DESCRIPTION OF THE DATA

Definition of High Technology Firms

Despite the great interest in the creation and growth of high technology firms, a clear definition of such is lacking. Governments use Standard Industrial Classification (SIC) codes as a designator of high technology. SIC categories such as "Analytical Instruments" or "Electromedical Equipment" have perhaps a great deal of accuracy for defining those firms that are high technology versus those firms that are low or no technology. However, categories such as "Computer Related Services", "Polishes and Sanitation Goods", and "Office Machinery and Supplies" are more ambiguous. Within these categories one cannot only locate firms that are manufacturers of a product or service but also firms that solely distribute a good within the industry or provide retail locations for such products and services. If one were to rely simply on the SIC code to separate those firms that are high technology from those that are not, the chances of diluting the analysis would be high.

With these concerns in mind, an effort was made to locate through questionnaire items firms that are actively involved with high technology products. Eight items were developed that were designed to capture various dimensions believed to be important to a high technology firm: (1) Were the firm's major products or services available in the market place 5 years ago? (2) Is the firm making use of equipment or procedures that were not available 5 years ago? (3) Is a high level of technical or scientific expertise critical to the effective management of the firm? (4) Is awareness of state-of-the-art developments in relevant scientific or technical areas critical for the firm's future? (5) Is your firm required to constantly make major technical changes in products or processes to be competitive? (6) Is finding, hiring, and retailing qualified scientific and technical personnel a continuing issue for this firm? (7) Is allocating resources to research and development a major priority in budget decisions? And finally, (8) Would you consider this firm as hi tech?

The items were designed to not only identify those firms actively engaged in process and product innovation, but are also at the cutting edge of an emerging technology. Table 1 displays the response to these for the entire sample of firms, new firms, young firms, and mature high technology firms for each item.

 

TABLE 1
High Technology Emphasis

 

  All Firms (N=225) New Firms (N=82) Young Firms (N=60) Old Firms (N=83)
High Technology Focus2        
  State-of Art Critical 92.8 97.6 91.5 89.0
  Make Constant Changes 81.1 84.1 74.6 82.7
  Equip Not Avail 5 Years 80.6 81.7 75.9 82.9
  Prod Avail 5 Years Ago 76.7 58.5 79.7 92.7
  Scient Expertise Critical 76.0 85.4 71.9 69.5
  Is Firm High Tech 70.9 81.7 72.9 58.5
  Hiring A Problem 61.9 67.1 59.3 58.5
  R&D Budget Priority 58.3 58.5 55.9 59.8

The responses to the items in the sample suggest that many firms are engaged in an aspect of high technology, but no single aspect will constitute a high technology firm. When asked if the firm is "high tech", 70.9% of the sample responded affirmatively. This percentage is not as high as other measures of high technology. When asked Is awareness of state-of-the-art developments in relevant scientific or technical areas critical for the firm's future? 92.8% of the sample responded in the affirmative. Affirmative responses diminish among the subsample based on age from young to mature. Where close to 98% of the new firms respond in the positive, 89% of the mature firms do as well. Note that the item with the greatest difference among the subsamples is in reference to the question Were the firm's major products or services available in the market place 5 years ago? Here, 92.7% of the mature high technology firms indicate that the products or services were available in the market place 5 years ago; whereas only 58.5% of the new and 79.7% of the young high technology firms agree with this statement. This may suggest that when firms are founded in the industry they do so under conditions when the product or service is relatively new. As they grow older, the implication is that high technology firms retain their experience with products/services associated with their founding. A decline in affirmative responses also is evident across the subsamples from new to mature when the question is asked Is a high level of technical or scientific expertise critical to the effective management of the firm?

While almost 70% of the mature firms respond positively, some 85% of the new high technology firms indicate that a high level of technical or scientific expertise is critical to their firm. implications from this finding is that while technical or scientific expertise is critical for a large number of high technology firms, it declines as the firm matures. It is also worthy to note that when asked Would you consider this firm as hi tech? only 58.5% of the mature firms respond positively whereas 81.7% of the new high technology firms do so. Perceptions of high technology and activities common to high technology firms may vary over how the term "high tech" is interpreted. But one can also speculate that mature high technology firms often expand their product lines that may be high technology in nature, but not what the respondent believes to be "cutting edge". Other responses suggest that young high technology firms report a slightly less positive response to the question Is the firm making use of equipment or procedures that were not available 5 years ago? New and mature firms report an equivalent and higher response (81.7% and 82.9% respectively) whereas young firms report a 75.% positive response. Despite the slight differences, it is evident that most firms across the spectrum are updating and reworking their methods of production. A similar response pattern is evident for the question Is your firm required to constantly make major technical changes in products or processes to be competitive? Finally, Table 1 indicates that new firms find hiring qualified personal more of a problem than young and mature high technology firms; and that placing R&D as a budget priority is consistent across groups of firms in the 55-60% range of positive responses.

 

Performance of High Technology Firms

High technology firms can contribute to economic development in many ways. Job creation is certainly one and generates a great deal of attention. Another is through sales of a product or service within the local economy that generates revenue for investment in the firm and increases the productivity of firms that purchase the product or service. A third is to generate revenues external to the state through sales in the region, the nation, and outside of the United States. Export revenues are often deemed highly desirable as they offer opportunities for access to large markets (creating more local jobs) and can serve as a buffer to downturns in the local economy.

Table 2 identifies the level of sales, assets, and employment for the 1994 year. Average sales in 1994 for the sample of high technology firms was over $12 million. For new firms sales were slightly under $2 million; slightly under $3 million for young firms; and an average of over $32 million for old firms. This represents a significant amount of sales revenue obtained by high technology firms. Mean asset value of high technology firms in the sample is over $10 million with an increase in asset value across the age subsamples. Employment by high technology firms is also significant. For the sample, the average full time employment is about 94 jobs. For new firms, or those under 6 years of age, employment is 15; for those 6-10 years in age (young) employment averages 29 and those over 10 years of age (old) employment is 245. Part time employment on the average and across all categories of high technology firms is around 2.

 

TABLE 2
Sales, Assets, And Employment

  All Firms (N=225) New Firms (N=82) Young Firms (N=60) Old Firms (N=83)
Mean Sales (000) - 1994 12,643 1,747 2,779 32,884
Mean Asset Value (000) - 1994 10,307 1,130 1,611 34,627
Mean Full Time Employees - 1994 93.54 15.06 29.40 245.28
Mean Part Time Employees - 1994 2.06 2.14 1.60 2.37

 

Measures and Definition of Strategic Alliances

Strategic alliances are rapidly becoming a popular way for firms to accomplish specific goals when resources are constrained. Strategic alliances have become particularly popular among high technology firms who must make large capital investments under risk in order to produce a desired product or service. Strategic alliances are agreements established with related and unrelated firms to share costs and risks associated with a specified firm activities. The 1990s has witnessed a rapid growth of these inter-firm relationships and understanding of their type, location, and numbers were sought in the study.

Each respondent was asked about strategic alliances that their firm has been involved in the past, the present and what alliances they plan to initiate in the future. The strategic alliance was defined as follows for each respondent:

Strategic alliances are becoming common in many industries. A strategic alliance is a partnership negotiated between two firms that does not involve a merger. A strategic alliance has several characteristics: (1) a strategic alliance is temporary, or has no definite time frame, (2) involves no new legal entity, (3) partners may have mutual interests but different motives, and (4) the result of the partnership is outside of the corporate structure.

Respondents were asked to also identify the type of strategic alliance their firm participates in: (1) technology licenses, (2) R&D contracts, (3) marketing arrangements, (4) manufacturing arrangements, (5) equity investments, or (6) other. The locations of the partnership was also requested based on the following categories: (1) in the Milwaukee metro area, (2) in Wisconsin, (3) in the region, (4) in rest of the United States, and (5) international.

Table 3 provides information on the average number of strategic alliances for the total sample and for high technology firms by groupings of age along three year intervals. This was done to give a clearer idea of how the formation of strategic alliances occur for firms in different stages of their life cycle. We can see from Table 3 that an average of 4.49 strategic alliances exist for firms in the sample. When broken down into 3 year intervals, we find that firms in their early stages of growth (six years or less) and older firms are more motivated to establish strategic alliances. Even firms in their first three years of life have a higher average number of strategic alliances than those considered to be young firms (7-12 years of age). And firms 4-6 years of age have the second highest average of strategic alliances, second only to firms that are 19 years of age or older.

 

TABLE 3
Strategic Alliances By Age And Average Number

Mean Number of Firms with Current Strategic Alliances by Type

  All Firms (N=225) New Firms (N=82) Young Firms (N=60) Old Firms (N=83)
    0-3 4-6 7-9 10-12 13-15 16-18 19+
Total Average Number 4.49 3.56 7.81 .2.00 2.37 2.17 2.50 11.76

 

Figure 1 displays the average total strategic alliances by age groupings of high technology firms in the sample.

FIGURE 1

(Not available)

 

Table 4 reports the mean number of strategic alliances firms currently have in the overall sample and the subsamples.

Table 4 also provides information on the mean number of strategic alliances by age of the firm. In the total sample we find the most common type of strategic alliance is marketing arrangements. An average of 1.89 marketing arrangements exist in the sample. A breakdown by age intervals show that high technology firms 4-6 years of age have the largest mean average at 4.88 marketing arrangements per firm. This average drops off dramatically for subsequent older high technology firms until the grouping of firms that are older than 19 years of age. The mean for this group is 3.35. The second most common strategic alliance in the sample, based on mean numbers, are technology licenses and R&D contracts. Here the mean numbers are .83 for both. However, the data in Table 4 indicates that new firms, such as those 0-3 years of age are more likely to establish technology licenses as a type of strategic alliance than R&D contracts. The mean number of technology license strategic alliances for firms 0-3 years of age is .89, slightly higher than the sample average; whereas the mean number of R&D contracts is .39. While technology license strategic alliances falls in terms of the mean number for firms 7-9 and 10-12 years of age, they increase for firms older than 13 years of age hitting the highest mean average for firms 19 years or older.

R&D contracts follow a different path in the examination of mean number of strategic alliances by age groupings. A low .39 is recorded for firms 0-3 years of age, but an increase occurs in the 4-6 age group with a slight drop off in the 7-9 age group and a further drop in the 10-12 age group. Not until one examines firms 19 years or older does one see a large mean number of R&D contracts with an average of 3.15.

Manufacturing arrangements are again most popular among firms 19 years and older. However, equity investments display a downward trend among mean number by age group with a preponderance of strategic alliances of this type amongst the firms 0-3 years of age. Other types of strategic alliances are recorded for firms in the 0-9 age groupings, but not in firms ten years or older.

TABLE 4
Strategic Alliances By Age And Type

Mean Number of Firms with Strategic Alliances by Type

  All Firms (N=225) New Firms (N=82) Young Firms (N=60) Old Fims (N=83)
    0-3 4-6 7-9 10-12 13-15 16-18 19+
Technology Licenses .83 .89 .85 .20 .34 .67 .83 2.18
R&D Contracts .83 .39 .73 .58 .24 .33 .17 3.15
Marketing Arrangements 1.89 1.47 4.88 .85 .62 1.17 1.42 3.35
Manufacturing Arrangements .66 .26 .62 .1 .17 0 0 3.06
Equity Investments .12 .42 .08 0 0 0 .08 .03
Other .16 .12 .65 .27 0 0 0 0

Figure 2 depicts the mean number of firms with strategic alliances by type based on the grouping of firms in 3 year intervals of age. The figure dramatizes how strategic alliances tend to be greatest among new firms (0-6 years of age) and older firms (13+ years of age). Young firms (7-12 years of age) have relatively fewer mean number of strategic alliances. This pattern is most pronounced for technology licenses, R&D contracts, marketing arrangements, and manufacturing arrangements. However, for equity investments and "other" types of strategic alliances, Figure 2 clearly displays a downward trend for high technology firms placed in age groupings of new to old.

 

 

FIGURE 2

(Not available)

 

Table 5 indicates that strategic alliances among Wisconsin high technology firms are primarily outside of the Great Lakes region and in the United States based on mean numbers for the total sample (2.66). Firms in the 4-6 and 19+ age groupings have the highest mean number of strategic alliances located in the United States. Among new high technology firms between 0-3 years of age, strategic alliances in the United States represent the largest mean number at .98 per firm or close to an average of one strategic alliance per firm in this age group.

International strategic alliances represent the second most common location for strategic alliances with a mean number of .55 in the total sample. Again, firms in the age groupings of 4-6 and 19+ report the highest mean average of .60 and 1.85 respectively. Strategic alliances in the same city or the largest metropolitan city in the state (i.e., Milwaukee) is most common among firms classified as new, or 0-6 years of age. Averages for the region, or Great Lakes states, is most common also for new firms with the highest mean number of 1.09 for firms 4-6 years of age.

TABLE 5
Strategic Alliances By Age And Location

Mean Number of Firms with Current Strategic Alliances by Type

  All Firms (N=225) New Firms (N=82) Young Firms (N=60) Old Firms (N=83)
    0-3 4-6 7-9 10-12 13-15 16-18 19+
City .48 .65 .89 .31 .03 .27 .18 .69
State .37 .72 .71 . 23 .13 .09 .36 .23
Region .44 .53 1.09 .37 .06 .18 .09 .38
United States 2.66 .98 4.34 .89 1.23 1.05 .82 5.59
International .55 .23 .60 .26 .10 .18 0 1.85

Figure 3 displays a bar chart of Table 5. As in Figure 2, Figure 3 dramatically depicts how strategic alliances by location follow a path of increased mean numbers for high technology firms that are new (0-6 years of age), a decline in mean numbers for firms that are young (7-12 years of age), and an increase comparable to new firms for those classified as old (13 years or older).

 

FIGURE 3

(Not available)

Tables 3-5 and Figures 1-3 provide strong evidence that strategic alliances are avenues for obtaining resources for new high technology firms and for old high technology firms. For young high technology firms, or those between the ages of 7 and 12, strategic alliances are not as prevalent in terms of type and location.

 

Previous Page | Main Menu | Next Page


1997 Babson College All Rights Reserved
Last Updated 4/27/97 by Germaine Wong

To sign-up for the Center for Entrepreneurial Studies' publication lists,
please register with the
Entrepreneurship WebTeam.