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New Firms Evolving in the Knowledge Economy; problems and solutions around turning points

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  • Erik Stam
  • Elizabeth Garnsey

Abstract

This paper explores and explains the emergence and growth of new firms in the knowledge economy. The resource-based view, capabilities approach, and evolutionary economics are used as a foundation for a developmental approach. The development of the firm is conceptualized in terms of processes that include opportunity recognition, resource mobilization, resource generation and resource accumulation, which lead to the development of competences and capital in a base made up of productive, commercial and financial resources. Problems originating within or outside the firm may deplete the productive, commercial and asset base, leading to turning points in the life course of these firms. These have negative consequences when problems are not solved, but positive consequences when they lead to new solutions and the development of new competence. The empirical study shows that even in an elite sample of young fast-growing firms, most firms face turning points in their life course, and thus do not grow in a continuous way. The study shows that quantitative growth indicators do not always reveal growth problems that have been faced by new firms. Some problems do not negatively affect the employment growth of the firm, and other problems are solved before growth stagnates. The qualitative analysis shows that young firms are almost always in disequilibrium: there is almost never a perfect match between the constituents of their resource base, between input resources and requirements for expansion. This explains why continuous growth is so unlikely. Although every firm seems to grow in a unique manner, there is evidence for the presence of a limited set of necessary mechanisms for the growth of (new) firms, which work out in particular ways given the specific context and history of these firms.

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Bibliographic Info

Paper provided by Philipps University Marburg, Department of Geography in its series Papers on Economics and Evolution with number 2005-05.

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Length: 22 pages
Date of creation: May 2005
Date of revision:
Handle: RePEc:esi:evopap:2005-05

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Related research

Keywords: New firms; firm growth; theory of the firm; resource based view; firm life course; organizational crises; knowledge economy;

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  1. Zucker, Lynne G & Darby, Michael R & Brewer, Marilynn B, 1998. "Intellectual Human Capital and the Birth of U.S. Biotechnology Enterprises," American Economic Review, American Economic Association, vol. 88(1), pages 290-306, March.
  2. Geenhuizen, M. van & Nijkamp, P. & Townroe, P., 1990. "Company life history analysis and technogenesis : a spatial view," Serie Research Memoranda 0071, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  3. Garnsey, Elizabeth, 1998. "A Theory of the Early Growth of the Firm," Industrial and Corporate Change, Oxford University Press, vol. 7(3), pages 523-56, September.
  4. Ingemar Dierickx & Karel Cool, 1989. "Asset Stock Accumulation and Sustainability of Competitive Advantage," Management Science, INFORMS, vol. 35(12), pages 1504-1511, December.
  5. Elizabeth Garnsey & Erik Stam & Paul Heffernan, 2006. "New Firm Growth: Exploring Processes and Paths," Industry and Innovation, Taylor & Francis Journals, vol. 13(1), pages 1-20.
  6. Olav Sorenson, 2003. "Social networks and industrial geography," Journal of Evolutionary Economics, Springer, vol. 13(5), pages 513-527, December.
  7. Delmar, Frederic & Davidsson, Per & Gartner, William B., 2003. "Arriving at the high-growth firm," Journal of Business Venturing, Elsevier, vol. 18(2), pages 189-216, March.
  8. Markus C. Becker, 2004. "Organizational routines: a review of the literature," Industrial and Corporate Change, Oxford University Press, vol. 13(4), pages 643-678, August.
  9. Dosi, Giovanni, 1997. "Opportunities, Incentives and the Collective Patterns of Technological Change," Economic Journal, Royal Economic Society, vol. 107(444), pages 1530-47, September.
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