Is there a linear relationship between R&D intensity and growth? Empirical evidence of non-high-tech vs. high-tech SMEs
Highlights
► R&D intensity restricts the growth of high-tech SMEs for lower levels of R&D intensity and stimulates their growth at higher levels. ► R&D intensity restricts the growth of non-high-tech SMEs regardless of the level of R&D. ► Other determinants have different impact on high-tech SMEs growth and non-high-tech SMEs growth.
Introduction
High-tech small and medium-sized enterprises (SMEs) are considered to be principal drivers of economic and employment growth in developed countries. In European countries, high-tech SME activity is considered to be crucial to achieving the desired structural transformation of economies (European Commission, 2008). Henrekson and Johansson (2010) conclude that government policies on entrepreneurship (incentives for entry, survival, and growth of high-tech SMEs) are fundamental for stimulating economic and employment growth in European economies.
Among the activities of high-tech SMEs, R&D investment is particularly important (Stam and Wennberg, 2009, Lee, 2010). This is the case because, aside from the ability to create new products and develop more efficient productive processes, R&D investment encourages strategic cooperation among firms (Gilsing et al., 2008, De Jong and Freel, 2010). Together, these factors promote a greater spread of knowledge spillovers (Coad and Rao, 2008) and help to increase absorptive capacity (Cohen and Levinthal, 1989).
While admitting that R&D investment is fundamental to the success of high-tech SME activities and, consequently, to increased gains in countries’ macroeconomic and microeconomic productivity (Ortega-Argilés et al., 2010), European countries still trail far behind the United States (for example) with respect to investment in high-tech sectors (European Commission, 2008). Ortega-Argilés et al. (2010) conclude that the low productivity of high-tech sectors in Europe compared to the United States is not explained by lower levels of R&D investment but is instead a consequence of the inability to transform R&D investment into productivity gains, which would thereby make firms more competitive. One possible explanation for that inability resides in firms’ failure to use assets efficiently. Teece (1986) argues that taking advantage of asset complementarity may be particularly important for improving firm performance. Nevertheless, that same author concludes that SMEs have difficulty benefiting from innovation insofar as their complementary assets are more limited compared to large firms.
The growth of SMEs is crucial to ensure survival and subsequent consolidation in their operating markets (Lotti et al., 2009). In addition, SMEs are considered to be the main driving force behind economic and employment growth in European countries and, therefore, should be given a special status in major government policies, especially those related to high-tech SMEs (European Commission, 2008).
Considering the importance of high-tech SMEs for economic and employment growth in developed countries in general, and in European countries in particular, studying the relationship between R&D intensity and high-tech SME growth is especially important. Thus, we seek to ascertain if the relationship between R&D intensity and growth is different between high-tech SMEs and non-high-tech SMEs. On the basis of our findings, we also hope to formulate helpful advice for managers/owners of high-tech SMEs and non-high-tech SMEs as well as for policy-makers.
To do so, we consider two samples of Portuguese SMEs in manufacturing industries: (i) 330 non-high-tech SMEs and (ii) 133 high-tech SMEs. We believe Portugal (a small open economy within the single European market (IAPMEI, 2008)) to be a good setting for this investigation because 99.6% of all firms are SMEs. It is clear, therefore, that such firms play a leading role in the performance of the country's economy and employment.
We use the two-step estimation method proposed by Heckman (1979). This method is considered suitable for efficiently solving the problem of result bias associated with the matter of survival. In the first stage, we estimate probit regressions of survival, considering all non-high-tech and high-tech SMEs. In the second stage, after calculating the inverse Mill's ratio and including it in the regressions, we estimate relationships between determinant factors and the growth of non-high-tech vs. high-tech SMEs, considering only surviving non-high-tech and high-tech SMEs.
The empirical findings allow us to make the following contributions and implications regarding the literature on SMEs and R&D management. R&D intensity is a factor that restricts growth in non-high-tech SMEs, regardless of the level of R&D intensity. In the case of high-tech SMEs, R&D intensity is a factor that stimulates growth, but only for higher levels of R&D intensity. At lower levels of R&D intensity, it restricts growth. Smaller, younger, non-high-tech SMEs grow more quickly than larger, older, non-high-tech SMEs, which does not occur in the case of high-tech SMEs, where size and age have no influence on growth. Financial restrictions are more severe in the case of high-tech SME growth than in non-high-tech SME growth. Using the two-step estimation method allows us to make another contribution, which is to confirm that the factors determining survival in high-tech SMEs are different from those for non-high-tech SMEs.
The remainder of the paper is structured as follows: Section 2 presents the literature review and hypotheses for investigation; Section 3 presents the database, variables, and estimation method used; Section 4 presents the results; Section 5 discusses those results; and Section 6 presents conclusions and implications.
Section snippets
Relationship between growth and R&D intensity
The influence of R&D intensity on SME growth is an issue of great interest and complexity, especially with respect to the need for structural transformation in the economies of developed countries. Many studies have found that R&D intensity has a positive effect on SME growth. R&D expenditure contributes to increased diversification of activities, making SMEs more competitive (Deloof, 2003, Rogers, 2004, Baptista and Karaöz, 2011). R&D expenditure allows for increased export capacity, which may
Database
This study uses the SABI (System Analysis of Iberian Balance Sheets) database, supplied by Bureau van Dijk for the period between 1999 and 2006. As our subject of study, we consider firms belonging to the manufacturing industry.2
Descriptive statistics
Table 3, Table 4 present the descriptive statistics of the variables used in this study, for non-high-tech and high-tech SMEs, respectively.
We find that on average, growth of high-tech SMEs is greater than that of non-high-tech SMEs. This evidence is an initial indication that strategic orientation towards growth is more pronounced in high-tech SMEs than in non-high-tech SMEs. As might be expected, high-tech SMEs have, on average, considerably greater R&D intensity than do non-high-tech SMEs.
Relationships between R&D intensity and growth
Our empirical findings allow us to conclude that relationships between R&D intensity and growth are of a different nature in the non-high-tech SMEs and high-tech SMEs examined in our samples. On the one hand, we find a negative linear relationship between R&D intensity and growth in non-high-tech SMEs. The relationship identified allows us to conclude that R&D intensity is a factor restricting growth in non-high-tech SMEs. Fig. 1 shows the relationship identified between R&D intensity and
Conclusion and implications
Considering two samples of non-high-tech SMEs and high-tech SMEs belonging to manufacturing industries (330 non-high-tech SMEs and 133 high-tech SMEs), and using the two-step estimation method proposed by Heckman (1979), this study analyses whether the relationship between R&D intensity and growth in non-high-tech SMEs and high-tech SMEs is linear. The findings allow us to present various contributions to the literature on SMEs and R&D management.
We identify different relationships between R&D
Acknowledgments
The authors gratefully acknowledge the helpful comments of three anonymous reviewers and of the editor that substantially improved the paper. Paulo Maçãs Nunes and Zélia Serrasqueiro also gratefully acknowledge partial financial support from FCT, program POCTI.
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