How high-tech entrepreneurial ventures cope with the global crisis: changes in product innovation and internationalization strategies

Abstract

The global crisis that began in the second half of 2008 abruptly changed the business context, inducing firms to react by modifying their strategies. This paper examines changes in innovation and internationalization strategies that high-tech entrepreneurial ventures implemented to react to the crisis. Relying on insights from the behavioural theory of the firm and threat-rigidity theory, we explore the antecedents of firms’ investments in development of new products and in expansion in international markets and the consequences of these changes on firms’ growth performance. Econometric results from a sample of 140 Italian high-tech entrepreneurial ventures support the view that the stock of resources accumulated by larger firms, firms’ innovation and internationalization investments in the pre-crisis period and firms’ cash flow determine the extent of the two changes. The effects of these changes on firms’ short-term growth performance are positive only for investments in development of new products.

Keywords:

• Global crisis
• high-tech entrepreneurial ventures
• product innovation
• internationalization
• behavioural theory
• threat-rigidity theory

Acknowledgements

We want to thank the editor Bart Leten and the two anonymous referees for their comments and suggestions.

Notes

¹ We define EVs as independent (i.e. not controlled by third party organisations) firms established to commercialise the novel ideas developed by their founders.

² Product innovation is a strategy designed to increase sales by improving or modifying current products or services (David 1984, 61) it typically entails decisions on which new products to develop, how to modify existing products, how much R&D expenditure is required for these purposes, and so on. Internationalization is a strategy that seeks higher profits and low-cost resources in foreign markets (Alkhafaji 2003, 143). It typically entails scanning the international environment to detect new demand opportunities, and leveraging the competitive advantage of foreign countries in the provision of low-cost resources and advanced technologies.

³ An aspiration level is ‘the smallest outcome that would be deemed satisfactory by the decision-maker’ (Schneider 1992, 1053). Firms determine their aspiration levels basing on their performance history or on the performance of other firms (Greve 1998).

⁴ In accordance with this view, data from the SAFE database relating to the external finance needs and availability perceived by micro and small firms across a broad spectrum of financial instruments indicate that in 2009 there was a large increase in the perception of the extent of the financing gaps by these categories of firms (EIB 2013).

⁵ For instance, in 2009 real GDP growth was 9.2% in China and 8.5% in India (source: Worldbank). These values are very close to or even higher than the pre-crisis values.

⁶ For information, see: http://www.cerved.com/xportal/web/eng/home-eng.jsp.

⁷ Special attention was devoted to the causal link between the burst of the crisis and firms’ investments. For this purpose, we expressly asked firms’ owner–managers to distinguish investments that were triggered by the crisis from ‘normal’ investments that they would have made also in absence of the crisis.

⁸ Successfulness bias might also affect our data. Better-performing firms might be overrepresented in our sample because they may be more willing to provide information about themselves than their worst-performing counterparts. However, most sample firms were severely harmed by the crisis and experienced a decline in sales. Therefore, we are confident that our results are not affected by this kind of bias.

⁹ 35 sample EVs registered both higher sales and higher growth rates in 2009 than in 2008. As a robustness check, we repeated the analysis excluding these firms. Results are similar to the ones shown in the paper and are available from the authors upon request.