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ABSTRACT: Do Location Characteristics Have Different Survival Values for High and Low-technology De Novo Enterprises?

Aviad Pe'er, Tuck School of Business at Dartmouth
Ilan Vertinsky, Sauder School of Business, The University of British Columbia

October 2006

The importance of sectors characterized by high knowledge and technological intensity is growing in the new economy. The creation and maintenance of competitive advantage in high-technology sectors depend to a large degree on innovation. Since diffusion of innovation tends to be local, location characteristics matter. We argue that new high-technology firms can improve their survival probabilities by entering locations that stimulate and support innovation. These characteristics include urban diversity, competitive industrial structure, and clustering. In contrast, clustering, competition and diversity have lower survival value for low-technology firms, as the benefits accruing from higher innovation levels are less valuable. Indeed, the costs of urban congestion, and the pressure of competition on prices may result in negative impacts on survival. We test our hypotheses using an extensive longitudinal data base which covers all de novo entrants into the Canadian manufacturing sectors. The results indicate that clustering has a higher survival value for high-technology firms. Urban diversity and competition have positive effect on the survival of high-technology firms and negative effect on low- technology firms

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