BUSINESS ORGANISATION AND POLICY

Business Organisation and policy



Business Organisation and Policy

Introduction

At the interface of industrial dynamics and economic geography, the fundamental question holds how clusters of economic activity can be understood from the entry, growth and exit of firms, and how, in turn, clusters affect entry, growth and exit patterns through agglomeration economies. These questions are not only of academic interest, but are also of policy interest as high rates of entry and exit are typically associated with growth in employment and productivity. In this context, the understanding how clusters emerge and how these in turn affects rates of entry and exit has become a core question among economists and geographers alike. Witnessing the increase in theoretical and empirical studies in this interface-field, time has come to take stock of the progress made so far and questions that still remain (Strumsy, 2007, 107-120).

The field of industrial dynamics can be delineated in a broad sense and a narrower sense. In a broad sense, the field deals with all questions related to the process of industrial transformation including the growth of firms, entry and exit dynamics, the co-evolution of technology, market structure and institutions, and the impact of structural change on macroeconomic growth as the analysis of changes in demand, the knowledge base of industries and the structure and dynamics of innovation networks. In a narrower sense, industrial dynamics can be taken to refer to the demography of industries in terms of the dynamics of entry, growth and exit of firms underlying the growth and decline of industries, where entry can be broken down further into de novo start-ups versus spinoffs and exit into acquisition versus failure. For the purpose of this survey, we choose to define the field of industrial dynamics in the narrow demographic sense, as to be able to provide a systematic and comprehensive review. Throughout the review, we will primarily focus on empirical research and less on theoretical frameworks. In doing so, we will draw primarily on evolutionary economic geography as our interpretative framework.

Industrial Dynamics, Clusters and Economies of Scale

Firm entry is the result of the interaction between the characteristics of an actor - an entrepreneur or a founding organisation - on the one hand and the surrounding environment on the other hand. The factors determining entrepreneurial foundings differ from those that determine organisational foundings. Regional variations in entrepreneurial foundings can be the result of two groups of factors: compositional factors, reflecting an over- or under-representation of 'entrepreneurial' population characteristics, and regional factors. Regional variations in organisational foundings are more likely to be driven by real estate costs and market access, in order to achieve scale economies. Organisational foundings are also less hindered by an oligopolistic local market structure than entrepreneurial foundings. Most individual founders start their venture in their own region, while organisational foundings are more likely to be established outside the home-region of the firm headquarters. In this paper, we will mainly focus on the determinants of entrepreneurial entry, because these are much more numerous ...