Why Butterflies Don‘t Leave: Locational Behavior of Entrepreneurial Firms

Abstract

Entrepreneurship is an important process in regional economic development. Especially the growth of new firms is of major significance to the commercialization of new ideas and employment growth. These growing new firms are transforming structurally like caterpillars turning into butterflies. However, like butterflies, they are at risk of leaving their region of origin for better places. This article analyzes how and why the spatial organization of firms develops subsequent to their start‐up. A new conceptual framework and an empirical study of the life course of entrepreneurial firms are used to construct a theory on the firms' locational behavior that explains that behavior as the outcome of a process of initiatives by entrepreneurs, enabled and constrained by resources, capabilities, and relations with stakeholders within and outside the firms. The study shows that entrepreneurs decide whether to move their firms outside their region of origin for different reasons in distinct phases of the firms' life course. Being embedded in social networks, for example, is an important constraint on locational behavior during the early life course of a firm, but over time it becomes less important, and other mechanisms, such as sunk costs, increasingly determine a firm's locational behavior. The development of spatial organization is also of major importance: when a multilocational spatial organization has been realized, it is much easier to move the headquarters to another region. The spatial organization of entrepreneurial firms co‐evolves with the accumulation of the firms' capabilities. A developmental approach that incorporates evolutionary mechanisms and recognizes human agency provides new insights into the age‐old study of the location of firms.

Testing the ‘Residential Rootedness’ Hypothesis of Self-Employment for Germany and the UK

“…In these literatures also very different measurements of entrepreneurs are applied which are partly not congruent with the measurement of self-employment from a labour market perspective. For example, entrepreneurs are defined as owners of fast growing businesses (Stam, 2007) or of privately owned businesses including sole proprietors (Hanson, 2003), to all people who perceive themselves as entrepreneurial including informal activities (Acs et al, 2008, page 266;Bergmann and Sternberg, 2007). The latter applies to studies which are drawn from the (cross-sectional) Global Entrepreneurship Monitor (GEM).…”

“…Firstly, agglomeration economies and cluster theory suggest that business owners and particularly founders accrue benefits from location-specific capital in terms of social networks established prior to the start-up, like access to information and resources (e.g. market contacts), access to financial resources through bank loan officers, and contacts to potential employees (Acs and Armington, 2004;Audretsch et al, 2010;Scott, 2006;Sorenson and Audia, 2000;Stam, 2007). Similarly, evolutionary geography points to the evolutionary process of networks and thus to the socioeconomic embeddedness of start-up activities (Glückler, 2007).…”

“…In accordance with the economic conceptualisation of entrepreneurship as a 'local event' (Audretsch et al, 2010;Bönte et al, 2009;Feldman, et al 2005;Romanelli and Schoonhaven, 2001;Stam, 2007) the self-employed or entrepreneurs are thought to be strongly 'rooted' in place (Audretsch et al, 2010;Hanson, 2003;2009). The prevailing 'residential rootedness'-hypothesis is based on research focussing on firms and their networks within the region rather than individuals within firms (Armington and Acs 2002;Stuart and Sorenson, 2003; also noted by Hanson and Blake 2009, page 137), and these studies based upon micro data lack comparative research designs (Hanson, 2003;Harrison et al, 2004).…”

New Business Formation and Regional Development: A Survey and Assessment of the Evidence

“…According to the labor market approach, the entry rate may be viewed as the propensity of a member of the regional workforce to start an own business. 9 Many of the analyses of the effect of new business formation on regional development have used sector-adjusted start-up 9 Because start-ups are usually located close to the residence of the founder (Stam 2007), the regional workforce can be regarded as an appropriate measure of the number of potential entrepreneurs.…”

Methods of analyzing the relationship between new business formation and regional development

“…According to the labor market approach, the entry rate may be viewed as the propensity of a member of the regional workforce to start an own business. Because start-ups are usually located close to the founder's residence (Stam, 2007;Dahl and Sorenson, 2009) Sometimes, net entry, calculated as the change in the number of businessowners, is used, mainly for reasons of data availability (e.g., Carree and Thurik, 2008;Dejardin, 2011). Another variant is to analyze the effect of turbulence, defined as the number of entries plus the number of exits, on economic development (e.g., Bosma, Stam, and Schutjens, 2011), which can be regarded as an indicator of the level of creative destruction in the region.…”