Entrepreneurship

A Global Perspective

Stephen Roper

• Publisher: Routledge
• Year: 2012
• eBook ISBN: 9781136249365
• Topic: Business
• Subtopic: Business General
• Index: Business

Entrepreneurs exist in every country but the nature and level of entrepreneurial activity differs remarkably. Why is this? What shapes the level of entrepreneurial activity in each country? What defines entrepreneurial activity? As more and more teaching and research into entrepreneurship reflects its often international nature, the need for literature reflecting this grows. This concise new textbook provides an introduction to topics in entrepreneurship in a global context; focusing on how enterprise works across the world.

Important topics such as financing, innovation and (anti) social enterprise are discussed in detail throughout the text and examples and case studies are used to illustrate the application of different theoretical and conceptual approaches to entrepreneurship and the role it plays in developed, emerging and transitional economies.

Entrepreneurship: A Global Perspective is suitable for both final year undergraduate and postgraduate courses in enterprise and is likely to appeal particularly to student groups with a strong international element.

Chapter 1

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Setting the scene

 

 

 

1.1 INTRODUCTION

Entrepreneurship exists everywhere because, as Bolton and Thompson (2000, p. 96) suggest, entrepreneurial opportunities

can be found everywhere. Some are genuinely new; others are innovatory improvements on a theme. Some are limited growth ideas; others can be used to build global businesses. They only succeed if they are different in some meaningful way and executed effectively. There is, then, an infinite set of possibilities for people with the talent and temperament to become successful entrepreneurs to choose from.

But, as we shall see, the nature and focus of entrepreneurial activity differs markedly between countries and individuals. Some entrepreneurs seek to start ‘born global’ enterprises addressing an international market opportunity. In other less auspicious situations, entrepreneurship may be a matter of necessity. For some, entrepreneurship means creating a socially responsible business which complies with national legislation; for others, it may mean setting up a criminal enterprise network designed to traffic drugs or people.

A key objective of this book is to explore ‘why’ these differences in entrepreneurial activity emerge and to explore the consequences of national differences in entrepreneurial activity for a nation's economic and social development. Two key themes emerge. First, understanding differences in entrepreneurial activity requires a strongly contextual approach. Entrepreneurship is a social process which is strongly conditioned by local factors as well as a nation's contrasting cultures, economic conditions and legal and regulatory frameworks. For example, the technological profile of business opportunities differs markedly between countries, as does the availability of finance, market information and energy. How do these factors influence the nature of entrepreneurship activity? In conceptual terms, this suggests the potential value of an institutional approach which identifies separately the role of institutions (structure) and individual (agency) in shaping entrepreneurial decisions (North, 1990). In fact, the conceptual approach we adopt is neo-institutionalist, reflecting the potential for entrepreneurial activity itself to change the institutional environment in a country or countries (Tracey, 2011). McDade and Spring (2005), for example, describe networks of ‘new generation’ African entrepreneurs who have — to a greater or lesser extent — changed the environment for business in the countries in which they operate. The basis of a neo-institutionalist approach is outlined in more detail in Section 1.2.

The second theme to emerge from our analysis is the inadequacy — or perhaps more accurately, the irrelevance — of many of the standard taught ‘models’ of entrepreneurial behaviour for many countries. In particular, a study of comparative entrepreneurship rapidly exposes the assumptions implicit in many models which limit their generalizability. For example, consider the notion of the ‘debt-tax’ shield which it is argued may shape the financing preferences of entrepreneurs towards holding debt (see Chapter 7). What assumptions are implicit here? First, that the firm has a choice of financing options. Second, that the entrepreneur regards both debt and equity as ethically acceptable, and third, that the firm is in a situation where it is actually engaging with a tax system. For developed economies in Europe or North America these assumptions may be reasonable but for firms in many developing or transition economies, particularly those where there may be a preference for Islamic banking, they pose more difficulties and limit the generalizability of the notion of the debt-tax shield. Essentially similar considerations also relate the discussion of a financial pecking order and a number of other standard frameworks discussed in later chapters.

1.2 ENTREPRENEURSHIP IN CONTEXT

Institutional theory provides a useful framework for examining entrepreneurial behaviour in specific local contexts and the impact of national institutions on economic and social development (Tracey, 2011). The types of institutions considered as having an impact on economic activity relate not just to regulatory structures and legislative frameworks, but also include social norms and values. To quote Bruton et al. (2009) ‘regulatory structures include both laws and regulations generated by the government … in contrast the normative and cognitive institutional pillars are socially constructed over time, and come to be perceived as the natural and factual order’ (p. 765). A nation's institutional profile may either restrict the opportunities available to individuals or enterprises or create opportunities for entrepreneurial activity. For example, Djankov et al. (2002b) use data collected by the World Bank to compare the impact of regulatory structures on business startups in 85 countries. This data describes significant international differences in the number of procedures which potential entrepreneurs have to undertake to start a firm and the cost of these procedures. It is suggested that these institutional differences may make a significant difference to the profile of business start-ups between countries as well as having implications for levels of corruption etc.

Institutional models, therefore, suggest that entrepreneurial behaviour will be shaped in part as a response to institutional structures. Discussing the nature of different types of institutions North (1990, p. 6) suggests, however, that ‘although formal rules may change overnight as the result of political and judicial decisions, informal constraints embodied in culture, custom, tradition and codes of conduct are much more impervious to deliberate policies'. More recent developments in institutional theory have, however, questioned the stability of institutions in some international contexts. Bruton et al. (2009, p. 775), for example, suggest that drawing largely on the historical development of European and North American economies

institutions are viewed as static and only changing very slowly over time … in the fast-changing environment of emerging economies, new institutions are developing and actors in the environment can shape existing institutions. These new institutions are evolving to meet the shift to a market orientation and the increasing economic activity.

The potential for new and rapidly developing institutions suggests, Bruton et al. (2009) argue, a need for a more flexible approach to extend the application of institutional analysis into developing and emerging economies and to encompass developments in new or emerging industries. In the dynamic context of the US wind energy sector, for example, Sine and Lee (2009, p. 152) emphasize that entrepreneurship is ‘substantively different’ to that in a more stable institutional environment. In particular, while they argue that existing institutions may be less conducive to entrepreneurship due to the ‘low cognitive and socio-political legitimacy’ of entrepreneurship it remains the case that

the processes of opportunity creation and discovery as well as the proclivities of entrepreneurs are actively shaped by powerful institutional actors. The creation of institutional infrastructures, norms, values, cognitive frameworks and regulations create value for, and give purpose to, entrepreneurial activity.

The need to allow for institutional change, and for the possibility of a range of different entrepreneurial responses — either individual or corporate — to a common institutional environment, has led to the development of neo-institutionalist perspectives. Here, individuals’ entrepreneurial response to their institutional setting is said to be shaped by the extent and nature of their embeddedness within their societal and organizational contexts. For example, firms undertaking inward investment with few pre-existing links to a new geographic market may introduce new business models. Existing firms, more strongly embedded within local market structures and network relations, may find the same innovation difficult (Kostova, 1999). This suggests the potential for diverse entrepreneurial responses to a given set of institutional conditions and the potential for entrepreneurial acts — or acts of corporate venturing — to influence existing institutional structures or create new institutions (Tracey, 2011).

1.3 OUTLINE OF LATER CHAPTERS

The remainder of the book is divided into three main sections. The first section comprises Chapters 2 and 3 and focuses on contrasts in the global context for entrepreneurial activity. Chapter 2 focuses on the combination of global and local conditions — the institutional context — within which entrepreneurship occurs in different countries. A key focus is the idea of the entrepreneurial regional innovation system developed by Cooke and Leydesdorff (2006). Data from the Global Entrepreneurship Monitor or GEM project is used to highlight international contrasts in the level of entrepreneurial activity. Chapter 3 focuses on the social and economic development implications of entrepreneurial activity, emphasizing the contribution of entrepreneurship to job growth, technological development and social cohesion. The experience of contrasting countries, however, suggests that these beneficial effects of entrepreneurial activity cannot be assumed.

The second section of the book comprising Chapters 4, 5 and 6 focuses on a comparative analysis of aspects of the entrepreneurial journey. Chapter 4 focuses on the person of the entrepreneur. What factors characterize an entrepreneur? How are these factors related to the institutional context within which the entrepreneur is operating? Chapter 5 focuses on the start-up decision and considers the value of economic, social and process perspectives. Chapter 6 then examines the factors which influence business success. Perhaps the key points here are the relative weakness of existing models in explaining the diversity of firm growth rates and the potential role of factors such as luck in explaining growth (Parnell and Dent, 2009).

The final section of the book comprising Chapters 7 to 10 focuses on a series of cross-cutting issues which emerge from the research literature. Chapter 7, for example, focuses on business finance, reflecting contrasts in funding preferences and priorities in different countries. A specific focus of attention in this chapter is Islamic finance and its potential value in supporting entrepreneurial activity. Chapter 8 focuses on innovation in smaller firms, a discussion which links back to the notion of the entrepreneurial regional innovation system discussed in Chapter 2. Chapter 9 then focuses on criminal or antisocial enterprise. This is an important issue in its own right but it also sheds light on the moral content of ‘entrepreneurship’ itself. Chapter 10 focuses on entrepreneurship policy and its strongly contingent role in supporting enterprise development. This chapter also considers issues of policy evaluation.

Chapter 2

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A world of enterprise

2.1 INTRODUCTION

While entrepreneurs are found in every country in the world, the opportunities they face and the institutions which influence their activities differ greatly. In this chapter we focus on the interaction of global factors — linked, for example, to technological change, global supply chains, international trade agreements, etc. — and local factors in shaping the institutional environment for entrepreneur ship. Elizabeth Chell called this ‘glocalization’, meaning that

given increased pressures to globalize, standards of performance need to be matched at that level if the company is to hold its own. Offering products and services which can compete globally will also assure success in local markets. In this way, it may be argued that companies can be both globally and locally competitive: they can be ‘glocal’.

(Chell, 2001, p. 51)

Of course, the need to be glocal differs greatly depending on context; street traders in developing economies are more strongly influenced by local rather than global factors, while the opportunities for a ‘born global’ or technology-based start-up will be more strongly influenced by global market conditions (Efrat and Shoham, 2011).

Different perspectives exist on the key factors which are shaping the global economy, and the global environment for entrepreneurship. Some researchers have emphasized international contrasts in governance and alternative ‘modes of capitalism’, identifying commonalities between countries on the basis of their governance profiles. In particular, contrasts are often drawn between the more laissez-faire, Anglo-Saxon mode of capitalism of the USA and the traditions of Rhenish capitalism in countries such as Germany and Austria (Green et al., 2010). Other academics have focused on global supply networks or supply chains, viewing changes in the international economy through the changing power of suppliers and buyers (Ernst and Kim, 2002, Henderson et al., 2002). In either view, the growth of the BRIC countries — Brazil, Russia, India and China — and other developing economies is rapidly changing the global economic landscape and reshaping the global set of entrepreneurial opportunities. Increasingly, these changes mean that innovation-based competition is replacing cost-based competition, reflecting Baumol's comment that

firms cannot afford to leave innovation to chance. Rather, managements are forced by market pressures to support innovation activity systematically … The result is a ferocious arms race among firms in the most rapidly evolving sectors of the economy, with innovation as the prime weapon.

(Baumol, 2002, p. ix)

This is not just an issue for company leaders, however, as policy-makers in different countries — and supra-national bodies such as the European Union — invest in R&D and innovation in an attempt to develop national competitiveness and...

Table of contents

• Cover
• Half Title
• ROUTLEDGE-ISBE MASTERS IN ENTREPRENEURSHIP
• Full Title
• Copyright
• Contents
• List of figures, tables and boxes
• Series editors' foreword
• Preface
• Acknowledgements
• 1 Setting the scene
• 2 A world of enterprise
• 3 Enterprising nations
• 4 Who are the entrepreneurs?
• 5 The start-up decision
• 6 Understanding business success: strategy, luck and policy
• 7 Financing entrepreneurship
• 8 Small firms and innovation
• 9 Antisocial, unlawful and criminal enterprise
• 10 Enterprise policy
• 11 Looking forwards
• References
• Index
• Index of countries