SOCIO-ECONOMIC FACTORS INFLUENCING THE ENTREPRENEURIAL DEVELOPMENT The emergence and development of entrepreneurship is not a spontaneous one but a dependent phenomenon of economic, social, political, psychological factors often nomenclature as supporting conditions for entrepreneurship development. These conditions may have both positive and negative influences on the emergence of entrepreneurship. Positive influences constitute facilitative and conductive conditions for the emergence of entrepreneurship, whereas negative influences create inhibiting milieu to the emergence of entrepreneurship.
Some scholars have prepared a list of environmental conditions that may play a role in developing entrepreneurship in a country or region. Others have a more descriptive approach to show “what is out there” in a particular country or region still others have focused on what governments can do or have done to develop entrepreneurship. Thus, while the role of environmental conditions in developing entrepreneurship has been recognized, most of these studies have been fragmented, highly descriptive, and focused on only a few aspects of the environment.
More importantly, most of the literature has neither paid adequate attention to the needs of the entrepreneur–the main beneficiary of the environment–nor described the environmental conditions in terms of the process of new venture creation. Gaps are evident in the literature. First, a conceptual framework is lacking to integrate the available literature on entrepreneurial environments. Second, explicit links have not been established between the needs of entrepreneurs and how environments can fulfill entrepreneurs’ needs, induce or reinforce their desire to go into business, and thus facilitate the process of new venture creation.
Third, limited guidelines exist to conduct empirical research on entrepreneurial environments. Finally, a limited body of literature addresses the needs of policy makers despite the recognition of this group as an important audience for research on entrepreneurship. In an attempt to bridge these gaps in the literature, we first develop a conceptual framework to integrate existing literature on entrepreneurship environments.
Then, we introduce the core elements of the new venture creation process and explicitly link the environmental dimensions to the process of new venture creation and show how environments can help increase people’s likelihood to go into business. Economic factors such as proportion of small firms in the population of firms, extent of economic growth, and diversity of economic activities also influence the rate of new venture creation and growth. Research has shown that the greater the percentage of small firms in growing sectors, the greater the share of jobs created by small firms in the industries operating in those sectors (Phillips, 1993).
Firms are more likely to grow if they are in highly innovative industries than if they are in less-innovative industries research has shown that cities having a larger number of economic development programs achieve a higher rate of growth in new venture establishments than cities having a smaller number of such programs. Factors such as high sophistication of buyers, strong distribution channels, and intense rivalry among existing firms provide an opportunity for entrepreneurs to pursue innovation. Capital Capital is one of the most important prerequisites to establish an enterprise.
Availability of capital facilitates the entrepreneur to bring together the land of one, machine of another and raw materials of yet another to combine them to produce goods. Capital is therefore regarded as lubricant of the process of production. Accumulated experience suggests that with an increase in capital investment capital output ratio also tends to increase. The result in increasing profit ultimately goes to capital formation. Labor The quality rather quantity of labor is another factor, which influences the emergence of entrepreneurship. It is noticed that cheap labor is often less mobile or even immobile.
The deleterious effects of labor immobility negate the potential advantage of low-cost labor. Adam Smith also considered division of labor as an important element in economic development. According to him, division of labor, which itself depends upon the size of the market leads to improvement in the production capacities of labor due to an increase in the dexterity of labor. Notwithstanding, it appears that the labor problem clearly does not prevent entrepreneurship from emerging. For example, the problem of low-cost immobile labor can be circumvented by plunging ahead with capital-intensive technologies, as Germany did.
It can be dealt by utilizing labor-intensive method like Japan for example. By contrast, the disadvantages of high cost labor can be modified by introduction of labor saving innovations as was done in the USA. Thus it appears that labor problems can be solved more easily than capital can be created. Raw Material The necessity of raw materials hardly needs any emphasis for establishing any industrial activity and therefore it influence in emergence of entrepreneurship. In the absence of raw materials, neither any enterprise can be established nor can an entrepreneur be emerged.
In some cases, technological innovations can compensate for raw material inadequacies. For example, in the case of Japanese, the lack of raw materials clearly does not prevent entrepreneurship from emerging but influence the direction in which entrepreneurship took place. In fact, they do not influence the supply of raw materials but become influential depending upon other opportunity conditions. Market The fact remains that the potential of the market constitutes the major determinants of probable rewards from entrepreneurial function.
If the proof of pudding lies in eating, the proof of all production lies in consumption, i. e, market. The size and composition of market both influence entrepreneurship in their own ways. Practically, monopoly in a particular product in a market becomes more influential for entrepreneurship than a competitive market. Germany and Japan as the prime examples where rapid improvement in market was followed by rapid entrepreneurial appearance. Thus it appears that whether or not the market is expanding and the rate at which it is expanding are the most significant characteristics of the market for entrepreneurial emergence.
In this paper, we refer to an “entrepreneurial environment” as a combination of factors that play a role in the development of entrepreneurship. First, it refers to the overall economic, socio-cultural, and political factors that influence people’s willingness and ability to undertake entrepreneurial activities. Second, it refers to the availability of assistance and support services that facilitate the start-up process. One can group the available literature on entrepreneurial environments into three broad streams: (a) General environmental conditions for entrepreneurship; b) Descriptive studies of the socio-economic conditions of a particular country/region; & (c) The role of public policy in shaping the entrepreneurial environments. General environmental conditions discussed in the literature include legal and institutional frameworks for efficient functioning of private enterprises, presence of experienced entrepreneurs, presence of skilled labor force, accessibility of suppliers, accessibility of customers or new markets, high degree of competition among firms, favorable government policies, provision of training and support services, and supportive infrastructure.
In addition, the literature suggests that the characteristics of people, their skills, experience, and motivation, play important roles in new venture creation. Empirical studies of entrepreneurial environments of various countries show that countries that keep rules and regulations at a minimum, offer tax and other incentives, and provide training and counseling services to start-up entrepreneurs increase the likelihood of new venture start-up.
Furthermore, factors such as availability of financial resources, large size urban areas, and presence of universities for training and research are found to be very important to increase the rate of new venture creation. Studies also show that entrepreneurs face several obstacles, such as lack of financial assistance, lack of information on various aspects of business, excessive taxation, and high rate of inflation. Scholars that focused on the role of public policy suggest several policy options for developing entrepreneurship.
These policy options include provision of venture capital funds, tax-based incentives, and government procurement programs; protection of proprietary ideas and innovations; investment in education and research; explicit recognition of, and support for, entrepreneurship by government agencies; fostering of entrepreneurship by educational institutions; and minimization of entry barriers. Some commonalities exist among these streams of literature. First, there is agreement among scholars that the more conducive the business environment, the more likely that new businesses will emerge and grow.
People will more likely be encouraged and feel competent to start a business when the social environment values entrepreneurship, when various opportunities are available for entrepreneurs, and when they have sufficient knowledge and skills required to start and manage a business. The willingness and capability to start a business may be further enhanced if potential entrepreneurs do not face hurdles during the start-up process and if they are confident that outside expertise could be obtained easily when necessary.
Governments both directly and indirectly affect the development of an environment that could support entrepreneurship. This literature also suggests that the need for the development of a conducive environment may be greater in emerging market economies and in developing countries because of the low level of entrepreneurial activities and several environmental hostilities operating in these countries.
This is because “there is sufficient evidence that environmental forces ranging from purely cultural and social currents to ingrained government bureaucracy go quite a long way towards straining the driving force behind entrepreneurs. Furthermore, compared to large-scale enterprises, the need for a conducive environment could be greater in the Case of small-scale enterprises because such enterprises may have little control over the environment in which they operate. These enterprises may lack resources and “political clout” that usually are needed to influence an enterprise’s environment.
While scholars generally agree on the importance of several environmental conditions for entrepreneurship development, the list of environmental conditions is so fragmented that the available literature is of very little help in studying entrepreneurial environments or in developing policies and programs for entrepreneurial development. For example, we know little about the relationship among various elements of the environment and about the relative importance of each element in developing entrepreneurship. Therefore, in the next section we organize various environmental conditions into a framework.
In the following sections, we link this framework to the process of new venture creation, develop propositions to show the interrelationships among various elements, and draw further implications for research and public policy. Legitimacy of Entrepreneurship It gives emphasis to the relevance of a system of norms and values within a socio-cultural setting for the emergence of entrepreneurship. In professional vocabulary such system is referred to as the legitimacy of entrepreneurship in which the degree of approval or disapproval granted entrepreneurial behavior influences its emergence and characteristics if it does emerge.
To increase the legitimacy of entrepreneurship, some scholars have proposed the need for a change in the traditional values, which are assumed to be opposed to entrepreneurship. Scholars like McClelland have also pointed out that a complete change may not be necessary for entrepreneurial appearance. Instead, they submit a re-interpretation of the traditional values or its synthesis with the newer values to increase the entrepreneurial legitimacy. We do also believe that entrepreneurship will be more likely to emerge in setting in which legitimacy is high.
But, there are others too, which look the opinion that entrepreneurship can emerge even when entrepreneurial legitimacy is low or even negative provided that the government action can overcome the negative orientation. Social Mobility Social mobility involves the degree of mobility, both social and geographical and the nature of mobility channels within a system. Both Hoselitz’s need for openness of a system and McClelland’s need for flexibility in role relation imply the need for the possibility of mobility within a system for entrepreneurship development.
In contrast, there is another group of scholars who express the view that a lack of mobility possibilities promotes entrepreneurship. The third opinion is the combination of first two. Rostoe notes the need for both flexibility and the denial of social mobility. Brozen similarly emphasizes that a system should neither be too rigid nor too flexible. Marginality A group of scholars hold a strong view that social marginality also promotes entrepreneurship. They believe that individuals or groups on the perimeter of a given social system or between two social systems provide the people to assume the entrepreneurial role.
They may be drawn from religious, cultural, ethnic or migrant minority groups and their marginal social position are generally believed to have psychological effect, which make entrepreneurship particularly attractive for them. The two preceding factors –the legitimacy of entrepreneurship and social mobility largely determine the influence of marginality on entrepreneurship. In situation in which entrepreneurial legitimacy is low, mainstream individuals will not be diverted to entrepreneurial roles and the entrepreneurial roles will be relegated to marginal.
On the contrary, in the case of high entrepreneurial legitimacy, mainstream individuals will assume the entrepreneurship and marginal will have to find other roles as means of mobility. Security Several scholars have advocated entrepreneurial security as an important facilitator of entrepreneurial behavior. Yet, scholars are not consensus on the amount of security that is needed. While Cole suggests minimal security, McClelland speaks of moderate certainty for example.
However Peterson and Berger maintain that entrepreneurship is more likely to emerge under turbulent conditions than under conditions of equilibrium. Redlich provides the middle position in this regard when he suggests that insecurity does not hinder entrepreneurship, but rather that different kinds of insecurity will result in different kinds of entrepreneurship. We grouped the environmental conditions into five dimensions: government policies and procedures, socioeconomic conditions, entrepreneurial and business skills, financial support to businesses, and non-financial support to businesses.
Government Policies and Procedures Governments can influence the market mechanisms and make them function efficiently by removing conditions that create market imperfections and administrative rigidities. They can also create an “enterprise culture” that enables firms to take reasonable risks and seek profits. Entrepreneurs may be discouraged to start a business if they have to follow many rules and procedural requirements, if they have to report to many institutions, and if they have to spend more time and money in fulfilling the procedural requirements.
The Czech and Slovak Republics recently introduced Value Added Taxes (VAT). This intervention was perceived negatively by most entrepreneurs because it has added more confusion to this emerging market economy and increased already cumbersome procedural requirements entrepreneurs needed to follow. For instance, if products were to be exported from Slovakia, VAT would be paid there, to be claimed back at the Slovak border, then paid again on the Czech side and cleared through Prague (Financial Times, 1993).
Examples of similar types of effects of rules and regulations can be found in many countries. Government and business development organizations can organize programs in order to develop societal awareness towards entrepreneurship and make people recognize the importance of being entrepreneurs. The US Small Business Administration, for example, recognizes outstanding entrepreneurs through several awards. The Czechoslovak Management Center has created a country-wide Entrepreneur-of-the-Year Award, one of the first in the region (Fogel, 1993).
The Australian government has eased immigration procedures for foreigners with a business idea, capital, and experience. Similar examples can be found in many other countries, suggesting that positive societal factors help attract potential entrepreneurs to start a business. The need for such motivational factors is generally higher in countries where entrepreneurial awareness is low than in countries where such awareness is high. Tax and other start-up incentives have a greater impact when people have greater motivation to go into business.
The government by its actions of failure to act also does influence both the socio-economic factors for entrepreneurship. Any interested government in economic development can help through its clearly expressed industrial policy; promote entrepreneurship in one-way or other. By creating basic facilities, utilities and services and by providing incentives and concessions, the government can provide the prospective entrepreneurs a facilitative socio-economic setting. Socioeconomic Conditions Entrepreneurship may not prosper if most members of the society view it with suspicion.
A favorable attitude of the society toward entrepreneurship and a widespread public support for entrepreneurial activities are both needed to motivate people to start a new business. In fact, social factors may be equally important as availability of loans, technical assistance, physical facilities, and information: The more fundamental forces bringing entrepreneurship about, such as family, the presence and effectiveness of social networks, or attitudes supportive of entrepreneurship, receive virtually no serious attention from formal economic development programs.
If entrepreneurial development is to be more than a token collection of programs, it is imperative that individuals’ sympathetic to entrepreneurial thinking be spread throughout community structures and organizations, non-profits, for profits and government bodies. Mokry suggests that local communities can play an important role in developing an entrepreneurial environment. For example, close relatives can help entrepreneurs seek out solutions, locate resources, and assemble a team of willing people to address the entrepreneur’s problems.
The presence of experienced entrepreneurs and successful entrepreneurial role models in a community or country conveys a message to the potential entrepreneurs that business is an attractive career option. Conversely, negative public attitude towards entrepreneurs coupled with the lack of role models may discourage people from going into business. For example, in Central and Eastern Europe there exists a general feeling in the society that those who bid for government-owned shops are black marketers, corrupt former officials, and people backed by foreign investors.
Thus, small business owners have often become victims of social prejudice against private enterprises and profit making. Societies and cultures that value entrepreneurship tends to develop societal systems to encourage it (Vesper, 1983). For example, it is often recognized that among people of Chinese origin, entrepreneurial role models encourage people to go into business supported by close networks of family members and relatives. Entrepreneurial and Business Skills
A low level of technical and business skills could prevent motivated entrepreneurs from starting a new venture. Similarly, unless entrepreneurs are well equipped with technical and business skills, they may not be able to overcome various problems they encounter at different stages of their business development. The need for training programs appears greater in countries where very limited external assistance is available, market imperfections exist, large industries dominate the industrial sector, overnment policies do not support small businesses, and several bureaucratic hurdles have to be overcome to get permission to start a business. Despite the importance of entrepreneurial and business skills, the need for developing such skills is often overlooked. For example, one study of World Bank assistance for small enterprise development shows that 96% of the World Bank lending in developing countries has been for financial assistance and a negligible portion of the remaining four percent has been spent for developing technical and business capability of the entrepreneurs.
Financial Support to Businesses Generally, entrepreneurs require financial assistance for at least one of three purposes: to diversify or spread the start-up risk, to accumulate start-up capital, and to finance growth and expansion. While availability of financial resources appears to be a major predictor of the frequency of new business start-ups, many lenders seem to be unwilling to invest in high-risk projects or tend to withhold support until the firm has been established successfully.
One out of three businesses funded by venture capital companies in the US have resulted in financial loss to venture capital firms; consequently, venture capital companies are “simply inappropriate for most start-up firms” (Bhide, 1992, p. 111). In most developing countries and emerging market economies, only a few venture capital companies and commercial banks are available and alternative sources of financing are almost non-existent.
Thus, a paradox emerges: entrepreneurs cannot start a business without financial assistance; they do not have access to financial institutions and cannot secure financial assistance if they lack prior business experience. Most commercial operations such as venture capital firms and commercial banks tend to exhibit greater interest in concentrated, urban areas that usually have a well-developed infrastructure and concentrated demand for funds, in areas where businesses are easier to supervise and monitor, and in businesses that have demonstrated some potential for success.
Also, most bankers, especially commercial ones, may hesitate to finance small start-up firms because of the high costs involved in the processing and supervision of loans. Moreover, most bankers lack the kind of experience and capability needed for understanding and responding to the special needs of small entrepreneurs (Vesper, 1983). Research has shown that creation of investment companies, provision of low-interest loans, and availability of credit guarantee schemes for small business financing have all contributed to the establishment of new businesses. Non-Financial Support to Businesses
Entrepreneurs need support services in addition to financial assistance. In particular, entrepreneurs need most assistance in conducting market studies, in preparing business plans, and in getting loans. Business incubators can play a major role in providing a variety of services to start-up entrepreneurs. As most incubator facilities provide office space, common office facilities, faster and efficient means of communication, and counseling and advisory services to their tenants at low costs, incubators can be very helpful in places where infrastructure is not well developed or where modem physical facilities are costly.
Entrepreneurs spend nearly half of their time during their start-up phase in making contacts and networks with other entrepreneurs and related agencies. Therefore, networks are useful mechanisms to enhance business capability of entrepreneurs. Networks provide four essential ingredients to entrepreneurship: support and motivation; examples and role models; expert opinion and counseling; and access to opportunities, information, and resources. The forms of network include trade fairs, entrepreneurial fairs, associations and clubs. Government procurement programs and subsidies for research and development are also important for entrepreneurs.
Further, research has shown that provision of management and entrepreneurship training programs, various forms of start-up incentives (e. g. , tax concession, exemption of custom duty), and provision of consulting services enable a person to start a business. Certain infrastructural elements seem to make substantial impact on the entrepreneurial environment. These elements include the existence of universities and research and development programs, a well-educated and technically skilled labor force, and modern transport and communication facilities that provide easy access to suppliers and customers.
Galbraith and Noble show that firms make location decisions based on the community’s ability to supply trained and capable workers and on the proximity to research and development institutions. The foregoing discussion shows that the existence of various environmental conditions increases the chances of emergence and growth of businesses in a country. Though a single factor may have less significant impact, the interaction of various factors may considerably increase the impact on entrepreneurial development in a country. If a development program improves only one factor, the results may be quite meager, perhaps not worth the efforts and expense. To improve a properly selected combination of factors may, on the other hand, prove highly effective”. For example, without having some business opportunities in the environment, and without having motivated and capable entrepreneurs in starting a business, any amount of financial assistance or government procurement system may not increase entrepreneurial activity.
Without having some opportunities in the environment, entrepreneurs will not be able to start a business; and, even if they start, they are likely to fail. Therefore, some conditions appear important only when the conditions of primary importance exist. To understand what conditions are of primary importance or how the factors interact, it is necessary to look at the core elements of new venture creation. The next section discusses these core elements and matches the core elements of new venture creation to environmental conditions in our framework.
Core elemenmts of entrepreneurial development Some key factors may lead to an increase in a person’s desire and decision to start a business. Examples of such factors include a person’s perception of desirability and feasibility of starting a business or the person’s propensity and intention to found a business and his or her sense-making about the environmental forces identified four elements in venture creation: a profitable business opportunity, technical know-how of the entrepreneur, business know-how of the entrepreneur, and entrepreneurial initiative.
Thus, some literature suggests that for an entrepreneur to start a business, he or she should perceive that a profitable opportunity exists, should feel confident that he or she possesses necessary skills to go into business, and should take an initiative for starting a business. This section builds on these factors, especially those articulated by Vesper, by redefining Vester’s term “initiative” as “propensity to enterprise” (El-Namaki, 1988) and combining the “technical know-how” and “business know-how” into “ability to enterprise. Thus, we conceptualize the three key elements of a venture creation process as opportunity, propensity to enterprise, need achievement, withdrawal of status respect and ability to enterprise. Opportunity Opportunity refers to the extent to which possibilities for new ventures exist and the extent to which entrepreneurs have the leeway to influence their odds for success through their own actions. Entrepreneurial opportunities tend to be higher in economies that are deregulated, where market mechanisms operate freely, and where entrepreneurs have to face very few barriers to entry.
Thus, government policies and procedures affect the business opportunity. The opportunity will influence an entrepreneur’s propensity to enterprise and ability to enterprise. Propensity to Enterprise A stream of research on entrepreneurship emphasizes the psychological and behavioral characteristics of entrepreneurs. The most common of these are the high need for achievement, capacity to innovate, internal locus of control, propensity for taking risks, and key entrepreneurial characteristics (Management Systems International, 1990).
People that have an urge for excellence, willingness to take moderate risk, and desire to be independent are very likely to become entrepreneurs (McClelland, 1961). A study conducted in various countries found ten behavioral characteristics of successful entrepreneurs. These characteristics are opportunity seeking and initiative, persistence, risk taking, demand for quality and efficiency, commitment to work, goal setting, information seeking, systematic planning and monitoring, persuasion and networking, and independence and self-confidence.
The literature on personal entrepreneurial competencies argues that people with certain behavioral characteristics are able to perceive the opportunities available in the environment, seize such opportunities, and then turn such opportunities into profitable ventures. Yet, a personality or behavioral profile is not a sufficient condition for people to go into business. An individual with high propensity to start a business is more likely to go into business when he or she sees several business opportunities in the environment.
Furthermore, the propensity to enterprise will be enhanced when an individual feels confident in his or her ability to enterprise. Need Achievement To the best of our knowledge, the best known of primarily psychological theories is David McClelland’s theory of need achievement. According to McClelland, a constellation of personality characteristics, which are indicative of high need achievement, is the major determinant of entrepreneurship development. Therefore, if the average level of need achievement in a society were relatively high, one would expect a relatively high amount of entrepreneurship development in that society.
In his endeavor to answer a simple question as to why it is that groups respond differently to similar conditions McClelland gives the psychological concept of achievement motivation or ‘n’ achievement to account for the differences in response to similar conditions. McClelland argues that the need achievement can be developed through the intensive training programs. Withdrawal of Status Respect Hagen attributed the withdrawal of status respect of a group to the genesis of entrepreneurship. Giving a brief case of history of Japan, he concludes that Japan developed sooner than any non-western society except Russia due o two historical differences. First, Japan had been free from colonial disruption and secondly, the repeated long continued withdrawal of expected status from important groups in her society drove them to retreatism, which caused them to emerge alienated from traditional values with increased creativity. This very fact leads them to the technological progress through entrepreneurial roles. Hagen postulates that four types of events can produce status withdrawal: The group may be displaced by force; It may have its valued symbols denigrated; It may drift into a situation of status inconsistency; and
It may not be accepted the expected status on migration in a new society. He further postulates that withdrawal of status respect would give rise to four possible reactions and create four different personality types: Retreatist He who continues to work in a society but remains different to his work and positions; Ritualist He who adopts a kind of defensive behavior and acts in the way accepted and approved in his society but no hopes of improving his position; Reformist He is person who foments a rebellion and attempts to establish a new society; and Innovator He is a creative individual and is likely to be an entrepreneur.
Ability to Enterprise Ability to enterprise refers to the sum of technical and business capabilities required to start and manage a business. While “technical capability” refers to the technical skills, “business capability” refers to the knowledge and skills in various functional aspects of business (Vesper, 1990) such as business planning, product development, marketing, personnel management, general management, accounting, finance, etc. Furthermore, as entrepreneurs face resistance from customers, investors, and several other stakeholders, they require some political and strategic planning skills in order to succeed in their endeavors.
Without having the ability to enterprise, entrepreneurs may not be able to seize the opportunities available to them and successfully go through various start-up activities or manage the on-going business. Individuals with the necessary ability to enterprise, when combined with enhanced propensity to enterprise, will increase their chances of going into business. And, once they are in business, they are most likely to be the winners. A crucial requirement in the process of new venture creation is a match between the opportunity, the propensity to enterprise, and the ability to enterprise.
While the opportunity may enhance one’s propensity to enterprise, persons with high propensity to enterprise will perhaps be able to identify the opportunities in the environment. Similarly, ability to enterprise may depend upon the nature of available opportunities. Some people may have high engineering skills but the opportunity for the use of such skills may be low. Persons with a high ability to enterprise may also be more able to locate opportunities than those with lower ability to enterprise.
The likelihood to enterprise increases with an increase in the propensity and ability to enterprise and a match with available opportunities. Thus, a high level of opportunity, propensity to enterprise, and ability to enterprise will positively correlate with an individual’s likelihood to enterprise. The model shows that the process of developing competent entrepreneurs and increasing their likelihood to enterprise consists of developing plentiful business opportunities in the environment, enhancing people’s propensity to enterprise, and developing their capability to enterprise.
Competent entrepreneurs will be able to take advantage of most opportunities and respond to the needs of the environments. A key role of the entrepreneurial environment is to help entrepreneurs develop both propensity to enterprise and ability to enterprise. Persons with low propensity to enterprise lack the necessary motivation and mind-set required to start a business, whereas persons with low ability to enterprise lack the skills needed to manage the start-up and subsequent processes of business operation.
The foregoing discussion suggests that the importance of each dimension of the environmental factors varies depending upon the availability of opportunities for business start-up and the overall level of propensity and ability of people to start an enterprise. This section integrates the discussion of the environmental conditions and the core elements of new venture creation and develops propositions to facilitate future empirical research.
Generally, the availability of opportunities is a primary element for enhancing the propensity and ability to enterprise and consequently the likelihood to enterprise. The dimension of the environment that directly relates to the opportunity is macroeconomic policies and procedures. The better the legal and institutional framework for efficient functioning of the markets and the fewer the barriers that constrain people to pursue business opportunities, the greater the likelihood of business start-up. The dimension of the environment that relates to the propensity to enterprise is socioeconomic factors.
The greater the importance placed by the society on entrepreneurial values and behaviors, the larger the proportion of experienced entrepreneurs and role models, and the higher the societal recognition of entrepreneurial performance, the more likely that the propensity to enterprise is high. The dimension of the environment that relates to the likelihood to enterprise is the level of entrepreneurial and business skills. The greater the availability of technical and business-related training, the greater the ability of the potential entrepreneurs to start and manage a business.
Thus, if people have a high propensity to enterprise but a low ability to enterprise, environmental interventions will need to develop the entrepreneurial and business skills of these people. Conversely, if people have high ability to enterprise but a low propensity to enterprise, environmental interventions needs to be oriented towards making the socioeconomic conditions conductive for entrepreneurship. The above analysis suggests the following propositions. P1: The higher the opportunity, propensity & ability to enterprise, the higher the likelihood to enterprise.
P2: The more favorable the socioeconomic factors, the greater the propensity to enterprise. P3: The greater the entrepreneurial and business skills, the greater the ability to enterprise. P4: The more favorable the government. policies & procedures, the higher the opportunity. P5: The higher the likelihood to enterprise, the higher the new venture creation. P6: The higher the likelihood to enterprise and the greater the availability of financial and non-financial assistance, the higher the new venture creation.
Ideally, research aimed at studying entrepreneurial environments should include entrepreneurs, policy makers, entrepreneurship development consultants, and the general public as key informants. This is because it is the perception of entrepreneurs about the environment that shapes their actions; it is the set of policies and actions of the government and the set of programs of the business development organizations that influence the opportunity, propensity to enterprise, and ability to enterprise. And, it is the overall attitude of the general public that influences the propensity to enterprise.
Research aimed at studying the opportunity and government policy and procedures should use government officials and entrepreneurs as key informants and include other groups of informants if resources permit. On the other hand, use of the general public is extremely important if the research is aimed at studying the propensity to enterprise and the socioeconomic dimension of the environment. Similarly, business development organizations need to be taken as key informants to study the ability to enterprise and the entrepreneurial and business skills dimension of the environment.
An important agenda for research is to identify the relative importance of each factor in developing entrepreneurship. It would be useful to know the relative importance of each factor as assigned by entrepreneurs, policy makers, and entrepreneurship development agencies working in a country. Also, it might be appropriate to study inter-country differences in the level of ability and propensity to enterprise, especially with reference to the countries that differ in the duration of the free enterprise system.
Secondary and unobtrusive sources provide data on current policy frameworks, rules and regulations, the extent of available training and counseling services, and the number of institutions available for financial and non-financial assistance. Interviews and questionnaires will be useful to collect data about societal attitudes towards entrepreneurship and entrepreneurs’ perceptions about their ability to enterprise and propensity to enterprise and the overall business environment. Implications for Public Policy
Generally, the primary role of the government and other agencies is to increase opportunities, to develop the motivation of potential entrepreneurs to go into business, and to enhance potential entrepreneurs’ ability to start a business. Government agencies that develop entrepreneurial environments may be efficient in their work if they address the specific elements of our model. The following points summarize the guidelines for formulating public policy that evolve from our model. 1.
Governments can contribute to entrepreneurship by adopting policies and procedures that provide a broader scope of opportunities to entrepreneurs. Examples of possible interventions are the provision of laws and regulations to protect entrepreneurial innovation such as patents and copyrights, liberal economic policy to let people freely exercise their entrepreneurial talents, and minimum rules and regulations for entrepreneurs to follow so that the costs of doing business can be minimized. . Governments whose countries have low propensity to enterprise but high ability to enterprise could design policies and programs aimed at improving the socioeconomic dimension of the environment. Short-term interventions could include such programs as the best-entrepreneur-of-the-year award, provisions of trade fairs, and similar activities that reward entrepreneurial activities and increase overall societal awareness toward entrepreneurship.
A possible long-term policy approach is to introduce entrepreneurial values and thinking in the educational system. 3. Governments whose countries have a low level of ability to enterprise but high level of propensity to enterprise could try to develop policies and programs that enhance the entrepreneurial and business skills of the potential entrepreneurs. Examples of useful interventions are technical and vocational training, and short-term entrepreneurship development courses and workshops aimed at enhancing specific business skills. . Some caution is needed in offering broad-based financial assistance to potential entrepreneurs in countries where propensity and ability to enterprise are low. If the propensity and ability to enterprise are low, policies and programs should also be directed to developing the propensity and ability to enterprise. This is because despite the financial assistance, people with low propensity and ability to enterprise may not venture into business or, even if they did, they may not be able to manage the enterprise.
The greater the likelihood to enterprise, the greater the role of financial and non-financial assistance in creating new ventures. Overall, the arguments above suggest that before developing specific policies and programs, governments could focus on analysis of the extent of the opportunity, propensity to enterprise, and ability to enterprise, could identify weak areas, and then formulate policies and programs to strengthen the weaker areas. CONCLUSION At the firm level, existing literature has documented the influence of environmental factors on firm performance.
The arguments developed in this paper suggest that similar relationships may exist between socio-economic factors and performance of an individual entrepreneur, and that a match between specific requirements of the entrepreneurs and environmental forces would lead to greater likelihood of business start-up and success. We identified and addressed some gaps in the literature on entrepreneurial environments: •Lack of conceptual framework to integrate the available literature on entrepreneurship •Lack of explicit links between needs of entrepreneurs & dimensions of environments •Lack of guidelines to onduct empirical research on entrepreneurial environments and •Lack of consideration of the needs of policy makers. A major thesis of this paper is that entrepreneurship can flourish if potential entrepreneurs find opportunities in the environment, if environmental conditions motivate entrepreneurs to take advantage of these opportunities, and if environmental conditions enhance entrepreneurs’ ability to start and manage a business.
We have shown how the framework of entrepreneurial environments and the model developed in this paper provide a basis for studying entrepreneurial environments, for developing richer theories in entrepreneurship, and for formulating public policy. The first and most obvious contribution of this model is that it provides a comprehensive and integrated view of the entrepreneurial environments and develops guidelines for conducting future empirical research.
The model and propositions developed in this paper provide a starting point for the study of a country’s entrepreneurial environment. Finally, as Van de Ven argued, “the study of entrepreneurship is deficient if it focuses exclusively on the characteristics and behaviors of individual entrepreneurs, on the one hand, and if it treats the social, economic, and political factors influencing entrepreneurship as external demographic statistics, on the other hand. ” We have developed a useful model to advance these arguments.
We believe that it will be useful for researchers interested in studying entrepreneurial environments and for practitioners involved in designing and improving policies and programs for entrepreneurship development. The various factors as observed will cause emergence of entrepreneurship are integral and not additive at all. They are interlocking, mutually dependent and mutually reinforcing. A worldwide consensus on the critical role of competitive market and entrepreneurs in economic development has emerged in the last decade. Entrepreneurship development programs have often been too ambitious in terms