Enterprise and Small Business Principles

Innovation

In parallel with technological change arguments, some researchers have also argued that the re-emergence of smaller enterprises has much to do with the innovatory capa­city of smaller enterprises. In part, smaller enterprises are said to have a competitive advantage because they are less bureaucratic and, therefore, more flexible to changing market conditions (Rothwell, 1989; Scherer, 1991). Imitation lags are also said to have fallen so that new products are brought much sooner to market (Jovanovic, 2001). Given this, Acs and Audretsch (1989) in the US and Pavitt et al. (1987) in the UK have argued that SMEs have a rate of innovation (innovations per employee) that is higher than larger enterprises in particular industries.

Too much emphasis can perhaps be given to the impact of technological change. Acs and Audretsch (1990) point to the fact that the most innovative firms in the US are larger enterprises. Moreover, technological change is not new: Klepper’s (2002) study of earlier, mass production, industries (automotives, televisions, tyres and penicillin) showed that in the early years of these industries there were particularly high rates of entry and exit. Similarly, new technology, in itself, does not necessarily confer com­petitive advantages to smaller enterprises. New technology may allow larger enterprises to reduce set-up times and produce a wider variety of goods (economies of scope). The MES of an industry may also rise. Although the semiconductor industry is relatively new, Ernst and O’Connor showed that even back in 1992 it cost around US$1bn for a production facility that met the MES. Equally, Amin (1989) has questioned the notion that flexible specialisation helped liberate craft production. Instead, the sugges­tion was that many of the labour conditions were those of a sweatshop (low wages, poor working conditions and limited job security).