INTRODUCTION

During the past decade, academic and practitioner interest in the field of small business/entrepreneurship has grown dramatically (Low & MacMillan, 1988; Orison, 1994; Wortman, 1987). This surge in interest has paralleled the increasingly important role of small business in the United States economy. For example, small firms have accounted for approximately 90% of all new jobs generated in the United States during the past ten years (Mathis & Jackson, 1991). During the same period, employment in Fortune 500 companies declined by more than six million people (Holt, 1993).

Although the small business sector as a whole is achieving phenomenal growth, an important area of concern in the field has been the problems and challenges associated with the prudent growth (and associated success or failure) of individual firms (Hill & Narayana, 1989). A strategy utilized by many small businesses to achieve their growth objective is one of geographic expansion. This strategy is a relatively straightforward approach to growth, which involves expanding a firm’s business into geographical areas beyond its present location. In broad terms, geographic expansion provides a means of growth for firms that cannot benefit from additional economies of scale in their present location but believe that their products or services may be appealing to consumers in other markets. Moreover, geographical expansion provides an alternative to more complex growth strategies such as developing new products or services through internal research and development or acquiring unrelated businesses.

Surprisingly, despite the prevalence of geographic expansion as a means of firm growth, this is a neglected area of small business research. In fact, in a survey of the small business literature, we did not find a single study that focused on this issue. There are at least two reasons why research in this area is needed.

First, although researchers have examined the common challenges associated with small firm growth (e.g. Hambrick & Crozier, 1985; McKenna & Oritt, 1981; Orsion, 1994), a recent case study of a small firm that expanded from one location to seventeen in a period of two years suggested that geographic expansion involves a unique set of managerial challenges (Greening, Barringer, & Macy, in press). These challenges included issues associated with the upfront planning for expansion, the actual managing and implementation of the geographic expansion process, and the reasons for this type of business expansion. As a result of the finding of this study, further research is needed to develop theory in this area.

The second reason that research is needed in this area is to provide practitioners specific advice if they are considering geographic expansion as a growth strategy. The common forms of firm growth include internal expansion (adding new capacity to an existing facility), franchising, acquisition, and geographic expansion (Orsion, 1994). Knowledge of the specific challenges involved in geographic expansion may help a small firm manager evaluate whether this strategy is compatible with the skills and competencies of his or her employees, and make an informed decision regarding whether geographic expansion is an appropriate growth alternative for his or her firm.

Against this backdrop, the objective of this study is to develop theory and to provide practical insight into the problems and challenges associated with small business geographic expansion. As noted earlier, virtually no academic research has focused on this topic. To provide a starting point for this study, in the next section of this paper we introduce a preliminary model of the managerial challenges that influence the performance of small business geographic expansion. Utilizing a comparative case study methodology, we then compare the experiences of three small businesses that have engaged in a growth strategy of geographic expansion against the preliminary model for the purpose of producing a clearer, more valid, and more thorough theoretical model. It should be noted that the type of geographic expansion of interest in this study does not involve franchising. The domain of interest in this study includes small businesses that geographically expand under essentially the same ownership/management structure as the original business.

 

PRELIMINARY MODEL

A preliminary model of the managerial challenges that influence the performance of small business geographic expansion is shown in Figure 1. This model is based on a review of the literature on small firm growth along with the results of the case study referred to earlier. The case study examined the experiences of one small firm that expanded from one location to seventeen in a period of two years (Greening, Barringer, & Macy, in press). In developing the preliminary model, we relied heavily upon the results of this case study because it is the only study that we are aware of that has dealt specifically with the managerial challenges associated with small firm geographic expansion.

The model pictured in Figure 1 is largely a synthesis of the results of the case study referred to above. In analyzing the results of their study, Greening, Barringer, and Macy (in press) found that several specific issues under the broad categories of planning for growth (i.e., recruiting and selecting qualified staff, developing flexible training programs, considering unique expansion site characteristics, and determining the role of the owner/manager in the expanded company) and managing growth (i.e. on-going training, delegating control consistent with the skill levels of expansion site employees, and nurturing a climate of entrepreneurship in expansion sites) are particularly germane to successful geographic expansion. These issues are shown in Figure 1. The authors also suggested that future studies investigate the influence that reasons for growth (i.e. personal and economic) may have on the performance of small business geographic expansion. For example, the owner of a small business may engage in geographic expansion for reasons ranging from wealth creation to making room for a son or daughter in the family business. In the interest of completeness, we include the category reasons for growth in the preliminary model, but do not speculate on the impact that this variable has on performance at this point in our analysis.

 

METHODOLOGY

Case Selection

Three companies were selected as case studies to compare with the preliminary model shown in Figure 1. To be eligible for selection, each company had to be a small business (less than 500 employees and $50 million in sales), had to have expanded to at least two geographic locations beyond its headquarters site, and had to have been in the expansion stage of their business long enough for the owners/managers to be able to assess the relative success or failure of each expansion site. Table 1 summarizes the major characteristics of each company included in the study. Another requirement for case selection was that at least two owners/managers from each company had to agree to be interviewed. One firm from each of the following industries was selected for the study: Retailing (SIC Major Group #57) (appliances, furniture, TV’s, VCR’s, jewelry), Retailing (SIC Major Group #56) (women’s apparel), and Health Services (SIC Major Group #86) (Family Counseling). All of the companies included in the study were service firms, ensuring at least a minimal degree of homogeneity among the firms examined.

 

Data Collection and Coding

The data required for the study were collected from bother interviews and archival sources. In-depth interviews were conducted with the owners/managers of each company following a pre-designed protocol. Each interview lasted approximately one hour, and some of the informants were interviewed more than once. The interviews were tape-recorded unless the informant objected. To assure the accuracy of the interview data, we conducted member checks (Lincoln & Guba, 1985) in which the original informants verified our tape transcripts or interview notes. Archival data included organizational charts, company brochures, documents, and magazine or newspaper reports about the company.

Dates from the transcripts of the interviews were coded using typical content analysis procedures (Diesing, 1972; Lincoln & Guba, 1984; Strauss, 1987; Taylor & Bogdan, 1984). The data were coded into categories determined by the preliminary model pictured in Figure 1 and new themes that emerged from our content analysis. We created subcategories when the new data fit into existing categories but were more specific in nature. When discrepancies existed between informants from the same company, we talked to the informants to reconcile the discrepancies. The interview data and the data obtained from the archival sources was triangulated, revealing a high level of consistency. Both researchers coded all of the data.

The method adopted in analyzing the three cases was analytical induction (Glaser & Strauss, 1967; Yan & Gray, 1994) which is a method of extending or refining existing theories by constantly comparing them with typical cases (Glaser & Strauss, 1987). In the context of our study, this method involved examining the data from the three case studies and determining if they fit the preliminary model or whether the preliminary model needed to be modified. Accordingly, we started our analysis with the preliminary model and then compared each new case to the preliminary model and modified the model in view of the findings for each successive case (Parkhe, 1993).

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Last Updated 1/15/97 by Geoff Goldman & Dennis Valencia

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