High-tech firms

High-tech firms' long-term export behaviour [Elektronische Ressource] : the experience of German and UK companies / von Helmut Fryges

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High-Tech Firms’ Long-Term Export Behaviour – The Experience of German and UK Companies Vom Fachbereich Wirtschafts- und Sozialwissenschaften der Universität Lüneburg zur Erlangung des Grades Doktor der Wirtschafts- und Sozialwissenschaften (Dr. rer. pol.) genehmigte Dissertation von Helmut Fryges aus Remscheid Eingereicht am: 17. Mai 2005 Mündliche Prüfung am: 30. Juni 2005 Gutachter: Prof. Dr. Joachim Wagner Prüfungsausschuss: Wagner, Apl. Prof. Dr. Thomas Wein, Prof. Dr. Ursula Weisenfeld Erscheint als elektronische Dissertation unter: http://kirke.ub.uni-lueneburg.de/ Preface Shortly after I started to work at the Centre for European Economic Research (ZEW) in Mannheim in November 1998, the head of my department, Georg Licht, introduced me to the topic of interna-tionalisation of young technology-oriented firms. At that time, a joint research team comprised of Oliver Bürgel and Gordon Murray from London Business School and Andreas Fier and Georg Licht from the ZEW was investigating a unique data set of 600 newly founded technology-oriented firms in Germany and the UK that were surveyed in winter 1997/1998. Although I did not contribute to the analyses of the Anglo-German research team at that time, I had the opportunity of doing some econometric research of my own.

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High-Tech Firms’ Long-Term Export Behaviour –
The Experience of German and UK Companies







Vom Fachbereich Wirtschafts- und Sozialwissenschaften der
Universität Lüneburg

zur Erlangung des Grades
Doktor der Wirtschafts- und Sozialwissenschaften (Dr. rer. pol.)
genehmigte Dissertation


von Helmut Fryges
aus Remscheid



















Eingereicht am: 17. Mai 2005
Mündliche Prüfung am: 30. Juni 2005
Gutachter: Prof. Dr. Joachim Wagner
Prüfungsausschuss: Wagner, Apl. Prof. Dr. Thomas Wein,
Prof. Dr. Ursula Weisenfeld

Erscheint als elektronische Dissertation unter:
http://kirke.ub.uni-lueneburg.de/ Preface
Shortly after I started to work at the Centre for European Economic Research (ZEW) in Mannheim
in November 1998, the head of my department, Georg Licht, introduced me to the topic of interna-
tionalisation of young technology-oriented firms. At that time, a joint research team comprised of
Oliver Bürgel and Gordon Murray from London Business School and Andreas Fier and Georg
Licht from the ZEW was investigating a unique data set of 600 newly founded technology-
oriented firms in Germany and the UK that were surveyed in winter 1997/1998. Although I did not
contribute to the analyses of the Anglo-German research team at that time, I had the opportunity of
doing some econometric research of my own. Thereby, I became familiar with the questionnaires
the conducted survey was based on, the resulting data set, and the theoretical and empirical litera-
ture related to individual firms’ export activities.
Thus, it was almost self-evident that when Gordon Murray (now working at the University of
Exeter) and Georg Licht planned to contact the original sample of 600 respondent firms a second
time via a telephone survey in 2003, I became a member of the new research team which was
completed by Marc Cowling from London Business School. I greatly enjoyed the work on this
research project, in particular, because I had the opportunity to participate in each individual step
of the project – starting with the development of the questionnaires, through supervising the Ger-
man telephone survey conducted at the ZEW, preparing the data set, and finally carrying out the
empirical analyses that constitute the key part of this thesis. Using data of both the first and the
second survey, I examined the long-term export behaviour of the firms sampled. Such a longitudi-
nal perspective has rarely been found in the related literature to date, leading to new interesting
research questions, some of which are investigated in this thesis.
Of course, the completion of this thesis was only possible with the help and the support of numer-
ous individuals and institutions. First of all, I gratefully acknowledge financial support from the
HSBC Innovation and Technology Group and the Anglo-German Foundation for the Study of
Industrial Society which financed the 2003 survey. Further, I thank the Centre for European Eco-
nomic Research (ZEW) for providing me with the opportunity to write my thesis whilst working at
the institute for the last two years.
Special thanks go to my supervisor Joachim Wagner. Since individual firms’ export behaviour
belongs to his main research interest, it was an optimal decision to contact him and he fortunately
agreed to supervise my dissertation. However, Joachim Wagner did not only make useful sugges-
tions in terms of the theoretical background, the econometric methods applied, and the interpreta-
1 tion of the empirical results. He also always encouraged me to realise my ideas and always
promptly answered my questions. In these ways, he contributed significantly to the rapid comple-
tion of this thesis.
Since this study is an empirical work, its quality heavily depends on the data set used for the
analyses. Thus, I am deeply indebted to Oliver Bürgel, Andreas Fier, Georg Licht, and Gordon
Murray for their efforts in conducting the 1997 survey and preparing the resulting data set. To the
same degree, I am obliged to Marc Cowling, Georg Licht, and Gordon Murray for their valuable
contributions in our joint work on the research design of the second survey and the development of
the questionnaires used for the computer-aided telephone interviews in 2003. I also thank Thorsten
Doherr for programming both the German and the English versions of the questionnaires. Special
thanks go to Marc Cowling and Gordon Murray for carrying out the 2003 survey in the UK.
The empirical analyses of this thesis are actually an extension of the 1997 study. Thus, when
carrying out my empirical research, I not only profited from the data the Anglo-German research
team collected in 1997. I also benefited from the corresponding research report when it came to the
specification of my econometric models and the interpretation of the results. The careful work of
the research team that conducted the first survey is therefore gratefully acknowledged. Helpful
comments and proposals that significantly improved different parts of this study were also put
forward by Dirk Czarnitzki, Ulrich Kaiser, François Laisney, and Michael Woywode and are
highly appreciated.
Furthermore, I thank Marc Rennert, Martin Becker, Natalie Gaier, Stefan Hoffmann, and Thea
Platz for their competent research assistance and Tyler Schaffner and Andrew Flower for excellent
proofreading. Last but not least, many thanks go to my colleagues at the ZEW who patiently
endured me and my bad moods on days when I was frustrated by the work on this thesis and
dissatisfied with the progress I made. Today, however, having successfully completed my thesis, I
primarily think back to the pleasure I had when dealing with the interesting topic of the interna-
tionalisation of firms and I hope that this pleasure is reflected for the reader of the following pages.
Helmut Fryges
2 Table of Contents
List of Tables.................................................................................................................................................. 5
List of Figures ................................................................................................................................................ 7
Boxes............................................................................................................................................................... 7
1 Introduction .......................................................................................................................................... 8
2 Development of High-Tech Industries .............................................................................................. 15
2.1 Definition of High-Tech Industries..............................................................................................15
2.2 Firm Dynamics in Aggregated High-Tech Sectors...................................................................... 18
2.3 Development of Sales in Aggregated High-Tech Sectors............................................................ 33
2.4 Conclusion ................................................................................................................................... 40
3 Description of the Data Set ................................................................................................................ 43
3.1 Mail Survey Methodology (1997)................................................................................................ 43
3.2 Telephone Survey Methodology (2003) ...................................................................................... 49
3.3 Survival Bias and Non-Response Bias......................................................................................... 53
4 Export Behaviour of Technology-Oriented Firms........................................................................... 55
4.1 Theories of Internationalisation ................................................................................................... 56
4.2 Foreign Market Entry and Exit .................................................................................................... 66
4.2.1 Literature Review .................................................................................................................... 67
4.2.2 Descriptive Analysis................................................................................................................ 68
4.2.3 Econometric Implementation................................................................................................... 72
4.2.4 Empirical Results....... 77
4.2.5 Conclusion ............................................................................................................................... 85
4.3 The Degree of Internationalisation............................................................................................... 87
4.3.1 Literature Review...... 89
4.3.2 Descriptive Analysis..... 92
4.3.3 Econometric Implementation 96
4.3.4 Empirical Results..................................................................................................................... 99
4.3.5 Conclusion ............................................................................................................................. 107
4.4 The Change of Sales Modes in International Markets ............................................................... 109
4.4.1 Theoretical Consideration and Literature Review ................................................................. 111
4.4.2 Descriptive Analysis.............................................................................................................. 115
4.4.3 Econometric Implementation................................................................................................. 122
3 4.4.4 Empirical Results................................................................................................................... 128
4.4.5 Conclusion ............................................................................................................................. 140
5 Productivity, Growth, and Exports................................................................................................. 143
5.1 Performance and Internationalisation ........................................................................................ 144
5.2 The Model.................................................................................................................................. 148
5.3 Descriptive Analysis .................................................................................................................. 154
5.4 Simultaneous Equation Models.................................................................................................. 158
5.4.1 Econometric Implementation................................................................................................. 159
5.4.2 Empirical Results................................................................................................................... 161
5.5 Matching Approach...... 172
5.5.1 Econometric Implementation 173
5.5.2 Results of Kernel Matching ................................................................................................... 180
5.5.3 Results of Mahalanobis Distance Matching Within Caliper.................................................. 185
5.6 Conclusion ................................................................................................................................. 188
6 Summary and Conclusion................................................................................................................ 191
7 References..................... 204
Appendix .................................................................................................................................................... 215
A.1 Sources of Secondary Data ........................................................................................................ 215
A.2 Written Questionnaire used for the Mail Survey in 1997, English Version............................... 217
A.3 Survey in 1997, German Version.............................. 221
A.4 Questionnaire used for the Telephone Interviews in 2003, English Version............................. 225
A.5 rviews in 2003, German Version ............................ 235


4 List of Tables
Table 2-1: Definition of High-Tech Sectors............................................................................................... 16
Table 2-2: Sectoral Structure of High-Tech Firm Foundations in 1996 (in %).......................................... 25
Table 2-3: Stock of VAT-Registered Enterprises in the UK...................................................................... 32
Table 2-4: Sales in Aggregated High-Tech Manufacturing Sectors in 2003.............................................. 35
Table 2-5: Share of German High-Tech Manufacturing Plants’ Sales Generated Abroad (in %) ............. 39
Table 3-1: Sample Composition of the Population and the Target Sample (1997).................................... 47
Table 3-2: Drawing Probability per Stratum.............................................................................................. 48
Table 3-3: Response Codes of the Mail Survey (1997).............................................................................. 48
Table 3-4: Sample Composition of the Population and the Target Sample (2003).................................... 50
Table 3-5: Response Codes of the Telephone Sample (2003).................................................................... 52
Table 4-1: Comparison of Means between Exporters and Non-Exporters................................................. 68
Table 4-2: Firms with International Sales, by High-Tech Sector (in %).................................................... 70
Table 4-3: Development of Internationalisation Status.............................................................................. 71
Table 4-4: Propensities of Foreign Market Entry and Exit ........................................................................ 78
Table 4-5: Comparison of Mean Degree of Internationalisation................................................................ 93
Table 4-6: Degree of Internationalisation, by High-Tech Sectors.............................................................. 95
Table 4-7: Degree of Internationalisation, by Size Classes 96
Table 4-8: Fractional Logit Estimation Results: Pooled Sample ............................................................. 100
Table 4-9: Fractional Logit Estimation Results: Subsamples 1997 and 2003.......................................... 101
Table 4-10: Empirical Studies on the Decision on Foreign Market Entry Modes ..................................... 113
Table 4-11: Geographical Focus of the Three Most Important Target Countries ...................................... 116
Table 4-12: Sales Modes Used in Most Important Foreign Markets of 1997 (in %) ................................. 118
Table 4-13: Changes of Sales Modes in Firms’ Most Important Foreign Markets of 1997....................... 122
Table 4-14: Propensities of Sales Mode Changes – Results of Logit Models............................................ 129
Table 4-15: Marginal Effects of Logit Model – Sales Mode Change from Direct Exports to Exporting
via an Intermediary ................................................................................................................. 136
5 Table 4-16: Marginal Effects of Logit Model – Sales Mode Change from Exporting via an Intermediary
to Direct Exports..................................................................................................................... 137
Table 5-1: Comparison of Firms with and without International Sales in 2002 ...................................... 155
Table 5-2: Switching Regression Estimation Results: Level Equations .................................................. 162
Table 5-3: Switching Regression Estimation Results: Selection Equation .............................................. 164
Table 5-4: Motives for Entering the International Market 1997 .............................................................. 166
Table 5-5: Employment Growth Model Estimation Results .................................................................... 167
Table 5-6: Sales Growth Model Estimation Results ................................................................................ 169
Table 5-7: Probit Estimations Results for Export Market Participation................................................... 176
Table 5-8: Results of Kernel Matching .................................................................................................... 182
Table 5-9: Results of Mahalanobis Distance Matching Within Caliper 186


6 List of Figures
Figure 2-1: Firm Foundations in Aggregated High-Tech Sectors ............................................................... 22
Figure 2-2: Firm Closures in Aggregated High-Tech Sectors..................................................................... 29
Figure 2-3: Development of Sales in Aggregated High-Tech Sectors......................................................... 37
Figure 4-1: Predicted Probability of Foreign Market Entry and Exit .......................................................... 81
Figure 4-2: Predicted Degree of Internationalisation in Dependence of the Number of Employees ........ 106
Figure 4-3: Predicted Probability of a Change of Sales Mode .................................................................. 135
Figure 5-1: Estimated Kernel Densities of Each Country’s Labour Productivity and Growth Rates........ 157
Figure 5-2: Estimated Kernel Densities of Unbounded Propensity Scores ............................................... 178
Figure 5-3: Estimated Kernel Densities of Matched Unbounded Propensity Scores: Kernel Matching ... 184
Figure 5-4: Estimated Kernel Densities of Matched Unbounded Propensity Scores: Mahalanobis
Matching ................................................................................................................................. 187

Boxes
Box 2-1: The ZEW Foundation Panel...................................................................................................... 19
Box 2-2: VAT Registrations and De-Registrations in the UK................................................................. 20


7 1 Introduction
Since the late 1970s, small and medium-sized enterprises (SMEs) have attracted growing attention
from both policy makers and academics. In his pioneering study, Birch (1979) pointed out that
about two-thirds of all new jobs created in the USA in the period from 1969 to 1976 can be attrib-
uted to the expansion of small firms with less than 20 employees. Birch’s study led to an extensive
debate on the contribution of SMEs to total employment and to the net creation of new jobs (see
Storey [1994] for an overview). Although Birch’s methodology was subsequently criticised and
many scholars argued that he overestimated the extent of jobs created by SMEs (cf. Davis et al.
11996), it is today unquestioned that SMEs do in fact provide a large number of new jobs.
Within the larger group of SMEs, the interest of economists and politicians is focused in particular
on newly founded technology-based firms (NTBFs). Although NTBFs constitute the smallest
players in high-tech sectors, the highest hopes with respect to employment creation are placed
upon them – or at least have been in the past: During the late 1990s, exaggerated expectations and
investors’ hopes contributed to the high-tech bubble on stock markets that burst in 2000 (cf. Bank
of England 2001). In today’s post-bubble world, former expectations and hopes have been re-
duced. Nevertheless, the potential of NTBFs to create jobs is still a subject of intense discussion
among policy makers and economists.
Although policy makers may primarily be interested in job creation, only those firms that possess a
competitive advantage over their rivals are able to fulfil this expectation (Porter 1985). The ability
2of a high-tech start-up to grow and provide new jobs thus depends essentially on its innovative
capacity. NTBFs are therefore also expected to play an important role with respect to innovation,
structural change, and regional development. NTBFs may contribute to the effective dissemination
and commercialisation of knowledge, in particular of knowledge generated at universities and
other public research institutions (e.g., institutes of the Max Planck Society in Germany). Scien-
tists from universities or research institutes may decide to start an NTBF – a spin-off – to commer-
3cialise their scientific insights. This is probably the most direct way of knowledge transfer from

1 In their study on Germany, Boeri and Cramer (1991) revealed that in the period from 1977 to 1987 newly
founded SMEs created 750,000 new jobs, whereas incumbent companies that already existed in 1977 increased
the aggregated number of employees by only 350,000.
2 The terms “new technology-based firm“ (NTBF) and “high-tech start-up“ will be used interchangeably in this
study.
3 Egeln et al. (2003b) provided a comprehensive study on public research spin-offs in Germany.
8