Davids versus Goliaths: Epigenetic dynamics and structural change in the Swedish innovation system

Entrepreneurship induces novelty in the innovation system, generates selection processes, and shapes market structure over time. Entrepreneurial firms participate in the creation and diffusion of new technologies, the creation, and early development of new markets and industries, and the renewal of existing firms and industries. But does entrepreneurship also facilitate the transformation and adaptability of innovation systems? In this paper, we analyze whether the Swedish innovation system's industrial structure underwent a transformation as a result of the emergence, growth, and development of new entrepreneurial firms during the last financial crisis. In particular, we focus on the dynamics of two relevant sectors of the Swedish economy which, however, show however different structural characteristics: manufacture of machinery and industrial equipment, and computer programming. Our analysis reveals that large companies use firm acquisitions to respond to the threats posed by new emerging entrepreneurial firms. In the current context of disruptive change, acquisitions are thus used as a defensive mechanism for firms’ survival and adaptation rather than as a means to transfer/gain new knowledge/technology. We discuss how entrepreneurial ecosystems and innovation support policies can take two forms depending on the stage of development of an innovation system.