Impact of Functional Integration and Spatial Proximity on the Post-entry Performance of Knowledge Intensive Business Service Firms

Abstract

Knowledge intensive business service firms (KIBS) are an important element of modern economies, and are thus attracting increasing interest in scientific research. In the existing literature, it is argued that due to the important role of knowledge, innovation and user-producer interaction in the KIBS sector, functional integration and spatial proximity are particularly decisive for a firm's development. Nevertheless, due to the absence of suitable micro data there is a lack of studies empirically analysing the impact of functional integration and spatial proximity using micro firm data. Based upon new firm micro data from three German metropolitan regions, this article supplements the literature by giving a multivariate empirical analysis of the determinants of post-entry performance of KIBS. The results of the estimates of fi rm growth equations show that functional linkages to knowledge providers, customers and cooperation partners matter indeed for the performance of young KIBS. Regarding spatial proximity, however, a high diversifi cation of geographical reach is proven to be especially crucial.