Presentation to ‘Opening Doors to Innovation’ 7th November 2012 by Professor Gavin C Reid Director, CRIEFF University of St Andrews

High-Tech Enterprise & Entrepreneurship: Outline Evidence on High Technology Firms in Scotland Modelling the High Tech Firm Key Findings of Modelling Some Case Study Insights References Further Relevant Work

Sectors Focus is on the following sectors: Software Life sciences Microelectronics Optoelectronics Digital media.

The sampled firms Best characterised as being small (viz. micro-firms and SMEs) knowledge intensive (largely graduate staff) research intensive (mean spend on R&D approaching £1m.) internationalised (mainly selling to markets beyond Europe)

Key Points from Modelling Estimates suggest a short-run equilibrium size of just 100 employees, but a long-run optimum size of about 1000 employees (denoted S* below). To achieve the ‘Schumpeterian effect‘(of marked scale economies in R&D), estimates suggest that firms have to grow to very much larger sizes of beyond 3,000 employees (denoted S** below).

Short Run Equilibrium Firm Size: Ranges for a Variety of Model Specifications Turnover £2.9 – £3.4 m Employment 109 – 137 Productivity 55.7 – 86.5 (£1000’s sales per head)

The Envelope of Firm Size On the horizontal axis is size (S) (e.g. by employment, assets, sales etc.). On the vertical axis is innovative intensity (I) (e.g. ratio of R&D expenditure to sales, patent count per employees etc.) The firm size for optimal innovative intensity is denoted S * (estimated at 1000 employees, using the employment measure of size) The point beyond which size offers increasing returns to R & D is denoted by S** (estimated at 3000 employees) Note: S** is very much larger than S*

I S*S* O S ** S

Brief Company Case Studies Prostrakan – (200 employees) rapid growth; acquired by Kyowa Hakko Kirin in Microemmissive Displays (50 employees) – victim of the recession, called in the administrators in Lesson: Rapid growth is important, and may need to be driven by merger, acquisition, etc. rather than just by retentions.

References to Recent Publications Reid, G.C. (with J A Smith), Risk Appraisal and Venture Capital in High Technology New Ventures, London, Routledge, 2008, ISBN: , (248 pages). Paperback edn Reid, G.C. (and V. Ujjual) (2011), ‘Performance and Optimality for High Technology Firms: an empirical analysis of growth and innovation’. Chapter 3 in R.J. Fairchild (ed.) Entrepreneurship: Motivation, Performance and Risk/Reward, Nova Publishing, Hauppage, NY, USA. ISBN

New Findings The increasing importance of trade secrecy over other means of protecting intellectual property (e.g. patenting, copyright) See: Gavin C. Reid (with Nicola Searle) (2012), ‘What’s it worth to keep a secret? IP protection under the Economic Espionage Act’, CRIEFF discussion paper, School of Economics & Finance, University of St Andrews, No

CRIEFF Discussion Papers