New Technology-Based Firms and Innovation Networks

1. New Technology-Based Firms and Innovation Networks Martin Bliemel mbliemel@sfu.ca PhD Candidate Faculty of Business Administration Simon Fraser University, Vancouver, Canada

2. Overview • Background • Research Question • Theory Overview • Propositions & Hypothesis • Method & Variables • Analysis • Results • Discussion & Implications • Q&A

3. Background • Using data set from Centre for Policy Research on Science and Technology (CPROST), the Vancouver chapter of the Innovation Systems Research Network (ISRN) • ISRN just finished 5 years of case studies on clustering and innovation networks across Canada, sponsored by SSHRC • ISRN: geographic measures & co-location • Here: firm centric measures & ties

4. Research Question Q: What is the role of embeddedness in the growth of New Technology-Based Firms (NTBFs)? • Some Definitions: • NTBF (Schumpeter, 1942; Little, 1977; Butchard 1987): • New, technology-based, involving significant technological risks • Embeddedness (Granovetter, 1985; Uzzi 1999): • Network measure of strength and density in (social) • Cluster (Porter 1998, Bell 2005): • “A geographically proximate group of interconnected companies and associated institutions in a particular field [or industry], linked by commonalties and complementarities.” • National Innovation System (Lundvall, 1992): • “.. the elements and relationships, which interact in the production, diffusion and use of new and economically useful knowledge (…) and are either located or rooted inside the border of a nation state”. Can be composed of a number of clusters.

5. Theory Overview • Entrepreneurship: • Overviews (Schumpeter, 1942; Shane & Venkatareman, 2000; Audretsch 2003) • Firm Survival and Growth: • Founders (Penrose, 1959;Birley & Westhead, 1990; Cooper, 1993) • Environment (Aldrich & Zimmer, 1986) • Fitness of Organizational Structure (Galbraith, 1973; Pfeffer, 1982) • Innovation (Audretsch, 1995) • Network Theory: • Overviews (Granovetter, 1982; Larson 1991; Lee, Lee, Pennings, 2001) • Strong & Weak Ties (Uzzi, 1996; Uzzi 1997; Christensen, Ulhøi & Madsen, 2000; Lechner & Dowling, 2003) • Networks (Mian, 1994; Yli-Renko & Autio 1998; Fischer & Reuber, 2003, Keroack, Ouimet & Landry, 2004) • Clustering (Porter 1998; Bathelt, Malmberg & Maskell 2004)

6. Anatomy of a Regional Cluster • Practically synonymous with innovation network (Porter, 2000)

7. Propositions & Hypothesis • P1: Local inter-firm ties are .. • Frequent high-quality contact • Usually strong • High redundancy of information • P2: Long-distance inter-firm ties are .. • Infrequent or low-quality contact • Usually weak • Provide new information and opportunities

8. Propositions & Hypothesis • P3: Embeddedness provides quick (early) traction • Preferential access to resources & channels • Efficient at redistribution of opportunity • H1: There are diminishing returns to embeddedness • Size of opportunity limited by size & span of network • Time and resources management conflicts with core competence development

9. Method & Variables • 77 Vancouver-Based Firm interviews (2001-2004) in ISRN dataset – Industry – Biotech (34) or New Media (43) – Revenue Growth Rate – % average over previous 3 years 1a Research Tie Contact Frequency –Very Often, Often, Sometimes, Rarely, Never 1b Proximity to Key Suppliers – Local, Mixed, North America, Global 2 Proximity to Key Customers – Local, Mixed, North America, Global 3 Local Cluster Representation – Yes, Somewhat, No 4 Associations Participated In – Local, National, North America, Global, None

10. Porter’s Cluster Diamond Revenue Growth Rate NTBF

11. Porter’s Cluster Diamond Materials, IP, Talent NTBF (Porter, 2000)

12. Porter’s Cluster Diamond NTBF Key Customers Materials, IP, Talent (Porter, 2000)

13. Porter’s Cluster Diamond Industry or Cluster Representation NTBF Key Customers Materials, IP, Talent (Porter, 2000)

14. Porter’s Cluster Diamond Industry or Cluster Representation NTBF Key Customers Materials, IP, Talent (Porter, 2000) Other Networks

15. Analysis • Factor Conditions: • Research Ties Frequency 0  100% (Biotech: IP) • Proximity to Key Suppliers 0  100% (NM: Talent) • Demand Conditions: • Proximity to Key Customers 0  100% • Context: • Local Cluster Representation 0  100% • Related & Supporting Industries: • Associations Participated In0  100% • Embeddedness as the average: 0  100%

16. Industry or Cluster Representation Industry or Cluster Representation NTBF NTBF Materials, IP, Talent Materials, IP, Talent Key Customers Key Customers NTBF Other Networks Other Networks Examples 50% 0% 100%

17. Results Embeddedness vs. Annual Growth Rate

18. Results • There appear to be diminishing returns to embeddedness to Biotech and New Media firms in Vancouver • There are good reasons to seek embeddedness: • Biotech: Spill-over effects • New Media: Talent flow • But, there are limitations if: • Ties pull in too many directions • Time and resources are inefficiently allocated to tie maintenance • No ties are made to stakeholders outside of the cluster

19. Discussion and Implications • Need more data! • Implications: • Should firms manage their embeddedness differently throughout the stages in their life cycle? • How much do the ties around the firm matter? • What is the role of Government? Firm or cluster sponsorship? • What is the role of Industry Associations? • Co-existence of regional policy and network code of conduct?

20. Questions & Answers • Start-up • Prototype testing • Embeddedness • Global Growth (Yli-Renko & Autio, 1998)

21. Extension of Focus How are network characteristics related to other stages and transition points of the firm? III Growth IV II ? I H1 New Not New Time

22. Similar results: (Uzzi, 1999)