Has new business creation in russia come to a halt?

Successful transformation of centrally planned economies requires not just the privatization of the existing firms, but also the formation of new ones. New entrants serve to correct for the central planners' neglect of such sectors as services and consumer goods, and their bias in favor of large firms. Indeed, Central European economies have been experiencing a rapid rate of new business creation, as measured by the change in the number of small firms. Russia also experienced a short period of explosive growth in the number of new business. However, since 1994 net new business formation has stagnated. This paper looks into the possible causes of this phenomenon.Official data on the change in the number of small businesses, which serve as a proxy for net new business formation, arouse justified suspicion because of the frequent changes in the definition of “small enterprise.” Like everywhere in the world, some Russian registered firms do not become operational, and some firms that have ceased operations do not legally disband. If the share of these “dead souls” in the total count of small firms changes over time and official statistics does not adjust its count accordingly, the data may show the opposite of the actual processes. This paper analyzes Russian data collection procedures and other evidence, and concludes that stagnation in the new business formation is a real phenomenon, rather than a statistical artifact.The difficulty in finding out the causes of stagnation is that empirical studies focus on the existing businesses and miss those that should have been born but were not. The problems faced by the incumbents and frustrated entrants may well be different. The likely causes of the end of new business creation are the increased tax and regulatory burden, combined with plunder by the numerous tax and regulatory authorities. Other possible explanations involve the incumbents' use of the authorities and/or racketeers to erect barriers against new entrants.     

Growth pattern of academic entrepreneurial firms

Academic entrepreneurship, the creation of new business ventures by university professors, technicians, or students, is increasingly being promoted by university-based innovation centers and university business offices. It is seen as an efficient university-industry technology transfer mechanism, and, in some cases may contribute to university revenue. Whereas most entrepreneurs leave the university at time of start-up, others keep their academic postings as full-time or part-time professors. “Part time” entrepreneurship may be interesting from a university point of view, because (i) it keeps in the laboratory a creative individual, (ii) it may provide through part-time academic positions for a more efficient use of university resources, and (iii) it encourages more contacts between faculty, students, and the business world. However, manufacturing firms led by part-time entrepreneurs do not seem to be as aggressive and growth-oriented as “independent” firms. The university professor interested in the successful transposition of an idea, an invention, to the commercial sector, may therefore have to do it through licensing, or resign from the university to devote all his time and energy to the development, manufacturing, and commercialization process. And the university interested in investing in a new “academic firm” created to exploit commercially an invention made in its own laboratories should beware of keeping the academic entrepreneur on staff, or, if he stays on staff, of involving him with the management of the new company.These are the main conclusions of a study of the evolution from 1980–1981 to 1984–1985 of 38 young firms originally created by entrepreneurs while at various universities in several Canadian provinces. The results, supported by the observation of a small control group of 8 Canadian hightechnology companies, bring out a dichotomy: for firms offering technical services, the continued this project were made by Colleen Bigelow and Branko Peterman. Their help was greatly appreciated. academic posting of the firm's creator does not appear to overly affect its operations and growth; however, manufacturing firms completely independent from the university tend to g row faster. Other results support the negative correlation that seems to exist between the growth rate of sales and closeness to academic life, as measured, for example, by the use of university laboratories and equipment. Whether they are still closely connected to a university or not, the entrepreneurs in our sample do note many potential positive benefits from continuing contacts with the academic world. It is possible that the negative correlation between growth and university links observed in the sample results more from the individual characteristics of the entrepreneurs than from a negative influence by the university. As venture capitalists have long noticed, one of the main determinants of growth and success is the entrepreneur himself. The entrepreneurs staying close to the university and using university services may be less aggressive and less risk-oriented than the others.     

Business Conditions and Business Starts

This paper analyses the effect of business conditions on new firm starts. The birth of new firms displays a pro-cyclical behaviour, more firms being created when GDP is growing fast and the interest rate is low. The entry response to industry profitability is tempered by the level of sunk costs; for a given profit signal, more entry occurs where sunk costs are low.     

Financial Policy and Capital Structure Choice in U.K. SMEs: Empirical Evidence from Company Panel Data

This article utilises up-to-date financial panel data, and investigates the capital structure of small and medium sized enterprises (SMEs) in the U.K. Different capital structure theories are reviewed in order to formulate testable propositions concerning the levels of debt in small businesses, and a number of regression models are developed to test the hypotheses.The results suggest that most of the determinants of capital structure presented by the theory of finance appear indeed to be relevant for the U.K. small business sector. Size, age, profitability, growth and future growth opportunities, operating risk, asset structure, stock turnover and net debtors all seem to have an effect on the level of both the short and long term debt in small firms. Furthermore, the paper provides evidence which suggest that the capital structure of small firms is time and industry dependent. The results indicate that time and industry specific effects influence the maturity structure of debt raised by SMEs. In general terms, average short term debt ratios in SMEs appear to be increasing during periods of economic recession and decrease as the economic conditions in the marketplace improve. On the other hand, average long term debt ratios exhibit a positive relationship with changes in economic growth.     

The founding rate of venture capital firms in three European countries (1970–1990)

In this article, the sectorial and environmental forces that facilitate or inhibit the creation of venture capital companies are studied in the three European countries where the industry is most developed: the United Kingdom, France, and the Netherlands. The focus is on the start-up phase of the industry, the period from 1970–1990. The founding of firms can be studied on four different levels: entrepreneurial, organizational, population, and macroeconomic. In this study, a population approach is taken; this implies that we do not attempt to explain any single founding, but rather the aggregate number of foundings that occur in an industry in a certain period in a certain country.According to the organizational ecology theory, the population density (i.e., the total number of organizations in a population) is the major environmental factor that affects the founding rate through two processes. Initially, when the density is low, each founding eases new foundings, because the simple prevalence of a form tends to give it legitimacy (thereby spurring imitations), the training ground for qualified personnel grows and the supporting networks are widened and strengthened. The legitimation process does not grow forever: once enough organizations of a certain kind exist, legitimation attains a ceiling. As the number of organizations increases, the second process becomes dominant: the competition for resources (raw material, personnel, customers, capital) grows, leading to a negative relationship between the density and the founding rate, everything else being equal. Thus, the founding rate declines as the number of organizations increases, once a threshold is reached. The major hypothesis that is tested here is that the population density has an inverted U-shaped effect on the founding rate of venture capital organizations.In addition, the effect that the venture capital firms of the three countries have on each other is studied. Two populations are said to interact when the populations affect each other's growth rate, but the interaction need not be symmetrical. The second hypothesis, tested in this study, is that populations in different countries have a positive effect on each other and not a competitive effect because the legitimating effect does not halt at geographical borders. Yet, the competition for resources (capital, people, deals) among geographically different populations is limited in this industry.This study is valuable because until now, the existing ecological studies focus on long-established industries. Testing, the theory in a young industry that emerged only in the seventies (in Europe) has merits in its own right, because the technological progress after the Second World War has altered the organizational environment tremendously. The communication and transportation revolutions may have especially influenced the way in which organizations interact with each other and with the environment. The venture capital firms are furthermore special in the way they are organized with the dual structure of management company and investment fund(s). If the theory holds in this young industry, important additional evidence will be given that the theory is truly applicable to “populations of all types, in any time period, and in any society” (Carroll 1988, p. 18). Finally, this study extends the theory by giving evidence on how industries in different countries may interact upon each other.We show empirically that the major factor that influences the overall founding rate in each of the three countries is the density of the industry, i.e., the number of organizations that already exist in the industry; this confirms the population ecology theory. When the density is low, adding a new organization to the industry raises the probability of a subsequent founding; when the density is high, the contrary is true. The institutional changes considered here, such as the establishment of tax transparent legal entities or state guarantees against losses (in the Netherlands) and the establishment of secondary stock markets, do not significantly influence the founding rate in any of the three countries. Moreover, the Dutch foundings are positively influenced by the British density and the French foundings by the Dutch density; the British foundings are, on the contrary, negatively influenced by the Dutch density. The competitive effects between the Netherlands and the U.K. are thus more important than initially thought.The relationship between the density and the founding rate is the strongest, most consistent, and most significant relationship found in this study. Thus, the number of organizations that already exist in an industry is very important in explaining the founding of organizations, apart from, for example, the personality of the entrepreneur or from the networks in which he or she is involved. This indicates that, when trying to explain the founding of organizations, the industry structure, and more specifically the number of organizations that exist at the moment of the founding, cannot be ignored.     

Creative industries, new business formation, and regional economic growth

In this article we explore the impact of a series of factors, including creativity, intellectual property rights activities, new business formation, and the provision of amenities, on economic growth for 103 Italian provinces over the period spanning 2001 to 2006. Provincial growth rates are measured in terms of employment growth and value-added growth. The findings reveal that an increase in the number of firms active in the creative industries and net entry have a positive effect on regional employment growth. The share of legal immigrants is also found to positively impact employment growth. A high number of university faculties is found to lead to less employment growth, whereas trademarks, patents, cultural amenities, and industrial districts have no significant effect. Value-added growth is for a large part determined by employment growth, but no additional productivity-enhancing effects of the factors discussed are found.     

Group Affiliation and Entry Barriers: The Dark Side Of Business Groups In Emerging Markets

Business groups dominate the economic landscape in many economies around the world. While business groups overcome the institutional voids arising due to inefficiencies of external markets, they also possess market power, which could be economically and socially counterproductive, especially for unaffiliated firms. Drawing on the transaction cost and industrial organization economics, we examine whether the presence of business group affiliated firms in industries restricts the entry of unaffiliated firms or firms affiliated with small- and medium-size business groups. Findings based on Indian firms suggest that investments by business group affiliated firms in an industry have an inverted U-shaped relationship with the investment by unaffiliated firms. However, investments by firms affiliated with large-sized business groups have a U-shaped relationship with the investment by affiliates of small and medium business groups. These findings suggest that the market power of business groups and entry barrier relationship is contingent on the size of the business groups.     

International versus domestic entrepreneurship: New venture strategic behavior and industry structure

International entrepreneurship is defined in this study as the development of international new ventures or start-ups that, from their inception, engage in international business, thus viewing their operating domain as international from the initial stages of the firm's operation.One hundred and eighty-eight new venture firms in the computer and communications equipment manufacturing industries are classified according to the percentage of their sales in the international market. Ventures with no sales derived from international activities are considered “domestic” new ventures, and ventures with sales from international activities comprising greater than 5% of total sales are considered “international” new ventures.The strategy and industry structure profiles of international new ventures are significantly different from domestic new ventures. The internationals pursue much broader market-based strategies, seeking a strategy of broad market coverage through developing and controlling numerous distribution channels, serving numerous customers in diverse market segments, and developing high market or product visibility. The internationals also emphasize a more aggressive entry strategy, building on outside financial and production resources to enter numerous geographical markets on a large scale. Securing patent technology is also an important component of their strategy. This suggests that the internationals compete by entering the industry on a large scale, seeking to penetrate multiple markets, with the recognition that external resources are necessary to support such an entry.Whereas both the domestics and the internationals characterize domestic competition as being relatively intense, the international new ventures compete in industries with higher levels of international competition. It is not clear from this research whether the new venture selects an industry with a high degree of international competition and therefore responds with an international orientation or, because the new venture has an international orientation, it perceives or recognizes a higher degree of international competition. Another industry structure difference is the internationals' perceived higher degree of restrictiveness due to government regulation. It is unclear whether this restrictiveness motivates new ventures to seek less-regulated international environments or if it indicates that when competing internationally, the new venture is confronted with increased regulatory requirements.Domestic new ventures are distinguished by their emphasis on a production expansion strategy and customer specialization strategy. The production specialization strategy consists of focusing on limited geographical markets, maintaining excess capacity, and pursuing forward integration. The customer specialization strategy incorporates the production of a specialty product that is purchased infrequently. Thus, for both of the domestic strategies, a consistent “closeness” between the producer and consumer is implied. This may be an important basis underlining the new venture's decision to compete in an exclusive domestic context.This study offers initial support for the notion of international entrepreneurship by its findings that there are significant differences between new venture firms competing domestically and new ventures choosing to also enter international markets.     

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.     

The Lag Structure of the Impact of Business Ownership on Economic Performance in OECD Countries

This paper investigates the impact of changes in the number of business owners on three measures of economic performance, viz. employment growth, GDP growth and labor productivity growth. Particular attention is devoted to the lag structure. The analysis is performed at the country level for 21 OECD countries. Our results confirm earlier evidence on three stages in the impact of entry on economic performance: an initial direct positive effect, followed by a negative effect due to exiting capacities and finally a stage of positive supply-side effects. The net effect is positive for employment and GDP growth. Changes in the number of business owners have no effect on labor productivity.      

Indian and British personnel specialists' understanding of the dynamics of their function: an empirical study

This paper highlights the need for cross-national HRM comparisons from a cognitive perspective. It examines the perceptions of top Indian and British personnel specialists regarding their function. The influence of national culture, national institutions and dynamic business environment on HRM is evaluated. An interview based “visual cards sorting” technique is used to tap the comparative thinking of respondents. The research was conducted in 48 manufacturing (24 Indian and 24 British) firms. The sample firms were closely matched on a number of control variables. A number of differences and similarities were found in the thinking of Indian and British managers regarding their HRM functions. The impact of certain dimensions of national culture, different national institutions and some aspects of competitive business environment on Indian and British HRM practices and policies helps to highlight the context specific nature of HRM function. The findings of the study have both research and practical implications. The analysis opens avenues for future research.     

Creative destruction and regional productivity growth: evidence from the Dutch manufacturing and services industries

Do firm entry and exit improve the competitiveness of regions? If so, is this a universal mechanism or is it contingent on the type of industry or region in which creative destruction takes place? This paper analyses the effect of firm entry and exit on the competitiveness of regions, as measured by total factor productivity (TFP) growth. Based on a study across 40 regions in the Netherlands over the period 1988–2002, we find that firm entry is related to productivity growth in services, but not in manufacturing. The positive impact found in services does not necessarily imply that new firms are more efficient than incumbent firms; high degrees of creative destruction may also improve the efficiency of incumbent firms. We also find that the impact of firm dynamics on regional productivity in services is higher in regions exhibiting diverse but related economic activities.     

Business groups and profit redistribution: A boon or bane for firms?

This article examines the phenomenon of profit redistribution in Indian business groups and relates redistribution with the underperformance of group-affiliated firms relative to unaffiliated firms. The study also documents that profit redistribution is more pronounced in groups of large sizes and high levels of corporate control. The relative underperformance of affiliated firms persists even after controlling for other explanations such as corporate diversification and resource transfers to unlisted firms. The empirical results of the study lend support for the inefficient profit redistribution explanation of the “business group discount”.     

Pricing practices and firms' market power in international cellular markets, an empirical study

Previous studies on international marketing have typically asked the question: “how is the demand characterized across countries?” Such analysis is then used to provide guidelines for firms to enter new markets and/or to allocate marketing resources across countries. To provide such normative guidelines, however, one also needs to analyze the supply-side of the problem, i.e., ask: “what is the likely market power that firms will be able to command in different countries?” Building on the New Empirical Industrial Organization (NEIO) framework, recent research in marketing provides marketers with a variety of models to explore competitive interactions among firms in the context of a single market. The goal of this paper is to extend this literature to a multimarket/multinational context to help international marketers assess the likely market power they face when entering new countries. We illustrate the proposed method on the mobile telecommunications industry, using price and quantity data from 10 countries around the world, estimating firms' market power as a function of a number of country characteristics.The results indicate that, while the simple presence of competition diminishes firms' market power, it does not lead to perfect competition. Interestingly, a higher number of competitors in a country does not seem to have significant incremental effect on market power. In contrast, the country's commitment to a severe antitrust policy has a significant negative effect, while the monopolist's lead-time before competition is allowed has a significant positive effect on market power. These findings, together with a change in price elasticities as a result of competition, suggest that market power in different countries may originate from two sources: (i) collusive pricing among cellular operators and (ii) consumers' switching costs across service providers. For international marketers, the findings imply that the attractiveness of wealthier countries (with usually faster diffusion rates and larger market potential) may be mitigated by higher levels of competition (as a result of developed antitrust regulation and more consumer exposure to competitive marketing practices). From a policy point of view, it suggests that (in contrast to the conventional wisdom) simple deregulation may not be enough to reduce prices to competitive levels. In addition, a severe antitrust policy is crucial to achieve this goal.     

A theory of serial entrepreneurship

The contribution of serial entrepreneurs to entrepreneurial activity is significant: in Europe, 18–30% of entrepreneurs are serial; in the US, their contribution is about one-eighth. Yet, theories of entrepreneurship and industry dynamics presume that all firms are launched by novice entrepreneurs and firm failure is synonymous with exit from entrepreneurship. We propose a theory of serial entrepreneurship in which an entrepreneur has three occupational choices: maintain his business in operation, shut it down to enter the labor market to earn an exogenous wage, or shut it down to launch a new venture while incurring a serial startup cost. In equilibrium, a high-skill entrepreneur shuts down a business of low quality to become a serial entrepreneur, launching and subsequently closing firms until a high quality business is found; a low-skill entrepreneur shuts down a business of low quality to enter the labor market, never to become a serial entrepreneur. A decrease in the wage or serial startup cost, or an increase in the startup capital, enhances the contribution of serial entrepreneurs to entrepreneurial activity and promotes new firm formation (by increasing entrepreneurship and the number of new firms that survive), but its effect on the exit rate of new firms is ambiguous. We show the model is consistent with evidence relating to the impact of an entrepreneur’s characteristics and prior experience in entrepreneurship on the survival of his firm and his entry into and survival in entrepreneurship.     

Industrial policy evaluation in the presence of spillovers

The shortage of studies on spatial spillovers of capital subsidy policies is rather surprising, considering that such policies are usually designed to generate spatial externalities. We propose a new framework that allows positive agglomeration effects to be contrasted with the negative cross-sectional substitution and the crowding-out effect. The global evaluation of the ATT and the spillover parameters shifts the spotlight from the policy effect on subsidised firms to the global effect of capital subsidy policies on the targeted territory. The empirical evaluation of a policy in Italy mainly directed towards small- and medium-sized firms shows that the impact on investments, turnover and employment is positive and large, but is negative on TFP. However, the employment growth is partially determined to the detriment of the untreated firms.     

The Dynamics of Industrial Clustering in Biotechnology

This paper is a study of the process by which industrial clusters form. It identifies the forces of attraction to new companies to a cluster in biotechnology in the U.S. as it grows. It uses a model of entry of new firms into the industry to measure the degree of attraction to those new firms of the presence of an existing cluster at a particular location. The paper finds that the main agent of attraction to new firms to enter the biotechnology industry is the presence of a strong science base at that location. This provides a greater magnet than the strength of any particular sector of the industry. In terms of attraction between different sectors within the industry, the paper finds that there is positive attraction and feedback between a group of sectors in the biotechnology industry – namely the therapeutics, diagnostics and the equipment/research tools sector. However in other sectors of the industry – chemicals, food and to some extent agriculture – there is much less attraction and interaction between them. This implies that clusters of firms tend to develop only in particular sectors of the industry and positive feedback mechanisms do not extend to other parts of the industry.     

Start-ups as drivers of market mobility: an analysis at the region–sector level for The Netherlands

Although recent literature suggests that competition among incumbent firms is caused by the entry of new firms, this relationship has not yet been tested directly. In this study a regression model is established in which a direct measure of competition among incumbent firms, the market mobility rate, is explained by start-up rates and control variables. The results show that the effect of start-ups on market mobility varies by sector. There is a strong positive relationship for industry sectors but an insignificant relationship for service sectors. These results suggest differences in the types of entry between sectors and in the roles start-ups play in different sectors.     

Entrepreneurial proclivity: its environmental conditions and growth consequences

To contribute to the entrepreneurial marketing (EM) literature, this study investigates how business unit growth relates to environmental risks and rewards (i.e., environmental dynamism and market growth rate) and three facets of entrepreneurial proclivity (i.e., innovativeness, risk-taking, and proactiveness). The authors find that perceived environmental dynamism has a direct and positive influence on strategic business units' innovativeness and proactiveness. Moreover, this study explores the interplay between the risk and reward facets of the market environment and reveals that firms are most likely to adopt EM strategies in a high-growth, highly dynamic business environment. The results also show that whereas the industry growth rate promotes a firm's market expansion, but not market sustention, the firm's innovativeness and proactiveness positively influence both market expansion and sustention.     

Knowledge-exchange strategies between KIBS firms and their clients

Based on a survey of 1124 knowledge-intensive business services (KIBS) firms, this paper explores the extent and determinants of knowledge exchange between KIBS and their clients. An ordered logistic regression was estimated. The results show that the propensity of KIBS firms to rely more on a commoditization strategy and less on a personalization strategy increases with the variety of research sources of information, the number of knowledge employees, the variety of knowledge management practices, the firm's size, the business age, and being a KIBS firm operating in a technology-based industry rather than a traditional professional industry, while it decreases with R&D investments, the variety of advanced technologies, and the strength of ties.