FDI and local productivity . SOTA Review No 31
Published: 18 June 2019
The debate concerning the impact that attracting inward investment can have on local productivity has raged for some 30 years. The essential reason for this is that is that there was a juxtaposition between “cost per job” estimates regarding the benefits of seeking to attract inward investment through subsidy, and the firm-based academic literature that analysed firm internationalisation in terms of the new technology or knowledge that often accompanies foreign direct investment. Cynically, one may argue that the emphasis that was placed on determining the productivity growth effects of inward investment was an attempt to justify such subsidies, even when cost per job calculations were unfavourable, but both the policy-based and academic literature represents increasingly detailed attempts to determine the nature of the wider economic benefits of attracting inward investment.
Are Social Enterprises Different? SOTA Review No 30
Published: 30 May 2019
Over the past decade, much has been made of the growth in the number of social enterprises – businesses with primarily social or environmental aims – as an organisational form (c.f. Teasdale et al, 2013; Kerlin 2010). This is not limited to the UK nor to Europe. Such growth has been discussed in relation to the aftermath of the global financial crisis, even allowing for politically motivated definitional changes (Teasdale et al, 2013). Calls to ‘do capitalism differently’ have continued since the financial crisis, with recent social activism typified by the Extinction Rebellion movement, indicating that market failure associated with the environment and long-term social problems are neither being dealt with by the market nor political systems that focus on the short-term (Economist, 2019). Social enterprise has been touted as the solution to some aspects of such failure and yet much of the early academic literature debated exactly what determined social enterprise status. Empirical analysis of performance, longevity and success will be at best partial and at worst confused without a clear understanding of which enterprises are social and indeed whether this matters or not. This review summarises the dominant arguments in the social enterprise literature and looks at the direction for future research.
Entrepreneurial Health and Wellbeing. SOTA Review No 29
Published: 22 May 2019
Issues of employee mental health and well-being have received considerable recent attention. Much less attention has been paid to well-being among entrepreneurs despite the combination of risk and anxiety which starting a business may involve. Entrepreneurial well-being has been defined as "a positive and distinctive mental state that reflects entrepreneurs' affective and cognitive experiences of engagement in entrepreneurship as the process of venture creation". We review the existing evidence on different aspects of entrepreneurial well-being and identify gaps in the evidence base on this ‘darker side’ of entrepreneurial activity.
Loan guarantee schemes in the UK: What have we learnt? SOTA Review No 28
Published: 21 May 2019
Loan guarantee schemes are the most pervasive and long-standing means of intervening in capital markets to support small business lending in the world. They are popular with small businesses, easy to understand, easy to administer, and allow large numbers of credit constrained small business to access loans that they would have struggled to get. Yet take-up of UK loan guarantees over its 38 year scheme history has varied dramatically. In this review we consider just why, despite its general popularity, the UK scheme has had such a variable past, and show just how sensitive demand for guaranteed loans is to the nuances of the schemes rules.
The Biology of Entrepreneurship. SOTA Review No 27
Published: 1 May 2019
What makes an entrepreneur? The past few years have witnessed a significant increase in research examining the role of biology in entrepreneurship. For instance, evidence shows that the genetic factors explain almost half of the variance in people’s tendencies towards entrepreneurship (Nicolaou, Shane, Cherkas & Spector, 2008). Other research suggests that hormones, such as testosterone and cortisol, affect the propensity of people to become entrepreneurs (Nicolaou, Patel & Wolfe, 2018; Wolfe & Patel, 2017b). Further research argues that entrepreneurs have increased activations in the frontopolar cortex of the brain when engaging in exploration tasks (Laureiro-Martinez et al., 2014). Studies also show that mental conditions, including attention-deficit hyperactivity disorder (Wiklund, Yu, Tucker & Marino, 2017), dyslexia (Logan, 2009), depression (Hessels, Rietveld, Thurik & van der Zwan, 2018), bipolar disorder (Johnson, Madole & Freeman, 2018) and obsessive-compulsive personality disorder (Wolfe & Patel, 2017a), influence the propensity of individuals to engage in entrepreneurial outcomes.
What is ‘Good Work’ and why does it matter? . SOTA Review No 26
Published: 19 March 2019
As the labour market has recovered following the Great Recession and employment rates in the UK have risen to historically high levels, there has been growing interest in the quality as well as the quantity of employment. In part this reflects concerns about developments in working practices, including the rise of the gig economy, unequal gains from flexible working between employers and workers, employment insecurity and the implications of labour market trends for the ‘productivity puzzle’. The Taylor Review of Modern Working Practices added impetus to ongoing debates on ‘Good Work’ and in setting out its ‘Good Work Plan’ in December 2018 for the first time the UK Government placed equal emphasis on the quality and quantity of work.
University research and regional development. SOTA Review No 25
Published: 14 March 2019
University research contributes to regional development through the way it becomes incorporated into different kinds of ‘products’ that make technological knowledge more accessible for local innovating companies. However, universities do not exclusively contribute through their research; their expenditure effects can be important, and teaching activities building regional human capital can also contribute to region’s territorial innovation capacity.
University research contributes in many different ways to regional development, not only through formal commercialisation activities and supporting human capital development, but also through informal engagement & strategic leadership activities. Universities’ main role is as a connection point to global knowledge resources in ways that make that knowledge more easily available to local partners. This means that universities’ regional development contributions are strongly shaped by the regional absorption capacity for the knowledge they import: in less favoured regions their contribution needs infrastructure to help less-innovative firms absorb new knowledge. Moreover, regional development is never a core mission for universities in comparison to teaching and research: stimulating a regional mission involves creating opportunities for mutually beneficial interaction between universities and regional partners.
Who benefits from apprenticeships? The English experience. SOTA Review No 24
Published: 5 March 2019
Apprenticeships are paid jobs incorporating on- and off-the-job training. Traditionally they have been seen as a route for young people to transition from education to productive skilled employment. In practice apprenticeships are very diverse – in terms of age of apprentices and levels and quality of apprenticeships.
In England an ongoing programme of reform is seeking to increase the number of apprenticeships while at the same time rationalising the range of apprenticeships available, making them more attuned to employers’ skills needs and enhancing their quality. Perhaps the single most prominent reform is the introduction of an apprenticeship levy for large firms in 2017, which was followed by a reduction in apprenticeship starts.
The evidence suggests that there are positive returns to individuals in terms of earnings from apprenticeships but their size varies markedly by gender, sector and apprenticeship level, with bigger returns for men than for women (in part explained by gender segregation by sector) and for advanced, higher and degree level than for intermediate level apprenticeships. Employers benefit from the supply of skills provided by apprenticeships but in their decision-making about investing in apprenticeships are concerned to trade-off costs (e.g. wages, training and supervision costs) versus benefits (i.e. the productive contribution of apprentices). Net costs and benefits and associated payback periods vary markedly by sector and apprenticeship level.
Self-employment and Local Growth. SOTA Review No 23
Published: 28 February 2019
Rapid growth in self-employment in some economies, of which the UK is a notable example, has raised the salience of whether growing self-employment (SE) contributes to economic growth and regional development (RD). The UK experience is that self-employment growth is not spatially uniform (Henley, 2017), and so this question is often framed in terms of local economic benefits. While researchers typically argue that SE is an indicator of entrepreneurialism, higher SE also raises concerns about the growth of employment casualization and the gig economy (Taylor, 2017). Nevertheless, more prosperous locations, such as in and around London, appear to experience stronger local SE activity. The key research issue here concerns whether this self-employment, through its impact on entrepreneurial dynamism, causes improvements in RD, or is merely a reflection of it.
This review places this question in its wider context and reviews the relatively limited range of extant analysis on the SE-RD nexus. The findings from this literature are, prima facie, consistent and supportive of a positive link. However, the review identifies a number of concerns, both conceptual and empirical, and in doing so highlights gaps in the available evidence base.
Employee Engagement and Business Performance – a Review of quantitative evidence. SOTA Review No 22
Published: 26 February 2019
Employee engagement has been a hot topic in recent years among both academic researchers and practitioners. It is often believed that employee engagement can drive productivity and creativity and improve business performance. But what does the evidence suggest about the relationship between employee engagement and business performance? This SOTA review examines studies at individual and business unit/organisational levels to assemble the quantitative evidence to date on the relationship between the two.
The evidence suggests that at the individual level there is relatively solid evidence that there is a positive association between employee engagement and individual task performance. The evidence also suggests that employee engagement is likely the antecedent. At the business unit and organisational level, however, the small number of studies available makes it too early to draw valid conclusions. Initial findings reveal a positive association between collective engagement and business unit/organisational performance. However, the causal order is not clear.
Innovation, open innovation and intellectual property rights: firm size differences. SOTA No 21
Published: 19 February 2019
With growing interaction among firms in the innovation process, the need for efficient protection of intellectual property rights (IPR) also increases. The high costs and lengthy processes associated with patenting call for firms to use other methods of protecting their intellectual property (IP). The low costs and high revenues associated with the use of trademarks entice the adoption of this measure. For SMEs however, recent evidence questions the long-term benefits of trademarks, and suggests that industrial designs may be a more efficient form of IP protection. There is little evidence for or against using copyright, possibly due to difficulties in measuring this IPR. As product cycles are shortening, firms increasingly protect IP through speed-to-market and secrecy. However, more research is needed as to how secrecy relates to more formal methods of IP protection.
Unregistered IP rights and innovation: What is the evidence? . SOTA No 20
Published: 7 February 2019
What does the evidence suggest in relation to the relationship between unregistered IP rights—including unregistered design rights, unregistered trade marks, and copyrights—and the innovation outcomes of firms? While some argue that unregistered IP rights incentivise innovation due to the convenience and savings—both in terms of time and costs—associated with a process that requires neither registration nor maintenance, others argue that unregistered IP rights hinder cumulative innovation and increase monopoly power. Yet, the influence on innovation seems to depend on firm size and sector, industry lifecycle length, and on the stage of the collaborative innovation process. It’s been proposed that a lack of reported litigation suggests that unregistered IP rights work more in terms of restricting copying than as enablers of prosecution for an infringement. Other than review articles, there is a dearth of empirical evidence pertaining to potential impacts on innovation outcomes of firms. By gathering data from firms on the use and experience unregistered IP rights and firm innovation outcomes, future research could shed light on this topic.
Trade marks and registered designs: Evidence on the links to innovation and business performance. SOTA No 19
Published: 6 February 2019
Applications for trade marks and registered designs have risen sharply in recent years with the application numbers for trade marks in 2017 being more than double what they were in 1995, and the application numbers for registered designs in 2016 reaching their highest point since 1995. In light of this, what does the evidence suggest about the relationship between trade marks/registered designs and innovation output?
Compared to that of patents, the literature examining trade marks and registered designs and the links to innovation is more limited with much of the empirical evidence largely confined to the examination of firms’ private returns. The empirical evidence, in general, suggests a positive relationship between trade marking activity/registered design activity and innovation/firm performance.
Value of patents for the innovating firm. SOTA No 18
Published: 5 February 2019
Patents are the first choice innovation protection instrument. This SOTA Review outlines the evidence on the value of patents, the factors influencing patent value and highlights the gaps in our understanding of patent value in the UK. The focus of the review is on the value of patents to the innovating firm. It is worth noting that patents also have broader implications for societal welfare. The private value of patents is influenced by many factors (most notably by the degree of innovativeness or quality of innovation) and so these estimates also represent more than the value of the protection instrument itself.
The impact of policy support on firms’ innovation outcomes and business performance. SOTA No 17
Published: 28 January 2019
The importance of R&D and innovation in explaining economic growth and productivity is well documented in the research literature. Government policies also increasingly recognise the benefits of supporting firms’ R&D and innovation. In the UK, for instance, research and innovation have been placed at the heart of the Industrial Strategy, receiving investments of around £3bn pa.
Access to Venture Capital Amongst Female-led Firms. SOTA No 16
Published: 8 January 2019
While the participation of women in entrepreneurship has increased in recent years, women’s access to venture capital (VC) has not moved at the same pace. The gender gap in VC funding persists, as is also the case in other equity financing markets. Recent studies using socio-psychological perspectives indicate that the gap is associated with gender biases, which affect whether and how women entrepreneurs seek funding and how decision-makers evaluate business opportunities. From the demand side, this relates to some women’s tolerance for risk and their perceptions about external equity capital, which can lead to lower aspirations to seek business growth and to apply for VC funds. From the supply perspective, gendered beliefs about what makes a successful business founder, and lack of female role models may impact negatively on the evaluation of businesses led by women. These barriers may require interventions that go beyond a focus on just improving women’s financial or technical skills.
Resilience in SMEs. SOTA No 15
Published: 13 December 2018
SMEs (firms with fewer than 250 employees) make an important contribution to employment and value creation across Europe, and so ensuring that they are able to withstand adversity is of interest to many varied stakeholders. However, most resilience research to date has focused upon large organisations, with the implicit assumption that findings also apply to small organisations. This ignores the unique contextual and structural characteristics that define many SMEs. Where SMEs have been considered, resilience research has focused on SME characteristics and capabilities and on the individual resilience of the leaders of SMEs. Little research has considered practical interventions which may improve resilience in SMEs. Exploring contextual aspects unique to SMEs that may work to their advantage in developing resilience, interrogating the link between leader resilience and organisation resilience, and exploring SME resilience in the context of the organisation’s geographical location offer potentially fruitful avenues for future research.
If high performance working delivers productivity gains, why isn’t common sense common practice amongst UK firms? SOTA No 14
Published: 5 December 2018
High Performance Work Systems (HPWS) can be one solution to the UK productivity problem. HPWS involve a transformation in the management of human resources. However few UK firms have HPWS. This briefing note outlines the evidence for HPWS and suggests why adoption of HPWS is low amongst UK firms. It notes that meta-studies find a strong and positive relationship between HPWS and firm productivity, and proponents offer lists of relevant human resource practices. However, barriers to the adoption of HPWS exist. First, there is no consensus on which bundle of practices is indicative of high-performance working. Second, it is not clear when any of these bundles constitute the necessary ‘system’. Third, the measures used are often very blunt and don’t always capture the necessary practices. Fourth, research doesn’t always cover all of the practices and so how they work to deliver productivity gains. Fifth, managers might not be willing and able to introduce HPWS. To overcome these problems, a consensus needs to be generated about what constitutes HPWS and more research to better understanding of how these systems work. Managers also need to be educated in the benefits of HPWS and supported in introducing them.
Defining engagement and its link to productivity. What does the HRM literature tell us? SOTA No 13
Published: 4 December 2018
Despite its popularity and arguments that it can make a significant contribution to productivity, the concept of ‘engagement’ is not clearly defined and there is limited high quality, methodologically rigorous research on the links between employee engagement and productivity. This review clarifies and compares the concepts of work and employee engagement and evaluates the evidence from HRM literature about their links with organisational performance outcomes. There is evidence that work engagement has a positive effect on the performance of individual employees. However, while it is reasonable to assume that this may lead to improved organisational outcomes, robust evidence is absent. The evidence of a causal relationship between organisational/employee engagement and improved organisational productivity is also limited and comes from case studies. More rigorous studies are needed to demonstrate and understand the links between engagement and organisational outcomes.
Public University Policy and R&D Success. SOTA No12
Published: 21 November 2018
Today, public university policy is widely accepted as one of the most adopted approaches to spur innovativeness, competitiveness, and growth in a knowledge-based economy. Despite the popularity of public university policy in academia and politics, solid evidence is scarce. Although there is increasing experience in designing public university policy to spur R&D activities and success, little is known about whether such policies actually work. What does the evidence suggest about the relationship between public spending on generating public knowledge spillovers and R&D outcomes? Is public university sponsorship overall beneficial?
What are the barriers to start-up and scale-up in R&D intensive firms? SOTA no 11
Published: 14 November 2018
R&D investments enhance knowledge, underpin innovation and facilitate the creation of new firms; this recognised source of economic development has become integral to government policy in many countries. While all firms face difficulties engaging in R&D, new and young firms are most affected facing internal and external factors that inhibit investment or impede the process. A decision to invest in R&D often stalls due to concerns about appropriation and/or limited access to appropriate finance, but once engaged the barriers are found in the nexus of knowledge, networks and skills that underpin dynamic capabilities and the enhancement of a firm’s absorptive capacity. In particular, the emphasis placed in the beginning upon science/technology expertise, at the expense of managerial acumen, undermines a firm’s ability to recognise and exploit commercial opportunities.
The role of policy mix in driving business innovation. SOTA No 10
Published: 6 November 2018
Businesses often receive a mix of different innovation policy instruments, a policy mix, to support their innovation activities. For example, they may receive a mix of R&D grants and R&D tax credits. What does the evidence suggest about policy mix’s role in driving business innovation? SOTA studies on the impact of different policy mixes present a complex picture. Internationally, findings range from an increase of 34 percent in business innovation associated with some policy mixes to a decrease in business innovation of 26 percent associated with other mixes.
Innovation, internationalisation and growth
Identifying Clusters – A Review of Methodological Approaches. SOTA No 9
Published: 23 October 2018
Although a seemingly intuitive concept, the identification of clusters involves a number of complexities linked to (1) the cluster definition (the industry boundaries) and (2) the spatial determination of clusters.
Over the last 20 years, researchers have proposed a range of methods to address both aspects.
The choice of cluster identification method will depend on the policy question, geographical context, type of industries under investigation and, importantly, data availability.
Diversity in Innovation Teams. SOTA No 8
Published: 22 October 2018
Diversity in the workplace has attracted significant interest in organisations that want to attract and retain talented employees. The increase in functional and demographic diversity of the workforce has led to the question whether diverse teams perform better than homogeneous groups. What is the evidence supporting the ‘value in diversity’ hypothesis? Research surrounding team performance suggests that diverse teams are essential to organisational innovation, creativity and productivity. However, too much diversity can reduce innovation team performance by negatively affecting cohesion, decision-making quality, and members’ commitment to the group – suggesting an inverse U-shaped relationship between diversity and team performance.
Adoption of new technologies and organisational practices: are there innovation benefits? – SOTA No 7
Published: 16 October 2018
In increasingly competitive environments, the ability to innovate successfully is a key corporate capability, and depends on the wide-ranging, complex decisions faced by firms in their day-to-day operations. International studies report innovation returns from the adoption of advanced manufacturing technologies (AMTs), although these returns may be lagged due to initial disruption effects. Likewise, work practices such as innovation strategies, innovation culture and leadership, team-working and multi-functionality are important for innovation. In addition, adoption decisions are not necessarily made in isolation, and there is evidence of higher innovation returns when adoption decisions are made simultaneously.
Individual business surveys rarely consider all three areas (innovation; technology adoption; work practices), therefore we know little about the importance of organisational culture as a pre-condition for the technology adoption–innovation relationship. In addition, longitudinal or panel data is necessary to investigate possible lags to any cause-and-effect relationships.
Leadership and management practices and SME performance
Regional Differences Accessing Finance in UK SMEs: Do they matter? – SOTA No 6
Published: 15 October 2018
In recent years, there has been a growing body of empirical evidence examining spatial variations in access to bank finance in UK SMEs. The overwhelming bulk of this work suggests a firm’s geographic location plays a crucial role its ability to access finance. Innovative and growth-oriented firms seem those most affected. Regions most adversely affected are peripheral and rural areas with sparse bank branch networks. The main causes of these disparities seem to be connected to the pervasive use of new automated lending technologies and the rapid decrease in the size of the UK bank branch network. The knock-on effect of these trends may be increasing the use of other forms of substitutive finance and increased levels of borrower discouragement within SMEs located in peripheral areas. From the evidence base reviewed, it would appear that regional funding gaps do exist and they do matter. The full impact of their effects on firm performance and wider economic growth remain unknown however.
Finance and Investment
What Supports the Adoption of Innovations Within Established (non-frontier) Firms? SOTA No 5
Published: 19 September 2018
The adoption of innovations can be strongly path-dependent and self-reinforcing in established firms. Policy can play a role in shifting the adoption of innovations away from existing technological trajectories towards new, more effective, innovations. This may have positive impacts on growth and productivity. This review addresses the following questions: What are the factors that affect technology change or inertia in established firms? What role can policy-makers play in over-coming such inertia?
Innovation, internationalisation and growth
Organisational Learning and Innovation in Supply Chains. SOTA No 4
Published: 19 September 2018
Evidence that a company’s Organisational Learning Capability (OLC) and their level of innovation performance are positively related has been the focus
of numerous academic studies over recent years. Whilst a significant body of research exists that focusses on learning at company level, little research
exists on how companies operating in supply chains/networks learn and innovate. The dynamics of ‘power’ that exist between companies in the supply
chain often impede learning and the resulting innovation. However, it is critical that a truly effective collaborative and knowledge-sharing
environment is created so that new ideas and innovative solutions to problems are achieved. This review looks at the issues involved in developing
collaborative learning environments within supply chains.
Strengthening UK supply chains
How Can We Attract and Retain More Internationally-mobile R&D? SOTA No 3
Published: 19 September 2018
As the world becomes ‘flatter’ and firms have more locations available in which to site their activities, more and more locations are chasing the ‘holy grail’ of attracting high-tech activity, and particularly R&D. This is, however, often in the absence of a clear strategy of how to retain this investment once it has landed, and how to best encourage interactions between internationally mobile capital to maximise the benefits of that investment for a region. This review explores the empirical literature on the location of R&D and other high- tech or innovation-intensive activities and explores the main findings of this in the context of local economic development or inward investment strategies.
It is important to consider the nature of local labour markets in this context. Attracting high-tech investments often requires a degree of migration into a region. Firms recognise that in these activities they are engaged in a ‘war for talent’ such that earnings growth in these sectors far outstrip more general wage increases. As such, firms need to be convinced that in addition to the pool of labour already in a given location, more can be attracted from elsewhere. This issue is however somewhat at odds with the existing evidence, which focuses on financial incentives or tax policy as the means to attract such investments.
Discouraged Borrowers: Measurement, Determinants and Impact. SOTA No 2
Published: 19 September 2018
In recent years increasing attention has been paid to SMEs who do not apply for bank finance for fear of rejection - so-called discouraged borrowers. To date, much of the literature has focused on the measurement of discouragement in SMEs. These firms constitute a major proportion of SMEs with some recent research suggesting they number as many as half a million UK SMEs. However, owing to the different definitions of discouragement adopted, comparisons across different studies are problematic. The growing literature on the determinants of discouragement suggests firm size and age are significant, with nascent and smaller SMEs more likely to be discouraged. Entrepreneurs who are older, female from ethnic minority backgrounds with lower levels of human capital and poorer credit ratings, are more likely to be affected. The evidence base on the potential impact of borrower discouragement is less well established. However, available evidence suggests discouragement may result in reduced investment levels and weaker firm performance. The broader and disaggregated definitions of borrower discouragement used in recent studies provide a useful basis for future comparisons and longitudinal tracking.
Finance and Investment
Innovation and Quality Management – What are the links? SOTA No 1
Published: 19 September 2018
TQM and ISO9000 are two of the most widely adopted quality improvement approaches. What does the evidence suggest about the relationship between these quality improvement approaches and firms’ innovation outcomes? Internationally, SOTA studies of ISO9000 adoption suggest small positive innovation benefits of 2-13 per cent. International studies of TQM adoption also suggest positive innovation benefits of 4-7 per cent with the strongest benefits arising from the ‘soft’ elements of TQM related to work practices and cultural change. A lack of both survey and population data mean we have no evidence of the implications of either ISO9000 or TQM for innovation and firm performance in the UK.
Innovation, internationalisation and growth