Success and Survival of Finnish New Biotechnology Firms

Abstract

Future prospects of the global biotechnology industry are commonly considered excellent. However, the current situation of the Finnish biotechnology industry is somewhat alarming; its growth has almost ceased. Therefore, in order to turn the development of the Finnish industry, it is important to study the determinants affecting firm success and survival. In addition, although firm performance, success, survival, and growth have been widely studies in different contexts with various research settings, no comprehensive studies on the determinants of firm success in the context of biotechnology exist. Thus, this study aims at contributing to both of these problems. The main objective is to identify determinants affecting firm success and survival in the context of Finnish biotechnology. First, the study summarizes earlier literature on the dynamics of the biotechnology industry: its evolution both in Finland and in global scale, its special characteristics, and main business models employed in the industry. Second, 42 proposition related to the success and survival determinants used in earlier biotechnology related research are formulated. Third, earlier literature on the performance and success measures employed in the biotechnology is reviewed. Fourth, and finally, quantitative analysis is conducted in order to identify determinants affecting success and survival of the Finnish new biotechnology firms. The Cox proportional hazards model with firm survival as the dependent variable is used as a quantitative analysis tool. The data is derived from the GloStra biotechnology database, consisting information of 156 Finnish new biotechnology firms operated at some point of time during 1973-2005. The results indicate that the more the firm has made product launches, the more financing decisions have been made to it, and the larger the industry, the smaller its hazard to exist. On the other hand, being a subsidiary raises firm‟s hazard to exit. Biotechnology sector also has considerable effect on the survival probabilities: firms operating especially in the enzymes, biomaterials, and diagnostics sectors face significantly lower hazards to exit than firms in other sectors. Finally, locating in a geographical cluster, firm age, and the number of alliances are found to have no considerable effects on the survival probabilities.