The growth of SMEs in the ICT sector

This research investigated firm growth in small and medium sized enterprises (SME) in the information and communication technologies (ICT) sector in Australia and Hungary. The importance of the topic is postulated by academic literature as well as practical relevance. The growth of small businesses and the information communication technologies sector are both strong contributors to economic growth, productivity, exports and employment. The objective of this research was to validate a model of SME growth in the ICT sector which is applicable across countries. As contemporary firm growth theory suggests, both the process and factors influencing firm growth were investigated. The establishment of a cross-country comparative model of firm growth allows the holistic model, which was derived from literature, to be validated to a further extent by extending the countries under investigation. The theoretical foundation of the conceptual framework was based on firm theory. The firm life-cycle theory was identified as a vehicle for representing the evolutionary firm theory in the conceptual model. Firm resources were integrated into the model to incorporate contractarian firm theory. Further constructs were identified, based on firm growth literature, and included in the model. Profitability was included to allow the investigation of the trade-off between firm growth and profitability. Expansion plans of the firm were included in order to represent the growth intentions of the companies as a control variable, as well as, substantial influence on firm growth. The firm life-cycle approach was used in this project to map patterns of firm development, and structural modelling was employed to assess factors influencing firm growth. Australian and Hungarian companies were surveyed and the data was analysed using cluster analysis and partial least squares-based structural equation modelling. A total of 141 valid responses were collected from Australia and 131 from Hungary. The analysis confirmed the applicability of the firm life-cycle theory, demonstrating the lack of a decline stage and the existence of a limited growth scenario in the firm lifecycle model. It has also been shown that progression, as well as regression, can be observed in small and medium sized businesses along the life-cycle path. Analysis of the structural model confirmed the general significance of the impact of all four factors (firm life-cycle, resources, expansion plans and profitability) investigated. It has also been shown that the model variants fitted to the sub-populations of respondents from Australia and Hungary are significantly different. These model results have shown that even though a general model can be defined for the combined sample of the respondents, country-specific moderation effects also need to be included in the model. The contribution of this research to the body of knowledge can be described from multiple perspectives: (1) The validation of reflective measurement models of firm lifecycle, resource attributes, expansion plans, profitability and firm growth across multiple populations enhances validity and reliability of these measures. (2) The establishment and validation of a structural model based on a holistic conceptual framework examining the firm level influences on growth extends the boundaries of linear firm growth modelling, and allows the investigation of Gibrat’s Law for SMEs (in the ICT sector). (3) A cross-country investigation of the firm life-cycle model adds further validity to the specific characteristics of SME development.