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Ecosystem Impact in Start-up Firms: A Comparative Analysis between South-
Korea and Finland
Parallel Session 1.2: Analysis of Cluster Models and Cluster Ecosystems
Matthias Deschryvere (VTT)Younghwan Kim (STEPI)
Ecosystem Impact in Start-up Firms: A Comparative Analysis between South-Korea and Finland
M. Deschryvere (VTT) & Y. Kim (STEPI)
TCI2015, DAEGU, 4th of November 2015
3
Business areas
1. Forest machines (harvesters, forwarders, dual harwarder, harvester heads, cranes and loaders, Ponsse bioenergy = energy wood harvesters)
2. Information systems: Information system products are an essential part of modern CTL wood harvesting.
3. Services: Differentiating ourselves through our customer service is an integral part of the Ponsse strategy.
Bear
Scorpion
Examples of models
Buffalo
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What will I talk about
1. How do YIC think about ecosystems (ecosystem awareness)
2. How do YIC participate in ecosystems (ecosystem residence)
3. How do ecosystems affect YIC (ecosystem impact)
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Introduction
Both in academic and policy circles the strategic importance of innovation ecosystems received increased attention.
However, only limited empirical evidence exists on the importance of these ecosystems from the perspective of niche firms.
This analysis focuses on the role of ecosystems for young innovative companies (YIC) and is based on a unique set of telephone survey data from Finland and South-Korea.
The empirical analysis improves our understanding on the role of eco- systems for start-ups from a broad range of industries in two bench- mark countries. We fill the research gap on how ecosystems impact niche firms. Policy makers are discovering the potential of ecosystems, but few is known on ecosystem impact (beyond some anecdotal ev-idence)
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The evolution of frameworks and analysis of knowledge and innovation driven business activities
h “An economic community supported by a foundation of interacting organizations and individuals – the organisms of the business world.
h The economic community produces goods and services of value to customers, who are themselves members of the ecosystem.
h The member organisms also include suppliers, lead producers, competitors, and other stakeholders. Over time, they co-evolve their capabilities and roles…
h Those companies holding leadership soles may change over time, but the function of ecosystem leader is valued by the community because it enables members to move toward shared visions to align their investments, and to find mutually supportive roles.”
The original definition of James Moore in HBR article “Predator and Pray: A New Ecology of Competition” (1993).* Adapted from the presentation of C. Palmberg, Tekes, June 2013.
Industrial sector analysis h Comparative advantage and
specializationh Analyzing industrial branches (SIC)Industrial clusters h Diamond model of Porterh E.g. forest industries and ICT clusters Value chains h Vertical integration vs outsourcing h E.g. building industries, pharmaceutical
industries Global value chains h Strategic partnerships, “alliance
capitalism” h E.g. telecommunication, pharmaceutical
industries
Eco-systems h Dynamic, experimental, endogenously
developing h E.g. software, mobile industries
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Definition ecosystem
In essence and for this paper the three defining characteristics of an innovation ecosystem are (Nambisan and Baron 2013):
1. the dependencies established among the members
2. a common set of goals and objectives and
3. a shared set of knowledge and skills.
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Analysing ecosystem impact
Research question of interest: What is the role ecosystems play for innovative start-ups?
Key issue Measuring ecosystem impact
Solutions to the key issue Use the additionality framework developed by Falk (2007)
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Issue: how to measure ecosystem impact
Issue: it may take a long time before the benefits of ecosystem residence translate in objectively measurable performance changes (growth, sales, employment)
Need to incorporate intermediate impact through perceptual measures (Falk, 2007)
3 types of additionality: Input additionality (e.g. more investments in R&D) Output additionality (e.g. more products, increase in market share) Behavioural additionality (e.g. learning or network effects)
We focus on output and behavioural additionality
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Types of additionality (and items) included
1. Network additionality By belonging to this ecosystem, my company could collaborate
with knowledge centres such as universities and research centres Without belonging to this ecosystem, the network of the company
would be less extended
2. Competence additionality By belonging to this ecosystem, my company was better able to
innovate Without belonging to this ecosystem, my company would not have
developed the same level of skills
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3. Scope and scale additionalities By belonging to this ecosystem, my company could engage in more
ambitious projects4. Speed additionality
Without belonging to this ecosystem, the progress of my company would have been slower
(Belonging to this ecosystem limited my company’s growth)5. Output additionality
By belonging to this ecosystem, my company could enter new markets
By belonging to this ecosystem, my company could increase its market share
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Data
Firm-level telephone survey data on how CEO’s perceive the role of ecosystems and corporate governance
Survey data linked to ORBIS data
Firm population in both countries: FI: All applicants of the Finnish funding agency for Innovation
between 2009 and 2013 ROK: certified Venture firms and Innobiz firms
Final sample: 424 young innovative firms (FI: 240 and ROK: 184)
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Key characteristics of the firms in sample
Size distribution: Majority of firms in sample are small (FI: average of 39 employees, ROK: 16 employees). More medium sized firms in Korean sample.
Age distribution: sampled firms from FI slightly younger than those from ROK (averages of 4.63 versus 5.23 years)
Industry distribution: More service firms in FI and more manufacturing firms in ROK. Both samples have similar share of ICT firms (30%).
IPR: In both samples 75% report not to have patents. ROK average slightly higher. Trademarks quasi absent in ROK and share of 18% in FI.
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Findings
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Firm participation in networks
How often firms participate into networks?
Network residence: Firm states to belong to a network of external firms that actively depend on each other to be able to offer their clients the maximum value.
Roughly half of the firms report to participate in networks. These shares are not significantly different for Finnish and Korean firms.
The networks of start-ups can be at all stages of development (pioneering, growing, maturing, declining).
On average the networks where Finnish firms reside are further developed than the Korean ones.
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Network development phase distribution of innovative start-ups in Finland and Korea
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Firm participation in ecosystems
Key issues: How much firm leaders are thinking in terms of ecosystems How often firms participate into ecosystems?
Ecosystems are characterized by (a) dependencies between the members, (b) common goals and objectives and (c) a shared set of knowledge and skills. Members can be firms but also other stakeholders such as universities, research institutes, financers, community groups, standards setting organizations or professional associations.
Finnish firms report to participate more often in ecosystems than Korean firms.
In the Finnish sample one third (ROK: half) of the firms report not to belong to an ecosystem! They are stand-alone firms. What is their value and performance?
If a firm reports to belong to an ecosystem, it is more common a firm belongs to multiple ecosystems (2/3) than to a single ecosystems (1/3).
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The business support system for innovative start-ups and its level of internationalisation
Finnish start-ups receive a more diverse external support
In both samples national subsidies are the most important support channel and more than half of the firms benefit. This shows the important role the public sector plays in supporting start-ups
In Korea start-ups do not receive international support, neither from public sources nor private sources (VC). The difference with Finland is surprising given the global markets start-ups are facing
The role of support from family friends and fools in Korea is quasi absent, unlike the situation in Finland
Finnish YIC participate more often in global ecosystems
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The use of start-up supporting measures
0 %
20 %
40 %
60 %
80 %
100 %
Publicresearch
National VC InternationalVC
Family andfriends
Nationalsubsidies
Internationalsubsidies
Acceleratoror incubator
Finland Korea
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Impact of the innovation ecosystem
Participation in ecosystems as to get access to complementary resources. Reasons why to participate can be different. So lots of heterogeneity can be expected
Korean YIC have a less positive view on the impact of ecosystems compared to Finnish YIC
Korean YIC top three impact: (1) Ambitious projects, (2) innovate better, (3) collaborate with knowledge centres
Finnish YIC top three impact: (1) Extending networks, (2) Ambitious projects, (3) Growing faster / entering new markets
Finnish firms record impacts in the start-up phase while Korean firms notice more impacts in the growing phase of the firm development.
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92 %
57 %
75 %
62 %
80 %
54 %
79 %
43 %
65 %
49 %
81 %
69 %
37 %
62 %
67 %
48 %
7 %
0 %
-100% -80% -60% -40% -20% 0% 20% 40% 60% 80% 100%
Less extended network without ecosystem
Finland
Korea
Innovate better
Finland
Korea
Slower progress without ecosystem
Finland
Korea
Enter new markets
Finland
Korea
Increase market share
Finland
Korea
More ambitious projects
Finland
Korea
Collaborate with knowledge centres
Finland
Korea
Not developing same skills without ecosystem
Finland
Korea
Limited the growth of the company
Finland
Korea
DISAGREE AGREE
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Contribution and diversity of board of directors
Key issue: Relation between board composition, board performance and ecosystems
One third of the firms state that most important organizations of ecosystem are represented in their board of directors
The service performance of the board of directors (enhancing reputation, establishing external contacts and giving counsel and advice) is reported to be more positive for Korean firms in sample. In the manufacturing sector scores are higher than in the ICT sector
Diversity of board of directors is higher in Korean sample
Advisory board seems to be more common in Finland than in Korea.
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Service performance of the board of directors in Finnish and Korean innovative start-ups
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Conclusions
Our descriptive results show that while at first hand the business network activities of Finnish and Korean start-ups look similar, Finnish start-ups have more (complex) innovation ecosystem activities
On average, the reported impact of innovation ecosystems is higher in the Finnish sample than in the Korean sample. Finnish firms record impacts in the start-up phase while Korean firms notice more impacts in the growing phase of the firm development
Unlike the ecosystem impact, board performance and board diversity is reported to be higher in Korean firms than in Finnish firms
Overall Korean firms show more narrow networks with strong ties while Finnish firms show more broad networks with weak ties
