MBAsem2013/2014 TheCulturalContextof Entrepreneurship

1. Introductionto the CulturalContextof Entrepreneurship

Culture is defined as a set of shared values, beliefs, and expected behaviours (e.g. Herbig, 1994; Hofstede, 1980). Cultural values determine to what extent entrepreneurial behaviours such as risk taking and independent thinking are desirable within a society. Entrepreneurial cultures, that value and reward entrepreneurial behaviour and activity, have facilitated the development and introduction of radical innovation and entrepreneurship that results in economic development. The United States of America is one of the best known examples of an entrepreneurial culture that has resulted in a strong economy driven by innovation. However, culture in itself cannot be the sole determinant for the level of entrepreneurship that is present within a society. This specific aspect of the role of culture in promoting entrepreneurship is highlighted by Hayton, George and Zahra (2002) who suggest a model where national culture acts as a catalyst rather than a causal agent of entrepreneurial outcomes. The model suggests that entrepreneurship is influenced by cultural characteristics that transform and complement the institutional and economic contexts. This places entrepreneurship and entrepreneurial thinking as influenced by the needs and motives and the beliefs and behaviours that result in a variety of entrepreneurial initiatives, such as new venture creation, small and micro business, self employment and corporate venturing. Figure 1 From: Hayton, George and Zahra (2002). Topics covered within this lesson are:
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Types of Entrepreneurship Cultural Factors Influencing Entrepreneurship Entrepreneurship Examples from Around the World Influence of Culture and Environment on Entrepreneurship and the Entrepreneurial Process Entrepreneurial Outcomes Entrepreneurship in the Wider Contexts of Culture, Economy and Institutions.

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References Herbig, P (1994). The Innovation Matrix: Culture and Structure prerequisites to innovation. Westport, CT. Quorum Hofstede, G (1980). Cultures consequences: international differences in work related values. Beverly Hills, CA. Sage.

Hayton, J. George, G. & Zahra, S (2002). National culture and entrepreneurship: a review of behavioural research. Entrepreneurship Theory and Practice, 26 (4) 33-52.

2. Typesof Entrepreneurshipand the EntrepreneurialProcess

Entrepreneurship is based on a common set of principles, irrespective of where it happens, whether in small businesses or within major corporations or in social ventures. These principles relate to the process of discovering an opportunity, evaluating it, acquiring necessary resources to capitalise on the opportunity either by creating a new business venture or expanding an existing venture. Typesof Entrepreneurship Entrepreneurship as a term is typically applied to creation of new ventures that are growthoriented, create new industries or expand existing ones that generates employment and economic development. This type of entrepreneurship is also known as opportunity-based or high-growth expectation entrepreneurship and is predominantly found in countries that are classified as high-income. Countries in this group are Austria, Belgium, Denmark, Finland, France, Greece, Hong Kong, Iceland, Ireland, Israel, Italy, Japan, Netherlands, Norway, Portugal, Puerto Rico, Slovenia, Spain, Sweden, Switzerland, United Arab Emirates, United Kingdom, and the United States. [1] However, entrepreneurship also encompasses creation of small businesses and microenterprises that provide self-employment to the entrepreneur but not necessarily generate employment for others. This form of entrepreneurship is termed as necessity based and is predominantly found in countries that are classified as middle- and low-income. Countries in this group are further subdivided into those from Europe and Asia, China, Croatia, Hungary, India, Kazakhstan, Latvia, Romania, Russia, Serbia, Thailand, and Turkey, and those from Latin-America and the Caribbean, Argentina, Brazil, Chile, Colombia, Dominican Republic, Peru, Uruguay, and Venezuela. Entrepreneurship manifests within organisations in a variety of forms depending on the nature of the organisation. In big companies, entrepreneurship takes the form of corporate venturing through investments of financial and other resources and creation of spin-offs based on new ideas developed within the organisation. In new ventures, re-formulation of strategy to benefit from new opportunities and creating innovative approaches to establish and sustain competitive advantage are some of the clearest indicators of entrepreneurship. EntrepreneurialProcess The entrepreneurial process involves all the functions, activities, and actions associated with perceiving opportunities and creating organizations to pursue them (Bygrave, 2003). Others such as Moore (1986) define the entrepreneurial process as consisting of Innovation, Implementation and Growth. The process of entrepreneurship starts with the discovery of an opportunity. This opportunity could be to introduce innovations such as new products or services in an existing market, introducing a new distribution channel for existing products and services or promoting existing products and services using a new business model. The recognition of such an opportunity is the spark that starts the entrepreneurial journey that then results in the creation of a new venture.

Once an opportunity is identified the next step in the entrepreneurial process is to create a new business venture by acquiring financial and other resources and putting together a team to capitalise on the opportunity. The role of the entrepreneur is to focus on the activities and task necessary to make the venture a reality. The discovery of new opportunities is a key driver of economic development as they help identify ways of creating value. The process of creating new ventures to capitalise on the opportunity creates new jobs and economic dbanking system for small loans that has unleashed an economic miracle in the evelopment. In developing economies, this is of even higher significance as any new entrepreneurial opportunity can also have huge social impact. Initiatives, such as Grameen Bank in Bangladesh that provides banking services for the poor, amply illustrate this by developing a trust-based lives of the poor. Jeffry Timmons (1990) suggests that there are three key components for creating a successful new business. These are the opportunity, the entrepreneur and the resources needed to start the company and make it grow. Figure 2 Based on Jeffry Timmons (1990) [1] Based on research from GEM project at London Business School, 2007.http://www.gemconsortium.org/docs/download/263 References Bygrave, (2003). Portable MBA in entrepreneurship. Wiley. Gartner (2001). Is there an elephant in entrepreneurship? In: Entrepreneurship Theory and Practice, Vol. 25, No. 4, 27-39 Timmons (1990) New Venture Creation. Richard D. Irwin, Homewood, IL Moore (1986). Understanding Entrepreneurial Behaviour: A Definition and Model. Academy of Management Proceedings, 1986, 66-70 Shane and Venkataraman, (2000). The Promise of Entrepreneurship as a field of research. Academy of Management Review, Vol. 25, No. 1, 217-226

3. CulturalFactorsInfluencingEntrepreneurship
National culture reflects the norms and values held by its citizens. A common model of culture (Hofstede, 2001), used in business research includes the following five factors:
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Power distance the extent to which less powerful members expect and accept unequal power distribution

Individualism the importance attached to individualistic versus the collective point of view Masculinity the degree to which gender roles are assigned in a culture Uncertainty avoidance defines the extent to which a culture values predictability Long-term orientation to what extent the group is persevering and invests for the future.

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Of the above five factors, individualism and uncertainty avoidance are closely related to entrepreneurial behaviour as they dictate to the extent to which an entrepreneur is willing to take risks and think and independently to develop his/her business. Research performed on this topic has highlighted that these two factors are significantly related to entrepreneurial traits such as internal locus of control, risk taking, and innovativeness (Mueller & Thomas, 2000; Thomas & Mueller, 2000). These traits influence the way how entrepreneurs perceive and discover opportunities. Hofstede, (2001). Culture's Consequences, Comparing Values, Behaviors, Institutions, and Organizations Across Nations Thousand Oaks CA: Sage Publications, 2001 Mueller, & Thomas (2000). Culture and entrepreneurial potential: a nine country study of locus of control and innovativeness. Journal of Business Venturing, 16, 51-75. Thomas, & Mueller, (2000). A case for comparative entrepreneurship: Assessing the relevance of culture. Journal of International Business Studies, 31, 591-609. See also www.geert-hofstede.com

4. EntrepreneurshipExamplesfromAroundthe World
Geography USA Company DELL Type of Entrepreneurship Business Idea

High growth expectation Effectively used Information and Communication Technologies to build PCs based on customer orders, mass customisation, and deliver them directly Economic growth and job Construction industry creation Turn crowded, single sex hostels cited by the mining industry as a factor that contributes to the spread of HIV/AIDS -into comfortable homes for miners and their families. Social Entrepreneurship Pioneered low-cost eye treatments for rural poor

South Africa

Little Rock Construction

India

Aravind Eye Hospitals

by using large volume, high quality services that result in low-cost and sustainability. Argentina Agroindustrias Rio Tercero Economic growth and job Packaged fruit juices creation pioneered a lightweight container with strict production and quality control targeting the lowincome market.

5. Influenceof CultureandEnvironmenton Entrepreneurshipandthe EntrepreneurialProcess

The influence of culture in shaping the social institutions, developmental financial institutions and thereby the business environment is cyclical as these institutions reinforce cultural values of the society in the long term. Environment, financial, political and social drivers have a key role to play in the entrepreneurial process by helping to create opportunities and other mechanisms such as a strong legal framework, taxation and supportive economic and employment policies. In the entrepreneurial process comprising, Innovation, Entrepreneurial decision/action, Implementation and Growth, the influence of environment can be felt right from the innovation stage, where the entrepreneur has identified an opportunity and come up with an innovation that can capitalise on the opportunity. For an innovation to emerge, the environment should provide ample opportunities, and support creativity through promoting individualistic thinking. The personal characteristics of the entrepreneur such as creativity, tolerance of ambiguity/uncertainty and information seeking behaviour, in combination with the environmental factors, gives rise to innovations that can be a source for entrepreneurship. Figure 3 Adapted from Moore (1986) Availability of support infrastructure such as incubators, organisational structure and entrepreneurial culture are essential for an entrepreneur to make a decision to create a new venture to capitalise on an opportunity. Typically, at this stage, the entrepreneurs awareness of the available support infrastructure is quite significant in making the decision to embark on the journey of entrepreneurship. Finally, during the implementation stage, i.e. the creation of a business venture, the availability of incubators and conducive organisational structure mean that the venture can operate in a supportive environment during the early stages of its life. Moore (1986). Understanding Entrepreneurial Behaviour: A Definition and Model. Academy of Management Proceedings, 1986, 66-70

6. EntrepreneurialOutcomes- The Outcomesof Entrepreneurshipand the Impact on Cultureandthe Environment

Entrepreneurship is the source of many kinds of wealth generation and has been the focus of governments interested in entrepreneurship as a driver of economic development. Entrepreneurial activity leads to the creation of different forms of outcomes, such as generating social capital, job creation, new knowledge and financial resources. Entrepreneurial activity does not only result in creation of new businesses but also of new ideas and commissioning new projects within context of existing organisations (LaVan and Murphy, 2007). The social outcomes of entrepreneurship are creation of human and social capital in the form of entrepreneurial individuals and networks. This human and social capital can be the foundation of further entrepreneurial activity and capacity building of skills and capabilities in starting and running entrepreneurial ventures. The economic outcomes of entrepreneurship are creation of new jobs, generating wealth for the entrepreneurs, investors and employees, creation of financial resources that can be deployed to foster entrepreneurship in the form of grant schemes, seed funds and venture capital. Cultural outcomes of entrepreneurship are creation of role models of successful entrepreneurs who can inspire and influence future entrepreneurs, creation of a conducive environment for entrepreneurship that supports and encourages entrepreneurship as a viable economic pursuit, and improvements in the organisational framework that facilitate entrepreneurial activity. LaVan & Murphy (2007). Southeast Asian culture, human development and business competitiveness. Journal of Asia Business Studies

7. Entrepreneurshipin the WiderContextsof Culture,Economyand Institutions

For entrepreneurs, understanding their cultural context and how entrepreneurship fits within their own culture is critical for success. The differences between the socio-cultural context of different countries may influence the status of entrepreneurs within them because of numerous factors, incidents, and national culture, across political, economic, social, legal and ethnic dimensions (Mitchell, et al. 2000). While entrepreneurship may be highly regarded in cultures that the entrepreneur aspires to emulate, within the local context the choice of entrepreneurship as an economic pursuit may not be considered positively. Cultural context influences entrepreneurship at four stages opportunity recognition, innovation (i.e. acting on the opportunity identified), implementation and outcomes. The entrepreneur needs to be alert to their environment in order to spot any new opportunities for entrepreneurship. Once an opportunity is identified, they need to act on these signals and utilise them to reach their entrepreneurial ambitions by creating a business venture. The economic and institutional contexts that influence entrepreneurial activity include industrial infrastructure, economic growth and capacity for innovation (Hayton, George and Zahra (2002)). For an aspiring entrepreneur, awareness of the available industrial infrastructure such as incubators, research facilities, potential suppliers and other service providers, helps him or her to decide on the path of entrepreneurship. Once the decision is

taken to create a new business venture, this knowledge can be used to plan the implementation steps. Hayton, George and Zahra, (2002). National culture and entrepreneurship: a review of behavioural research. Entrepreneurship: Theory and Practice, 26 (4) 33-52 Mitchell, Smith, Seawright, & Morse, (2000). Cross-cultural cognitions and the venture creation decision. Academy of Management Journal, 43, 974-933.

Class Discussion Explore the examples provided within the table in the 'Entrepreneurship Examples from Around the World' section of the lesson. Discuss the following questions:
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What were the underlying drivers for entrepreneurial action? How have the external environment, including prevailing cultural norms and practices influenced the entrepreneurs? What were the outcomes in terms of making a difference to the company's stakeholders, industry, economy and entrepreneur's own life? Describe an entrepreneurial example from your own industry, answering the same set of questions.

Entrepreneurshipwithinyourculturalcontext You should start to reflect on what you have learned and how this might apply to your own enterprise project. The assignment is due next week during class. Put all your thought in not more than 1000 words. The format is font arial 11 double spacing. Think about the following: 1. Ambition - How has your culture influenced your own entrepreneurial ambitions? You may be following established role models within your society by pursuing entrepreneurship, on the other hand your entrepreneurial ambitions may not be natural within your culture. In such a situation, were you attracted to entrepreneurship by role models from outside your culture? 2. Values What values do you hold on to from your culture? How might these influence your vision and the way you realise it?

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Vision - How will your vision for your enterprise align with what is considered valuable in your culture? Is it becoming successful and making money, or is it influencing economic development by making a difference in society by creating jobs, or is it by satisfying a local need with a product or service within the constraints placed? Finding Support - Identify the key institutions whose support your enterprise project will need. Typically, government funding agencies and incubation centres are involved in supporting early stage business ventures. However, beyond these traditional organisations, other support structures might be available within, for example, universities or regional development agencies.

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