Neighbourhood Effects on Firm Success and Strategy

As a result of economic transitions and several societal developments over the past 50 years, residential neighbourhoods have developed from being places where people predominantly live into places where people also work. A growing number of small- and medium-sized firms are located in residential neighbourhoods, many of which are home-based. Triggered by relatively high levels of turbulence in residential neighbourhoods and inter-locality variation in firm survival, firm growth and firm relocation, this study concerned whether and how neighbourhood characteristics influence the success of local firms and the strategic options of their entrepreneurs. The research demonstrates that some ‘neighbourhood effects’ on firm success and strategy do exist, especially for the growing group of solo entrepreneurs and firms in locally-oriented sectors. In particular the social context in which entrepreneurs are embedded matters, as cohesive neighbourhoods trigger both firm growth and entrepreneurial investments. Furthermore, the accumulation of liveability-related problems in disadvantaged neighbourhoods seems to contribute to an unfavourable business climate.