Build for fame, buy for fortune and borrow for friends: growrh strategies and smes'performance in Mexico

BUILD FOR FAME, BUY FOR FORTUNE AND BORROW FOR FRIENDS: GROWTH STRATEGIES AND SMES’ PERFORMANCE Gerardo Velasco Gutiérrez, Instituto Tecnológico y de Estudios Superiores de Monterrey campus Guadalajara Joan Lluis Capelleras Segura, Universitat Autònoma de Barcelona Miguel Montoya Bayardo, Instituto Tecnológico y de Estudios Superiores de Monterrey campus Guadalajara The authors would like to thank to Professor Diego Prior, Professor Josep Rialp and Professor David Urbano for their valuable comments and suggestions on earlier drafts of this paper; also would like to thank to Professor Álvaro Cuervo, for his valuable feedback, and to the anonymous Allied Academies reviewers. This paper was presented by the authors at the Allied Academies International Conference in Las Vegas, on October 15-17, 2014, has received the Distinguished Research Award on the Academy of Entrepreneurship. ABSTRACT While the determinants of firm performance have been the focus of lots of research, there is a lack of studies examining the relation between performance goals and growth strategies. Responding to the call made by some scholars on this matter, we investigate the causal relations among growth strategies and the performances of the Small and Medium Enterprises (SMEs) in the Technological Information and Electronic Sector (ETICS) in México. The most innovative contribution of this work is the analysis of the moderator effect of the Intellectual Property Protection (IPP) and trust in the environment on those relations. Findings indicate that the performance goals pursued among SMEs are related to the growth strategies they select. We found that certain firms that are conservative and risk averse, preferably decide to grow organically, building a firm step by step, pursuing long-term survival and thus achieve fame; on the other side, we found that some other firms that are aggressive and willing to take risks decide to grow by buying companies, aiming to increase their fortune by improving profits; finally, we found a third group of firms whose performance goals are between those of the previous groups, as they share both risk and profit; because of it, we consider them as neutral risk; they choose to grow by borrowing-giving resources and capabilities, in other words, these firms make business–friends that allow them to consolidate their businesses. We also found that relations between growth strategies and growth goals are stronger in those firms that trust the most on both intellectual property protection (formal mechanisms) as on high-trust relations in business transactions (informal mechanisms); this has managerial implications that are also discussed in the paper. Key words: Growth strategies; Performance measure; Resource based view; Institutional effects. INTRODUCTION Growth and firm performance have been the focus of lots of research, most of the performance literature has concentrated on forecasting the result of different variables associated to the firms’ performance; nevertheless, there is a lack of studies examining the performance effects of growth strategies, (Davidsson & Delmar, 1997; Davidsson et al., 2007; Delmar et al., 2003). In accordance with recent literature revisions, most of the empiric works about growth published in management and entrepreneurship journals during the last decade have explained differences of growths rates, leaving aside the way in which growth occurs (McKelvie & Wiklund, 2010; Shepherd & Wiklund, 2009). Responding to the recent call made by some scholars (Gilbert et al., 2006; McKelvie & Wiklund, 2010), we decided to study the way in which growth occurs and its relation to the SMEs performance. We analyze three paths of growth namely, organic also called internal, acquisitive or external (Penrose, 1959), and hybrid or mixed (Williamson, 1991). The importance of carrying out this classification is that different growth strategies have different implications on firms’ performance and consequently different managerial challenges (Lockett et al., 2011; Penrose, 1959). Firm performance has been extensively studied and analyzed from different dimensions (Becchetti & Trovato, 2002; Davidsson & Delmar, 1997; Gilman & Edwards, 2008). It is usual in large firms with public information, to measure performance by using objective data. Nevertheless, due to the difficulty in obtaining objective data from the SMEs, we decided to use subjective measures, considering goals and risk level that the CEOs are seeking to reach (Covin & Slevin, 1989). Thus, we chose three perceptual measures; the first group consists of those low risk-conservative firms, seeking to survive in the long term (Cooper et al., 1994), what we call gaining fame; the second group is made up with high risk firms aiming to aggressively obtain financial results in short term; according to conventional economic theory profit should be the key performance indicator (Jarvis et al., 2000), as profit allow them to increase their wealth, what we call gain fortune; the third group is composed by firms that we called neutral risk, that are willing to share resources and profit with partner firms, in order to consolidate their position in the market, so they are seeking business friends. In addition to the role played by growth strategies, previous studies have demonstrated that the SMEs performance depend on the environmental conditions they face. Some empirical studies have proved that a favorable environment, improves firm performance (Audretsch et al., 2014; Williams & Vorley, 2014), while other studies have found that an adverse environment should not necessarily have a negative impact on firm growth (Bamiatzi & Kirchmaier, 2014). Particularly, in Knowledge intensive sectors (KIS), knowledge is the asset that creates a substantial part of the value added of companies, through patents, industrial secrets and other intangible assets (Beck et al., 2005; Brenner & Schimke, 2015; J. Bennett, 1998; Krishna et al., 1999); so that trust in the system of protection for intellectual property (IP) and trust between the actors of the business environment, play an important role in the SMEs performance. Therefore we are including in our study, the analysis of the moderator effect of IP protection and Intrafirm Trust (Adretsch et al., 2014; Clarysse et al., 2011; Williams & Vorley, 2014). Prior empirical works at Eastern economies (Zou et al., 2010), show that firm’s performance varies as a function of the growth strategy selected. However, because the evolution of institutions in Latin American economies has been different from that of the Eastern economies (North, 1990), environmental factors have a different effect on businesses in Latin American economies (Capelleras et al., 2010). Therefore it becomes interesting to prove such relations in different cultural context. We will use a self-developed database with 450 observations, result of surveying directors of SMEs in the ETICs sector, most of them located over the 3 larger cities in Mexico. It is expected that this study will help to better understand how growth strategies influence in firms´ performance, which is relevant due to its theoretical and managerial implications (McKelvie & Wiklund, 2010). THEORY AND HYPOTHESES THEORETICAL BACKGROUND Growth strategies Most of the growth literature for the past fifty years has concentrated on understanding why some firms grow more than others, following the approach of The Theory of the Growth of the Firm (Penrose, 1959) that aim to identify resources that contribute to the growth of firms; growth has been conceptualized and measured in different dimensions. The growth model presented by Penrose is based on leveraging the resources of the firm as well as growth opportunities, when managers are not able to either identify or exploit growth opportunities, then growth slows (Hamilton, 2012); under this approach over time there has been analyzed various relationships between growth and resources, like the existing relationship between entrepreneur characteristics and growth (Anderson, 2003; Baum et al., 2001; Le Brasseur et al., 2003; Smallbone et al., 1995), the resource configuration and endowment to achieve growth (FullerLove, 2006; Wright & Stigliani, 2012), the role of innovation as one of the main sources of firm growth (Audretsch et al., 2014; O’Cass & Sok, 2013). There was a considerable amount of literature reviews carried out in recent years related to the growth phenomenon, for example those carried out by Delmar (1997), Weinzimmer (1998) and Achtenhagen et al. (2010). Most of the empirical studies are focused on examining the determinants of venture growth (Davidsson et al., 2007; Gilbert et al., 2006; Macpherson & Holt, 2007), by the analysis of a large number of dependent variables that explain the variations of growth as a quantitative increase, most of the studies attempt to seek explanations as how much firms grow (Achtenhagen et al., 2010). Despite the great number of studies already made, the results of the empirical works are not convergent and the researchers have been unable to identify variables that have a consistent effect on growth across studies; this can be explained by the analysis units used, variations in time and differences in the growth forms, among other things; the results of empirical studies show models able to explain a limited portion of the differences in growth among firms (McKelvie & Wiklund, 2010). The most recent research on firm growth has increased our understanding of different growth patterns (Achtenhagen et al., 2010; Davidsson et al., 2007; McKelvie & Wiklund, 2010); in essence the focus of this research stream is understanding How growth happens, which we will call growth strategies. Growth strategies can be explained by the Resource Based View (RBV) presented by Barney (1991), focusing on the firm´s internal strengths in order to create sustainable competitive advantage and using strategies to improve its efficiency and effectiveness (Barney, 1991). To be considered a source of competitive advantage, a firm’s resource must be valuable, rare, imperfectly imitable and Irreplaceable. On the other hand, the firm´s capabilities are defined as the way the resources are used by the firm to improve its performance (Grant, 1991). In this regard, growth strategies are the way in which the firms’ managers or CEOs decide to assign the firms’ resources and capabilities in order to achieve the goals and objectives that have been established. It is possible to classify the growth strategies in three groups. The first one is organic growth, also called internal growth, refers to the strategic focus on internal research and development, applied to product development, enhancements and extensions (McCann, 1991); organic growth is based on the knowledge absorbed by the firm, through technological resources such as knowledge and patents, and capabilities such as the ability to integrate and built long-term business with these technological resources (Bell et al., 1995); organic growth is usually associated with genuine job creation (Pasanen, 2007). Firms that follow organic growth strategy, usually spend resources on researching to develop new products and enhancing their product portfolio (Zahra, 1991). The second group is acquisitive growth, refers to forward or backward integration; therefore it seems normal that high-growth firms in mature industries grow through acquisitions (Henrekson & Johansson, 2010; Levie, 1997; Lockett et al., 2011; Penrose, 1959); the firms that grow by acquisitions usually have enough financial resources; growth through acquisition is often considered as a shift of jobs from one firm to another (Pasanen, 2007). A third group, that we will call hybrid growth, combines both organic growth and acquisitive growth elements (Williamson, 1991); Hybrid growth strategy is neither organic nor acquisitive but it is somewhere in between, and it is presented in various forms as franchising, licensing, and joint ventures/strategic alliances (McKelvie & Wiklund, 2010). When firms become partners, they can access external resources; this allows them to develop new products and share the risks of those developments. The three growth strategies place different types on demands on managers that follow them, and these paths to growth may also have a differential impact on firm performance (Delmar et al., 2003; Lockett et al., 2011; Penrose, 1959). SMEs performance Previous research suggests a close connection between the growth and the performance of a small firm, it is common to find in existing literature the concept of growth as a synonymous of success or performance (Baum et al., 2001; Davidsson et al., 2007; Wiklund & Shepherd, 2003; Zahra, 1991), but they are two different concepts; generally, growth can affect several aspects of performance, growth is an important precondition for the achievement of other goals (Pasanen, 2007); some researchers has placed emphasis on firm growth as the key indicator of business success (Clarysse et al., 2011). It is important to recognize the multidimensional nature of the performance construct (Delmar et al., 2003; Kramer & Venkartaraman, 1994; Phelps et al., 2007). A review of prior academic empirical works, shows multiple measures and methods to measure performance; previous authors agree that it is appropriate to use different performance measures based on the research questions analyzed(Chandler & Hanks, 1993). It is common in the analysis of large firms, with publicly available financial information, that performance was measured by objective data, such as increase in sales, market share or financial profitability (Desai, 2008; Gilbert et al., 2006; Stewart et al., 1998; Wiklund & Shepherd, 2003). Nevertheless, measuring the SMEs performance presents different problems because they are not public, and they hardly give quantitative information; even if they do, it is not possible to check the accuracy of it (Covin & Slevin, 1989). Another factor that hinders the measurement of performance in SMEs, is the managers’ resistance to share strategic information from their firms (Chandler & Hanks, 1993). To deal with those problems, some scholars have suggested that subjective performance measures may be appropriate given the restrictions of objective measures, they have stated that attitudes toward the behavior, and subjective norms with respect to the behavior are usually found to predict real behavioral intentions with a high degree of accuracy (Ajzen, 1991), so that the realized outcome on a goal aspiration is often called performance. The firm goals aspirations, motivate decision makers to accept the risks inherent in changing their organization (Bromiley, 1991; Fiegenbaum & Thomas, 1984). Goal setting is related to the level of risk taken by firms (Henrekson & Johansson, 2010; Liu et al., 2014). Taking into account the above and following the way of previous studies (Cooper et al., 1994), SMEs performance will be represented by one of three expected outcomes, reflected by firms’ goals and aspirations and the risk level accepted by CEO´s. We call the first one low risksurvival; it involves the lowest level of uncertainties, they are usually small, conservative businesses, whose growth responds to market demand, so the effects of their strategic performance can be considered as long-term survival; we call the second group neutral riskconsolidation; it includes those firms which goals are related to consolidating their position in the market, by sharing risks and profit. The third group that we call high risk-excel profit, consists of those firms looking at targets to increase its financial performance, they are more willing to take a greater risk and they usually are larger firms, with consolidated structures and processes (Delmar et al., 2003; Levie, 1997). The moderating role of environment A large amount of recent empirical studies of growth and firm performance mention the importance of the effects of environment over both firms’ growth and firm’s performance (Capelleras & Rabentino, 2008; Shepherd & Wiklund, 2009; Westhead & Wrigth, 2012; Wright & Stigliani, 2012). Some of the studies did analyze the positive effect over firm growth, with environmental factors like government support programs (Becchetti & Trovato, 2002; Delmar et al., 2003; Fuller-Love, 2006; Keogh & Evans, 1998), national cultural factors (Anderson, 2003) and access to credit (Carpenter & Petersen, 2002). Dickson et al., (2006) proved that the impact of uncertainty is higher on large firms than it is in small ones; Bamiatzi & Kirchmaier, (2012) proved than an adverse environment does not necessarily have a negative impact on firms’ growth. The evolution of institutions has been diverse, depending on the geographic and cultural context of each country or region; for the case of Latin America in contrast to the United States, after all the country revolutions the processes and institutions are controlled centrally, which is a hallmark of other Western economies (North, 1991). Previous empirical studies have shown that environmental considerations are particularly important in most emerging economies (Capelleras et al., 2010). In sectors of intensive use of knowledge, IP management in business is a crucial aspect to create revenue and to defend the firm’s competitive position (Candelin-Palmqvist et al., 2012). IP can be protected by formal and informal methods (Kitching & Blackburn, 1998). Formal IP protection practices involves high cost of acquiring formal intellectual property rights in terms of money and time, reason why the CEOs of the SMEs are highly selective regarding the acquisition of copy rights (Kitching & Blackburn, 1998), and they seek for informal alternatives like establishing high-trust relations in business transactions (Dickson, 1996). Nonetheless, a problem that SMEs face, is the skepticism of the owners and managers towards outside help (Ghobadian & Gallear, 1996). Trust between firms refers to the confidence that an external actor, as customers, supplier, competitor or any other actor in the ecosystem, will not exploit the vulnerabilities of the other (Gulati, 1998), avoiding the potential for opportunistic behavior, Dickson, (2006), argued that the potential opportunistic behavior, is related with both firm´s resources as its external environment. Some authors have showed that high levels of inter-firm trust, enable actors to work together, even in the absence of formal controls, like contracts (Gulati, 1998). Other authors have found that when actors rely on trust it is usually institutional trust rather than interpersonal trust (Rus & Iglic, 2005). Either by formal or informal protection mechanisms, security and trust in business environment enables growth and influences the performance of the SMEs (Kitching & Blackburn, 1998) We argue that perception that SMEs have about the IP protection and trust in transactions between business partners, clients and suppliers, moderates the existing relations between the firms’ growth strategies and their performance goals. HYPOTHESES DEVELOPMENT Growth strategies, and performance goals As mentioned before, different growth strategies will have as results different effects on the strategic performance of the firms (Delmar et al., 2003; Davidsson et al., 2006; Achtenhagen et al., 2010; Per McKelvie & Wiklund, 2010). We acknowledge that growth strategies are not mutually exclusive; however, when choosing one strategy, the other ones are limited. For example, if the firm grows by acquisitions the ability to expand organically is reduced (Penrose, 1959), as well as the willingness to invest in other kind of resource. Growth strategies chosen by the companies, are dynamic and vary over time (Brenner & Schimke, 2015); the growth strategy chosen by the company, responds both to the availability and allocation of resources, and the effects of environmental factors, such as economic crises or declining markets (Bamiatzi & Kirchmaier, 2012). Firms that choose the organic growth strategy assign resources to their processes and their technological products, and have the capability of making them productive; they invest significant amount of resources, which reduces short-term profit, but guarantees long-term survival (Lockett et al., 2011). Firms that invest on developing a stronger technology base or in human, or social resources, as investing in training or R&D, obtain non-profitable results (Clarysse et al., 2011); organic growth focuses on the development of new products as a response to the market demand, enabling them to stay on the market in the long run. Businesses that grow this way reduce their exposure to risk and seek for their survival (McCann, 1991). Organic growth acts as a constraint of profit performance, firms that grow in an organic way are relatively unlikely to be able to attain superior profitability (Davidsson et al., 2009). Organic growth is a conservative growth strategy and involves the lowest level of uncertainties (Zou et al., 2010); these firms usually have better control of their operations and they respond to changes in market demands (McCann, 1991). This way, we can conclude that performance that leads to organic growth pursue survival-low risk goals, and may very well differ from those that leads to acquisitive and hybrid growth. H1 Firms that choose an organic growth strategy are more likely to reach goals of survival-low risk, than others with higher risk goals. On the other hand, firms growing by acquisitions are usually mature firms (Levie, 1997), previous studies show that success rates in value creation by acquisitions are usually low (Christensen et al., 2011). Nonetheless some authors have found when the acquisition is made in similar businesses, with similar managerial styles, the acquisition success is greater in terms of performance (Bauer & Matzler, 2014). Firms growing by acquisitions, are seeking for business opportunities, knowledge expansion and discovery of unexpected sources of synergy resulting on high financial performance (Graebner, 2004). Sometimes firms may choose acquisitions because they lack the ability to expand organically (McKelvie & Wiklund, 2010) some other times they do because of their willingness to acquire high profit businesses (Pasanen, 2007). Typically, firms growing by acquisitive growth are larger and older than the others, (Wiklund et al., 2003), with consolidated processes and access to their financial resources that allow them to develop forward or backward integration. They are aggressive firms, with consolidated processes and structures, willing to take risks. The financial resources help firm growth by allowing them to purchase an existing business (Gilbert et al., 2006). Acquisitive growth strategy, is the most risky strategy (Zou et al., 2010). H2 Firms going through acquisitive growth strategy are more likely to obtain excel profit-high risk, than others with lower risk goals. Hybrid growth modes include partnership relations with external actors to the firm so they work together, share assets and profits to accomplish mutual growth (Kogut & Zander, 1992). Performing some form of association allows the firm to be able to participate in markets in which it could not enter by using only its own resources (Kale & Singh, 2009). Three main forms of hybrid growth have been identified (McKelvie & Wiklund, 2010); Franchising is a legal agreement between the firm and an external partner to share the firm’s intellectual property in exchange for monetary compensation. The firm grows without spending its financial resources; Licensing, consists of selling intellectual property rights in exchange for a royalty payment based on usage; Strategic alliances, consists of collaborating with another firm or firms to achieve synergies that the firm would not be able to obtain by itself. Moreover, the firms share not only profits but risks as well. Potentially, alliances may ease the flow of resources between organizations (P. Dickson et al., 2006), the relationship between social relationship capabilities and success has been intensively studied in small business literature; some authors have proven that higher levels of networking activities or social capital are associated with greater firm performance (Aldrich et al., 1987; Dowling, 2003). Notwithstanding other authors have found that technology alliances may not always positively affect innovative performance(Park & Kang, 2013). Some firms license technology from another firm, to jump-start its own internal innovation process (McCann, 1991). We argue that firms that choose hybrid growth, are seeking to obtain from their business partners the resources and capabilities they lack and together reach business opportunities they would not do individually (McKelvie & Wiklund, 2010), sharing both risks and performance, and learning from alliances; in other words, when using the hybrid forms of growth, the firms are trying to consolidate their position in the market. H3 Firms following a hybrid growth strategy are more likely to reach goals of consolidationmoderate risk, than high risk-excel profit, or low risk-survival goals. Environmental effects As we mentioned before, trust in IP regime, related to the commercialization of intangible assets, like protection against patents and industrial secrets theft, affects both the size and the development of SMEs (Herrera E. & Lora, 2005). Firms that grow organically, compete with its own technology (McCann, 1991). The efficiency and integrity of the environment affect business performance (La Porta et al., 1999); in sectors of intensive use of knowledge, the environmental forces play an important role in firm’s performance (Balbinot & Bignetti, 2007). Particularly in technological industry, knowledge management is a crucial aspect to create revenue, to defend the firm’s competitive position and to survive (Candelin-Palmqvist et al., 2012). Firms with better perception of security and trust in law enforcement relating to IP, will have better chances to survive (Herrera & Lora, 2005), then we can hypothesize: H4 The intellectual property protection moderates the positive relationship between organic growth and low risk-survival goals, so that the stronger trust in business environment perception, the stronger this relationship. Mergers and acquisitions are processes where implicitly exist a risk that one partner takes advantage of another because of an asymmetry of information between firms (Dickson et al., 2006). In technological sectors, firms acquisitions include intangible assets that are difficult to value and also are difficult to protect (Hennart & Reddy, 1997), therefore a strong IP regimen, reduces the transactions cost of buying and selling and consequently improves profit (Kogut & Singh, 1988; Singh & Kogut, 1989); those countries that have a better institutional development have lower transaction costs due to the higher trust in legal environment (Beck et al., 2005; Krishna et al., 1999). In societies where the perceptions of law enforcement regarding IP is not clear, it is necessary to write and execute complex contracts to control the potential for Table 3 Performance of the SMEs (standard parameter estimates) Low Risk High Risk Neutral Risk Variables Survival Excel Profit Consolidation Control Firm´s age -0.027 -0.030 0.074* 0.074* 0.079 0.076 Firm`s size 0.049 0.052 0.044 0.045 0.089 0.085 Firm Growth Strategy Organic 0.568*** 0.571*** -0.024 -0.023 0.239*** 0.240*** Hybrid -0.097 -0.100* -0.042 -0.042 0.260*** 0.267*** Acquisitive -0.032 -0.036 0.506*** 0.507*** 0.005 0.012 External Effects Intellectual Property * Organic 0.092* Intellectual Property * Acquisitive 0.012 Intrafirm Trust * Hybrid 0.088* R square 0.339 0.347 0.268 0.268 0.140 0.148 F 45.511*** 39.27*** 32.56*** 27.093*** 14.463*** 12.789*** *p < 0.10; **p<0.01; ***p<0.001 Table 3 reveals that Organic growth strategy has a positive effect on both, Low RiskSurvival (β=0.568, ρ<0.001) and Neutral Risk-Consolidation (β=0.239, ρ<0.001); the positive effect is higher on Low Risk-Survival, which means that firms pursuing Organic growth strategy are more likely to seek Low Risk-long term Survival in the market, therefore Hypothesis 1 is supported. We found that Hypothesis 2 is also supported because Acquisitive growth strategy pursuing has a positive effect on High Risk-Excel Profit (β=0.506, ρ<0.001), but not on the other two. Firm´s age also resulted statistically significant. The higher positive effect of Hybrid growth strategy is related with Neutral Risk-Consolidation performance (β=0.260, ρ<0.001), but not with the others, thus Hypothesis 3 is also supported. Regarding the moderating effects of environmental factors, we found a positive moderating effect of Intellectual Property protection (β=0.092, ρ<0.10) in the relation between organic growth and Low Risk-Sirvival goals, therefore Hypothesis 4 is supported; Intellectual Property protection did not have a significant effect on the relation between Acquisitive growth and High Risk-Excel profit goals, so that Hypothesis 5 is not supported. Intrafirm Trust has a positive moderating effect in the relation between Hybrid growth and Neutral Risk-Consolidation goals (β=0.088, ρ<0.10), therefore Hypothesis 6 is supported. DISCUSSION The present study was developed as a response to the call made by scholars like Davidsson et al., (2006) and McKelvie and Wiklund (2010), who underscored the need for additional studies analyzing the mode of growth. This research adds to the empirical works previously developed on this stream, identifying first the existence of different growth strategies in a sample of selected firms, and afterwards identifying the different results generated by those strategies among the firms in the ETICS sector in México. The present study contributes to the literature on firm growth, analyzing the performance implication of modes of growth, the results presented here are noteworthy in providing evidence that demonstrated that different growth strategies result on different effects in firms´ performance. We recognize the differential impact of growth strategies on firm performance, which has been a topic proposed by researchers in the past (Gilbert et al., 2006; McKelvie & Wiklund, 2010). These results are relevant since they allow us to better understand the implications of different modes of growth. Growth strategies and firm performance Our study shows that the performance goals (survive, consolidate, and excel profit) are influenced by the growth strategy preferred by firms. The results confirm prior studies on growth and performance showing that firms vary considerably in their performance when they select a specific growth strategy (Chen et al., 2009; Zou et al., 2010). The findings enrich understanding of two dimensions related with SMEs growth. First, they support the recent arguments of entrepreneurship scholars regarding the importance of analyzing the performance implications of acquired vs. organic vs. hybrid growth (Davidsson & Delmar, 1997; McKelvie & Wiklund, 2010; Pasanen, 2007). Second, as we have analyzed the similarities and differences of different modes of growth, we found results that can be useful for firms´ managers and CEOs (Achtenhagen et al., 2010; Clarysse et al., 2011; Lockett et al., 2011; Wiklund & Shepherd, 2003). As mentioned above, growth strategies are not mutually exclusive, which is consistent with the results obtained. We found that SMEs that choose an organic growth strategy are more likely to reach goals of survival-low risk, than others with higher risk goals, which is consistent with previous studies (Pasanen, 2007; Zou et al., 2010), suggesting the finding that organic growth strategy is commonly adopted by conservative firms securing long term survival. The organic growth strategy reduces risk, involves investments of financial resources thereby reducing the financial profitability in the short term; typically firms that grow organically are young ones that build their growth by the use of mainly technological resources, that allow to react quickly to the changes in market, so they can remain in the market and become famous; we also found that lesser extent, companies that follow the Organic growth strategy pursue goals related to Neutral RiskConsolidation of its processes. In a similar manner, we found that firms that choose Hybrid growth strategy are willing to share risk and profits, by borrowing resources they individually lack, which brings out the consolidation of their processes. The results confirm prior studies on partnership capabilities showing that firms use different forms of associations to gain access to external resources and to jump-start its own internal process(McCann, 1991), sharing profits with their business friends. Regarding to Acquisitive growth strategy, vertical integration allow firms to capture value and reduce costs (McCann, 1991), we found that firms that choose Acquisitive growth are pursuing High Risk-Excel profit goals; this finding supports the previous work of Gilbert et al., (2006) in which they state that firms, specially mature ones, seek to expand their business and improve financial indicators through acquisitions that make costs more efficient due to the synergy and scale economies: ”buying an existing firm substantially increases the year-to-year sales in the months pursuant to an acquisition” (Gilbert et al., 2006, p. 939). The results obtained demonstrate that acquisitive growth strategy, defined as a buying strategy, aimed at fast returns that increase the firms’ fortune. Environmental effects We extend previous recent empirical studies of growth strategies and firm performance (Chen et al., 2009; Zou et al., 2010) by including the moderating effect of environmental factors, in relation between growth strategies and the performance goals. We agree with previous studies showing that, in emerging economies that interdependencies may exist between managers subjective perceptions and environmental conditions (Capelleras et al., 2010). En particular en knowledge intensive sectors, SME owners are well aware of the importance of their knowledge and the role it plays in business performance (Kitching & Blackburn, 1998), in response to Candelin-Palmqvist et al. work, we found that formal mechanisms of IP Protection are connected to performance and bussines success, due to the existence of a moderating effect of IP on the relation between organic growth and Low Risk-Survival goals. We did not find that the IP regime moderates the relationship between Acquisitive growth and High Risk-Excel profit goals; this can be explained since the owners believe that financial and non-financial costs of formal protection of the intangible exceed the benefits obtained from them (Kitching & Blackburn, 1998). This way, although there is a robust IP regime it will not be reflected on a reduction of transaction costs in merge and acquisition processes. Moreover, we found that an ecosystem where high-trust relations in business transactions exist, positively moderates the development, sale and licensing of knowledge that are related to firms seeking to consolidate their processes, which is consistent to previous studies (Herrera & Lora, 2005). High-trust relations in business transactions, reduce the transaction costs of elaboration and following complicated contracts, which increases the number of intra firm business transactions and allow the firms to learn from temporary alliances and to consolidate its own internal process. Implications One of the main challenges that the managers and CEOs of the SMEs face, is taking the right decisions that help the accomplishment of their proposed goals and objectives. We have demonstrated that different growth strategies pursued by the firm will generate different managerial challenges related to performance. Those ones that choose organic growth are seeking for results that allow long-term survival; the firms that follow the acquisitions growth strategy chase objectives related to Profit Attainment performance. Finally, firms that go for hybrid growth strategy obtain mixed results of performance. Thus, different growth modes will give rise to different firm performances. Because of this, managers will have to be consistent in these causal relations to achieve their performance goals. In relation to governmental public policies, contrary to what is proposed by most of the governmental support programs, two of the three growth modes do not necessarily result in increased levels of hiring or employment. Thus, adjustments to current policies suggested that these programs better meet their stated objectives of job creation, nevertheless the three growth strategies generate value and profitability for the firms. CONCLUSION In conclusion, our study has demonstrated that there are relations between growth strategies and performance goals that the SMEs seek. We acknowledge that growth strategies are not mutually exclusive, but we found that those firms whose CEOs seek for conservative goals of survival choose organic growth; they build internally to gain fame; on the other end, we found that SMEs with aggressive and risky goals, seek to buy business opportunities that increase fortune in a short term. Between both groups we found the group of firms whose goals are to consolidate processes, but given the lack of own resources, they borrow from other firms in exchange for sharing risks and profit; in other words, they establish business friends. Furthermore, our study has shown that these relations may be conditioned by the institutional context. We have shown that intellectual property protection encourages the relation between th organic growth strategy and the aspirations to survive in the long term. In the same sense we found that Intrafirm Trust, positively moderate the relation between the hybrid growth modes and the goals that seek process consolidation. Limitations and future research directions Although the study provides some interesting findings, several limitations should be noted. This study analyzed relations between growth strategies and firm performance in a single environment, and in a single sector. The study was designed to be developed in a relatively homogeneous sector of the economy, making the results valid for this sector exclusively. Another limitation was that we used a single informant approach in our data collection therefore a bias problem can occur. The results expressed here were obtained from a unique observation in time; the lack of longitudinal data is a limitation to this study. We show the results obtained from a sample of the ETICS sector, however it is advisable to analyze other sectors into the same environment. The results of the study implicitly consider the external effects of the environment, for the particular case of México; so another line of research could analyze the firms’ growth strategies and performance at different countries, to identify the effect of the institutions on the firms’ performance. The decision of “how to grow” is a complex process into the firms, responding to several factors that can vary over time; we show the results obtained in a single observation in time, therefore future research could analyze the same sector in other points of time. We hope that our study will inspire further investigations on the relation between growth strategies and SMEs performance. APPENDIX I. EFA RESULTS EFA of Growth Modes F1 F2 F3 Growth mode – Acquisitive (CA=0.894) 40. The acquisition of other firms or business units, business NOT related to our business 0.949 39. The acquisition of other firms or business units, business related to our business 0.942 Growth mode - Hybrid (CA=0.802) 37. License technology to / from other firms (we shared technology in any direction) 0.913 38. Strategic alliances or some other form of association 0.903 Growth mode - Organic (CA=0.856) 35. Internal development via increasing resources, both human and physical 0.935 36. Internal development via innovation and R&D 0.934 KMO and Bartlett´s Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy 0.671 Bartlett's Test of Sphericity - Approx. Chi-Square 2099.811*** % of Cumulative Variance 87.22% p < 0.10; * p < 0.05; **p<0.01; ***p<0.001 CA Crombach´s alpha EFA of Environmental factors F1 F2 Intrafirm Trust (CA = 0.798) 29. We trust in our customers and suppliers 0.859 30. We trust in our business partners 0.838 28. We trust in the legal environment for doing business with other companies. 0.825 Intellectual Property Protection (CA = 0.888) 24. Patent laws in Mexico provide adequate protection of intellectual property 0.915 25. In the last decade patent protection has strengthen in Mexico as a means of protection of new technologies 0.898 26. The strategic role of property rights in our company has increased. 0.896 KMO and Bartlett´s Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy 0.847 Bartlett's Test of Sphericity - Approx. Chi-Square 4259.662*** DF 153 % of Cumulative Variance 73.47% p < 0.10; * p < 0.05; **p<0.01; ***p<0.001 CA Crombach´s alpha EFA SME Performance F1 F2 F3 Realized Competitive Advantages (CA=0.836) 43. Competitive advantage through the creation of own know-ho 0.889 42. Competitive advantage through the best performance facing competition 44. Competitive advantage through differentiation of products and services 0.859 0.849 Long-term Survival 41. 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