Entry Of Small Firms Research Articles

The effects of technology, organisation and environmental factors on small firm entry to electronic marketplace: a developing country perspective

The effects of technology, organisation and environmental factors on small firm entry to electronic marketplace: a developing country perspective

Export conditions in small countries and their effects on domestic markets

AbstractIn a small country's industries, it is common that both small and large firms export a significant share of their total production. How does better export access affect the domestic market when this occurs? Incorporating investments in quality that require fixed outlays and increase a variety's appeal in all countries, we show that an export shock entails two opposing mechanisms. On the one hand, it induces quality upgrades that raise the domestic market share of large firms. On the other hand, it fosters entry of small firms, making large firms lose domestic market share and downgrade quality. Using Danish data, we show that small firms in some industries are so heavily export‐oriented that better export opportunities reallocate domestic market share towards the least productive domestic firms. And while competition by small firms reduces some large firms' domestic markups, it also leads some to downgrade quality and suffer a substantial fall in profits.

The effects of technology, organisation and environmental factors on small firm entry to electronic marketplace: a developing country perspective

The effects of technology, organisation and environmental factors on small firm entry to electronic marketplace: a developing country perspective

Small firm entry to e-marketplace for market expansion and internationalization: A theoretical perspective

Over the past decades, e-marketplaces have been playing significant roles in the global economic development. The mounting trend of the world’s Internet population offers incredible opportunities for the firms, both large and small, to use the Internet-based e-marketplace applications in view of managing the firm-consumer interactions effectively. Firms’ entry to e-marketplace is resulted in market expansion, internationalization, and resource maximization. This study attempts to construct a theoretical framework to look at the factors affecting small firms’ entry to e-marketplace. Following an interpretive research paradigm, this study first explores various barriers and benefits that small firms face while participating in e-marketplace and validate those factors by analyzing 23 interviews conducted through a semi-structured interview guide. By applying both, inductive and deductive methods, the interpretive analyses build a theoretical framework comprising a range of variables classified as technological, organizational, and environmental factors. The theoretical framework is the guideline and also provides grounding for a quantitative research to the study of small firms’ e-marketplace entry behavior in a wider population. The study concludes with the implications for small firms’ market expansion and internationalization through e-marketplace participation.

Digital Platforms and Antitrust

Digital platforms are at the heart of online economic activity, connecting multi-sided markets of producers and consumers of various goods and services. Their market power, in combination with their privileged ecosystem position, raises concerns that they may engage in anti-competitive practices that reduce innovation and consumer welfare. This paper deals with the role of market competition and regulation in addressing these concerns. Traditional (ex-post) antitrust intervention will be less effective in markets driven by network effects unless it is combined with a proper (ex-ante) regulatory framework. Antitrust tools should focus on value creation and its distribution before focusing on competition. The scope of regulatory intervention should satisfy the following three criteria: i) value creation from operation of the platforms does not decrease due to the policy intervention; in particular, interventions should not reduce network effects; ii) allocative efficiency is based on distributing the value created in a fair way among market participants e.g. use of the Shapley Value. Fair and transparent rules must govern the platform ecosystem; iii) dynamic efficiency and competition ensure that incentives for market misconduct and anticompetitive strategies such as artificial entry barriers are eliminated. Market interventions that target a firm’s market power should ideally retain value creation while also encouraging small firm entry and innovation. Data has a central role in online markets. Value creation is reinforced through a recursive a data capture and data deployment feedback loop which is enabled by machine learning technologies. A regulatory intervention that facilitates data sharing mechanisms, such that data will not only confer value to market leaders but also to their competitors to the benefit of consumers, is crucial for creating more competitive and innovative digital markets.

Frack to the future: What enticed small firms to enter the natural gas market during the hydraulic fracturing boom?

The shale gas boom of the early 2000s saw the highest and most volatile natural gas prices and production in history. Advances in horizontal drilling, 3-D seismic imaging, and hydraulic fracturing made it highly profitable for firms to produce large quantities of shale gas. This period was also characterized by a shift in market structure. The U.S. natural gas market was historically defined by large firms, but a large number of small firms began entering the market after 2000. While small firms made a negligible contribution to natural gas production during the shale gas boom, their entry may signal overcapitalization, productivity growth, and increased responsiveness of natural gas markets to exogenous shocks. We develop a real options model of market entry and exit and use data on natural gas drilling activity to test three potential explanations for small firm entry during the boom: 1. technological advances, 2. land lease speculation, and 3. regime change in natural gas prices. Our analysis provides mixed support for the first explanation but strong support for the last two.

State antitrust enforcement in the US and implications for small business entry and relocation

This article examines the impact of the important, yet little studied, state-level antitrust enforcement activity on entry and relocation behaviour by small US firms. Feinberg and Husted (2011) have shown that this enforcement, especially nonhorizontal cases, may be viewed by potential entrants as a negative aspect of the state business climate. However, they did not pursue a more disaggregate analysis of small firm entry behaviour; nor did they investigate different responses between manufacturing, wholesaling and retailing firms. Another related issue is the extent to which state cases filed in tandem with federal investigations have the same impact on establishment entry as do purely ‘independent’ cases. These considerations are dealt with in this article. The author uses annual state-level data from the Statistics of US Business to examine entry and relocation reactions to state antitrust enforcement by firms within three small-business categories: 1–19 employees; 20–99 employees; 100–499 employees. Generally speaking, the smallest retail and wholesale firms seem to favour vigorous antitrust activity, especially enforcement targeted against cartel behaviour by suppliers. The largest small-firm retailers and wholesalers (those with 100–499 employees) seem somewhat threatened by such activity, especially the more controversial nonhorizontal enforcement. However, it must be acknowledged that the effects on entry or relocation of small firms – both positive and negative – are quite small.

Entrepreneurship in technological regimes in metro and non-metro areas

Entrepreneurship (small firm entry) within a defined technological regime is examined using regional, establishment, and industry characteristics in metro, metro-adjacent, and non-metro regions in the state of Kansas, USA. The results show a distinct variation in small firm entry across regions. The variation is explained by the quality of the labour force, industry clustering, establishment size, labour intensity, county establishment growth rate, and the presence of an interstate highway. The contribution of this paper is the empirical examination of the validity of claims that entrepreneurship in technological regimes is more prevalent in the metro region and decreases with increasing remoteness.

Price Impacts of Small-Firm Entry in US Manufacturing

There has been little prior research into whether there are differing effects of entry by size of entrants. This study examines the annual data for the decade of the 1990s, and virtually all three-digit SIC industries; entry and expansion by firms in different employment size categories are examined and the econometric analysis seeks to find differential impacts on producer prices. The results presented here, although limited by data availability, confirm previous work suggesting an important market-disciplining role of small-firm entry. Industries experiencing greater rates of small-firm entry show smaller price increases, after controlling for cost, demand, and exchange rate pressures.

Credit constraints as a barrier to the entry and post-entry growth of firms

Advanced market economies are characterized by a continuous process of creative destruction. Market forces and technological developments play a major role in shaping this process, but institutional and policy settings also influence firms' decision to enter, to expand if successful and to exit if competition becomes unbearable. In this paper we focus on the effects of financial development on the entry of new firms and the expansion of successful new businesses. Drawing from harmonized firm-level data for 16 industrialized and emerging economies, we find that access to finance matters most for the entry of small firms and in sectors that are more dependent upon external finance. This finding is robust to controlling for other potential entry barriers (labour market regulations and entry regulations). On the other hand, financial development has either no effect or a negative effect on entry by large firms. Access to finance also helps new firms expand if successful. Both private credit and stock market capitalization are important for promoting entry and post-entry growth of firms. Altogether, these results suggest that, despite significant progress over the past decade, many countries, including those in Continental Europe, should improve their financial markets so as to get the most out of creative destruction, by encouraging the entry of new (especially small) firms and the post-entry growth of successful young businesses.

Small firm births and macroeconomic fluctuations

Using different definitions of what constitutes a small firm, this paper analyses the effect of business conditions on the start-up of small firms. It is found that small firm births exhibit a pro-cyclical behaviour, irrespective of the threshold used to define a small firm. The smallest new firms, however, seem to be less responsive to the opportunity cost of capital. Finally, no relationship was found between entry of small firms and industry growth and profiability.

Small firm entry in manufacturing industries: Lower Saxony, 1979?1989

This paper is an empirical study of inter-industry and inter-temporal variations in entry of new firms using longitudinal data covering all manufacturing establishments in Lower Saxony between 1979 and 1989. Patterns of entry are reported for 29 industries based on numbers of new firms, gross rates of entry, and entry intensities (shares of employees) in different types and size classes of new firms. Entry varies considerably between firm types, industries, and over time. Focussing on entry by small single firms an empirical model is applied to search for industry characteristics that are highly correlated with entry. Pooling of cross-section and time-series data allows to control for influences of varying macroeconomic conditions and unobserved industry characteristics. A highly robust estimation method is applied for the first time in a study of entry rates, and it turns out that extreme observations often have large effect on the results. Entry intensity tends to be positively related to industry growth, concentration, and high unemployment, but negatively to high interest rates, profits, and (insignificantly) to intensive use of capital and R&D. I plead for further research vialearning by asking those who are doing.

Regional differences in small firm entry in manufacturing industries: Lower Saxony, 1979–1991†

This paper is an empirical study of inter-regional and inter-temporal variations in entry of new firms using longitudinal data covering all manufacturing establishments in Lower Saxony between 1979 and 1991. Patterns of entry are reported for sixteen regions based on gross rates of entry (number of new firms) and entry intensities (shares of employees). An empirical model is applied to detect regional characteristics that are highly correlated with entry. Pooling of cross-section and time-series data allows for control of influences of varying macroeconomic conditions and unobserved regional characteristics that turned out to be important. Small firm entry tends to be positively related to high overall economic growth, and to be higher in regions where both the small firm employment share and the level of wealth are high while the wage rate is low. We find no evidence for a negative impact of the business tax rate or for a positive effect of regional subsidies.

Innovation and small firms

Utilizing a unique data set, Zoltan Acs and David Audretsch provide a rich empirical analysis of the increased importance of small firms in generating technological innovations and their growing contribution to the U.S. economy. They identify the contributions made by both small and large firms to the innovative process and the manner in which market structure, and the firm-size distribution in particular, responds to technological change. The authors' analysis relies on traditional theories of industrial organization and tests existing hypotheses, many of them previously untested due to data constraints.Innovation and Small Firms brings together two large data bases recently released by the U. S. Small Business Administration - one directly measuring innovative activity for large and small firms, the other providing a detailed census of economic activity for all manufacturing firms and plants across a broad spectrum of industries.Acs and Audretsch describe and evaluate the data bases in the context of the literature on innovation, market structure, and firm size. They present their findings on the presence of small firms, small-firm entry in manufacturing, small-firm growth and flexible technology, and mobility and firm size. They compare static and dynamic measures of small-firm viability and address the relationships between R&D, innovation, and productivity, and analyze the interaction between technological regimes and the role of government in innovation.Zoltan Acs is an Associate Professor of Economics at the Merrick School of Business, the University of Baltimore. David Audretsch is a Research Fellow at the Wissenschaftszentrum Berlin fur Sozialforschung in West Berlin.

Liability and Large-Scale, Long-Term Hazards

This paper analyzes the application of liability to large-scale, long-term hazards. The key features distinguishing such hazards are the long temporal separation between exposure to a hazard and disease and the large damages when injuries finally emerge. The large scale of damages creates a strong incentive to avoid liability payments, and the long temporal separation creates numerous avenues through which parties can avoid paying possible damage awards. The analysis focuses on the incentive to avoid paying damages by vertically divesting production tasks associated with serious occupational risks. Such divestiture can lower liability costs if the small firm operating the risky stage goes out of business before latent injuries emerge or has insufficient assets to pay damages and declares bankruptcy when suits are filed. The paper then presents an empirical regression analysis of small-firm entry into the U.S. economy between 1967 and 1980, the period in which liability laws were changing. The point estimate is that, ceteris paribus, liability changes appear to have led to a large increase in small corporations in hazardous sectors. Hence the empirical analysis shows widespread attempts to avoid liability by shielding assets through divestiture.

Births and Firm Size

The most common measure of entry used in studies attempting to empirically identify the determinants of entry has been the change in the number of firms in an industry over a given period.' This measure suffers from three significant deficiencies which, although widely acknowledged, have not all been overcome in any one study. First, the change in the number of firms does not account for firms which exited the industry over the relevant period, resulting in a measure of net entry rather than the desired measure of gross entry.2 Second, the entry measure is weighted by the number of firms, or in several cases plants, but not by either the sales or employment of the entrants.3 However, the implicit assumption that each unit of entry is homogeneous is obviously erroneous. 1982, 590 U.S. manufacturing firms with more than 5,000 employees accounted for 64.5 percent of sales, while 354,268 firms with fewer than 100 employees accounted for only 12 percent of sales.4 While most entry is by small firms, the entry by one large firm can more than offset (in terms of sales) the entry of hundreds of small firms. Thus, inter-industry comparisons based on firm numbers obscure differences resulting from the different sizes of entering firms. Finally, the data constraints have not enabled any study to examine the entry behavior for various firm-size classes across manufacturing industries. As Gorecki [13, 139] observed, In published statistical studies of the determinants of entry, entrants have been treated as a homogeneous class. fact, there is little reason to assume that small-firm entry is an exact replica of

Small-Firm Entry in US Manufacturing

A cross-section empirical analysis examining the entry behavior of small firms is provided in this paper. While the authors find that certain traditional market structure characteristics and entry barriers have a strong impact on small-firm entry behavior, the reliance upon innovative strategy by small firms also explains a significant amount of the variation in the pattern of entry by small firms. They conclude that small-firm entry is at least partially determined by entry barriers, industry-specific characteristics facilitating retaliatory conduct by incumbent firms, and the reliance upon innovative strategy by small firms. Copyright 1989 by The London School of Economics and Political Science.

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.

The effect of firm formation and growth on job creation in the United States

This paper demonstrates the importance of new firm formation to economic growth. It begins by providing data that describe the United States as having had greater employment growth than most developed nations of the world over the last 25 years, and focuses upon why job growth in the United States has exceeded that of other nations. Job Creation by Firm Size. We first examine the data on the relative contribution of small and large firms to U.S. job growth. By summarizing research that is uniformly expressed in two-year periods and defines small firms as those with less than 100 employees, conclusive evidence emerges that small firms are the major sources of net new creation. Firm Entry/Exit Rates and Economic Growth. Further understanding of small firm job creation is obtained when we examine firm entry and exit data. Here we find that firm entry rates vary considerably from period to period (range: 10.4%–12.5%), whereas exit rates remain relatively stable from period to period (range: 9.6%–10.4%). Thus, variation in entrepreneurial activity—the formation of new firms—is the major cause of net increases in the number firms. In both the United States and the United Kingdom, net firm increases are positively related to overall economic activity. Firm Entry/Exit and Job Creation. Further exploration of this correlation can be conducted by examining job creation and loss defined by source: entries, expansions, exits, and contractions. The data for 1976 through 1984 shown here demonstrate that new entries account for 74.0% of the 50.8 million new jobs created. Expansions of existing firms accounted for 26.0%. Small firms (less than 500 employees) produced 54.6% of the entry jobs and 56.8% of the expansion jobs. On the other hand, job losses totaled 33.8 million, 79.0% due to exits and 21.0% to contractions. Small firms account for 53.6% of the jobs lost from exits and 47.8% of those lost from contractions. Overall, small firms account for 60.5% of the 17.0 million net new jobs. Given the data that show correlation between net firm formation rates and economic growth, the finding that entry rates vary more than exit rates, and the finding that new entries create most of the new jobs, it can be concluded that firm formation—especially small firm formation—is a significant factor in economic growth. Increases in small firm formation rates have a significant effect on net job creation. Schumpeter's Model and Observed Market Turbulance. Another finding from this data on job creation by entry, expansion, exit, and contraction is the large amount of job creation and destruction activity taking place. For the period studied, three jobs were created and two jobs destroyed for each net new job created. This describes a turbulent job market with many workers moving from job to job. The labor markets are much less stable that normally envisioned. This observed phenomenon fits well with Schumpeter's theory of capitalism; he proposes that capitalistic growth occurs because entrepreneurs use innovations to form new firms which enter existing markets. When successful, these growing new firms destroy existing market structures, causing decline of established firms while creating increased demand and producing overall economic growth. If Schumpeter is correct, one would expect to find high rates of firm formation and failure, and large numbers of jobs created by new firms, while many jobs are lost by exits and contractions of established firms. The findings reported here show this. Government Policy Affects on Entry/Exit. Our results also show that formation of small, new firms is a necessary requirement for economic growth. Historically, however, Government policy has not considered small firm entry as a central issue. Thus, government policies can and have had a negative effect on entry rates and therefore upon economic growth rates. Furthermore, high rates of new firm formation cause a great deal of turbulence in labor markets, with three jobs created and two lost for every one net new job. Such labor turbulence may be seen by policy makers as undesirable as it entails considerable worker movement from job to job. As such, policy makers have recently proposed policies to protect workers from job loss due to contractions and exits. However, such protection policies, as demonstrated in recent European experience, will also construct barriers to entrepreneurial entry. The result may be a decline in small firm entry and a decline in economic growth. Instead of protecting specific jobs, appropriate policies are those that facilitate movement of workers from job to job. Adequate unemployment compensation for short term unemployment, fully vested and portable pension plans, and retraining programs are examples of policies that allow the labor market to remain flexible while reducing the negative effect on those who lose jobs.