Do Startups and Incumbents Differ on Reasons for Entering Into Green Industries?

Published March 6, 2015

2015-03-09 15:50:54

Scholars and policy makers have long posited that new industries that produce environmentally beneficial products are a critical component of environmental sustainability. New firms may foster products and services that enable environmentally friendly practices, while existing firms may shift their product lines in response. Yet, we know little about the drivers for entry into emerging green industries. Are the drivers different for startups and established companies? Do economic, political, or cultural environmental factors matter more?

Activity by social movement organizations promoting green building and environmental social norms were stronger predictors of entry by the entrepreneurs.

In “Exploring the Sociocultural Determinants of De Novo versus De Alio Entry in Emerging Industries” we explore these questions by examining how the economic, political, and sociocultural environment differentially influences entry by new versus incumbent firms in the green building supply industry from 2000 to 2007. The U.S. green building supply industry has emerged to support demand for green building, defined as the practice of reducing negative environmental impacts in building construction. The environmental benefits of green building are inherent to this industry, and there are heterogeneous economic, political and sociocultural factors promoting environmentalism across different US states. Thus, this context provides a robust setting to understand better how the institutional setting influences the entry into green industries.

We find that sociocultural norms and movements — such as Sierra Club activity in a community or a local culture’s emphasis on environmental sustainability — are significantly related to entrepreneurial startups in the green building industry. However, startup entry was not influenced by economic conditions or government policies. However, economic conditions and governmental policies — such as requiring green building certification for government buildings — prompt existing firms to throw their hats into the green building ring.

While we often think of federal and state policies as driving opportunity for entrepreneurs and creating new jobs, it turns out we find no significant relationship between policies or economic conditions and entrepreneurial entry. While we found that policies and healthy economic conditions — representing safe opportunities for growth in sales and purchasing power — drove significant entry by the incumbent firms, activity by social movement organizations promoting green building, and environmental social norms, were stronger predictors of entry by the entrepreneurs.

Our findings suggest both pros and cons for entrepreneurial enterprises. Entrepreneurs could perhaps pick a spot in the green building industry free of incumbent competitors who aren’t attuned to the sociocultural environment. They also can receive positive emotional feedback that helps give them greater resilience and perseverance. But these reinforcements could be misleading if it turns out the economics just aren’t there.

Jeffrey G. York (PhD, University of Virginia) is an Assistant Professor of Management and Entrepreneurship at the Leeds School of Business at the University of Colorado, Boulder.

Michael Lenox is the Samuel L. Slover Research Professor of Business, Associate Dean for Innovation Programs, and Academic Director of the Batten Institute for Entrepreneurship and Innovation at the Darden School of Business at the University of Virginia.

Reference: York, J. G., & Lenox, M. J. 2014. Exploring the sociocultural determinants of de novo versus de alio entry in emerging industries. Strategic Management Journal, 35(13): 1930-1951.

To view the abstract and for access to the full article please visit: http://onlinelibrary.wiley.com/doi/10.1002/smj.2187/abstract

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