Necessity Entrepreneurship and Competitive Strategy
31 Pages Posted: 11 Jun 2014
Many start-ups chose to compete with incumbent firms using one of two generic strategies: cost leadership or differentiation. Our study demonstrates how this choice depends on whether the startup was founded out of necessity. Our results, based on a representative data set of 4,568 German start-ups, show that necessity entrepreneurs are more likely than other entrepreneurs to pursue a cost leadership strategy, and less likely to pursue a differentiation strategy. Decomposition analyses further show that up to half of the difference in choice of strategy can be attributed to distinct endowments of human capital, socio-economic attributes, and start-up project characteristics that correlate with necessity entrepreneurship.
Keywords: cost leadership, competitive strategy, new venture strategy, necessity entrepreneurship, product differentiation, decomposition analysis
JEL Classification: L10, L26
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