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28 Sep 2017

Research: Entrepreneurship, understanding Technology-Based Competitive Advantage

Policy-makers, researchers and entrepreneurs generally agree that R&D and the development of innovative products or services provide startups with the means to trigger growth and gain a competitive advantage. As a result, understanding the role of technology in young entrepreneurial firms is an important factor to improve future economic development. This latest study expands our understanding of this issue by exploring the role of location and uncertainty in promoting technological distinctiveness.

This article of Erno Tornikoski is the sujet of the 38rd Executive Summary by Grenoble Ecole de Management.

From the article

Technology-Based Competitive Advantages of Young Entrepreneurial Firms: Conceptual Development and Empirical Exploration
Journal of Small Business Management, 2017, vol. 55
Tornikoski E., Rannikko H., Heimonen T. P.

Technological distinctiveness (TD) is explained as the extent to which a company emphasizes R&D to maintain its technological edge over competitors. The authors of this study aimed to explore the factors that encourage TD. They considered two independent factors: location (urban versus rural) and tolerance for uncertainty (preferences in terms of risk-taking, bold actions and pro-activeness).

Location a key factor for innovation

The researchers surveyed 107 tech-oriented startups listed by the Finnish Funding Agency for Technology and Innovation. They found that at the regional level, urban areas are associated with higher TD. The authors further detailed that in addition to an urban setting, the presence of a major research university and a strong industrial base in information technology were contributing factors. Such resource-rich locations support TD by facilitating innovation.

Innovation is not without risk

The second factor analyzed in this article was an entrepreneur's tolerance for uncertainty. In other words, as innovation is a high-risk, resource consuming activity, entrepreneurs must be willing to take risks in an uncertain environment. The researchers confirmed that a higher tolerance for uncertainty could be positively associated with higher TD.

The importance of uncertainty in unfavorable environments

One of the key findings of this study was the fact that tolerance for uncertainty was positively linked with TD in unfavorable locations (whereas this was not the case in favorable locations). An unfavorable location is one that has limited resources for technological innovation. In such an environment, innovation requires greater risk-taking to acquire resources for R&D. As a result, startups that demonstrated high TD while being located in unfavorable regions were startups that also had a high tolerance for uncertainty.

Implications for management and policy

The importance of uncertainty in unfavorable locations highlights the need for entrepreneurs to be aware of their own views on risk-taking before setting up shop in a location that is unfavorable to technological innovation. This also has important implications for policy-makers who must consider how to support entrepreneurs in unfavorable locations in order to foster risk-taking and improve innovation.

Key points

  • Urban locations with research universities and strong tech ecosystems are favorable to entrepreneurial innovation
  • To mitigate an unfavorable location, tech entrepreneurs must have a tolerance for greater risk taking
  • Policy-makers and entrepreneurs can improve tech innovation in unfavorable locations by providing/seeking support networks that help overcome uncertainty