Abstract
We explore what strategies incumbent micro firms adopt when they are faced with different levels of competition, using longitudinal data from 2134 micro firms in Trento, Italy. We measure their preference for a cost leadership or differentiation strategy compared to the default of non-coherent strategic behavior. Our results confirm that a perceived threat of competition pushes firms to take strategic action, while a market level measure of competition has no influence on a firm’s strategic behavior. A differentiation strategy is preferred by younger entrepreneurs with higher levels of education and previous entrepreneurial experience, while at the same time previous entrepreneurial experience is negatively associated with a cost leadership strategy. Thus, considering personal characteristics and perceptions can help improve our understanding of how competitive strategies are formed. In line with previous studies, we could not confirm a short-term effect of following a certain competitive strategy on firm performance.
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Notes
- 1.
Methodical note: The figures presented in this paper are based on Eurostat’s structural business statistics (SBS) that provide data on the structure, conduct and performance of businesses across the European Union (EU) operating in industry, construction, trade and services. See Eurostat - Statistics Explained: Business economy - size class analysis (2013 ed.). Retrieved from December, 2, 2014 Statistics http://epp.eurostat.ec.europa.eu/statistics_explained/
- 2.
As a result of evolutionary (selection effects due to competition) and adaptive learning (feedback on certain decisions). See Johnson and Russo (1997) for a detailed discussion.
- 3.
The data have been collected by the Statistical Office of Trento, Italy. The data come from the ‘general entrepreneurs’ questionnaire’ survey, which was conducted with the owners of micro enterprises.
- 4.
The name of the Tax Agency in Italian is “Agenzia delle Entrate”.
- 5.
The data on the value added and the number of employees in 2010 and 2011 have been collected only for those firms that were included in the third wave (the total number of observations for firm performance is 1544).
- 6.
Due to the lack of statistical power and also for the purpose of clarity they were omitted.
- 7.
The data on labor productivity growth have missing observations for the 1544 merged observations from the third wave: 23.5 % that has missing values for labor productivity growth in 2010 and 24.3 %—in 2011.
- 8.
Because of the data limitations, the most common tools to measure market concentration like Herfindahl-Hirschman Index or the concentration ratios were not available for our analysis. For this reason the market volatility indicator introduced by Dunne and Roberts (1991) and suggested by Mata (1991, 1992) as a possible way to measure industry competition was applied in this paper. The volatility indicator is defined as \( VOL=ENT+ EX-\left| NETENT\right| \), where ENT and EX are gross entry and exit respectively and \( NETENT={N}_t-{N}_{t-1} \), where \( {N}_t \) is the number of plants operating in the industry in period t and \( {N}_{t-1} \) is the number of plants operating in time-period t−1.
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Acknowledgements
The data in this study were collected by and made available to us by the Statistical Office of Trento, Italy. The results presented are the authors’ own calculations. The views expressed in this paper are those of the authors and do not necessarily reflect the position or policy of the Statistical Office of Trento. We are thankful for useful comments by Giulia Canzian, Martin Carree, Andre van Stel, and Enrico Zaninotto that helped in shaping this manuscript.
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Kovaleva, S., de Vries, N. (2016). Competitive Strategies, Perceived Competition and Firm Performance of Micro Firms: The Case of Trento. In: Bögenhold, D., Bonnet, J., Dejardin, M., Garcia Pérez de Lema, D. (eds) Contemporary Entrepreneurship. Springer, Cham. https://doi.org/10.1007/978-3-319-28134-6_5
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