Drivers of firms’ growth: a case study of software firms in Islamabad/Rawalpindi regions

Abstract

Purpose – The purpose of this paper is to identify the drivers of firm’s growth such as research and development (R & D), absorptive capacity, knowledge management, organisation culture, access to finance, internationalisation and so forth. As far as the contribution is concerned, two objectives have been achieved from this empirical paper. First, this paper fills an important gap in the literature by determining the drivers of firm’s growth. Second, this study analysed the Pakistani software industry at micro level by investigating the firm’s knowledge-based assets and their significant association with labour productivity growth. Based on a face to face interview of 69 software firms, this study found that firm size, access to finance, internationalisation (exporting and outward foreign direct investment), business improvement methods and knowledge management have a positive impact on the firm’s labour productivity growth. In comparison, firm undertaking R & D and absorptive capacity showed negative association with labour productivity growth. This study implies that these software firms have low investment in knowledge-based assets. In summary, this empirical study suggests that high sunk costs, low investment in knowledge-based assets and shortage of skills generally affect the labour productivity of these software firms. Design/methodology/approach – Survey analysis, using cross section data analysis. Findings – This study found that firm size, access to finance, internationalisation (exporting and outward FDI), business improvement methods and knowledge management have a positive impact on the firm’s labour productivity growth. In comparison, firm undertaking R & D and absorptive capacity showed negative association with labour productivity growth. In summary, this empirical study suggests that high sunk costs, low investment in knowledge-based assets and shortage of skills generally affect the labour productivity of these software firms. Research limitations/implications – Additionally, suggestions for future research would be to investigate the relationship between drivers of firm growth and innovation performance. The survey analysis could be extended to other parts of country such as Karachi and Lahore for resolving causality. Originality/value – First, this paper fills an important gap in the literature by determining the drivers of firm’s growth. Second, this study analysed the Pakistani software industry at micro level by investigating the firm’s knowledge-based assets and their significant association with labour productivity growth.