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Home > By DEPARTMENTS > Leadership and Governance for Sustainability > Sustainable Development Strategies at Governance Level

Competition, Cooperation, we do business

Should established businesses help new businesses? This study says yes...especially when those new businesses are small and in their immediate vicinity.

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Sustainable Business Strategy

How we do business is sometimes as important as what business we do.

Let's get philosophical for a moment, then we'll get back to being practical.

Business is our modern method of hunting and gathering to support life and communities. How we do business affects our values, our relationships and the outcomes.

I find that business, much like government, is "man writ large". Our groups reflect who we are as individuals.

Competition, Cooperation, Collaboration

Business that is predatory reflects a "winner take all" stucture and is destructive to community, to trust and to long term survival as a family and society.

Sustainable Business Practices

Business based on sustainable practices such as sparring competitively to strengthen one another and distribute limited resources and accolades is beneficial. Add cooperation to this positive mix and you foster comradery and respect for craft, excellence and stewardship of resources.

Collaborative business is also positive when balanced with natural competition that encourages excellence, but collaboration can be twisted into monopolies and bureaucracies and inefficient cliques when taken to an extreme.

New Businesses and Competition

Given those precepts, the recent study by the Small Business Administration entitled "Friends or Foes: The Spatial Dynamic between Established Firms and Entrants" offers an interesting business dynamic.

It examines whether new establishments harm existing firms’ profitability due to increased competition, or help increase profits due to positive spillover effects. The paper discovers that the effect of new entrants is not an either/or proposition. In the first year of entry, the effect on existing firms’ financial performance (return on assets) is negative. However, after three years the effect on performance reverses and becomes positive.

Sustainable Local Economic Development

Highlights of the study include:

  • The average return on assets for the sampled 377 local firms was negative during the 1990 to 2004 period. This is consistent with the belief that newly public firms often take a few years to show a positive financial return.

  • In the year of local business entry, the effect on existing firms’ financial performance (return on assets) was negative. One and two years following entry, the impact subsided (was not statistically significant).

  • The three-year lag effect of entrants on existing firms was positive (and statistically significant). This is consistent with the belief that in the first two years or so of a firm, they produce limited positive spillover effects as they are struggling for survival, but eventually positive spillover effects occur.

  • Technology-oriented existing firms are less affected by entry than are nontechnology-oriented existing firms.

  • Smaller first-year local entrants cause less damage to existing firms. Existing firms’ financial performance in the entrant’s first year decreased as the average size of the entrant increased.

  • The research points out that existing firms may want to conduct activities that nurture new entrants to improve their own future financial performance. Results suggest they would do well to befriend other firms in the immediate area.

  • The control variables showed little statistical significance throughout the econometric models (this was understandable because the lag of the independent variable was used as a dependent variable to ward off spurious results).

    SOURCE: A copy of this study is located at SBA.GOV, and the research summary is available at:

    Edited by Carolyn Allen, owner/editor of California Green Solutions
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