When investigating the growth of firms in West and East Germany after the reunification, Almus (2002, p. 1498) hypothesized that this event “offered a window of opportunity that may have favored fast growth in specific economic sectors.” In East Germany, they experienced a “construction boom” and a huge demand for services after the reunification.
Firms in construction, transport and communication, and business-related services, active in the early 1990s in East Germany, had a higher probability of rapid growth. In Almus’s view, this supports the niche hypothesis.
Bos and Stam (2014) investigated to what extent RGFs are the drivers of the growth of industries. They found that an increase in the prevalence of RGFs in and industry has a positive effect of the subsequent growth of the industry. They found no evidence of the inverse causal relationship: an increase in industry growth on the prevalence of RGFs. In their view, RGFs “seem to be early movers with respect to the recognition and realization of industry-specific growth opportunities” (Bos and Stam, 2014, p. 164), especially for new niches enabled by new technologies or by new regulations.
In analyzing RGFs in Russia, Iudanov (2007) argues that RGFs play a central role in changing the structure of an industry by identifying and taking market niches with potential that are not occupied by others. These RGFs are fast in imitating successful pioneers in these niches. New “clusters” of firms lead to intensified rivalry and act as a driver for innovation within the niche. If firms underestimate the importance of improvements, they are soon squeezed out of the market. Some firms also find new linkages between sectors, opening up for broader markets and synergies between the firms. Iudanov (2007) argues that these RGFs
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are signaling evolutionary changes in the Russian economy. Based on his research, he claims that the founder of RGFs “consciously search for a promising market niche, assess the resources needed to occupy it successfully,” and actively carry out their plan (Iudanov, 2007, p. 20). These are most of all new entrants exploiting either technological and/or market opportunities. Existing firms can also change their strategy and actions and reshape their position. This involves a dramatic change for the organization and a shift in a firm’s evolution (Miller and Friesen, 1984; Moreno and Casillas, 2007; Tushman and Romanelli, 1985).
In their study of Slovenian gazelles, Lindič et al. (2012) found that RGFs have neither more nor fewer competitors than other firms. Most RGFs are found in low-tech industries, but they are present in almost all industries. Very few are engaged in technology innovation or patents but find innovative ways to serve the customers. A strategy focusing on the costumers’ need and on creating value for them is called a “blue ocean” strategy (Kim and Mauborgne, 2004). This is contrasted with the “red ocean” strategy of Porter and others, a strategy aiming to beat the competition. Moreover, RGFs are not necessarily creating a market, but they are quick to develop and exploit markets. As such, they create an uncontested market space, giving them a temporary monopoly power which creates an opportunity to grow more quickly.
Eckhardt and Shane (2011) found that a change in the technical intensity of an industry, measured as an increase in the employment of scientists and engineers, is positively associated with an increase in the number of RGFs. Technological changes may undermine incumbent firms’ developed routines and structures (Nelson and Winter, 1982) and alter the market segments favoring new solutions (Hannan and Freeman, 1984). Technological advances create opportunities, especially for young, flexible firms, to challenge the established firms’ routines, products, and services.
3.3.2 Market strategy and first-mover advantage
Research based on the population ecology perspective focuses on market dynamics: the effects of technological changes, consumer preferences, and new entrants in the market—that is, why firms are able to enter a market and others are squeezed out of the market. The research presented in the following takes the firm as the point of departure. It could therefore be discussed later, during the business strategy section. However, the following articles mainly discuss how firms position themselves in the market based on market dynamics. I therefore argue that it is at least as meaningful to present this perspective here.
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RGFs, as a group, are considered to be strongly market oriented, and they have a distinct growth ambition (OECD, 2002, 2010). According to Smallbone et al. (1995), RGFs have, to a higher degree than others, an active product and market development strategy. They identify new markets for existing products or develop new products for existing customers and evolve from their established core activity to a more complex business. These firms focus more on product differentiation and markets, with cost control as a necessary, but not sufficient condition for growth. Research by Cunneen and Meredith (2007) found that what distinguishes RGFs from other firms is that they compete more aggressively in the marketplace.
Feeser and Willard (1990) found that the entrepreneurs in RGFs have a more stable product and market focus than the entrepreneurs of low-growth firms. They are more internationally oriented and derive more revenue from foreign markets. On the other hand, they found no support for the assumptions that RGFs are market pioneers and have a first-mover advantage or that they are more acquisitive than low-growth firms. They use different theories as arguments for their hypotheses, like Rumelt’s (1974) study of diversification and Lieberman and Montgomery’s (1988) paper “First mover advantages.” Feeser and Willard (1990) investigate only the computing industry (ISIC 3573), and it is therefore difficult to generalize their results. Mason and Brown (2010) identify Scottish RGFs as being UK as well as globally oriented—only a minority sell exclusively within their local market. Because of their global market orientation, RGFs are weakly locally embedded.
When rapid-growth entrepreneurial firms were asked about their strategy, 55 percent of the firms responded that their dominant strategic approach is that of a first-mover (Ireland and Hitt, 1997), unlike the results of the study by Feeser and Willard (1990). However, the analyses by Ireland and Hitt (1997) showed that firms using a low-cost producer strategy or a high-quality strategy are positively related to economic performance (return on sales). On the other hand, a time-based (speed, pioneers) strategy is not significantly related to good performance. Their sample represents a variety of industries but had only 118 respondents.
Similarly, Mascarenhas et al. (2002) identified five different strategies (product proliferation, mass market development, increasing value to customers, distribution innovation, and acquisition and consolidation) used by RGFs and argued that these strategies arise from different sources of market disequilibrium: “Disequilibrium is caused by rapid changes in technology, products, expectations, and managerial assumptions”, competitor’s resistance to change, or unexploited opportunities (Mascarenhas et al., 2002, p. 329). Their performance is traced to being an early mover in their market. Using the Miles and Snow (1978) strategic
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typology, O’Regan et al. (2006) identified RGFs as prospectors (oriented towards opportunities) and other firms as more likely defenders. RGFs are also more likely to use e-commerce that other firms. Finally, the RGFs report to a larger degree that they are operating in a more turbulent environment than other firms.
3.4 Industrial and locational distribution