The Theory of Knowledge Spillover Entrepreneurship*

Abstract

Questioning the underlying assumptions of the process of creative destruction, we conceptualize an alternative process of creative construction that may characterize the dynamics between entrants and incumbents. We discuss the underlying mechanism of knowledge spillover strategic entrepreneurship whereby knowledge investments by existing organizations, when coupled with entrepreneurial action by individuals embedded in their context, results in new venture creation, heterogeneity in performance and subsequent growth in industries, regions and economies. The framework has implications for future research in entrepreneurship, strategy and economic growth. Jena Economic Research Papers 2008-008The fundamental question in the emerging field of strategic entrepreneurship is how firms combine entrepreneurial action that creates new opportunities with strategic action that generates competitive advantage (Hitt et al. 2002). We confront this question by developing the creative construction approach, which identifies knowledge spillovers as a key mechanism that underlies new venture formation and development at the micro level, and economic growth at the macro level. The development of this framework flows from the recognition that although strategy and entrepreneurship theory abounds with Schumpeterian accounts of creative destruction and incumbent displacement by new entrants, our understanding of new venture emergence and associated externalities is less acute.By specifying the process whereby ideas, technologies, and structures are rendered obsolete and displaced by new and superior ones, Schumpeter's idea of creative destruction has become the dominant framework for entrepreneurship and economic development. The concept highlights the tension between innovation and selection: innovations of new firms unleash selection pressures on existing firms. The view is particularly powerful in explaining analysis of what happens as economic structures change from within; however, it is remarkably silent with regard to mechanisms identifying how new entrants emerge, why the process of displacement occurs, and whether increasing returns to knowledge investments could benefit entrants, incumbents and the economy alike. We identify some implicit assumptions in this approach, and juxtapose these against insights from accepted frameworks in the strategy and entrepreneurship literature to describe aspects of an emerging paradigm that we call creative construction, with knowledge spillovers as the underlying mechanism.The literature that links knowledge spillovers to entrepreneurship emphasizes that incumbent organizations are an important source of new entrants, particularly when they underutilize the knowledge they create (Agarwal, Echambadi, Franco and Sarkar, 2004;Klepper, 2006;Klepper and Sleeper, 2005;Shane and Stuart, 2002). Building on this work, we identify the endogeneity of entrepreneurial opportunities and action, and the intriguing possibility that Jena Economic Research Papers 2008-008knowledge can leveraged bac...

The entrepreneurial society

“…In particular, those industries with a greater investment in new knowledge also exhibited higher startup rates while those industries with less investment in new knowledge exhibited lower startup rates, which were interpreted as a conduit transmitting knowledge spillovers (Audretsch & Keilbach 2007).…”

When moving information online diminishes change: advisory services to SMEs

“…Cultural explanations involve the face-to-face networks that are a feature of local entrepreneurship contexts, contributing to an 'institutional thickness' or 'buzz' surrounding small firms (Gnyawali and Fogel 1994, Keeble et al 1999, Storper and Venables 2004, Bathelt, Malmberg and Maskell 2004, Prashantham and Dhanaraj 2010, Terjesen and Elam 2009, Asheim, Coenen and Vang 2007, Audretsch and Keilbach 2007; whereas the structural emphasizes the impersonal market. The cultural pulls the small firm owner-managers to adopt a particular approach through word of mouth; the structural pushes them to solve a competitive problem.…”

Growth of new firms and spatially bounded knowledge externalities

“…As the incomplete knowledge generated in an incumbent organization generates an entrepreneurial opportunity, entrepreneurial activity provides, in turn, the conduit facilitating the spillover and commercialization of that knowledge. The entrepreneurial opportunity, in this theory, is no longer 'just' exogenous and constant (Audretsch and Keilbach 2007). …”

“…Some of the literature on entrepreneurship suggests that entrepreneurial activity (in start-up or entry rates) varies across geographic space (Santarelli and Vivarelli 2007). Audretsch and Lehmann (2005b) and Audretsch and Keilbach (2007) find that the number of new firms located close to external knowledge sources (like a university or incumbent firms) is positively affected by the knowledge capacity of the region, with higher knowledge contexts found to generate more entrepreneurial opportunities. These findings constitute the foundation of the proposition that entrepreneurial opportunities will be systematically larger in contexts characterized by more knowledge.…”