from certain product lines). Second, we find that product portfolios of larger firms tend to be more diversified. Third, with respect to consecutive diversification activities, quantile autoregression plots show that firms experiencing diversification in one period are unlikely to repeat this behavior in the following year. Fourth, survival estimations reveal that diversification activities reduce the risk of exit in general and to a varying degree at different ages. These results are interpreted using Penrosean growth theory.     

Productivity Dynamics of Small and Medium Enterprises in Taiwan

Using firm level data from Taiwan, this paper examines the link between firm size, growth and productivity. It shows that firms grow because they are more productive and not because they are larger in size. Indeed, the statistical analysis shows that while employment growth among Taiwanese firms was positively related to initial levels of total factor productivity, it was negatively related to initial size. The paper also shows that the productivity-size relationship has a virtuous cycle built in. More productive firms get larger and, in the process, obtain access to resources and information which enables them to become more productive. One implication of these results is that public policies should target productivity rather than size and should support reforms that make it possible for market mechanisms to weed out low productivity firms while facilitating the entry or growth of high productivity firms. Taiwan's ability to keep entry and exit costs low is one reason why productivity gains there have been high.     

‘Entry Thresholds and Actual Entry and Exit in Local Markets’

Bresnahan and Reiss (1991) derive entry thresholds for local markets but do not investigate actual entry and exit flows. This paper investigates for thirteen Belgian retail and consumer service industries whether markets with actual numbers of firms higher (lower) than the thresholds display exit (entry) in subsequent periods. The results confirm that over a three-year period the rate of (net) entry is positively affected by the presence of ‘market room’. The exit rate, however, does not show a negative relation with ‘market room’.      

Firm exits as a determinant of new entry: Is there evidence of local creative destruction?

This study posits that a local process of creative destruction provides an impetus to regional industrial renewal. We argue that exits of older firms release resources that stimulate local entry. New entrants add value to these resources by redeploying them in more productive uses. We test our hypotheses with a unique longitudinal database encompassing the entry and exit of Canadian manufacturing enterprises. We find that exits of old firms increase entry and that on average new entrants are more productive. Persistent high local rates of exit, however, deter entry.     

How Does Probability of Innovation Change with Firm Age?

This paper looks at the probability of introducing innovations by manufacturing firms at different stages of their lives. Once differences related to activity and size are controlled for, we examine how the probability of innovation varies over entry, post-entry ages, and advanced ages of mature firms. We also measure the association between exit from the market and pre-exit innovation. Results show that the probability of innovating widely varies by activity, and that small size per se broadly reduces the probability of innovation, but also that entrant firms tend to present the highest probability of innovation while the oldest firms tend to show lower innovative probabilities. Some sets of firms with intermediate ages also present a high probability of innovation, and exiting firms are clearly associated to lower levels of introducing process innovations.     

Barriers to Exporting: What are They and Who do They Matter to?

The international trade literatures on gravity modelling and firm‐level export behaviour have established that nontariff barriers are important impediments to international trade flows. In this paper, we provide fresh evidence on the actual barriers to exports firms face and how they vary with firm‐level characteristics. Our results indicate that the higher the export experience of firms the lower are the trade costs they face. These barriers are not related to other firm‐level characteristics, such as productivity and size, found by the literature to be associated with export market entry. Overall, these results suggest the existence of a process of learning to export whereby firms learn how to cope with export barriers through direct experience in export markets.     

Symbiotic International Business Networks: Collaboration between Small and Large Firms

As the drivers of globalization remove barriers that traditionally segmented the competitive environments of small and large firms, firms of all sizes are beginning to share the same competitive space. Symbiotic arrangements are evolving through which smaller firms enter the value chains of larger firms, to the benefit of both sides. Using a conceptual framework with illustrative examples, this article explains how smaller firms can use symbiotic, collaborative arrangements with larger firms to overcome inherent constraints of size and to achieve the efficiencies required for world‐class competitiveness. © 2001 John Wiley & Sons,Inc.     

Entry and exit in disequilibrium

Most entrepreneurship theory depicts disequilibrium as the most common state for entrepreneurial activity and yet remarkably very little empirical research investigates the role of entry and exit in this type of external environment. Drawing on economics and organizational ecology we outline reasons why the interrelation between entry, exit and incumbent firms is likely to vary when the actual number of firms is higher or lower than the number that a market can sustain. We also introduce a new empirical methodology to explain entry and exit levels in two different types of disequilibria comprising situations when markets under and over shoot carrying capacity. Using a data set on the retail industry, we find that in undershoots a lack of competition between incumbent firms restores equilibrium by creating room for new-firm entry. In contrast, in overshoots competition induced by new firms (in particular strong displacement) restores equilibrium. We also find that equilibrium-restoring mechanisms are faster in over than undershoots. The results highlight that the behaviour and impact of entry and exit varies depending on the type of disequilibrium.     

Competing with multinational enterprises’ entry: Search strategy,environmental complexity,and survival of local firms

This study examines the competitive dynamics between foreign and local firms. We posit that multinational enterprises (MNEs)’s entry in foreign markets significantly reduces the survival rate of local firms in the short term, but that this effect gradually diminishes over time. The proposed conceptual framework is operationalized through the combination of the widely used agent-based model and the economic model of competition. The agent-based model allows us to study the behavior of firms under the context of different markets and the environmental complexity while the competition model determines the competition between firms as well as the entry and exit of firms. Our results obtained from the simulation study reveal that the negative effect of foreign entry is heightened as environmental complexity increases. However, local firms with a broader knowledge search are better able to confront the negative impact of foreign entry over time. We also find that the negative effect of foreign entry on the survival of local firms is weaker for local firms with a strong retrieval capacity.     

Retailer internationalization: overcoming barriers to expansion

This paper develops an understanding of the barriers to retailer foreign market expansion focusing on SME retail firms. A qualitative methodology was adopted to obtain a holistic understanding of the key barriers to international expansion experienced by retailers from both the firm and industry-level perspectives. In light of the findings from the case companies and industry organizations in this study, the paper concludes that the main barriers to foreign market expansion experienced by SME UK retailers, both at the entry and growth stages, comprise internal and external factors. This paper not only provides an understanding of the barriers encountered by SME retailers but also considers how such problems may be overcome.     

Profitability,uncertainty, and firm size

This paper examines the connections between variations in profit and loss rates among firms in small-firm and large-firm size classes as reflections of uncertainty. We find that, within industries, such variations are particularly great for firms in small-firm size classes, leading to operating policies for small firms best characterized as entrepreneurial. Large firms, in contrast, faced with less uncertainty in earning profit, appear to adopt policies that manifest an emphasis on strategic planning.The authors appreciate the helpful comments of John C. Woods, Bruce D. Philips, and anonymous referees on an earlier version of this paper. Data used in this study were developed under contract SBA-9216-AER-85 with the U.S. Small Business Administration. The authors alone are responsible for the results presented.