Critical Literature Review of the Role of the Entrepreneur in the Early Internationalization of Small Firms

Contents
1. 2. 3. 4. 5. Introduction ..................................................................................................................................... 1 The Role of Entrepreneur in Small Firms ....................................................................................... 2 The Influence of Entrepreneurs Psychological Traits on Decision-making................................... 4 The Influence of Entrepreneurs Cognition on Decision-making ................................................... 6 Conclusion....................................................................................................................................... 8

References ............................................................................................................................................... 9

1. Introduction

This paper aims to study the role of entrepreneur in the early internationalization of small firms in in terms of analysing the influence on decision-making process from managerial motivations, behaviour and attitudes. First of all, it is necessary to clarify what is the internationalization of small firms. There are two similar internationalization paths for SMEs pointed out by researchers (Jones, 1999; Andersen et al., 1997; Madsen and Servais, 1997). One is the traditional incremental approach to internationalisation, and the other is the more recent school of international entrepreneurship (McDougall and Oviatt, 2000). Empirical researches proved that there are connections between decision making and the internationalization of SMEs. The traditional incremental approach is based on the Uppsala model developed by Johanson and Vahlne (1977) who explained that
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internationalization of SMEs is a process of slow, incremental and decision making that would gradually increase the market power of firms. According to the model, individuals and groups are playing significant role of decision-making by analysis and interpretation and decisions are regarded as being dictated by the learning process (Lundberg 1995, Andersson 2000, Blomstermo and Deo-Sharma 2003). Besides, Entrepreneurship is recognized as a learning process which suggests that the perspective of the entrepreneurial learning might contribute to the internationalization discourse (Minniti and Bygrave 2001, Cope 2005, Rae and Carswell, 2001). The entire organization would be affected by the decisions made by entrepreneurs through individual level learning and organizational behaviour (Oviatt and Mcdougall 2005, Acedo and Florin 2006).

There is an argument explaining that the characteristics of decision-maker have not been explored intensively enough (Bonaccorsi, 1992). That is to say the influence of the entrepreneur on decision-making in the process of internationalization needs further study.

Therefore, this paper attempts to analyse the role of entrepreneur on decision-making of small firm in internationalization.

2. The Role of Entrepreneur in Small Firms

Since the definition of entrepreneur and managers is always mixed, Begley and Boyd (1987) pointed out that the lack of distinction of entrepreneur from manager. In order to differentiate the distinction between entrepreneur and manager, some researchers defined the term of entrepreneur to mean a person who has founded his or her own enterprise (Begley & Boyd, 1987, p. 100). Also, another researcher Bygrave (1989) commented that

the conception of entrepreneurship is an emerging paradigm which is still in the pretheory stage and needed to be further developed. Many researchers make different definitions of the roles of the entrepreneur according to different theories of economics. Firstly, the entrepreneur acts as a coordinator. Connell (1999) defines that the role of the entrepreneur is a combiner and coordinator of productive resources. Connell (1999) also viewed that the entrepreneur plays a role in the core of market system because he or she build the links between the producer and consumer in communication. Besides, Casson (1982) argued that the entrepreneur should be regarded as the fourth factor of production in his analysis. Secondly, the entrepreneur plays a role as arbitrageur. This views of regarding the entrepreneur as arbitrageur originates from Kirzner (1973), who argued that the entrepreneur has the capability to identify profitable opportunities for organizations. The arbitrageur attempts to seize the opportunity to sell the service and product at a competitive price in the market. But there is another argument in contrast with Kirzners view that the entrepreneur motivates the market toward equilibrium (Schumpeter, 1934). Thirdly, the entrepreneur acts as an innovator of the organization. Drucker (1985) points out that entrepreneurship should be acknowledged as an act of innovation that could add a new wealth-producing capability to existing resources. Similarly, Schumpeter (1934) the entrepreneur is the innovator who implements changes in the market and the entrepreneur moves the market from equilibrium. Furthermore, the entrepreneur is also interpreted as an uncertainty-bearer. Since the small firm is new to step into internationalization, the entrepreneur who leads the organization towards internationalization should be responsible for bearing the risk of the presence of uncertainty (Casson, 1982). In summarizing the above types of roles the entrepreneur might act in the internationalization of small firms, the following functions could be perceived as the
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entrepreneur. First, the entrepreneur is responsible to seize market opportunities for the organization. And he or she should use the current resources into new production combinations. Besides, the entrepreneur also becomes the owner-manager who operates the organization and manages the assets to the best of the venture. Finally, the entrepreneur has to take the risk of suffering market uncertainty that might bring loss and failure to the organization. Casson (1982) made a supplement to the definition of entrepreneur that he thought there is no difference between the manager in a company and the entrepreneur because the key criterion is the judgement in decision making. In the next section, the impact of the entrepreneur in decision making would be discussed.

3. The Influence of Entrepreneurs Psychological Traits on Decision-making

After explaining the different roles the entrepreneur would act in the international business, this section would attempt to discuss the impact of the entrepreneur on decision making. In terms of managerial motivation, behaviour and attitudes, whether the entrepreneur is proactive in operating the organization and managing business or not would influence the development of a firm. Some research argues that the proactivity of entrepreneur would motivate the entire company to develop more rapidly through identifying and perceiving better opportunities and the decision makers are more willing to make internal changes in order to gain further development (Kickul and Gundry, 2002). As the entrepreneur or the executive managers who are responsible for making decisions, being proactive seem to be the motivation for small firms to gain rapid development. In the perspective of entrepreneurs proactivity, the literature on international entrepreneurship (McDougall and Oviatt, 2000) and the empirical studies on the mindset of managers in

global business support the assumption that it is a characteristic of entrepreneur who act proactively in managing global business (Nummela et al, 2002). Simonsson (2002) explained that entrepreneurs management plays a significant role in internal communication, without which correct decision is not possible to be made by entrepreneur. When developing the international business of small firms, the internal communication channels would be important because it would have directly impact on the efficiency and effectiveness of the company. That means the owner-managers or the entrepreneurs of small firms should be capable to have the competence to build participation and use rhetoric to motivate their employees. For instance, it is ownermanagers responsibility to create trust among employees since every decision being made should be correctly interpreted within a firm and this results from the good leadership in management (Misztal, 1998). In smaller organizations knowledge tends to be individualized to the entrepreneur or concentrated in a small group of people, who are close to the decision-making process (Oviatt and McDougall, 2005). Thus, the personal characteristics of the entrepreneur in psychology need to be analysed specifically. First of all, Shaver and Scott (1991) discover that the achievement motivation is the initial desire of the entrepreneur to start his or her business. By starting new business, the entrepreneur would be aggressive in gaining achievement. McClelland (1961) defines that the entrepreneur pursues achievement which is regarded as preference for challenge, personal responsibility acceptance for outcomes and innovativeness. But the empirical study carried out by Brockhaus (1980) discovered that there was a high failure rate of the entrepreneur who was too aggressive and drove for achievement. Secondly, the entrepreneur strives for the independence and the control upon different situations (Hornaday and Aboud, 1971). That means the strong desire of being
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independent and demonstration of self-capability is the significant characteristic of the entrepreneurs psychology (McGrath et al., 1992). Furthermore, the desire for pursuing independence would lead to individualism of the entrepreneur. And this trait of the entrepreneur might do harm to the organization as he or she is so self-centred and make decisions without considering others advice or suggestion. Hofstedes (1980) found that high individualism is linked to emphasis on individual initiative and achievement. In addition, there are literatures on entrepreneurial behaviour explaining that the entrepreneur tends to be optimistic in global business environment and make decisions according to subjective factors (Cooper et al., 1988). However, this kind of psychological trait is likely to bring serious damage or failure to the organization and its business.

4. The Influence of Entrepreneurs Cognition on Decision-making

Apart from discussing the psychological traits of entrepreneur, this section would study the cognition of entrepreneurs in how they think in operating organizations and decision making. Busenitz and Barney (1997) found that entrepreneurs could be differentiated from managers through making decisions by basing on individual biases and heuristics. Thus, some of the literature related to the entrepreneurial cognitive biases would be discussed in the following paragraph. Firstly, emotions are significantly contributing to the influence on entrepreneurs decision-making process. Forgas (1995) presents that the emotional biases in entrepreneurial way of thinking is the affect infusion model which suggests that affective states created by one source of experience is able to infuse judgement about other unrelated events. Also, the likelihood of affect infusion is higher when entrepreneurs
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engage in effortful thought (Forgas, 1995). Thus, Baron (1998) made a hypothesis that entrepreneurial decisions are of high susceptibility to affect infusion. Secondly, Bandura (1986) defined that self-efficacy is an personal cognitive estimate of a persons capabilities to mobilise the motivation, cognitive resources and courses of action needed to exercise control upon events in his or her life. The people who with high self-efficacy would regard the environment as full of opportunities while those who with low self-efficacy would think the same environment to be burdened with costs and risks (Chen et al., 1998). Besides, Brockhaus (1980) pointed out that self-efficacy represents a serious bias since it leads to the wrong perception of the low possibility of failure. Thirdly, the overconfidence of the entrepreneur would also leave impact on decisionmaking. This is because the overconfidence of entrepreneurs shows the possibility to overestimate the likely occurrence of a series of events (Zacharakis and Shepherd, 2001). The people who are overconfident prefer to make judgement or decision based on their subjective acknowledgement and ideas but not tend to predict the potential risks of failure. Levander and Raccuia (2001) argued that entrepreneurs are more frequently found to have higher degree of self-confidence than general population. Therefore, due to the overconfidence, entrepreneurs are more susceptible to make decisions with uncertain risks. Finally, Baron (1998) claims that most individuals would attribute positive outcomes to internal causes of their own talent and effort, but attribute negative results to external causes. This kind of self-serving bias is more likely popular among unsuccessful entrepreneurs because they are not able to analyse the objective reasons that contribute to failure and success. In conclusion, several common cognitive biases in entrepreneurial decision-making have been discussed. Low and McMillan (1988) pointed out that these differences
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between entrepreneurs and non-entrepreneurs need further empirical testing. However, the results of the current empirical study support that the cognitive issues above might influence the decision-making process to some extent .

5. Conclusion

Therefore, after studying the role of the entrepreneur in the internationalization of small firms, it is necessary to conclude that the decision-making is a crucial characteristic of the entrepreneurial activity. This paper first delivered an introduction of the two paths of internationalization of small firms, and then studied the different roles that entrepreneurs would act in managing and operating the organization in international business. Afterwards, the study of entrepreneurs psychological traits and cognition were carried out in order to analyse the potential influence on decision-making process. However, some limitations could not be avoided in this paper because the studying areas of the influence on decision-making process only based on the theories that related to entrepreneurs individual psychology and cognition and further study of the influence from managerial behaviour is needed in the future.

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