Tj. Dean et Gd. Meyer, INDUSTRY ENVIRONMENTS AND NEW VENTURE FORMATIONS IN US MANUFACTURING - A CONCEPTUAL AND EMPIRICAL-ANALYSIS OF DEMAND DETERMINANTS, Journal of business venturing, 11(2), 1996, pp. 107-132
Through integration of theoretical perspectives from Austrian economic
s, industrial organization economics, and organizational theory, this
study builds and examines empirically a model of the demand determinan
ts of new venture formations in manufacturing industries. Austrian eco
nomics and other writings on market disequilibrium imply that the dyna
mics of industries create market opportunities that are available to e
conomic actors. The greater the changes occurring in an industry, the
greater the opportunities created, and the further the market is moved
from an equilibrium state. Entrepreneurship is viewed as the process
of seizing opportunities through combinations of productive inputs. Th
e more available market opportunities in an industry, the greater is t
he potential for entrepreneurial activity and, more specifically, new
venture formations. Entry barriers constrain the formation of new vent
ures by prohibiting new ventures from taking advantage of available em
erging opportunities. The inertial properties of existing firms constr
ain their ability to move toward these opportunities and thereby incre
ase the potential for new ventures to exploit these market opportuniti
es. The empirical analysis utilizes the Small Business Administration'
s U.S. Establishment and Enterprise Microdata file to test the model o
n a large sample of U.S. manufacturing industries. Results indicate th
at dynamic industries have greater new venture formations. More specif
ically, new venture formations are associated with industry growth, th
e dynamism of industry niches, and technological development. Moreover
, entry barriers were found to strongly constrain rates of new venture
formations. Industry capital requirements, concentration, and excess
capacity were all related negatively to the formation of new ventures.
The hypothesized positive relationship between industry-level measure
s of organizational inertia and new venture formations was also bore o
ut in the empirical analysis. New venture formations were related posi
tively to the extent of vertical integration in an industry as well as
to the failure of incumbent firms to invest in new capital. Overall,
the independent variables explained more than 50% of the variance in r
ates of new venture formations in manufacturing industries. The result
s support an Austrian perspective on entrepreneurship and imply that d
emand factors and industry structural variables are important determin
ants of new venture creations. The results imply that dynamic industri
es should spawn new ventures, and industries with high sales growth, c
hanging consumer preferences, and rapid technological change should ex
hibit high rates of venture formations. For potential entrepreneurs, t
he model presented herein might be a useful guide to focus their ventu
re activities. Entrepreneurs who can spot the fundamental sources of m
arket change can exploit their knowledge for economic gain. Yet, there
are a number of difficulties in suggesting that the model presented h
erein could be directly applied by entrepreneurs. First, it is always
easier to estimate the dynamics of an industry post hoc than it is ex
ante. For example, whereas it is simple to catalogue the technological
change that occurred in an industry over time, it is another matter t
o predict the nature of future technological developments. Second, ent
repreneurial opportunity can persist only if other potential economic
actors do not know of the presence of the opportunity or cannot act up
on it. Any model that gains acceptance as a means of predicting the pr
esence of opportunities would, through its widespread usage, neutraliz
e those opportunities for economic profit. Nonetheless, entrepreneurs
who have that unique capability to spot industry dynamics and associat
ed profit opportunities where others do not will gain from that abilit
y.