Innovation  in High-Technology Companies: The Small Firm’s Perspective with Reference to the Mobile Phone Sector  

Table of Contents

1  INTRODUCTION  1

2  DEFINITION NEW TECHNOLOGY BASED FIRMS  3

3  CHARACTERISTICS NEW TECHNOLOGY BASED FIRMS  4

3.1  SURVIVAL  5

3.2  FOUNDERS  5

3.3  GROWTH AND EMPLOYMENT  6

3.4  EXTERNAL FACTORS  7

3.5  NETWORKING  8

4  SMALL FIRMS - BIG FIRMS  9

4.1  WHY COLLABORATE?  9

5  PUTTING THEORY IN PRACTISE: THE MOBILE PHONE SECTOR  11

5.1  MOBILE PHONE TECHNOLOGY  12

5.2  EXCURSION: CHINA - THE WORLD’S LARGEST MOBILE PHONE MARKET  13

5.3  NOKIA AND SMALL COMPANIES  14

5.4  INNOVATION OF THE SMALL PLAYER - PICOCHIP  15

5.5  CONCLUSION MOBILE PHONE SECTOR  17

6  COUNTRY INVOLVEMENT IN INNOVATION  19

7  CONCLUSION  21

8  APPENDIX I  23

9  BIBLIOGRAPHY  24

Katrina  Cain Ben Beiske  

November   2002

Innovation in High-Technology Companies: The Small Firm’s Perspective with Reference to the Mobile Phone Sector

1 Introduction

In the last twenty years, many researchers and even governments have undertaken studies concerning small, innovative firms operating in new technology sectors. Different researchers have concluded different things from different studies, and different opinions prevail in many areas.

Even a brief look into the area of New Technology-Based Firms (NTBFs) shows that extensive literature exists on a wide range of topics, both on a more general scale, but also on rather specialised sub-areas of NTBFs. While it is certainly desirable to explore any one of these specialised areas in more depth, the focus of this paper is to give a brief but comprehensive overview of the area of NTBFs about research in the last 20 to 25 years. The underlying notion of the paper is to question if large firms are better at innovation than small firms. An answer to this question in the light of the findings of this paper will be attempted in the conclusion in chapter seven.

Specifically, the purpose of this paper is to define and highlight briefly the main characteristics of NTBFs, and to point out the level of cooperation between small and large firms in the technology sector. It will then evaluate these in the light of the Mobile Phone sector. The influence of governments on small innovative companies will also be considered.

This paper will start out with a definition of NTBFs in chapter two. Chapter three will highlight the five main characteristics of a NTBF that will ultimately determine the success or failure of the company. Chapter four will then look at the interplay between small and large companies, and will consider how much these two parties cooperate or compete. In chapter five, the findings of the previous chapters will be

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Innovation in High-Technology Companies: The Small Firm’s Perspective with Reference to the Mobile Phone Sector

examined in the light of the mobile phone industry, with reference made to the mobile phone market in China, and also to a small innovative UK company. In chapter six, four countries and their approaches to foster innovation among small companies will be highlighted. Finally, chapter seven will sum up the findings of this paper and offer a conclusion on the underlying question if large firms are better at innovation than small ones.

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Innovation in High-Technology Companies: The Small Firm’s Perspective with Reference to the Mobile Phone Sector

2 Definition New Technology Based Firms

The study of New Technology-Based Firms is, compared to other areas of research, a relatively new phenomenon. Arthur D. Little produced one of the first studies in the field in 1977, which generated interest among researchers and governments alike.

One of the first problems arising when talking about NTBFs is a clear and concise definition of the NTBF itself. Researchers offer different definitions of the term; from the literature reviewed, one can broadly divide these into two categories: A narrow definition of NTBF, and a broader definition. Arthur D. Little (1977) sees NTBFs essentially as ‘an independent owned business established for not more than 25 years and based on the exploitation of an invention which implies substantial technological risk’. While this appears to be a very narrow definition, a broader view is favoured by other authors such as Butchard (1987), who essentially sees NTBFs as industries in sectors ‘…with above-average R&D intensity and above-average proportion of scientists, professional engineers and technicians in the labour force’.

While the choice of definition largely depends on the purpose of the specific study undertaken, this paper favours the broader definition for the simple reason of including firms that might otherwise be excluded. This is particularly useful in our discussion about Chinese mobile phone companies in section five, where it is often difficult to establish the exact size and characteristics of some of the innovative companies.

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Innovation in High-Technology Companies: The Small Firm’s Perspective with Reference to the Mobile Phone Sector

3 Characteristics New Technology Based Firms

As Kay (1993) had previously established and Bommer and Jalajas confirmed in 2002 for the USA and Canada, the competitive advantage of small, innovative companies often depends on the company’s ability to mobilize their technical skills, knowledge and experience with regards to innovative products, processes and services. Baldwin et. al. (1994) adds to this that success based on performancemeasures such as growth, productivity and profitability often strongly depends on the importance the company places on innovation.

Storey and Tether (1998) researched the characteristics of NTBFs, and divided their findings into five main areas, namely

1. Survival; 2. Founders; 3. Growth and Employment; 4. External Factors; and 5. Networking.

The next section will briefly discuss each of these areas in turn, and the most important arguments in each area will be highlighted.

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Innovation in High-Technology Companies: The Small Firm’s Perspective with Reference to the Mobile Phone Sector

3.1 Survival

Small, innovative firms are often seen as having great potential: A small innovation turns out to be economically feasible, the company grows rapidly, and evolves into a major blue chip within 25 years of its origin. While this could be observed in the case of American firms in the computing and software industry, these however often appear to be isolated cases.

The vast majority of small firms in the high technology sector are faced with greater risk than their non high-tech counterparts in other industries. It might be feasible to conclude that this translates into a high percentage of failure amongst technology start-ups. However, research in this area suggests - very broadly speaking - that NTBFs are actually no more likely to fail than other start-ups. Westhead and Storey (1994) report that innovative and high technology firms are sometimes actually more likely to succeed than non-technology firms. Tether (2000) attributes this to the fact that high-risk ventures are more likely to be started by more experienced and bettereducated entrepreneurs than ‘normal’ start-ups.

3.2 Founders

Storey and Tether (1998) see one of the main reasons for the above findings in the overall characteristics of the founders of NTBFs. Studies in France and other European countries have shown that founders of such companies are more likely to be better educated than founders of other new companies, and significantly better educated than the general population at large. They tend to come from an academic

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