Academic journal article Journal of Small Business Management

National Environment, Strategy, and New Venture Performance: A Three Country Study

Academic journal article Journal of Small Business Management

National Environment, Strategy, and New Venture Performance: A Three Country Study

Article excerpt

Entrepreneurship researchers have devoted much effort to understanding the relationship between the business environment, new venture strategy, and performance (Covin and Slevin 1989, Sandberg and Hofer 1987; Tsai, MacMillan, and Low 1991). While these relationships have been discussed extensively, both theoretically and empirically, the existing literature has almost always looked at environment as the structure of the industry in which the firm operates (industry concentration ratios, firm formation rates, industry growth rates), rather than as the characteristics of the national economy in which the firm is found (Covin and Slevin 1989, Rumelt 1991, Sandberg and Hofer 1987; Tsai, MacMillan, and Low 1991). While the industry structure/firm strategy relationship is important to both researchers and practitioners, a view of the strategy/environment relationship that takes into account characteristics of the market, resources, and suppliers is also valuable (Mintzberg 1979; Stearns, Carter, and Reynolds 1992). One way to examine this broader view of the environment is to consider the relationship between business strategy and national environment (Porter 1989). In this article, we undertake just such an examination by looking at the performance of start-up firms in three countries - Norway, Great Britain, and New Zealand.

THEORY AND HYPOTHESES

Many aspects of the business environment have been shown to influence new venture performance (Romanelli 1989). Among the environmental influences that have been identified are the presence or availability of such factors as: capital availability (Cooper 1970, Hannan and Freeman 1984); other entrepreneurs (Cooper 1970 and 1978, Brittain and Freeman 1980); technically skilled labor (Draheim 1972); suppliers (Cooper 1970, Shapero 1972); customers; government incentives for business formation (Cooper 1978); universities (Shapero 1972, Cooper 1978); plant and equipment (Mahar and Coddington 1965); supportive local culture (Maher and Coddington 1965, Cooper 1970); support services (Naumes 1978); and desirable living conditions (Mahar and Coddington 1965, Cooper 1970, Shapero 1972).

Romanelli (1989) reviewed the literature on the influence of the business environment on new firm survival and showed that environmental forces have been hypothesized to influence new venture survival either directly or in interaction with the strategy of the firm. While Romanelli (1989) did not examine firm performance, her arguments about environmental forces should apply to firm performance as it does to new venture survival. Environmental forces should influence new venture performance either directly or in interaction with firm strategy. These two different paths of influence reflect two competing theories that entrepreneurship researchers have used to explain new venture performance - population ecology and contingency theory (Romanelli 1989).

The population ecology model holds that the performance and ultimately the survival of new firms are determined by the characteristics of the environment in which they are found (Aldrich 1979). According to this model, the strategies of managers are not needed to explain the performance of new ventures. As Tsai, MacMillan, and Low (1991, 9) explain, "The population ecology perspective argues that organizational survival is determined by environmental selection (Hannah and Freeman 1977 and 1984, Aldrich 1979, Greenfield and Strickon 1986) ... While managers develop and implement strategies, these strategies do not directly determine success. Instead, they are one of many sources of random variation that will be selected, for, or against, by the environment."

Empirical support for the population ecology perspective on performance has been demonstrated in a number of studies. Nielsen and Harman (1977) found that the growth of educational institutions was explained by environmental characteristics such as number and distribution of potential students in the area. …

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