Sectoral digital capabilities and complementarities in shaping young firms’ growth: evidence from Europe

We explore how digitalization impacts young firms’ growth. A longitudinal\r\npanel analysis of the EU’s new ventures during 2010–2018 reveals that\r\ndigital sectoral capabilities affect young firms’ growth autonomously and\r\nvia interaction with other sectoral capabilities. Digital sectoral capabilities\r\nplay an important complementary role in facilitating the upscaling of young\r\nfirms operating in R&D-intensive contexts as they mature and within environments\r\nrich in tangible capital investments. In business contexts characterized\r\nby high digital but low human capabilities, young firms struggle to\r\ngrow, flagging a mismatch of skills’ composition. The effects of digitalization\r\nvary depending on the level of competition within each sector. The\r\nresults on complementarities of sectoral capabilities suggest that horizontal\r\npolicy solutions favouring specific capabilities in isolation may have limited\r\nor counterproductive effects. Instead, policy should target a portfolio of\r\ncapabilities and consider their complementarities under competitive market\r\nstructures. Our analysis shows that effective innovation policy should be\r\nbroadly defined and closely integrated with competition policy.