The Determinants of SME Success in the Long Run: An Ecosystem Perspective

Abstract

ABSTRACT Small and medium-sized enterprises (SMEs) drive economic growth especially in developing countries. Nonetheless, it is empirically challenging to identify the key attributes that predict the long-run success of SMEs. We analyse a detailed nationwide innovation survey of 4,075 companies in Korea, as well as their performance metrics, and demystify the key features that predict outperformance in the long horizon. We draw conditional causal inferences for SMEs by utilizing coarsened exact matching. Both the least absolute shrinkage and selection operator regularization technique and the elastic net method unveil that, among a variety of factors that include innovative activities, government support, and other external factors in the SME ecosystem, in-house research and development (R&D) are the most important factors for the success of SMEs. Government support in the form of product purchase plans or government-wide acquisition contracts also matters for SME success, but the association is transient and short-lived. Hence, accumulating intangible capital by internalizing R&D activities is of the utmost importance for SME success in the long run.